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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
COMMISSION FILE NUMBER 1-12360
GC COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3200876
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
27 BOYLSTON STREET
CHESTNUT HILL, MASSACHUSETTS 02467
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER AND AREA CODE: 617-264-8000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $217,868,711 on January 15, 1999.
There were 7,786,522 shares of Common Stock outstanding as of
January 15, 1999.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1998 Annual Report to Stockholders are
incorporated by reference into Parts I, II and IV of this Report. Portions of
the Proxy Statement for the Company's Annual Meeting of Stockholders to be held
on March 5, 1999 are incorporated by reference into Part III of this Report.
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GC COMPANIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
TABLE OF CONTENTS
PART I PAGE NO.
Item 1. Business 4
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 7a. Quantitative and Qualitative Disclosure about
Market Risk 10
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 12
PART III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners
and Management 13
Item 13. Certain Relationships and Related Transactions 13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 13
Signatures 15
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PART I
ITEM 1. BUSINESS
GENERAL
GC Companies, Inc. (the "Company") operates a leading motion picture exhibition
circuit in the United States under the name "General Cinema Theatres," operates
through joint ventures motion picture theatres in South America and Mexico and
also manages a pool of the Company's capital for investments. Through its
investment operations, the Company invests in businesses which have been, and
which may continue to be, unrelated to the Company's theatre business and the
broader entertainment industry. INVESTMENTS MADE BY THE COMPANY MAY BE HIGHLY
ILLIQUID AND MAY INVOLVE CONSIDERABLE RISK. SEE "GCC INVESTMENTS, INC." BELOW.
The Company was incorporated under the laws of the State of Delaware in
September 1993.
GENERAL CINEMA THEATRES, INC.
The Company's theatre operations are the outgrowth of a motion picture
exhibition business which originated in 1922. The predecessors of the Company
are credited with opening two of the first drive-in movie theatres in 1938 and
one of the first indoor shopping center theatres in 1951.
As of October 31, 1998, the Company operated 150 theatres with a total of 1,045
screens in 24 states. The Company provides convenient and comfortable theatres
offering a popular selection of films. Substantially all of the Company's
theatres are state-of-the-art facilities, equipped with high-quality sound and
projection equipment, and exhibit films on a "first run" basis.
Approximately 83% of the Company's theatres, and approximately 88% of the
Company's screens, are located in 30 of the 50 largest Areas of Dominant
Influence (television market areas as defined by Arbitron Company) in the United
States, with approximately 36% of the Company's theatres and approximately 31%
of the Company's screens located in California, Florida and Texas.
From the beginning of fiscal 1988 through the end of fiscal 1998, the Company
increased its average number of screens per theatre from 4.3 to 6.9. All of the
Company's theatres are multi-screen theatres, and approximately 83% of the
Company's screens are located in theatres having 6 to 18 screens. The Company
expects to continue to increase the average number of screens per theatre in its
circuit by selectively closing or selling less productive theatres which
generally have fewer screens, by building theatres with more screens per
theatre, and by adding screens to existing theatres. Since November 1, 1991, the
Company has opened 26 new theatres with an average of 9.3 screens each. In
addition, the Company has opened its first "Premium Cinema" which is an upscale
movie-going experience with features such as large leather seats, a bistro menu
of appetizers, valet parking and an elegant lounge. Key factors which the
Company considers in selecting new theatre sites are demographic trends derived
from statistical sources, distance from competitive theatres, and accessibility
and proximity to retail and other entertainment and dining areas. The Company
expects to concentrate future commitments for new theatres in the Northeast and
Midwest.
Multi-screen theatres enable the Company to present a variety of films appealing
to diverse segments of the movie-going public while serving patrons from common
support facilities such as concession stands, box offices and sales outlets. The
Company believes that this strategy enhances attendance, increases the
utilization of theatre capacity and promotes operating efficiencies. Staggered
scheduling of movie starting times minimizes staffing requirements for
auditorium entry and exit and box office and concession stand services, and
reduces congestion throughout the theatre and its parking areas. Multi-screen
theatres also provide increased flexibility in determining the length of time
that a film will run and the size of the auditorium in which it will be shown.
The Company continually seeks to maximize cash flows through adherence to cost
containment practices. In addition, the Company provides incentive compensation
to its theatre managers on the basis of performance, customer service
responsiveness and quality of theatre operations.
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MARKETING AND ADVERTISING
The Company relies principally upon television, radio and newspaper display
advertisements (substantially paid for by distributors) and newspaper directory
film schedules (generally paid for by the Company) to inform its patrons of film
titles and exhibition times. The Company also shows previews of coming
attractions and films presently playing on the other screens operated by the
Company in the same theatre or geographic area. The Company also benefits from
promotional programs involving various products and merchants.
FILM LICENSING
Consistent with industry practice, and in part required by consent decrees to
which certain film distributors are parties, distributors generally license
films to exhibitors on a screen-by-screen basis. Film licenses are obtained by
negotiating directly with film distributors.
Fees payable to distributors are based upon several factors, including theatre
location, film supply, competition, season and film content. Film licensing
(termed "film buying" in the industry) typically requires payment of a fee based
on the higher of a gross receipts formula or a theatre admissions revenue
sharing formula. Under a gross receipts formula, the distributor receives a
specified percentage of box office receipts, with the percentage declining over
the term of the run. Under a theatre admissions revenue sharing formula, the
distributor receives a specified percentage of the excess of box office receipts
over a negotiated allowance for theatre expenses. The Company may agree to
guarantee minimum license fees or make recoupable advance payments on licensing
fees, or both, in order to obtain a license for a film that is in high demand.
The Company's film buyers evaluate the prospects for upcoming films prior to the
time that distributors solicit interest. Criteria considered for each film
include all of the factors which affect box office potential, including cast,
director, plot, performance of similar films, the production cost and marketing
budget for the film, estimated film licensing costs, estimated impact on
concession sales, and the expected Motion Picture Association of America rating.
The Company maintains records of attendance by film title and theatre location
so as to enable its film buyers to evaluate a prospective film's suitability and
likelihood of success with respect to each theatre location.
The Company's business is dependent upon the availability of motion pictures
that have substantial popular appeal. There are fewer than ten major
distributors which provide a substantial portion of quality first run movies to
the exhibition industry. Historically, and during fiscal 1998, less than 20% of
the Company's total annual box office receipts have been attributable to the
films of any single distributor. From year to year, however, the Company's
revenues attributable to individual distributors may vary significantly
depending upon the commercial success of each distributor's films. The Company
believes that its relationships with each of the major distributors generally
are good.
The failure to maintain good relationships with, or the poor performance by, one
or more of the major distributors, or the disruption in the production of motion
pictures for any reason (such as labor unrest, the increased cost of production
or distribution of films, or the diversion of funds from production and
distribution to other ventures by the major studios or independent producers)
might have a materially adverse effect upon the Company's business and its
results of operations.
CONCESSIONS
The Company owns and operates the concession stands in all of its theatres.
Concession sales are the second largest source of revenue for the Company after
box office receipts and contribute significantly to the Company's earnings.
Concession items consist primarily of popcorn, soft drinks and candy. The
Company is continuing its efforts to increase concession sales through
optimizing product mix, introducing new products such as brand name fast foods,
coffee and other beverages, novelty items and film-related merchandise, offering
bulk candy snacks, training staff to cross- sell products, and making efficient
use of concession facilities and staff. In addition, the introduction of cafes
and the expansion of game rooms in our theatres is also contributing to
increased sales. The Company's strategy emphasizes prominent and appealing
concession counters designed for rapid service, efficiency, and optimal
merchandising of concession items.
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COMPETITION
The Company's theatres are subject to varying degrees of competition in the
geographic areas in which they operate. Competition is often intense with
respect to licensing films, attracting patrons and finding new theatre sites.
The Company believes that the principal competitive factors with respect to film
licensing include licensing terms, box office grossing histories, seating
capacity, location of theatres, the quality of projection and sound equipment
and the exhibitors' ability and willingness to promote films. The Company
believes that the principal competitive factors with respect to attracting
patrons include the availability and licensing of popular films, the location
and comfort of theatres, the quality of the projection and sound equipment, and
ticket prices.
Industry participants vary substantially in size, from small independent
operators of a single theatre with a single screen to large national chains of
multi-screen theatres. All compete aggressively with the Company for films,
patrons and theatre locations. The Company competes directly with its largest
competitors in most of the geographic areas in which it operates. In recent
years, construction of megaplex theatres has occurred in the industry which has
resulted in significant additions to the total industry screen count. Since
these new screens are being added at a faster rate than the increase in total
industry demand, the Company anticipates intense competition for domestic box
office receipts.
The Company's theatres compete with other forms of entertainment for the
public's leisure time and disposable income. For example, the Company's theatres
face competition from a number of alternative motion picture exhibition delivery
systems, such as video cassettes and cable television, including pay-per-view,
and satellite entertainment technology. While the future impact of such delivery
systems on the motion picture exhibition industry cannot be determined
precisely, such delivery systems may have had, and in the future may have, an
adverse impact on attendance at the Company's theatres.
SEASONALITY
The major film distributors generally release most of the films which they
anticipate will be the most successful during the summer (Memorial Day weekend
through Labor Day weekend) and holiday (Thanksgiving weekend through New Year's
Day) seasons. Consequently, the Company historically has generated higher
revenues, and substantially all of its earnings, during these periods.
INTERNATIONAL
Effective July 1, 1998, the Company entered into an agreement to form a 50/50
joint venture with Hoyts Cinema Group creating Hoyts General Cinema South
America (HGCSA), a stand-alone theatre circuit which will pursue theatre
opportunities in South America. As of October 31, 1998, HGCSA operated three
theatre units with 34 screens in Argentina, four theatres with 25 screens in
Chile and a joint venture that operates one theatre unit with six screens in
Uruguay. The Company also operates, through its acquisition in 1997 of fifty
percent of the common stock of a company, five theatre units with 55 screens in
Mexico as of October 31, 1998. Key factors which are considered in selecting new
theatre sites are demographic trends derived from statistical sources, distance
from competitive theatres and accessibility and proximity to retail and other
entertainment and dining areas.
Substantially all of the Company's theatres in South America and Mexico, are
state-of-the-art multi-screen facilities, equipped with high quality sound and
projection equipment and exhibit films on a "first-run" basis. Multi-screen
theatres enable the joint ventures to present a variety of films appealing to
diverse segments of the movie-going public while serving patrons from common
support facilities such as concession stands, box office and sales outlets. This
strategy enhances attendance, increases the utilization of theatre capacity and
promotes operating efficiencies. Staggered scheduling of movie starting times
minimizes staffing requirements for auditorium entry and exit and parking areas.
Multi-screen theatres also provide flexibility in determining the length of time
that a film will run and the size of the auditorium in which it will be shown.
As the Company expands internationally, it becomes subject to regulation of
foreign governments. There are significant differences between the theatrical
exhibition industry regulatory environment in the United States and
international markets. Regulatory barriers affecting such matters as the size of
the theatres, the issuance of licenses and the ownership of land may restrict
market entry. The Company's international operations also face the additional
risks of fluctuating currency values. The Company does not hedge against
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the currency risks. Quota systems used by some countries to protect their
domestic film industry may adversely affect revenues from theatres that the
Company develops in such markets. Such differences in industry structure and
regulatory and trade practices may adversely affect the Company's ability to
expand internationally or to operate at a profit following such expansion.
GENERAL
EMPLOYEES
At October 31, 1998, the Company had approximately 988 full-time and 5,088
part-time theatre employees. The number of part-time employees generally
increases during the summer and holiday seasons in keeping with the seasonal
nature of the motion picture exhibition business.
Approximately 5.8% of the Company's employees are represented by the
International Alliance of Theatrical Stage Employees and Motion Picture Machine
Operators. The Company believes that its relationships with this union and with
its employees generally are good.
GCC INVESTMENTS, INC.
Through GCC Investments, Inc., the Company invests in companies which have been,
and which may continue to be, engaged in businesses which are unrelated to the
Company's theatre business and the broader entertainment industry. These
investment operations are conducted by a team of investment professionals who
evaluate investment opportunities, negotiate and structure the terms of each
investment, monitor the Company's investments and, as designees of the Company,
and serves as members of the boards of directors of such companies. To date, the
Company has financed its investments with existing cash balances. The Company
may use cash generated by theatre operations, sales of existing investments or
borrowings under its line of credit, in addition to cash then on hand, to
finance future investments.
The investments of the Company to date have been, and are expected to continue
to be, minority positions in businesses which the Company believes will provide
substantial returns on the invested cash balances. Although the Company does not
seek to provide day-to-day managerial support to the companies in which it holds
investments, the Company may provide such companies assistance with strategic,
financial and operational matters. It also is possible that the Company may, by
reason of investment, acquisition, conversion of securities, or otherwise,
obtain control of a portfolio company.
INVESTMENTS MADE BY THE COMPANY MAY BE HIGHLY ILLIQUID AND MAY INVOLVE
CONSIDERABLE RISK. BECAUSE OF THE COMPANY'S DESIRE TO MAXIMIZE RETURNS FROM ITS
INVESTMENT OPERATIONS, CURRENT INCOME CONSTITUTES A LOW STRATEGIC PRIORITY.
THERE CAN BE NO ASSURANCE THAT THE COMPANY'S INVESTMENT OPERATIONS WILL MAKE A
CONTRIBUTION TO THE COMPANY'S EARNINGS IN THE FORESEEABLE FUTURE. THE COMPANY'S
INVESTMENT OPERATIONS MAY REDUCE THE COMPANY'S EARNINGS OR CAUSE THE COMPANY TO
INCUR LOSSES. FOR INFORMATION CONCERNING THE INVESTMENTS MADE BY THE COMPANY,
SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND NOTES 2, 4, 6 AND 17 TO THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS, BOTH OF WHICH ARE CONTAINED IN THE COMPANY'S 1998 ANNUAL REPORT TO
STOCKHOLDERS AND INCORPORATED HEREIN BY REFERENCE.
RELATIONSHIP WITH HARCOURT GENERAL, INC.
Harcourt General provides certain corporate services to the Company in
consideration of a fee based on Harcourt General's costs. Harcourt General's
Chairman and Chief Executive Officer also serves as Chairman and Chief Executive
Officer of the Company, and one of Harcourt's Presidents and Co-Chief Operating
Officers serves as President and Chief Operating Officer of the Company. The
fees payable to Harcourt General have been, and will continue to be, subject to
the approval of the Company's Special Review Committee, a committee of the Board
of Directors consisting solely of directors who are not affiliated with Harcourt
General. The fees paid or accrued by the Company for management and other
corporate services were $0.5 million, $0.5 million, and $1.1 million,
respectively, for fiscal years 1998, 1997, and 1996.
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In addition, substantially all of the theatre leases to which the Company is a
party are guaranteed by Harcourt General. Pursuant to a Reimbursement and
Security Agreement entered into between the Company and Harcourt General at the
time of the Spinoff, the Company has agreed to reimburse Harcourt General for
all liabilities, if any, which may be incurred by Harcourt General after the
Spinoff in connection with the theatre leases, and has pledged all of the stock
of its theatre subsidiaries to Harcourt General as security for such agreement.
The Company also agreed to maintain certain financial and operating covenants
designed to minimize Harcourt General's exposure with respect to the theatre
leases. Principally due to the charge described in Note 3 of the Company's
Annual Report to the Stockholders and incorporated herein by reference, waivers
of these financial covenants were obtained, and new covenants and fees were
established by Harcourt General resulting in an amendment and restatement of the
Reimbursement and Security Agreement. In consideration of Harcourt General's
continuing guarantees of the theatre leases, the Company pays Harcourt General a
guarantor's fee measured as a percentage of the present value of all amounts
owing under the theatre leases for which Harcourt General has potential
liability. The guarantor's fees paid by the Company to Harcourt General for
fiscal years 1998, 1997 and 1996 were approximately $230,000, $250,000, and
$271,000, respectively. Harcourt General has not guaranteed any theatre leases
entered into by the Company following the Spinoff.
Although Harcourt General has no equity ownership in the Company, Richard A.
Smith and certain members of his family (the "Smith Family Group") beneficially
own approximately 29.21% of the outstanding shares of Common Stock of the
Company and approximately 27.82% of the outstanding equity securities of
Harcourt General. In addition, Richard A. Smith, the Chairman and Chief
Executive Officer of Harcourt General, serves as the Chairman and Chief
Executive Officer of the Company. Robert A. Smith, one of the Presidents and
Co-Chief Operating Officers of Harcourt General, serves as the President and
Chief Operating Officer of the Company. For additional information concerning
the stock ownership by the Smith Family Group, reference may be made to the
Proxy Statement for the Company's 1999 Annual Meeting (the "Proxy Statement").
ITEM 2. PROPERTIES
DOMESTIC
As of October 31, 1998, the Company operated 150 domestic theatres in 24 states,
with approximately 36% of the Company's domestic theatres and approximately 31%
of the Company's domestic screens located in California, Florida and Texas. As
of such date, virtually all of the Company's theatres were operated pursuant to
leases. The Company's theatre leases are generally entered into on a long-term
basis with terms (including options) ranging from 15 to 40 years. Theatre leases
typically provide for rent based on box office receipts subject to an annual
minimum rental. The Company also is usually obligated to pay taxes, utilities,
common area maintenance costs and certain other expenses related to its leased
theatres.
The Company's corporate, theatre and investment headquarters are located in
Chestnut Hill, Massachusetts, a suburb of Boston. The Company also has regional
theatre offices in Boston, Chicago, and Los Angeles. Corporate headquarters'
functions include overall administration, accounting and management of the
Company and all investment operations. Theatre headquarters' functions include
administration with respect to theatre operations, finance, human resources,
information services, marketing, real estate development and strategic planning.
Regional office functions include film licensing and theatre management with
respect to particular geographic areas. The Company subleases its corporate and
theatre headquarters from Harcourt General and leases its regional offices.
For additional information regarding the Company's lease obligations, see Notes
9 and 14 to the Consolidated Financial Statements contained in the Company's
1998 Annual Report to Stockholders and incorporated herein by reference.
INTERNATIONAL
As of October 31, 1998, the Company operates through its joint venture in South
America, three theatre units with 34 screens in Argentina, four theatre units
with 25 screens in Chile and through a joint venture that operates a theatre
unit with six screens in Uruguay. In addition, through a joint venture in
Mexico, the Company operates five theatre units with a total of 55 screens as of
October 31, 1998. Virtually all of the international theatres were operated
pursuant to leases. The theatre leases are generally entered into on a long-term
basis with terms (including options) ranging from 10 to 30 years. The theatre
leases typically provide for rent based on box office receipts subject to an
annual minimal rental and typically will require for the payment of taxes,
utilities, common area maintenance and certain
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other expenses related to the leased theatre.
The South American joint venture has a corporate office in Buenos Aires,
Argentina and regional theatre offices in Santiago, Chile and Buenos Aires,
Argentina. The corporate office functions include overall administration,
accounting and management of the joint venture operations. The regional offices'
functions include administration with respect to theatre operations, finance,
human resources, information services, marketing, real estate development, film
licensing and theatre management with respect to particular geographic areas.
The Mexican joint venture has an administrative office in Mexico City, Mexico.
The office functions include administration with respect to theatre operations,
accounting, human resources, information services, marketing, real estate
development and film licensing.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings arising in the ordinary
course of its business operations. The Company does not believe that the
disposition of any such proceedings will have a material adverse effect on the
financial position or continuing operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on the New York Stock Exchange under the
symbol "GCX." The high and low sales prices for the Common Stock on the New York
Stock Exchange for the past two fiscal years were as follows:
<TABLE>
<CAPTION>
FISCAL 1998:
HIGH LOW
---- ---
<S> <C> <C>
First Quarter $47.94 $41.06
Second Quarter $53.00 $45.75
Third Quarter $52.63 $46.00
Fourth Quarter $49.75 $36.00
FISCAL 1997:
HIGH LOW
---- ---
First Quarter $37.13 $33.50
Second Quarter $40.38 $35.50
Third Quarter $46.00 $39.88
Fourth Quarter $44.00 $39.00
</TABLE>
At January 15, 1999, there were 3,069 record holders of Common Stock.
DIVIDEND POLICY
The Company has not paid and has no current plans to pay cash dividends on its
Common Stock. The Company currently intends to retain earnings for use in its
theatre business and investment operations.
ITEM 6. SELECTED FINANCIAL DATA
The response to this Item is contained in the Company's 1998 Annual Report to
Stockholders under the caption "Selected Financial Data" on page 3 and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The response to this Item is contained in the Company's 1998 Annual Report to
Stockholders under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 4 through 10 and is
incorporated herein by reference.
ITEM 7a QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
GC Companies, as discussed in the description of its business, operates in six
major reported segments. The first four operate the domestic motion picture
exhibition market. The fifth operates through equity method investees in the
Mexican and South American motion picture exhibition markets. The sixth segment
operates as a venture capital arm making investments in a variety of companies
in several industries. Disclosures under this heading address risks arising from
changes in interest rates, foreign currency exchange rates, commodity prices,
equity
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prices and other market changes that affect market risk-sensitive instruments.
The domestic motion picture segment is subject primarily to interest rate risks.
It bears this risk in two specific ways. First, the Company borrows money under
its revolving credit facility to fund its operating needs. At October 31, 1998,
the Company had outstanding borrowings of $16.8 million, carrying a variable
interest rate, which was 8% on that date. The Company's exposure related to
variable interest resides in the earnings and cash flow implications caused by
changes in interest rates. However, a 100 basis point change in the variable
rate of interest paid by the Company on its outstanding borrowings under its
revolving credit facility would not have a significant impact on either the
earnings or cash flows of the Company. The second component of interest rate
risk relates to amounts earned on the Company's short-term investments of excess
cash. Such risk affects fair values, earnings and cash flows. The short-term
investment portfolio consists primarily of high grade fixed income investments
such as commercial paper, certificates of deposits, corporate debt securities
and U.S. Government securities and had an average balance of $1.9 million over
the past year. The relatively small size of the portfolio has led the Company to
believe that it is not subject to market fluctuations that would materially
impact its financial condition.
Operations in Mexico and South America are undertaken through equity method
investees. Fluctuations in the market value of the underlying equity are not
reported for financial purposes nor can a sensitivity analysis be performed
relative to the market risk of the underlying equity. Because these investments
are in Mexico and South America and because the operations of each of these
entities are conducted utilizing local currencies, the Company's earnings are
exposed to foreign currency exchange rate changes. In particular, because of the
classification of Mexico as a hyper-inflationary economy, foreign exchange gains
or losses attributable to net monetary assets or liabilities in the Mexican
operations directly impact equity earnings in Mexico. Using the October 31, 1998
net monetary asset (liability) position of the Company's Mexican investment, a
10% negative movement in the peso exchange rate would have a $259,000 impact on
the consolidated earnings of the Company. Such market risk relative to exchange
fluctuations does not exist in the Company's South American locations since
these operate in non hyper-inflationary environments.
The Company does not consider its cash flows to be currently exposed to exchange
rate risk because it has no current intention of repatriating earnings from
these Mexican and South American locations.
The Company's venture capital portfolio is primarily exposed to risks arising
from changes in equity prices. Such portfolio has been segmented into three
categories. The first category includes those securities that have been
classified as trading. A portion of the Company's holding in Global TeleSystems
Group, Inc. ("GTS") is included therein. This security is subject to
considerable market risk due to its volatility. In February, 1998, GTS
successfully completed an initial public offering of its common stock at $20 per
share. Since that point in time, the shares have traded as high as $64.25 and as
low as $22.09. At October 31, 1998, the GTS shares closed at $40.06. Currently,
260,000 shares of GTS are classified by the Company as trading securities. A 20%
fluctuation in the value of these securities from the October 31, 1998 price,
would impact pre-tax earnings and total assets by $2.1 million.
The second category of investments held in the portfolio relate to those
marketable equity securities classified as "available-for-sale." Two holdings
are classified herein: the remainder of the Company's investment in GTS and its
investment in an optical and photo service provider, GrandVision. The market
volatility of the GTS stock has been described above. GrandVision shares, during
1998, have traded as high as 266.97ff and as low as 122.24ff. As of October 31,
1998, the GrandVision shares closed at 143.52ff. Equity market fluctuations,
without taking into account the impact of fluctuations in the French franc
vis-a-vis the US dollar, can impact fair values (although not earnings, unless
such equity positions are actually liquidated). A 20% fluctuation in the value
of the above-mentioned securities would either reduce or increase total assets
by $14.2 million. A 10% fluctuation in the value of the French franc vs. the US
dollar (holding the value of the underlying equity security constant) could
reduce or increase total assets by $0.9 million.
The final category of securities in the Company's venture capital portfolio
include a number of holdings in non-publicly traded companies. The Company
values these at either cost less impairment (if any) or under the equity method
of accounting. Equity method investees are specifically excluded from the scope
of this disclosure. Non-public investees where the Company owns less than a 20%
stake are also subject to fluctuations in value, but their current illiquidity
reduces their exposure to pure market risk.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and supplementary data incorporated by
reference into Item 14 below are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The response to this Item regarding the directors of the Company and compliance
with Section 16(a) of the Securities Exchange Act of 1934 by the Company's
officers and directors is contained in the Proxy Statement under the captions
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" and is incorporated herein by reference.
EXECUTIVE OFFICERS
Below are the name, age and principal occupations for the last five years of
each current executive officer of the Company. All such persons have been
elected to serve until the next annual election of officers and their successors
are elected or until their earlier resignation or removal.
RICHARD A. SMITH - 74
Chairman and Chief Executive Officer of the Company since 1993 President of the
Company from 1993 until November 1995; Chairman of Harcourt General, Inc.
("Harcourt General") and of The Neiman Marcus Group, Inc., a majority owned
subsidiary of Harcourt General, ("NMG"); Chief Executive Officer of Harcourt
General and of NMG (until December 3, 1998) since January 15, 1997 and prior to
December 1991; Director of NMG. Mr. Smith is the father of Robert A. Smith,
President and Chief Operating Officer of the Company, and the father-in-law of
John G. Berylson, Senior Vice President and Chief Investment Officer of the
Company.
ROBERT A. SMITH - 39
President and Chief Operating Officer of the Company since November 1995;
President and Co-Chief Operating Officer of Harcourt General since January 1997;
Chief Executive Officer of NMG since December 3, 1998; President and Chief
Operating Officer prior thereto; Group Vice President of Harcourt General and of
NMG prior thereto; Director of Harcourt General and NMG. Mr. Smith is the son of
Richard A. Smith, Chairman and Chief Executive Officer of the Company, and the
brother-in-law of John G. Berylson, Senior Vice President and Chief Investment
Officer of the Company.
PAUL R. DEL ROSSI - 56
Chairman of General Cinema Theatres, Inc. since November 1997; President and
Chief Executive Officer of General Cinema Theatres, Inc. from 1993 to November
1997; President of General Cinema Theatres, Inc., a subsidiary of Harcourt
General, prior to the Spinoff since 1983; Director of The DeWolfe Companies,
Inc.
JOHN G. BERYLSON - 45
Senior Vice President and Chief Investment Officer of the Company since 1993;
Managing Director of Advent International Financial Services, a venture capital
and financial services firm, prior thereto. Mr. Berylson is the son-in-law of
Richard A. Smith, Chairman and Chief Executive Officer of the Company, and the
brother-in-law of Robert A. Smith, President and Chief Operating Officer of the
Company.
WILLIAM B. DOEREN - 52
12
<PAGE> 13
President of General Cinema Theatres, Inc. since November 1997; Executive Vice
President and Chief Operating Officer of General Cinema Theatres, Inc. from
October 1995 to November 1997; Chief Executive Officer of MGM International
Cinemas from January 1993 until August 1995; Senior Vice President and Chief
Operating Officer of AMC Entertainment Inc. prior thereto.
G. GAIL EDWARDS - 43
Vice President and Chief Financial Officer of the Company since July 1996; Vice
President and Chief Financial Officer of Delaware North Companies, Incorporated,
a private holding company, prior thereto.
PHILIP J. SZABLA - 44
Vice President, General Counsel and Secretary of the Company since December
1996; Member of the law firm of Albrecht, Maguire, Heffern & Gregg, P.C. prior
thereto.
LOUIS E. CASAVANT - 43
Vice President and Corporate Controller of the Company since December, 1998 and
Corporate Controller prior thereto; Controller of Finast Supermarkets from 1994
to 1997; Controller of Childcraft, Inc. from 1992 to 1994.
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is contained in the Proxy Statement under the captions
"Directors' Compensation," "Executive Compensation" and "Transactions Involving
Management" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this Item is contained in the Proxy Statement under the caption
"Stock Ownership of Certain Beneficial Owners and Management" and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this Item is contained in the Proxy Statement under the captions
"Executive Compensation" and "Transactions Involving Management" and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(A)(1) FINANCIAL STATEMENTS
The documents listed below which are contained in the Company's 1998 Annual
Report to Stockholders are incorporated by reference into this Item 14 and into
Item 8 hereof:
Consolidated Balance Sheets - October 31, 1998 and 1997.
Consolidated Statements of Operations for the fiscal years ended
October 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the fiscal years ended
October 31, 1998, 1997 and 1996.
Consolidated Statements of Shareholders' Equity for the fiscal years
ended October 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements. Independent Auditors'
Report.
14(A)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
13
<PAGE> 14
All schedules for which provision is made in the applicable regulations of the
Securities and Exchange Commission have been omitted because the information is
disclosed in the Consolidated Financial Statements or because such schedules are
not required or are not applicable.
14(A)(3) EXHIBITS
The exhibits filed as part of this Annual Report on Form 10-K are listed in the
Exhibit Index immediately preceding the exhibits. The Company has identified
with an asterisk (*) in the Exhibit Index each management contract and
compensation plan filed as an exhibit to this Annual Report on Form 10-K in
response to Item 14(c) of Form 10-K.
14(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
October 31, 1998.
14(C) EXHIBITS
See Item 14(a)(3) above.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATED: JANUARY 26, 1999 GC COMPANIES, INC.
By: /s/ Richard A. Smith
-----------------------------------
Richard A. Smith, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the following capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
PRINCIPAL EXECUTIVE OFFICER:
/s/ Richard A. Smith Chairman and January 26, 1999
- ----------------------------------- Chief Executive Officer
Richard A. Smith
PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER
/s/ G. Gail Edwards Vice President, January 26, 1999
- ----------------------------------- Chief Financial Officer
G. Gail Edwards and Treasurer
DIRECTORS:
/s/ William L. Brown January 26, 1999
- -----------------------------------
William L. Brown
/s/ Peter C. Read January 26, 1999
- ------------------------------------
Peter C. Read
/s/ Richard A. Smith January 26, 1999
- -----------------------------------
Richard A. Smith
/s/ Leonard A. Schlesinger January 26, 1999
- -----------------------------------
Leonard A. Schlesinger
/s/ Francis E. Sutherby January 26, 1999
- -----------------------------------
Francis E. Sutherby
15
<PAGE> 16
EXHIBIT INDEX
DOCUMENT
3.1 Restated Certificate of Incorporation of the Company, incorporated
herein by reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1995.
3.2 Amended and Restated By-Laws of the Company, incorporated herein by
reference to Exhibit 3.2 to the Company's Annual Report of Form 10-K
for the fiscal year ended October 31, 1996.
4.1 Form of Stock Certificate of the Company's Common Stock, incorporated
herein by reference to Exhibit 4 to the Company's Registration
Statement on Form 10, as amended.
4.2 Smith-Lurie/Marks Stockholders' Agreement Re GC Companies, Inc., dated
as of December 15, 1993, incorporated herein by reference to Exhibit
4.2 to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1994.
10.1 Distribution Agreement, dated as of December 14, 1993, between Harcourt
General, Inc. and the Company, incorporated herein by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1994.
10.2 Reimbursement and Security Agreement ("Reimbursement and Security
Agreement"), dated as of December 14, 1993, between Harcourt General,
Inc. and the Company, incorporated herein by reference to Exhibit 10.2
to the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1994.
10.3 First Amendment to Reimbursement and Security Agreement, dated as of
September 29, 1994, between Harcourt General, Inc. and the Company,
incorporated herein by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1994.
10.4 Intercompany Services Agreement, dated as of December 14,1993, between
Harcourt General, Inc. and the Company, incorporated herein by
reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1994.
10.5 Amended and Restated Intercompany Services Agreement, dated as of
November 1, 1995, between Harcourt General, Inc. and the Company,
incorporated herein by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1995.
10.6 Tax Agreement, dated as of December 14, 1993, between Harcourt General,
Inc. and the Company, incorporated herein by reference to Exhibit 10.6
to the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1994.
10.7* GC Companies, Inc. 1993 Equity Incentive Plan, incorporated herein by
reference to Exhibit 10.8 to the Company's Registration Statement on
Form 10, as amended.
10.8* GC Companies, Inc. Retirement Plan, effective December 2, 1993,
incorporated herein by reference to Exhibit 10.9 to the Company's
Registration Statement on Form 10, as amended.
10.9 GC Companies, Inc, Supplemental Executive Retirement Plan, effective
December 1, 1993, incorporated herein by reference to Exhibit 10.10 to
the Company's Registration Statement on Form 10, as amended.
10.10* GC Companies, Inc, Key Employee Deferred Compensation Plan, effective
December 1, 1993, incorporated herein by reference to Exhibit 10.11 to
the Company's Registration Statement on Form 10, as amended.
10.11* GC Companies, Inc. Key Executive Stock Purchase Loan Plan, incorporated
herein by reference to Exhibit 10.6 to the Company's Registration
Statement on Form 10, as amended.
16
<PAGE> 17
10.12* Agreement, dated as of December 14, 1993, between Paul R. Del Rossi and
the Company, incorporated herein by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10- K for the fiscal year ended October
31, 1994.
10.13* Termination Agreement dated as of August 17, 1995 between William B.
Doeren and the Company, "incorporated herein by reference to Exhibit
10.13 (or .14, respectively) to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1996."
10.14* Master Lease Agreement dated as of November 21, 1996 between General
Electric Capital Corporation, for itself and as agent for certain
participants and General Cinema Theatres, Inc., "incorporated herein by
reference to Exhibit 10.13 (or .14, respectively) to the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1996."
10.15* GC Companies, Inc. 1993 Incentive Plan First Amendment incorporated
herein by reference to Exhibit 10.15 to the Company's Quarterly Report
on Form 10-Q for the Quarter ended April 30, 1997.
10.16* GC Companies, Inc. Key Executive Stock Purchase Loan Plan First
Amendment, incorporated herein by reference to Exhibit 10.16 to the
Company's Quarterly Report or Form 10-Q for the Quarter ended April 30,
1997.
10.17* GCC Investments, Inc. Incentive Pool Plan, incorporated herein by
reference to Exhibit 10.17 to the Company's Quarterly Report on form
10-Q for the quarter ended April 30, 1997.
10.18 Stock Purchase Agreement, dated as of July 25, 1997, by and among
General Cinema International, Inc., United Artists Theatre Circuit,
Inc., UA Mexico Holdings, S.A. de C.V., UATC Europe B.V. and Fondo
Optima, S.A. de C.V., incorporated herein by reference to Exhibit 10.18
to the Company's Form 8-K filed September 30, 1997.
10.19 Amendment No. 1, dated as of September 24, 1997, by and among General
Cinema International, Inc., United Artists Theatre Circuit, Inc., UA
Mexico Holdings, S.A. de C.V., UATC Europe B.V. and Fondo Optima, S.A.
de C.V., incorporated herein by reference to Exhibit 10.19 to the
Company's Form 8-K filed September 30, 1997.
10.20* Amended and Restated Employment Agreement between Paul R. Del Rossi and
the Company, dated as of November 1, 1997 incorporated herein by
reference to Exhibit 10.21 of the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1997.
10.21* GC Companies, Inc. Deferred Compensation Plan for Non-Employee
Directors, Effective May 1, 1997.
10.22* First Amendment to GCC Investments, Inc. Incentive Pool Plan
incorporated herein by reference to Exhibit 10.21 of the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1997.
10.23* Amendment No. 1 to the GC Companies, Inc. Deferred Compensation Plan
for Non-Employee Directors, dated as of May 1, 1998, incorporated
herein by reference to Exhibit 10-23 to the Company's Quarterly Report
on form 10-Q for the quarter ended July 31, 1998.
10.24 Revolving Credit Agreement dated as of January 26, 1999 among GC
Companies, Inc., BancBoston Robertson Stephens Inc., The Bank of Nova
Scotia and BankBoston, N.A.
10.25 Amended and Restated Reimbursement and Security Agreement dated as of
January 26, 1999 between Harcourt General, Inc. and GC Companies, Inc.
11.1 Statement regarding computation of per share earnings.
13.1 1998 Annual Report to Stockholders (which is not deemed to be filed
except to the extent that portions thereof are expressly incorporated
by reference into this Annual Report on Form 10- K).
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule
- -----------
* Exhibits filed pursuant to Item 14(c) of Form 10-K.
<PAGE> 1
EXHIBIT 10.24
EXECUTION COPY
--------------
================================================================================
$50,000,000
REVOLVING CREDIT AGREEMENT
AMONG
GC COMPANIES, INC.,
AS BORROWER
THE SEVERAL LENDERS
FROM TIME TO TIME PARTY HERETO,
AS LENDERS
BANCBOSTON ROBERTSON STEPHENS INC.,
AS ADMINISTRATIVE AGENT AND ARRANGER
THE BANK OF NOVA SCOTIA,
AS DOCUMENTATION AGENT
and
BANKBOSTON, N.A.,
AS ADMINISTRATIVE AGENT
Dated as of January 26, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
REVOLVING CREDIT AGREEMENT
PAGE
----
ARTICLE I DEFINITIONS............................................... 1
1.1. DEFINITIONS.............................................. 1
1.2. ACCOUNTING TERMS......................................... 21
ARTICLE II DESCRIPTION OF CREDIT..................................... 21
2.1. THE LOANS................................................. 21
2.2. NOTICE AND MANNER OF BORROWING OR CONVERSION OF LOANS..... 22
2.3. FEES...................................................... 24
2.4. REDUCTION OF MAXIMUM CREDIT............................... 25
2.5. THE NOTES................................................. 25
2.6. DURATION OF INTEREST PERIODS.............................. 25
2.7. INTEREST RATES AND PAYMENTS OF INTEREST................... 26
2.8. DEFAULT RATE OF INTEREST.................................. 27
2.9. CHANGED CIRCUMSTANCES..................................... 27
2.10. REPLACEMENT OF LENDERS.................................... 29
2.11. PAYMENTS AND PREPAYMENTS OF LOANS......................... 29
2.12. METHOD OF PAYMENT......................................... 29
2.13. PAYMENTS NOT AT END OF INTEREST PERIOD.................... 30
2.14. COMPUTATION OF INTEREST AND FEES.......................... 30
2.15. USE OF PROCEEDS........................................... 30
2.16. CAPITAL REQUIREMENTS...................................... 31
ARTICLE III CONDITIONS OF LOANS..................................... 31
3.1. CONDITIONS PRECEDENT TO INITIAL LOAN...................... 31
3.2. CONDITIONS PRECEDENT TO ALL LOANS......................... 33
ARTICLE IV REPRESENTATIONS AND WARRANTIES............................ 34
4.1. EXISTENCE AND POWER....................................... 34
4.2. AUTHORIZATION............................................. 34
4.3. VALID OBLIGATIONS......................................... 35
4.4. FINANCIAL INFORMATION, ETC................................ 35
4.5. CONSENTS OR APPROVALS..................................... 36
4.6. LITIGATION................................................ 37
4.7. DEFAULTS, ETC............................................. 37
4.8. TAXES..................................................... 37
4.9. USE OF PROCEEDS........................................... 37
<PAGE> 3
-ii-
PAGE
----
4.10. SUBSIDIARIES.............................................. 37
4.11. INVESTMENT COMPANY ACT.................................... 38
4.12. COMPLIANCE WITH ERISA..................................... 38
4.13. ENVIRONMENTAL MATTERS..................................... 38
4.14. YEAR 2000 PROBLEM......................................... 38
ARTICLE V AFFIRMATIVE COVENANTS...................................... 39
5.1. FINANCIAL STATEMENTS AND OTHER REPORTING REQUIREMENTS..... 39
5.2. CONDUCT OF BUSINESS....................................... 42
5.3. MAINTENANCE AND INSURANCE................................. 42
5.4. TAXES..................................................... 42
5.5. INSPECTION BY LENDERS..................................... 43
5.6. MAINTENANCE OF BOOKS AND RECORDS.......................... 43
5.7. CONSOLIDATED NET WORTH.................................... 43
5.8. CONSOLIDATED ADJUSTED EBITDA TO CONSOLIDATED INTEREST
CHARGES.................................................. 44
5.9. CONSOLIDATED ADJUSTED CASH FLOW TO CONSOLIDATED FIXED
CHARGES.................................................. 44
5.10. CONSOLIDATED TOTAL DEBT FOR BORROWED FUNDS TO
CONSOLIDATED ADJUSTED EBITDA............................. 44
5.11. SUBSIDIARY GUARANTIES..................................... 44
5.12. YEAR 2000 COMPLIANCE...................................... 46
5.13. FURTHER ASSURANCES........................................ 46
ARTICLE VI NEGATIVE COVENANTS........................................ 47
6.1. BORROWED FUNDS INDEBTEDNESS............................... 47
6.2. CONTINGENT LIABILITIES.................................... 48
6.3. ENCUMBRANCES.............................................. 49
6.4. MERGER;CONSOLIDATION; SALE OR LEASE OF ASSETS............. 51
6.5. ADDITIONAL STOCK ISSUANCE................................. 54
6.6. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS............... 54
6.7. DISTRIBUTIONS............................................. 54
6.8. INVESTMENTS............................................... 55
6.9. MAXIMUM CONSOLIDATED CAPITAL EXPENDITURES................. 55
6.10. ERISA..................................................... 56
6.11. TRANSACTIONS WITH AFFILIATES.............................. 56
6.12. AMENDMENT OF CERTAIN DOCUMENTS............................ 57
6.13. LOANS TO EMPLOYEES........................................ 57
ARTICLE VII DEFAULTS................................................. 57
7.1. EVENTS OF DEFAULT......................................... 57
<PAGE> 4
-iii-
PAGE
----
7.2. REMEDIES.................................................. 60
7.3. DISTRIBUTION OF PROCEEDS.................................. 61
ARTICLE VIII THE AGENTS.............................................. 62
8.1. APPOINTMENT AND AUTHORIZATION............................. 62
8.2. AGENTS AND AFFILIATES..................................... 62
8.3. ACTION BY ADMINISTRATIVE AGENT............................ 63
8.4. CONSULTATION WITH EXPERTS................................. 63
8.5. LIABILITY OF ADMINISTRATIVE AGENT......................... 63
8.6. INDEMNIFICATION........................................... 63
8.7. CREDIT DECISION........................................... 64
8.8. SUCCESSOR ADMINISTRATIVE AGENT............................ 64
8.9. THE ARRANGER AND DOCUMENTATION AGENT...................... 64
ARTICLE IX MISCELLANEOUS............................................. 65
9.1. NOTICES................................................... 65
9.2. NO WAIVERS................................................ 65
9.3. EXPENSES; INDEMNIFICATION................................. 65
9.4. SHARING OF SET-OFFS....................................... 66
9.5. AMENDMENTS AND WAIVERS.................................... 67
9.6. SUCCESSORS AND ASSIGNS.................................... 67
9.7. COLLATERAL................................................ 69
9.8. GOVERNING LAW; SUBMISSION TO JURISDICTION................. 69
9.9. COUNTERPARTS; INTEGRATION................................. 70
9.10. WAIVER OF JURY TRIAL...................................... 70
<PAGE> 5
-iv-
SCHEDULES
SCHEDULE I Commitment Amounts and Commitment Percentages
SCHEDULE 4.10 Subsidiaries and Guarantor Subsidiaries
SCHEDULE 6.1 Borrowed Funds Indebtedness
SCHEDULE 6.2 Guaranties
SCHEDULE 6.3 Encumbrances
SCHEDULE 6.4 B Theatres, Problem Theatres and Permitted Dispositions
SCHEDULE 6.8 Investments
EXHIBITS
EXHIBIT A Form of Promissory Note
EXHIBIT B Form of Notice of Borrowing or Conversion
EXHIBIT C Form of Compliance Certificate
EXHIBIT D Form of Subsidiary Guaranty Agreement
EXHIBIT E Form of Assignment and Assumption Agreement
EXHIBIT F Form of Intercreditor Agreement
EXHIBIT G Form of Opinion of Special Counsel to Borrower and Guarantor
Subsidiaries
EXHIBIT H Form of Opinion of General Counsel of Harcourt General, Inc.
EXHIBIT I Form of Opinion of Special Counsel to Administrative Agent
<PAGE> 6
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT is made on and as of January 26, 1999 by
and among each of GC COMPANIES, INC., a Delaware corporation, as borrower
hereunder (the "BORROWER"), the several banks and other financial institutions
or entities from time to time party hereto as lenders hereunder (individually, a
"LENDER" and, collectively, the "LENDERS"), BANCBOSTON ROBERTSON STEPHENS INC.,
as syndication agent and arranger hereunder (in such capacity, the "ARRANGER"),
THE BANK OF NOVA SCOTIA, a Canadian chartered bank acting through its Boston
Branch ("BNS"), as documentation agent hereunder (in such capacity, the
"DOCUMENTATION AGENT"), and BANCBOSTON, N.A., a national banking association
("BANKBOSTON"), as administrative agent hereunder (in such capacity, the
"ADMINISTRATIVE AGENT").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1. DEFINITIONS.
All capitalized terms used in this Agreement, the Notes or any of the
other Loan Documents or in any certificate, report or other document made or
delivered pursuant to this Agreement or any of the other Loan Documents (unless
otherwise defined therein) shall have the meanings assigned to them below:
ADJUSTED EURODOLLAR RATE. Applicable to any Interest Period, shall mean a
rate PER ANNUM determined pursuant to the following formula:
AER = [ IOR ]*
----------
[1.00 - RP]
AER = Adjusted Eurodollar Rate
IOR = Interbank Offered Rate
RP = Reserve Percentage
* The amount in brackets shall be rounded upwards, if necessary, to the
next higher 1/100 of 1%.
<PAGE> 7
-2-
WHERE:
"INTERBANK OFFERED RATE" applicable to any Eurodollar Loan for any
Interest Period means the rate of interest determined by the
Administrative Agent to be the prevailing rate PER ANNUM at which deposits
in U.S. dollars are offered to the Administrative Agent by first-class
banks in the Interbank Eurodollar market in which it regularly
participates on or about 10:00 a.m., Boston time, two (2) Business Days
before the first day of such Interest Period in an amount approximately
equal to the principal amount of the Eurodollar Loan to which such
Interest Period is to apply for a period of time beginning on the first
day of such Interest Period and of a length approximately equal to such
Interest Period.
"RESERVE PERCENTAGE" applicable to any Interest Period means the rate
(expressed as a decimal) applicable to any Lender during such Interest
Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System for determining the maximum
reserve requirement (including, without limitation, any basic,
supplemental or emergency reserve requirement) of such Lender with respect
to "Eurocurrency Liabilities" as that term is defined under such
regulations.
The Adjusted Eurodollar Rate shall be adjusted automatically as of the
effective date of any change in the Reserve Percentage.
ADJUSTED TOTAL DEBT. As at any date of determination, (a) the Consolidated
Total Debt for Borrowed Funds of the Borrower and its Subsidiaries as at such
date, MINUS (b) the SUM of (i) to the extent included in Consolidated Total Debt
for Borrowed Funds as at such date, all of the Foreign Non-Recourse Debt of the
Foreign Subsidiaries as at such date, all as determined on a Consolidated basis
and in accordance with GAAP as at such date, PLUS (ii) the aggregate of the
Eligible Securities Values of all Eligible Securities as at such date.
ADMINISTRATIVE AGENT. See PREAMBLE.
AFFILIATE. (a) Any director or executive officer of the Borrower, or (b)
any Person that, directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with the Borrower. As
used herein, the term "CONTROL" means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
<PAGE> 8
-3-
AGENTS. Collectively, the Administrative Agent, the Documentation Agent
and the Arranger.
AGREEMENT. This Agreement, as the same may be supplemented, modified or
amended from time to time.
APPLICABLE PERCENTAGES. The respective percentages applicable from time to
time to (a) the Eurodollar Loans, or (as the case may be) (b) the Facility Fees,
which percentages shall be determined in accordance with the following
provisions and the table set forth below and be subject to adjustment (upwards
or downwards, as appropriate) based upon the Leverage Ratio at the end of each
of the first three fiscal quarters of each Fiscal Year of the Borrower and at
the end of each Fiscal Year of the Borrower. For purposes of determining the
Applicable Percentages in effect from time to time, the Leverage Ratio shall be
determined (i) in the case of determinations made with respect to each of the
first three fiscal quarters of each Fiscal Year, by reference to the monthly
financial statements for the fiscal month ending on the last day of such fiscal
quarter and the Compliance Certificate for such fiscal quarter delivered
pursuant to SECTIONS 5.1(b) and 5.1(c), and (ii) in the case of determinations
made with respect to the last fiscal quarter of each Fiscal Year, by reference
to the financial statements and Compliance Certificate for such Fiscal Year
delivered pursuant to SECTIONS 5.1(a) and 5.1(c). The adjustment, if any, to the
Applicable Percentages shall be effective commencing on the fifth Business Day
after the delivery of the required financial statements and Compliance
Certificate and shall be effective only for the period beginning on such fifth
Business Day. In the event that the Borrower shall at any time fail to furnish
to the Administrative Agent and the Lenders, within the prescribed time period,
the financial statements and Compliance Certificate required to be delivered
pursuant to SECTION 5.1(a), (b) or (c), the Applicable Percentages then in
effect shall remain in effect and shall not become subject to further adjustment
as provided above until the fifth Business Day after the date on which such
financial statements and Compliance Certificate are so delivered to the
Administrative Agent.
APPLICABLE PERCENTAGES
EURODOLLAR FACILITY
LEVERAGE RATIO LOANS FEES
- -------------- ---------- --------
Greater than or equal to 3.5:1.0 1.250% 0.500%
Less than 3.5:1.0 but greater than or
equal to 3.0:1.0 1.000% 0.400%
Less than 3.0:1.0 but greater than or
<PAGE> 9
-4-
equal to 1.5:1.0 0.875% 0.375%
Less than 1.5:1.0 0.625% 0.250%
Anything in the foregoing provisions of this definition of the term "APPLICABLE
PERCENTAGES" to the contrary notwithstanding, the Applicable Percentage for
Eurodollar Loans shall not be less than 0.875% and the Applicable Percentage for
Facility Fees shall not be less than 0.375% at any time prior to January 26,
2000.
APPROVED FUND. Shall mean, with respect to any Lender that is a fund that
invests in commercial loans, any other fund that invests in commercial loans and
that is managed or advised (a) by the same investment advisor that manages or
advises such Lender, or (b) by an affiliate of such investment advisor.
ARRANGER. See PREAMBLE.
ASSIGNMENT AND ASSUMPTION AGREEMENT. See SECTION 9.6(c).
BANKBOSTON. See PREAMBLE.
BASE RATE. The greater of (a) the rate of interest announced from time to
time by the Administrative Agent at its head office at 100 Federal Street,
Boston, Massachusetts 02110 as its "Base Rate," or (b) the sum of the Federal
Funds Effective Rate PLUS one-half of one percent (0.5%) PER ANNUM (rounded
upwards, if necessary, to the next one-eighth of one percent (0.125 %)).
BASE RATE LOAN. Any Loan bearing interest determined with reference to
the Base Rate.
BNS. See PREAMBLE.
BORROWED FUNDS INDEBTEDNESS. As applied to any Person, without
duplication, (a) all obligations and liabilities of such Person for borrowed
money or other extensions of credit, whether secured or unsecured, absolute or
contingent, liquidated or unliquidated, or matured or unmatured, including,
without limitation, unmatured reimbursement obligations with respect to letters
of credit or Guaranties issued for the account of or on behalf of such Person,
all obligations of such Person in respect of bankers' acceptances, and all
obligations of such Person representing the deferred purchase price of property,
other than accounts payable or other liabilities arising in the ordinary course
of business, (b) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, (c) all
<PAGE> 10
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obligations of such Person secured by any mortgage, pledge, security interest or
other lien on property owned or acquired by such Person, whether or not the
obligations secured thereby shall have been assumed, (d) that portion of all
obligations of such Person arising under Capitalized Leases that are required to
be capitalized on the consolidated balance sheet of such Person, and (e) all
obligations of such Person under or in respect of Guaranties (whether direct or
indirect) by such Person of any obligations or liabilities of any other Person
or Persons of the kind described in CLAUSE (a), (b), (c) or (d) of this
definition.
BORROWER. See PREAMBLE.
BUSINESS DAY. (a) For all purposes other than as provided by CLAUSE (b)
below, any day (other than a Saturday, Sunday or legal holiday) on which banks
in Boston, Massachusetts are open for the conduct of a substantial part of their
commercial banking business, and (b) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Loans, any day that is a Business Day described in CLAUSE (a) and
that is also a day for trading by and between banks in U.S. dollar deposits in
the Interbank Eurodollar market.
CAPITAL EXPENDITURES. As applied to any Person, amounts paid or
indebtedness incurred by such Person in connection with the purchase or lease of
capital assets that are required to be capitalized and shown on the balance
sheet of such Person in accordance with GAAP.
CAPITALIZED LEASES. Leases under which the discounted future rental
payment obligations are required to be capitalized on the balance sheet of the
lessee or obligor thereunder in accordance with GAAP.
CHANGE OF CONTROL. Any event or series of events by which (a) any Person
(other than a member of the Smith Family Group), together with "affiliates" and
"associates" of such Person, within the meaning of Rule 12b-2 of the Exchange
Act, shall become the beneficial owner within the meaning of Rule 13d-3 of the
Exchange Act of more voting stock or total equity capital of the Borrower than
that beneficially owned by the Smith Family Group if such Person together with
such "affiliates" and "associates" is also the beneficial owner within the
meaning of Rule 13d-3 of the Exchange Act of at least twenty-five percent (25%)
of either the voting stock or total equity capital of the Borrower, or (b)
during any period of two (2) consecutive years, individuals who at the beginning
of such period constituted the Borrower's Board of Directors (together with any
new directors whose election by the Borrower's Board of Directors or whose
nomination for election by the Borrower's shareholders was approved by a vote of
66-2/3% of the directors then still in office who were either directors at the
beginning of such period or
<PAGE> 11
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whose election or nomination for election was previously so approved) shall
cease for any reason to constitute a majority of the directors then in office.
CINEMA VENTURES. Cinema Ventures, LLC, a limited liability company
organized under the laws of the State of Delaware.
CODE. The Internal Revenue Code of 1986 and the rules and regulations
thereunder, collectively, as the same may from time to time be supplemented or
amended and remain in effect.
COMMITMENT. Shall mean, as to each Lender, such Lender's obligation
pursuant to SECTION 2.1, SECTION 2.2 and the other provisions of ARTICLE II to
participate in making Loans to the Borrower hereunder.
COMMITMENT AMOUNT. Shall mean, as to each Lender, an amount equal to the
Maximum Credit times such Lender's Commitment Percentage from time to time in
effect.
COMMITMENT PERCENTAGE. Shall mean, as to each Lender, the percentage set
forth opposite such Lender's name on SCHEDULE I, as such SCHEDULE I may be
supplemented, modified or amended from time to time, whether pursuant to
Assignment and Assumption Agreements or otherwise.
COMMITMENT TERMINATION DATE. The earliest to occur of: (a) the day before
the Final Maturity Date; (b) the date on which any sums shall first be paid to
any of the Agents or to the Lenders by Harcourt General or by any of the other
Reimbursement Creditors (as defined in the Intercreditor Agreement) pursuant to
the terms of the Intercreditor Agreement, all as provided and required by
SECTION 2(a) of the Intercreditor Agreement; or (c) the date on which all of the
obligations of the Lenders to make further Loans shall terminate in full
pursuant to SECTION 7.2.
COMPLIANCE CERTIFICATE. See SECTION 5.1(c).
CONSOLIDATED AND CONSOLIDATING. When used with reference to any other term
and as applied to any Person and to its Subsidiaries, shall mean that term as
applied to the accounts of such Person and all of its Subsidiaries, or such of
its Subsidiaries as may be specified, consolidated (or combined) or
consolidating (or combining), as the case may be, in accordance with GAAP, and
with appropriate deductions for minority interests in such Subsidiaries.
CONSOLIDATED ADJUSTED CASH FLOW. For each period for which the amount
thereof shall be determined, the total of (a) the Consolidated Adjusted EBITDA
of the Borrower and its Subsidiaries for such period, PLUS (b) the aggregate
amount of all rental expense for real property operating
<PAGE> 12
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leases of the Borrower and its Subsidiaries for such period, all as determined
on a Consolidated basis and in accordance with GAAP for such period.
CONSOLIDATED ADJUSTED EBITDA. For each period for which the amount thereof
shall be determined, the Consolidated Net Income of the Borrower and its
Subsidiaries for such period, PLUS (a) without duplication and only to the
extent reflected as a charge in the statement of such Consolidated Net Income
for such period, the SUM of (i) the Consolidated Interest Charges, taxes,
depreciation and amortization expenses of the Borrower and its Subsidiaries for
such period, PLUS (ii) expenses or losses from any Permitted Non-Theatre
Investments, PLUS (iii) any extraordinary, unusual or non-recurring expenses or
losses, all as determined on a Consolidated basis and in accordance with GAAP
for such period, PLUS (iv) all of the general and administrative expenses for
such period of GCCI and its Subsidiaries, provided that if such general and
administrative expenses of GCCI and its Subsidiaries for such period shall
exceed $4,250,000, only $4,250,000 of such expenses shall be added to such
Consolidated Net Income for such period pursuant to this CLAUSE (iv), and MINUS
(b) without duplication and only to the extent reflected as an addition (or, as
the case may be, reduction) in the statement of such Consolidated Net Income for
such period, the SUM of (i) any income or gains from any Permitted Non-Theatre
Investments, PLUS (ii) any extraordinary, unusual or non-recurring income or
gains, PLUS (iii) that part of such Consolidated Net Income of the Borrower and
its Subsidiaries for such period that is attributable to the Consolidated net
income (or loss) of all of the Foreign Subsidiaries for such period, all as
determined on a Consolidated basis and in accordance with GAAP for such period.
CONSOLIDATED EXCESS CASH FLOW. For each period for which the amount
thereof shall be determined, (a) the SUM of (i) the Consolidated Adjusted EBITDA
of the Borrower and its Subsidiaries for such period, PLUS (ii) the net cash
proceeds paid to or for the account of the Borrower during such period in
respect of the issuance of additional Equity Interests of the Borrower, MINUS
(b) the SUM of (i) the Consolidated Interest Charges for such period, PLUS (ii)
the Capital Expenditures of the Borrower and its Subsidiaries for such period,
PLUS (iii) all regularly scheduled payments of principal of Consolidated Total
Debt for Borrowed Funds (other than Foreign Non-Recourse Debt) payable during
such period, PLUS (iv) Distributions made by the Borrower and its Subsidiaries
during such period, PLUS (v) cash taxes paid by the Borrower and its
Subsidiaries during such period, all as determined on a Consolidated basis and
in accordance with GAAP for such period.
<PAGE> 13
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CONSOLIDATED EXCESS THEATRE CASH FLOW. For each period for which the
amount thereof shall be determined, the Consolidated Excess Cash Flow for such
period, (a) MINUS, without duplication and only to the extent reflected as an
addition to such Consolidated Excess Cash Flow for such period, any income or
gains from any Permitted Non-Theatre Investments for such period, and (b) PLUS,
without duplication and only to the extent reflected as a charge to such
Consolidated Excess Cash Flow for such period, any expenses or losses from any
Permitted Non-Theatre Investments for such period.
CONSOLIDATED FIXED CHARGES. For each period for which the amount thereof
shall be determined, the SUM of (a) all regularly scheduled payments of
principal of Consolidated Total Debt for Borrowed Funds (other than Foreign
Non-Recourse Debt) payable during such period, PLUS (b) the Consolidated
Interest Charges for such period, PLUS (c) the aggregate amount of all rental
expense for real property operating leases of the Borrower and its Subsidiaries
for such period, all as determined on a Consolidated basis and in accordance
with GAAP for such period.
CONSOLIDATED INTEREST CHARGES. For each period for which the amount
thereof shall be determined, the aggregate amount of interest, including
interest expense under Capitalized Leases, paid or accrued by the Borrower or by
any of its Subsidiaries during such period, MINUS the aggregate amount of
interest, including interest expense under Capitalized Leases, paid or accrued
by Foreign Subsidiaries during such period on or in respect of any Foreign
Non-Recourse Debt, all as determined on a Consolidated basis and in accordance
with GAAP for such period.
CONSOLIDATED NET INCOME. For each period for which the amount thereof
shall be determined, the Consolidated net income (or loss) of the Borrower and
its Subsidiaries for such period, all as determined on a Consolidated basis and
in accordance with GAAP.
CONSOLIDATED NET INVESTMENT CASH FLOW. In relation to the Borrower and its
Subsidiaries for each period for which the amount thereof shall be determined,
(a) the SUM of (i) the Net Cash Proceeds received by the Borrower or by any of
its Subsidiaries in such period from the sale or other transfer of any Permitted
Non-Theatre Investments, PLUS without duplication, (ii) all cash income and
other cash gains, including, without limitation, cash interest, cash dividends
and other cash distributions, received by the Borrower or by any of its
Subsidiaries from Permitted Non-Theatre Investments in such period, all as
determined on a Consolidated basis and in accordance with GAAP for such period,
MINUS (b) the aggregate amount of (i) all cash expenses and cash losses incurred
or sustained by the
<PAGE> 14
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Borrower or by any of its Subsidiaries from Permitted Non-Theatre Investments in
such period, PLUS (ii) without duplication, non-cash losses realized by the
Borrower or by any of its Subsidiaries in such period from Permitted Non-Theatre
Investments to the extent of any write-downs or write-offs of any thereof taken
by the Borrower or by any of its Subsidiaries in such period, all as determined
on a Consolidated basis and in accordance with GAAP for such period.
CONSOLIDATED NET WORTH. At any date as of which the amount thereof shall
be determined, shareholders' equity of the Borrower and its Subsidiaries as at
such date, all as determined on a Consolidated basis and in accordance with GAAP
as at such date; PROVIDED, HOWEVER, that for purposes of determining the
Consolidated Net Worth of the Borrower and its Subsidiaries as at any date
falling on or after the date hereof, the amount thereof shall be adjusted so as
to eliminate the effect of any unrealized gains or any unrealized losses in the
total market value as at such date of the Investments of the Borrower and its
Subsidiaries in the Equity Interests of each of Global Telesystems Group, Inc.
and GrandVision relative to the total market value of such Investments as at
October 31, 1998 as reflected in the audited consolidated balance sheet of the
Borrower and its Subsidiaries as at such date.
CONSOLIDATED TOTAL DEBT FOR BORROWED FUNDS. As at any date of
determination, all of the Borrowed Funds Indebtedness of the Borrower and its
Subsidiaries outstanding on and as of such date, all as determined on a
Consolidated basis.
CONTROLLED GROUP. All trades or businesses (whether or not incorporated)
under common control that, together with the Borrower, are treated as a single
employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA.
CREDITOR PARTIES. Collectively, the Lenders and the Agents.
CUMULATIVE EXCESS THEATRE CASH FLOW. As at any date of determination, the
aggregate of the Consolidated Excess Theatre Cash Flows for all Fiscal Years of
the Borrower ending on or after October 31, 1998 but prior to such date of
determination; PROVIDED, HOWEVER, that the Consolidated Excess Theatre Cash Flow
for any such particular Fiscal Year of the Borrower shall not, for purposes of
this definition, be added to and included in the Cumulative Excess Theatre Cash
Flow until the later of (a) the first Business Day after the delivery to the
Administrative Agent of the financial statements and Compliance Certificate
required to be delivered pursuant to SECTION 5.1(a) and SECTION 5.1(c) for such
Fiscal Year, or (b) if any Default shall be continuing when such financial
statements and Compliance
<PAGE> 15
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Certificate are delivered to the Administrative Agent, on the first Business Day
thereafter on which no Default shall be continuing.
CUMULATIVE NET INVESTMENT CASH FLOW. As at any date of determination, the
aggregate of the Consolidated Net Investment Cash Flows for all fiscal quarters
of the Borrower ending on or after October 31, 1998 but prior to such date of
determination; PROVIDED, HOWEVER, that the Consolidated Net Investment Cash Flow
for any such particular fiscal quarter of the Borrower shall not, for purposes
of this definition, be added to and included in the Cumulative Net Investment
Cash Flow until the later of (a) the first Business Day after the delivery to
the Administrative Agent of the financial statements and Compliance Certificate
required to be delivered pursuant to SECTION 5.1(a) or (as the case may be)
SECTION 5.1(b) and SECTION 5.1(c) for such fiscal quarter, or (b) if any Default
shall be continuing when such financial statements and Compliance Certificate
are delivered to the Administrative Agent, on the first Business Day thereafter
on which no Default shall be continuing.
DEFAULT. An Event of Default or any event or condition that, but for the
requirement (if any) that time elapse or notice be given, or both, would (unless
cured or waived) constitute an Event of Default.
DISTRIBUTIONS. Shall mean any of the following:
(a) the declaration or payment of any dividends (other than
dividends payable in Equity Interests in the Borrower) on or in respect of
any Equity Interests in the Borrower;
(b) the purchase, redemption or other retirement of any Equity
Interests in the Borrower, or of options, warrants or other rights for the
purchase of any of such Equity Interests, directly, indirectly through a
Subsidiary, or otherwise;
(c) any other distributions on or in respect of any Equity Interests
of any class or other beneficial interests in the Borrower;
(d) any prepayment, purchase, redemption or defeasance of any
Subordinated Debt; and
(e) any payment, loan or advance by the Borrower (or such
Subsidiary) to, or any other Investment by the Borrower (or such
Subsidiary) in, (i) any beneficial owner of five percent (5%) or more of
any class of Equity Interests or other beneficial interests in the
Borrower, or (ii) any Affiliate of such beneficial owner;
<PAGE> 16
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PROVIDED, HOWEVER, that the term "DISTRIBUTIONS" shall not in any event include
any declaration or payment of dividends or other distributions by any Subsidiary
of the Borrower to the Borrower or to any other Subsidiary of the Borrower or
payments by the Borrower or by any of its Subsidiaries in the ordinary course of
business in respect of (i) reasonable compensation paid to employees, officers
or directors, including stock appreciation rights and stock options granted to
employees, (ii) advances to employees for travel expenses and other similar
expenditures, (iii) loans, drawing accounts and advances to employees permitted
under SECTION 6.12, (iv) rent paid to or accounts payable for services rendered
or goods sold by non-Affiliates which may hold Equity Interests in the Borrower
(or such Subsidiaries), (v) inter-company accounts payable and real property
leases to non-Affiliates which may hold Equity Interests in the Borrower (or
such Subsidiaries), or (vi) payments to Harcourt General under the Harcourt
General Documents; and, PROVIDED, FURTHER, that, for purposes of SECTION 6.7, an
aggregate of $1,000,000 in cash Distributions made by the Borrower after the
date hereof to repurchase stock options granted to employees of the Borrower or
of any of its Subsidiaries shall be excluded in determining the aggregate amount
of Distributions permitted to be made by the Borrower and its Subsidiaries.
DOCUMENTATION AGENT. See PREAMBLE.
ELIGIBLE SECURITIES. As at any date of determination with respect to any
particular marketable Securities of any particular issuer, marketable Securities
of such issuer that (a) are owned by the Borrower or by any of its Subsidiaries
as at such date free and clear of all liens and other encumbrances, and (b) are
determined by the Administrative Agent in its sole and complete discretion to be
"Eligible Securities" as at such date for the purposes of this Agreement, each
such determination by the Administrative Agent to be in each case final and
binding on the Borrower for all purposes of this Agreement.
ELIGIBLE SECURITIES VALUE. As at any date of determination with respect to
any particular Eligible Securities of any particular issuer, the product of (a)
the Fair Market Value of such Eligible Securities as at such date, such Fair
Market Value to be determined by mutual agreement of the Borrower and the
Administrative Agent, and (b) the percentage used or to be used by the
Administrative Agent in calculating the Eligible Securities Value of such
Eligible Securities as at such date, such percentage to be (i) no greater than
fifty percent (50%), and (ii) to be determined by the Administrative Agent in
its sole and complete discretion, each such determination by the Administrative
Agent to be in each case final and binding on the Borrower for all purposes of
this Agreement; PROVIDED, HOWEVER, that the percentage which shall be so used by
the Administrative
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Agent for the marketable Securities of each of Global Telesystems Group, Inc.
and GrandVision shall, as determined by the Administrative Agent on or as of the
date hereof, be and remain fifty percent (50%).
ENCUMBRANCES. See SECTION 6.3.
ENFORCEMENT ACTION. Shall have the meaning specified for the term
"Enforcement Action" in the Intercreditor Agreement.
EQUITY INTERESTS. (a) In the case of any corporation, any corporate
capital stock of any class or series, (b) in the case of any association or
business entity, any shares, interests, participations, rights or other
equivalents (howsoever designated) of corporate capital stock, (c) in the case
of any partnership or limited liability company, partnership or membership
interests (whether general or limited), and (d) any warrants, options or other
rights to purchase or otherwise acquire any capital stock, shares or interests
of the kind described in CLAUSE (a), (b) or (c) of this definition.
ERISA. The Employee Retirement Income Security Act of 1974 and the rules
and regulations thereunder, collectively, as the same may from time to time be
supplemented or amended and remain in effect.
ENVIRONMENTAL LAWS. Any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.
EURODOLLAR LOAN. Any Loan bearing interest at a rate determined with
reference to the Adjusted Eurodollar Rate.
EVENT OF DEFAULT. Any event described in SECTION 7.1.
EXCHANGE ACT. The Federal Securities Exchange Act of 1934, amended (or any
successor statute), and the rules and regulations promulgated thereunder, all as
from time to time in effect.
FACILITY FEES. See SECTION 2.3(a).
<PAGE> 18
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FAIR MARKET VALUE. With respect to any Securities or other property, the
price which could be negotiated in an arm's length free market transaction
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction.
FEDERAL FUNDS EFFECTIVE RATE. For any day, a fluctuating interest rate PER
ANNUM equal to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three federal funds brokers of recognized standing
selected by the Administrative Agent.
FINAL MATURITY DATE. January 25, 2002.
FISCAL YEAR. The twelve-month fiscal period of the Borrower commencing at
or around November 1 of each calendar year and expiring at or around October 31
of the next succeeding calendar year. Subsequent changes to the fiscal year of
the Borrower shall not change the term "FISCAL YEAR" unless the Administrative
Agent shall consent to such change in writing, which consent shall not be
unreasonably withheld.
FOREIGN NON-RECOURSE DEBT. As applied to any Foreign Subsidiary at any
particular time, all or any portion of the Borrowed Funds Indebtedness of such
Foreign Subsidiary at such time (a) as to which none of the Borrower or any of
its Subsidiaries (other than Foreign Subsidiaries) (i) provides any credit
support of any kind (including any undertaking, agreement or instrument that
would constitute a Guaranty), (ii) is directly or indirectly obligated or liable
(as a guarantor under a Guaranty or otherwise), or (iii) constitutes the lender
or obligor thereof; (b) with respect to which none of the Borrower or any of its
Subsidiaries (other than Foreign Subsidiaries) has granted any security
interests, liens or other encumbrances to secure the payment or performance of
all or any part thereof; and (c) no default with respect to which (including any
rights that the holders thereof may have to take any Enforcement Action against
any Foreign Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any Borrowed Funds Indebtedness (other than the Loans and the
Obligations) of the Borrower or of any of its Subsidiaries (other than Foreign
Subsidiaries) to declare a default on such other Borrowed Funds Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity.
FOREIGN SUBSIDIARIES. At any time of reference, collectively, (a) General
Cinema International, Inc., and (b) each of the direct or indirect
<PAGE> 19
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Subsidiaries of the Borrower that is organized or incorporated at such time
under the laws of any jurisdiction other than any State of the United States or
the District of Columbia. For purposes of this Agreement and the other Loan
Documents, none of GCCI or any of its direct or indirect Subsidiaries shall at
any time be or be deemed to be a "FOREIGN SUBSIDIARY".
FOREIGN THEATRE INVESTMENTS. At any time of reference, Investments of the
Borrower or of any of its Subsidiaries (other than any Foreign Subsidiaries) in
any Person (other than any Foreign Subsidiary) (a) that is organized or
incorporated at such time under the laws of any jurisdiction other than any
State of the United States or the District of Columbia, and (b) that is
primarily engaged at such time in the business of motion picture exhibition or
managing the motion picture exhibition or concession business of any other
Person or Persons.
GAAP. Generally accepted accounting principles as defined by the United
States Financial Accounting Standards Board as in effect from time to time,
applied on a basis consistent (except for changes concurred with by the
Borrower's independent public accountants) with the most recent audited
consolidated financial statements of the Borrower and its Subsidiaries delivered
to the Administrative Agent and the Lenders; PROVIDED, HOWEVER, that, if the
Borrower notifies the Administrative Agent that it wishes to amend any of the
covenants in any of SECTIONS 5.7 through 5.10 to eliminate or otherwise to
modify the effect of any changes in generally accepted accounting principles on
the operation of such covenants (or, if the Administrative Agent notifies the
Borrower that the Required Lenders wish to amend any of the covenants in any of
SECTIONS 5.7 through 5.10 for such purpose), then the Borrower's compliance with
any of such covenants shall be determined on the basis of generally accepted
accounting principles in effect immediately before the relevant changes in
generally accepted accounting principles became effective, until either such
notice is withdrawn or such covenants are amended in a manner mutually
satisfactory to the Borrower and the Required Lenders.
GCCI. GCC Investments, Inc., a Delaware corporation and a wholly-owned
Subsidiary of the Borrower.
GUARANTIES. As applied to any Person, all guaranties, endorsements or
other contingent or surety obligations or liabilities of such Person with
respect to any obligations or liabilities of any other Person or Persons,
whether or not reflected on the balance sheet of such first Person, including,
without limitation, any obligations of such first Person to furnish funds,
directly or indirectly (whether by virtue of partnership arrangements, by
agreements to keep-well or otherwise), through the purchase of goods,
<PAGE> 20
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supplies or services, or by way of stock purchase, capital contribution, advance
or loan, or to enter into any contract for any of the foregoing, for the purpose
of payment of any obligations of any other Person or entity.
GUARANTOR SUBSIDIARIES and GUARANTORS. Shall mean, collectively, the
Subsidiaries of the Borrower from time to time party to the Subsidiary Guaranty
Agreement as "Guarantors" thereunder. The Subsidiaries of the Borrower party or
to become party to the Subsidiary Guaranty Agreement on and as of the date
hereof as "Guarantors" thereunder are identified as "GUARANTOR SUBSIDIARIES" in
SCHEDULE 4.10.
HARCOURT GENERAL. Harcourt General, Inc., a Delaware corporation.
HARCOURT GENERAL DOCUMENTS. See SECTION 6.11.
INTERCREDITOR AGREEMENT. The Intercreditor Agreement, dated as of January
26, 1999, among the Administrative Agent, Harcourt General and the Borrower, as
the same may be supplemented, modified or amended from time to time.
INTEREST PERIOD. (a) With respect to each Eurodollar Loan, the period
commencing on the date of the making or continuation of or conversion to such
Eurodollar Loan and ending one, two, three or six months thereafter, as the
Borrower may elect in the applicable Notice of Borrowing or Conversion, and (b)
with respect to each Base Rate Loan, the period commencing on the date of the
making or continuation of or conversion to such Base Rate Loan and ending thirty
(30) days thereafter; PROVIDED, HOWEVER, that:
(i) any Interest Period (other than an Interest Period determined
pursuant to CLAUSE (iii)) that would otherwise end on a day that is not a
Business Day shall be extended to the next succeeding Business Day unless,
in the case of Eurodollar Loans, such Business Day falls in the next
calendar month, in which case such Interest Period shall end on the
immediately preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to CLAUSE (iii), end on the last Business Day of a
calendar month;
(iii) any Interest Period that would otherwise end after the Final
Maturity Date shall end on the Final Maturity Date; and
<PAGE> 21
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(iv) notwithstanding CLAUSE (iii), no Interest Period applicable to
a Eurodollar Loan shall have a duration of less than one (1) month, and if
any Interest Period applicable to any such Eurodollar Loan would be for a
shorter period, then such Interest Period shall not be available
hereunder.
INVESTMENT. As applied to any Person, the purchase or acquisition of any
shares of capital stock, partnership interests, membership interests or other
Equity Interests, evidences of indebtedness or other Securities of any other
Person or entity, any loans, advances or other extensions of credit to, or
contributions to the capital of, any other Person or entity, any real estate
held for investment, any commodities futures contracts held other than in
connection with BONA FIDE hedging transactions, any other investment in any
other Person or entity, and the making of any commitment or acquisition of any
option to make any Investment.
LENDER and LENDERS. See PREAMBLE.
LEVERAGE RATIO. As at the last day of each fiscal quarter of the Borrower,
the ratio of (a) the Adjusted Total Debt as at such date, to (b) the
Consolidated Adjusted EBITDA of the Borrower and its Subsidiaries for the
Reference Period ending on such date.
LOAN. Any loan made or to be made to the Borrower by the Lenders pursuant
to ARTICLE II of this Agreement; and "LOANS" means, collectively, all of such
loans. Whenever the context so requires, the term "LOAN" shall also mean, in
relation to any particular Lender, such Lender's Commitment Percentage or share
of any Loan made or to be made to the Borrower by the Lenders pursuant to
ARTICLE II of this Agreement.
LOAN DOCUMENTS. This Agreement, the Notes, the Subsidiary Guaranty
Agreement, the Intercreditor Agreement and any other present or future agreement
from time to time entered into between the Borrower and/or any Subsidiary of the
Borrower and one or more of the Lenders or the Agents relating to this Agreement
or any of the other Loan Documents, each as from time to time supplemented,
modified or amended, and the Compliance Certificates and all other written
statements, reports and certificates delivered by the Borrower and/or by any
such Subsidiary to any of the Lenders or the Agents in connection with this
Agreement or any of the other Loan Documents.
MATERIAL SUBSIDIARY. See SECTION 5.11(a).
MAXIMUM CREDIT. $50,000,000 or any lesser amount, including zero,
resulting from a reduction of such amount in accordance with SECTION 2.4.
<PAGE> 22
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MAXIMUM PERMITTED LEVEL. See SECTION 6.8(c).
MINIMUM GUARANTY CONDITIONS. See SECTION 5.11(a).
NET AVAILABLE AMOUNT. As at any date of determination, the lesser of (a)
fifty percent (50%) of the Cumulative Excess Theatre Cash Flow as at such date
of determination, or (b) the amount determined by subtracting (i) from the
Cumulative Excess Theatre Cash Flow as at such date of determination, (ii) the
sum of (A) the aggregate amount of all Distributions made prior to such date of
determination pursuant to SECTION 6.7 in excess of the Section 6.7 Base Amount,
PLUS (B) the aggregate amount of all Permitted Non-Theatre Investments made
prior to such date of determination pursuant to SECTION 6.8(c) in excess of the
Section 6.8(c) Base Amount, PLUS (C) the aggregate amount of all Investments in
Foreign Subsidiaries made prior to such date of determination pursuant to
SECTION 6.8(d) in excess of the Section 6.8(d) Base Amount.
NET CASH PROCEEDS. With respect to any sale or transfer of any Investment
or other property by any Person, the cash portion of the Net Proceeds from such
sale or transfer, including, without limitation, all such cash paid from time to
time under any instruments evidencing or securing any obligations to pay all or
any part of the purchase price or other consideration payable in connection with
such sale or transfer.
NET PROCEEDS. With respect to any sale or transfer of any Investment or
other property by any Person, all cash and other property (including, without
limitation, instruments evidencing or securing indebtedness and Equity Interests
or other Securities) payable to or receivable by such Person from such sale or
transfer, net of (a) all income, sales, use, transfer or other taxes (state,
federal or local) solely attributable to such sale or transfer and reasonably
estimated to be payable in cash by such Person for the taxable year in which
such sale or transfer occurred, (b) all sales or other similar commissions and
fees, costs and other expenses incurred in connection with such sale or
transfer, and (c) appropriate amounts to be provided by such Person as a
reserve, in accordance with GAAP, against any liabilities associated with such
Investment or property and retained by such Person after such sale or transfer,
or against any indemnification obligations associated with the sale or transfer
of such Investment or other property.
NET WORTH COMPLIANCE LEVEL. See SECTION 5.7.
NON-MATERIAL SUBSIDIARY. See SECTION 5.11(a).
<PAGE> 23
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NOTES. The promissory notes of the Borrower, substantially in the form of
EXHIBIT A, evidencing the obligations of the Borrower to each Lender to repay
all of the Loans made by such Lender.
NOTICE OF BORROWING OR CONVERSION. See SECTION 2.2(a).
OBLIGATIONS. Any and all obligations and other liabilities of the Borrower
or of any of its Subsidiaries to the Lenders or the Agents of every kind and
description, direct or indirect, absolute or contingent, liquidated or
unliquidated, matured or unmatured, primary or secondary, secured or unsecured,
due or to become due, now existing or hereafter created, incurred or arising,
and including all obligations to perform acts and refrain from taking action, as
well as all obligations to pay money, under or with respect to (a) any and all
Loans or other extensions of credit made or to be made by any of the Creditor
Parties under any of the Loan Documents, (b) this Agreement or any of the other
Loan Documents, (c) any other agreements or instruments pursuant to which any
Borrowed Funds Indebtedness to the Creditor Parties or any of them under this
Agreement or any of the other Loan Documents shall be deferred, extended,
renewed, replaced, refunded or refinanced, in whole or in part, and without
limitation as to parties, interest rates or other provisions, and (d) each of
the other instruments executed in connection with or otherwise evidencing,
governing, guarantying or securing any Borrowed Funds Indebtedness under any
agreements or instruments referred to in CLAUSE (b), CLAUSE (c) or CLAUSE (d) of
this definition; in each case (with respect to any agreements or instruments
referred to in CLAUSE (b), CLAUSE (c) or CLAUSE (d)), as modified, amended or
supplemented from time to time.
PBGC. The Pension Benefit Guaranty Corporation or any entity succeeding to
any or all of its functions under ERISA.
PERMITTED ENCUMBRANCES. See SECTION 6.3.
PERMITTED NON-THEATRE INVESTMENTS. Collectively, (a) Investments by GCCI
or by any of the direct or indirect Subsidiaries of GCCI, and (b) Investments by
the Borrower in GCCI or in any of the direct or indirect Subsidiaries of GCCI.
PERSON. Any present or future natural person or any corporation,
association, partnership, limited partnership, joint venture, limited liability
company, company, business trust, trust, organization, business or government or
any governmental agency or political subdivision thereof.
PLAN. At any time, an employee pension or other benefit plan that is
subject to Title IV of ERISA or subject to the minimum funding standards
<PAGE> 24
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under Section 412 of the Code and is either (a) maintained by the Borrower or
any member of the Controlled Group for employees of the Borrower or any member
of the Controlled Group, or (b) if such Plan is established, maintained pursuant
to a collective bargaining agreement or any other arrangement under which more
than one employer makes contributions and to which the Borrower or any member of
the Controlled Group is then making or accruing an obligation to make
contributions or has, within the preceding five Plan years, made contributions.
PLEDGED COLLATERAL. Has the meaning specified for the term "Pledged
Collateral" in the Intercreditor Agreement.
QUALIFIED INVESTMENTS. As applied to any Person: (a) investments in notes,
bonds or other obligations of the United States of America or any agency or
instrumentality thereof that, as to principal and interest, constitute direct
obligations of or are guaranteed by the United States of America or any agency
or instrumentality thereof; (b) investments in municipal obligations, municipal
auction preferred stock and asset backed securities; PROVIDED, HOWEVER, that any
such instrument shall be rated, at the time of investment, a minimum rating of
AAA by Standard & Poor's Corporation ("S&P") or AAA by Moody's Investors
Service, Inc. ("MOODY'S") or the equivalent short-term municipal ratings of SP1+
by S&P or MIGI by Moody's; (c) investments in certificates of deposit, time
deposits, money market funds or bankers' acceptances issued by any United States
commercial bank (or branch thereof) or issued by any foreign bank (or branch
thereof) or a bank holding company having at the time of investment capital and
surplus of at least $100,000,000; PROVIDED, HOWEVER, that any such banking
instruments shall be rated, at the time of investment, a Thomson Bank Watch
rating of B/C or better; (d) investments in commercial paper issued by any
corporation and rated at the time of investment a minimum rating of A1 or better
by S&P or P1 or better by Moody's and, in either case, maturing within 270 days
after the date of the acquisition thereof; and (e) investments in auction rate
preferred stock and fixed rate or adjustable rate bonds or notes; PROVIDED,
HOWEVER, that any such instrument shall be rated, at the time of investment, a
minimum rating of A- by S&P and/or A3 by Moody's.
REFERENCE PERIOD. Each period of four (4) consecutive fiscal quarters of
the Borrower.
REFUNDING BORROWING. Any Loan which, after application of the proceeds
thereof, results in no net increase in the aggregate outstanding principal
amount of all Loans made by the Lenders.
<PAGE> 25
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REIMBURSEMENT AGREEMENT. The Amended and Restated Reimbursement and
Security Agreement, dated as of January 26, 1999, between the Borrower and
Harcourt General, as the same may be supplemented, modified or amended from time
to time.
REQUIRED LENDERS. At any time of reference, the Lenders that have made in
the aggregate at least sixty-six and two-thirds percent (66-2/3%) of the total
unpaid principal amount of all Loans outstanding at such time, or, if no Loans
are outstanding at such time, the Lenders holding in the aggregate at least
sixty-six and two-thirds percent (66-2/3%) of the total of all Commitment
Amounts in effect at such time.
REVOLVING CREDIT PERIOD. The period beginning on the date of this
Agreement and extending through and including the Commitment Termination Date or
such earlier date on which all of the Commitments of the Lenders to make Loans
shall be terminated in full or the Maximum Credit shall be reduced to zero, all
in accordance with the terms hereof.
SECURITIES. Any Equity Interests, bonds, debentures, notes or other
evidences of indebtedness for borrowed money, whether secured or unsecured, and
whether convertible, subordinated or otherwise, or, in general, any instruments
commonly known as "securities".
SIGNIFICANT SUBSIDIARY. As at any date of determination, any Subsidiary or
group of Subsidiaries of the Borrower, that singly or in the aggregate, as the
case may be, accounted for ten percent (10%) or more of the Consolidated
Adjusted EBITDA of the Borrower and its Subsidiaries for the Reference Period
ending on or immediately prior to such date of determination.
SMITH FAMILY GROUP. Collectively, the group of Persons originally party to
the Smith/Lurie/Marks Stockholders Agreement pertaining to the Equity Interests
of the Borrower (whether or not such agreement is terminated), and includes the
progeny of each such Person.
SUBORDINATED DEBT. Unsecured Borrowed Funds Indebtedness of the Borrower
which is subordinated and made junior in right of payment to all of the
Obligations on terms and conditions approved in writing by the Administrative
Agent and by the Required Lenders.
SUBSIDIARY. Any Person of which the Borrower (or other specified Person)
shall at any time, whether directly or indirectly through one or more of its
Subsidiaries, (a) own more than fifty percent (50%) of the outstanding Equity
Interests of such Person entitled to vote generally, or (b) hold more than fifty
percent (50%) of all of the outstanding Equity Interests of such
<PAGE> 26
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Person; PROVIDED, HOWEVER, that notwithstanding the foregoing, none of Cinema
Ventures, Sundance or any of their direct or indirect Subsidiaries shall
constitute or otherwise be treated as a Subsidiary of the Borrower or of any of
its other Subsidiaries for any purposes or under any provisions of this
Agreement EXCEPT (i) as and to the extent otherwise required by GAAP, SECTIONS
5.1(a) and (b), and (ii) SECTIONS 5.1(h) and (i).
SUBSIDIARY GUARANTY AGREEMENT. The Subsidiary Guaranty Agreement,
substantially in the form of EXHIBIT D hereto, to be executed and delivered to
the Administrative Agent by the Subsidiaries of the Borrower identified as
"GUARANTOR SUBSIDIARIES" in SCHEDULE 4.10, as the same may be supplemented,
modified or amended from time to time.
SUNDANCE. Sundance Cinema Circuit, LLC, a limited liability company
organized under the laws of the State of Delaware.
THEATRE SUBSIDIARY. At any time of reference, any of the direct or
indirect Subsidiaries of the Borrower (a) that is primarily engaged in the
business of motion picture exhibition or managing the motion picture exhibition
or concession business of any other Person or Persons, and (b) that is organized
or incorporated at such time under the laws of any State of the United States or
the District of Columbia. For purposes of this Agreement and the other Loan
Documents, none of GCCI or any of its direct or indirect Subsidiaries, and none
of the Foreign Subsidiaries or any of their direct or indirect Subsidiaries,
shall at any time be or be deemed to be "THEATRE SUBSIDIARIES".
1.2. ACCOUNTING TERMS. Except as and to the extent otherwise expressly
provided by the provisions contained in the definition of the term "GAAP", all
terms of an accounting character shall have the meanings assigned thereto by
GAAP applied on a basis consistent (except for changes concurred with by the
Borrower's independent public accountants) with the most recent audited
consolidated financial statements of the Borrower and its Subsidiaries delivered
to the Administrative Agent and the Lenders.
ARTICLE II
DESCRIPTION OF CREDIT
2.1. THE LOANS.
(a) Subject to the terms and conditions hereof, each Lender
severally agrees to participate, in accordance with its Commitment
Percentage, in making Loans to the Borrower from time to time until the
termination of the Commitments on the Commitment Termination
<PAGE> 27
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Date in such sums as the Borrower may from time to time request; PROVIDED,
HOWEVER, that the aggregate principal amount of all Loans at any one time
outstanding hereunder shall not exceed (i) as to each Lender, the amount
of such Lender's Commitment Amount, and (ii) as to all of the Lenders, the
Maximum Credit. The Borrower may borrow, repay pursuant to SECTION 2.11
and reborrow, from the date of this Agreement until the Commitment
Termination Date, the full amount of the Maximum Credit or any lesser sum
that is at least $1,000,000 and an integral multiple of $100,000. Any
Loans not repaid prior to the Final Maturity Date shall in any event
become and be absolutely due and payable on the Final Maturity Date.
(b) Each of the Commitments shall terminate in full on the
Commitment Termination Date in accordance with the applicable terms
hereof. Each of the parties hereto acknowledges and agrees that, as
expressly provided and acquired by SECTION 2(a) of the Intercreditor
Agreement, each of the Commitments shall terminate in full on the date in
which any sums shall first be paid to any of the Creditor Parties by
Harcourt General or by any of the other Reimbursement Creditors (as
defined in the Intercreditor Agreement) pursuant to the terms of the
Intercreditor Agreement.
(c) Provided that no Default shall be continuing, the Borrower may
convert all or any part (in a minimum amount of $1,000,000 and in integral
multiples of $100,000) of any outstanding Loan into a Loan of any other
type provided for in this Agreement in the same aggregate principal
amount. Any such conversion shall be on any Business Day (which, in the
case of a conversion of a Eurodollar Loan, shall be the last day of the
Interest Period applicable to such Eurodollar Loan). The Borrower shall
give the Administrative Agent prior written notice of each such conversion
(which notice shall be effective upon receipt) in accordance with SECTION
2.2.
2.2. NOTICE AND MANNER OF BORROWING OR CONVERSION OF LOANS.
(a) Whenever the Borrower desires to obtain or continue a Loan
hereunder or to convert an outstanding Loan into a Loan of another type
provided for in this Agreement, the Borrower shall notify the
Administrative Agent in writing (which notice shall be irrevocable), by
hand delivery or facsimile transmission, received no later than (i) 11:00
a.m., Boston time, on the date on which the requested Loan is to be made
or continued as or converted to a Base Rate Loan, and (ii) 11:00 a.m.,
Boston time, on the date three (3) Business Days before the
<PAGE> 28
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day on which the requested Loan is to be made or continued as or converted
to a Eurodollar Loan. Each such notice (a "NOTICE OF BORROWING OR
CONVERSION") shall specify the effective date and amount of each Loan or
portion thereof to be continued or converted, subject to the limitations
set forth in SECTION 2.1, the interest rate option to be applicable
thereto, and the duration of the applicable Interest Period, if any
(subject to the provisions of the definition of the term "INTEREST PERIOD"
and the provisions of SECTION 2.6) and shall be substantially in the form
of EXHIBIT B. The Administrative Agent shall give the Lenders notice of
each Notice of Borrowing or Conversion in accordance with the
Administrative Agent's customary practices. The Borrower agrees to
indemnify and hold the Administrative Agent and the Lenders harmless for
any action, including the making of any Loan hereunder, or loss or
expense, taken or incurred by the Administrative Agent or the Lenders in
good faith reliance upon any such request.
(b) Subject to the terms and conditions of this Agreement, each
Lender shall make available, not later than 12:00 noon, Boston time, on
the date on which any requested Loan is to be made, at the offices of the
Administrative Agent at 100 Federal Street, Boston, Massachusetts 02110 in
immediately available funds, such Lender's Commitment Percentage of each
Loan. After the Administrative Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in ARTICLE III, the
Administrative Agent will credit such funds to the Borrower's demand
deposit account with the Administrative Agent.
(c) Unless the Administrative Agent shall have received notice from
a Lender prior to the date of any Loan that such Lender will not make
available to the Administrative Agent such Lender's Commitment Percentage
of such Loan, the Administrative Agent may assume that such Lender has
made such funds available to the Administrative Agent on the date of such
Loan in accordance with and as provided in this SECTION 2.2, and the
Administrative Agent may, in reliance upon such assumption, (but shall
have no obligation to) make available on such date a corresponding amount
to the Borrower. If and to the extent that any Lender shall not have made
its Commitment Percentage of any Loan available to the Administrative
Agent and the Administrative Agent shall have made available a
corresponding amount to the Borrower, such Lender agrees to pay to the
Administrative Agent forthwith on demand (a copy of which demand shall be
simultaneously given to the Borrower), and the Borrower agrees to repay to
the Administrative Agent within four (4) Business Days after demand has
been made to such Lender and such Lender
<PAGE> 29
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has failed to make such payment, an amount equal to such corresponding
amount together with interest thereon for each day from the date the
Administrative Agent shall have made such amount available to the Borrower
until the date such amount is paid or repaid to the Administrative Agent,
at an interest rate equal to the Federal Funds Effective Rate. If such
Lender shall pay to the Administrative Agent such corresponding amount,
such amount so paid shall constitute such Lender's Commitment Percentage
of such Loan for purposes of this Agreement. If the Borrower makes a
repayment required by the foregoing provisions of this SECTION 2.2(c) and,
thereafter, the applicable Lender or Lenders make the payments to the
Administrative Agent required by this SECTION 2.2(c), the Administrative
Agent shall promptly refund the amount of the Borrower's payment.
(d) The failure of any Lender to make available its Commitment
Percentage of any Loan shall not relieve any other Lender of its
obligation, if any, hereunder to make its Commitment Percentage of such
Loan on the date of such Loan, but no Lender shall be responsible for the
failure of any other Lender to make available its Commitment Percentage of
any Loan to be made available by such other Lender.
2.3. FEES.
(a) The Borrower shall pay to the Administrative Agent, for the
ratable account of the Lenders, during the Revolving Credit Period,
facility fees (the "FACILITY FEES") computed at a rate PER ANNUM equal to
the Applicable Percentage for Facility Fees in effect from time to time on
the average daily amount of the Maximum Credit during each fiscal quarter
of the Borrower or portion thereof. Facility Fees shall be payable
quarter-annually in arrears, on the last day of March, June, September and
December of each year, beginning March 31, 1999, and on the last day of
the Revolving Credit Period.
(b) The Borrower shall pay to the Administrative Agent, for the
ratable account of the Lenders, a non-refundable closing fee in the amount
previously agreed by the Borrower with the Agents, which fee shall be
payable by the Borrower and deemed earned in full on the date of this
Agreement.
(c) The Borrower shall pay to the Administrative Agent, for its own
account, a non-refundable arrangement fee in the amount previously agreed
by the Borrower with the Administrative Agent, which arrangement fee shall
be payable by the Borrower and deemed
<PAGE> 30
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earned in full on the date of this Agreement. The Borrower shall pay to
the Administrative Agent annually, for its own account, an Administrative
Agent's fee in the amount PER ANNUM previously agreed by the Borrower with
the Administrative Agent, which fee shall be payable by the Borrower and
deemed earned in full on the date of this Agreement and on each
anniversary of the date of this Agreement.
2.4. REDUCTION OF MAXIMUM CREDIT. The Borrower may from time to time, by
written notice delivered to the Administrative Agent at least three (3) Business
Days prior to the date of the requested reduction, reduce permanently by
integral multiples of $1,000,000 any unborrowed portion of the Maximum Credit.
No reduction of the Maximum Credit shall be subject to reinstatement.
2.5. THE NOTES.
(a) The Loans made available by each Lender shall be evidenced by a
Note payable to the order of such Lender. Each Note shall be in the
original principal amount of the applicable Lender's Commitment Percentage
of the Maximum Credit, shall be dated on or before the date of the first
Loan, and shall be stated to mature on the Final Maturity Date.
(b) Each Lender shall, and is hereby irrevocably authorized by the
Borrower to, enter on the schedule forming a part of its Note or otherwise
in its records appropriate notations evidencing the date and the amount of
the portion of each Loan made available by such Lender and the date and
amount of each payment of principal made by the Borrower with respect
thereto, and, in the absence of clearly demonstrable error, such notations
shall constitute conclusive evidence thereof. Each Lender is hereby
irrevocably authorized by the Borrower to attach to and make a part of its
Note a continuation of any such schedule as and when required. No failure
on the part of a Lender to make any notation as provided in this PARAGRAPH
(b) shall in any way affect any Loan or the rights or obligations of the
Lender or the Borrower with respect thereto.
2.6. DURATION OF INTEREST PERIODS.
(a) Subject to the provisions of the definition of the term
"INTEREST PERIOD", the duration of each Interest Period applicable to a
Loan shall be as specified in the applicable Notice of Borrowing or
Conversion. The Borrower shall have the option to elect a subsequent
Interest Period to be applicable to such Loan by delivering to the
Administrative Agent a Notice of Borrowing or Conversion evidencing
<PAGE> 31
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such election received no later than 11:00 a.m., Boston time, on the date
one (1) Business Day before the end of the then applicable Interest Period
if such Loan is to be continued as or converted to a Base Rate Loan and
three (3) Business Days before the end of the then applicable Interest
Period if such Loan is to be continued as or converted to a Eurodollar
Loan.
(b) If the Administrative Agent does not receive a notice of
election of duration of an Interest Period for a Eurodollar Loan pursuant
to PARAGRAPH (a) above within the applicable time limits specified
therein, or if, when such notice must be given, an Event of Default shall
be continuing, the Borrower shall be deemed to have elected to convert
such Loan in whole into a Base Rate Loan on the last day of the then
current Interest Period with respect thereto.
(c) Notwithstanding the foregoing, the Borrower may not select an
Interest Period that would end, but for the provisions of the definition
of Interest Period, after the Final Maturity Date.
(d) Notwithstanding anything to the contrary herein, the Borrower
shall not have more than six (6) Eurodollar Loans with different Interest
Periods outstanding at any given time.
2.7. INTEREST RATES AND PAYMENTS OF INTEREST.
(a) Each Base Rate Loan shall bear interest on the outstanding
principal amount thereof at a rate per annum equal to the Base Rate in
effect from time to time, which rate shall change contemporaneously with
any change in the Base Rate. Interest accruing on each Base Rate Loan
shall be payable quarter-annually in arrears, on the last day of March,
June, September and December of each year, beginning March 31, 1999, and
when such Loan is due (whether at maturity, by reason of acceleration or
otherwise).
(b) Each Eurodollar Loan shall bear interest on the outstanding
principal amount thereof, for each Interest Period applicable thereto, at
a rate per annum equal to the Adjusted Eurodollar Rate, PLUS the
Applicable Percentage for Eurodollar Loans in effect from time to time.
Such interest shall be payable for such Interest Period on the last day
thereof and when such Eurodollar Loan is due (whether at maturity, by
reason of acceleration or otherwise), and, if such Interest Period is
longer than three (3) months, at intervals of three (3) months after the
first day thereof.
<PAGE> 32
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2.8. DEFAULT RATE OF INTEREST. During the continuation of any Event of
Default of the type specified in CLAUSE (a), (h) or (i) of SECTION 7.1, the
entire unpaid principal balance of the Loans and, to the extent permitted by
applicable law, overdue interest, overdue fees and all other overdue amounts
payable under this Agreement, the Notes or any other Loan Documents shall bear
interest, compounded monthly and payable on demand, at a rate PER ANNUM equal to
two percent (2%) in excess of the rate otherwise payable under SECTION 2.7.
2.9. CHANGED CIRCUMSTANCES.
(a) In the event that:
(i) on any date on which the Adjusted Eurodollar Rate would
otherwise be set, the Administrative Agent shall have determined in
good faith (which determination shall be final and conclusive) that
adequate and fair means do not exist for ascertaining the Interbank
Offered Rate; or
(ii) at any time the Required Lenders shall have determined
in good faith (which determination shall be final and conclusive)
that
(A) the making or continuation of or conversion of any
Loan to a Eurodollar Loan has been made impracticable or unlawful by
(1) the occurrence of a contingency that materially and adversely
affects the Interbank Eurodollar market, or (2) compliance by the
Administrative Agent or any Lender in good faith with any applicable
law or governmental regulation, guideline or order or interpretation
or change thereof by any governmental authority charged with the
interpretation or administration thereof or with any request or
directive of any such governmental authority (whether or not having
the force of law); or
(B) the Adjusted Eurodollar Rate shall no longer
represent the effective cost to the Administrative Agent or any
Lender for U.S. dollar deposits in the Interbank Eurodollar market
for deposits in which it regularly participates;
then, and in such event, the Administrative Agent shall forthwith so
notify the Borrower thereof. Until the Administrative Agent notifies the
Borrower that the circumstances giving rise to such notice no longer
apply, the obligation of the Lenders and the Administrative Agent to allow
selection by the Borrower of Eurodollar Loans shall be
<PAGE> 33
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suspended. If, at the time the Administrative Agent so notifies the
Borrower, the Borrower has previously given the Administrative Agent a
Notice of Borrowing or Conversion with respect to one or more Eurodollar
Loans, but such Eurodollar Loans have not yet gone into effect, then such
notification shall automatically be deemed to be a Notice of Borrowing or
Conversion (as the case may be) with respect to a Base Rate Loan, unless
the Administrative Agent is instructed otherwise by the Borrower's giving
of a substitute Notice of Borrowing or Conversion pursuant to SECTION 2.2.
Upon such date as shall be specified in such notice (which shall not
be earlier than the date such notice is given), the Borrower shall prepay
all outstanding Eurodollar Loans together with interest thereon and may
borrow a Base Rate Loan in accordance with SECTION 2.1 by giving a Notice
of Borrowing or Conversion pursuant to SECTION 2.2.
(b) In case any change in law, regulation, treaty or official
directive or in the interpretation or application thereof by any court or
by any governmental authority charged with the administration thereof or
the compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(i) subjects any Lender to any tax with respect to payments
of principal or interest or any other amounts payable hereunder by
the Borrower or otherwise with respect to the transactions
contemplated hereby (except for taxes on the net income of any
Lender imposed by the United States of America or any State or other
political subdivisions thereof); or
(ii) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by,
any Lender (other than such requirements as are already included in
the determination of Adjusted Eurodollar Rate); or
(iii) imposes upon any Lender any other condition with respect
to its performance under this Agreement or the other Loan Documents;
and the result of any of the foregoing is to increase the cost to such
Lender, reduce the income receivable by such Lender or impose any expense
upon such Lender with respect to its Commitment or any of
<PAGE> 34
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the Loans, such Lender shall notify the Borrower thereof. The Borrower
agrees to pay to such Lender the amount of such increase in cost,
reduction in income or additional expense as and when such cost, reduction
or expense is incurred or determined, upon presentation by such Lender of
a written statement in the amount and setting forth such Lender's
calculation thereof, which statement shall be deemed true and correct
absent clearly demonstrable error.
2.10. REPLACEMENT OF LENDERS. In the event that any Lender refuses to
agree to a proposed amendment, modification, waiver or other action that is
consented to by the Required Lenders, then, so long as no Event of Default shall
then be continuing, the Borrower shall have the right to substitute for any such
Lender a replacement lender or lenders (which may be one or more of the Lenders)
reasonably satisfactory to the Administrative Agent.
2.11. PAYMENTS AND PREPAYMENTS OF LOANS. Base Rate Loans may be prepaid at
any time, without premium or penalty, upon one (1) Business Day's notice.
Subject to the provisions of SECTION 2.13 hereof, Eurodollar Loans may be
prepaid upon three (3) Business Day's notice. Any interest accrued on the
amounts so prepaid to the date of such payment shall become and be due and
payable by the Borrower at the time of any such payment. Except as set forth in
SECTION 2.4 hereof, no prepayment of the Loans during the Revolving Credit
Period shall affect the Maximum Credit or Commitment Amounts or impair the
Borrower's right to borrow as set forth in SECTION 2.1.
2.12. METHOD OF PAYMENT. All payments and prepayments of principal and all
payments of interest shall be made by the Borrower to the Administrative Agent
at 100 Federal Street, Boston, Massachusetts 02110 in immediately available
funds, on or before 12:00 noon, Boston time, on the due date thereof, free and
clear of, and without any deduction or withholding for, any taxes or other
payments. The Administrative Agent may, and the Borrower hereby authorizes the
Administrative Agent to, debit the amount of any payment not made by such time
to the demand deposit account of the Borrower with the Administrative Agent. The
Administrative Agent will, promptly after its receipt of payments by the
Borrower, distribute like funds to the Lenders for the account of their
respective Loans, ratably in proportion to the Lenders' respective Commitment
Percentages.
2.13. PAYMENTS NOT AT END OF INTEREST PERIOD. If the Borrower for any
reason (other than pursuant to SECTION 2.9) makes any payment of principal with
respect to any Eurodollar Loan on any day other than the last day of an Interest
Period applicable to such Eurodollar Loan, or fails to
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borrow or continue or convert to a Eurodollar Loan after giving a Notice of
Borrowing or Conversion pursuant to SECTION 2.2, or if any Eurodollar Loan is
accelerated pursuant to SECTION 7.2, the Borrower shall pay to each Lender an
amount computed by such Lender to compensate such Lender for losses incurred in
connection with such event, which losses shall include (without limitation) any
losses incurred in obtaining, liquidating or re-employing deposits from third
parties, but excluding loss of margin for the period after such payment or
failure to borrow or prepay. The Borrower shall pay such amount upon
presentation by the Administrative Agent of a written statement setting forth
the amount and the Administrative Agent's calculation thereof pursuant hereto,
which statement shall be deemed true and correct absent clearly demonstrable
error.
2.14. COMPUTATION OF INTEREST AND FEES. All interest and fees payable
hereunder shall be computed on the basis of a 360-day year for the actual number
of days elapsed. If the due date of any payment of principal, interest or other
sum is extended by operation of law, interest shall be payable for such extended
time. If any payment required by this Agreement becomes due on a day that is not
a Business Day, then such payment may be made on the next succeeding Business
Day (subject to CLAUSE (i) of the definition of the term "INTEREST PERIOD"), and
such extension shall be included in computing interest in connection with such
payment. The rate of interest payable with respect to Base Rate Loans shall vary
from time to time as the Base Rate varies, and any change in the rate of
interest shall become effective on the effective date of a change in the Base
Rate.
2.15. USE OF PROCEEDS. The Borrower shall utilize the proceeds of the
Loans for working capital and other general corporate purposes and also for
other business purposes that are not otherwise prohibited by the terms of this
Agreement.
2.16. CAPITAL REQUIREMENTS. If after the date hereof any Lender determines
that (a) the adoption of or change in any law, rule, regulation or guideline
regarding capital requirements for banks or bank holding companies, or any
change in the interpretation or application thereof by any governmental
authority charged with the administration thereof, or (b) compliance by such
Lender or its parent bank holding company with any guideline, request or
directive of any such entity regarding capital adequacy (whether or not having
the force of law), has the effect of reducing the return on such Lender's or
such holding company's capital as a consequence of such Lender's commitment to
make Loans hereunder to a level below that which such Lender or such holding
company could have achieved but for such adoption, change or compliance (taking
into consideration such Lender's or such holding company's then existing
policies with respect to capital
<PAGE> 36
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adequacy and assuming the full utilization of such entity's capital) by any
amount deemed by such Lender to be material, then such Lender shall notify the
Borrower thereof. The Borrower agrees to pay to such Lender the amount of such
reduction of the return on capital as and when such reduction is determined,
upon presentation by the Lender of a written statement in the amount and setting
forth the Lender's calculation thereof, which statement shall be deemed true and
correct absent clearly demonstrable error. In determining such amount, the
Lenders may use any reasonable averaging and attribution methods.
ARTICLE III
CONDITIONS OF LOANS
3.1. CONDITIONS PRECEDENT TO INITIAL LOAN. The obligation of each Lender
to make available its Commitment Percentage of the initial Loan to be made to
the Borrower hereunder is subject to the condition precedent that the
Administrative Agent and the Lenders shall have received, in form and substance
reasonably satisfactory to each of the Administrative Agent, the Lenders and
their counsel, the following:
(a) this Agreement and the Notes, duly executed and delivered by the
Borrower;
(b) certificates of the Secretary or an Assistant Secretary of the
Borrower with respect to resolutions of the Borrower's Board of Directors
authorizing the execution and delivery of this Agreement, the Notes, the
Intercreditor Agreement and the other Loan Documents to which the Borrower
is or is to become a party (all as contemplated hereby), and identifying
the officers of the Borrower authorized to execute, deliver and take all
other actions required under this Agreement or under any of the other Loan
Documents to which the Borrower is or is to become a party, and attesting
to the signatures of such officers;
(c) the Certificate of Incorporation of the Borrower and all
amendments and supplements thereto, filed in the office of the Secretary
of State of the State of Delaware, each certified by such Secretary of
State as being a true and correct copy thereof;
(d) the By-Laws of the Borrower and all amendments and supplements
thereto, each certified by the Secretary or an Assistant Secretary of the
Borrower as being a true and correct copy thereof;
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(e) a certificate of the Secretary of State of the State of Delaware
as to the Borrower's legal existence and good standing in such State and
listing all documents on file in the office of such Secretary of State
with respect to the Borrower;
(f) the Subsidiary Guaranty Agreement, duly executed and delivered
to the Administrative Agent by each Guarantor Subsidiary, substantially in
the form of EXHIBIT D;
(g) an opinion, substantially in the form of EXHIBIT G, addressed to
the Administrative Agent and the Lenders from special counsel to the
Borrower and the Guarantor Subsidiaries;
(h) payment by the Borrower of the closing fee referred to in
SECTION 2.3(b) and the Administrative Agent's fees referred to in SECTION
2.3(c), all as provided by the letter of agreement, dated as of the date
hereof, among the Borrower and the Agents;
(i) payment by the Borrower of all costs and expenses of the
Administrative Agent (including fees of the Administrative Agent's special
counsel);
(j) a certificate of the Secretary or Assistant Secretary of
Harcourt General certifying that (i) Harcourt General has obtained and is
in possession of all capital stock or other certificates or instruments
evidencing the Pledged Collateral and all appropriate stock or other
powers duly endorsed in blank, and (ii) has taken all other steps
necessary or advisable to perfect its security interests in uncertificated
Equity Interests constituting a part of the Pledged Collateral;
(k) the Intercreditor Agreement, duly executed and delivered to the
Administrative Agent by Harcourt General and the Borrower;
(l) copies of the Harcourt General Documents and all amendments and
supplements thereto, duly executed and delivered by the Borrower and
Harcourt General, each certified by the Secretary or Assistant Secretary
of the Borrower as being a true and accurate copy thereof and each to be
in form and substance reasonably satisfactory to the Agents;
(m) an opinion addressed to the Administrative Agent and the Lenders
from the General Counsel of Harcourt General, substantially in the form of
EXHIBIT H;
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(n) an opinion addressed to the Administrative Agent and the Lenders
from Bingham Dana LLP, special counsel to the Administrative Agent,
substantially in the form of EXHIBIT I; and
(o) such other documents, and completion of such other matters,
including termination of the Revolving Credit Agreement, dated as of March
24, 1994, among the Borrower, the lenders party thereto, and BankBoston,
as agent, and the payment in full by the Borrower of all of its unpaid
obligations thereunder, as the Administrative Agent or special counsel for
the Administrative Agent or as counsel for any of the Lenders may
reasonably deem necessary or appropriate.
3.2. CONDITIONS PRECEDENT TO ALL LOANS. The obligation of each Lender to
make available its Commitment Percentage of each Loan, including the initial
Loan, is further subject to the following conditions:
(a) timely receipt by the Administrative Agent of the Notice of
Borrowing or Conversion as provided in SECTION 2.2;
(b) the representations and warranties of the Borrower contained in
ARTICLE IV (except that, in the case of a Refunding Borrowing, the
representations and warranties set forth in SECTIONS 4.4(b) and 4.6 need
not be true if the matter which would make them untrue has theretofore
been disclosed in writing by the Borrower to the Administrative Agent)
shall be true and accurate in all material respects on and as of the date
of such Notice of Borrowing or Conversion and also on and as of the
effective date of the making or conversion of each Loan or Refunding
Borrowing as though made at and as of each such date (except to the extent
that such representations and warranties expressly relate to an earlier
date), and no Default shall be continuing or shall result from such Loan;
(c) the resolutions referred to in SECTION 3.1(b) shall remain in
full force and effect;
(d) no Default or First Tier Default (as each of such terms is
defined in the Reimbursement Agreement) shall be continuing or shall
result from such Loan; and
(e) no change shall have occurred in any law or regulation or
interpretation thereof that would make it illegal for the Lenders to make
any Loans hereunder.
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The making or conversion of each Loan or Refunding Borrowing shall be
deemed to be a representation and warranty by the Borrower on and as of the
effective date of the making or conversion of such Loan or Refunding Borrowing
(i) as to the accuracy of the facts referred to in PARAGRAPH (b) of this SECTION
3.2, and (ii) that each of the conditions precedent described in PARAGRAPHS (b),
(c) and (d) of this SECTION 3.2 has been satisfied..
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement and to make
Loans hereunder, the Borrower represents and warrants to the Administrative
Agent and the Lenders that:
4.1. EXISTENCE AND POWER. Each of the Borrower and its Subsidiaries is a
corporation or (as the case may be) limited liability company or partnership
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, has all requisite power and authority to carry on
its business as now being conducted and to own its properties, and is duly
qualified and in good standing as a foreign corporation or (as the case may be)
foreign limited liability company or foreign partnership in each other
jurisdiction in which the failure to be so qualified would materially and
adversely affect the conduct of its business or the enforceability of its
contractual rights.
4.2. AUTHORIZATION.
(a) The execution, delivery and performance by the Borrower of this
Agreement, the Notes, the Intercreditor Agreement and each of the other
Loan Documents to which the Borrower is or is to become a party (as all
contemplated hereby) and the transactions contemplated hereby or thereby
are within the corporate power and authority of the Borrower and have been
duly authorized by all necessary corporate action and do not and will not
contravene any provision of the charter documents or by-laws of the
Borrower, any law, rule or regulation applicable to the Borrower, or any
provision of, or constitute an event of default or event that, but for the
requirement that time elapse or notice be given, or both, would constitute
an event of default under, any other agreement, instrument, order or
undertaking binding on the Borrower, or result in or require the
imposition of any Encumbrance on any of the properties, assets or rights
of the Borrower.
(b) The execution, delivery and performance of the Subsidiary
Guaranty Agreement by each Guarantor Subsidiary will, when such
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Guarantor Subsidiary becomes a party thereto, (i) be within the power and
authority of such Guarantor Subsidiary as a corporation, limited liability
company or (as the case may be) partnership, (ii) have been duly
authorized by all necessary action as a corporation, limited liability
company or (as the case may be) partnership, and (iii) will not contravene
any provision of the charter documents or by-laws of such Guarantor
Subsidiary, any law, rule or regulation applicable to such Guarantor
Subsidiary, or any provision of, or constitute an event of default or
event that, but for the requirement that time elapse or notice be given,
or both, would constitute an event of default under, any other agreement,
instrument, order or undertaking binding on such Guarantor Subsidiary, or
result in or require the imposition of any Encumbrance on any of the
properties, assets or rights of such Guarantor Subsidiary.
4.3. VALID OBLIGATIONS.
(a) This Agreement, the Notes and the Intercreditor Agreement and
all of their respective terms and provisions are the legal, valid and
binding obligations of the Borrower, enforceable in accordance with their
respective terms.
(b) The Subsidiary Guaranty Agreement and all of the terms and
provisions thereof are, or (as the case may be) will, when executed and
delivered, be, the legal, valid and binding obligations of each Guarantor
Subsidiary party thereto, enforceable against each such Guarantor
Subsidiary in accordance with their respective terms.
4.4. FINANCIAL INFORMATION, ETC.
(a) All balance sheets, all statements of operations and of cash
flows, and all other financial statements which have been furnished by the
Borrower to the Administrative Agent and the Lenders for the purposes of
or in connection with this Agreement, including:
(i) the audited consolidated balance sheet at October 31,
1997, and the related audited consolidated statements of operations,
of shareholders' equity and of cash flows, for the Fiscal Year then
ended, of the Borrower and its Subsidiaries accompanied by the notes
thereto and the reports thereon of Deloitte & Touche LLP; and
(ii) the unaudited consolidated balance sheet at July 31,
1998, and the related unaudited consolidated
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statements of operations and of cash flows, for the one-month and
nine-month period then ended of the Borrower and its Subsidiaries
(the financial statements referred to in CLAUSES (i) and (ii) being
herein referred to, collectively, as the "HISTORICAL FINANCIALS");
have been prepared in accordance with GAAP consistently (except as
otherwise described therein) applied throughout the periods involved
(except that the financial statements referred to in CLAUSE (ii) do not
include footnotes) and present fairly (subject to normal year-end
adjustments in the case of the financial statements referred to in CLAUSE
(ii)) the financial condition of the corporations, limited liability
companies or (as the case may be) partnerships covered thereby as at the
dates thereof and the results of their operations for the periods then
ended.
(b) Since October 31, 1998, there has been no material adverse
change in the financial condition, results of operations or business of
the Borrower and its Subsidiaries, taken as a whole, which has not been
disclosed by the Borrower to the Agents and the Lenders in the financial
information pertaining to the Borrower furnished to the Agents and the
Lenders prior to the date hereof.
4.5. CONSENTS OR APPROVALS. The execution, delivery and performance of
this Agreement, the Notes, the Subsidiary Guaranty Agreement and the
Intercreditor Agreement and the transactions contemplated hereby or thereby do
not require any approval or consent of, or filing or registration with, any
governmental or other agency or authority, or any other Person.
4.6. LITIGATION. There are no actions, suits or proceedings pending
against or, to the knowledge of the Borrower's officers, threatened against or
affecting, the Borrower or any of its Subsidiaries in any court or before or by
any governmental department, agency or instrumentality, in which there is a
reasonable possibility of an adverse decision which would materially and
adversely affect the financial condition or business of the Borrower and its
Subsidiaries, taken as a whole.
4.7. DEFAULTS, ETC.
(a) No Default is continuing under this Agreement.
(b) No Default (as that term is defined in the Reimbursement
Agreement) is continuing under the Reimbursement Agreement.
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(c) No First Tier Default (as that term is defined in the
Reimbursement Agreement) is continuing under the Reimbursement Agreement.
4.8. TAXES. The Borrower and each of its Subsidiaries have filed all
federal, state and other tax returns required to be filed, and all taxes,
assessments and other governmental charges due from the Borrower or from any of
its Subsidiaries have been fully paid, except where the payment of any such
taxes is being contested in good faith by appropriate proceedings. The Borrower
and each of its Subsidiaries have established on their books reserves adequate
for the payment of all federal, state and other tax liabilities.
4.9. USE OF PROCEEDS. No portion of any Loan is to be used for the
"purpose of purchasing or carrying" any "margin stock" as such terms are used in
Regulations U and X of the Board of Governors of the Federal Reserve System, 12
C.F.R. 221 and 224, as amended, and, following the application of the proceeds
of each Loan, the value of all "margin stock" of the Borrower will not exceed
twenty-five (25%) of the value of the total assets of the Borrower.
4.10. SUBSIDIARIES.
(a) Each of the Subsidiaries of the Borrower is listed on SCHEDULE 4.10.
The Borrower is the owner, free and clear of all liens and other encumbrances,
of all of the issued and outstanding Equity Interests in each such Subsidiary,
except as otherwise described in SCHEDULE 4.10 and except that the Borrower has
pledged the Pledged Collateral to Harcourt General in connection with the
Reimbursement Agreement. All of the issued and outstanding Equity Interests in
each of such Subsidiaries have been validly issued and are fully paid and
nonassessable, and no rights to subscribe to any additional Equity Interests
have been granted, and no options, warrants or other similar rights are
outstanding.
(b) Each of the Guarantor Subsidiaries party or (as the case may be) to
become a party to the Subsidiary Guaranty Agreement on or as of the date of the
initial Loan hereunder is listed on SCHEDULE 4.10. The Minimum Guaranty
Conditions will be satisfied on and as of the date of the initial Loan
hereunder.
4.11. INVESTMENT COMPANY ACT. Neither the Borrower nor any of its
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
as amended.
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4.12. COMPLIANCE WITH ERISA. The Borrower and each member of the
Controlled Group have fulfilled their obligations under the minimum funding
standards of ERISA and the Code with respect to each Plan and are in compliance
in all material respects with the presently applicable provisions of ERISA and
the Code with respect to each Plan. No member of the Controlled Group has (a)
sought a waiver of the minimum funding standard under Section 412 of the Code in
respect of any Plan, (b) failed to make any contribution or payment, or made any
amendment to any Plan, which has resulted or could result in the imposition of a
lien or the posting of a bond or other security under ERISA or the Code, or (c)
incurred any liability under Title IV of ERISA.
4.13. ENVIRONMENTAL MATTERS.
(a) As of the date hereof, to the knowledge of the Borrower's
officers, no notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed,
no penalty has been assessed and no investigation or review is pending or
threatened by any governmental or other entity with respect to any alleged
violation by the Borrower or by any of its Subsidiaries of any
Environmental Law in which there is a reasonable possibility of a
determination that could have a material adverse effect on the business,
financial condition or results of operations of the Borrower or any
Significant Subsidiary.
(b) The Borrower has reasonably concluded that the costs of
compliance with Environmental Laws are unlikely to have a material adverse
effect on the business, financial condition or results of operations of
the Borrower and its Subsidiaries, taken as a whole.
4.14. YEAR 2000 PROBLEM. The Borrower has reviewed the areas within the
operations and business of the Borrower and its Subsidiaries which could be
adversely affected by, and has developed or is developing a program to address
on a timely basis, the Year 2000 Problem and has made related inquiry of
material suppliers and vendors of the Borrower and its Subsidiaries. Based on
such review and program, the Borrower represents and warrants that, to the best
of the Borrower's knowledge, the Year 2000 Problem will not have a materially
adverse effect on the business, financial condition or results of operations of
the Borrower or any Significant Subsidiary. As used herein, the term "YEAR 2000
PROBLEM" means the possibility that any computer applications or equipment used
by the Borrower or by any of its Subsidiaries may be unable to recognize and
properly perform date-sensitive functions involving certain dates prior to and
any dates on or after January 1, 2000.
<PAGE> 44
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ARTICLE V
AFFIRMATIVE COVENANTS
So long as any of the Lenders have any Commitments to lend hereunder or
any of the Loans or other Obligations remain outstanding, the Borrower covenants
as follows:
5.1. FINANCIAL STATEMENTS AND OTHER REPORTING REQUIREMENTS. The Borrower
shall furnish to the Administrative Agent and the Lenders:
(a) As soon as practicable, but in any event within 100 days after
the close of each Fiscal Year of the Borrower, (i) a consolidated balance
sheet of the Borrower and its Subsidiaries, as of the end of, and related
consolidated statements of operations, shareholders' equity and cash flows
for, such Fiscal Year, audited and certified by Deloitte & Touche LLP or
other independent certified public accountants of nationally recognized
standing reasonably satisfactory to the Administrative Agent (delivery by
the Borrower of its Annual Reports on Form 10-K, together with its annual
report to shareholders, if incorporated by reference therein, shall be
deemed compliance with this provision), and, concurrently with such
financial statements, a written statement by such accountants that, in the
making of the audit necessary for their report and opinion upon such
financial statements, they have obtained no knowledge of any Default or,
if in the opinion of such accountants any such Default exists, they shall
disclose in such written statement the nature and status thereof, (ii) a
listing of all Permitted Non-Theatre Investments made by the Borrower, by
GCCI or by any of GCCI's Subsidiaries during such Fiscal Year, and (iii)
if requested by the Administrative Agent, consolidating balance sheets of
the Borrower and of its Subsidiaries, as of the end of, and related
consolidating statements of operations, shareholders' equity and cash
flows for, such Fiscal Year, certified by the chief financial officer or
the chief accounting officer of the Borrower.
(b) As soon as practicable, but in any event within 55 days after
the close of each of its first three fiscal quarters, a consolidated
balance sheet of the Borrower and its Subsidiaries, as of the end of, and
related consolidated statements of operations, shareholders' equity and
cash flows for, the period then ended, certified by the chief financial
officer or chief accounting officer of the Borrower (delivery by the
Borrower of its Quarterly Reports on Form 10-Q shall be deemed compliance
with this provision).
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(c) Concurrently with each delivery of financial statements pursuant
to PARAGRAPH (a) or PARAGRAPH (b) of this Section 5.1, a report, in or in
substantially the form of EXHIBIT C, signed on behalf of the Borrower by
its chief financial officer or chief accounting officer (each, a
"COMPLIANCE CERTIFICATE"), and setting forth or (as the case may be)
identifying (i) in reasonable detail the calculations made by the Borrower
to determine compliance with each of SECTIONS 5.7 through 5.10, inclusive,
and with each of SECTIONS 6.7, 6.8 and 6.9, and the information necessary
for the Administrative Agent to determine compliance by the Borrower with
each of SECTIONS 5.7 through 5.10, inclusive, and with each of SECTIONS
6.7, 6.8 and 6.9, and (ii) the Cumulative Excess Theatre Cash Flow and the
Net Available Amount as of the date of such Compliance Certificate; and
also concurrently with each delivery of financial statements pursuant to
PARAGRAPH (a) of this SECTION 5.1, a supplemental report, signed on behalf
of the Borrower by its chief financial officer or chief accounting
officer, and setting forth or (as the case may be) identifying (A) each
Material Subsidiary of the Borrower, determined as of the date of such
Compliance Certificate in accordance with SECTION 5.11, (B) the statement
that, as of the date of such Compliance Certificate, the Minimum Guaranty
Conditions have been satisfied, and (C) the statement that there are,
except as disclosed in such Compliance Certificate, no other Material
Subsidiaries as of the date of such Compliance Certificate.
(d) Promptly upon completion thereof, and in any event not later
than thirty (30) days after the first day of each Fiscal Year of the
Borrower, a copy of the annual business plan and budget for such Fiscal
Year for the Borrower and its Subsidiaries, including, in each case,
budgeted results and cash flows for each fiscal quarter of such Fiscal
Year and for such Fiscal Year as a whole, together with an explanation of
any differences between the sum of the individual budgets and the
consolidated totals.
(e) Promptly after the same shall become available, copies of all
such proxy statements, financial statements and other reports as the
Borrower shall send to its stockholders or as the Borrower may file with
the Securities and Exchange Commission or any governmental authority
succeeding to any of its functions and having jurisdiction over the
Borrower or its Subsidiaries.
(f) If and when the Borrower shall give or shall be required to give
notice to the PBGC of any "Reportable Event" (as defined in Section 4043
of ERISA) with respect to any Plan that might constitute
<PAGE> 46
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grounds for a termination of such Plan under Title IV of ERISA, or shall
become aware that any member of the Controlled Group or the plan
administrator of any Plan has given or is required to give notice of any
such Reportable Event, a copy of the notice of such Reportable Event given
or required to be given to the PBGC.
(g) Immediately upon becoming aware of the existence of any
condition or event that constitutes any Default hereunder or any "Default"
or "First Tier Default" under the Reimbursement Agreement, written notice
thereof specifying the nature and the duration thereof and the action
being or proposed to be taken with respect thereto, and, promptly after
the receipt thereof by the Borrower, true and complete copies of any
written notice of any such "Default" or "First Tier Default" under the
Reimbursement Agreement.
(h) Promptly upon becoming aware of any litigation or of any
investigative proceedings by any governmental agency or authority
commenced or threatened against the Borrower or against any of its
Subsidiaries of which the Borrower has notice, and in which there is a
reasonable possibility of an adverse decision which would materially and
adversely affect the financial condition, results of operations or
business of the Borrower and its Subsidiaries, taken as a whole, written
notice thereof and the action being or proposed to be taken with respect
thereto.
(i) From time to time, such other financial data and other
information about the Borrower or any of its Subsidiaries as the
Administrative Agent may reasonably request.
5.2. CONDUCT OF BUSINESS. Each of the Borrower and its Subsidiaries
shall:
(a) duly observe and comply in all material respects with all
applicable laws and requirements of any governmental authorities relative
to its corporate existence, rights and franchises, to the conduct of its
business and to its property and assets (including, without limitation,
all Environmental Laws and ERISA), and shall maintain and keep in full
force and effect all licenses and permits necessary in any material
respect to the proper conduct of its business; and
(b) subject to the provisions of SECTION 6.4, maintain its corporate
existence.
5.3. MAINTENANCE AND INSURANCE. Each of the Borrower and its Subsidiaries
shall maintain its properties in satisfactory repair, working
<PAGE> 47
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order and condition as required for the normal conduct of its business. Each of
the Borrower and its Subsidiaries shall at all times maintain liability and
casualty insurance with financially sound and reputable insurers in such amounts
and to the extent customary for companies of like size in similar businesses, it
being understood that the Borrower may self-insure against exposures which, in
the judgment of its management, are reasonable in relation to its financial
position. The Borrower shall furnish to the Administrative Agent upon written
request certificates or other evidence reasonably satisfactory to the
Administrative Agent of compliance with the foregoing insurance provisions.
5.4. TAXES. The Borrower shall pay or cause to be paid all lawful taxes,
assessments and other governmental charges or levies imposed on or against it or
any of its Subsidiaries or its or their income or properties as and when or
prior to the time they shall become due; PROVIDED, HOWEVER, that this covenant
shall not apply to any tax, assessment or other charge or levy that is being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been established and are being maintained in accordance
with GAAP.
5.5. INSPECTION BY LENDERS. The Borrower shall permit the Administrative
Agent, the Lenders and their respective designees, at any reasonable time, and
upon reasonable notice (given to a senior financial officer of the Borrower), to
(a) visit and inspect the properties of the Borrower and of each of its
Subsidiaries, and (b) discuss the affairs, finances and accounts of the Borrower
and its Subsidiaries with their appropriate officers, employees and accountants.
During any such inspection, the Administrative Agent and the Lenders shall be
furnished, from the books, records and files of the Borrower and its
Subsidiaries, such financial and other information as the Administrative Agent
or any of the Lenders may reasonably request and upon such reasonable conditions
relating to the confidentiality of the material and information so supplied as
the Borrower might impose. In handling such information, each of the
Administrative Agent and the Lenders shall respect the confidential nature of
the material and information so supplied and shall take reasonable measures to
preserve such confidentiality. It is understood that each of the Administrative
Agent and the Lenders may disclose such information (i) to its subsidiaries or
affiliates in connection with their present or prospective business relations
with the Borrower or any of its Subsidiaries, (ii) to any prospective
transferees or purchasers of any interest in the Loans or Commitments, (iii) as
required by law, regulation, rule or order, subpoena, judicial order or other
similar order, and (iv) as may be required in connection with the examination,
audit or similar investigation of the Administrative Agent or any of the
Lenders.
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5.6. MAINTENANCE OF BOOKS AND RECORDS. Each of the Borrower and its
Subsidiaries shall keep adequate books and records of account, in which true and
complete entries shall be made reflecting all of its business and financial
transactions, and such entries shall be made in accordance with GAAP.
5.7. CONSOLIDATED NET WORTH. The Consolidated Net Worth of the Borrower
and its Subsidiaries shall, as at the last day of each Reference Period, be
equal to or exceed the Net Worth Compliance Level. As used in this SECTION 5.7,
the term "NET WORTH COMPLIANCE LEVEL" shall mean the SUM of (a) $135,000,000,
PLUS (b) fifty percent (50%) of the Consolidated Net Income of the Borrower and
its Subsidiaries for each Fiscal Year of the Borrower ending on or after October
31, 1998 for which the Consolidated Net Income is positive. The Net Worth
Compliance Level shall be increased, as contemplated by the foregoing provisions
of this SECTION 5.7, as at the date on which the financial statements of the
Borrower and its Subsidiaries for each Fiscal Year are delivered to the
Administrative Agent pursuant to SECTION 5.1(a), PROVIDED that the Consolidated
Net Income for such Fiscal Year is positive. If the Consolidated Net Income for
any Fiscal Year is negative, the Net Worth Compliance Level shall not be
decreased or otherwise adjusted pursuant to the foregoing provisions of this
SECTION 5.7 as at the end of such Fiscal Year.
5.8. CONSOLIDATED ADJUSTED EBITDA TO CONSOLIDATED INTEREST Charges. The
Consolidated Adjusted EBITDA for each Reference Period ending on or after
October 31, 1998 shall equal or exceed 250% of the Consolidated Interest Charges
for each such Reference Period.
5.9. CONSOLIDATED ADJUSTED CASH FLOW TO CONSOLIDATED FIXED Charges. The
Consolidated Adjusted Cash Flow for each Reference Period ending on or after
October 31, 1998 shall equal or exceed 105% of Consolidated Fixed Charges for
each such Reference Period.
5.10. ADJUSTED TOTAL DEBT TO CONSOLIDATED ADJUSTED EBITDA. The Adjusted
Total Debt as of the last day of each Reference Period ending on or after
January 31, 1999 shall be less than or equal to 400% of the Consolidated
Adjusted EBITDA for the Reference Period then ended.
5.11. SUBSIDIARY GUARANTIES.
(a) The Borrower shall cause each of the following conditions ("MINIMUM
GUARANTY CONDITIONS") to be satisfied on and as of each date of determination
with respect thereto (each, a "TEST DATE"), as provided by PARAGRAPH (b) of this
SECTION 5.11:
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(i) each Theatre Subsidiary of the Borrower that has contributed
more than two percent (2%) of the Consolidated Adjusted EBITDA of the
Borrower and its Subsidiaries for the Reference Period applicable to such
Test Date (each, a "MATERIAL SUBSIDIARY") shall, on and as of such Test
Date, be a party to and bound by the Subsidiary Guaranty Agreement; and
(ii) there shall also be party to and bound by the Subsidiary
Guaranty Agreement on and as of such Test Date, in addition to each of the
Material Subsidiaries, such other Subsidiaries of the Borrower that are
not Material Subsidiaries as of such Test Date as shall have been
identified and selected by the Borrower (each, a "NON-MATERIAL
SUBSIDIARY") so that the Guarantor Subsidiaries party to and bound by the
Subsidiary Guaranty Agreement on and as of such Test Date shall together
have contributed more than eighty-five percent (85%) of the Consolidated
Adjusted EBITDA of the Borrower and its Subsidiaries for the Reference
Period applicable to such Test Date, all as determined for such Guarantor
Subsidiaries and for such applicable Reference Period on a consolidated
basis and in accordance with GAAP;
(b) Compliance by the Borrower with the Minimum Guaranty Conditions
shall be determined on or as of each Test Date set forth in the table below and
by reference (in each case) to the Consolidated Adjusted EBITDA of each of the
Borrower and its Subsidiaries, the Material Subsidiaries and Non-Material
Subsidiaries for the Reference Period set forth below opposite such Test Date:
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APPLICABLE REFERENCE
TEST DATE PERIOD
--------- --------------------
The date of this Agreement The Reference Period ending
October 31, 1998
The date of the Compliance Certificate The Reference Period ending on the
delivered to the Administrative Agent last day of such Fiscal Year for any
Fiscal Year ending after October 31,
1998
The date on which any Non-Material The most recently completed
Subsidiary is to be released from the Reference Period for which
Subsidiary Guaranty Agreement financial statements have been
delivered to the Administrative
Agent pursuant to SECTION 5.1(a) or
5.1(b)
(c) The Borrower may at any time and from time to time request the
Administrative Agent to release any Non-Material Subsidiary from the Subsidiary
Guaranty Agreement and all of such Subsidiary's obligations thereunder by giving
to the Administrative Agent a written notice identifying the Non-Material
Subsidiary and the date by which the release is to be completed and stating that
the Minimum Guaranty Conditions will continue to be satisfied after giving
effect to such release. The Administrative Agent will, on the date requested by
the Borrower, release the Non-Material Subsidiary from the Subsidiary Guaranty
Agreement in accordance with the Borrower's request, PROVIDED that, on the date
of such release and after giving effect thereto, (i) each of the Minimum
Guaranty Conditions shall continue to be satisfied, and (ii) no Defaults shall
be continuing. In connection with each such release, the Administrative Agent
will execute and deliver to the Borrower such further instruments and take such
further action as may reasonably be requested by the Borrower to complete such
release.
5.12. YEAR 2000 COMPLIANCE. The Borrower shall, and shall cause each of
its Subsidiaries to, perform all acts necessary to ensure that the Borrower and
its Subsidiaries shall become Year 2000 Compliant in a timely manner. Such acts
will include, as and to the extent determined by the Borrower on a reasonable
basis to be reasonably necessary and appropriate considering the nature of the
business and operations conducted by the Borrower and its Subsidiaries,
performing a comprehensive review and
<PAGE> 51
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assessment of all material systems of the Borrower and its Subsidiaries and, if
and as reasonably necessary or appropriate, adopting a plan, with itemized
budget, if appropriate, for the remediation, monitoring and testing of such
systems. As used in this SECTION 5.12, the term "YEAR 2000 COMPLIANT" means,
with respect to any Person, that all software, hardware, equipment, or systems
utilized by and material to the business, operations or financial condition of
such Person will properly perform date sensitive functions before, during and
after the year 2000. The Borrower shall, promptly upon the reasonable request of
the Administrative Agent or the Required Lenders from time to time, provide to
the Administrative Agent and the Lenders such evidence of compliance by the
Borrower and its Subsidiaries with the terms of this SECTION 5.12 as the
Administrative Agent or the Required Lenders may reasonably require.
5.13. FURTHER ASSURANCES. At any time and from time to time, the Borrower
shall, and shall cause each of its Subsidiaries to, execute and deliver such
further instruments and take such further action as may reasonably be requested
by the Administrative Agent or the Required Lenders to effect the purposes of
this Agreement, the Notes and the other Loan Documents.
ARTICLE VI
NEGATIVE COVENANTS
So long as any of the Lenders have any Commitments to lend hereunder or
any of the Loans or other Obligations remain outstanding, the Borrower covenants
as follows:
6.1. BORROWED FUNDS INDEBTEDNESS. Neither the Borrower nor any of its
Subsidiaries shall create, incur, assume, guarantee or be or remain liable with
respect to any Borrowed Funds Indebtedness, EXCEPT the following:
(a) Borrowed Funds Indebtedness of the Borrower or of any of its
Subsidiaries to any of the Creditor Parties or any of their affiliates
under this Agreement or any of the other Loan Documents.
(b) Borrowed Funds Indebtedness of the Borrower or of any of its
Subsidiaries existing on or as of the date of this Agreement and disclosed
on SCHEDULE 6.1.
(c) Borrowed Funds Indebtedness of the Borrower or of any of its
Subsidiaries to Harcourt General under the Harcourt General Documents.
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(d) Borrowed Funds Indebtedness of the Borrower or of any of its
Subsidiaries secured by Permitted Encumbrances to the extent permitted
under SECTION 6.3.
(e) Unsecured Borrowed Funds Indebtedness of the Borrower or of any
of its Subsidiaries to one or more financial institutions not in excess of
$24,000,000 in the aggregate at any one time outstanding.
(f) Subordinated Debt.
(g) Foreign Non-Recourse Debt.
(h) Borrowed Funds Indebtedness of the Borrower under Guaranties by
the Borrower to the extent permitted by PARAGRAPH (h) or (k) of SECTION
6.2.
(i) Unsecured Borrowed Funds Indebtedness of any corporation or
other Person existing at the time such corporation or other Person becomes
a Subsidiary of the Borrower and not created in contemplation of such
corporation or other Person becoming a Subsidiary of the Borrower;
PROVIDED, HOWEVER, that, on each occasion on which any corporation or
other Person shall become a Subsidiary of the Borrower and after giving
effect thereto, no Default shall be continuing or shall result therefrom.
6.2. CONTINGENT LIABILITIES. Neither the Borrower nor any of its
Subsidiaries shall create, incur, assume, guarantee or be or remain liable with
respect to any Guaranties, EXCEPT the following:
(a) Guaranties in favor of any of the Creditor Parties or any of
their affiliates under this Agreement or any of the other Loan Documents.
(b) Guaranties existing on or as of the date of this Agreement and
disclosed on SCHEDULE 6.2.
(c) Guaranties resulting from the endorsement of negotiable
instruments for collection in the ordinary course of business.
(d) Guaranties with respect to surety, appeal, performance and
return-of-money and other similar obligations incurred in the ordinary
course of business (exclusive of obligations for the payment of Borrowed
Funds Indebtedness) not exceeding in the aggregate at any time $500,000.
<PAGE> 53
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(e) Guaranties of normal trade debt relating to the acquisition of
goods and supplies in the ordinary course of business.
(f) Guaranties executed by the Borrower with respect to obligations
(exclusive of obligations for the payment of Borrowed Funds Indebtedness)
of any of the Borrower's Subsidiaries; PROVIDED, HOWEVEr, that the
creation, incurrence or assumption of any of such obligations by any of
the Borrower's Subsidiaries shall not be prohibited by SECTION 6.1 or by
any of the other provisions of this Agreement.
(g) Guaranties executed by the Borrower in connection with Permitted
Non-Theatre Investments; PROVIDED, HOWEVER, that (i) for purposes of
SECTION 6.8(c), the aggregate amount of all of the obligations so
guaranteed shall be included (without duplication) in determining the
aggregate amount of Permitted Non-Theatre Investments that may be made by
the Borrower, by GCCI and by the Subsidiaries of GCCI in compliance with
such SECTION 6.8(c), and (ii) at the time of making any such Guaranty and
after giving effect thereto, no Default shall be continuing and no Default
shall result therefrom.
(h) Unsecured Guaranties by the Borrower of the secured or unsecured
Borrowed Funds Indebtedness of Hoyts General Cinema South America, Inc. or
of any of its direct or indirect Subsidiaries; provided, HOWEVER, that the
aggregate amount of all of the Borrowed Funds Indebtedness for which the
Borrower shall be liable under all of such Guaranties shall not at any
time exceed $75,000,000.
(i) Unsecured Guaranties by the Borrower of the secured or unsecured
Borrowed Funds Indebtedness of the Borrower's Foreign Subsidiaries;
PROVIDED, HOWEVER, that (A) any such Borrowed Funds Indebtedness shall, if
and so long as it continues to be guarantied by the Borrower, not
constitute Foreign Non-Recourse Debt for any purpose in this Agreement;
and (B) at the time of the making of any such Guaranty by the Borrower and
after giving effect thereto, no Default shall be continuing and no Default
shall result therefrom.
(j) Continuing obligations of the Borrower and its Subsidiaries with
respect to real property leases assigned to third parties or with respect
to real property leases of Sundance or Cinema Ventures.
(k) Unsecured Guaranties by the Borrower or by any of its
Subsidiaries of the secured or unsecured Borrowed Funds Indebtedness of
Sundance or of any of its direct or indirect
<PAGE> 54
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Subsidiaries, but only to the extent, in any case, that such Guaranties
are permitted by PARAGRAPH (f) of SECTION 6.8.
6.3. ENCUMBRANCES. Neither the Borrower nor any of its Subsidiaries shall
create, incur, assume or suffer to exist any mortgage, pledge, security
interest, lien or other charge or encumbrance ("ENCUMBRANCES"), including,
without limitation, the lien or retained security title of a conditional vendor,
upon or with respect to any of its property or assets, including, without
limitation, any of the Pledged Collateral, or assign or otherwise convey any
right to receive income, including the sale or discount of accounts receivable,
whether with or without recourse, EXCEPT the following ("PERMITTED
ENCUMBRANCES"):
(a) Encumbrances in favor of any of the Creditor Parties or any of
their affiliates under this Agreement or any of the other Loan Documents.
(b) Encumbrances in favor of Harcourt General upon the terms
contained in the Reimbursement Agreement.
(c) Encumbrances existing on or as of the date of this Agreement and
disclosed on SCHEDULE 6.3.
(d) Liens for taxes, fees, assessments and other governmental
charges to the extent that payment of the same may be postponed or is not
required in accordance with the provisions of SECTION 5.4.
(e) Landlords' and lessors' liens in respect of rent or liens in
respect of pledges or deposits under workmen's compensation, unemployment
insurance, social security laws or other similar legislation (other than
ERISA) or in connection with appeal and similar bonds incidental to
litigation; mechanics', laborers' and materialmen's and other similar
liens, if the obligations secured by such liens are not then delinquent;
liens securing the performance of bids, tenders or contracts (other than
for the payment of money); and statutory obligations incidental to the
conduct of the business of the Borrower or of any of its Subsidiaries and
that do not in the aggregate materially detract from the value of its
property or materially impair the use thereof in the operation of its
business.
(f) Judgment liens that shall not have been in existence for a
period longer than thirty (30) days after the creation thereof, or, if a
stay of execution shall have been obtained, for a period longer than
thirty (30) days after the expiration of such stay.
<PAGE> 55
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(g) Rights of lessors under Capitalized Leases.
(h) Encumbrances in respect of any purchase money obligation of the
Borrower or of any of its Subsidiaries for tangible property (realty or
personalty) used in the business of the Borrower or of any of its
Subsidiaries; PROVIDED, HOWEVER, that the aggregate principal amount of
all obligations secured by such Encumbrances shall not exceed $10,000,000
in the aggregate at any one time outstanding; and PROVIDED, FURTHER, that
any such Encumbrances shall not extend to property of the Borrower or of
any of its Subsidiaries not financed by such purchase money obligation.
(i) Easements, rights of way, restrictions and other similar charges
or Encumbrances relating to real property and not interfering in any
material way with the ordinary conduct of the business of the Borrower or
of any of its Subsidiaries.
(j) Encumbrances on the property or assets of the Borrower or of any
of its Subsidiaries created in connection with the refinancing of
indebtedness secured by Permitted Encumbrances on such property; PROVIDED,
HOWEVER, that the amount of indebtedness secured by any such Encumbrance
shall not be increased as a result of such refinancing, and no such
Encumbrance shall extend to property and assets of the Borrower or of any
of its Subsidiaries not encumbered prior to any such refinancing.
(k) Encumbrances incidental to the conduct of the business of the
Borrower or of any of its Subsidiaries or the ownership of its properties
or assets which were not incurred in connection with the borrowing of
money or the obtaining of advances or credit and which do not materially
detract from the value of its properties or assets or materially impair
the use thereof in the operation of its business.
(l) Encumbrances on any of the property or assets of, or on any of
the Equity Interests in, Hoyts General Cinema South America, Inc. or any
of its direct or indirect Subsidiaries.
(m) Encumbrances on the property or assets of any Foreign Subsidiary
to secure the payment or performance of any Foreign Non-Recourse Debt of
such Foreign Subsidiary or of any other Foreign Subsidiary.
(n) Any Encumbrance existing on any assets of any corporation or
other Person at the time it becomes a Subsidiary and not created in
contemplation of such corporation or other Person
<PAGE> 56
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becoming a Subsidiary, or existing on any assets acquired by the Borrower
or by any of its Subsidiaries through a purchase, merger, consolidation or
other transaction and not created in contemplation of such purchase,
merger, consolidation or other transaction.
6.4. MERGER; CONSOLIDATION; SALE OR LEASE OF ASSETS. Neither the Borrower
nor any of its Theatre Subsidiaries shall become a party to any merger or
consolidation or sell, lease, sell and leaseback, sublease or otherwise dispose
of any of its properties or assets (including, without limitation, any Equity
Interests in any Theatre Subsidiaries), or contract, or make other arrangements,
with any Person (other than a Theatre Subsidiary of the Borrower ) to manage the
theater business of, or provide management or concession services to, any
Theatre Subsidiary of the Borrower, EXCEPT that:
(a) the Borrower or any of its Theatre Subsidiaries may sell or
otherwise dispose of (i) inventory in the ordinary course of business,
(ii) tangible assets to be replaced in the ordinary course of business by
other tangible assets of equal or greater value, and (iii) tangible assets
that are no longer used or useful in its business;
(b) any Theatre Subsidiary of the Borrower may merge or liquidate
into the Borrower or into any other Theatre Subsidiary of the Borrower so
long as, after giving effect hereto, the surviving corporation is (i) the
Borrower, in the case of any merger involving the Borrower, or (ii) any
wholly-owned Theatre Subsidiary of the Borrower, in the case of any merger
involving Theatre Subsidiaries of the Borrower only;
(c) the Borrower or any of its Theatre Subsidiaries may sell or
transfer any of the Equity Interests owned by such Person in any Theatre
Subsidiary of the Borrower to the Borrower and to any wholly-owned Theatre
Subsidiaries of the Borrower;
(d) the Borrower or any of its Theatre Subsidiaries may sell or
otherwise dispose of any Investments, other than Investments in any of the
Theatre Subsidiaries of the Borrower;
(e) the Borrower and its Theatre Subsidiaries may transfer the
assets of or Equity Interests in any Problem Theatre (as hereinafter
defined in this PARAGRAPH (e)) so long as (i) such transfer effects a
release of Harcourt General from all obligations under each Guaranteed
Lease and Transferred Lease (as such terms are defined in the
Reimbursement Agreement) relating to such Problem Theatre, or (ii) such
assets or Equity Interests are transferred to a transferee
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having a consolidated net worth of at least $10,000,000 and the aggregate
amount of buyout payments made by the Borrower and its Subsidiaries to
such transferee in connection with such transfer does not exceed the
product of (A) four multiplied by (B) the negative cash flow generated by
such Problem Theatre during the then most recently ended Reference Period;
PROVIDED, HOWEVER, that the aggregate amount of all buyout payments made
by the Borrower and its Subsidiaries from time to time after the date
hereof in connection with all transfers of assets or Equity Interests
pursuant to this PARAGRAPH (e) shall not exceed $15,000,000. As used in
this SECTION 6.4, the term "B THEATRES" shall mean the theatres identified
as such in SCHEDULE 6.4, and the term "PROBLEM THEATRES" shall mean the
theatres identified as such in SCHEDULE 6.4;
(f) the Borrower and its Theatre Subsidiaries may sell the assets of
or Equity Interests in any B Theatre so long as (i) such sale effects a
release of Harcourt General from all obligations under each Guaranteed
Lease and Transferred Lease relating to such B Theatre, or (ii) such
assets or Equity Interests are sold to a buyer having a consolidated net
worth of at least $10,000,000 and the cash consideration received by the
Borrower and its Theatre Subsidiaries in connection with such sale equals
or exceeds the product of (A) four multiplied by (B) the cash flow
generated by such B Theatre during the then most recently ended Reference
Period;
(g) the Borrower and its Theatre Subsidiaries may transfer the
assets of or Equity Interests in any Problem Theatre or B Theatre to any
transferee in exchange for theatre assets of such transferee having
substantially the same cash flow during the then most recently ended
Reference Period as the Problem Theatre or B Theatre being transferred by
the Borrower and its Theatre Subsidiaries pursuant to this PARAGRAPH (g);
(h) the Borrower and its Theatre Subsidiaries may at any time or
from time to time sell, transfer or otherwise dispose of any of the assets
or other properties of or Equity Interests in any theatre identified in
SCHEDULE 6.4 under the caption "Permitted Dispositions"; and
(i) in addition to assets or Equity Interests which may be sold and
exchanged. pursuant to PARAGRAPHS (a) through (h) above, the Borrower may
sell any (but not substantially all) of its assets or all of the Equity
Interests in any Theatre Subsidiary, and any Theatre Subsidiary may sell
all or substantially all of its assets, in each case, at
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not less than Fair Market Value; PROVIDED, HOWEVER, that: (A) immediately
after giving effect to each sale proposed to be made pursuant to this
PARAGRAPH (i), the aggregate amount of all of the Consolidated Adjusted
EBITDA attributable to all of the Theatre Subsidiaries and assets or
Equity Interests sold and proposed to be sold pursuant to this PARAGRAPH
(i) from time to time after the date hereof shall not exceed an aggregate
amount equal to ten percent (10%) of Consolidated Adjusted EBITDA for the
then most recently completed Reference Period for which financial
statements shall have been delivered pursuant to SECTION 5.1(a) or (b);
and (B) at the time of each such sale and after giving effect thereto, no
Default shall be continuing and no Default shall result therefrom.
This SECTION 6.4 shall not prevent (1) the Borrower from merging with any
corporation or other Person if the Borrower is the surviving corporation, or (2)
any Theatre Subsidiary of the Borrower from merging with any corporation or
other Person (other than the Borrower) if such Theatre Subsidiary is the
surviving corporation; PROVIDED, HOWEVER, that, in each case, at the time of
such merger and after giving effect thereto, no Default shall be continuing and
no Default shall result therefrom.
6.5. ADDITIONAL STOCK ISSUANCE. The Borrower shall not permit any of its
Theatre Subsidiaries to issue any additional Equity Interests, any options
therefor or any securities convertible therein, other than (a) to the Borrower
or to any of its wholly-owned Theatre Subsidiaries, or (b) as required by
applicable law or licensing authorities.
6.6. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS. Except for this
Agreement, the other Loan Documents and the Reimbursement Agreement, none of (a)
the Borrower, (b) the Theatre Subsidiaries, or (c) GCCI or its Subsidiaries,
shall enter into or become or be bound by any agreement, instrument or indenture
(including, in each case, covenants requiring the maintenance of specified
amounts of working capital) restricting the right of any of Theatre
Subsidiaries, or (as the case may be) the right of GCCI or any of its
Subsidiaries, to declare or pay dividends or make any other distributions or
extensions of credit to the Borrower or to any Subsidiaries of the Borrower
(whether directly or indirectly through any other Subsidiaries of the Borrower).
6.7. DISTRIBUTIONS. Neither the Borrower nor any of its Subsidiaries
(whether on behalf of or for the account of the Borrower) shall make any
Distributions; PROVIDED, HOWEVER, that so long as no Default shall be continuing
at the time of any Distributions and so long as no Default shall result
therefrom, the Borrower may make any Distributions from time to
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time after (and not before) the delivery to the Administrative Agent of the
financial statements and the Compliance Certificate required to be delivered
pursuant to SECTION 5.1(a) and SECTION 5.1(c) for the Fiscal Year ending October
31, 1999, if the aggregate amount of any Distributions proposed to be made by
the Borrower on or as of any particular date falling after the delivery of such
financial statements, when added to all Distributions made by the Borrower
pursuant to this SECTION 6.7 from time to time prior to such particular date,
shall not exceed the SUM of (a) $40,000,000 (the "SECTION 6.7 BASE AMOUNT"),
PLUS (b) the Net Available Amount as at such particular date.
6.8. INVESTMENTS. Neither the Borrower nor any of its Subsidiaries shall
make or maintain any Investments other than:
(a) Investments in Theatre Subsidiaries;
(b) Qualified Investments;
(c) Permitted Non-Theatre Investments by the Borrower, by GCCI or by
any Subsidiaries of GCCI; PROVIDED, HOWEVER, that (i) at the time of each
such Permitted Non-Theatre Investment and after giving effect thereto, no
Default shall be continuing and no Default shall result therefrom, and
(ii) the aggregate amount of any such Permitted Non-Theatre Investment to
be made on or as of any particular date, when added to all of such
Permitted Non-Theatre Investments existing on or as of the date of this
Agreement or made pursuant to this PARAGRAPH (c) from time to time after
the date hereof, shall not exceed the SUM of (A) $125,000,000 (the
"SECTION 6.8(c) BASE AMOUNT"), PLUS (B) the Net Available Amount as at
such date, PLUS (C) the Cumulative Net Investment Cash Flow as at such
date;
(d) Investments by the Borrower and its Subsidiaries in Foreign
Subsidiaries and in Foreign Theatre Investments; PROVIDED, HOWEVER, that
(i) at the time of each such Investment in Foreign Subsidiaries or (as the
case may be) each such Foreign Theatre Investment and after giving effect
thereto, no Default shall be continuing and no Default shall result
therefrom, and (ii) the aggregate amount of any such Investment in any
Foreign Subsidiaries, or (as the case may be) the aggregate amount of any
such Foreign Theatre Investment, to be made on or as of any particular
date, when added to all of such Investments made pursuant to this
PARAGRAPH (d) from time to time after the date hereof, shall not exceed
the SUM of (A) $50,000,000 (the "SECTION 6.8(d) BASE AMOUNT"), PLUS (B)
the Net Available Amount as at such date;
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(e) Investments by the Borrower or by any of its Subsidiaries
existing on or as of the date of this Agreement and disclosed on SCHEDULE
6.8; and
(f) Investments by the Borrower and its Subsidiaries from time to
time after the date hereof in Cinema Ventures, Sundance or any of their
direct or indirect Subsidiaries; PROVIDED, HOWEVER, that (i) at the time
of each such Investment in Cinema Ventures, Sundance or any of their
direct or indirect Subsidiaries and after giving effect thereto, no
Default shall be continuing and no Default shall result therefrom, and
(ii) the aggregate amount of any such Investment in Cinema Ventures,
Sundance or any of their direct or indirect Subsidiaries to be made on or
as of any particular date, when added to all of such Investments made
pursuant to this PARAGRAPH (f) from time to time after the date hereof,
shall not exceed $25,000,000.
For the purposes of determining the amount or value of any particular
Investment, including, without limitation, any particular Permitted Non-Theatre
Investment or any Investment in any Foreign Subsidiary: (A) there shall not be
deducted in respect of such Investment any amounts received in cash as earnings
on such Investment, whether as dividends, interest or otherwise; and (B)
increases or decreases in value, or write-ups, write-downs or write-offs, of
such Investment shall be disregarded.
6.9. MAXIMUM CONSOLIDATED CAPITAL EXPENDITURES. Neither the Borrower nor
any of its Subsidiaries shall cause or permit the Consolidated Capital
Expenditures of the Borrower and its Subsidiaries (a) for the Fiscal Year ending
October 31, 1999 to be greater than $25,000,000, and (b) for any Fiscal Year
ending after October 31, 1999 to be greater than $15,000,000; PROVIDED, HOWEVER,
that (a) up to 50% of the maximum Consolidated Capital Expenditures so permitted
for any Fiscal Year, if not so expended in the Fiscal Year for which they are so
permitted, may be carried over for expenditure in the next succeeding Fiscal
Year, and (b) Capital Expenditures made during any Fiscal Year shall be deemed
made, FIRST, in respect of the maximum amount permitted for such Fiscal Year as
provided above, and, SECOND, in respect of amounts carried over from the prior
Fiscal Year pursuant to CLAUSE (a) above.
6.10. ERISA. Neither the Borrower nor any member of the Controlled Group
shall permit any Plan maintained by it to (a) engage in any "prohibited
transaction" (as defined in Section 4975 of the Code), (b) incur any
"accumulated funding deficiency" (as defined in Section 302 of ERISA) unless
waived, or (c) terminate any Plan in a manner that could result in the
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imposition of any lien or encumbrance on the assets of the Borrower or of any of
its Subsidiaries pursuant to Section 4068 of ERISA.
6.11. TRANSACTIONS WITH AFFILIATES. Except as otherwise expressly set
forth in SECTION 6.13 hereof, the Borrower shall not directly or indirectly
enter into or permit to exist any transaction with any Subsidiary or other
Affiliate of the Borrower, EXCEPT (a) transactions that are in the ordinary
course of the Borrower's business, upon fair and reasonable terms, and no less
favorable to the Borrower than would be obtained in an arms-length transaction
with a non-affiliate, and (b) transactions contemplated by the terms of, and the
performance of the Borrower's obligations under, the Reimbursement Agreement and
the Tax Agreement, dated as of December 14, 1993, between the Borrower and
Harcourt General (collectively, the "HARCOURT GENERAL DOCUMENTS"). The Borrower
further agrees that it shall not make any payments to or for the account of
Harcourt General in violation of the terms of the Intercreditor Agreement.
6.12. AMENDMENT OF CERTAIN DOCUMENTS. The Borrower shall not alter, amend
or otherwise change or supplement in any respect, or waive any of its rights
with respect to, any of the Harcourt General Documents, in each case, if the
effect thereof would be to (a) increase materially the obligations of the
Borrower or any of its Subsidiaries thereunder, (b) impose on the Borrower or
any of its Subsidiaries covenants or events of default that are materially more
burdensome or restrictive on the Borrower or any of its Subsidiaries, or (c)
adversely affect the interests of any of the Creditor Parties. The Borrower
shall promptly notify the Administrative Agent in writing of all amendments,
modifications or waivers of any of the provisions of any of such Harcourt
General Documents.
6.13. LOANS TO EMPLOYEES. The Borrower shall not permit the aggregate
principal balance of all loans, advances and drawing accounts outstanding from
the Borrower or from any of its Subsidiaries to all employees of the Borrower or
of any of its Subsidiaries to exceed $5,000,000 at any time.
ARTICLE VII
DEFAULTS
7.1. EVENTS OF DEFAULT. There shall be an Event of Default hereunder if
any of the following events shall at any time occur:
(a) the Borrower shall fail to pay (i) any amount of principal of
any of the Loans when due, or (ii) any amount of interest thereon or on
any of the other Obligations or any fees, expenses or other sums
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payable hereunder or under the Notes or any of the other Loan Documents,
in each case within three (3) days after the due date thereof; or
(b) the Borrower shall fail to perform any term, covenant or
agreement contained in any of SECTIONS 5.7 through 5.11, inclusive, or in
any of SECTIONS 6.1 through 6.13; inclusive, or
(c) the Borrower shall fail to perform any covenant contained (i) in
any of SECTION 5.1 or SECTION 5.5, and any such failure shall continue for
five (5) days or more, or (ii) in any of SECTION 5.2, 5.3, 5.4, 5.6, 5.12
or 5.13, and any such failure shall continue for thirty (30) days or more;
or
(d) the Borrower shall fail to perform any term, covenant or
agreement (other than any term, covenant or agreement referred to in
PARAGRAPH (a), (b) or (c) of this SECTION 7.1) contained in this Agreement
or in any of the other Loan Documents, and any such default shall continue
for thirty (30) days or more after notice thereof has been given to the
Borrower by the Administrative Agent; or
(e) any representation or warranty of the Borrower made in this
Agreement or in any of the other Loan Documents shall prove to have been
false in any material respect upon the date when made or deemed to have
been made, and, if the same shall be susceptible of cure, such
incorrectness shall not have been cured to the reasonable satisfaction of
the Required Lenders within thirty (30) days after notice thereof has been
given to the Borrower by the Administrative Agent; or
(f) there shall occur: (i) any default by the Reimbursement
Creditors (as such term is defined in the Intercreditor Agreement) under
the Intercreditor Agreement; or (ii) any default by the Borrower in the
payment to Harcourt General of amounts exceeding $1,000,000 in the
aggregate when and as the same shall become due and payable by the
Borrower under the Reimbursement Agreement; or (iii) any "Event of
Default" (as such term is defined in the Reimbursement Agreement) shall
occur under the Reimbursement Agreement; or (iv) (A) Harcourt General
shall give a written notice to the Borrower pursuant to Section 7.2 of the
Reimbursement Agreement requiring the Borrower to make any deposits with
Harcourt General pursuant to such Section 7.2, or (B) Harcourt General
shall take, commence or otherwise institute any Enforcement Action
pursuant to Section 7.3, Section 8.4 or any other provisions of the
Reimbursement Agreement, or (C) Harcourt General shall take, commence or
otherwise institute
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any other Enforcement Action against the Borrower or any of its
Subsidiaries or against any of their property; or
(g) (i) the Borrower or any of its Subsidiaries shall fail to pay at
maturity, or within any applicable period of grace, any Borrowed Funds
Indebtedness of the Borrower or of any of its Subsidiaries in an aggregate
amount exceeding $1,000,000; or (ii) the Borrower or any of its
Subsidiaries shall fail to observe or perform any other term, covenant or
agreement evidencing or securing any such Borrowed Funds Indebtedness, and
(A) the holder or holders of such Borrowed Funds Indebtedness shall have
caused such Borrowed Funds Indebtedness in an aggregate amount exceeding
$1,000,000 to become due prior to its stated maturity or prior to its
regularly scheduled dates of payment, or (B) such failure shall permit the
holder or holders of such Borrowed Funds Indebtedness in an aggregate
amount exceeding $5,000,000 to cause such Borrowed Funds Indebtedness to
become due prior to its stated maturity or prior to its regularly
scheduled dates of payment, and such failure of the kind described in this
CLAUSE (B) shall not have been cured or waived in writing within
forty-five (45) days after the date of such failure; or
(h) the Borrower, or any Significant Subsidiary, shall (i) apply for
or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, liquidator or similar official of itself or
of all or a substantial part of its property, (ii) be generally not paying
its debts as such debts become due, (iii) make a general assignment for
the benefit of its creditors, (iv) commence a voluntary case under the
Federal Bankruptcy Code (as now or hereafter in effect), (v) take any
action or commence any case or proceeding under any law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts, or any other law providing for the relief of debtors,
(vi) fail to contest in a timely or appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under the
Federal Bankruptcy Code or other law, (vii) take any action under the laws
of its jurisdiction of organization similar to any of the foregoing, or
(viii) take any action, whether as a corporation, limited liability
company or (as the case may be) a partnership, for the purpose of
effecting any of the foregoing; or
(i) any proceeding or case shall be commenced against the Borrower,
or any Significant Subsidiary, without the application or consent of the
Borrower or such Significant Subsidiary, before any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, dissolution,
winding up, or composition or
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readjustment of the debts of the Borrower or such Significant Subsidiary,
(ii) the appointment of a trustee, receiver, custodian, liquidator or the
like of it or of all or any substantial part of the assets of the Borrower
or such Significant Subsidiary, or (iii) similar relief in respect of the
Borrower or such Significant Subsidiary, under any law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts or any other law providing for the relief of debtors,
and such proceeding or case shall continue undismissed, or unstayed and in
effect, for a period of sixty (60) days or more; or an order for relief
shall be entered in an involuntary case under the Federal Bankruptcy Code,
against the Borrower or any Significant Subsidiary; or any action under
the laws of the jurisdiction of organization of the Borrower or any
Significant Subsidiary similar to any of the foregoing shall be taken with
respect to the Borrower or such Significant Subsidiary and shall continue
unstayed and in effect for any period of sixty (60) days or more; or
(j) any judgments or orders for the payment of money shall be
entered against the Borrower or any of its Subsidiaries by any court, or
warrants of attachment or execution or similar process shall be issued or
levied against any property of the Borrower or such Subsidiary, that in
the aggregate exceeds $1,000,000 in value, and such judgments, orders,
warrants or process shall continue undischarged or unstayed for thirty
(30) days or more; or
(k) the Borrower or any member of the Controlled Group shall fail to
pay when due an amount or amounts (other than amounts being contested in
good faith by appropriate proceedings) aggregating in excess of $1,000,000
that it shall have become liable to pay to the PBGC or to a Plan under
Title IV of ERISA; or notice of intent to terminate a Plan or Plans in a
distress termination under Section 4041(c) of ERISA shall be filed under
Title IV of ERISA by the Borrower, any member of the Controlled Group, any
plan administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any such Plan or Plans or a
proceeding shall be instituted by a fiduciary of any such Plan or Plans
against the Borrower and such proceedings shall not have been dismissed
within sixty (60) days thereafter; or any condition shall exist by reason
of which the PBGC would be entitled to obtain a decree adjudicating that
any such Plan or Plans must be terminated; or
(l) any Change of Control shall occur.
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7.2. REMEDIES. Upon the occurrence of any Event of Default, at any time
thereafter while such Event of Default shall be continuing, (a) at the election
of the Required Lenders, the Lenders' obligations to make any further Loans
hereunder shall terminate, and (b) the Administrative Agent may, and upon the
request of the Required Lenders, shall proceed to protect and enforce the rights
and remedies of the Agents and the Lenders by suit in equity, action at law
and/or other appropriate proceeding, either for specific performance of any
covenant or condition contained in this Agreement or in any of the other Loan
Documents or in any instruments delivered to the Administrative Agent or the
Lenders pursuant hereto or thereto, or in aid of the exercise of any powers
granted in this Agreement, any of the other Loan Documents or any such
instruments, and (unless there shall have occurred any Event of Default
described in PARAGRAPH (h) or PARAGRAPH (i) of SECTION 7.1, in which case the
Lenders' obligations to make any further Loans hereunder shall automatically
terminate and the unpaid balance of all Obligations shall automatically become
due and payable without notice or demand) by notice in writing to the Borrower,
shall declare all or any part of the unpaid balance of the Obligations then
outstanding to be forthwith due and payable, whereupon such unpaid balance or
part thereof shall become so due and payable without presentation, protest or
further demand or notice of any kind, all of which are hereby expressly and
irrevocably waived by the Borrower, and the Administrative Agent may proceed to
enforce payment of such balance or part thereof in such manner as it may elect,
and the Administrative Agent and each Lender may offset and apply toward the
payment of such balance or part thereof any indebtedness of it to the Borrower,
or to any obligor on the Obligations, including any indebtedness represented by
deposits in any general or special account maintained with the Administrative
Agent or any Lender.
7.3. DISTRIBUTION OF PROCEEDS. Notwithstanding anything to the contrary
contained herein, in the event that following the occurrence or during the
continuance of any Event of Default, the Administrative Agent or any Lender
receives any monies on account of the Obligations from the Borrower or
otherwise, such monies shall be distributed for application as follows:
(a) FIRST, to the payment of or the reimbursement of each of the
Administrative Agent and the Lenders for or in respect of all costs,
expenses, disbursements and losses (i) which shall have been incurred or
sustained by any of the Administrative Agent or the Lenders in connection
with the collection of such monies by any of the Administrative Agent or
the Lenders, or in connection with the exercise, protection or enforcement
by any of the Administrative Agent or the Lenders of all or any of the
rights, remedies, powers or
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privileges of the Administrative Agent and/or the Lenders and other
Creditor Parties under this Agreement or any of the other Loan Documents,
and (ii) which shall be payable or (as the case may be) reimbursable by
the Borrower or by any of the Guarantors to any of the Creditor Parties
pursuant to any of the Loan Documents.
(b) SECOND, to the payment of all interest, including interest on
overdue amounts, and late charges, then due and payable with respect to
the Loans or any of the other Obligations, allocated among the Lenders in
proportion to their respective shares of the Loans and other Obligations
then outstanding.
(c) THIRD, to the payment of the outstanding principal balance of
the Loans, allocated among the Lenders in proportion to their respective
shares of the Loans then outstanding.
(d) FOURTH, to any other outstanding Obligations, allocated among
the Lenders in proportion to their respective interests in such other
Obligations.
(e) FIFTH, the excess, if any, shall be returned to the Borrower or
to such other Persons as shall be entitled thereto.
ARTICLE VIII
THE AGENTS
8.1. APPOINTMENT AND AUTHORIZATION. Each Lender irrevocably appoints and
authorizes the Administrative Agent to take such action as Administrative Agent
on its behalf and to exercise such powers under this Agreement, the Notes, the
Intercreditor Agreement and the other Loan Documents as are delegated to the
Administrative Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto.
8.2. AGENTS AND AFFILIATES. BankBoston and its affiliates and successors
shall have the same rights and powers under this Agreement as any other Lender
and may exercise or refrain from exercising the same as though it were not the
Administrative Agent, and BankBoston and its successors and affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with the Borrower or any Subsidiary or Affiliate of the Borrower as if
it were not also the Administrative Agent hereunder.
8.3. ACTION BY ADMINISTRATIVE AGENT. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
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Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in SECTION 7.2.
8.4. CONSULTATION WITH EXPERTS. The Administrative Agent may consult with
legal counsel, independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken by it in
good faith in accordance with the advice of such counsel, accountants or
experts.
8.5. LIABILITY OF ADMINISTRATIVE AGENT. Neither the Administrative Agent
nor any of its affiliates nor any of its or their directors, officers, agents or
employees shall be liable for any action taken or not taken by it in connection
herewith (a) with the consent or at the request of the Required Lenders, or (b)
in the absence of its own gross negligence or willful misconduct. Neither the
Administrative Agent nor any of its affiliates nor any of its or their
directors, officers, agents or employees shall be responsible for or have any
duty to ascertain, inquire into or verify: (i) any statement, warranty or
representation made in connection with this Agreement, any of the other Loan
Documents or any borrowings hereunder; (ii) the performance or observance of any
of the covenants or agreements of the Borrower or any of the Guarantor
Subsidiaries; (iii) the satisfaction of any condition specified in ARTICLE III,
except receipt of items required to be delivered to the Administrative Agent; or
(iv) the validity, effectiveness or genuineness of (other than its own due
execution and delivery) this Agreement, the Notes, the Intercreditor Agreement,
any of the other Loan Documents or any other instruments or writings furnished
in connection herewith or therewith. The Administrative Agent shall not incur
any liability by acting in reliance upon any notice, consent, certificate,
statement or other writing (which may be a bank wire, facsimile transmission or
similar writing) believed by it to be genuine or to have been signed by the
proper party or parties.
8.6. INDEMNIFICATION. Each Lender shall, ratably in accordance with its
Commitment Percentage, indemnify the Administrative Agent, its affiliates and
its directors, officers, agents and employees (to the extent not reimbursed by
the Borrower) against any cost, expense (including counsel fees and
disbursements), claim, demand, action, loss or liability (except such as result
from such indemnitees' gross negligence or willful misconduct) that such
indemnitees may suffer or incur in connection with this Agreement or any of the
other Loan Documents or any action taken or omitted by such indemnitees
hereunder or thereunder.
8.7. CREDIT DECISION. Each Lender acknowledges that it has, independently
and without reliance upon the Administrative Agent or any of
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the other Agents, or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Administrative Agent or any of
the other Agents, or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking any action under this Agreement or any
of the other Loan Documents.
8.8. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign
at any time by giving notice thereof to the Lenders and the Borrower. Upon any
such resignation, the Borrower shall have the right to appoint a successor
Administrative Agent, which shall be reasonably satisfactory to the Required
Lenders (other than the resigning Administrative Agent in its capacity as a
Lender). If no successor Administrative Agent shall have been so appointed by
the Borrower, and shall have accepted such appointment, within 30 days after the
retiring Administrative Agent gives notice of resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank having a combined capital
and surplus of at least $50,000,000. Upon the acceptance of its appointment as
Administrative Agent hereunder, such successor Administrative Agent shall
thereupon succeed to and become empowered with all the rights and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this ARTICLE VIII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent.
8.9. THE ARRANGER AND DOCUMENTATION AGENT. Neither the Arranger, in its
capacity as such, nor the Documentation Agent, in its capacity as such, shall
have any duties or responsibilities, and shall incur no liabilities, under this
Agreement or any of the other Loan Documents.
ARTICLE IX
MISCELLANEOUS
9.1. NOTICES. All notices, requests and other communications to any party
hereunder shall be in writing (including facsimile transmission or other similar
writing) and shall be given to such party: (a) in the case of any of the
Borrower, any Lender, BNS, BankBoston or any Agent, at its address or telecopier
number set forth on the signature pages hereof, (b) in the case of
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any assignee of any Lender, at the address or telecopier number of such assignee
set forth in the Assignment and Assumption Agreement executed by such assignee
in accordance with SECTION 9.6 hereof, or (c) in the case of any party, such
other address or telecopier number as such party may hereafter specify for the
purpose by notice to the Administrative Agent and the Borrower. Each such
notice, request or other communication shall be effective (i) if given by
telecopier, when such telecopy is transmitted to the telecopier number specified
in this SECTION 9.1 and the appropriate answerback is received, and (ii) if
given by mail or by any other means (including, without limitation, facsimile
transmission), when received at the address specified in this SECTION 9.1.
9.2. NO WAIVERS. No failure or delay by the Administrative Agent or any
Lender in exercising any right, remedy, power or privilege under this Agreement,
any Note or any of the other Loan Documents shall operate as a waiver hereof or
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any other rights or remedies provided by law or by any of the other
Loan Documents.
9.3. EXPENSES; INDEMNIFICATION.
(a) The Borrower shall pay (i) all reasonable out-of-pocket costs
and expenses of the Administrative Agent, including reasonable fees and
disbursements of special counsel for the Administrative Agent, in
connection with the preparation, execution and delivery of this Agreement
and the other Loan Documents, any waiver or consent hereunder or
thereunder or any amendment hereof or thereof or any Default or alleged
Default hereunder, and (ii) if any Event of Default occurs, all reasonable
out-of-pocket costs and expenses incurred by the Administrative Agent and
each Lender, including reasonable fees and disbursements of counsel, in
connection with any such Event of Default and in connection waivers,
consents, amendments and modifications in connection therewith or related
thereto or any collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom.
(b) The Borrower agrees to indemnify the Administrative Agent, the
Documentation Agent and each Lender, their respective affiliates and the
respective directors, officers, agents and employees of the foregoing
(each an "INDEMNITEE") and hold each Indemnitee harmless from and against
any and all liabilities, losses, damages, costs and expenses of any kind,
including, without limitation, the reasonable fees and disbursements of
counsel, which may be incurred
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by such Indemnitee in connection with any investigative, administrative or
judicial proceeding (whether or not such Indemnitee shall be designated a
party thereto) brought or threatened relating to or arising out of this
Agreement or any of the other Loan Documents or any actual or proposed use
of proceeds of any of the Loans hereunder; PROVIDED, HOWEVER, that no
Indemnitee shall have the right to be indemnified hereunder for such
Indemnitee's own gross negligence or willful misconduct as determined by a
court of competent jurisdiction; and PROVIDED, FURTHER, that the Lenders,
the Documentation Agent and the Administrative Agent shall use reasonable
efforts to avoid inappropriate duplication of expense in connection with
any matter for which they are indemnified by the Borrower under this
PARAGRAPH (b).
9.4. SHARING OF SET-OFFS. Each Lender agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment of
a proportion of the aggregate amount of principal and interest due with respect
to any Note held by it which is greater than the proportion received by any
other Lender in respect of the aggregate amount of principal and interest due
with respect to any Note held by such other Lender, the Lender receiving such
proportionately greater payment shall purchase such participations in the Notes
held by the other Lenders, and such other adjustments shall be made, as may be
required so that all such payments of principal and interest with respect to the
Notes held by the Lenders shall be shared by the Lenders PRO RATA; PROVIDED,
HOWEVER, that nothing in this SECTION 9.4 shall impair the right of any Lender
to exercise any right of set-off or counterclaim it may have and to apply the
amount subject to such exercise to the payment of indebtedness of the Borrower
other than its indebtedness under the Notes. The Borrower agrees, to the fullest
extent it may effectively do so under applicable law, that any holder of a
participation in a Note acquired pursuant to the foregoing arrangements may
exercise rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
9.5. AMENDMENTS AND WAIVERS. Any provisions of this Agreement or any other
Loan Document may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Borrower, the Administrative Agent and the
Required Lenders; PROVIDED, HOWEVER, that no such amendment or waiver shall,
unless signed by all of the Lenders, (a) increase or decrease the Commitment
Amount of any Lender (except for a ratable decrease in the Commitment Amounts of
all Lenders) or subject any Lender to any additional obligations, (b) reduce the
principal of or rate of interest on any Loan or any fees hereunder, (c) postpone
the date fixed for any payment of principal of or interest on any Loans or any
fees hereunder or
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for termination of any Commitments to make Loans hereunder, (d) release any
Guarantor Subsidiary from its obligations as a guarantor of the Obligations
(except for any releases pursuant to SECTION 5.11 and any release at the time a
Subsidiary ceases to be a Subsidiary pursuant to a transaction permitted under
SECTION 6.4 of this Agreement), or (e) change the provisions of this SECTION 9.5
or the definition of the term "REQUIRED LENDERS".
9.6. SUCCESSORS AND ASSIGNS.
(a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that the Borrower may not assign or otherwise transfer any
of its rights under this Agreement without the prior written consent of
all Lenders, it being agreed that no merger permitted by SECTION 6.4 shall
be deemed to be an assignment or transfer for purposes of this SECTION
9.6.
(b) Any Lender may at any time grant to one or more banks or other
institutions (each a "PARTICIPANT") participating interests in its
Commitment Percentage of any or all Loans outstanding or its Commitment
Percentage to make future Loans to the Borrower. In the event of any such
grant by a Lender of a participating interest to a Participant, whether or
not upon notice to the Borrower and the Administrative Agent, such Lender
shall remain responsible for the performance of its obligations hereunder,
and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement. Any agreement pursuant to
which any Lender may grant such a participating interest shall provide
that such Lender shall retain the sole right and responsibility to enforce
the obligations of the Borrower hereunder including, without limitation,
the right to approve any amendment, modification or waiver of any
provision of this Agreement; PROVIDED, HOWEVER, that such participation
agreement may provide that such Lender will not agree to any modification,
amendment or waiver of this Agreement described in PARAGRAPH (a), (b) or
(c) of SECTION 9.5 without the consent of the Participant. The Borrower
agrees that each Participant shall, to the extent provided in its
participation agreement, be entitled to the benefits of ARTICLE VIII of
this Agreement with respect to its participating interest. An assignment
or other transfer which is not permitted by PARAGRAPH (c) or (d) of this
SECTION 9.6 shall be given effect for purposes of this Agreement only to
the extent of a participating interest granted in accordance with this
PARAGRAPH (b).
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(c) Any Lender may at any time assign to one or more banks or other
institutions (each an "ASSIGNEE") all, or a proportionate part of all, of
its rights and obligations under this Agreement, the Notes and other Loan
Documents, and such Assignee shall assume such rights and obligations,
pursuant to an Assignment and Assumption Agreement in substantially the
form of EXHIBIT E, executed by such Assignee and such transferor Lender
(each an "ASSIGNMENT AND ASSUMPTION AGREEMENT"), with (and subject to)
notice to and the prior consent of the Administrative Agent and, if no
Event of Default shall then be continuing, the consent of the Borrower
(such consents not to be unreasonably withheld); PROVIDED, HOWEVER, that:
(i) if an Assignee is another Lender or an affiliate or Approved Fund of
such transferor Lender, such notices shall be given to the Administrative
Agent and the Borrower, but no such consents shall be required from the
Administrative Agent or from the Borrower; (ii) if any Event of Default
shall be continuing at the time of any such assignment, notice thereof
shall be given to the Borrower as provided above, but no consents therefor
shall be required from the Borrower; (iii) such assignment may, but need
not, include rights of the transferor Lender in respect of outstanding
Loans; and (iv) unless the assignment covers all rights and obligations of
such transferor Lender, or unless the assignment is to another Lender or
to an affiliate or Approved Fund of such transferor Lender, the assignment
shall cover the equivalent of a Commitment Amount of not less than
$5,000,000. Upon execution and delivery of an Assignment and Assumption
Agreement and payment by such Assignee to such transferor Lender of an
amount equal to the purchase price agreed between such transferor Lender
and such Assignee, such Assignee shall be a Lender party to this Agreement
and shall have all the rights and obligations of a Lender with a
Commitment Percentage as set forth in such Assignment and Assumption
Agreement, and the transferor Lender shall be released from its
obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any
assignment pursuant to this PARAGRAPH (c), the transferor Lender, the
Administrative Agent and the Borrower shall make appropriate arrangements
so that, if required, a new Note shall be issued to the Assignee. In
connection with any such assignment, the transferor Lender shall pay to
the Administrative Agent an administrative fee for processing such
assignment in the amount of $3,000. If the Assignee is not incorporated
under the laws of the United States of America or a State thereof, it
shall, prior to the first date on which interest or fees are payable
hereunder for its account, deliver to the Borrower and the Administrative
Agent certification as
<PAGE> 73
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to exemption from deduction or withholding of any United States federal
income tax.
(d) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of PARAGRAPH (c) relating to assignment
relate only to absolute assignments and that such provisions do not
prohibit assignments creating security interests, including, without
limitation, any assignment or pledge by any Lender at any time of all or
any portion of its rights under this Agreement, its Note or any of the
other Loan Documents to a Federal Reserve Bank. No such assignment shall
release the transferor Lender from its obligations hereunder.
(e) No assignee, participant or other transferee of any Lender's
rights shall be entitled to receive any greater payment under SECTION 2.9,
2.13 or 2.16 than such Lender would have been entitled to receive with
respect to the rights assigned, participated or transferred unless such
assignment, participation or transfer is made with the Borrower's prior
written consent.
9.7. COLLATERAL. Each of the Lenders represents to the Administrative
Agent and each of the other Lenders that it in good faith is not relying upon
any "margin stock" (as defined in Regulation U) as collateral in the extension
or maintenance of the credit provided for in this Agreement.
9.8. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement, each Note
and each of the other Loan Documents shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts. The Borrower
hereby submits to the nonexclusive jurisdiction of the United States District
Court for the District of Massachusetts and of any court of The Commonwealth of
Massachusetts sitting in Boston, Massachusetts for purposes of all legal
proceedings arising out of or relating to this Agreement, the Notes or any of
the other Loan Documents or any of the transactions contemplated hereby or
thereby. The Borrower irrevocably waives, to the fullest extent permitted by
law, any objections which the Borrower may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum.
9.9. COUNTERPARTS; INTEGRATION. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement and the other Loan Documents constitute the entire agreement and
understanding among the parties hereto and supersede
<PAGE> 74
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any and all prior commitment letters, term sheets, agreements and
understandings, oral or written, relating to the subject matter hereof or
thereof.
9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS AND THE
LENDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR ANY
OF THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 75
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their duly authorized officers on and as of the day and in the year
first above written.
THE BORROWER:
-------------
GC COMPANIES, INC.
By: ________________________________
Name: G. Gail Edwards
Title: Vice President and
Chief Financial Officer
ADDRESS FOR NOTICES:
--------------------
GC Companies, Inc.
1300 Boylston Street
Chestnut Hill, Massachusetts 02467
Attention: G. Gail Edwards
Vice President and
Chief Financial Officer
Telephone: (617) 264-8036
Telecopier:(617) 264-8206
THE LENDERS:
------------
BANKBOSTON, N.A.
By: ________________________________
Name: Matthew E. Murphy,
Title: Director
ADDRESS FOR NOTICES:
--------------------
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
Attention: Matthew E. Murphy,
Director
Telephone: (617) 434-7956
Telecopier:(617) 434-3401
<PAGE> 76
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THE BANK OF NOVA SCOTIA
By: ________________________________
Name: Michael R. Bradley
Title: Senior Relationship Manager
ADDRESS FOR NOTICES:
--------------------
The Bank of Nova Scotia
Boston Branch
28 State Street - 17th Floor
Boston, Massachusetts 02109
Attention: Michael R. Bradley
Senior Relationship
Manager
Telephone: (617) 624-7610
Telecopier:(617) 624-7607
THE ADMINISTRATION AGENT:
-------------------------
BANKBOSTON, N.A., as Administrative Agent
By: ________________________________
Name: Matthew E. Murphy
Title: Director
ADDRESS FOR NOTICES:
--------------------
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
Attention: Matthew E. Murphy,
Director
Telephone: (617) 434-7956
Telecopier:(617) 434-3401
<PAGE> 77
-72-
THE DOCUMENTATION AGENT:
------------------------
THE BANK OF NOVA SCOTIA
By: _________________________________
Name: Michael R. Bradley
Title: Senior Relationship Manager
ADDRESS FOR NOTICES:
--------------------
The Bank of Nova Scotia
Boston Branch
28 State Street - 17th Floor
Boston, Massachusetts 02109
Attention: Michael R. Bradley
Senior Relationship
Manager
Telephone: (617) 624-7610
(617) 624-7607
THE ARRANGER:
-------------
BANCBOSTON ROBERTSON STEPHENS INC.,
as Arranger
By: _________________________________
Name: Peter W. MacEwen
Title: Vice President
ADDRESS FOR NOTICES:
--------------------
BancBoston Robertson Stephens Inc.
100 Federal Street
Boston, Massachusetts 02110
Attention: Peter W. MacEwen
Vice President
Telephone: (617) 434-3447
Telecopier: (617) 434-0382
<PAGE> 1
EXHIBIT 10.25
Execution Counterpart
================================================================================
AMENDED AND RESTATED
REIMBURSEMENT AND SECURITY AGREEMENT
Between
HARCOURT GENERAL, INC.
and
GC COMPANIES, INC.
Dated as of January 26, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Background; Amendment and Restatement; Definitions........................................1
1.1. Background.....................................................................1
1.2. Amendment and Restatement......................................................1
1.3. Definitions; Certain Rules of Construction.....................................1
2. Payment Provisions.......................................................................21
2.1. Reimbursement and Indemnification.............................................21
2.2. Guarantor's Fee...............................................................21
2.3. Interest on Overdue Payments..................................................21
3. General Covenants........................................................................21
3.1. Financial Statements and Reports..............................................21
3.1.1. Annual Reports.....................................................21
3.1.2. Quarterly Reports..................................................22
3.1.3. Public Reports.....................................................23
3.1.4. Notice of Litigation; Notice of Defaults...........................23
3.1.5. Management Letters.................................................23
3.1.6. South American Financing Documents.................................23
3.1.7. Other Information..................................................24
3.2. Liens.........................................................................24
3.3. Distributions.................................................................26
3.4. Merger, Consolidation and Dispositions of Assets..............................27
3.5. Issuance of Stock by Theatre Subsidiaries; Subsidiary Distributions...........30
3.5.1. Issuance of Stock by Theatre Subsidiaries..........................30
3.5.2. No Restrictions on Subsidiary Distributions........................30
3.6. Guaranteed Leases and Transferred Leases......................................30
3.6.1. No Transfer........................................................30
3.6.2. Amendments, Renewals, Extensions, etc..............................30
3.7. Conduct of Theatre Business...................................................31
3.7.1. Theatre Subsidiaries...............................................31
3.7.2. Theatre Business...................................................31
3.8. No Extension of Credit Agreement..............................................31
4. First Tier Covenants.....................................................................31
4.1. Consolidated Net Worth........................................................31
4.2. Consolidated Adjusted Cash Flow to Consolidated Fixed Charges.................31
4.3. Consolidated Adjusted EBITDA to Consolidated Interest Charges.................31
4.4. Consolidated Total Adjusted Debt to Consolidated Adjusted EBITDA..............32
4.5. Core Theatre Adjusted EBITDA to Core Theatre Fixed Charges....................32
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
4.6. Problem Theatre Adjusted EBITDA...............................................32
4.7. South American Adjusted EBITDA................................................32
4.8. Investments and Acquisitions..................................................32
4.9. Capital Expenditures..........................................................33
5. Second Tier Covenants....................................................................33
5.1. Investments and Acquisitions..................................................33
5.2. Financing Debt................................................................34
5.3. Distributions.................................................................34
5.4. Capital Expenditures..........................................................35
5.5. Payment of Theatre Obligations................................................36
6. Representations and Warranties...........................................................36
6.1. Organization and Business.....................................................36
6.1.1. The Company........................................................36
6.1.2. Subsidiaries.......................................................36
6.1.3. Qualification......................................................36
6.2. Authorization and Enforceability..............................................36
6.3. No Legal Obstacle to Agreements...............................................37
6.4. Delivery of Collateral........................................................37
7. Defaults.................................................................................37
7.1. Events of Default.............................................................37
7.1.1. Payment............................................................37
7.1.2. Specified Covenants................................................38
7.1.3. Other Covenants....................................................38
7.1.4. Representations and Warranties.....................................38
7.1.5. Cross-Defaults, etc................................................38
7.1.6. Ownership; Liquidation; etc........................................38
7.1.7. Enforceability, etc................................................39
7.2. Certain Payments Upon an Event of Default.....................................40
7.3. Enforcement of Payment; Collateral; Setoff....................................40
7.4. Specific Performance; Exercise of Rights......................................40
7.5. Cumulative Remedies...........................................................40
7.6. Annulment of Defaults.........................................................40
7.7. Waivers.......................................................................41
7.8. Obligations Absolute..........................................................41
8. Security.................................................................................41
8.1. Collateral....................................................................41
8.1.1. Pledged Stock......................................................41
8.1.2. Pledged Rights.....................................................42
8.1.3. Proceeds and Products..............................................42
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
8.2. Representations, Warranties and Covenants with Respect to the Collateral......42
8.2.1. Pledged Stock......................................................42
8.2.2. No Liens or Restrictions on Transfer or Change of Control..........42
8.2.3. Perfection of the Collateral.......................................42
8.3. Administration of Collateral..................................................43
8.3.1. Distributions on Pledged Securities................................43
8.3.2. Voting of Pledged Securities.......................................43
8.4. Right to Realize upon Collateral..............................................43
8.4.1. General Authority..................................................43
8.4.2. Marshaling, etc....................................................44
8.4.3. Sales of Collateral................................................45
8.4.4. Sale Without Registration..........................................45
8.4.5. Application of Proceeds............................................46
8.5. Custody of Collateral.........................................................46
9. Expenses; Indemnity......................................................................47
9.1. Expenses......................................................................47
9.2. General Indemnity.............................................................47
10. Successors and Assigns..................................................................47
11. Confidentiality.........................................................................47
12. Notices.................................................................................48
13. Course of Dealing; Amendments and Waivers...............................................48
14. Termination and Defeasance..............................................................49
15. General.................................................................................49
</TABLE>
-iii-
<PAGE> 5
AMENDED AND RESTATED
REIMBURSEMENT AND SECURITY AGREEMENT
This Amended and Restated Reimbursement and Security Agreement, dated
as of January 26, 1999, is between Harcourt General, Inc., a Delaware
corporation ("Harcourt"), and GC Companies, Inc., a Delaware corporation (the
"Company"). The parties agree as follows:
1. Background; Amendment and Restatement; Definitions.
1.1. Background. Prior to December 14, 1993, the Company was a
Wholly-Owned Subsidiary (as defined below) of Harcourt. On December 14, 1993,
pursuant to a transaction approved by the Board of Directors of Harcourt, (a)
Harcourt transferred its theatre business to the Company, (b) Harcourt
distributed all of the shares of capital stock of the Company to the
stockholders of Harcourt and (c) the Company became a publicly-owned corporation
(collectively, the "Spinoff"). Notwithstanding the Spinoff, Harcourt (i) has
secondary liability with respect to certain theatre leases assigned by Harcourt
to the Company and, in turn, assigned by the Company to certain Subsidiaries (as
defined below) of the Company and (ii) has guaranteed the obligations of certain
Subsidiaries of the Company under certain theatre leases to which such
Subsidiaries are parties. Hence, in connection with the Spinoff, the parties
entered into a Reimbursement and Security Agreement dated as of December 14,
1993 (the "Prior Agreement") pursuant to which, among other things, the Company
(A) agreed to reimburse and indemnify Harcourt for all amounts paid by Harcourt
in respect of any such secondary liability on, or guarantee of, any such theatre
lease and (B) pledged to Harcourt all of the capital stock of the Theatre
Subsidiaries (as defined below) to secure the payment and performance of the
Company's obligations under the Prior Agreement. The Company recently has
adopted a new business plan and, in order to implement such new business plan,
has requested that Harcourt amend certain provisions of the Prior Agreement.
1.2. Amendment and Restatement. Effective as of the date hereof, this
Agreement amends and restates in its entirety the Prior Agreement.
1.3. Definitions; Certain Rules of Construction. Certain capitalized
terms are used in this Agreement with the specific meanings defined below in
this Section 1. Except as otherwise explicitly specified to the contrary or
unless the context clearly requires otherwise, (a) the capitalized word
"Section" refers to sections of this Agreement, (b) the capitalized word
"Exhibit" refers to exhibits to this Agreement, (c) references to a particular
Section include all subsections thereof, (d) the word "including" shall be
construed as "including without limitation", (e) accounting terms not otherwise
defined herein have the meaning provided under GAAP, (f) terms defined in the
UCC and not otherwise defined herein have the meaning provided under the UCC,
(g) references to a particular statute or regulation include all rules and
regulations thereunder and any successor statute, regulation or rules, in each
case as from time to time in effect, and (h) references to a particular Person
include such Person's successors and assigns to the extent not prohibited by
this Agreement.
<PAGE> 6
1.3.1. "Administrative Agent" means the administrative agent
under the Credit Agreement.
1.3.2. "Affiliate" means, with respect to the Company (or any
other specified Person), any other Person directly or indirectly
controlling, controlled by or under direct or indirect common control
with the Company (or such specified Person); provided, however, that
the Company and its Subsidiaries, on the one hand, and Harcourt and its
Subsidiaries, on the other hand, shall not be deemed Affiliates of each
other for purposes of this Agreement.
1.3.3. "Argentina Credit Facility" means the Guaranteed
Secured Credit Agreement dated as of December 18, 1998 among the
Argentina Subsidiary, the lenders from time to time party thereto and
BankBoston, N.A., Nassau Branch, as agent.
1.3.4. "Argentina Subsidiary" means each of General Cinema de
Argentina S.A. and Hoyts Cinema de Argentina S.A.
1.3.5. "Asset-Specific EBITDA" means, with respect to any sale
of assets or Equity Interests by the Company or any of its Theatre
Subsidiaries, the lesser of (a) the amount of Consolidated Adjusted
EBITDA during the four fiscal quarters of the Company most recently
ended prior to the date of such sale that is attributable to such
assets or Equity Interests and (b) $1.
1.3.6. "B Theatres" means the theatres listed on Exhibit 1.3A.
1.3.7. "Bankruptcy Code" means Title 11 of the United States
Code.
1.3.8. "Bankruptcy Default" means an Event of Default referred
to in Section 7.1.8.
1.3.9. "Brazil Credit Facility" means a credit facility among
the Brazil Subsidiary and its senior lenders that contains terms which
are not significantly less favorable to the Company, the Brazil
Subsidiary and the other Subsidiaries of the Company than the terms
contained in the Argentina Credit Facility.
1.3.10. "Brazil Subsidiary" means General Cinema do Brasil
Empreendimentos Ltda.
1.3.11. "Capital Expenditures" means, for any period, amounts
added or required to be added to the property, plant and equipment or
other fixed assets account on the Consolidated balance sheet of the
Company (or other specified Person) and its Subsidiaries (or other
group of specified Persons), prepared in accordance with GAAP.
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<PAGE> 7
1.3.12. "Capitalized Lease" means any lease which is required
to be capitalized on the balance sheet of the lessee in accordance with
GAAP, including Statement Nos. 13 and 98 of the Financial Accounting
Standards Board.
1.3.13. "Capitalized Lease Obligations" means the amount of
the liability reflecting the aggregate discounted amount of future
payments under all Capitalized Leases calculated in accordance with
GAAP, including Statement Nos. 13 and 98 of the Financial Accounting
Standards Board.
1.3.14. "Cash Equivalents" means:
(1) negotiable certificates of deposit, time deposits
(including sweep accounts), demand deposits and bankers' acceptances
issued by any United States financial institution having capital and
surplus and undivided profits aggregating at least $100,000,000 and
rated both Prime-1 by Moody's and A-1 by S&P;
(2) short-term corporate obligations rated both Prime-1 by
Moody's and A-1 by S&P;
(3) any direct obligation of the United States of America or
any agency or instrumentality thereof, or of any state or municipality
thereof, (i) which has a remaining maturity at the time of purchase of
not more than one year or (ii) which is subject to a repurchase
agreement with any financial institution referred to in clause (a)
above, exercisable within one year from the time of purchase and (iii)
which, in the case of obligations of any state or municipality, is
rated Aa or better by Moody's or AA or better by S&P;
(4) any mutual fund or other pooled investment vehicle rated
Aa or better by Moody's or AA or better by S&P which invests
principally in obligations described above; and
(5) any repurchase agreement with any financial institution
described in clause (a) above with respect to any obligations described
in clause (c) above.
1.3.15. "Chile Credit Facility" means a credit facility among
the Chile Subsidiary and its senior lenders that contains terms which
are not significantly less favorable to the Company, the Chile
Subsidiary and the other Subsidiaries of the Company than the terms
contained in the Argentina Credit Facility.
1.3.16. "Chile Subsidiary" means Hoyts Cinema de Chile S.A.
-3-
<PAGE> 8
1.3.17. "Cinema Ventures" means Cinema Ventures, LLC, a
Delaware limited liability company.
1.3.18. "Collateral" means all assets now or from time to time
hereafter subjected to a security interest, mortgage or charge (or
intended or required so to be subjected pursuant to this Agreement) to
secure the payment or performance of any of the Obligations, including
the assets described in Sections 8.1.1 through 8.1.3.
1.3.19. "Company" is defined in the preamble hereto.
1.3.20. "Computation Covenant" means each of Sections 3.2.10
through 3.2.15, 3.3.2, 3.4.5, 3.4.13, 4.1 through 4.7, 4.8.4, 4.8.5,
4.9 and, if applicable, Sections 5.1.6, 5.2.2, 5.2.4 and 5.4.
1.3.21. "Consolidated" and "Consolidating", when used with
reference to any term, mean that term as applied to the accounts of the
Company (or other specified Person) and all of its Subsidiaries (or
other specified group of Persons), or such of its Subsidiaries as may
be specified, consolidated (or combined) or consolidating (or
combining), as the case may be, in accordance with GAAP and with
appropriate deductions for minority interests in Subsidiaries.
1.3.22. "Consolidated Adjusted Cash Flow" means, for any
period, the sum of (a) Consolidated Adjusted EBITDA for such period
plus (b) the aggregate amount of all rental expense for real property
operating leases of the Company and its Majority-Owned Subsidiaries for
such period, all as determined on a Consolidated basis in accordance
with GAAP.
1.3.23. "Consolidated Adjusted EBITDA" means, for any period,
the total of:
(1) Consolidated Net Income for such period; plus
(2) without duplication and only to the extent reflected as a
charge in the statement of Consolidated Net Income for such period, the
sum of:
(1) Consolidated Interest Charges, taxes,
depreciation and amortization expenses of the Company and its
Majority-Owned Subsidiaries for such period; plus
(2) expenses or losses from any Permitted
Non-Theatre Investments; plus
-4-
<PAGE> 9
(3) any extraordinary, unusual or non-recurring
expenses or losses for such period; plus
(4) all general and administrative expenses of GCCI
and its Majority-Owned Subsidiaries for such period; provided,
however, that if the general and administrative expenses of
GCCI and its Majority-Owned Subsidiaries for such period
exceed $4,250,000, then only $4,250,000 of such expenses shall
be added to Consolidated Net Income for such period pursuant
to this clause (iv); minus
(3) without duplication and only to the extent reflected as an
addition (or, as the case may be, reduction) in the statement of
Consolidated Net Income for such period, the sum of:
(1) any income or gains from any Permitted
Non-Theatre Investments; plus
(2) any extraordinary, unusual or non-recurring
income or gains; plus
(3) the part of Consolidated Net Income for such
period that is attributable to the Consolidated net income (or
loss) of all Foreign Subsidiaries of the Company for such
period;
all as determined on a Consolidated basis in accordance with GAAP.
1.3.24. "Consolidated Excess Cash Flow" means, for any period,
the total of:
(1) Consolidated Adjusted EBITDA for such period; plus
(2) the net cash proceeds paid to or for the account of the
Company during such period in respect of the issuance of additional
Equity Interests of the Company; minus
(3) Consolidated Interest Charges for such period; minus
(4) Capital Expenditures of the Company and its Majority-Owned
Subsidiaries for such period; minus
(5) all regularly scheduled payments of principal of
Consolidated Total Financing Debt (other than Foreign Non-Recourse
Debt) payable during such period; minus
(6) Distributions made by the Company during such period;
minus
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<PAGE> 10
(7) cash taxes paid by the Company and its Majority-Owned
Subsidiaries during such period;
all as determined on a Consolidated basis in accordance with GAAP.
1.3.25. "Consolidated Excess Theatre Cash Flow" means, for any
period, the total of:
(1) Consolidated Excess Cash Flow for such period; minus
(2) without duplication and only to the extent reflected as an
addition to Consolidated Excess Cash Flow for such period, any income
or gains from any Permitted Non-Theatre Investments for such period;
plus
(3) without duplication and only to the extent reflected as a
charge to Consolidated Excess Cash Flow during such period, any
expenses or losses from any Permitted Non-Theatre Investments for such
period.
1.3.26. "Consolidated Fixed Charges" means, for any period,
the sum of:
(1) all regularly scheduled payments of principal of
Consolidated Total Financing Debt (other than Foreign Non-Recourse
Debt) payable during such period; plus
(2) Consolidated Interest Charges for such period; plus
(3) the aggregate amount of all rental expense for real
property operating leases of the Company and its Majority-Owned
Subsidiaries for such period;
all as determined on a Consolidated basis in accordance with GAAP.
1.3.27. "Consolidated Interest Charges" means, for any period,
the total of (a) the aggregate amount of interest, including interest
expense under Capitalized Leases, paid or accrued by the Company or any
of its Majority-Owned Subsidiaries during such period, minus (b) the
aggregate amount of interest, including interest expense under
Capitalized Leases, paid or accrued by any of the Majority-Owned
Subsidiaries of the Company which are Foreign Subsidiaries during such
period on or in respect of any Foreign Non-Recourse Debt, all as
determined on a Consolidated basis in accordance with GAAP.
1.3.28. "Consolidated Net Income" means, for any period, the
Consolidated net income (or loss) of the Company and its Majority-Owned
Subsidiaries for such period, determined in accordance with GAAP on a
Consolidated basis.
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<PAGE> 11
1.3.29. "Consolidated Net Investment Cash Flow" means, for any
period, the total of:
(1) Net Cash Proceeds received by the Company or any of its
Majority-Owned Subsidiaries during such period from the sale or other
transfer of any Permitted Non-Theatre Investments; plus
(2) without duplication, all cash income and other cash gains,
including cash interest, cash dividends and other cash Distributions,
received by the Company or any of its Majority-Owned Subsidiaries from
Permitted Non-Theatre Investments during such period; minus
(3) all cash expenses and cash losses incurred or sustained by
the Company or any of its Majority-Owned Subsidiaries from Permitted
Non-Theatre Investments during such period; plus
(4) without duplication, non-cash losses realized by the
Company or any of its Majority-Owned Subsidiaries during such period
from Permitted Non-Theatre Investments to the extent of any write-downs
or write-offs of any thereof taken by the Company or any of its
Majority-Owned Subsidiaries in such period;
all as determined on a Consolidated basis in accordance with GAAP.
1.3.30. "Consolidated Net Worth" means, at any date,
stockholders' equity of the Company and its Majority-Owned
Subsidiaries, determined on a Consolidated basis in accordance with
GAAP; provided, however, that for purposes of determining the
Consolidated Net Worth, the amount thereof shall be adjusted so as to
eliminate the effect of any unrealized gains or any unrealized losses
in the total market value as at such date of the Investments of the
Company and its Majority-Owned Subsidiaries in the Equity Interests of
each of Global Telesystems Group, Inc. and GrandVision relative to the
total market value of such Investments as reflected on the audited
Consolidated balance sheet of the Company and its Subsidiaries as at
October 31, 1998.
1.3.31. "Consolidated Total Adjusted Debt" means, at any date,
the total of (a) Consolidated Total Financing Debt as at such date,
minus (b) to the extent included in Consolidated Total Financing Debt
as at such date, the Foreign Non-Recourse Debt of the Foreign
Subsidiaries of the Company as at such date, minus (c) the aggregate of
the Eligible Securities Values of all Eligible Securities as at such
date.
1.3.32. "Consolidated Total Financing Debt" means, at any
date, the Financing Debt of the Company and its Majority-Owned
Subsidiaries outstanding on and as of such date, determined on a
Consolidated basis.
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1.3.33. "Core Theatre" means, at any date, each theatre which (a) is
owned or operated by the Company or any of its Subsidiaries and (b) is located
in the Northeast or Midwest regions of the United States, including the theatres
listed on Exhibit 1.3B.
1.3.34. "Core Theatre Adjusted EBITDA" means, at any date, the total
of:
(1) Consolidated net income of the Core Theatres for such
period; plus
(2) without duplication and only to the extent reflected as a
charge in the statement of Consolidated net income of the Core Theatres for such
period, the sum of:
(1) the aggregate amount of interest, including interest
expense under Capitalized Leases, paid or accrued by the Core
Theatres during such period; plus
(2) income taxes, depreciation and amortization expenses
of the Core Theatres for such period; plus
(3) non-operating expenses of the Core Theatres for such
period; plus
(4) lease expenses of the Core Theatres for such period;
minus
(3) without duplication and only to the extent reflected as an
addition (or, as the case may be, reduction) in the statement of Consolidated
net income of the Core Theatres for such period, all non-operating income of the
Core Theatres for such period;
all as determined on a Consolidated basis in accordance with GAAP.
1.3.35. "Core Theatre Fixed Charges" means, for any period, the sum of:
(1) all regularly scheduled payments of principal of Financing
Debt of the Core Theatres payable during such period; plus
(2) the aggregate amount of interest, including interest
expense under Capitalized Leases, paid or accrued by the Core Theatres during
such period; plus
(3) lease expenses of the Core Theatres for such period;
all as determined on a Consolidated basis in accordance with GAAP.
1.3.36. "Credit Agreement" means the Revolving Credit Agreement dated
as of January 26, 1999 among the Company, the lenders from time to time party
thereto,
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BancBoston Robertson Stephens, Inc., as syndication agent and arranger, The Bank
of Nova Scotia, as documentation agent, and BankBoston, N.A., as administrative
agent.
1.3.37. "Cumulative Excess Theatre Cash Flow" means, on any date, the
aggregate of the Consolidated Excess Theatre Cash Flows for all fiscal years of
the Company ending on or after October 31, 1998 but prior to such date;
provided, however, that Consolidated Excess Theatre Cash Flow for any such
particular fiscal year of the Company shall not, for purposes of this
definition, be added to and included in Cumulative Excess Theatre Cash Flow
until the later of (a) the first business day after delivery to Harcourt of
the financial statements required to be delivered by the Company to Harcourt
pursuant to Section 3.1.1 or (b) if any First Tier Default or Default shall
exist when such financial statements are delivered to Harcourt, the first
business day thereafter on which no First Tier Default or Default shall exist.
1.3.38. "Cumulative Net Investment Cash Flow" means, on any date, the
aggregate of the Consolidated Net Investment Cash Flows for all fiscal quarters
of the Company ending on or after October 31, 1998 but prior to such date;
provided, however, that Consolidated Net Investment Cash Flow for any such
particular fiscal quarter of the Company shall not, for purposes of this
definition, be added to and included in Cumulative Net Investment Cash Flow
until the later of (a) the first business day after delivery to Harcourt of
the financial statements required to be delivered by the Company to Harcourt
pursuant to Section 3.1.2 or (b) if any First Tier Default or Default shall
exist when such financial statements are delivered to Harcourt, the first
business day thereafter on which no First Tier Default or Default shall exist.
1.3.39. "Default" means any Event of Default and any event or condition
which with the passage of time or giving of notice, or both, would become an
Event of Default.
1.3.40. "Distribution" means, with respect to the Company (or other
specified Person):
(1) the declaration or payment of any dividend or distribution
on or in respect of any shares of any class of capital stock of or other equity
interest in the Company (or such specified Person);
(2) the purchase, redemption or other retirement of any shares
of any class of capital stock of or other equity interest in the Company (or
such specified Person) or of options, warrants or other rights for the purchase
of such shares, directly, indirectly through a Subsidiary or otherwise;
(3) any other distribution on or in respect of any shares of
any class of capital stock of or equity or other beneficial interest in the
Company (or such specified Person);
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(4) any prepayment, purchase, redemption or defeasance of any
Subordinated Indebtedness of the Company (or such specified Person); and
(5) any payment, loan or advance by the Company (or such
specified Person) to, or any other Investment by the Company (or such specified
Person) in, any beneficial owner of 5% or more of any class of capital stock of
or other equity interest in the Company (or such specified Person) or any
Affiliate of such beneficial owner;
provided, however, that the term "Distribution" shall not include (i) dividends
payable in common stock of or other equity interests in the Company (or such
specified Person) or (ii) payments in the ordinary course of business in respect
of (A) reasonable compensation paid to employees, officers and directors, (B)
advances and reimbursements to employees for travel expenses, drawing accounts,
relocation costs and similar expenditures, (C) rent paid to, or accounts payable
for services rendered or goods sold by, non-Affiliates that own capital stock of
or other equity interests in the Company (or such specified Person) or (D)
intercompany accounts payable and real property leases to non-Affiliates that
own capital stock of or other equity interests in the Company (or such specified
Person).
1.3.41. "Eligible Securities" means, with respect to any particular
marketable Securities of any particular issuer:
(1) at any date prior to the date on which the Credit
Agreement terminates, marketable Securities of such issuer that (i) are owned by
the Company or by any of its Majority-Owned Subsidiaries as at such date free
and clear of all Liens and (ii) are determined by the Administrative Agent in
its sole and complete discretion to be "Eligible Securities" as at such date for
the purposes of this Agreement, each such determination by the Administrative
Agent to be in each case final and binding on the Company for all purposes of
this Agreement; and
(2) at any date on or after the date on which the Credit
Agreement terminates, marketable Securities of such issuer that (i) are owned by
the Company or by any of its Majority-Owned Subsidiaries as at such date free
and clear of all Liens and (ii) are determined by Harcourt in its sole and
complete discretion to be "Eligible Securities" as at such date for the purposes
of this Agreement, each such determination by Harcourt to be in each case final
and binding on the Company for all purposes of this Agreement.
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1.3.42. "Eligible Securities Value" means, with respect to any
particular Eligible Securities of any particular issuer:
(1) at any date prior to the date on which the Credit
Agreement terminates, the product of (i) the Fair Market Value of such Eligible
Securities as at such date, as such Fair Market Value shall be determined by
mutual agreement of the Company and the Administrative Agent, multiplied by (ii)
the percentage used or to be used by the Administrative Agent in calculating the
Eligible Securities Value of such Eligible Securities as at such date, which
percentage (A) shall be no greater than 50% and (B) shall be determined by the
Administrative Agent in its sole and complete discretion, each such
determination by the Administrative Agent to be in each case final and binding
on the Company for all purposes of this Agreement; provided, however, that the
percentage which shall be so used by the Administrative Agent for the marketable
Securities of each of Global Telesystems Group, Inc. and GrandVision shall, as
determined by the Administrative Agent on or as of the date hereof, be and
remain 50%; and
(2) at any date on or after the date on which the Credit
Agreement terminates, the product of (i) the Fair Market Value of such Eligible
Securities as at such date, as such Fair Market Value shall be determined by
mutual agreement of the Company and Harcourt, multiplied by (ii) the percentage
used or to be used by Harcourt in calculating the Eligible Securities Value of
such Eligible Securities as at such date, which percentage (A) shall be no
greater than 50% and (B) shall be determined by Harcourt in its sole and
complete discretion, each such determination by Harcourt to be in each case
final and binding on the Company for all purposes of this Agreement; provided,
however, that the percentage which shall be so used by Harcourt for the
marketable Securities of each of Global Telesystems Group, Inc. and GrandVision
shall, as determined by Harcourt on or as of the date hereof, be and remain 50%.
1.3.43. "Equity Interests" means: (a) in the case of any corporation,
any corporate capital stock of any class or series; (b) in the case of any
association or business entity, any shares, interests, participations, rights or
other equivalents (howsoever designated) of corporate capital stock; (c) in the
case of any partnership or limited liability company, partnership or membership
interests (whether general or limited); and (d) any warrants, options or other
rights to purchase or otherwise acquire any capital stock, shares or interests
of the kind described in clause (a), (b) or (c) above.
1.3.44. "Event of Default" is defined in Section 7.1.
1.3.45. "Exchange Act" means the federal Securities Exchange Act of
1934.
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1.3.46. "Fair Market Value" means, with respect to any Securities or
other property, the price which could be negotiated in an arm's-length,
free-market transaction between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction.
1.3.47. "Fee Percentage" means:
(1) on any date prior to the Reset Date:
(1) if the Lease Exposure on such date is greater than
$400,000,000, 0.0625%;
(2) if the Lease Exposure on such date is less than or
equal to $400,000,000 but greater than $350,000,000, 0.045%;
(3) if the Lease Exposure on such date is less than or
equal to $350,000,000 but greater than $250,000,000, 0.030%;
and
(4) if the Lease Exposure on such date is less than or
equal to $250,000,000, 0.015%; and
(2) on the Reset Date and any date thereafter, 0.015%.
1.3.48. "First Tier Default" means any failure by the Company to
perform or observe any of the provisions of Section 4.
1.3.49. "Financing Debt" means each of the items described in clauses
(a) through (g) of the definition of the term "Indebtedness" and, without
duplication, any guarantees of such items.
1.3.50. "Foreign Non-Recourse Debt" means, with respect to any Foreign
Subsidiary of the Company at any time, all or any portion of the Financing Debt
of such Foreign Subsidiary at such time:
(1) as to which neither the Company nor any of its
Subsidiaries (other than Foreign Subsidiaries) (i) provides any credit support
of any kind (including any undertaking, agreement or instrument that would
constitute a guarantee), (ii) is directly or indirectly obligated or liable (as
a guarantor under a guarantee or otherwise) or (iii) constitutes the lender or
obligor thereof;
(2) with respect to which neither the Company nor any of its
Subsidiaries (other than Foreign Subsidiaries) has granted any Liens to secure
the payment or performance of all or any part thereof; and
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(3) no default with respect to which (including any rights
that the holders thereof may have to take any Enforcement Action (as defined in
the Intercreditor Agreement) against any Foreign Subsidiary) would permit (upon
notice or lapse of time or both) any holder of any Financing Debt (other than
Financing Debt under the Credit Agreement) of the Company or of any of its
Subsidiaries to declare a default on such other Financing Debt or cause the
payment thereof to be accelerated or payable prior to its stated maturity.
1.3.51. "Foreign Subsidiary" means each Subsidiary that is organized
under the laws of, and conducting its business primarily in, a jurisdiction
outside of the United States of America and that is not domesticated or dually
incorporated under the laws of the United States of America or any state
thereof.
1.3.52. "GAAP" means generally accepted accounting principles as from
time to time in effect, including the statements and interpretations of the
United States Financial Accounting Standards Board, applied on a consistent
basis (except for changes concurred with by the independent public accountants
of the Company) with the most recent audited consolidated financial statements
of the Company and its Majority-Owned Subsidiaries delivered to Harcourt
pursuant to Section 3.1.1; provided, however, that if any party notifies the
other party that such party wishes to determine compliance with any covenant
contained in Section 3.3.2, 3.4.13, 4.1 through 4.7, 4.8.4, 4.9 or 5.4 to
eliminate or otherwise modify the effect of any change in generally accepted
accounting principles after October 31, 1998, then until the earlier of (a) the
date on which such notice is withdrawn and (b) the date on which such covenant
is amended in a manner mutually satisfactory to Harcourt and the Company,
for purposes of determining compliance with such covenant and the related
definitions, "GAAP" means generally accepted accounting principles as in effect
immediately prior to the effectiveness of such change.
1.3.53. "GCCI" means GCC Investments, Inc., a Delaware corporation and
Wholly-Owned Subsidiary of the Company.
1.3.54. "Guaranteed Lease" means each lease of real property, as from
time to time in effect, which Harcourt has guaranteed pursuant to a Guarantee.
1.3.55. "Guarantees" means the respective guarantees provided by
Harcourt to lessors of real property leased by Subsidiaries of the Company, as
from time to time in effect.
1.3.56. "Harcourt" is defined in the preamble hereto.
1.3.57. "HGC South America" means Hoyts General Cinema South America,
Inc., a Cayman Islands corporation.
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1.3.58. "Indebtedness" means all obligations, contingent or otherwise,
which in accordance with GAAP are required to be classified upon the balance
sheet of the Company (or other specified Person) as liabilities, but in any
event including (without duplication):
(1) borrowed money;
(2) Indebtedness evidenced by notes, debentures or similar
instruments;
(3) Capitalized Lease Obligations;
(4) the deferred purchase price of assets, services or
Securities, including related noncompetition, consulting and stock repurchase
obligations (other than normal trade accounts payable in the ordinary course of
business);
(5) mandatory redemption or dividend rights on capital stock
(or other equity);
(6) reimbursement obligations, whether contingent or matured,
with respect to letters of credit, bankers' acceptances, surety bonds, other
financial guarantees and Interest Rate Protection Agreements (without
duplication of other Indebtedness supported or guaranteed thereby);
(7) unfunded pension liabilities;
(8) obligations that are immediately and directly due and
payable out of the proceeds of or production from property;
(9) liabilities secured by any Lien existing on property owned
or acquired by the Company (or such specified Person), whether or not the
liability secured thereby shall have been assumed; and
(10) all guarantees and endorsements in respect of
Indebtedness of others.
1.3.59. "Indemnified Party" is defined in Section 9.2.
1.3.60. "Intercreditor Agreement" means the Intercreditor Agreement
dated as of January 26, 1999, as amended and in effect from time to time, among
BankBoston, N.A., as administrative agent for itself and the other lenders under
the Credit Agreement, Harcourt and the Company.
1.3.61. "Interest Rate Protection Agreement" means any interest rate
swap, interest rate cap, interest rate hedge or other contractual arrangement
that converts
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variable interest rates into fixed interest rates, fixed interest rates into
variable interest rates or other similar arrangements.
1.3.62. "Investment" means, with respect to the Company (or other
specified Person):
(1) any share of capital stock, partnership or other equity interest,
evidence of Indebtedness or other security issued by any other Person;
(2) any loan, advance or extension of credit to, or contribution to the
capital of, any other Person;
(3) any guarantee of the Indebtedness of any other Person;
(4) any acquisition of all or any part of the business of any other
Person or the assets comprising such business or part thereof;
(5) any commitment or option to make any Investment if the
consideration for such commitment or option exceeds $1,000; and
(6) any other similar investment.
The investments described in the foregoing clauses (a) through (f)
shall be included in the term "Investment" whether they are made or acquired by
purchase, exchange, issuance of stock or other Securities, merger,
reorganization or any other method; provided, however, that the term
"Investment" shall not include (i) current trade and customer accounts
receivable for property leased, goods furnished or services rendered in the
ordinary course of business and payable in accordance with customary trade
terms, (ii) deposits, advances and prepayments to suppliers for property leased,
goods furnished and services rendered in the ordinary course of business, (iii)
advances to employees for travel expenses, drawing accounts, relocation costs
and similar expenditures, (iv) stock or other Securities acquired in connection
with the satisfaction or enforcement of Indebtedness or claims due to the
Company (or such specified Person) or as security for any such Indebtedness or
claim or (v) demand deposits in banks or similar financial institutions.
1.3.63. "Lease Exposure" means, at any time, the sum of (a) all present
and future rental payments and other amounts guaranteed by Harcourt under the
Guarantees plus (b) all present and future rental payments and other amounts
owing under the Transferred Leases.
1.3.64. "Lien" means, with respect to the Company (or any other
specified Person):
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(1) any lien, encumbrance, mortgage, pledge, charge or security
interest of any kind upon any property or assets of the Company (or such
specified Person), whether now owned or hereafter acquired, or upon the income
or profits therefrom;
(2) any arrangement or agreement which prohibits the Company (or such
specified Person) from creating encumbrances, mortgages, pledges, liens, charges
or security interests;
(3) the acquisition of, or the agreement to acquire, any property or
asset upon conditional sale or subject to any other title retention agreement,
device or arrangement (including a Capitalized Lease);
(4) the sale, assignment, pledge or transfer for security of any
accounts, general intangibles or chattel paper of the Company (or such specified
Person), with or without recourse;
(5) the transfer of any tangible property or assets for the purpose of
subjecting such items to the payment of Indebtedness in priority to payment of
the general creditors of the Company (or such specified Person); and
(6) the existence for a period of more than 90 consecutive days of any
Indebtedness against the Company (or such specified Person) which if unpaid
would by law or upon a Bankruptcy Default be given any priority over general
creditors.
1.3.65. "Majority-Owned Subsidiary" means any Subsidiary of which a
majority of the outstanding capital stock (or other shares of beneficial
interest) entitled to vote generally (other than directors' qualifying shares
and, in the case of Foreign Subsidiaries, nominal shares required by applicable
law to be held by foreign nationals) is owned by the Company (or other specified
Person) directly or indirectly through one or more Majority-Owned Subsidiaries;
provided, however, that except (a) for purposes of Sections 3.1.1 and 3.1.2 and
(b) as and to the extent otherwise required by GAAP, none of (i) Cinema Ventures
and its Subsidiaries and (ii) Sundance and its Subsidiaries shall constitute a
Majority-Owned Subsidiary of the Company or any of its Subsidiaries.
1.3.66. "Moody's" means Moody's Investor Service, Inc.
1.3.67. "Net Cash Proceeds" means, with respect to any sale or transfer
of any Investment or other property by any Person, the cash portion of the Net
Proceeds from such sale or transfer, including all such cash paid from time to
time under any instruments evidencing or securing any obligations to pay all or
any part of the purchase price or other consideration payable in connection with
such sale or transfer.
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1.3.68. "Net Proceeds" means, with respect to any sale or transfer of
any Investment or other property by any Person, all cash and other property
(including instruments evidencing or securing indebtedness and Equity Interests
or other Securities) payable to or receivable by such Person from such sale or
transfer, net of (a) all income, sales, use, transfer or other taxes (state,
federal or local) solely attributable to such sale or transfer and reasonably
estimated to be payable in cash by such Person for the taxable year in which
such sale or transfer occurred, (b) all sales or other similar commissions and
fees, costs and other expenses incurred in connection with such sale or transfer
and (c) appropriate amounts to be provided by such Person as a reserve, in
accordance with GAAP, against any liabilities associated with such Investment or
property and retained by such Person after such sale or transfer, or against any
indemnification obligations associated with the sale or transfer of such
Investment or other property.
1.3.69. "Non-Theatre Subsidiary" means each Subsidiary of the Company
that is not a Theatre Subsidiary.
1.3.70. "Obligations" means all present and future liabilities,
obligations and Indebtedness of the Company owing to Harcourt under or in
connection with this Agreement, including interest and fees under Section 2,
reimbursement, indemnification and guarantee obligations under Section 2,
payment obligations under Sections 7.2 and 9 and other charges, indemnities and
expenses from time to time owing hereunder (all whether accruing before or after
a Bankruptcy Default and regardless of whether allowed as a claim in bankruptcy
or similar proceedings).
1.3.71. "Payment Default" means any failure by the Company to perform
or observe any of the provisions of Section 2 or 7.2.
1.3.72. "Permitted Non-Theatre Investments" means each of (a)
Investments made by the Company in GCCI or any of the Majority-Owned
Subsidiaries of GCCI and (b) Investments made by GCCI or any of its
Majority-Owned Subsidiaries in any other Person.
1.3.73. "Person" means any present or future natural person or any
corporation, association, partnership, joint venture, limited liability, joint
stock or other company, business trust, trust, organization, business or
government or any governmental agency or political subdivision thereof.
1.3.74. "Pledged Rights" is defined in Section 8.1.2.
1.3.75. "Pledged Securities" means, collectively, the Pledged Stock and
the Pledged Rights.
1.3.76. "Pledged Stock" is defined in Section 8.1.1.
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1.3.77. "Pledged Theatre Subsidiary" means each present or future
Theatre Subsidiary; provided, however, that none of (a) the Foreign Subsidiaries
of HGC South America, (b) Cinema Ventures and its Subsidiaries and (c) Sundance
and its Subsidiaries shall constitute a Pledged Theatre Subsidiary.
1.3.78. "Present Value Lease Exposure" means, at any time, the sum of
the then present values of (a) all present and future rental payments and other
amounts guaranteed by Harcourt under the Guarantees plus (b) all present and
future rental payments and other amounts owing under the Transferred Leases,
calculated by discounting each such rental payment and each such other amount
from its payment date to the date of calculation of such present value at a per
annum interest rate equal to the sum of (i) the then prevailing rate of interest
on debt Securities customarily issued by the Treasury of the United States
having a 10-year maturity date plus (ii) 0.75%.
1.3.79. "Prior Agreement" is defined in Section 1.1.
1.3.80. "Problem Theatres" means the theatres listed on Exhibit 1.3C.
1.3.81. "PPI" means the Producer Price Index for Finished Goods
published by the Bureau of Labor Statistics (1982 = 100).
1.3.82. "Reset Date" means the date on which:
(1) no First Tier Default or Default exists;
(2) Consolidated Adjusted Cash Flow during the period of four
consecutive fiscal quarters of the Company most recently ended equals or exceeds
130% of Consolidated Fixed Charges during such period of four consecutive fiscal
quarters; and
(3) Consolidated Adjusted EBITDA during the period of four consecutive
fiscal quarters of the Company most recently ended equals or exceeds 350% of
Consolidated Interest Charges during such period of four consecutive fiscal
quarters.
1.3.83. "S&P" means Standard & Poor's, a division of The McGraw Hill
Companies, Inc.
1.3.84. "Securities" means any Equity Interests, bonds, debentures,
notes or other evidences of indebtedness for borrowed money, whether secured or
unsecured, and whether convertible, subordinated or otherwise, or, in general,
any instruments commonly known as "securities".
1.3.85. "Securities Act" means the federal Securities Act of 1933.
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1.3.86. "Smith Family Group" means the group of Persons originally
party to the Smith-Lurie/Marks Stockholders Agreement dated as of December 15,
1993 (whether or not such agreement is terminated) and the progeny of each such
Person.
1.3.87. "South American Adjusted EBITDA" means, for any period, the
total of:
(1) Consolidated net income of the South American Subsidiaries for such
period; plus
(2) without duplication and only to the extent reflected as a charge in
the statement of Consolidated net income of the South American Subsidiaries for
such period, the sum of:
(1) the aggregate amount of interest, including interest expense
under Capitalized Leases, paid or accrued by the South American
Subsidiaries during such period; plus
(2) taxes, depreciation and amortization expenses of the South
American Subsidiaries for such period; plus
(3) any extraordinary, unusual or non-recurring expenses or losses
for such period; minus
(3) without duplication and only to the extent reflected as an addition
(or, as the case may be, reduction) in the statement of Consolidated net income
of the South American Subsidiaries for such period, any extraordinary, unusual
or non-recurring income or gains for such period;
all as determined on a Consolidated basis in accordance with GAAP.
1.3.88. "South American Subsidiaries" means each of HGC South America,
the Argentina Subsidiary, the Brazil Subsidiary, the Chile Subsidiary, the
Uruguay Subsidiary and the other Subsidiaries of HGC South America which are
Foreign Subsidiaries and Theatre Subsidiaries.
1.3.89. "Spinoff" is defined in Section 1.1.
1.3.90. "Subordinated Indebtedness" means Indebtedness of the Company
(or other specified Person) which by its terms or any agreement is subordinated
to the prior payment of any Financing Debt of the Company (or such specified
Person).
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1.3.91. "Subsidiary" means any Person of which the Company (or other
specified Person) shall at the time, directly or indirectly through one or more
of its Subsidiaries, (a) own at least 50% of the outstanding capital stock (or
other shares of beneficial interest) entitled to vote generally, (b) hold at
least 50% of the partnership, joint venture or similar interests or (c) be a
general partner or joint venturer.
1.3.92. "Sundance" means Sundance Cinema Circuit, LLC, a Delaware
limited liability company.
1.3.93. "Theatre Subsidiary" means each present and future Subsidiary
of the Company that is engaged in whole or in part in the business of (a) motion
picture exhibition or (b) managing the motion picture exhibition or concession
business of any other Person.
1.3.94. "Transferred Lease" means each theatre lease transferred by
Harcourt to the Company and, in turn, by the Company to a Subsidiary of the
Company in connection with the Spinoff, as from time to time in effect.
1.3.95. "UCC" means the Uniform Commercial Code as in effect in
Massachusetts; provided, however, that with respect to the perfection of
Harcourt's Lien on the Collateral and the effect of perfection or nonperfection
thereof, the term "UCC" means the Uniform Commercial Code as in effect in any
jurisdiction the laws of which are made applicable by Section 9-103 of the
Uniform Commercial Code as in effect in Massachusetts.
1.3.96. "Uruguay Credit Facility" means a credit facility among the
Uruguay Subsidiary and its senior lenders that contains terms which are not
significantly less favorable to the Company, the Uruguay Subsidiary and the
other Subsidiaries of the Company than the terms contained in the Argentina
Credit Facility.
1.3.97. "Uruguay Subsidiary" means Telnir S.A.
1.3.98. "Wholly-Owned Subsidiary" means any Subsidiary of which all of
the outstanding capital stock (or other shares of beneficial interest) entitled
to vote generally (other than directors' qualifying shares and, in the case of
Foreign Subsidiaries, nominal shares required by applicable law to be held by
foreign nationals) is owned by the Company (or other specified Person) directly
or indirectly through one or more Wholly-Owned Subsidiaries.
2. Payment Provisions.
2.1. Reimbursement and Indemnification. The Company hereby
unconditionally and irrevocably agrees (a) to pay Harcourt, immediately upon
written notice by Harcourt, any and all
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amounts paid by Harcourt pursuant to, or in respect of, any Guarantee or
Transferred Lease and (b) to indemnify, defend and hold harmless Harcourt and
its Affiliates and their respective directors, officers, employees and agents
from and against any and all claims, losses, liabilities, damages, cost and
expenses (including reasonable attorneys' fees and expenses) arising from or in
connection with any Guarantee or Transferred Lease.
2.2. Guarantor's Fee. Commencing on February 1, 1999, the Company will
pay to Harcourt a quarterly guarantor's fee, payable in advance on the first
business day of each February, May, August and November in an amount equal to
the product of (a) the Fee Percentage multiplied by (b) the Present Value Lease
Exposure as of such day.
2.3. Interest on Overdue Payments. The Company will, on demand, pay to
Harcourt interest on any overdue payment required to be made under this
Agreement at a per annum rate equal to the sum of (a) 2% plus (b) the rate of
interest from time to time announced by BankBoston, N.A. as its "base rate".
3. General Covenants. The Company covenants that it will, and it will
cause its Subsidiaries to, comply with the following provisions:
3.1. Financial Statements and Reports.
3.1.1. Annual Reports. The Company will furnish to Harcourt as
soon as available, and in any event within 110 days after the end of
each fiscal year of the Company, the Consolidated balance sheet of the
Company and its Majority-Owned Subsidiaries as at the end of such
fiscal year and the Consolidated statements of income, of changes in
shareholders' equity and of cash flows of the Company and its
Majority-Owned Subsidiaries for such fiscal year and the last fiscal
quarter of such fiscal year (all in reasonable detail), all accompanied
by:
(1) reports of Deloitte & Touche (or, if they cease to be auditors
of the Company and its Majority-Owned Subsidiaries, other independent
certified public accountants of recognized national standing),
containing no material qualification, to the effect that they have
audited the foregoing Consolidated financial statements (other than the
financial statements for the last quarter of such fiscal year) in
accordance with generally accepted auditing standards and that such
audited Consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its
Majority-Owned Subsidiaries covered thereby at the date thereof and the
results of their operations for the period covered thereby in
conformity with GAAP;
(2) the statement of such accountants that they have caused this
Agreement to be reviewed and that in the course of their audit of the
Company and its Majority-Owned Subsidiaries no facts have come to their
attention that cause them to believe that any First Tier Default or
Default exists or, if such is not the case, specifying such First Tier
Default
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or Default and the nature thereof; provided, however, that this statement is
furnished by such accountants with the understanding that the examination of
such accountants cannot be relied upon to give such accountants knowledge of any
such First Tier Default or Default except as it relates to accounting or
auditing matters within the scope of their audit;
(3) a certificate of the Company signed by the chief financial officer
or treasurer of the Company to the effect that such officer has caused this
Agreement to be reviewed and has no knowledge of any First Tier Default or
Default, or if such officer has such knowledge, specifying such First Tier
Default or Default and the nature thereof and what action the Company has taken,
is taking or proposes to take with respect thereto;
(4) computations by the Company demonstrating, as of the end of such
fiscal year and the last fiscal quarter of such fiscal year, compliance with the
Computation Covenants; and
(5) in reasonable detail, management's discussion and analysis of (i)
the results of operations and the financial condition of the Company and its
Subsidiaries as at the end of and for each of (A) such fiscal year and (B) the
last fiscal quarter of such fiscal year and (ii) the progress of the Company in
implementing its new business plan as presented by the Company to the Special
Committee of the Board of Directors of Harcourt on November 15, 1998.
3.1.2. Quarterly Reports. The Company will furnish to Harcourt as soon
as available and, in any event within 55 days after the end of each of the first
three fiscal quarters of each fiscal year of the Company, the internally
prepared Consolidated balance sheet of the Company and its Majority-Owned
Subsidiaries as of the end of such fiscal quarter and the Consolidated
statements of income, of changes in shareholders' equity and of cash flows of
the Company and its Majority-Owned Subsidiaries for such month and for the
portion of the fiscal year then ended (all in reasonable detail), all
accompanied by:
(1) a certificate of the Company signed by the chief financial officer
or treasurer of the Company to the effect that such financial statements have
been prepared in accordance with GAAP and present fairly, in all material
respects, the financial position of the Company and its Majority-Owned
Subsidiaries covered thereby at the dates thereof and the results of their
operations for the periods covered thereby, subject only to normal year-end
audit adjustments and the addition of footnotes;
(2) a certificate of the Company signed by the chief financial officer
or treasurer of the Company to the effect that such officer has caused this
Agreement to be reviewed and has no knowledge of any First Tier Default or
Default, or if such officer has such knowledge, specifying such First Tier
Default or Default and the nature thereof and what action the Company has taken,
is taking or proposes to take with respect thereto;
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(3) computations by the Company demonstrating, as of the
end of such fiscal quarter, compliance with the Computation Covenants;
and
(4) in reasonable detail, management's discussion and
analysis of (i) the results of operations and the financial condition
of the Company and its Subsidiaries as at the end of and for such
fiscal quarter and (ii) the progress of the Company in implementing its
new business plan as presented by the Company to the Special Committee
of the Board of Directors of Harcourt on November 15, 1998.
3.1.3. Public Reports. The Company will promptly furnish to
Harcourt such registration statements, proxy statements and reports,
including Forms 10-K, 10-Q and 8-K, as may be filed by the Company with
the Securities and Exchange Commission.
3.1.4. Notice of Litigation; Notice of Defaults. The Company
will promptly furnish to Harcourt notice of (i) any notice or other
communication from any lessor that the Company or any Theatre
Subsidiary is in default under any Guaranteed Lease or any Transferred
Lease; (ii) any litigation or administrative or arbitration proceeding
commenced, or to the knowledge of the Company, threatened, relating to
any Guaranteed Lease or any Transferred Lease; and (iii) any other
litigation or administrative or arbitration proceeding commenced, or to
the knowledge of the Company, threatened, against or relating to the
Company or any of its Subsidiaries if the damages claimed in such
proceeding are $5,000,000 or more or if such proceeding may result in a
material adverse change in the business or assets or in the condition,
financial or otherwise, of the Company and its Subsidiaries on a
Consolidated basis or of the Company on an individual basis. Promptly
upon acquiring knowledge thereof, the Company will notify Harcourt of
the existence of any First Tier Default or Default, specifying the
nature thereof and what action the Company or any Subsidiary has taken,
is taking or proposes to take with respect thereto.
3.1.5. Management Letters. The Company will promptly furnish
to Harcourt any management letters furnished to the Company or any of
its Subsidiaries by the Company's auditors.
3.1.6. South American Financing Documents. The Company will
promptly furnish to Harcourt any agreement relating to any Financing
Debt of any South American Subsidiary and all financial statements and
financial compliance certificates required to be delivered from time to
time by the Company or any South American Subsidiary to any lender
under such agreement.
3.1.7. Other Information. From time to time upon request of
any authorized officer of Harcourt, each of the Company and its
Subsidiaries will furnish to Harcourt such other information regarding
the business, assets, financial condition, income or
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prospects of the Company and its Subsidiaries as such officer may
reasonably request. Harcourt's authorized officers and representatives
shall have the right during normal business hours upon reasonable
notice and at reasonable intervals to examine the books and records of
the Company and its Subsidiaries, to make copies, notes and abstracts
therefrom and to make an independent examination of such books and
records for the purpose of verifying the accuracy of the reports
delivered by the Company and its Subsidiaries pursuant to this Section
3.1 and ascertaining compliance with or obtaining enforcement of this
Agreement.
3.2. Liens. Neither the Company nor any of its Subsidiaries shall
create, incur or enter into, or suffer to be created or incurred or to exist,
any Lien (including any arrangement or agreement which prohibits it from
creating any Lien), except the following:
3.2.1. Liens on the Collateral that secure the Obligations
for the benefit of Harcourt.
3.2.2. Liens to secure taxes and assessments and other
governmental charges if (a) the validity or amount of such tax,
assessment or other governmental charge is being contested in good
faith by the Company or any of its Subsidiaries by appropriate
proceedings and (b) the Company or such Subsidiary, in accordance with
GAAP, has set aside on its books adequate reserves with respect
thereto; provided, however, that each of the Company and its
Subsidiaries will pay or bond, or cause to be paid or bonded, all such
taxes, assessments or other governmental charges immediately upon the
commencement of proceedings to foreclose any Lien which may have
attached as security therefor (except to the extent such proceedings
have been dismissed or stayed).
3.2.3. Deposits or pledges made (a) in connection with, or
to secure payment of, workers' compensation, unemployment insurance,
old age pensions or other social security, (b) in connection with
casualty insurance, (c) to secure the performance of bids, tenders,
contracts (other than contracts relating to Financing Debt) or leases,
(d) to secure statutory obligations or surety or appeal bonds or (e) to
secure indemnity, performance or other similar bonds in the ordinary
course of business.
3.2.4. Liens in respect of judgments or awards (a) which
have been in force for less than the applicable appeal period or (b) in
respect of which the Company or any of its Subsidiaries shall at the
time in good faith be prosecuting an appeal or proceeding for review
and, in the case of each of clauses (a) and (b), the Company or such
Subsidiary shall have taken appropriate reserves therefor in accordance
with GAAP and execution of such judgment or award shall not be levied.
3.2.5. Liens of carriers, warehousemen, mechanics and
similar Liens, which in each case (a) are being contested in good faith
by the Company or any Subsidiary in appropriate proceedings (so long as
the Company or such Subsidiary shall, in accordance
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<PAGE> 29
with GAAP, have set aside on its books adequate reserves with respect
thereto) and (b) do not materially detract from the value of any asset
or other property material to the operations or business of the Company
or any of its Subsidiaries or impair the use thereof in the business of
the Company or any of its Subsidiaries.
3.2.6. Encumbrances in the nature of (a) zoning
restrictions, (b) easements, (c) restrictions of record on the use of
real property, (d) landlords' and lessors' Liens on rented premises and
(e) restrictions on transfers or assignment of leases, which in each
case do not materially detract from the value of any asset or other
property material to the operations or business of the Company or any
of its Subsidiaries or impair the use thereof in the business of the
Company or any of its Subsidiaries.
3.2.7. Restrictions under federal and state securities laws
on the transfer of Securities.
3.2.8. Liens constituting (a) purchase money security
interests existing or created on the date on which such property is
acquired, and (b) the renewal, extension or refunding of any security
interest referred to in the foregoing clause (a) in an amount not to
exceed the amount thereof remaining unpaid immediately prior to such
renewal, extension or refunding; provided, however, that each such
security interest shall attach solely to the particular item of
property so acquired, and the principal amount of Indebtedness
(including Indebtedness in respect of Capitalized Lease Obligations)
secured thereby shall not exceed the cost (including all such
Indebtedness secured thereby, whether or not assumed) of such item of
property.
3.2.9. Liens consisting of covenants contained in agreements
relating to senior Financing Debt of the Company prohibiting the
Company and its Subsidiaries from creating encumbrances, mortgages,
liens, charges or security interests on their assets (other than Liens
on the Collateral which secure the Obligations for the benefit of
Harcourt).
3.2.10. Liens on the capital stock of the Argentina
Subsidiary granted to BankBoston, N.A., Nassau Branch, as agent under
the Argentina Credit Facility, to secure up to $75,000,000 of
obligations of the Argentina Subsidiary under the Argentina Credit
Facility.
3.2.11. Liens on the capital stock of the Brazil Subsidiary
granted to the senior lenders of the Brazil Subsidiary to secure up to
$17,250,000 in obligations of the Brazil Subsidiary under the Brazil
Credit Facility.
3.2.12. Liens on the capital stock of the Chile Subsidiary
granted to the senior lenders of the Chile Subsidiary to secure up to
$15,000,000 in obligations of the Chile Subsidiary under the Chile
Credit Facility.
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3.2.13. Liens on the capital stock of the Uruguay Subsidiary
granted to the senior lenders of the Uruguay Subsidiary to secure up to
$5,000,000 in obligations of the Uruguay Subsidiary under the Uruguay
Credit Facility.
3.2.14. If any South American Subsidiaries combine their
respective credit facilities into a joint senior credit facility, Liens
on the capital stock of such combining South American Subsidiaries
granted to their senior lenders to secure their obligations under such
joint senior credit facility; provided, however, that the aggregate
amount of obligations of such South American Subsidiaries secured
pursuant to Sections 3.2.10 through 3.2.13 and this Section 3.2.14
shall not exceed the aggregate amount of obligations of such South
American Subsidiaries permitted to be secured pursuant to Sections
3.2.10 through 3.2.13.
3.2.15. Liens granted by the Theatre Subsidiaries on theatre
assets acquired after the date hereof and located in the United States
to secure the financing used to acquire such theatre assets; provided,
however, that (a) each such Lien shall attach solely to the particular
item of property so acquired, (b) the principal amount of such
financing secured thereby shall not exceed the cost (including all such
financing secured thereby, whether or not assumed) of such item of
property and (c) the aggregate amount of financing secured by all such
Liens shall not exceed $10,000,000.
3.2.16. Liens on the capital stock and assets of each of
Cinema Ventures, Sundance and their respective Subsidiaries.
3.3. Distributions. Neither the Company nor any of its Subsidiaries
shall make any Distribution, except the following:
3.3.1. Any Subsidiary of the Company may make Distributions
to its equityholders which (a) are in proportion to the respective
Equity Interests of such Subsidiary owned by such equityholders or (b)
are disproportionately favorable to the Company or any of its other
Subsidiaries based on the respective Equity Interests owned by the
equityholders of such Subsidiary.
3.3.2. At any time after the delivery by the Company to
Harcourt of the financial statements required to be delivered pursuant
to Section 3.1.1 for the fiscal year of the Company ending on October
31, 1999, so long as immediately before and after giving effect thereto
no First Tier Default or Default exists, the Company may make
Distributions to its stockholders; provided, however, that the
aggregate amount of all such Distributions shall not exceed the total
of (a) 50% of Cumulative Excess Theatre Cash Flow minus (b) to the
extent included in clause (a) above, gains from the sale of assets of
the Theatre Subsidiaries.
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3.4. Merger, Consolidation and Dispositions of Assets. Neither the
Company nor any of the Theatre Subsidiaries shall (a) become a party to any
merger or consolidation or shall sell, lease, sell and leaseback, sublease or
otherwise dispose of any of its assets, or (b) contract, or make other
arrangements, with any Person (other than a Theatre Subsidiary) to manage the
theatre business of, or provide concession services to, any Theatre Subsidiary,
except the following:
3.4.1. Any Theatre Subsidiary may sell or otherwise dispose
of (a) inventory in the ordinary course of business, (b) tangible
assets to be replaced in the ordinary course of business by other
tangible assets of equal or greater value and (c) tangible assets that
are no longer used or useful in the business of the Company or such
Theatre Subsidiary.
3.4.2. Any Theatre Subsidiary may merge or liquidate into
any other Theatre Subsidiary so long as after giving effect thereto the
surviving company is a directly owned Wholly-Owned Subsidiary of the
Company.
3.4.3. The Company may sell or otherwise dispose of
Investments other than Investments in Theatre Subsidiaries which are
not South American Subsidiaries.
3.4.4. The Theatre Subsidiaries may sell the assets of the
Theatre Subsidiaries listed on Exhibit 3.4.4.
3.4.5. The Company and the Theatre Subsidiaries may transfer
the assets or Equity Interests of any Problem Theatre so long as (a)
such transfer effects a release of Harcourt from all obligations under
each Guaranteed Lease and Transferred Lease relating to such assets or
Equity Interests or (b) such assets or Equity Interests are transferred
to a transferee having a Consolidated net worth of at least $10,000,000
and the aggregate amount of buyout payments made by the Company and its
Subsidiaries to such transferee in connection with such transfer does
not exceed the product of (i) four multiplied by (ii) the negative cash
flow generated by the assets of such Problem Theatre during the period
of four consecutive fiscal quarters of the Company most recently ended;
provided, however, that the aggregate amount of all buyout payments
made by the Company and its Subsidiaries in connection with transfers
of assets and Equity Interests pursuant to this clause (b) shall not
exceed $15,000,000.
3.4.6. The Company and the Theatre Subsidiaries may sell the
assets or Equity Interests of any B Theatre so long as (a) such sale
effects a release of Harcourt from all obligations under each
Guaranteed Lease and Transferred Lease relating to such assets or
Equity Interests or (b) such assets are sold to a buyer having a
Consolidated net worth of at least $10,000,000 and the cash
consideration received by the Company and its Subsidiaries in
connection with such sale equals or exceeds the product of (i) four
multiplied by (ii) the cash flow generated by the assets of such B
Theatre during the period of four consecutive fiscal quarters of the
Company most recently ended.
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3.4.7. The Company and the Theatre Subsidiaries may transfer
the assets or Equity Interests of any Problem Theatre or B Theatre to
any transferee having a Consolidated net worth of at least $10,000,000
in exchange for theatre assets of such transferee having substantially
the same cash flow during the period of four consecutive fiscal
quarters of the Company most recently ended as the assets of such
Problem Theatre or B Theatre.
3.4.8. Any South American Subsidiary may merge or liquidate
into any other South American Subsidiary.
3.4.9. Any South American Subsidiary may merge into any
Person (other than any other Theatre Subsidiary which is not a Foreign
Subsidiary) so long as contemporaneously with such merger (a) an amount
of Financing Debt (other than Foreign Non-Recourse Debt) of such South
American Subsidiary equal to the lesser of (i) the Net Cash Proceeds
received by such South American Subsidiary in connection with such
merger and (ii) the Financing Debt (other than Foreign Non-Recourse
Debt) of such South American Subsidiary, is indefeasibly discharged in
full and (b) guarantees by the Company and any of its Subsidiaries of
an amount of Indebtedness (including Financing Debt) of such South
American Subsidiary equal to the lesser (i) the Net Cash Proceeds
received by such South American Subsidiary in connection with such
merger and (ii) the Financing Debt (other than Foreign Non-Recourse
Debt) of such South American Subsidiary, are irrevocably terminated;
provided, however, that if such South American Subsidiary and any other
South American Subsidiary are co-obligors with respect to any Financing
Debt (other than Foreign Non-Recourse Debt), then for purposes of
determining the amount of such Financing Debt (A) which is required to
be indefeasibly discharged in full pursuant to clause (a) above and (B)
in respect of which all guarantees are required to be irrevocably
terminated pursuant to clause (B) above, each co-obligor shall be
deemed to be the sole obligor in respect of its equitable proportion of
such Financing Debt, which apportionment shall be based on the relative
portions of South American Adjusted EBITDA during the period of four
consecutive fiscal quarters of the Company most recently ended that are
attributable to such co-obligors.
3.4.10. Any South American Subsidiary may sell all or any
portion of its assets or all or any portion of its Equity Interests in
any other Person, in each case so long as contemporaneously with such
sale (a) an amount of Financing Debt (other than Foreign Non-Recourse
Debt) of such South American Subsidiary equal to the lesser of (i) the
Net Cash Proceeds received by such South American Subsidiary in
connection with such sale and (ii) the Financing Debt (other than
Foreign Non-Recourse Debt) of such South American Subsidiary, is
indefeasibly discharged in full and (b) guarantees by the Company and
any of its Subsidiaries of an amount of Indebtedness (including
Financing Debt) of such South American Subsidiary equal to the lesser
of (i) the Net Cash Proceeds received by such South American Subsidiary
in connection with such sale
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<PAGE> 33
and (ii) the Financing Debt (other than Foreign Non-Recourse Debt) of
such South American Subsidiary, are irrevocably terminated; provided,
however, that if such South American Subsidiary and any other South
American Subsidiary are co-obligors with respect to any Financing Debt
(other than Foreign Non-Recourse Debt), then for purposes of
determining the amount of such Financing Debt (A) which is required to
be indefeasibly discharged in full pursuant to clause (a) above and (B)
in respect of which guarantees are required to be irrevocably
terminated pursuant to clause (b) above, each co-obligor shall be
deemed to be the sole obligor in respect of its equitable proportion of
such Financing Debt, which apportionment shall be based on the relative
portions of South American Adjusted EBITDA during the period of four
consecutive fiscal quarters of the Company most recently ended that are
attributable to such co-obligors.
3.4.11. Each of Cinema Ventures, Sundance and their
respective Subsidiaries may merge or be liquidated into any other
Person.
3.4.12. Each of Cinema Ventures, Sundance and their
respective Subsidiaries may sell all or any portion of its assets or
all or any portion of its Equity Interests in any other Person.
3.4.13. In addition to the foregoing, (a) the Company may
sell any (but not substantially all) of its assets or all of its Equity
Interests in any Theatre Subsidiary and (b) any Theatre Subsidiary
(other than any South American Subsidiary) may sell all or any of its
assets, in each case so long as:
(1) either (A) such sale effects a release of
Harcourt from all obligations under each Guaranteed Lease and
Transferred Lease relating to such assets or Equity Interests
or (B) such assets or Equity Interests are transferred to a
transferee having a Consolidated net worth of at least
$10,000,000;
(2) the consideration received by the Company or
such Theatre Subsidiary in exchange for such assets or Equity
Interests equals or exceeds the Fair Market Value of such
assets or Equity Interests;
(3) immediately before and after giving effect
to such sale, no First Tier Default or Default exists; and
(4) immediately before and after giving effect to
any such sale, the aggregate amount of Asset-Specific EBITDA
attributable to all of the assets and Equity Interests sold
pursuant to this Section 3.4.13 shall not exceed 10% of
Consolidated Adjusted EBITDA of the Company and its
Majority-Owned Subsidiaries for the period of four consecutive
fiscal quarters of the Company most recently ended for which
financial statements have been delivered by the Company to
Harcourt pursuant to Section 3.1.1 or 3.1.2.
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3.5. Issuance of Stock by Theatre Subsidiaries; Subsidiary
Distributions.
3.5.1. Issuance of Stock by Theatre Subsidiaries. No present
Majority-Owned Subsidiary of the Company which is a Theatre Subsidiary
shall issue or sell any shares of its capital stock or other evidence
of beneficial ownership to any Person other than (a) to the Company or
any of its Wholly-Owned Subsidiaries which is a Theatre Subsidiary and
(b) as required by applicable law or licensing authorities.
3.5.2. No Restrictions on Subsidiary Distributions. Except
for this Agreement and agreements relating to Financing Debt of the
Company, the South American Subsidiaries, Cinema Ventures, Sundance and
the respective Subsidiaries of Cinema Venture and Sundance, neither the
Company nor any of its Subsidiaries shall enter into or be bound by any
agreement (including covenants requiring the maintenance of specified
amounts of net worth or working capital) restricting the right of any
such Subsidiary to make Distributions or extensions of credit to the
Company (directly or indirectly through another Subsidiary of the
Company).
3.6. Guaranteed Leases and Transferred Leases.
3.6.1. No Transfer. No Theatre Subsidiary shall transfer,
assign or sublease any Guaranteed Lease or any Transferred Lease to any
other Person (other than another Theatre Subsidiary) without the prior
written consent of Harcourt; provided, however, that the Theatre
Subsidiaries may transfer and assign any Guaranteed Lease or
Transferred Lease in connection with any sale of assets or Equity
Interests permitted under Section 3.4.4, 3.4.5, 3.4.6 or 3.4.7 or
3.4.13.
3.6.2. Amendments, Renewals, Extensions, etc. No Theatre
Subsidiary shall (a) amend, modify or terminate any Guaranteed Lease or
Transferred Lease if, as a result of such amendment, modification or
termination, Harcourt's liability with respect to such Guaranteed Lease
or Transferred Lease shall be increased or the time period for which
Harcourt has any liability for such Guaranteed Lease or Transferred
Lease shall be extended or (b) renew or extend the term of any
Guaranteed Lease or Transferred Lease unless Harcourt shall not be
liable for any Theatre Subsidiary's obligations with respect to such
renewed or extended term.
3.7. Conduct of Theatre Business.
3.7.1. Theatre Subsidiaries. The Theatre Subsidiaries will
engage only in the business of owning and operating theatres for motion
picture exhibition and other activities incidental thereto; provided,
however, that Cinema Ventures may also engage in the business of owning
and operating full-service restaurants in its theatres.
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3.7.2. Theatre Business. The Company's motion picture
exhibition business in the United States and activities incidental
thereto will be conducted only by the Theatre Subsidiaries. The Company
shall own and hold all interests in (a) the Theatre Subsidiaries which
are not Foreign Subsidiaries directly or indirectly through General
Cinema Theatres, Inc. and (b) the Theatre Subsidiaries which are
Foreign Subsidiaries directly or indirectly through General Cinema
International, Inc.; provided, however, that each of Knights Holding
Corp., Knights Realty Corp. and Knights Theatre Corp. may be owned
indirectly by the Company so long as it is inactive and does not engage
in any operations or activities or own any material assets.
3.8. No Extension of Credit Agreement. Prior to the date on which
the Intercreditor Agreement terminates, without the prior written consent of
Harcourt, the Company shall not (a) extend the maturity date of any Financing
Debt under the Credit Agreement or any other Loan Document (as defined in the
Credit Agreement) beyond January 26, 2002 or (b) extend the term of the
commitment of any lender under the Credit Agreement or any other Loan Document
(as defined in the Credit Agreement) to make extensions of credit to the Company
or any of its Subsidiaries beyond January 26, 2002.
4. First Tier Covenants. The Company covenants that, at any time when
Consolidated Net Worth is less than the then Present Value Lease Exposure, it
will comply with the following provisions:
4.1. Consolidated Net Worth. Consolidated Net Worth shall at all
times equal or exceed the sum of (a) $135,000,000 plus (b) 50% of Consolidated
Net Income (if positive) for each fiscal year of the Company ending on or after
October 31, 1998.
4.2. Consolidated Adjusted Cash Flow to Consolidated Fixed Charges.
On the last day of each fiscal quarter of the Company, Consolidated Adjusted
Cash Flow during the period of four consecutive fiscal quarters then ended shall
equal or exceed 100% of Consolidated Fixed Charges during such period of four
consecutive fiscal quarters.
4.3. Consolidated Adjusted EBITDA to Consolidated Interest Charges.
On the last day of each fiscal quarter of the Company, Consolidated Adjusted
EBITDA during the period of four consecutive fiscal quarters then ended shall
equal or exceed 230% of Consolidated Interest Charges during such period of four
consecutive fiscal quarters.
4.4. Consolidated Total Adjusted Debt to Consolidated Adjusted
EBITDA. On the last day of each fiscal quarter of the Company, Consolidated
Total Adjusted Debt shall not exceed 420% of Consolidated Adjusted EBITDA during
the period of four consecutive fiscal quarters then ended.
4.5. Core Theatre Adjusted EBITDA to Core Theatre Fixed Charges. On
the last day of each fiscal quarter of the Company, Core Theatre Adjusted EBITDA
during the period of four
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consecutive fiscal quarters then ended shall equal or exceed 105% of Core
Theatre Fixed Charges during such period of four consecutive fiscal quarters.
4.6. Problem Theatre Adjusted EBITDA. The portion of Consolidated
Adjusted EBITDA that is attributable to the Problem Theatres owned by the
Company or any of its Subsidiaries on October 31, 2000 shall not be less than
negative $10,000,000 for the fiscal year of the Company ending on October 31,
2000.
4.7. South American Adjusted EBITDA. On each of October 31, 1999
and October 31, 2000, South American Adjusted EBITDA during the period of four
consecutive fiscal quarters then ended shall equal or exceed $1.
4.8. Investments and Acquisitions. On or prior to the Reset Date,
neither the Company nor any of its Subsidiaries shall have outstanding, acquire,
hold or commit itself to acquire any Investment (including any Investment
consisting of the acquisition of any business), except the following:
4.8.1. Investments of the Company and its Subsidiaries
outstanding immediately prior to the date hereof; provided, however,
that unless permitted pursuant to Section 4.8.4, neither the Company
nor any of its Subsidiaries shall exercise any option to make an
Investment held by it prior to the date hereof.
4.8.2. Investments of the Company and its Subsidiaries in
the Theatre Subsidiaries (other than Cinema Ventures, Sundance and
their respective Subsidiaries).
4.8.3. Investments of the Company and its Subsidiaries in
Cash Equivalents.
4.8.4. Permitted Non-Theatre Investments of the Company,
GCCI and the Subsidiaries of GCCI; provided, however, that no such
Permitted Non-Theatre Investment shall be acquired if immediately
before or after giving effect to such Permitted Non-Theatre Investment
any First Tier Default or Default shall exist; and provided, further,
that the aggregate amount of all such Permitted Non-Theatre Investments
shall not exceed the total of (a) $125,000,000 minus (b) the aggregate
amount of Permitted Non-Theatre Investments outstanding immediately
prior to the date hereof, including the Permitted Non-Theatre
Investments listed on Exhibit 4.8.4, plus (c) 50% of Cumulative Excess
Theatre Cash Flow plus (d) Cumulative Net Investment Cash Flow.
4.8.5. Investments of the Company and its Majority-Owned
Subsidiaries in Cinema Ventures, Sundance or any of their respective
Subsidiaries; provided, however, that no such Investment shall be
acquired if immediately before or after giving effect to such
Investment any First Tier Default or Default shall exist; and provided,
further, that the aggregate amount of all such Investments after the
date hereof shall not exceed $25,000,000.
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4.9. Capital Expenditures. On or prior to the Reset Date, neither
the Company nor any of its Majority-Owned Subsidiaries shall make any Capital
Expenditures, except for Capital Expenditures in an aggregate amount not to
exceed the lesser of (a) the aggregate amount of Capital Expenditures which the
Company and its Majority-Owned Subsidiaries are permitted to make under the
Credit Agreement, as amended and in effect from time to time, and (b) the sum of
(i) the aggregate amount of Capital Expenditures which the Company and its
Majority-Owned Subsidiaries are permitted to make under the Credit Agreement as
in effect on the date hereof, plus (ii) $10,000,000.
5. Second Tier Covenants. The Company covenants that it will, and it will
cause its Subsidiaries to, comply with the provisions of this Section 5 during
the period from the date on which any First Tier Default occurs to the date on
which the Company is in compliance with each of the provisions of Section 4 as
are then applicable.
5.1. Investments and Acquisitions. Neither the Company nor any of
its Subsidiaries shall have outstanding, acquire, hold or commit itself to
acquire any Investment (including any Investment consisting of the acquisition
of any business), except the following:
5.1.1. Investments of the Company and its Subsidiaries
outstanding immediately prior to the date of such First Tier Default;
provided, however, that unless permitted pursuant to Section 5.1.6,
neither the Company nor any of its Subsidiaries shall exercise any
option to make an Investment held by it prior to the date of such First
Tier Default.
5.1.2. Cash equity investments of the Company in, and loans
from the Company to, Theatre Subsidiaries; provided, however, that the
proceeds of such Investments and loans shall be applied by the Theatre
Subsidiaries solely as provided in Section 5.5.
5.1.3. Loans from Non-Theatre Subsidiaries to the Company
and the Theatre Subsidiaries; provided, however, that (a) in the case
of loans to the Company, (i) such loans shall be subordinated on terms
satisfactory to Harcourt to the prior payment of the Obligations and
(ii) the proceeds of such loans shall be used solely to pay the
Obligations or to make Investments in Theatre Subsidiaries permitted by
Section 5.1.2 and (b) in the case of loans to the Theatre Subsidiaries,
the proceeds of such loans shall be applied by the Theatre Subsidiaries
solely as provided in Section 5.5.
5.1.4. Loans from Theatre Subsidiaries to other Theatre
Subsidiaries; provided, however, that the proceeds of such loans shall
be applied by the Theatre Subsidiaries solely as provided in Section
5.5.
5.1.5. Investments of the Company and its Subsidiaries in
Cash Equivalents.
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5.1.6. Follow-on equity Investments of the Company
and the Non-Theatre Subsidiaries which maintain the
proportionate equity interest of the Company or any
Non-Theatre Subsidiary in Persons that are not Wholly-Owned
Subsidiaries in which the Company or such Non-Theatre
Subsidiary held an equity Investment immediately prior to the
date of such First Tier Default; provided, however, that the
aggregate amount of all such follow-on Investments made during
each period when the provisions of Section 5 apply shall not
exceed $10,000,000.
5.2. Financing Debt. Neither the Company nor any of its
Subsidiaries shall create, incur, assume or otherwise become or remain
liable with respect to any Financing Debt, except the following:
5.2.1. Financing Debt outstanding immediately prior
to such First Tier Default.
5.2.2. Financing Debt of the Company incurred under
the Credit Agreement after such First Tier Default; provided,
however, that the aggregate amount of Financing Debt incurred
pursuant to this Section 5.2.2 shall not exceed $5,000,000.
5.2.3. Financing Debt consisting of inter-company
loans and advances among the Company and its Subsidiaries
which are not prohibited by Section 5.1.
5.2.4. Additional Financing Debt of the Company
consisting of Indebtedness for borrowed money, the proceeds of
which are used to finance Investments permitted by Section
5.1.6; provided, however, that the aggregate amount of
Financing Debt outstanding pursuant to this Section 5.2.4
shall not at any one time exceed $10,000,000.
5.3. Distributions. Neither the Company nor any of its
Subsidiaries shall make any Distribution, except the following:
5.3.1. Distributions by Non-Theatre Subsidiaries to
the Company or any Wholly-Owned Subsidiary of the Company.
5.3.2. Distributions in cash by any Theatre
Subsidiary to its equityholders which (a) are in proportion to
the respective Equity Interests of such Subsidiary owned by
such equityholders or (b) are disproportionately favorable to
the Company or any of its other Subsidiaries based on the
respective Equity Interests owned by the equityholders of such
Subsidiary; provided, however, that the Company shall use the
proceeds of all such Distributions received by the Company to
make: (i) payments of principal of and interest on Financing
Debt owing to the lenders under the Credit Agreement; (ii)
regularly scheduled payments of principal of and interest on
Financing Debt owing to non-Affiliates and permitted under
Section 5.2.1 as required by the terms of such Financing Debt
as in effect immediately prior to the date of such First Tier
Default; (iii) regularly scheduled payments of principal of
and interest on Financing Debt permitted under
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Section 5.2.4; (iv) payments of general and administrative
expenses, taxes, assessments and other expenses (other than
principal of and interest on Financing Debt) incurred in the
ordinary course of business consistent with past practice; or
(v) payments to Harcourt pursuant to Sections 2, 7.2 or 9.
5.4. Capital Expenditures. Neither the Company nor any of
its Subsidiaries shall make any Capital Expenditures, except (a)
Capital Expenditures necessary to (i) maintain facilities operated by
the Company and its Subsidiaries immediately prior to the date of such
First Tier Default or (ii) equip new theatres under commitments made by
Theatre Subsidiaries prior to the date of such First Tier Default with
customary theatre equipment and facilities and (b) Capital Expenditures
made for purposes of remaining competitive with other theatre
operators; provided, however, that the aggregate amount of such Capital
Expenditures made by the Company and its Subsidiaries at any time that
the provisions of this Section 5 apply shall not exceed the amount
equal to the product of (A) $5,000,000 multiplied by (B) the sum of (1)
one plus (2) the percentage increase (expressed as a decimal) in the
PPI during the period from December 31, 1993 to the month immediately
preceding the date of such First Tier Default; and provided, further,
that in the event that the provisions of this Section 5 apply during
two or more nonconsecutive periods during any 12-month period, the
aggregate amount of such Capital Expenditures made during such 12-month
period shall not exceed the product of (x) $5,000,000 multiplied by (y)
the sum of (1) one plus (2) the percentage increase in the PPI during
the period from December 31, 1993 to the month immediately preceding
the commencement of such 12-month period. For purposes of this Section
5.4, Capital Expenditures to increase the number of auditoriums in a
facility or otherwise expand such facility or to improve the quality of
seats, carpeting, refreshment stands or other amenities within a
facility may only be made for purposes of remaining competitive with
other theatre operators and shall not be considered Capital
Expenditures made solely to maintain facilities pursuant to clause
(a)(1) above.
5.5. Payment of Theatre Obligations. The Theatre
Subsidiaries shall use cash generated from operations, cash reserves,
proceeds of borrowings and other funds of the Theatre Subsidiaries only
to pay obligations of the Theatre Subsidiaries under leases of real
property, (b) to make Distributions permitted under Section 5.3.2, (c)
to make Capital Expenditures permitted under Section 5.4, (d) to make
Investments permitted under Section 5.1.4 and (e) to pay accounts
payable, taxes, assessments and other expenses of the Theatre
Subsidiaries incurred in the ordinary course of business.
6. Representations and Warranties. In order to induce Harcourt to enter
into this Agreement, the Company represents and warrants as follows:
6.1. Organization and Business.
6.1.1. The Company. The Company is a duly organized and
validly existing corporation, in good standing under the laws of
Delaware, with all power and authority, corporate or otherwise,
necessary to (a) enter into and perform this Agreement, (b) grant
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the security interests in the Collateral to secure the Obligations and
(c) own its properties and carry on the business now conducted or
proposed to be conducted by it.
6.1.2. Subsidiaries. Each Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized, with all power and authority,
corporate or otherwise, necessary to own its properties and carry on
the business now conducted or proposed to be conducted by it. Exhibit
6.1.2A lists each Theatre Subsidiary as of the date hereof. Exhibit
6.1.2B lists each Pledged Theatre Subsidiary as of the date hereof.
6.1.3. Qualification. Each of the Company and its Subsidiaries
is duly and legally qualified to do business as a foreign corporation
or other entity and is in good standing in each state or jurisdiction
in which such qualification is required and is duly authorized,
qualified and licensed under all laws, regulations, ordinances or
orders of public authorities, or otherwise, to carry on its business in
the places and in the manner in which it is conducted, except for
failures to be so qualified, authorized or licensed which would not in
the aggregate have, or create a material risk of having, any material
adverse effect on the Company and its Subsidiaries taken as a whole.
6.2. Authorization and Enforceability. The Company has taken all
corporate action required to execute, deliver and perform this Agreement. No
consent of stockholders of the Company is necessary in order to authorize the
execution, delivery or performance of this Agreement. This Agreement constitutes
the legal, valid and binding obligation of the Company and is enforceable
against the Company in accordance with its terms.
6.3. No Legal Obstacle to Agreements. Neither the execution and
delivery of this Agreement, nor the securing of the Obligations with the
Collateral, nor the consummation of any transaction referred to in or
contemplated by this Agreement, nor the fulfillment of the terms hereof or of
any other agreement or instrument contemplated by this Agreement, has
constituted or resulted in or will constitute or result in:
(1) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which the Company or any of its
Subsidiaries is a party or by which it is bound, or of the charter or
by-laws of the Company or any of its Subsidiaries;
(2) the violation of any law, statute, judgment, decree or
governmental order, rule or regulation applicable to the Company or any
of its Subsidiaries;
(3) the creation under any agreement, instrument, deed or
lease of any Lien (other than Liens on the Collateral which secure the
Obligations) upon any of the assets of the Company or any of its
Subsidiaries; or
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(4) any redemption, retirement or other repurchase obligation
of the Company or any of its Subsidiaries under any charter, by-law,
agreement, instrument, deed or lease.
No approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person is required to
be obtained or made by the Company in connection with the execution, delivery
and performance of this Agreement, the transactions contemplated hereby or the
securing of the Obligations with the Collateral (other than filings necessary to
perfect Harcourt's security interest in the Collateral).
6.4. Delivery of Collateral. The Company has delivered to Harcourt in
pledge as part of the Collateral certificates representing all the Equity
Interests owned by the Company in the Pledged Theatre Subsidiaries listed on
Exhibit 6.1.2B, accompanied by stock transfer powers therefor executed by the
Company.
7. Defaults.
7.1. Events of Default. The following events are referred to as "Events
of Default":
7.1.1. Payment. The Company shall fail to make any payment in
respect of amounts required under Section 2 as the same shall become
due.
7.1.2. Specified Covenants. The Company or any of its
Subsidiaries shall fail to perform or observe any of the provisions of
Sections 3.2 through 3.7 or, if applicable, Section 5.
7.1.3. Other Covenants. The Company or any of its Subsidiaries
shall fail to perform or observe any other covenant, agreement or
provision to be performed or observed by it under this Agreement (other
than Section 4), and such failure shall not be rectified or cured to
the written satisfaction of Harcourt within 30 days after the earlier
of (a) notice thereof by Harcourt to the Company or (b) the date on
which the Company shall have actual knowledge thereof.
7.1.4. Representations and Warranties. Any representation or
warranty of or with respect to the Company or any of its Subsidiaries
made to Harcourt in, pursuant to or in connection with this Agreement
shall be materially false on the date as of which it was made.
7.1.5. Cross-Defaults, etc. The Company or any of its
Subsidiaries shall fail to make any payment when due (after giving
effect to any applicable grace periods) in respect of any Financing
Debt outstanding in an aggregate amount of principal and accrued
interest exceeding $1,000,000;
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(1) the Company or any of its Subsidiaries shall fail to perform or
observe the terms of any agreement relating to such Financing Debt, and
such failure shall continue, without having been duly cured, waived or
consented to, beyond the period of grace, if any, specified in such
agreement, and such failure shall permit the acceleration of such Financing
Debt;
(2) all or any part of such Financing Debt of the Company or any of
its Subsidiaries shall be accelerated or become due or payable prior to its
stated maturity (except with respect to voluntary prepayments thereof) for
any reason whatsoever;
(3) any Lien on any property of the Company or any of its Subsidiaries
securing any such Financing Debt shall be enforced by foreclosure or
similar action; or
(4) any holder of any such Financing Debt shall exercise any right of
rescission with respect to the issuance thereof.
7.1.6. Ownership; Liquidation; etc. Except as permitted by Section
3.4:
(1) the Company shall cease to own directly all the capital stock of
the Theatre Subsidiaries that were Wholly-Owned Subsidiaries as of the date
of the Spinoff;
(2) any Person (other than a member of the Smith Family Group),
together with "affiliates" and "associates" of such Person within the
meaning of Rule 12b-2 of the Exchange Act, shall become the beneficial
owner within the meaning of Rule 13d-3 of the Exchange Act of more voting
stock or total equity capital of the Company than that beneficially owned
by the Smith Family Group and such Person, together with such "affiliates"
and "associates", is also the beneficial owner within the meaning of Rule
13d-3 of the Exchange Act of at least 15% of either the voting stock or
total equity capital of the Company; or
(3) the Company or any Theatre Subsidiary shall initiate any action to
dissolve, liquidate or otherwise terminate its existence.
7.1.7. Enforceability, etc. This Agreement shall cease for any reason
(other than the scheduled termination thereof in accordance with its terms)
to be in full force and effect; or any party hereto shall so assert in a
judicial or similar proceeding; or the security interests created by this
Agreement shall cease to be enforceable and of the same effect and priority
purported to be created hereby.
7.1.8. The Company or any of its Subsidiaries shall:
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(1) commence a voluntary case under the Bankruptcy Code or authorize,
by appropriate proceedings of its board of directors or other governing
body, the commencement of such a voluntary case;
(2) have filed against it a petition commencing an involuntary case
under the Bankruptcy Code which shall not have been dismissed within 30
days after the date on which said petition is filed, or file an answer or
other pleading within said 30-day period admitting or failing to deny the
material allegations of such a petition or seeking, consenting to or
acquiescing in the relief therein provided;
(3) have entered against it an order for relief in any involuntary
case commenced under the Bankruptcy Code;
(4) seek relief as a debtor under any applicable law, other than the
Bankruptcy Code, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the
rights of creditors, or consent to or acquiesce in such relief;
(5) have entered against it an order by a court of competent
jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering or
approving its liquidation, reorganization or any modification or alteration
of the rights of its creditors or (iii) assuming custody of, or appointing
a receiver or other custodian for, all or a substantial portion of its
property; or
(6) make an assignment for the benefit of, or enter into a composition
with, its creditors, or appoint, or consent to the appointment of, or
suffer to exist a receiver or other custodian for, all or a substantial
portion of its property.
7.2. Certain Payments Upon an Event of Default. If one or more Events of
Default shall occur and be continuing, then Harcourt may by notice in writing to
the Company require the Company immediately to deposit with Harcourt in cash an
amount equal to the then Present Value Lease Exposure (which cash shall be held
by Harcourt and applied to the payment of the Company's Obligations under
Section 2) and thereupon such amount shall become immediately due and payable
without presentation, protest or further demand or notice of any kind, all of
which are hereby expressly waived; provided, however, that if a Bankruptcy
Default shall have occurred, such amount shall automatically become immediately
due and payable.
7.3. Enforcement of Payment; Collateral; Setoff. If any one or more Payment
Defaults shall occur, Harcourt (a) may proceed to enforce payment of the
Obligations in such manner as it may elect and to realize upon any and all
rights in the Collateral and (b) may offset and apply toward the payment of the
Obligations (and/or toward the curing of any Event of Default) any Indebtedness
from Harcourt to the Company or any of its Subsidiaries, regardless of the
adequacy
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of any security for the Obligations. Harcourt shall have no duty to determine
the adequacy of any such security in connection with any such offset.
7.4. Specific Performance; Exercise of Rights. If any one or more Events of
Default has occurred and is continuing or if one or more Payment Defaults shall
occur, Harcourt may proceed to protect and enforce its rights by suit in equity,
action at law and/or other appropriate proceeding, either for specific
performance of any covenant or condition contained in this Agreement or in any
instrument or assignment delivered pursuant to this Agreement, or in aid of the
exercise of any power granted in this Agreement or any such instrument or
assignment.
7.5. Cumulative Remedies. To the extent not prohibited by applicable law
which cannot be waived, all of the Harcourt's rights hereunder and under, or
with respect to, each Guarantee and Transferred Lease shall be cumulative.
7.6. Annulment of Defaults. A First Tier Default or a Payment Default shall
be deemed not to have occurred or to exist for any purpose hereunder, and an
Event of Default shall be deemed not to have occurred and be continuing for any
purpose hereunder, in each case if Harcourt shall have waived it in writing,
stated in writing that it has been cured to Harcourt's reasonable satisfaction
or entered into an amendment to this Agreement which by its express terms cures
such First Tier Default or such Event of Default. No such action by Harcourt
shall extend to or affect any subsequent First Tier Default or Event of Default
or impair any rights of Harcourt upon the occurrence thereof.
7.7. Waivers. To the extent that such waiver is not prohibited by the
provisions of applicable law that cannot be waived, the Company waives:
(1) all presentments, demands for performance, notices of
nonperformance (except to the extent required by the provisions of this
Agreement), protests, notices of protest and notices of dishonor;
(2) any requirement of diligence or promptness on the part of Harcourt
in the enforcement of its rights under this Agreement;
(3) any and all notices of every kind and description which may be
required to be given by any statute or rule of law; and
(4) any defense (other than indefeasible payment in full) which it now
or hereafter may have with respect to its liability under this Agreement or
with respect to the Obligations.
7.8. Obligations Absolute. The obligations of the Company under Sections
2.1, 2.2, 7.2 and 9 are absolute and unconditional and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by:
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(1) the invalidity, unenforceability or irrecoverability of any
obligations under any Guarantee, any Guaranteed Lease or any Transferred
Lease;
(2) any change in the terms of, any amendment to or any waiver,
consent or modification of, any Guarantee, any Guaranteed Lease or
Transferred Lease; or
(3) any other circumstance which might constitute a defense available
to, or a discharge of, Harcourt or the Company (other than, in the case of
the Company, indefeasible payment in full).
8. Security.
8.1. Collateral. As security for the payment and performance of the
Obligations, the Company hereby mortgages, pledges and collaterally grants and
assigns to Harcourt, and hereby creates a security interest in favor of Harcourt
in, all of the Company's right, title and interest in and to (but none of its
obligations or liabilities with respect to) the items and types of present and
future property described in Sections 8.1.1 through 8.1.3, whether now owned or
hereafter acquired, all of which shall be included in the term "Collateral":
8.1.1. Pledged Stock. All Equity Interests in any Pledged Theatre
Subsidiary. All such Equity Interests are collectively referred to as the
"Pledged Stock".
8.1.2. Pledged Rights. All rights to receive profits or surplus of, or
other Distributions (including income, return of capital and liquidating
distributions) from, any Pledged Theatre Subsidiary that is a partnership,
joint venture or limited liability company, including any distributions by
any such Person to partners, joint venturers or members. All such rights
are collectively referred to as the "Pledged Rights".
8.1.3. Proceeds and Products. All proceeds, including insurance
proceeds, and products of the items of Collateral described or referred to
in Sections 8.1.1 and 8.1.2 and, to the extent not included in the
foregoing, all Distributions with respect to the Pledged Securities.
8.2. Representations, Warranties and Covenants with Respect to the
Collateral. The Company hereby represents, warrants and covenants that:
8.2.1. Pledged Stock. All shares of capital stock, limited partnership
interests, membership interests and similar Securities included in the
Pledged Stock are and shall be at all times duly authorized, validly
issued, fully paid and (in the case of capital stock and limited
partnership interests) nonassessable. The Company will deliver to Harcourt
certificates representing the Pledged Stock, registered, if Harcourt so
requests, in the name of Harcourt or its nominee, as pledgee, or
accompanied by a stock transfer power
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executed in blank and, if Harcourt so requests, with the signature
guaranteed, all in form and manner reasonably satisfactory to Harcourt.
Pledged Stock that is not evidenced by a certificate will be registered in
the name of Harcourt or its nominee, as pledgee, on the issuer's records,
all in form and substance reasonably satisfactory to Harcourt. Upon the
occurrence of a Default, Harcourt may transfer into its name or the name of
its nominee, as pledgee, any Pledged Securities.
8.2.2. No Liens or Restrictions on Transfer or Change of Control. All
Collateral shall be free and clear of any Liens and restrictions on the
transfer thereof, except for Liens permitted by Section 3.2. None of the
Pledged Stock is subject to any options to purchase or similar rights of
any Person. Except with the written consent of Harcourt, neither the
Company nor any Pledged Theatre Subsidiary is, and neither Harcourt nor any
Pledged Theatre Subsidiary will be, party to or bound by any agreement,
license or franchise which restricts the change of control or ownership of
any Pledged Theatre Subsidiary.
8.2.3. Perfection of the Collateral. Upon Harcourt's request from time
to time, the Company will make, execute, acknowledge and deliver, and file
and record in the proper filing and recording places, all such instruments,
and will take all such other action, as Harcourt deems advisable for
confirming to it the Collateral or to carry out any other purpose of this
Agreement.
8.3. Administration of Collateral. The Collateral shall be administered as
follows, and if a Payment Default shall have occurred, Section 8.4 shall also
apply.
8.3.1. Distributions on Pledged Securities.
(1) Until an Event of Default shall occur and be continuing, the
Company shall be entitled, to the extent permitted by this Agreement, to
receive all Distributions on or with respect to the Pledged Securities
(other than Distributions constituting additional Pledged Securities). All
Distributions constituting additional Pledged Securities will be retained
by Harcourt (or if received by the Company shall be held by the Company in
trust and shall be immediately delivered by the Company to Harcourt in the
original form received, endorsed in blank) and held by Harcourt as part of
the Collateral.
(2) If an Event of Default shall have occurred and be continuing, all
Distributions on or with respect to the Pledged Securities shall be
retained by Harcourt (or if received by the Company shall be held by the
Company in trust and shall be immediately delivered by it to Harcourt in
the original form received, endorsed in blank) and held by Harcourt as part
of the Collateral or applied by Harcourt in accordance with Section 8.4.5.
8.3.2. Voting of Pledged Securities.
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(1) Until an Event of Default shall occur and be continuing, the
Company shall be entitled to vote or consent with respect to the Pledged
Securities in any manner not inconsistent with the terms of this Agreement,
and Harcourt will, if so requested, execute appropriate revocable proxies
therefor.
(2) If an Event of Default shall have occurred and be continuing, if
and to the extent that Harcourt shall so notify the Company in writing,
only Harcourt shall be entitled to vote or consent or take any other action
with respect to the Pledged Securities and the Company will, if so
requested, execute or cause to be executed appropriate proxies therefor.
8.4. Right to Realize upon Collateral. Except to the extent prohibited by
applicable law that cannot be waived, this Section 8.4 shall govern Harcourt's
right to realize upon the Collateral if any Payment Default shall have occurred.
The provisions of this Section 8.4 are in addition to any rights and remedies
available at law or in equity.
8.4.1. General Authority. To the extent specified in written notice
from Harcourt to the Company, the Company grants Harcourt full and
exclusive power and authority, subject to the other terms hereof and
applicable law, to take any or all of the following actions (for the sole
benefit of Harcourt but at the Company's expense):
(1) to ask for, demand, take, collect, sue for and receive all
payments in respect of any Pledged Securities which the Company could
otherwise ask for, demand, take, collect, sue for and receive for its own
use.
(2) to extend the time of payment of Pledged Securities and to make
any allowance or other adjustment with respect thereto;
(3) to settle, compromise, prosecute or defend any action or
proceeding with respect to Pledged Securities and to enforce all rights and
remedies thereunder which the Company could otherwise enforce.;
(4) to enforce the payment of any Pledged Securities, either in the
name of the Company or in its own name, and to endorse the name of the
Company on all checks, drafts, money orders and other instruments tendered
to or received in payment of any Collateral;
(5) to notify the third party payor with respect to any Pledged
Securities of the existence of the security interest created hereby and to
cause all payments in respect thereof thereafter to be made directly to
Harcourt; provided, however, that whether or not Harcourt shall have so
notified such payor, the Company will at its expense render all
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<PAGE> 48
reasonable assistance to Harcourt in collecting such items and in enforcing
claims thereon; and
(6) to sell, transfer, assign or otherwise deal in or with any
Collateral or the proceeds thereof, as fully as the Company otherwise could
do.
8.4.2. Marshaling, etc. Harcourt shall not be required to make any
demand upon, or pursue or exhaust any of its rights or remedies against,
the Company or any guarantor, pledgor or any other Person with respect to
the payment of the Obligations or to pursue or exhaust any of its rights or
remedies with respect to any collateral therefor or any direct or indirect
guarantee thereof. Harcourt shall not be required to marshal the Collateral
or any guarantee of the Obligations or to resort to the Collateral or any
such guarantee in any particular order, and all of its rights hereunder or
otherwise shall be cumulative. To the extent it may lawfully do so, the
Company hereby absolutely and irrevocably waives and relinquishes the
benefit and advantage of, and covenants not to assert against Harcourt, any
valuation, stay, appraisement, extension, redemption or similar laws now or
hereafter existing which, but for this provision, might be applicable to
the sale of any Collateral made under the judgment, order or decree of any
court, or privately under the power of sale conferred by this Agreement, or
otherwise. Without limiting the generality of the foregoing, the Company
(a) agrees that it will not invoke or utilize any law which might prevent,
cause delay in or otherwise impede the enforcement of the rights of
Harcourt in the Collateral, (b) waives all such laws and (c) agrees that it
will not invoke or raise as a defense to any enforcement by Harcourt of its
rights and remedies relating to the Collateral or the Obligations any legal
or contractual requirement with which Harcourt may have in good faith
failed to comply. In addition, the Company hereby waives any right to prior
notice (except to the extent expressly required by this Agreement) or
judicial hearing in connection with foreclosure on or disposition of any
Collateral, including any such right which the Company would otherwise have
under the Constitution of the United States of America or of any state or
territory thereof or any other jurisdiction.
8.4.3. Sales of Collateral. All or any part of the Collateral may be
sold for cash or other value in any number of lots at public or private
sale, without demand, advertisement or notice; provided, however, that
Harcourt shall give the Company 10 days' prior written notice of the time
and place of any public sale, or the time after which a private sale may be
made, which notice each of the Company and Harcourt hereby agrees to be
reasonable. At any sale or sales of Collateral, Harcourt or any of its
officers acting on its behalf, or Harcourt's assigns, may bid for and
purchase all or any part of the property and rights so sold, may use all or
any portion of the Obligations owed to Harcourt as payment for the property
or rights so purchased, and upon compliance with the terms of such sale may
hold and dispose of such property and rights without further accountability
to the Company, except for the proceeds of such sale or sales pursuant to
Section 8.4.5. The Company acknowledges that any such sale will be made by
Harcourt on an "as is" basis with disclaimers of all warranties, whether
express or implied, to the
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<PAGE> 49
extent permitted by applicable law. The Company agrees that (a) Harcourt
may, in its sole discretion, restrict any such sale to one or more
purchasers who will agree to guarantee the payment and performance of the
Guaranteed Leases and Transferred Leases of Pledged Theatre Subsidiaries,
the Pledged Securities of which are included in such sale and who, in the
reasonable judgment of Harcourt, are financially capable of performing such
guarantee and (b) such manner of disposition is commercially reasonable
notwithstanding the possibility that a substantially higher price might be
realized if such sale were not so restricted. The Company will execute and
deliver or cause to be executed and delivered such instruments, documents,
assignments, waivers, certificates and affidavits, will supply or cause to
be supplied such further information and will take such further action as
Harcourt shall require in connection with any such sale.
8.4.4. Sale Without Registration. The Company agrees that if, at any
time when Harcourt shall determine to exercise its rights hereunder to sell
all or part of the Securities included in the Collateral, the Securities in
question shall not be effectively registered under the Securities Act (or
other applicable law), Harcourt may, in its sole discretion, sell such
Securities by private or other sale not requiring such registration in such
manner and in such circumstances as Harcourt may deem necessary or
advisable in order that such sale may be effected in a commercially
reasonable manner in accordance with applicable law without such
registration and the related delays, uncertainty and expense. Without
limiting the generality of the foregoing, in any event Harcourt may, in its
sole discretion, (a) approach and negotiate with a single purchaser or one
or more possible purchasers to effect such sale, (b) restrict such sale to
one or more purchasers each of whom will represent and agree that such
purchaser is purchasing for its own account, for investment and not with a
view to the distribution or sale of such Securities and (c) cause to be
placed on certificates representing the Securities in question a legend to
the effect that such Securities have not been registered under the
Securities Act (or other applicable law) and may not be disposed of in
violation of the provisions thereof. The Company hereby agrees that such
manner of disposition is commercially reasonable, that it will upon
Harcourt's request give any such purchaser access to such information
regarding the issuer of the Securities in question as Harcourt may
reasonably request and that Harcourt shall not incur any responsibility for
selling all or part of the Securities included in the Collateral at any
private or other sale not requiring such registration, notwithstanding the
possibility that a substantially higher price might be realized if the sale
were deferred until after registration under the Securities Act (or other
applicable law) or until made in compliance with certain other rules or
exemptions from the registration provisions under the Securities Act (or
other applicable law). The Company acknowledges that there is no adequate
remedy at law for breach by it of this Section 8.4.4 and that such breach
would not be adequately compensable in damages and therefore agrees that
this Section 8.4.4 may be specifically enforced.
8.4.5. Application of Proceeds. The proceeds of all sales and
collections in respect of any Collateral or other assets of the Company,
all funds collected from the
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<PAGE> 50
Company and any cash contained in the Collateral, the application of which
is not otherwise specifically provided for herein, shall be applied as
follows:
(1) first, to the payment of the costs and expenses of such sales and
collections, the reasonable expenses of Harcourt and the reasonable fees
and expenses of its special counsel;
(2) second, any surplus then remaining to the payment of the
Obligations in such order and manner as Harcourt may in its sole discretion
determine; and
(3) third, any surplus then remaining shall be paid to the Company,
subject, however, to the rights of the holder of any then existing Lien of
which Harcourt has actual notice.
8.5. Custody of Collateral. Except as provided by applicable law that
cannot be waived, Harcourt will have no duty as to the custody and protection of
the Collateral, the collection of any part thereof or of any income thereon or
the preservation or exercise of any rights pertaining thereto, including rights
against prior parties, except for the use of reasonable care in the custody and
physical preservation of any Collateral in its possession. Harcourt will not be
liable or responsible for any loss or damage to any Collateral, or for any
diminution in the value thereof, by reason of the act or omission of any agent
selected by Harcourt acting in good faith.
9. Expenses; Indemnity.
9.1. Expenses. The Company will pay:
(1) all recording and filing fees and transfer and documentary stamp
and similar taxes at any time payable in respect of this Agreement or any
Collateral; and
(2) all other reasonable expenses incurred by Harcourt in connection
with the enforcement of any rights hereunder, including costs of collection
and reasonable attorneys' fees and expenses.
9.2. General Indemnity. The Company hereby agrees to indemnify Harcourt,
each of the directors, officers, employees and agents of Harcourt, and each
Person, if any, who controls Harcourt (Harcourt and each of such directors,
officers, employees, agents and control Persons is referred to as an
"Indemnified Party"), and hold each of them harmless from and against any and
all claims, damages, liabilities and reasonable expenses (including reasonable
fees and disbursements of counsel with whom any Indemnified Party may consult in
connection therewith and all reasonable expenses of litigation or preparation
therefor) which any Indemnified Party may incur or which may be asserted against
any Indemnified Party in connection with (a) the existence or exercise of any
security rights with respect to the Collateral in accordance with this
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<PAGE> 51
Agreement or (b) this Agreement or any transaction contemplated hereby, except
for (i) litigation commenced by the Company against Harcourt which seeks
enforcement of any of the rights of the Company hereunder and is determined
adversely to Harcourt in a final nonappealable judgment and (ii) the extent such
claims, damages, liabilities and expenses result from the gross negligence or
willful misconduct of Harcourt.
10. Successors and Assigns. Any reference in this Agreement to any party
hereto shall be deemed to include the successors and assigns of such party, and
all covenants and agreements by or on behalf of the Company or Harcourt that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns; provided, however, that the Company may not
assign its rights or obligations under this Agreement.
11. Confidentiality. Harcourt agrees that it will make no disclosure of
confidential information furnished to it by the Company or any of its
Subsidiaries unless such information shall have become public, except:
(1) in connection with operations under or the enforcement of this
Agreement;
(2) pursuant to any statutory or regulatory requirement or any
mandatory court order, subpoena or other legal process;
(3) to its counsel, auditors and other professional advisors with an
instruction to such Person to keep such information confidential; and
(4) with the prior written consent of the Company, to any other
Person.
12. Notices. Except as otherwise specified in this Agreement, any notice
required to be given pursuant to this Agreement shall be given in writing. Any
notice, demand or other communication in connection with this Agreement shall be
deemed to be given if given in writing (including telex, telecopy or similar
teletransmission) addressed as provided below (or to the addressee at such other
address as the addressee shall have specified by notice actually received by the
addressor), and if actually delivered in fully legible form to such address
(evidenced in the case of a telex by receipt of the correct answerback).
If to Harcourt, to it at:
27 Boylston Street
Chestnut Hill, Massachusetts 02167
Telecopy No.: (617) 278-5567
Attention: General Counsel
If to the Company, to it at:
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<PAGE> 52
1300 Boylston Street
Chestnut Hill, Massachusetts 02167
Telecopy No.: (617) 264-8206
Attention: General Counsel
13. Course of Dealing; Amendments and Waivers. No course of dealing between
Harcourt, on one hand, and the Company, any of its Subsidiaries or any of their
respective Affiliates, on the other hand, shall operate as a waiver of any of
the rights of Harcourt under this Agreement or with respect to the Obligations.
The Company acknowledges that if Harcourt, without being required to do so by
this Agreement, gives any notice or information to the Company, any of its
Subsidiaries or any of their respective Affiliates, Harcourt shall not by
implication have amended, waived or modified any provision of this Agreement, or
created any duty to give any such notice or information or to obtain any such
consent on any future occasion. No delay or omission on the part of Harcourt in
exercising any right under this Agreement or with respect to the Obligations
shall operate as a waiver of such right or any other right hereunder or
thereunder. A waiver on any one occasion shall not be construed as a bar to or
waiver of any right or remedy on any future occasion. No waiver, consent or
amendment with respect to this Agreement shall be binding unless it is in
writing and signed by Harcourt and, in the case of an amendment, signed by the
Company. Although Harcourt shall have no duty to agree to any waiver, consent or
amendment with respect to this Agreement, Harcourt shall give due consideration
in accordance with its business judgment to each request made by the Company for
any such waiver, consent or amendment.
Any waiver, consent, amendment or notice of termination entered into by
any party for any of the following purposes need not be specifically authorized
or approved by the Board of Directors of such party (or any duly appointed
committee of the Board of Directors of such party with authority to act for such
purposes) if such waiver, consent, amendment or notice of termination is
approved by an officer of such party who is authorized to approve such type of
waiver, consent, amendment or notice of termination: (a) to cure any ambiguity
herein; (b) to cure, correct or supplement any defect or inconsistent provision
contained herein; or (c) to make any provision in regard to matters or questions
arising hereunder which is not inconsistent with the provisions of this
Agreement and which does not adversely affect the interests of such party.
14. Termination and Defeasance. This Agreement may be terminated at any time by
Harcourt in its sole discretion by providing written notice to the Company. This
Agreement shall terminate at such time as the Present Value Lease Exposure is
less than $50,000,000 if at such time no First Tier Default, Payment Default or
Event of Default has occurred and is continuing; provided, however, that
Sections 2, 3.1, 3.6, 9, 10, 11 and 12 and Sections 7.3 through 7.8 (insofar as
they relate to Sections 2, 3.1 and 3.6) shall survive the termination of this
Agreement. Upon any such termination, the Collateral shall revert to the Company
and the right, title and interest of Harcourt therein shall terminate.
Thereupon, on the Company's demand and at its cost and expense, Harcourt shall
execute proper instruments, acknowledging satisfaction of and
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<PAGE> 53
discharging this Agreement, and shall redeliver to the Company any Collateral
then in its possession.
15. General. The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other provision hereof. The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof. This Agreement constitutes the
entire understanding of the parties with respect to the subject matter hereof
and thereof and supersedes all prior and current understandings and agreements,
whether written or oral, with respect to such subject matter. This Agreement may
be executed in any number of counterparts which together shall constitute one
instrument. This Agreement shall be governed by and construed in accordance with
the laws (other than the conflict of laws rules) of The Commonwealth of
Massachusetts, except as may be required by the UCC with respect to matters
involving the perfection of Harcourt's Lien on the Collateral and the
enforcement of such Lien.
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<PAGE> 54
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
HARCOURT GENERAL, INC.
By _________________________________
Title:
GC COMPANIES, INC.
By _________________________________
Title:
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<PAGE> 1
EXHIBIT 11.1
GC COMPANIES, INC.
OCTOBER 31, 1998
EXHIBIT TO FORM 10-K
Computation of weighted average number of shares outstanding used in determining
basic and diluted earnings (loss) per share:
<TABLE>
<CAPTION>
Year Ended October 31,
(In thousands) 1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
BASIC
1. Weighted average number of
common shares outstanding 7,710 7,728 7,816
===== ===== =====
DILUTED(A)
1. Weighted average number of
common shares outstanding 7,710 7,728 7,816
2. Diluted effect of shares issuable
on exercise of stock options, net
of shares assumed to be purchased
out of proceeds of market price -- 40 42
----- ----- -----
3. Weighted average number of shares
used in diluted per share
computations 7,710 7,768 7,858
===== ===== =====
</TABLE>
(A) This calculation is submitted in accordance with Securities Exchange Act
of 1934 Release No. 9083.
<PAGE> 1
1
Exhibit 13.1
GC COMPANIES, INC.
DEAR SHAREHOLDERS:
During fiscal 1998, we made substantial progress in transforming GC Companies
from a traditional domestic theatre business to a more balanced company with
increased prospects for future growth. GC Companies emerges in fiscal 1999
with three important components -- domestic and international theatre circuits
and an investment management capability. Together, these components provide
the potential for both high returns on capital employed and corporate growth.
Throughout the year, the Company engaged in forming strategic alliances and
implementing crucial financial initiatives intended to provide the solid
foundation to achieve long-term profitable growth.
Corporate transformations do not often come without pain. The Company was
spun out from Harcourt General in 1993 with a single cash generating domestic
theatre business. Your management has always recognized the difficult
competitive dynamics of the U.S. business and has allocated the corporate
capital accordingly. In 1998, despite the strategic and prudent managerial
actions taken over the years, the dynamics of the domestic theatre marketplace
played out negatively on our financial results, and we took a restructuring
charge to appropriately provide for the nature of our problems in the domestic
business. During the year, the industry-wide megaplex build-up has led to
erosion of the patronage base of our existing units, particularly in our
non-core, geographic markets. During the past several years, this competitive
building has resulted in significant additions to the total industry screen
count. Since these new screens are being added at a faster rate than the
increase in total industry demand, we anticipate that intense competition for
domestic box office receipts and the dilution of the existing installed base of
theatre patronage will continue. To achieve profitable growth in this
challenging environment, we developed a balanced strategy based on three
principles: paring down our circuit to a strong, regionally focused domestic
theatre circuit; expanding international theatre operations; and investing in
opportunities that provide substantial returns. We are pleased to report that
during fiscal 1998 GC Companies made substantial strides in implementing this
strategy.
A BALANCED APPROACH TO GROWTH
DOMESTIC THEATRES
We remain committed to our fundamental theatre strategy, which is to build
high-impact, state-of-the-art megaplexes in densely populated urban and suburban
areas. However, we have chosen to pursue this strategy in the future by focusing
on our original strengths in the core northeast and midwest markets, while
closing or selling older and less profitable non-core units.
Attending carefully to the financial substance of our business,
in October 1998 we established an asset impairment reserve to enable us to
divest older, less profitable theatre units and reallocate our resources
toward more profitable opportunities. We believe this action strengthens us
financially and better positions GC Companies for the long-term. This step
should also position GC Companies to react appropriately to strong
competitive pressures -- particularly in southern and western domestic theatre
markets -- that have affected our overall financial performance during the
past year.
The charge consists primarily of approximately $28.6 million
relating to the write-down of the net book value of certain domestic theatres
and approximately $39.6 million of reserves for the estimated costs of
exiting leases for certain theatres. The Company will continue to evaluate
its future plans for this group of theatres, which may include closing
additional theatres, selling theatres or subleasing these properties.
Within the domestic environment, we have identified several niche
initiatives, which look promising for our future. One such venture is our
Sundance Cinemas partnership, a stand-alone theatre circuit dedicated
specifically to the exhibition of the growing number and popularity of
independently produced films. Through Sundance Cinemas, we plan to open a select
number of these units across the country in urban, suburban and college
locations. Sundance Cinemas has identified four locations expected to be opened
before the end of calendar 2000. Finally, in 1998 we opened the first Premium
Cinema, designed to provide a first class, luxury theatre experience, complete
with valet service, first class amenities and expanded food and beverage
offerings.
INTERNATIONAL THEATRES
During fiscal 1998, we entered a new phase in the implementation of our
international theatre strategy. Specifically, we leveraged existing
international theatre assets to rapidly build a substantial theatre circuit
capable of capitalizing on the burgeoning opportunities in the South American
marketplace.
<PAGE> 2
2
In July of 1998, GC Companies and Hoyts Cinema Group formed a
50/50 joint venture creating Hoyts General Cinema South America, a
stand-alone theatre circuit in South America. Under the terms of the
agreement, GC Companies, Inc. and Hoyts Cinema Group each contributed their
existing South American theatre assets to the joint venture.
By the end of calendar 2000, the joint venture expects to have as
many as 24 theatres with more than 248 screens. This number includes an
additional 102 screens in Argentina -- making this joint venture the number one
exhibitor in that growing market. The total screen count also includes an
additional 27 screens in Brazil and 34 screens in Chile. These anticipated
openings, coupled with our theatre assets in Mexico, positions GC Companies as a
leading exhibitor in Latin America, providing an attractive, long-term,
value-building opportunity for the Company.
As a result of our efforts toward a more balanced theatre
operation, the Company's theatre circuit presently consists of 1,082 screens at
149 locations in 24 states as well as 132 screens at 14 locations in South
America and Mexico. This compares to 1,113 screens at 175 locations in 24 states
as well as 53 screens at five locations in Mexico and Argentina at the end of
fiscal 1997.
INVESTMENT PORTFOLIO
GC Companies' investment portfolio provides business diversity to theatre
operations. The group's mission: build shareholder value by investing in
opportunities that have the potential to provide substantial returns.
Fiscal 1998 was an active year in this regard and we are pleased
to report that our investment group continued to deliver positive results.
During the year, one of our portfolio companies, Global TeleSystems Group, Inc.,
an international telecommunications company, successfully completed an initial
public offering of common stock listing its shares on the NASDAQ National
Market(R). This particular investment demonstrates the benefit of
enhancing shareholder value through investment opportunities.
In addition to the Company's investment in Global TeleSystems
Group, Inc., the portfolio includes minority investments in GrandVision, an
optical superstore that is publicly traded on the French Exchange; Fuelman, a
leading provider of vehicle fleet management information services; American
Capital Access, a financial guaranty insurance company; Kabelmedia, a German
cable television system operator; and Teletrac, a wireless location and two-way
messaging company. The aggregate carrying value of this investment portfolio at
October 31, 1998 was approximately $140.0 million.
FINANCIAL REVIEW
Although we are not pleased with our financial results in fiscal 1998, we
believe that we have taken important steps towards building for the future. By
concentrating on select domestic markets while pursuing international theatre
opportunities and seeking value-added returns for our investments, we have laid
the foundation for long-term value growth.
GC Companies reported a net loss of $41.6 million, or $5.39 per
diluted share for fiscal 1998, compared with net earnings of $14.8 million, or
$1.90 per diluted share, for fiscal 1997. Our fiscal 1998 results include the
recognition of an asset impairment charge of approximately $68.2 million ($40.9
million after taxes). Revenues for fiscal 1998 were $407.4 million compared with
$445.1 million last year. GC Companies had an operating loss of $66.9 million
for fiscal 1998, compared with operating earnings of $11.8 million in fiscal
1997, primarily as a result of the impairment charge recorded in the fourth
quarter of fiscal 1998 and lower patronage during fiscal 1998.
We are confident in our ability to profitably grow the Company and
create shareholder value based not only on the intrinsic strengths of GC
Companies but also on our domestic and international opportunities. Today, GC
Companies is an enterprise with more than 75 years of theatre management
experience, a regional domestic theatre focus, significant potential within
international theatre markets and a results-driven investment group.
We wish to thank all of our employees, customers and shareholders
for their contributions. We look forward to sharing GC Companies' progress with
you as we seek to implement our strategy to meet our goals for 1999 and beyond.
Sincerely,
/s/ Richard A. Smith /s/ Robert A. Smith
- ----------------------- -----------------------
Richard A. Smith Robert A. Smith
Chairman and President and
Chief Executive Officer Chief Operating Officer
January 15, 1999
<PAGE> 3
3
SELECTED FINANCIAL DATA
GC COMPANIES, INC.
<TABLE>
<CAPTION>
(Unaudited) Fiscal Years(1)
-------------------------------------------------------------
(Dollar amounts in thousands
except for per share amounts) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 407,386 $ 445,133 $ 443,984 $ 450,306 $ 451,383
Operating earnings (loss) (66,898) 11,822 20,373 18,001 122,066
Investment income (loss), net (1,917) 13,880 10,107 (2,316) 1,640
Interest expense (1,048) (586) (639) (631) (648)
Gain (loss) on disposition
of non-operating assets 593 (100) (617) (300) (12)
--------- --------- --------- --------- ---------
Earnings (loss) before taxes (69,270) 25,016 29,224 14,754 23,046
Income tax benefit (provision) 27,708 (10,257) (11,982) (6,049) (9,449)
--------- --------- --------- --------- ---------
Net earnings (loss) $ (41,562) $ 14,759 $ 17,242 $ 8,705 $ 13,597
--------- --------- --------- --------- ---------
Weighted average common
shares outstanding:
Basic 7,710 7,728 7,816 7,811 7,796
--------- --------- --------- --------- ---------
Diluted 7,710 7,768 7,858 7,865 7,858
--------- --------- --------- --------- ---------
Earnings (loss) per
common share:
Basic $ (5.39) $ 1.91 $ 2.21 $ 1.11 $ 1.74
--------- --------- --------- --------- ---------
Diluted $ (5.39) $ 1.90 $ 2.19 $ 1.11 $ 1.73
--------- --------- --------- --------- ---------
Depreciation and amortization $ 19,180 $ 19,229 $ 19,369 $ 19,367 $ 19,649
Total assets $ 389,961 $ 339,600 $ 314,303 $ 300,067 $ 296,658
Portfolio investment assets $ 139,931 $ 87,078 $ 50,187 $ 44,977 $ 23,454
Long-term capital
lease obligations $ 1,722 $ 2,254 $ 3,059 $ 3,623 $ 4,179
Revolving credit facility $ 16,775 $ -- $ -- $ -- $ --
Other long-term liabilities $ 33,523 $ 31,912 $ 29,029 $ 28,156 $ 28,016
Number of movie screens
Domestic 1,045 1,113 1,159 1,180 1,211
International(2) 120 53 -- -- --
Number of locations
Domestic 150 175 189 196 208
International(2) 13 5 -- -- --
</TABLE>
(1) The selected financial data are derived from the financial statements of
the Company.
(2) International theatres represent the Company's investment in international
theatre affiliates in South America and Mexico which are accounted for
under the equity method.
<PAGE> 4
4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998 COMPARED WITH YEAR ENDED OCTOBER 31, 1997
Net earnings (loss) decreased $56.3 million to a loss of $41.6 million in 1998
from earnings of $14.8 million in 1997. The loss in 1998 included a $28.6
million pre-tax impairment charge on theatre assets, a pre-tax charge of $39.6
million primarily relating to the cost of exiting certain leases, a $12.8
million pre-tax gain related to the sale of a theatre in Texas and $1.0 million
of interest expense. Net earnings in 1997 included a pre-tax gain of $9.0
million from a share-for-share exchange of GC Companies' (GCC or the Company)
minority investment in Vision Express into GrandOptical-PhotoService and a
subsequent sale of a portion of those shares. GCC's 1997 net earnings also
included a $10.3 million pre-tax gain on the sale of seven theatre units in
Oklahoma, a $7.4 million pre-tax impairment loss relating to the Company's
theatre circuit and $4.3 million of dividend and interest income from short-term
investments. Theatre operations showed a loss of $58.6 million in 1998 compared
to a profit of $18.9 million in 1997. Operating earnings (loss) after corporate
expenses for 1998 were $66.9 million, a decrease of $78.7 million from $11.8
million in 1997.
THEATRE REVENUES
Revenues of $407.4 million were 8.5% below 1997 revenues of $445.1 million.
This decrease was principally due to a 12.4% reduction in patronage partially
offset by a 7.1% increase in concession sales per patron and a 3.3% increase
in average ticket price. The decrease in patronage was mainly attributable to
competitor impacts in certain markets and a reduction in screens, primarily
the result of the theatres closed in the fourth quarter of 1998. The opening
of megaplexes by the Company's competitors have tended to, and are projected
to, draw audiences away from certain of the Company's older multiplex theatre
locations. The Company operated domestically 1,045 screens at 150 locations
at October 31, 1998 compared with 1,113 screens at 175 locations at October
31, 1997. The growth in concession sales per person was principally due to
the continued roll out of new products, increased consumption and certain
price increases. The increase in the average ticket price was due to
increases in ticket prices in certain markets during the year.
COST OF THEATRE OPERATIONS
Cost of theatre operations (film rentals, concessions, theatre operations and
administrative expenses and depreciation and amortization) decreased 4.4% to
$411.3 million in 1998 from $430.0 million in the previous year. As a
percentage of revenues, the cost of theatre operations was 101.0% in 1998
compared to 96.6% in 1997 primarily due to higher theatre operations and
administrative expenses.
The theatre operations and administrative expenses, as a percentage of
revenues, were 56.8% in 1998 compared to 52.0% in 1997. The percentage
increase was principally due to increased occupancy costs as a result of the
Company's operating leasing arrangement for new assets and increased costs
associated with the new units opened in 1998, higher variable labor costs
primarily due to a full year's impact of the minimum wage increase in 1997,
costs associated with the start-up of the Sundance Cinema theatres and
repairs required during the year at certain of our older locations. These
increases were partially offset by the settlement of certain litigation,
which had previously been accrued for, resulting in a credit to the cost of
theatre operations of $1.6 million in the third quarter of 1998. In addition,
concession margins improved primarily due to product mix.
GAIN (LOSS) ON IMPAIRMENT OR DISPOSITION OF THEATRE ASSETS
During the ordinary course of business, management makes determinations that
impact both the recoverability of theatre assets and potential lease termination
charges. Such decisions have impacted operations in both 1997 and 1998. As part
of the Company's annual budgeting process, management reviews the long-lived
assets used in the theatre business for impairment. This analysis takes place at
the individual theatre level, which management believes is the lowest level for
which there are identifiable cash flows. In addition, management will review
internal management reports as well as monitor current and potential future
competition in its markets for indicators of impairment of individual theatre
assets. As a result of this analysis, management will determine whether
impairment has occurred, whether a write-down of the asset carrying value to
fair value is required and whether to abandon or continue to operate the
theatre. The impairment
<PAGE> 5
5
GC COMPANIES, INC.
loss is measured as the amount by which the carrying value of the asset exceeds
the fair value, which is based on management's estimates. The primary technique
to determine fair value is to discount the future cash flows of the theatre.
There is considerable management judgement necessary to determine the future
cash flows of a theatre, and accordingly, actual results could vary
significantly from such estimates.
Over the last year, significant industry construction development has caused the
Company to reassess the value and utility of certain theatre locations through
its internal evaluation process described above. There has been an increase in
competition in certain markets as a result of the opening of megaplexes by
competitors, which have tended to, and are projected to, continue to draw
audiences away from certain older multiplex theatre locations that the Company
operates, particularly in the southern and western United States.
The evaluation described above resulted in an impairment charge of approximately
$7.4 million in certain marginal markets in 1997 and an impairment charge of
approximately $28.6 million in 1998.
There were also charges in 1998 totaling $39.6 million primarily relating to the
monies either spent or anticipated to be spent to exit certain leases. The
Company accrued approximately $15.2 million primarily for the cost to exit
certain leases for the theatres closed during the fourth quarter of 1998 and
accrued approximately $24.4 million for the cost to exit the existing leases of
theatres management intends on abandoning in the next 12 months. The Company's
reserves established for leases on properties it intends to abandon reflect
management's best estimate of the potential costs associated with exiting the
existing lease. While the estimates are based on analysis of the facilities,
correspondence with the landlords, exploratory discussions with sublessees and
market conditions, there has been limited experience to consider in preparing
such estimates. The amounts the Company will eventually be obligated for could
differ materially from the amounts assumed in arriving at the original reserve.
The Company has made approximately $3.2 million of cash payments for the cost of
exiting leases and other costs through October 31, 1998.
In 1998, the above-mentioned charges were partially offset primarily by the
disposition of a theatre in Texas in October 1998, resulting in a gain of $12.8
million.
In August 1997, the Company sold seven theatres it operated in Oklahoma for
$15.8 million realizing a gain of $10.3 million, which offset the above
impairment charge recorded in that year.
CORPORATE EXPENSES
Corporate expenses decreased 9.8% to $6.2 million in 1998 from $6.8 million
in the previous year. The decrease is primarily attributable to costs
incurred in 1997 associated with the Company's acquisition of five theatres
with 53 screens in Mexico and Argentina. This decrease was partially offset
by the increased personnel and travel costs associated with the Company's
investment group.
INVESTMENT INCOME (LOSS), NET
The Company recorded an investment loss of $1.9 million in 1998 compared to
investment income of $13.9 million in 1997. The Company's investment loss in
1998 included performance-based compensation of $8.8 million earned by
certain employees as a result of the successful completion of the initial
public offering by Global TeleSystems Group, Inc. (GTS) in February 1998, the
equity losses of $0.7 million of investments accounted for under the equity
method and included as part of portfolio investments and the $0.5 million of
equity losses of theatre affiliates. These losses were partially offset by
the $6.8 million gain recognized on the GTS shares designated as trading
securities and $1.3 million of interest and dividend income earned on the
Company's short-term investment portfolio. The investment income in 1997
included a pre-tax gain of $9.0 million from a fourth-quarter share-for-share
exchange of GCC's minority investment in Vision Express into
GrandOptical-PhotoService and a subsequent sale of a portion of those shares,
a fourth-quarter pre-tax gain of $0.6 million resulting from the release of
escrow related to the sale of the Company's radio group investment in 1996 and
$4.3 million of dividend and interest income earned on the Company's short-term
investment portfolio.
<PAGE> 6
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTEREST EXPENSE
The Company's interest expense increased to $1.0 million in 1998 from $0.6
million in 1997. The increase was due to borrowings under its revolving
credit facility in the fourth quarter of 1998 primarily for theatre expansion
domestically and internationally.
INCOME TAX BENEFIT (PROVISION)
The Company's effective tax rate was 40.0% in 1998, a reduction from the
41.0% in 1997 due to lower state taxes.
YEAR ENDED OCTOBER 31, 1997 COMPARED WITH YEAR ENDED OCTOBER 31, 1996
Net earnings decreased 14.4% to $14.8 million in 1997 from $17.2 million in
1996. Net earnings in 1997 included a pre-tax gain of $9.0 million from a
share-for-share exchange of the Company's minority investment in Vision
Express into GrandOptical-PhotoService and a subsequent sale of a portion of
those shares. GCC's 1997 net earnings also included a $10.3 million pre-tax
gain on the sale of seven theatre units in Oklahoma, a $7.4 million pre-tax
impairment loss relating to the Company's theatre circuit and $4.3 million of
dividend and interest income from short-term investments. Net earnings in
1996 included a pre-tax gain of $9.5 million from the sale of GCC's radio
group investment, a pre-tax charge of $2.5 million related to the write-down
of the Company's remaining investment in a children's clothing retailer, and
$3.8 million of dividend and interest income from short-term investments.
Theatre operating earnings decreased to $18.9 million in 1997 from $26.2
million in 1996. Operating earnings after corporate expenses for 1997 were
$11.8 million, a decrease of 42.0% from $20.4 million in 1996.
THEATRE REVENUES
Revenues of $445.1 million were slightly above 1996 revenues of $444.0
million. This increase was principally due to a 1.9% increase in average
ticket price, a 3.3% increase in concession sales per person and a 13.0%
increase in ancillary revenues substantially offset by a 2.4% decline in
patronage. The increase in concession sales per patron was due to price
increases on select products, new product offerings and increased
consumption. The decrease in patronage from 1996 was the result of increased
competition in the marketplace. Screens in the United States are increasing
at a faster rate than patrons. As a result, the industry's screen utilization
is declining. At October 31, 1997, the Company operated domestically 1,113
screens compared to 1,159 screens at October 31, 1996.
COST OF THEATRE OPERATIONS
Cost of theatre operations, including theatre general and administrative
expenses, increased 2.9% to $430.0 million in 1997 from $417.9 million in the
previous year. As a percentage of revenues, the cost of theatre operations
was 96.6% in 1997 compared to 94.1% in 1996. The percentage increase was
principally a result of lower concession margins, higher variable labor costs
primarily due to the impact of the minimum wage increase in 1997, higher
occupancy costs due to the Company's operating lease financing arrangement
for new assets and increased costs associated with the new units opened in
1997, and increased information technology expenses.
GAIN (LOSS) ON IMPAIRMENT OR DISPOSITION OF THEATRE ASSETS
The 1997 gain on disposition of theatre assets is primarily attributable to a
$10.3 million pre-tax gain recognized on the sale of seven theatre units in
Oklahoma in August 1997. This gain was partially offset by a $7.4 million
pre-tax impairment loss recorded in the fourth quarter of 1997 relating to
the Company's theatre circuit. GCC reassessed the value of a number of its
theatre locations as a result of the emergence of new competition in the
marketplace. The opening of megaplexes by the Company's competitors have
tended to, and are projected to, continue to draw audiences away from certain
older multiplex theatre locations that the Company owns. As a result, the
Company recognized a loss on this impairment.
<PAGE> 7
7
GC COMPANIES, INC.
CORPORATE EXPENSES
Corporate expenses increased 17.5% to $6.8 million in 1997 from $5.8 million
in the previous year. The increase is primarily attributable to costs
associated with the Company's acquisition of five theatres with 53 screens in
Mexico and Argentina. In addition, growth of the Company's investment group
resulted in increased personnel and travel costs.
INVESTMENT INCOME (LOSS), NET
The Company recorded investment income of $13.9 million in 1997 compared to
$10.1 million in 1996. The investment income in 1997 included a pre-tax gain
of $9.0 million from a fourth-quarter share-for-share exchange of GCC's
minority investment in Vision Express into GrandOptical-PhotoService and a
subsequent sale of a portion of those shares, a fourth-quarter pre-tax gain
of $0.6 million resulting from the release of escrow related to the sale of
its radio group investment in 1996 and $4.3 million of dividend and interest
income earned on the Company's short-term investment portfolio. The Company's
investment income in 1996 included a pre-tax net gain of $9.5 million
recorded in the fourth quarter relating to the sale of the Company's radio
group investment, a second-quarter pre-tax charge of $2.5 million related to
the write-off of the Company's remaining investment in a children's clothing
retailer, a $0.6 million pre-tax charge recorded in the first quarter
representing the Company's share of losses incurred by its radio group
investment when such investment was accounted for under the equity method,
and $3.8 million of dividend and interest income. The realized portion of the
Vision Express investment produced a time-weighted pre-tax cash on cash
return of 25% in 1997 with the radio group investment providing a return of
92% in 1996.
INCOME TAX EXPENSE
The Company's effective tax rate was 41.0% in 1997, unchanged from 1996.
LIQUIDITY AND CAPITAL RESOURCES
DOMESTIC THEATRES
Virtually all of GCC's revenues are collected in cash, principally through
theatre admissions and concession sales. Because revenues are received in cash
prior to the payment of related expenses, the Company has an operating float,
which partially finances its operations.
The Company has undertaken an internal process of identifying theatre assets
that are underperforming. This analysis has resulted in a non-cash charge to the
consolidated statement of operations for impairment of theatre assets of $28.6
million and actual or anticipated cash outlays relative to the shut-down of
specifically identified theatre units around the country of $39.6 million. This
review process will continue and the Company, from time to time, may be required
to make additional, substantial one-time cash outflows. At the same time, the
Company has a regional strategy of both expanding and replacing older units in
existing markets and constructing new megaplexes.
During the past year, the Company has added four screens to an existing location
in Massachusetts, opened a new 14-screen theatre in Columbia, South Carolina as
well as opened an 18-screen megaplex near Chicago, Illinois, which included the
first Premium Cinema offering first-class amenities and state-of-the-art
technology. Also, the Company opened a 16-screen theatre in Redondo Beach,
California and a 14-screen theatre in Philadelphia, Pennsylvania; these two new
theatres replaced three older units having a total of 13 screens. In addition to
the three older units replaced, the Company closed 26 smaller units with 121
screens during the year. As of October 31, 1998, the Company operated 1,045
screens at 150 locations in 24 states compared to 1,113 screens at 175 locations
as of October 31, 1997. In the first quarter of 1999, the Company opened 69
screens at five locations. During the next calendar year, the Company has
commitments to open eight additional new megaplexes with approximately 131
screens.
Capital outflows have been minimized on these projects due to an agreement with
a major financial institution to provide operating leases for up to $250 million
of assets over five years for its theatre expansion program. Since the inception
of this leasing arrangement in 1996, the Company has entered into $57.0
<PAGE> 8
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
million of operating leases with the financial institution. Availability of this
lease arrangement is in part dependent upon the ability of the financial
institution to syndicate leases to third party financial institutions. A
receivable due from this financial institution may arise from time to time
throughout the year from the Company initially advancing monies for leased
assets as the financial institution's agent. On a periodic basis, these advances
are reimbursed by the financial institution. At October 31, 1998, the Company
had an outstanding receivable of $21.7 million related to the five theatres
being constructed and opened in the first quarter of 1999.
The Company has significant lease commitments. Lease payments totaled $71.2
million in 1998 and minimum lease payments are expected to approximate $64.4
million in 1999.
During 1998, the Company made expenditures of $19.8 million for leasehold
improvements, furniture and equipment purchases, and information service-related
projects including a theatre management information system and financial
reporting systems. Domestic capital expenditures are expected to approximate
$21.3 million during fiscal 1999.
During the year, the Company sold certain theatre assets for $19.8 million,
including, among other things, a theatre in Texas, theatre assets in
Pennsylvania and land in Indiana. In addition, the Company closed 29 theatre
units with a total of 134 screens in 1998. In connection with the impairment
charge recorded in the fourth quarter of 1998, the Company also recorded a
charge totaling $39.6 million primarily relating to monies either spent or
anticipated to be spent to exit certain leases. The Company has made
approximately $3.2 million of cash payments for the cost of exiting certain
leases and other related costs through October 31, 1998.
In 1997, the Company formed a joint venture with The Sundance Group to create
Sundance Cinemas, a stand-alone theatre circuit dedicated to the exhibition of
the growing number of independent films. The joint venture plans to open a
significant number of state-of-the-art Sundance Cinemas across the country in
urban, suburban and college locations, aiming to add substantially to the number
of screens dedicated to specialty films. GCC contributed approximately $2.7
million in cash toward this venture in 1998 and anticipates contributing cash of
approximately $5.0 million and properties to this venture in 1999. The first
Sundance theatre is anticipated to open in calendar 1999.
In March 1998, the Company announced a joint venture with Cinema Grill to
convert several of General Cinema's older theatres into new cinemas offering
sit-down dining during the movies. Under this agreement, the joint venture will
convert up to three existing General Cinema locations before expanding to
further theatres. GCC expects to contribute cash of approximately $1.4 million
and properties to the venture. The Company anticipates opening its first Cinema
Grill theatre in Seattle, Washington during the second quarter of 1999.
INTERNATIONAL THEATRES
During the year, the Company opened two theatres with 26 screens in Argentina, a
unit with 10 screens in Mexico and entered into a joint venture to operate a
six-screen theatre in Uruguay. Effective July 1, 1998, the Company entered into
an agreement to form a 50/50 joint venture with Hoyts Cinema Group creating
Hoyts General Cinema South America (HGCSA), a stand-alone theatre circuit, which
will pursue theatre opportunities in South America. Pursuant to this, the assets
of the Company's Argentine and Uruguay operations were contributed to this joint
venture. During the year, the Company contributed $24.3 million toward its
international operations in South America and Mexico.
In December 1998, HGCSA opened a theatre with 12 screens and plans to open an
additional 102 screens in Argentina, an additional 27 screens in Brazil and an
additional 34 screens in Chile by the end of calendar 2000. The theatre
expansion will be financed through capital contributions by the partners of the
joint venture and debt financing. The joint venture has entered into a $75
million debt financing arrangement with a local bank, which is secured by the
several guaranty of the joint ventures' partners. Availability of this
<PAGE> 9
9
GC COMPANIES, INC.
financing beyond $25.0 million is subject to syndication to third-party
financial institutions. The Company plans to contribute approximately $7.3
million toward its international operations in fiscal 1999.
INVESTMENT PORTFOLIO
The Company invested an additional $1.3 million in October 1998 in the
wireless location and two-way messaging company bringing the total invested
in that company to $8.3 million.
In addition, the Company invested $11.0 million in February 1998 in a leading
provider of fleet management information services. Through its proprietary
systems and network, the company currently provides services to commercial
vehicle operators throughout the United States.
OTHER
The Company received proceeds of $7.0 million from the liquidation of certain
short-term investments during the year.
The Company borrowed $16.8 million during the fourth quarter under its
revolving credit agreement with two banks. The revolving credit agreement has
been amended to extend the term of the agreement through January 25, 2002.
Under this agreement the Company may borrow up to $50.0 million. The Company
is able to select a floating interest rate based on the primary bank's base
interest rate or to fix interest rates for up to six months. The fixed
interest rates are based on the Eurodollar rate plus a margin that ranges
from 0.625% to 1.25% based on the level of total debt to cash flow earnings
as defined in the amended agreement. The agreement contains provisions
requiring the maintenance of a minimum net worth, a fixed coverage charge,
restrictions on the payment of dividends and limitations on the issuance of
debt.
In December 1997, the Company's Board of Directors authorized the renewal of
the Company's program to repurchase up to one million shares of the Company's
common stock over the ensuing 12 months. No shares were purchased over the
12-month period.
The Company believes that cash generated from operations, asset sales under
agreement, cash and short-term investments on hand of $15.5 million, amounts
available under the Company's revolving credit agreement, the operating lease
arrangement and the joint venture debt financing will be sufficient to fund
operating requirements, capital expenditures and the Company's investment
activities for the foreseeable future.
YEAR 2000
The year 2000 issue is primarily the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such
computer systems will be unable to interpret dates beyond the year 1999,
which could cause a system failure or other computer errors leading to a
disruption in the operation of such systems. In 1996, the Company developed a
strategic plan to update its information systems in order to meet business
needs, move away from a mainframe processing environment and create a new
system infrastructure. As a result of this plan, several major processing
systems were replaced or significantly upgraded during 1997 and 1998, and
are, for the most part, Year 2000 compliant, including certain point of sale
systems, theatre timekeeping and financial reporting systems. In 1998, the
Company established a project team to coordinate existing Year 2000
activities and address remaining Year 2000 issues.
During 1998, the Company developed a plan to devote the necessary resources
to identify and modify systems potentially impacted by Year 2000, or
implement new systems to become Year 2000 compliant in a timely manner. The
Company has completed the identification and assessment portion of its plan
and is now focused on remediation or replacement of non-compliant systems.
Concurrent with this phase is the testing of new systems prior to
implementation. The Company is on track to complete the remediation, testing
and implementation of replacement systems by mid-1999. In addition, the
Company is in the process of contacting suppliers and vendors seeking
information about their internal compliance efforts. The Company's risks
involved with not solving the Year 2000 issue include, but are not limited
to, the following: loss of local or regional electric power, loss of
telecommunication services, delays or cancellations in getting film product,
<PAGE> 10
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
bank errors and computer errors by vendors or our internal systems. The
Company is in the process of developing contingency plans for key areas which
might be affected by the Year 2000 problem. The total cost of executing this
Year 2000 plan is estimated at $2.0 million. The Company's aggregate cost
does not include time and costs that may be incurred by the Company as a
result of the failure of any third parties, including suppliers, to become
Year 2000 ready or costs to implement any contingency plans. This estimate is
based on the Company's current assessment of its Year 2000 compliance needs
and is subject to change as the Company proceeds with its compliance efforts.
SEASONALITY
GCC's revenues and operating earnings are significantly affected by the
commercial success of the films that are exhibited. Major film distributors
typically release the films that they anticipate will be the most commercially
successful during GCC's first and third fiscal quarters. Accordingly, a
significant portion of GCC's revenues and operating earnings from theatre
operations occur in those periods.
IMPACT OF INFLATION
GCC adjusts its prices to maintain profit levels, and will continue to do so
as competitive conditions permit. In general, management believes that the
impact of inflation is not material to the financial condition or results of
operations of the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information," and
SFAS No. 132, "Employees' Disclosures about Pensions and Other Post-Retirement
Benefits." SFAS No. 131 was adopted in fiscal 1998. SFAS No. 130 and 132 will be
adopted for the Company's fiscal 1999 financial statements. The effect of
adopting these two standards is not expected to be material to the Company's
financial position or results of operations; however, they both will require
additional disclosure. SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was also recently issued. The Company is not required to
implement this standard until fiscal 2000. Its requirements are complex and its
scope far-reaching. The Company has not completed its evaluation of the impact
of this standard on the financial statements. In addition, the American
Institute of Certified Public Accountants (AICPA) recently issued Statement of
Position (SOP) 98-5, "Reporting the Costs of Start-Up Activities," which must be
adopted by the Company in fiscal 2000. The Company is currently evaluating this
standard and has not determined the impact its adoption will have on the
financial statements.
FORWARD-LOOKING STATEMENTS
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to shareholders, press releases, oral statements made with the approval
of an authorized executive officer of the Company and filings with the
Securities and Exchange Commission. The words or phrases "anticipates,"
"expects," "will continue," "estimates," "projects" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The results contemplated by the Company's forward-looking statements are subject
to certain risks, trends and uncertainties that could cause actual results to
vary materially from anticipated results, including without limitation, delays
in obtaining leases for new megaplex locations, construction risks and delays,
the lack of strong film product, the impact of competition, costs of exiting
leases, risks associated with international operations, construction risks and
delays associated with Sundance Cinemas and Cinema Grill theatres, market and
other risks associated with the Company's investment activities and other
factors described herein.
<PAGE> 11
11
CONSOLIDATED BALANCE SHEETS
GC COMPANIES, INC.
<TABLE>
<CAPTION>
October 31,
-------------------
(In thousands except par value) 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,479 $ 30,038
Short-term investments 12,989 20,014
Marketable equity securities 78,162 --
Receivable due from financing institution 21,735 3,754
Other current assets 7,565 5,619
Income tax receivable 12,618 --
Deferred income taxes -- 2,981
-------------------
Total current assets 135,548 62,406
Property and equipment, net 112,599 154,576
Portfolio investments 61,769 87,078
Investment in international theatre affiliates 59,495 13,000
Other assets 6,590 22,540
Deferred income taxes 13,960 --
-------------------
$389,961 $339,600
-------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term obligations $ 639 $ 697
Trade payables 32,907 32,671
Liability for early lease terminations 36,579 --
Other current liabilities 89,680 79,163
Deferred income taxes 11,793 --
-------------------
Total current liabilities 171,598 112,531
Long-term liabilities
Capital lease obligations 1,722 2,254
Other long-term liabilities 33,523 31,912
Revolving credit facility 16,775 --
-------------------
Total long-term liabilities 52,020 34,166
Deferred income taxes -- 6,183
Commitments and contingencies
Shareholders' equity
Common stock - $.01 par value
Authorized - 25,000 shares
Issued and outstanding - 7,710 and 7,705 shares 77 77
Additional paid-in capital 137,049 136,646
Unrealized gain on marketable equity securities, net of tax 20,782 --
Retained earnings 8,435 49,997
-------------------
Total shareholders' equity 166,343 186,720
-------------------
$389,961 $339,600
-------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 12
12
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended October 31,
-----------------------------------
(In thousands except for per share amounts) 1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Admissions $ 271,999 $ 301,349 $ 302,852
Concessions 124,317 132,633 131,500
Other 11,070 11,151 9,632
-------- -------- --------
407,386 445,133 443,984
Costs and expenses
Film rentals 138,565 155,316 155,441
Concessions 21,975 23,865 22,999
Theatre operations and administrative expenses 231,556 231,634 220,065
Depreciation and amortization 19,180 19,229 19,369
Gain (loss) on impairment or disposition
of theatre assets (56,844) 3,566 77
Corporate expenses 6,164 6,833 5,814
-------- -------- --------
Operating earnings (loss) (66,898) 11,822 20,373
Investment income (loss), net (1,917) 13,880 10,107
Interest expense (1,048) (586) (639)
Gain (loss) on disposition of non-operating assets 593 (100) (617)
-------- -------- --------
Earnings (loss) before income taxes (69,270) 25,016 29,224
Income tax benefit (provision) 27,708 (10,257) (11,982)
-------- -------- --------
Net earnings (loss) $ (41,562) $ 14,759 $ 17,242
-------- -------- --------
Net earnings (loss) per share:
Basic $ (5.39) $ 1.91 $ 2.21
-------- -------- --------
Diluted $ (5.39) $ 1.90 $ 2.19
-------- -------- --------
Weighted average shares outstanding:
Basic 7,710 7,728 7,816
-------- -------- --------
Diluted 7,710 7,768 7,858
-------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 13
13
CONSOLIDATED STATEMENTS OF CASH FLOWS
GC COMPANIES, INC.
<TABLE>
<CAPTION>
Years Ended October 31,
--------------------------------
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) $(41,562) $ 14,759 $ 17,242
Adjustments to reconcile net earnings (loss) to net
cash (used) provided by operating activities
Depreciation and amortization 19,180 19,229 19,369
Deferred income taxes (19,224) (6,817) (1,192)
Equity in losses of theatre affiliates 539 -- --
(Gain) loss from portfolio investments 724 (9,585) (6,307)
Gain on marketable equity securities
designated as trading (6,815) -- --
(Gain) loss on impairment or disposition
of theatre assets 19,672 (3,466) 540
Other non-cash activities 2,075 (1,170) (1,311)
Changes in assets and liabilities
Liabilities for early lease terminations 36,579 -- --
Income tax receivable (12,618) -- --
Trade payables (3,434) 2,157 (2,580)
Other current assets and liabilities (9,564) 28,563 (14,822)
-------- -------- --------
Net cash (used) provided by operating activities (14,448) 43,670 10,939
-------- -------- --------
Cash flows from investing activities
Capital expenditures (19,788) (18,742) (10,750)
Proceeds from the disposition of theatre assets 19,805 18,824 758
Proceeds from the (purchase of) or liquidation
of short-term investments 7,025 (18,448) 33,747
Proceeds from the sale of portfolio investments -- 15,825 22,825
Purchase of portfolio investments (12,315) (42,073) (20,195)
Incremental investments in international
theatre affiliates (24,325) (36,598) --
Other investing activities 131 815 (897)
-------- -------- --------
Net cash (used) provided by investing activities (29,467) (80,397) 25,488
-------- -------- --------
Cash flows from financing activities
Proceeds from borrowings on revolving credit facility 16,775 -- --
Repurchase of common stock -- (4,307) --
Other financing activities (419) (673) (681)
-------- -------- --------
Net cash provided (used) by financing activities 16,356 (4,980) (681)
-------- -------- --------
Net change in cash and cash equivalents (27,559) (41,707) 35,746
Cash and cash equivalents at beginning of year 30,038 71,745 35,999
-------- -------- --------
Cash and cash equivalents at end of year $ 2,479 $ 30,038 $ 71,745
-------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 14
14
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Gain on
Common Stock Additional Marketable
---------------------- Paid-in Equity Retained
(In thousands) Shares Amount Capital Securities Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1995 7,812 $ 78 $ 136,324 $ -- $ 22,302 $ 158,704
Net earnings -- -- -- -- 17,242 17,242
Other equity transactions 4 -- 35 -- -- 35
------------------------------------------------------------------------------
Balance at October 31, 1996 7,816 78 136,359 -- 39,544 175,981
Net earnings -- -- -- -- 14,759 14,759
Repurchase of common stock (119) (1) -- -- (4,306) (4,307)
Other equity transactions 8 -- 287 -- -- 287
------------------------------------------------------------------------------
Balance at October 31, 1997 7,705 77 136,646 -- 49,997 186,720
Net loss -- -- -- -- (41,562) (41,562)
Unrealized gain on
available-for-sale
securities, less applicable
taxes of $13,855 -- -- -- 20,782 -- 20,782
Other equity transactions 5 -- 403 -- -- 403
------------------------------------------------------------------------------
Balance at October 31, 1998 7,710 $ 77 $ 137,049 $ 20,782 $8,435 $ 166,343
------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 15
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
GC Companies, Inc. (GCC or the Company) operates a motion picture exhibition
business and manages a pool of the Company's capital for investments. It
operates motion picture businesses in the United States, South America and
Mexico. Its investment portfolio includes both domestic and European holdings.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF PRESENTATION
The consolidated financial statements include the accounts of GCC and all of its
majority-owned subsidiaries. Where GCC has the ability to exercise significant
influence over the operating and financial policies of companies in which GCC
has invested, those investments are accounted for under the equity method, and
GCC's share of the net earnings or losses of those companies are included in
"Investment income (loss)" in the consolidated statements of operations and
reported on a one-month lag. These investments are included under the captions
"Portfolio investments" and "Investments in international theatre affiliates."
Other investments which do not have readily determinable fair values because of
a lack of quoted market prices are carried at cost less impairment, if
applicable. These investments are included under the caption "Portfolio
investments." Investments with readily determinable fair values are accounted
for in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." These investments are included under the caption
"Marketable equity securities." All significant intercompany accounts and
transactions have been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
The Company's equity-based South American joint venture uses the local currency
as the functional currency and, as such, translation adjustments are not
included as a part of the earnings or losses. In calculating the Company's
interest in earnings or losses of its Mexican equity-based investment, which
resides in a hyper-inflationary economy, gains or losses on translation are
included in net earnings. In 1998, foreign translation gains included in the
equity earnings were $0.8 million.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with maturities of three
months or less from the date of purchase. Cash equivalents are stated at cost
plus accrued interest, which approximates market value. The Company's policy is
to invest cash with financial institutions or in instruments that have
acceptable credit ratings and to limit the amount of credit exposure to any one
financial institution or issuer.
SHORT-TERM INVESTMENTS
Short-term investments consist primarily of commercial paper, certificates of
deposit, corporate debt securities and U.S. Government securities, and are
carried at cost plus accrued interest, which approximates fair value.
MARKETABLE EQUITY SECURITIES
Marketable equity securities are stated at fair value. Unrealized holding gains
on trading securities are included in the consolidated statements of operations
under the caption "Investment income (loss), net." Unrealized holding gains and
losses on available-for-sale securities are excluded from the consolidated
statements of operations and are included as a component of shareholders' equity
under the caption "Unrealized gain on marketable equity securities, net of tax."
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation and
amortization except impaired assets, which are stated at fair market value. Also
included in property and equipment is the cost of certain internally developed
software. These costs include external direct costs of materials and services
consumed as well as payroll and payroll-related costs for employees who are
directly associated with such projects. Such policy has been consistently
employed by the Company in the past and is consistent with the precepts set
forth in the American Institute of Certified Public Accountants (AICPA)
Statement of Position 98-1,
<PAGE> 16
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of 20 to 30 years for
buildings and improvements and 3 to 20 years for equipment and fixtures.
Leasehold improvements are amortized using the straight-line method over the
lesser of the lease period or the estimated useful lives of the leasehold
improvements. When property and equipment are retired or have been fully
depreciated, the cost and the related accumulated depreciation are eliminated
from the respective accounts. Gains or losses arising from dispositions of
property and equipment are reported as income or expense.
STOCK-BASED COMPENSATION
The Company follows the precepts set forth in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for
its Common Stock incentive plan. In compliance with SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company has disclosed the required pro-forma
effect on net earnings (loss) and diluted earnings (loss) per share in Note 12.
LONG-LIVED ASSETS
On an ongoing basis, the Company evaluates the carrying value of its long-lived
assets relying on a number of factors, including operating results, future
anticipated cash flows, business plans and certain economic projections. In
addition, the Company considers nonfinancial data such as changes in the
operating environment, competitive information, market trends and business
relationships. See Note 3 for discussion of the impairment charges recorded in
1998 and 1997.
INCOME TAXES
Income taxes are calculated in accordance with SFAS No. 109, "Accounting for
Income Taxes," which requires the asset and liability method of accounting for
income taxes.
REVENUES
Revenues are recognized when admission and concession proceeds are received at
the theatres. Revenues for other services are recognized at the time those
services are rendered.
FILM RENTAL COSTS
Film rental costs are recognized as a percentage of admission revenue and in
accordance with the terms of the film agreements.
NET EARNINGS (LOSS) PER SHARE
In the first quarter of fiscal 1998, the Company adopted SFAS No. 128, "Earnings
per Share," which replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Basic earnings per share
excludes any dilutive effect of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. Prior period earnings per share have been restated
to conform to SFAS No. 128.
<TABLE>
<CAPTION>
(In thousands except per share data) 1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings (loss) (A) $(41,562) $ 14,759 $ 17,242
Determination of shares:
Weighted average number
of common shares outstanding (B) 7,710 7,728 7,816
Diluted effect of shares issuable on exercise of
stock options, net of shares assumed to be
purchased out of proceeds at market price -- 40 42
Average common shares outstanding for diluted
computation (C) 7,710 7,768 7,858
Net earnings (loss) per share ("EPS"):
Basic (A/B) $ (5.39) $ 1.91 $ 2.21
Diluted (A/C) $ (5.39) $ 1.90 $ 2.19
</TABLE>
<PAGE> 17
17
GC COMPANIES, INC.
SIGNIFICANT ESTIMATES
In the process of preparing its consolidated financial statements, the Company
estimates the appropriate carrying value of certain assets and liabilities,
which are not readily apparent from other sources. The primary estimates
underlying the Company's consolidated financial statements include goodwill,
impairment charges, lease termination reserves, deferred taxes, accruals for
pension and post-retirement benefits, self insurance and other matters. Actual
results could differ from these estimates. Management bases its estimates on
historical experience and on various assumptions that are believed to be
reasonable under the circumstances.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued SFAS No. 130,
"Reporting Comprehensive Income," SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," and SFAS No. 132, "Employees'
Disclosures about Pensions and Other Post-Retirement Benefits." SFAS No. 131 was
adopted in fiscal 1998. SFAS No. 130 and 132 will be adopted for the Company's
fiscal 1999 financial statements. The effect of adopting these two standards is
not expected to be material to the Company's financial position or results of
operations; however, they both will require additional disclosure. SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was also
recently issued. The Company is not required to implement this standard until
fiscal 2000. Its requirements are complex and its scope far-reaching. The
Company has not completed its evaluation of the impact of this standard on the
financial statements. In addition, the AICPA recently issued SOP 98-5,
"Reporting the Costs of Start-Up Activities," which must be adopted by the
Company in fiscal 2000. The Company is currently evaluating this standard and
has not determined the impact its adoption will have on the financial
statements.
CHANGES IN PRESENTATION
Certain prior-year amounts have been reclassified to conform to the current-year
presentation.
3. IMPAIRMENT OR DISPOSITION OF THEATRE ASSETS
During the ordinary course of business, management makes determinations that
impact both the recoverability of theatre assets and potential lease termination
charges. Such decisions have impacted operations in both 1997 and 1998. As part
of the Company's annual budgeting process, management reviews the long-lived
assets used in the theatre business for impairment. This analysis takes place at
the individual theatre level, which management believes is the lowest level for
which there are identifiable cash flows. In addition, management will review
internal management reports as well as monitor current and potential future
competition in its markets for indicators of impairment of individual theatre
assets. As a result of this analysis, management will determine whether
impairment has occurred, whether a write-down of the asset carrying value to
fair value is required and whether to abandon or continue to operate the
theatre. The impairment loss is measured as the amount by which the carrying
value of the asset exceeds the fair value, which is based on management's
estimates. The primary technique to determine fair value is to discount the
future cash flows of the theatre. There is considerable management judgement
necessary to determine the future cash flows of a theatre, and accordingly,
actual results could vary significantly from such estimates.
Over the last year, significant industry construction development has caused the
Company to reassess the value and utility of certain theatre locations through
its internal evaluation process described above. There has been an increase in
competition in certain markets as a result of the opening of megaplexes by
competitors, which have tended to, and are projected to, continue to draw
audiences away from certain older multiplex theatre locations that the Company
operates, particularly in the southern and western United States.
The evaluation described above resulted in an impairment charge of approximately
$7.4 million in certain marginal markets in 1997 and an impairment charge of
approximately $28.6 million in 1998.
There were also charges in 1998 totaling $39.6 million primarily relating to the
monies either spent or anticipated to be spent to exit certain leases. The
Company accrued approximately $15.2 million primarily for the cost to
exit certain leases for the theatres closed during the fourth quarter of 1998
and accrued approximately
<PAGE> 18
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$24.4 million for the cost to exit the existing leases of theatres management
intends on abandoning in the next 12 months. The Company's reserves established
for leases on properties it intends to abandon reflect management's best
estimate of the potential costs associated with exiting the existing lease.
While the estimates are based on analysis of the facilities, correspondence with
the landlords, exploratory discussions with subleases and market conditions,
there has been limited experience to consider in preparing such estimates. The
amounts the Company will eventually be obligated for could differ materially
from the amounts assumed in arriving at the original reserve. The Company has
made approximately $3.2 million of cash payments for the cost of exiting leases
and other costs through October 31, 1998.
In 1998, the above-mentioned charges were partially offset primarily by the
disposition of a theatre in Texas in October 1998, resulting in a gain of $12.8
million.
In August 1997, the Company sold seven theatres it operated in Oklahoma for
$15.8 million realizing a gain of $10.3 million, which offset the above
impairment charge recorded in that year.
4. MARKETABLE EQUITY SECURITIES
At October 31, 1998, marketable equity securities included $69.8 million in
publicly traded shares of an international telecommunications service provider,
Global TeleSystems Group, Inc. (GTS), previously included in portfolio
investments at its original cost of $25.2 million at October 31, 1997, and $8.4
million in the shares of an optical and photo service retailer, GrandVision
(formerly named GrandOptical-PhotoService), previously included in portfolio
investments at a cost of $11.5 million at October 31, 1997.
In February 1998, GTS successfully completed an initial public offering of its
common stock and, as a result, under SFAS No. 115, the Company reclassified this
investment from portfolio investments into marketable equity securities and
recorded it at its fair value. The GTS shares have been split into two separate
classifications within marketable equity securities: $59.4 million (at the
then-current value) have been classified as available-for-sale securities, and
$10.4 million (at the then-current value) have been classified as trading
securities. On the shares classified as available-for-sale, a pre-tax unrealized
holding gain for the year ended October 31, 1998 of $37.7 million has been
recorded in the balance sheet net of tax, but is not reflected in the
consolidated statements of operations. The shares classified as trading
securities have generated a pre-tax unrealized gain for the year of $6.8 million
that has been recognized in the consolidated statements of operations within the
caption "Investment income (loss), net." The combined unrealized pre-tax gain on
the total GTS shares for the year ended October 31, 1998 was $44.5 million. The
pre-tax gain on the trading securities has been offset in the consolidated
statements of operations by the estimated incentive compensation as described in
Note 17. The Company's 1.8 million shares in GTS are subject to certain other
trading restrictions under applicable law.
As of October 31, 1998, all shares of GrandVision have the current restrictions
lapse within the next 12 months and, as a result, have been reclassified from
portfolio investments into available-for-sale marketable equity securities. A
pre-tax unrealized holding loss for the year ended October 31, 1998 of $3.1
million has been recorded on the Company's consolidated balance sheet net of
tax, but has not been reflected in the consolidated statements of operations
because of the available-for-sale designation.
<PAGE> 19
19
GC COMPANIES, INC.
5. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at October 31:
<TABLE>
<CAPTION>
(In thousands)
1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Cost:
Land $ 1,417 $ 4,581
Building and improvements 19,244 26,146
Leasehold improvements 116,484 141,652
Furniture and fixtures 119,557 153,639
-------------------
256,702 326,018
Less accumulated depreciation and amortization 144,103 171,442
-------------------
Net property and equipment $112,599 $154,576
-------------------
</TABLE>
6. PORTFOLIO INVESTMENTS
Included in portfolio investments at October 31 were the following investments
in other companies. The investments in GrandVision and GTS are accounted for as
marketable equity securities in 1998 and are discussed in Note 4. The investment
in the financial guaranty insurer and the fleet management services company are
accounted for under the equity method.
<TABLE>
<CAPTION>
(In thousands except for percentages) % of Ownership 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Capital Access - financial guaranty insurer 23.8 $29,031 $30,000
Global TeleSystems Group, Inc. - international
telecommunications service provider 2.3 -- 25,195
GrandVision - optical and photo retailer 1.6 -- 11,515
Fuelman - fleet management services company 45.2 11,135 --
Kabelmedia - German cable television systems operator 9.6 13,330 13,368
Teletrac - wireless location and two-way messaging company 7.4 8,273 7,00
-----------------
Total $61,769 $87,078
-----------------
</TABLE>
On October 20, 1998, the Company invested an additional $1.3 million in the
wireless location and two-way messaging company, bringing the total invested
in that company to $8.3 million.
On February 9, 1998, the Company completed an $11.0 million investment in a
leading provider of fleet management services. Through its proprietary systems
and network, the company currently provides services to commercial vehicle
operators throughout the United States. The excess of the purchase price over
the underlying equity in the net assets of the investee totaled $7.6 million and
is being amortized over 20 years.
On October 16, 1997, GCC received 193,715 shares of GrandVision common stock, a
publicly traded optical and photo service retailer listed on the Paris stock
exchange, in exchange for its shares in the optical superstore retailer,
pursuant to a September 1, 1997 merger agreement. Of the GrandVision shares
received, 92,220 shares were sold on October 21, 1997 for approximately $15.8
million, and 101,495 shares were originally restricted from sale for periods
ranging from six months to two years. The GrandVision shares held on October 31,
1997 were recorded at approximately $11.5 million. Those shares with a six-month
restriction were considered "available-for-sale" securities under SFAS No. 115.
Their cost basis approximated their fair value at October 31, 1997. In December
1997, GrandVision effected a 4 for 1 stock split. This split has increased the
number of shares held in GrandVision to 405,980.
On September 24, 1997, GCC invested $30.0 million in a newly-formed financial
guaranty insurance company. This company received a claims-paying ability rating
of "A" from three national credit rating agencies. The results of operations for
the period since the date of investment through October 31, 1997 were not
material to the consolidated financial statements.
<PAGE> 20
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 14, 1997, the Company invested an additional $5.0 million in the
international telecommunications service provider, bringing the total
invested in that company to $25.2 million. These shares have been
reclassified to marketable equity securities as of October 31, 1998.
Unaudited summarized information about the Company's investees accounted for
under the equity method and included in portfolio investments are as follows:
<TABLE>
<CAPTION>
Financial Guaranty Insurer Fleet Management Services
For the Year For the Eight Months
Ended September 30, 1998 Ended September 30, 1998
(In thousands) (Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 133,234 $ 21,978
Non-current assets 16,841 18,271
Current liabilities 5,650 11,884
Non-current liabilities 23,367 13,054
Redeemable preferred stock -- 16,049
Total revenues or premiums written 23,445 77,484
Earnings (loss) before taxes (1,261) 1,319
Net earnings (loss) (1,261) 776
</TABLE>
Gains or losses recognized on these investments and others that were previously
held are discussed in Note 17.
7. INVESTMENT IN INTERNATIONAL THEATRE AFFILIATES
On September 26, 1997, the Company purchased theatre operations in Mexico and
Argentina for a cash purchase price of $36.3 million. One hundred percent of the
Argentine common stock and fifty percent of the Mexican common stock were
purchased pursuant to this transaction. The purchase price has been allocated to
assets acquired (primarily fixed assets) and liabilities assumed based on their
fair value at the date of acquisition and in accordance with the purchase method
of accounting. The excess of purchase price over net assets acquired is being
amortized by the Company over a 10-year period. The excess of purchase price
over net assets acquired and the equity investment in the Mexican entity are
included in "Investment in international theatre affiliates."
Effective July 1, 1998, the Company entered into an agreement to form a 50/50
joint venture with Hoyts Cinema Group creating Hoyts General Cinema South
America, a stand-alone theatre circuit, which will pursue theatre
opportunities in South America. Pursuant to this, the net assets of the
Argentine and Uruguay operations (totaling approximately $26.7 million) were
contributed to the joint venture. The joint venture is accounted for by the
Company under the equity method. As a result of this venture, assets and
liabilities relating to the Argentine operation presented individually on the
balance sheet as of October 31, 1997 have been condensed into the caption
"Investments in international theatre affiliates" as of October 31, 1998. In
addition, results of operations for the year ended October 31, 1998 have been
condensed into the caption "Investment income (loss), net."
8. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following at October 31:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Rent and related charges $14,928 $12,541
Payroll and related benefits 5,792 4,858
Deal-related performance-based compensation 11,212 2,756
Self insurance 14,451 13,710
Deferred income 20,210 18,971
Other 23,087 26,327
-----------------
$89,680 $79,163
=================
</TABLE>
<PAGE> 21
21
GC COMPANIES, INC.
9. LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following at October 31:
<TABLE>
(In thousands) 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
Deferred lease obligations $17,987 $20,412
Post-retirement health care benefits (see Note 15) 6,306 6,222
Other 9,230 5,278
-----------------
$33,523 $31,912
=================
</TABLE>
The present value of the future minimum lease payments due under capital
lease obligations are as follows:
<TABLE>
<CAPTION>
Years ended October 31, Capital Leases
- ---------------------------------------------------------------------------
<S> <C>
1999 $ 534
2000 588
2001 619
2002 406
2003 100
Thereafter 7
------
$2,254
======
</TABLE>
The net book value of property under capital leases was $0.9 million at
October 31, 1998 and $1.2 million at October 31, 1997.
10. RELATED-PARTY TRANSACTIONS
GCC was previously a 100%-owned subsidiary of Harcourt General, Inc. (Harcourt
General). Certain shareholders also function as officers of both companies and
have significant interests in both companies.
As a result of the 1993 spin-off of GCC, certain leases were transferred from
Harcourt General to GCC. Under a Reimbursement and Security Agreement that was
entered into at the time of the spin-off, GCC has agreed to indemnify Harcourt
General from losses Harcourt General could incur due to its secondary liability
on theatre leases that were transferred to GCC as part of the spin-off. In order
to secure its obligations under the Reimbursement and Security Agreement, GCC
pledged all of the stock of its theatre subsidiaries to Harcourt General. In
connection with the Harcourt General guarantee, the Company is charged a fee
based on total commitments outstanding. This fee totaled $230,000, $250,000 and
$271,000 in 1998, 1997 and 1996, respectively. In addition, GCC is required to
maintain certain financial covenants under its Reimbursement and Security
Agreement. Principally due to the charge described in Note 3 and recorded in the
fourth quarter, waivers of these financial covenants were obtained, and new
covenants and fees were established by Harcourt General resulting in an
amendment and restatement of the Reimbursement and Security Agreement dated
January 26, 1999.
Harcourt General provides certain management and other corporate services to
GCC. The fees for these services, which totaled $0.5 million in 1998, $0.5
million in 1997 and $1.1 million in 1996, were based on Harcourt General's
costs. Harcourt General's Chairman and Chief Executive Officer also serves as
the Chairman and Chief Executive Officer of the Company, and one of Harcourt
General's Presidents and Co-Chief Operating Officers serves as President and
Chief Operating Officer of GCC. The fees payable to Harcourt General have been,
and will continue to be, subject to the approval of a committee of independent
directors of GCC who are not affiliated with Harcourt General.
<PAGE> 22
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. REVOLVING CREDIT FACILITY
On October 31, 1998, the Company had $16.8 million outstanding under its
existing revolving credit agreement with two banks. The revolving credit
agreement enabled the Company to borrow up to $50.0 million and was due to
expire on December 31, 1998. Outstanding letters of credit at October 31, 1998
were $9.6 million. The weighted average interest rate on the revolving credit
facility for 1998 was 8.15% and the interest rate at October 31, 1998 was 8.0%.
There were no borrowings under the revolving credit facility in 1997 and 1996.
The Company was required to maintain certain financial covenants under its
revolving credit facility. Principally due to the charges recorded in the fourth
quarter of 1998 and described in Note 3, waivers were obtained from the two
banks.
The revolving credit agreement has been amended to extend the term of the
agreement through January 25, 2002. Under the amended agreement, the Company may
borrow up to $50.0 million. The Company is able to select a floating interest
rate based on the primary bank's base interest rate or fix interest rates for up
to six months. The fixed interest rates are based on the Eurodollar rate plus a
margin that ranges from 0.625% to 1.25% based on the level of total debt to cash
flow earnings as defined in the agreement. The new credit agreement contains
restrictive covenants requiring maintenance of a minimum net worth and fixed
charge coverage and also contains restrictions on the payment of dividends and
the issuance of additional debt. Because of this subsequent refinancing
arrangement, the debt has been classified as long-term in the consolidated
balance sheet.
12. SHAREHOLDERS' EQUITY
COMMON STOCK
Common Stock is entitled to dividends if declared by the Board of Directors, and
each share carries one vote. Holders of Common Stock have no cumulative voting,
redemption or preemptive rights.
COMMON STOCK INCENTIVE PLAN
The Company has a Common Stock incentive plan that provides for the granting of
stock options, stock appreciation rights, restricted stock or other stock-based
awards. Options outstanding at October 31, 1998, were granted at prices not less
than 100% of the fair market value on the date of original grant. These options
generally vest over five years and have maximum terms of ten years. Options for
66,143 shares, 69,183 shares and 70,211 shares were exercisable under all option
arrangements at October 31, 1998, 1997 and 1996, respectively. Under the
existing stock incentive plan, there were 556,263 and 484,873 shares available
for future grants at October 31, 1998 and 1997, respectively. Exercises in all
years presented have taken the form of both stock option exercises and stock
appreciation awards; the latter being granted at the time of exercise and at the
sole discretion of the Company.
<PAGE> 23
23
GC COMPANIES, INC.
The following summarizes transactions under all stock option arrangements for
the years ended October 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Weighted
Average
Number of Shares Per Share Option Price Exercise Price
---------------------------------------------------------
<S> <C> <C> <C>
November 1, 1995 144,626 $ 15.81 - $ 51.25 $ 25.99
Granted 30,675 33.75 33.75
Exercised (20,130) 15.81 - 35.00 21.14
Canceled (16,951) 15.81 - 35.00 31.90
------- --------------------- -------
October 31, 1996 138,220 15.81 - 51.25 27.69
Granted 38,990 34.62 34.62
Exercised (22,396) 15.81 - 35.00 21.25
Canceled (8,533) 22.34 - 35.00 31.99
------- --------------------- -------
October 31, 1997 146,281 15.81 - 51.25 30.28
Granted 36,192 41.94 - 52.42 43.86
Exercised (25,839) 15.81 - 35.00 23.93
Canceled (530) 25.50 - 41.94 33.05
------- --------------------- -------
October 31, 1998 156,104 $ 15.81 - $ 52.42 $ 34.45
------- --------------------- -------
</TABLE>
The following summarizes information about all stock options outstanding at
October 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -------------------------------
Weighted-Average
-----------------------------
Number Remaining Number Weighted
Outstanding at Contractual Exercisable at Average
Range of Exercise Prices 10/31/98 Life (years) Exercise Price 10/31/98 Exercise Price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$15.01 - $20.00 5,131 3.1 $ 15.81 5,131 $15.81
20.01 - 30.00 35,843 3.8 25.47 29,523 25.46
30.01 - 40.00 73,138 7.1 34.47 27,489 34.63
40.01 - 50.00 33,369 8.6 42.24 4,000 44.47
50.01 - 52.42 8,623 8.1 52.15 -- --
------- ------
Total 156,104 66,143
------- ------
</TABLE>
Had compensation cost for stock option grants issued during 1998, 1997 and 1996
been determined under the provisions of SFAS No. 123, the Company's net earnings
(loss) as well as basic and diluted earnings (loss) per share would have been as
follows:
<TABLE>
<CAPTION>
Years Ended October 31,
----------------------------------------------
(In thousands except for per share amounts) 1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings (loss) $ (41,820) $ 14,571 $ 17,152
Basic earnings (loss) per share $ (5.42) $ 1.89 $ 2.19
Diluted earnings (loss) per share $ (5.42) $ 1.88 $ 2.18
</TABLE>
The pro-forma effect on net earnings (loss) as well as basic and diluted
earnings (loss) per share for 1998, 1997 and 1996 is not representative of the
pro-forma effect on net income in future years, because it does not take into
consideration pro-forma compensation expense related to grants made prior to
1996.
<PAGE> 24
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each stock option granted in 1998, 1997 and 1996 under the
Company's plans was estimated on the date of the grant using the Black-Scholes
option-pricing model. The following weighted average assumptions were used to
value grants issued under the plans in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected volatility 18.00% 18.20% 19.10%
Risk-free interest rates 5.88% 5.75% 5.75%
Expected life 7 years 7 years 7 years
Dividend payments None None None
</TABLE>
The weighted average fair values per share of stock options granted during
1998, 1997 and 1996 were $15.03, $12.98 and $12.84, respectively.
13. RETIREMENT PLANS
GCC has a non-contributory defined benefit pension plan covering substantially
all full-time employees. GCC also sponsors an unfunded supplemental executive
retirement plan, which provides certain employees additional pension benefits.
Benefits under the plans are based on years of service and compensation prior to
retirement. When funding is required for the defined benefit plans, the policy
is to contribute amounts that are deductible for federal income tax purposes.
Pension plan assets consist primarily of equity and fixed income securities.
Net pension income included the following components:
<TABLE>
<CAPTION>
Years Ended October 31,
--------------------------------------
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 431 $ 451 $ 426
Interest cost on projected benefit obligation 1,278 1,191 1,104
Actual return on plan assets (1,268) (5,179) (3,952)
Net amortization and deferral (1,508) 2,524 1,423
--------------------------------------
Net pension income $(1,067) $(1,013) $ (999)
--------------------------------------
</TABLE>
The significant actuarial assumptions as of the year-end measurement dates
were as follows:
<TABLE>
<CAPTION>
Years Ended October 31,
--------------------------------
1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.0% 7.5% 7.5%
Rate of compensation increases 5.0% 5.0% 5.0%
Rate of return on plan assets 9.0% 9.0% 9.0%
</TABLE>
The plans' funded status and amounts recognized in the consolidated balance
sheets at October 31, were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- ------------------------
Funded Unfunded Funded Unfunded
(In thousands) Plan Plan Plan Plan
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vested benefit obligation $ 13,746 $ 1,550 $ 10,614 $ 1,268
-------- -------- -------- --------
Accumulated benefit obligation 14,629 1,635 11,393 1,492
-------- -------- -------- --------
Projected benefit obligation 17,912 2,047 14,472 1,825
Pension plan assets at fair value 28,234 -- 27,639 --
-------- -------- -------- --------
Overfunded (unfunded) projected obligations 10,322 (2,047) 13,167 (1,825)
Unrecognized net asset at transition (568) -- (861) --
Unrecognized net (gain) loss (4,053) 378 (8,010) 305
-------- -------- -------- --------
Pension asset (liability) recognized in
the consolidated balance sheets $ 5,701 $ (1,669) $ 4,296 $ (1,520)
-------- -------- -------- --------
</TABLE>
<PAGE> 25
25
GC COMPANIES, INC.
In addition to the defined benefit plans, GCC has two defined contribution plans
for certain employees. The GCC Savings Plan permits employee contributions and
provides for certain matching contributions by the Company. The Company's
contributions in fiscal years 1998, 1997 and 1996 were $337,525, $431,218 and
$492,621, respectively. The GCC Employee Stock Ownership Plan (ESOP) is
non-contributory.
14. COMMITMENTS AND CONTINGENCIES
LEASES
GCC conducts a significant part of its operations in leased premises under
noncancelable leases, the majority with terms of 20 years. These leases
generally provide for the payment of fixed monthly rentals, contingent rentals
based on a percentage of revenue over a specified amount and the payment of
property taxes, common area maintenance, insurance and repairs. At its option,
GCC can renew a substantial portion of such leases for various periods up to an
additional 20 years. Certain of GCC's leases require periodic increased rentals.
The rental costs on these leases have been recognized on a straight-line basis
and are included in deferred lease obligations. On theatre locations assigned to
third parties, GCC is secondarily liable for certain lease commitments that
extend through 2017 and totaled approximately $89.9 million at October 31, 1998.
Assuming renewal options are not exercised, the future minimum payments under
noncancelable operating leases as of October 31, 1998 were as follows:
<TABLE>
<CAPTION>
(In thousands) Operating Leases
- -------------------------------------------------------------
<S> <C>
1999 $64,411
2000 65,418
2001 65,016
2002 63,745
2003 62,889
Thereafter 478,149
--------
$799,628
--------
</TABLE>
Rent expense under noncancelable leases was as follows:
<TABLE>
<CAPTION>
Years Ended October 31,
-----------------------------------
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $68,198 $62,710 $57,683
Percentage rentals based on revenues 3,049 3,750 3,913
-----------------------------------
$71,247 $66,460 $61,596
-----------------------------------
</TABLE>
The Company has an agreement with a major financial institution to provide
operating leases for up to $250 million of assets for its theatre circuit
expansion program. This agreement expires in November 2001. The Company
currently has entered into $57.0 million of operating leases with this
financial institution. Availability of this lease arrangement is in part
dependent upon the ability of the financial institution to syndicate leases
to third party financial institutions. At October 31, 1998 and 1997, current
assets included a receivable due from this institution related to advances
provided by the Company as the lessor's agent on certain projects of $21.7
million and $3.8 million, respectively.
The Company is required to maintain certain financial covenants under its
lease agreement. As a result of the charge discussed in Note 3 and recorded
in the fourth quarter of 1998, waivers of these covenants were obtained and
new covenants were established by the financial institution resulting in an
amendment to the lease agreement dated October 31, 1998.
LITIGATION
GCC is involved in various suits and claims in the ordinary course of
business. Management does not believe that the disposition of such suits and
claims will have a material adverse effect upon the consolidated financial
position or continuing operations of the Company.
<PAGE> 26
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. POST-RETIREMENT HEALTH CARE BENEFITS
The Company provides health care benefits for retired employees that are
funded as claims are incurred. Retirees and active employees hired prior to
March 1, 1989 are eligible for these benefits if they meet certain service
and minimum age requirements. The Company paid $271,000, $208,000 and
$233,000 during fiscal 1998, 1997 and 1996, respectively, for post-retirement
health care benefit claims.
The actuarial present value of accumulated post-retirement benefit
obligations and the amounts recognized in GCC's consolidated balance sheets
as of October 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Retirees $3,558 $3,063
Fully eligible active plan participants 164 468
Other active plan participants 653 638
Unrecognized net gain 1,931 2,053
-------------------
Accrued post-retirement benefit obligation $6,306 $6,222
-------------------
</TABLE>
The post-retirement benefit cost relating to GCC's employees was as follows:
<TABLE>
<CAPTION>
Years Ended October 31,
-------------------------------
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 25 $ 30 $ 34
Interest cost on accumulated post-retirement
benefit obligation 300 298 299
Net amortization (168) (168) (171)
-------------------------------
Net post-retirement benefit cost $ 157 $ 160 $ 162
-------------------------------
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit obligation was 13.0% in fiscal 1997 and 12.0% in fiscal
1998, gradually declining to 5.0% in fiscal 2005. Measurement of the accumulated
post-retirement benefit obligation was based on an assumed 7.0% discount rate
for 1998 and 7.5% for 1997 and 1996.
If the health care cost trend rate assumptions were increased by 1.0%, the
accumulated post-retirement obligation as of October 31, 1998 would be increased
by $471,000. The effect of this change on the service cost and interest cost
would be an aggregate increase of $38,000.
16. INCOME TAX BENEFIT (PROVISION)
Income tax benefit (provision) was as follows:
<TABLE>
<CAPTION>
Years Ended October 31,
-----------------------------------------
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 7,442 $(14,875) $(10,379)
State 1,042 (2,199) (2,795)
-----------------------------------------
8,484 (17,074) (13,174)
Deferred
Federal 16,754 6,933 1,017
State 2,470 (116) 175
-----------------------------------------
19,224 6,817 1,192
-----------------------------------------
$ 27,708 $(10,257) $(11,982)
-----------------------------------------
</TABLE>
GCC's effective income tax rate was 40.0% in 1998 and 41.0% in both 1997 and
1996. The differences between the statutory federal tax rate and the effective
tax rate are due primarily to state income taxes. The Company paid approximately
$8.0 million, $13.7 million and $11.3 million in income taxes during the years
ended October 31, 1998, 1997 and 1996, respectively.
<PAGE> 27
27
GC COMPANIES, INC.
Significant components of the Company's net deferred income tax liability
(asset) stated on a gross basis at October 31, were as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Gross deferred income tax assets
Financial accruals and reserves $ 18,710 $ 5,770
Post-retirement health care benefits 2,595 2,616
Self insurance accruals 1,550 1,428
------------------------
Total deferred tax assets 22,855 9,814
Gross deferred income tax liabilities
Basis difference in fixed assets 4,107 13,016
Unrealized gain on trading securities 2,726 --
Unrealized gain on available-for-sale securities 13,855 --
------------------------
Total deferred income tax liabilities 20,688 13,016
------------------------
Net deferred tax liability (asset) $ (2,167) $ 3,202
------------------------
</TABLE>
17. NET INVESTMENT INCOME (LOSS)
On February 5, 1998, GTS successfully completed an initial public offering of
its common stock. A portion of the shares have been designated as trading
securities generating a recognized gain of $6.8 million in the consolidated
statements of operations. This gain was offset by performance-based compensation
of $8.8 million earned by certain employees based on certain investment events
as defined in the GCC Investments, Inc. Incentive Pool Plan. This compensation
calculation is determined according to a plan adopted in 1996. The amounts are
paid in either cash or restricted shares, which vest over a period of time.
Compensation related to the restricted shares is recognized pro-ratably over the
vesting period.
On October 16, 1997, GCC received 193,715 shares of GPS common stock in exchange
for its shares in the optical superstore retailer. As a result of the exchange,
GCC recorded a $9.0 million pre-tax gain in its fourth quarter of fiscal 1997.
During the fourth quarter of fiscal 1997, the Company also recognized a $0.6
million pre-tax gain resulting from the release of escrow related to the sale of
its radio group investment in 1996.
In October 1996, GCC realized a $9.5 million net pre-tax gain upon the
liquidation of its investment in a radio group that operated radio stations in
the San Francisco, Las Vegas and Albuquerque markets. GCC received aggregate
proceeds of $22.8 million relating to these sales transactions.
In April 1996, the Company recorded a $2.5 million pre-tax charge to write off
its remaining investment in a children's clothing retailer as a result of that
company's continued cash flow problems and operating losses. Loss from minority
investments in 1996 also included a $0.6 million pre-tax charge recorded in the
first quarter, representing the Company's share of losses incurred by its radio
group investment, when such investment was accounted for under the equity
method.
Investment income (loss) consisted of the following:
<TABLE>
<CAPTION>
Years Ended October 31,
---------------------------------------
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 1,264 $ 3,418 $ 2,593
Dividend income 36 877 1,207
Gain on sale of portfolio investments -- 9,585 9,452
Loss from portfolio investments (2,678) -- (3,145)
Equity in losses of theatre affiliates (539) -- --
-------- -------- --------
Net investment income (loss) $ (1,917) $ 13,880 $ 10,107
-------- -------- --------
</TABLE>
<PAGE> 28
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. SEGMENTS OF ENTERPRISE AND RELATED INFORMATION
The Company has adopted SFAS No. 131 in 1998. Accordingly, it has segmented its
operations in a manner that reflects how its chief operating decision maker
reviews the results of the businesses that make up the consolidated entity. The
Company has identified six reportable segments--four segments within what the
Company considers its domestic theatre operation (which encompasses all theatres
in the continental United States); one segment which includes the Company's
joint ventures in South America and Mexico; and the final segment which
primarily includes all of the activity related to the investment portfolio
business and corporate administration. This identification of segments emanates
from management's recognition that (i) its investing activity in a variety of
non-theatre related activities is wholly separate from theatre operations; (ii)
its South American and Mexican operations are new theatre ventures in markets
that are completely dissimilar to the United States market; and (iii) its
domestic theatre locations are being operated in different manners given their
ultimate strategic importance to the Company. The four operating segments within
the domestic operations are core markets, other markets, impaired theatres and
other expenses. The core segment represents those markets management has defined
as its strategic area of operations and includes theatres operating in the
Northeast and Midwest. The other market segment includes those theatres outside
of the core markets that are not defined as impaired. The impaired theatre
segment includes all theatres that have been identified as impaired units in
accordance with the analysis discussed in Note 3. The other expenses segment
primarily includes the regional and home office administration.
The Company evaluates both domestic and international theatre performance and
allocates resources based on earnings before interest, taxes, depreciation and
amortization. Information concerning earnings (loss) before income taxes have
also been provided so as to aid in the reconciliation to the consolidated
totals. The international theatre segment has been reported in this footnote as
if it were a fully-consolidated subsidiary rather than under the equity method
as it has been reported in the consolidated financial statements because the
chief operating decision maker evaluates operations on this basis. The
adjustment column is utilized to return the international theatre segment to the
equity method and eliminate intercompany balances. Performance of the investment
portfolio business is evaluated using the same measures as are seen in the
consolidated financial statements.
<TABLE>
<CAPTION>
TOTAL COMPANY
- -----------------------------------------------------------------------------------------------------------------------
Year Ended October 31, 1998
-------------------------------------------------------------------------------
Domestic International Other Segment Consolidated
(In thousands) Theatres Theatres Operations Totals Adjustments Totals
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Admissions $ 271,999 $ 24,483 $ -- $ 296,482 $ (24,483) $ 271,999
Concessions 124,317 8,823 -- 133,140 (8,823) 124,317
Other 11,070 958 -- 12,028 (958) 11,070
------------------------------------------------------------------------------
Total revenues 407,386 34,264 -- 441,650 (34,264) 407,386
------------------------------------------------------------------------------
Earnings (loss) before
interest, taxes, depreciation
and amortization 17,234 4,435 (8,108) 13,561 (4,435) 9,126
Depreciation and amortization 18,987 3,906 193 23,086 (3,906) 19,180
Gain (loss) on impairment
or disposition of
theatre assets (56,844) -- -- (56,844) -- (56,844)
Net investment income (loss) 50 (10) (956) (916) (1,001) (1,917)
Earnings (loss)
before income taxes (58,797) 24 (9,462) (68,235) (1,035) (69,270)
Total assets 269,192 103,670 157,529 530,391 (140,430) 389,961
Total capital expenditures 17,597 28,761 2,191 48,549 (28,761) 19,788
</TABLE>
<PAGE> 29
29
GC COMPANIES, INC.
<TABLE>
<CAPTION>
DOMESTIC THEATRES
- ---------------------------------------------------------------------------------------------------------------------
Year Ended October 31, 1998
-----------------------------------------------------------------------------
Core Other Impaired Other Domestic
(In thousands) Markets Markets Theatres Expenses Theatres
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Admissions $ 143,644 $ 57,905 $ 70,450 $ -- $ 271,999
Concessions 63,527 26,803 33,987 -- 124,317
Other 4,584 3,471 3,015 -- 11,070
-----------------------------------------------------------------------------
Total revenues 211,755 88,179 107,452 -- 407,386
-----------------------------------------------------------------------------
Earnings (loss) before
interest, taxes, depreciation
and amortization 32,893 13,577 (5,527) (23,709) 17,234
Depreciation and amortization 7,440 3,960 4,145 3,442 18,987
Gain (loss) on impairment or
disposition of theatre assets (315) 12,718 (69,247) -- (56,844)
Net investment income (loss) -- -- -- 50 50
Earnings (loss)
before income taxes 25,453 9,617 (66,516) (27,351) (58,797)
Total assets 80,416 34,963 3,639 150,174 269,192
Total capital expenditures 5,826 3,354 902 7,515 17,597
</TABLE>
<TABLE>
<CAPTION>
TOTAL COMPANY
- --------------------------------------------------------------------------------------------------------------------------
Year Ended October 31, 1997
----------------------------------------------------------------------------------
Domestic International Other Segment Consolidated
(In thousands) Theatres Theatres Operations Totals Adjustments Totals
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Admissions $ 301,080 $ 269 $ -- $ 301,349 $ -- $ 301,349
Concessions 132,575 58 -- 132,633 -- 132,633
Other 11,151 -- -- 11,151 -- 11,151
----------------------------------------------------------------------------------
Total revenues 444,806 327 -- 445,133 -- 445,133
----------------------------------------------------------------------------------
Earnings (loss) before interest,
taxes, depreciation and
amortization 34,351 (33) (6,833) 27,485 -- 27,485
Depreciation and amortization 18,972 89 168 19,229 -- 19,229
Gain (loss) on impairment or
disposition of theatre assets 3,566 -- -- 3,566 -- 3,566
Net investment income (loss) -- -- 13,880 13,880 -- 13,880
Earnings (loss)
before income taxes 18,158 (122) 6,980 25,016 -- 25,016
Total assets 271,174 48,935 142,479 426,588 (122,988) 339,600
Total capital expenditures 17,725 -- 1,017 18,742 -- 18,742
</TABLE>
<PAGE> 30
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DOMESTIC THEATRES
- ---------------------------------------------------------------------------------------------------------------------
Year Ended October 31, 1997
-----------------------------------------------------------------------------
Core Other Impaired Other Domestic
(In thousands) Markets Markets Theatres Expenses Theatres
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Admissions $ 137,644 $ 55,997 $ 107,439 $ -- $ 301,080
Concessions 58,349 24,944 49,282 -- 132,575
Other 3,913 3,346 3,892 -- 11,151
----------------------------------------------------------------------------
Total revenues 199,906 84,287 160,613 -- 444,806
----------------------------------------------------------------------------
Earnings (loss) before interest,
taxes, depreciation and
amortization 35,730 14,749 8,629 (24,757) 34,351
Depreciation and amortization 6,685 3,664 6,085 2,538 18,972
Gain (loss) on impairment or
disposition of theatre assets 2 4 3,560 -- 3,566
Net investment income (loss) -- -- -- -- --
Earnings (loss)
before income taxes 29,047 11,089 6,104 (28,082) 18,158
Total assets 71,301 27,854 46,636 125,383 271,174
Total capital expenditures 6,992 1,367 1,773 7,593 17,725
</TABLE>
19. COMPARATIVE QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------------------
First Second Third Fourth Full
(In thousands except for per share amounts) Quarter Quarter(1) Quarter Quarter Year
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 121,087 $ 85,470 $ 114,633 $ 86,196 $ 407,386
Gross profit 2,508 17,897 18,764 1,570 40,739
Net earnings (loss) 3,105 (4,045) 2,019 (42,641) (41,562)
Net earnings (loss) per share
Basic $ 0.40 $ (0.52) $ 0.26 $ (5.53) $ (5.39)
-------------------------------------------------------------------------
Diluted $ 0.40 $ (0.52) $ 0.26 $ (5.53) $ (5.39)
-------------------------------------------------------------------------
</TABLE>
(1) REVENUES AND GROSS PROFIT RESULTS FOR SOUTH AMERICA FOR THE FIRST AND
SECOND QUARTER HAVE BEEN RECLASSIFIED AS A RESULT OF ENTERING INTO THE
HOYTS GENERAL CINEMA SOUTH AMERICA JOINT VENTURE.
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------------
First Second Third Fourth Full
(In thousands except for per share amounts) Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $125,706 $108,264 $122,642 $ 88,521 $445,133
Gross profit 19,997 16,262 17,678 5,226 59,163
Net earnings 5,590 1,579 3,859 3,731 14,759
Net earnings per share
Basic $ 0.72 $ 0.21 $ 0.50 $ 0.48 $ 1.91
-------------------------------------------------------------------------
Diluted $ 0.71 $ 0.20 $ 0.50 $ 0.48 $ 1.90
-------------------------------------------------------------------------
</TABLE>
<PAGE> 31
31
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS AND SHAREHOLDERS
GC COMPANIES, INC.
CHESTNUT HILL, MASSACHUSETTS
We have audited the consolidated balance sheets of GC Companies, Inc. and
subsidiaries (the Company) as of October 31, 1998 and 1997 and the related
consolidated statements of operations, shareholders' equity and cash flows
for each of the three years in the period ended October 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our 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 present fairly, in all
material respects, the financial position of GC Companies, Inc. as of October
31, 1998 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended October 31, 1998 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
BOSTON, MASSACHUSETTS
DECEMBER 9, 1998
(JANUARY 26, 1999 AS TO PORTIONS OF NOTES 10 AND 11)
<PAGE> 32
32
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
DIRECTORS CORPORATE OFFICERS
<S> <C>
Richard A. Smith Richard A. Smith
CHAIRMAN AND CHIEF EXECUTIVE OFFICER; CHAIRMAN AND CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CHIEF EXECUTIVE OFFICER OF HARCOURT GENERAL, INC. AND
THE NEIMAN MARCUS GROUP, INC. Robert A. Smith
PRESIDENT AND CHIEF OPERATING OFFICER
William L. Brown*
FORMER CHAIRMAN Paul R. Del Rossi
BANK OF BOSTON CORPORATION CHAIRMAN
GENERAL CINEMA THEATRES, INC.
Peter C. Read*
FORMER EXECUTIVE VICE PRESIDENT William B. Doeren
BANK OF BOSTON CORPORATION PRESIDENT AND CHIEF EXECUTIVE OFFICER
GENERAL CINEMA THEATRES, INC.
Francis E. Sutherby*
FORMER PARTNER John G. Berylson
DELOITTE & TOUCHE LLP SENIOR VICE PRESIDENT AND CHIEF INVESTMENT OFFICER
Dr. Leonard A. Schlesinger*
SENIOR VICE PRESIDENT, DEVELOPMENT G. Gail Edwards
BROWN UNIVERSITY VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
Philip J. Szabla
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
Louis E. Casavant
VICE PRESIDENT AND CORPORATE CONTROLLER
</TABLE>
*AUDIT COMMITTEE
COMPENSATION COMMITTEE
SPECIAL REVIEW COMMITTEE
<PAGE> 33
SHAREHOLDER INFORMATION
- -----------------------
Requests for general information or published financial information can be made
in writing to GC Companies, Inc., 27 Boylston Street, Chestnut Hill, MA 02467,
or by telephone at (617) 278-5600.
TRANSFER AGENT AND REGISTRAR
BankBoston, N.A.
c/o EquiServe
Post Office Box 8040
Boston, MA 02266-8040
(800) 736-3001
FORM 10-K
Additional copies of the company's Form 10-K as filed with the Securities and
Exchange Commission are available upon written request to the Secretary of the
Company.
ANNUAL MEETING
The Annual Meeting of the Stockholders will be held on Friday, March 5, 1999 at
10:00 a.m. at the Company's corporate headquarters at 27 Boylston Street,
Chestnut Hill, Massachusetts.
STOCK INFORMATION
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "GCX". The following table indicates the quarterly price range of GC
Companies' Common Stock for the past two fiscal years.
<TABLE>
<CAPTION>
1998 1997
-------------------- ------------------
Quarter High Low High Low
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
First $47.94 $41.06 $37.13 $33.50
Second $53.00 $45.75 $40.38 $35.50
Third $52.63 $46.00 $46.00 $39.88
Fourth $49.75 $36.00 $44.00 $39.00
</TABLE>
The Company had approximately 7,710 million shares of Common Stock outstanding
and approximately 3,077 Common shareholders of record at October 31, 1998.
<PAGE> 34
CORPORATE ADDRESS
GC Companies, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
GC Companies and General Cinema (617) 277-4320
Shareholder Information (617) 278-5600
<PAGE> 1
EXHIBIT 21.1
GC COMPANIES, INC.
SUBSIDIARIES OF THE COMPANY
GENERAL CINEMA THEATRES, INC.
G.C. Theatre Corp. of California GC Grill Holdings, Inc.
Cinema Ventures, LLC (50%)
GC Security Corp.
GCT Louisiana Beverage Services, Inc.
GCT Management, Inc.
GCT Pacific Beverage Services, Inc.
General Cinema Corp. of Georgia
General Cinema Corp. of Indiana
General Cinema Corp. of Louisiana
General Cinema Corp. of Maryland, Inc.
General Cinema Corp. of Massachusetts
General Cinema Corp. of Michigan
General Cinema Corp. of Minnesota, Inc.
General Cinema Corp. of New York, Inc.
General Cinema Corp. of North Carolina
General Cinema Corp. of Oklahoma, Inc.
General Cinema Corp. of Owings Mills
General Cinema Corp. Parkway Pointe
General Cinema Corp. of Pennsylvania
General Cinema Corp. of Rhode Island
General Cinema Corp. of South Carolina
General Cinema Corp. of Tennessee
General Cinema Corp. of Texas
General Cinema Corp. of Virginia
General Cinema Corp. of Washington
General Cinema of Arizona, Inc.
General Cinema of Framingham, Inc.
General Cinema of New Mexico, Inc.
General Cinema Theatres of Columbia, Inc.
General Cinema Theatres of Delaware, Inc.
General Cinema Theatres of Florida, Inc.
General Cinema Theatres of Illinois, Inc.
General Cinema Theatres of New Jersey, Inc.
General Cinema Theatres of Ohio, Inc.
General Cinema Tickets, Inc.
General Cinema Specialty Film, Inc. Sundance Cinema Circuit, LLC (55%)
Cinema Ad-Ventures, Inc.
Global Cinema Network, Inc.
Joliet Cinema, Inc.
Knights Holding Corp.
Knights Realty Corp.
Knights Theatre Corp.
Louis Joliet Cinema, Inc.
Premium Cinema of Yorktown, Inc.
GENERAL CINEMA INTERNATIONAL, INC.
Arrendadora Inmobiliaria Cinematografica S.A. de C.V. (50%)
Operadora de Cinemas, S.A. de C.V. (50%)
Servicios Especializados Cinematograficos, S.A. de C.V. (50%)
HOYTS GENERAL CINEMA SOUTH AMERICA, INC. (50%)
GCC/Hoyts Brazil, Inc.
General Cinema do Brasil Empreendimentos, Ltda.
Boca Holdings, Inc.
General Cinema de Argentina, S.A.
Hoyts Cinema de Argentina, S.A.
GCC/Hoyts Chile, Inc.
Hoyts Cinemas Chile S.A. (90%)
GCC Hoyts Uruguay, Inc.
Telnir, S.A. (50%)
GCC INVESTMENTS, INC.
Chestnut Hill Clothes, Inc.
Chestnut Hill Foods, Inc.
Chestnut Hill Media, Inc.
Chestnut Hill Re, Inc.
Chestnut Hill Telecom, Inc.
Chestnut Hill (GTS Trust)
Chestnut Hill Vision, Inc.
Chestnut Hill Wireless, Inc.
GCC Radio, Inc.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-76196 of GC Companies, Inc. on Form S-8 of our report dated December 9, 1998
(January 26, 1999 as to portions of Notes 10 and 11) incorporated by reference
in this Annual Report on Form 10-K of GC Companies, Inc. for the year ended
October 31, 1998.
Boston, Massachusetts
January 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS A SUMMARY OF FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF
EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 2,479
<SECURITIES> 78,162
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 135,548
<PP&E> 256,702
<DEPRECIATION> 144,103
<TOTAL-ASSETS> 389,961
<CURRENT-LIABILITIES> 171,598
<BONDS> 0
0
0
<COMMON> 77
<OTHER-SE> 166,266
<TOTAL-LIABILITY-AND-EQUITY> 389,961
<SALES> 407,386
<TOTAL-REVENUES> 407,386
<CGS> 160,540
<TOTAL-COSTS> 474,284
<OTHER-EXPENSES> 1,324
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,048
<INCOME-PRETAX> (69,270)
<INCOME-TAX> 27,708
<INCOME-CONTINUING> (41,562)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,562)
<EPS-PRIMARY> (5.39)
<EPS-DILUTED> (5.39)
</TABLE>
