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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission File Number 0-25252
CINEMASTAR LUXURY THEATERS, INC.
(Exact Name of Registrant as specified in its charter)
CALIFORNIA 33-0451054
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
12230 EL CAMINO REAL, SUITE 320, SAN DIEGO, CA 92130
(Address of principal executive offices) (Zip Code)
(619) 509-2777
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act during the past 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 [ ]
Common stock, no par value: 27,054,902 shares outstanding as of
October 14, 1998.
Transitional Small Business Disclosure Format. (check one):
YES [ ] NO [X]
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CINEMASTAR LUXURY THEATERS, INC.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 1998 (Unaudited) 3
Condensed Consolidated Statements of Operations for the three
and six months ended September 30, 1998 and 1997 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
six months ended September 30, 1998 and 1997 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 12
Item 3. Defaults in Senior Securities 12
Item 4. Submission of Matters to a Vote of Securities Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CINEMASTAR LUXURY THEATERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
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SEPTEMBER 30,
1998
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,975,441
Prepaid expenses 288,921
Other current assets 220,539
------------
TOTAL CURRENT ASSETS 4,484,901
Property and equipment, net 12,032,882
Deposits and other assets 293,964
------------
TOTAL ASSETS $ 16,811,747
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease
obligations $ 305,416
Accounts payable 1,279,989
Accrued expenses 1,060,073
Deferred revenue 466,700
------------
TOTAL CURRENT LIABILITIES 3,112,178
Long-term debt and capital lease obligations,
net of current portion 1,786,794
Deferred rent liability 3,561,880
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TOTAL LIABILITIES 8,460,852
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STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized shares -
60,000,000; issued and outstanding shares - 27,054,902 22,628,670
Additional paid-in capital 3,626,152
Accumulated deficit (17,903,927)
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TOTAL STOCKHOLDERS' EQUITY 8,350,895
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,811,747
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CINEMASTAR LUXURY THEATERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1998 1997 1998 1997
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REVENUES:
Admissions $ 5,723,946 $ 4,676,618 $ 10,589,340 $ 8,591,676
Concessions 2,388,073 2,069,989 4,453,255 3,788,995
Other operating revenues 175,781 139,347 335,182 258,016
------------ ------------ ------------ ------------
TOTAL REVENUES 8,287,800 6,885,954 15,377,777 12,638,687
COSTS AND EXPENSES:
Film rental and booking costs 3,033,112 2,688,093 5,678,404 4,936,617
Cost of concession supplies 420,622 742,578 1,053,216 1,335,772
Theater operating expenses 3,166,897 2,682,543 6,209,281 4,963,109
Selling, general and administrative expenses 828,230 911,680 1,485,452 1,786,112
Depreciation and amortization 581,548 531,757 1,113,755 986,355
------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 8,030,409 7,556,651 15,540,108 14,007,965
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 257,391 (670,697) (162,331) (1,369,278)
OTHER INCOME (EXPENSE):
Interest expense (78,299) (181,779) (155,132) (368,648)
Non-cash interest expense -- (107,000) -- (107,000)
Interest income 39,000 2,929 78,420 9,482
------------ ------------ ------------ ------------
TOTAL OTHER EXPENSE (39,299) (285,850) (76,712) (466,166)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 218,092 (956,547) (239,043) (1,835,444)
PROVISION FOR INCOME TAXES -- (1,600) (1,600) (1,600)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 218,092 $ (958,147) $ (240,643) $ (1,837,044)
============ ============ ============ ============
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ 0.01 $ (0.12) $ (0.01) $ (0.23)
WEIGHTED AVERAGE SHARES 25,733,674 7,993,633 25,718,660 7,891,902
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CINEMASTAR LUXURY THEATERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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SIX MONTHS
ENDED SEPTEMBER 30,
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1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (240,643) $(1,837,044)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,113,755 986,355
Deferred rent expense 384,122 445,229
Non-cash interest expense -- 107,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (31,059) (20,777)
Deposits and other assets (5,937) 105,852
Accounts payable (392,693) (97,250)
Accrued expenses and other liabilities 175,155 (28,796)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,002,700 (339,431)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (248,747) (3,629,422)
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NET CASH USED IN INVESTING ACTIVITIES (248,747) (3,629,422)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- 5,500,000
Principal payments on long-term debt and capital
lease obligations (260,490) (898,394)
Payment of debt issuance costs -- (234,440)
Advances from stockholder, net -- 67,863
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (260,490) 4,443,029
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 493,463 466,176
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,481,978 601,646
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,975,441 $ 1,067,822
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SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 155,132 $ 368,648
=========== ===========
Income taxes $ 1,600 $ 1,600
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SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Common stock issued upon conversion of debentures $ -- $ 339,300
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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CINEMASTAR LUXURY THEATERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. For further
information, refer to the audited consolidated financial statements for the year
ended March 31, 1998 and footnotes thereto, included in the Company's Annual
Report on Form 10-KSB/A which was filed with the Securities and Exchange
Commission. Operating results for the three and six month periods ended
September 30, 1998 are not necessarily indicative of the results of operations
that may be expected for the year ending March 31, 1999.
NOTE 2
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130") issued by the Financial Accounting Standards Board
("FASB") is effective for financial statements with fiscal years beginning after
December 15, 1997. SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. The Company adopted SFAS No. 130 effective April 1, 1998
and the adoption had no effect on the Company's financial statements.
Statement of Financial Accounting Standards No. 131 "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131") issued by the FASB is
effective for financial statements with fiscal years beginning after December
15, 1997. The new standard requires that public business enterprises report
certain information about operating segments in complete sets of financial
statements of the enterprise and in condensed financial statements of interim
periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate and their major customers. The Company
will adopt SFAS No. 131 during its fiscal year ended March 31, 1999.
In April of 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs of Start-up
Activities. SOP 98-5 requires costs of start-up activities to be expensed when
incurred. The Company has adopted this practice, which has not had a material
impact on its results of operations.
NOTE 3
Certain reclassifications have been made to the September, 1997 financial
statements to conform to the September, 1998 presentation.
NOTE 4
On September 23, 1997, the Company entered into a definitive agreement (the "CAP
Agreement") with CinemaStar Acquisition Partners, L.L.C. ("CAP") and Reel
Partners L.L.P. ("Reel") whereby Reel provided $3,000,000 of interim debt
financing (the "Bridge Loan") and CAP provided $15,000,000 of equity financing
(the "Equity Financing").
Pursuant to the terms of the CAP Agreement, the Company was and continues to be
obligated to issue additional shares of common stock (the "Adjustment Shares")
to CAP. The number of Adjustment Shares to be issued is based upon (i) the
recognition of any liabilities not disclosed as of August 31, 1997, (ii) certain
expenses incurred and paid by the Company in connection with the contemplated
transactions, (iii) any negative cash flow incurred by the Company during the
period commencing August 31, 1997 and ending December 15, 1997, and (iv)
operating losses experienced by, or costs of closing, the Company's Plaza
Americana 10 facility in Tijuana (now in full operation and achieving operating
profits) and San Bernardino Facility (still in development). The measurement of
the operating losses and/or closing costs for the two facilities is cumulative,
calculated in the aggregate and will take place on the earlier to occur of the
closing of each such facility or December 15, 2000. The Company and CAP have
agreed that 1,351,256 Adjustment Shares be issued by the Company to CAP pursuant
to the terms of the CAP Agreement and such Adjustment Shares were issued in
September, 1998. To the extent there are (a) operating losses at the Company's
Tijuana and San Bernardino facilities, calculated in the aggregate, for the
three-year period ended December 15, 2000, and (b) expenditures in connection
with the
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discovery of liabilities, or defense and/or settlement of claims, in either case
relating to periods prior to August 31, 1997, the Company will be obligated to
issue additional Adjustment Shares.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Condensed Consolidated Financial Statements and notes thereto included
elsewhere in this Form 10-QSB. Except for the historical information contained
herein, the discussion in this Form 10-QSB contains certain forward looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The cautionary
statements made in this Form 10-QSB should be read as being applicable to all
related forward-looking statements wherever they appear in this Form 10-QSB.
Where possible, the Company uses words like "believes", "anticipates",
"expects", "plans" and similar expressions to identify such forward looking
statements. The Company's actual results could differ materially from those
discussed here. Factors, risks and uncertainties that could cause or contribute
to such differences include the availability of marketable motion pictures, the
increase of revenues to meet long-term lease obligations and rent increases,
risks inherent in the construction of new theaters, the ability to secure new
locations on favorable terms, intense competition in the industry, dependence on
concession sales and suppliers, earthquakes and other natural disasters and
costs associated with potential changes in management and disputes related
thereto.
At September 30, 1997 the Company had seven theater locations with a total of 69
screens. In November 1997, the Company added a new ten screen theater complex.
Thus at September 30, 1998 the Company had 8 locations and 79 screens. These
additions resulted in an increase in revenues and expenses for the three and six
months ended September 30, 1998 compared to September 30, 1997.
The Company has entered into agreements, negotiations and/or discussions
pertaining to the development of a 20 screen Ultraplex theater in San
Bernardino, California, the development of a 16 screen Ultraplex theater in
Oceanside, California and an 8 screen expansion of an existing theater in Chula
Vista, California. Additionally, the Company has entered into negotiations
regarding the development of other theater complexes in the United States and
the Republic of Mexico. The building of these and other new theater complexes is
subject to many contingencies, many of which are beyond the Company's control,
including consummation of site purchases or leases, receipt of necessary
government approvals, negotiation of acceptable construction agreements, the
availability of financing to the developer and/or the Company and timely
completion of construction. No assurances can be given either that the developer
will perform or that the Company will be able to successfully build, finance or
operate any of the new theaters presently contemplated or otherwise.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997.
Total revenues for the three months ended September 30, 1998 increased 20.4% to
$8,287,800 from $6,885,954 for the three months ended September 30, 1997. The
increase resulted from a 22.4% increase in admissions revenues to $5,723,946 and
a 16.0% increase in concession and other operating revenues to $2,563,854. The
increases in admission revenue and concession and other operating revenue were
due primarily to the increase in the number of theaters, screens and average
ticket prices. Average revenues per screen for theaters in operation during both
periods increased slightly. The increase in concessions revenues lagged the
increase in admissions revenues because average ticket prices were increased
without a corresponding increase in concessions prices.
Film rental and booking costs for the three months ended September 30, 1998
increased 12.8% to $3,033,112 from $2,688,093 for the three months ended
September 30, 1997. The increase was due to the greater revenue generated from
more screens. As a percentage of admissions revenues, film rental and booking
costs decreased to 53.0% from 57.5% in the three months ended September 30, 1998
compared to the same period of the prior year, in part due to lower film rental
cost in the Company's new location in Tijuana, Mexico.
Cost of concession supplies for the three months ended September 30, 1998
decreased 43.4% to $420,622 from $742,578 for the three months ended September
30, 1997. As a percentage of concession revenues, cost of concession supplies
decreased to 17.6% from 35.9% in the three months ended September 30, 1998
compared to the comparable prior year period, due to the termination, during the
first quarter of fiscal 1999, of concession lease agreements with its former
primary concession vendor, Pacific Concessions, Inc.
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("PCI"). As of June 15, 1998, the Company ceased the purchase of concessions
supplies and services from PCI and began purchasing concessions supplies on a
competitive basis.
Theater operating expenses for the three months ended September 30, 1998
increased 18.1% to $3,166,897 from $2,682,543 for the three months ended
September 30, 1997. The increase in theater operating costs was primarily due to
the increased costs attributable to the addition of a new theater, increases due
to federally mandated increases in minimum wages and increased maintenance and
repair expenses associated with certain upgrades and remodels. As a percentage
of total revenues, theater operating expenses decreased to 38.2% from 39.0%
during the applicable periods.
Selling, general and administrative expenses for the three months ended
September 30, 1998 decreased 9.2% to $828,230 from $911,680 for the three months
ended September 30, 1997. As a percentage of total revenues, selling, general
and administrative expenses decreased to 10.0% from 13.2% for the three months
ended September 30, 1998 compared with the prior comparable period. The decrease
is the result of cost reduction initiatives and of lower international expenses.
Depreciation and amortization for the three months ended September 30, 1998
increased 9.4% to $581,548 from $531,757 for the three months ended September
30, 1997. The increase was primarily the result of increased depreciation on
additional equipment associated with the opening of a new theater.
Interest expense for the three months ended September 30, 1998 decreased to
$78,299 from $181,779 for the three months ended September 30, 1997. This
decrease was primarily a result of the majority of the Company's debt having
been repaid from the proceeds of the Equity Financing transaction consummated in
December 1997.
Non-cash interest expense for three months ended September 30, 1997, totaling
$107,000, resulted from the issuance of debt with detachable warrants and
represents the value of the detachable warrants. This debt was repaid in full in
December, 1997.
Interest income for the three months ended September 30, 1998 increased to
$39,000 from $2,929 for the three months ended September 30, 1997. This increase
is attributable to the increase in cash balances, due to the completion of the
Equity Financing transaction in December 1997.
As a result of the factors discussed above, the net income for the three months
ended September 30, 1998 was $218,092 or $ .01 per common share, compared to a
net loss of $958,147, or $.12 per common share, for the three months ended
September 30, 1997.
SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1997.
Total revenues for the six months ended September 30, 1998 increased 21.7% to
$15,377,777 from $12,638,687 for the six months ended September 30, 1997. The
increase resulted from a 23.3% increase in admissions revenues to $10,589,340
and an 18.3% increase in concession and other operating revenues to $4,788,437.
The increases in admission revenue and concession and other operating revenue
were due primarily to the increase in the number of theaters and screens.
Average revenues per screen for theaters in operation during both periods
declined slightly, primarily due to the closure, for remodeling, of a six screen
facility for part of fiscal 1999's first quarter.
Film rental and booking costs for the six months ended September 30, 1998
increased 15.0% to $5,678,404 from $4,936,617 for the six months ended September
30, 1997. The increase was due to the greater revenue generated from more
screens. As a percentage of admissions revenues, film rental and booking costs
decreased to 53.6% from 57.5% in the six months ended September 30, 1998
compared to the comparable prior year period, in part due to lower film rental
cost in the Company's new location in Tijuana, Mexico.
Cost of concession supplies for the six months ended September 30, 1998
decreased 21.2% to $1,053,216 from $1,335,772 for the six months ended September
30, 1997. As a percentage of concession revenues, cost of concession supplies
decreased to 23.7% from 35.3% in the six months ended September 30, 1998
compared to the comparable prior year period, due to the termination during the
quarter of concession lease agreements with its former primary concession
vendor, Pacific Concessions, Inc. ("PCI"). As of June 15, 1998, the Company
ceased the purchase of concessions supplies and services from PCI and began
purchasing concessions supplies on a competitive basis.
Theater operating expenses for the six months ended September 30, 1998 increased
25.1% to $6,209,281 from $4,963,109 for the six months ended September 30, 1997.
As a percentage of total revenues, theater operating expenses increased to 40.4%
from 39.3% during the applicable periods. The increase in theater operating
costs was primarily due to the increased costs attributable to the
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addition of new theaters, increases due to federally mandated increases in
minimum wages and increased maintenance and repair expenses associated with
certain upgrades and remodels.
Selling, general and administrative expenses for the six months ended September
30, 1998 decreased 16.8% to $1,485,452 from $1,786,112 for the six months ended
September 30, 1997. As a percentage of total revenues, selling, general and
administrative expenses decreased to 9.7% from 14.1% for the six months ended
September 30, 1998 compared with the prior comparable period. The decrease is
the result of cost reduction initiatives and of lower international expenses.
Depreciation and amortization for the six months ended September 30, 1998
increased 12.9% to $1,113,755 from $986,355 for the six months ended September
30, 1997. The increase was primarily the result of increased depreciation on
additional equipment associated with the addition of screens at an existing
theater and the opening of a new theater.
Interest expense for the six months ended September 30, 1998 decreased to
$155,132 from $368,648 for the six months ended September 30, 1997. This
decrease was primarily a result of the majority of the Company's debt having
been repaid from the proceeds of the Equity Financing transaction consummated in
December 1997.
Non-cash interest expense for six months ended September 30, 1997, totaling
$107,000, resulted from the issuance of debt with detachable warrants and
represents the value of the detachable warrants. This debt was repaid in full in
December, 1997.
Interest income for the six months ended September 30, 1998 increased to $78,420
from $9,482 for the six months ended September 30, 1997. This increase is
attributable to the increase in cash balances, due to the completion of the
Equity Financing transaction in December 1997.
As a result of the factors discussed above, the net loss for the six months
ended September 30, 1998 was $240,643 or $ .01 per common share, compared to a
net loss of $1,837,044, or $.23 per common share, for the six months ended
September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues are collected in cash, principally through box office
admissions and concession sales. Because its 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's capital requirements arise principally in connection with new
theater openings and acquisitions of existing theaters. In the past, new theater
openings have typically been financed with internally generated cash flow and
long-term debt financing arrangements for facilities and equipment. During
fiscal 1998, the Company discovered that it lacked the ability to finance its
current capital obligations through internally generated funds and sought
additional capital. On September 23, 1997, the Company signed a definitive
agreement (the "CAP Agreement") for CinemaStar Acquisition Partners, L.L.C.
("CAP") to acquire a majority equity interest in the Company through a $15
million purchase of newly issued shares of the Company's common stock. Following
stockholder approval, the equity financing transaction was completed on December
15, 1997.
Pursuant to the CAP Agreement, CAP purchased 17,684,464 shares of common stock
for a purchase price of $0.848202 per share. CAP also received, at closing,
warrants to purchase 1,630,624 shares of common stock at an exercise price equal
to $0.848202 per share. Pursuant to the terms of the CAP Agreement, the Company
has and continues to be obligated to issue additional shares of common stock
(the "Adjustment Shares") to CAP. The number of Adjustment Shares to be issued
is based upon (i) the recognition of any liabilities not disclosed as of August
31, 1997, (ii) certain expenses incurred and paid by the Company in connection
with the contemplated transactions, (iii) any negative cash flow incurred by the
Company during the period commencing August 31, 1997 and ending December 15,
1997, and (iv) operating losses experienced by, or costs of closing, the
Company's Plaza Americana 10 facility in Tijuana (now in full operation and
achieving operating profits) and San Bernardino Facility (still in development).
The measurement of the operating losses and/or closing costs for the two
facilities is cumulative, calculated in the aggregate and will take place on the
earlier to occur of the closing of each such facility or December 15, 2000. The
Company and CAP have agreed that 1,351,256 Adjustment Shares be issued by the
Company to CAP pursuant to the terms of the CAP Agreement and such Adjustment
Shares were issued in September, 1998. To the extent there are (a) operating
losses at the Company's Tijuana and San Bernardino facilities, calculated in the
aggregate, for the three-year period ended December 15, 2000, and (b)
expenditures in connection with the discovery of liabilities, or defense and/or
settlement of claims, in either case relating to periods prior to August 31,
1997, the Company will be obligated to issue additional Adjustment Shares.
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The Company leases seven theater properties and various equipment under
non-cancelable operating lease agreements which expire through 2021 and require
various minimum annual rentals. At September 30, 1998, the aggregate future
minimum lease payments due under non-cancelable operating leases was
approximately $90,000,000. In addition, the Company has signed a lease agreement
for a 20 screen Ultraplex theater in San Bernardino, California and a 16 screen
Ultraplex theater in Oceanside, California. The lease for the San Bernardino
Ultraplex will require expected minimum rental payments aggregating
approximately $40,700,000 over the 25-year life of the lease and the lease for
the Oceanside Ultraplex will require expected minimum rental payments
aggregating approximately $30,425,000 over the 25-year life of the lease.
Accordingly, existing minimum lease commitments as of September 30, 1998 plus
those expected minimum commitments for the proposed theater locations would
aggregate minimum lease commitments of approximately $161,100,000. Costs to the
Company to complete and equip the San Bernardino Facility and the Oceanside
Facility are estimated at approximately $3,500,000 and $3,600,000, respectively.
The Company's ability to develop these projects is dependent upon several
factors, including the landlord/developer's ability to finance and construct the
theaters as well as the Company's ability to obtain satisfactory financing for
its portion of the projects. In addition, the status of the lease for the San
Bernardino Facility is in dispute. Therefore, there can be no assurance that the
Company will be able to complete these projects. In addition, the Company's
lease obligations are contingent upon the completion and acceptance of a
theater.
The Company experienced significant net losses in each fiscal year of its
operations, including net losses of $4,304,370 and $7,932,011 in the fiscal
years ended March 31, 1997 and 1998, respectively and also experienced a net
loss of $458,736 in its first quarter ended June 30, 1998. While the Company
earned net income of $218,092 in its second quarter ended September 30, 1998,
there can be no assurance as to whether or when the Company will achieve
consistent profitability. While the Company believes it could attain
profitability with its current operations, any substantial profitability will
depend upon numerous factors including the Company's ability to continue
reducing costs and expand through the addition of new screens and theaters.
The ability of the Company to expand through the development of new theaters,
the expansion of existing theaters or the acquisition of existing theaters is
contingent upon numerous factors including the Company's ability to secure new,
third party financing. In this regard, the Company has signed on October 19,
1998, a $15 million Revolving Credit Agreement (the "Revolving Credit Facility")
with a senior, secured lender. This facility will be used primarily to finance
the Company's future developments in accordance with the terms and conditions of
the Revolving Credit Facility. The Company has not to date borrowed against this
facility.
During the six months ended September 30, 1998, the Company generated $1,002,700
from operating activities, as compared to using $339,431 cash in operating
activities for the six months ended September 30, 1997. The increase is
primarily due to lower costs of concession supplies as a percentage of
concession revenues and lower selling, general and administrative expenses in
the six months ended September 30, 1998 compared with the six months ended
September 30, 1997, partially offset by higher theater operating expenses.
During the six months ended September 30, 1998, the Company used cash in
investing activities of $248,747, as compared to $3,629,422 for the six months
ended September 30, 1997. The decrease is due to lower purchases of fixed assets
during the six months ended September 30, 1998 compared with the prior
comparable period.
During the six months ended September 30, 1998, the Company used net cash of
$260,490 in financing activities, as compared to providing $4,443,029 for the
six months ended September 30, 1997. The cash used in the six months ended
September 30, 1998 related to principal repayment of debt and capital lease
obligations. The cash provided in the six months ended September 30, 1997
related to the proceeds of the issuance of long term debt, partially offset by
principal repayment of debt and capital lease obligations.
At September 30, 1998, the Company held cash and cash equivalents and working
capital in the amounts of $3,975,441 and $1,372,723, respectively. Management
believes that cash and cash equivalents, working capital and the $15 million
Revolving Credit Facility are adequate to fund the existing operations of the
Company during fiscal 1999.
As of September 30, 1998, the Company had net operating loss carryforwards
("NOLs") of approximately $11,000,000 and $5,500,000 for Federal and California
income tax purposes, respectively. The Federal NOLs are available to offset
future years taxable income, and they expire in 2006 through 2013 if not
utilized prior to that time. The California NOLs are available to offset future
years taxable income, and they expire in 1999 through 2003 if not utilized prior
to that time. The annual utilization of NOLs will be limited in accordance with
restrictions imposed under the Federal and state laws as a result of changes in
ownership. The Company's initial public offering and certain other equity
transactions resulted in an "ownership change" as defined in Section 382 of the
Internal Revenue Code of 1986, as amended (the "Code"). As a result, the
Company's use of its net operating loss carryforwards to offset taxable income
in any post-change period will be subject to certain specified annual
limitations.
10
<PAGE> 11
At September 30, 1998, the Company has total net deferred income tax assets in
excess of $4,900,000. Such potential income tax benefits, a significant portion
of which relates to the NOLs discussed above, have been subjected to a 100%
valuation allowance since realization of such assets is not "more likely than
not" in light of the Company's recurring losses from operations.
Due to the absence of two market makers for its Class B Redeemable Warrants, the
Company has been notified by NASDAQ that, unless another market maker is
located, these warrants are to be delisted effective November 9, 1998. There can
be no assurance that a second market maker will be found for these securities.
The Company has also been notified by NASDAQ that because it has recently failed
to maintain a minimum bid price of $1.00 for ten consecutive days, its Common
Stock may be delisted on December 30, 1998, unless the Company is able to
demonstrate compliance by that time. The Company may appeal this decision prior
to December 30, 1998. Management believes that a one for seven reverse split
approved by the Company's Board of Directors and proposed to shareholders at the
Company's annual meeting scheduled for November 17, 1998, will cause the Common
Stock to be in compliance with respect to minimum bid price, although no
assurance can be given.
SEASONALITY
The Company's revenues have been seasonal, coinciding with the timing of major
releases of motion pictures by the major distributors. Generally, the most
marketable motion pictures are released during the summer and the Thanksgiving
through year-end holiday season. The unexpected emergence of a hit film during
other periods can alter this trend. The timing of such releases can have a
significant effect on the Company's results of operations, and the results of
one quarter are not necessarily indicative of results for subsequent quarters.
YEAR 2000
The Company has performed a review of its computer applications related to their
continuing functionality for the year 2000 and beyond. The Company does not
believe that it has material exposure with respect to the year 2000 issue in
regards to its computer applications. The Company is in the process of
implementing new ticketing systems and concessions systems at each of its
locations (an initiative unrelated to year 2000). Such implementation will be
completed by March 31, 1999. These systems are certified as fully year 2000
compliant. The Company is communicating with third parties with whom it has a
material relationship to assess its risk with respect to year 2000 issues. This
assessment is not complete, in particular because the Company has not completed
its inquiries of its primary film distributors. However, the Company is not
aware at this time of any material year 2000 issues with respect to its dealings
with such third parties. The Company anticipates that its assessment will be
complete by March 31, 1999. In the event that year 2000 issues were to disrupt
the distribution of film to the Company, such disruption could have a material
impact on the Company and its results of operations. Since no significant issues
have arisen, the Company does not have a contingency plan to address any
material year 2000 issues. Such contingency plan, if required, will be developed
immediately upon completion of the Company's assessment.
CURRENCY FLUCTUATIONS
The Company is subject to the risks of fluctuations in the Mexican Peso with
respect to the U.S. dollar. These risks are heightened because revenues in
Mexico are generally collected in Mexican Pesos, but the theater lease payments
are denominated in U.S. dollars. While the Company does not believe it has been
materially adversely effected by currency fluctuations to date, there can be no
assurance it will not be so affected in the future and it has taken no steps to
guard against these risks.
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
On June 17, 1998, The Clark Real Estate Group, Inc. sued the Company in San
Diego Superior Court, Case No. N07870, alleging that the Company breached a
50-year lease relating to commercial real property located in the Rancho Del Rey
Business Center consisting of approximately 35,000 square feet. The complaint
alleges that the lease was terminated as a result of the Company's failure to
perform. The complaint also alleges first year minimum rent of $174,240.
Management believes the complaint is without merit and the Company will
vigorously defend against this action. Management believes the termination of
the lease in question was in accordance with its terms, but there is no
assurance that the Company ultimately will prevail in this action. The Company
believes that the landlord has already leased the property to another tenant,
which would significantly mitigate the damages that could be claimed by the
landlord.
11
<PAGE> 12
On November 7, 1997, MDA-San Bernardino Associates, LLC ("MDA"), the landlord of
the San Bernardino Facility, filed an action for Unlawful Detainer in the
Municipal Court of the State of California for the County of San Bernardino,
Case No. 184164. The action sought to terminate the Company as tenant. The
action was filed because MDA believed the Company had not satisfied certain
financial conditions under the lease. The Company filed a response to this
action and subsequently entered into a Stipulation for Entry of Judgment with
MDA. The Company believes it is in a position to comply with all requirements of
such Stipulation for Entry of Judgment. As a result of MDA's delay in
development of the project, the Company has not yet fully complied with all of
the conditions of the Stipulation for Entry of Judgment. Additionally,
management believes that as a result of MDA's failure of certain conditions
precedent in the lease, the lease terminated on its own terms as early as
January 9, 1998. MDA disputes the Company's position. The Company has informed
MDA that if MDA does not fulfill such conditions precedent immediately, the
Company will abandon the project.
In addition, from time to time the Company is involved in routine litigation and
proceedings in the ordinary course of its business. The Company is not currently
involved in any other pending litigation matters which the Company believes
would have a material adverse effect on the Company.
ITEM 2 -- CHANGES IN SECURITIES
ANTI-DILUTION ADJUSTMENTS TO PUBLIC WARRANTS
The terms of the Company's publicly traded Redeemable Warrants and Class B
Redeemable Warrants contain anti-dilution provisions that provide for
adjustments in the exercise price and number of shares issuable upon exercise of
such warrants in the event of issuance of Common Stock (or securities
convertible into Common Stock) at a price per share below the exercise price of
such warrants As of September 30, 1998, the Company had reserved for issuance
upon exercise of outstanding or issuable warrants an aggregate of 19,856,849
shares of common stock. Issuance of equity securities for consideration below
the applicable exercise price triggers certain anti-dilution provisions in the
Company's Redeemable Warrants and its Class B Redeemable Warrants.
In fiscal year 1998, the following events triggered the anti-dilution provisions
of the Redeemable Warrants and the Class B Redeemable Warrants (1) the issuance
of 1,100,000 stock options each having an exercise price of $.875, (2) the
issuance of 17,684,464 shares of common stock in the Equity Financing for a
price per share equal to $.848202, (3) the issuance of the 500,000 PCI Warrants
having an exercise price of $.9344, (4) the issuance of the 75,000 Reel Shares
at a price per share of $.666, and (5) the issuance of the Watley Warrants, the
CAP Warrants and the Reel Warrants, totaling 7,399,070 and each having an
exercise price of $.848202 per share. After giving effect to these events, other
events occurring prior to the 1998 fiscal year, the issuance of an additional
330,000 stock options at an exercise price of $.875 per share in April, 1998 and
the issuance of 1,351,256 Adjustment Shares for no additional consideration on
September 29, 1998, the shares of common stock issuable upon exercise of each
Redeemable Warrant as of September 30, 1998 was 2.3622 and the shares of common
stock issuable upon the exercise of each Class B Redeemable Warrant as of
September 30, 1998 was 2.3551. Consequently, as of September 30, 1998, an
aggregate of 10,980,833 shares of common stock are issuable upon exercise of the
outstanding Redeemable Warrants at an exercise price of $2.54 per share and an
aggregate of 533,278 shares of common stock are issuable upon exercise of the
outstanding Class B Redeemable Warrants at an exercise price of $2.76 per share.
ITEM 3 -- DEFAULTS IN SENIOR SECURITIES
None
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matter was submitted to a vote of security holders during the second
quarter of fiscal 1999.
ITEM 5 -- OTHER INFORMATION
None
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Item 10. $15,000,000 Revolving Credit Agreement among CinemaStar
Luxury Theaters, Inc. as Borrower and Union Bank of
California, N.A. as Administrative Agent for
Participating Lenders.
Item 27. Financial Data Schedule
(B) REPORTS ON FORM 8-K
None
12
<PAGE> 13
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: October 19, 1998
CinemaStar Luxury Theaters, Inc.
by: /s/ Jack R. Crosby*
------------------------------------
Jack R. Crosby
Chairman and Chief Executive Officer
(principal executive officer)
by: /s/ Norman Dowling
------------------------------------
Norman Dowling
Vice President and Chief Financial
Officer (principal financial officer
and principal accounting officer)
*by: /s/ Jack S. Gray, Jr.
------------------------------
as Attorney-in-Fact for
Jack R. Crosby
13
<PAGE> 1
================================================================================
$15,000,000
REVOLVING CREDIT AGREEMENT
among
CINEMASTAR LUXURY THEATERS, INC.
as Borrower,
The Several Lenders
from Time to Time Parties Hereto,
and
UNION BANK OF CALIFORNIA, N.A.,
as Administrative Agent
Dated as of October 19, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 1. DEFINITIONS .......................................... 1
1.1 Defined Terms ......................................... 1
1.2 Other Definitional Provisions ......................... 18
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS ...................... 18
2.1 Revolving Commitments ................................. 18
2.2 Procedure for Borrowing ............................... 19
2.3 Commitment Fees, etc .................................. 20
2.4 Termination or Reduction of Revolving Commitments ..... 20
2.5 Optional Prepayments .................................. 20
2.6 Mandatory Prepayments and Commitment Reductions ....... 21
2.7 Conversion and Continuation Options ................... 22
2.8 Limitations on Eurodollar Tranches .................... 22
2.9 Interest Rates and Payment Dates ...................... 23
2.10 Computation of Interest and Fees ...................... 23
2.11 Inability to Determine Interest Rate .................. 23
2.12 Pro Rata Treatment and Payments ....................... 24
2.13 Requirements of Law ................................... 25
2.14 Taxes ................................................. 26
2.15 Indemnity ............................................. 28
2.16 Change of Lending Office .............................. 28
SECTION 3. LETTERS OF CREDIT .................................... 29
3.1 L/C Commitment ........................................ 29
3.2 Procedure for Issuance of Letter of Credit ............ 29
3.3 Fees and Other Charges ................................ 30
3.4 L/C Participations .................................... 30
3.5 Reimbursement Obligation of the Borrower .............. 31
3.6 Obligations Absolute .................................. 31
3.7 Letter of Credit Payments ............................. 32
3.8 Applications .......................................... 32
SECTION 4. REPRESENTATIONS AND WARRANTIES ....................... 32
4.1 Financial Condition ................................... 32
4.2 No Change ............................................. 32
4.3 Corporate Existence; Compliance with Law .............. 32
4.4 Corporate Power; Authorization; Enforceable Obligations 33
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
4.5 No Legal Bar .......................................... 33
4.6 Litigation ............................................ 33
4.7 No Default ............................................ 33
4.8 Ownership of Property; Liens .......................... 34
4.9 Intellectual Property ................................. 34
4.10 Taxes ................................................. 34
4.11 Federal Regulations ................................... 34
4.12 Labor Matters ......................................... 34
4.13 ERISA ................................................. 34
4.14 Investment Company Act; Other Regulations ............. 35
4.15 Subsidiaries .......................................... 35
4.16 Use of Proceeds ....................................... 35
4.17 Environmental Matters ................................. 35
4.18 Accuracy of Information, etc .......................... 36
4.19 Security Documents .................................... 37
4.20 Solvency .............................................. 37
4.21 Year 2000 Matters ..................................... 37
SECTION 5. CONDITIONS PRECEDENT ................................. 38
5.1 Conditions to Effectiveness ........................... 38
5.2 Conditions to Each Extension of Credit ................ 40
SECTION 6. AFFIRMATIVE COVENANTS ...................... 40
6.1 Financial Statements .................................. 40
6.2 Certificates; Other Information ....................... 41
6.3 Payment of Obligations ................................ 42
6.4 Maintenance of Existence; Compliance .................. 42
6.5 Maintenance of Property; Insurance .................... 43
6.6 Inspection of Property; Books and Records;
Discussions .......................................... 43
6.7 Notices ............................................... 43
6.8 Environmental Laws .................................... 44
6.9 Interest Rate Protection .............................. 44
6.10 Additional Collateral, etc ............................ 44
SECTION 7. NEGATIVE COVENANTS ......................... 46
7.1 Financial Condition Covenants ......................... 46
7.2 Indebtedness .......................................... 47
7.3 Liens ................................................. 48
7.4 Fundamental Changes ................................... 49
7.5 Disposition of Property ............................... 50
7.6 Restricted Payments ................................... 50
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C> <C>
7.7 Capital Expenditures ................................. 50
7.8 Investments .......................................... 51
7.9 Transactions with Affiliates ......................... 52
7.10 Sales and Leasebacks ................................. 52
7.11 Changes in Fiscal Periods ............................ 52
7.12 Negative Pledge Clauses .............................. 52
7.13 Clauses Restricting Subsidiary Distributions ......... 52
7.14 Lines of Business .................................... 53
SECTION 8. EVENTS OF DEFAULT .................................... 53
SECTION 9. THE ADMINISTRATIVE AGENT ............................. 56
9.1 Appointment .......................................... 56
9.2 Delegation of Duties ................................. 56
9.3 Exculpatory Provisions ............................... 57
9.4 Reliance by Administrative Agent ..................... 57
9.5 Notice of Default .................................... 57
9.6 Non-Reliance on Administrative Agent and Other Lenders 58
9.7 Indemnification ...................................... 58
9.8 Administrative Agent in Its Individual Capacity ...... 59
9.9 Successor Administrative Agent ....................... 59
9.10 Authorization to Release Guarantees and Liens ........ 59
SECTION 10. MISCELLANEOUS ....................................... 60
10.1 Amendments and Waivers ............................... 60
10.2 Notices .............................................. 60
10.3 No Waiver; Cumulative Remedies ....................... 61
10.4 Survival of Representations and Warranties ........... 61
10.5 Payment of Expenses and Taxes ........................ 61
10.6 Successors and Assigns; Participations and Assignments 62
10.7 Adjustments; Set-off ................................. 64
10.8 Counterparts ......................................... 65
10.9 Severability ......................................... 65
10.10 Integration .......................................... 65
10.11 GOVERNING LAW ........................................ 65
10.12 Submission To Jurisdiction; Waivers .................. 66
10.13 Acknowledgments ...................................... 66
10.14 Confidentiality ...................................... 67
10.15 WAIVERS OF JURY TRIAL ................................ 67
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
ANNEX:
A Pricing Grid
SCHEDULES:
1.1A Revolving Commitments
1.1B Mortgaged Property
4.4 Consents, Authorizations, Filings and Notices
4.6 Litigation, Investigations and Proceedings
4.15(a) Subsidiaries
4.15(b) Warrants
4.19(a) UCC Filing Jurisdictions
4.19(b) Mortgage Filing Jurisdictions
7.2(d) Existing Indebtedness
7.3(f) Existing Liens
7.9 Affiliate Transactions
EXHIBITS:
A Form of Guarantee and Collateral Agreement
B Form of Compliance Certificate
C Form of Closing Certificate
D Form of Assignment and Acceptance
E Form of Legal Opinion of Katten Muchin & Zavis
F Form of Exemption Certificate
</TABLE>
- iv -
<PAGE> 6
REVOLVING CREDIT AGREEMENT, dated as of October 19, 1998, among
CINEMASTAR LUXURY THEATERS, INC., a California corporation (the "Borrower"), the
several banks and other financial institutions or entities from time to time
parties to this Agreement (the "Lenders"), and UNION BANK OF CALIFORNIA, N.A.,
as administrative agent (in such capacity, the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Lenders make revolving
credit loans to the Borrower in an aggregate amount of up to $15,000,000 at any
one time outstanding; and
WHEREAS, the Lenders are willing to make such revolving credit loans
upon and subject to the terms and conditions herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in this
Section 1.1 shall have the respective meanings set forth in this Section 1.1.
"ABR": for any day, a rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the greater of (a) the Base Rate in effect on such
day, and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of
1%. For purposes hereof: "Base Rate" shall mean the rate of interest per annum
most recently determined by the Administrative Agent as its base rate in effect
at its principal United States lending office from time to time (the Base Rate
not being intended to be the lowest rate of interest charged by the
Administrative Agent in connection with extensions of credit to debtors). Any
change in the ABR due to a change in the Base Rate or the Federal Funds
Effective Rate shall be effective as of the opening of business on the effective
day of such change in the Base Rate or the Federal Funds Effective Rate,
respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
upon the ABR.
"Adjustment Date": as defined in the Pricing Grid.
"Administrative Agent": as defined in the preamble hereto.
"Affiliate": as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to (a) vote 10% or
<PAGE> 7
2
more of the securities having ordinary voting power for the election of
directors (or persons performing similar functions) of such Person or (b) direct
or cause the direction of the management and policies of such Person, whether by
contract or otherwise.
"Aggregate Exposure": with respect to any Lender at any time, an amount
equal to (a) until the Closing Date, the aggregate amount of such Lender's
Revolving Commitment at such time and (b) thereafter, such Lender's Revolving
Commitment then in effect or, if the Revolving Commitments have been terminated,
the amount of such Lender's Revolving Extensions of Credit then outstanding.
"Aggregate Exposure Percentage": with respect to any Lender at any time,
the ratio (expressed as a percentage) of such Lender's Aggregate Exposure at
such time to the Aggregate Exposure of all Lenders at such time.
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"Applicable Margin": for each Type of Loan, the rate per annum set forth
on the Pricing Grid.
"Application": an application, in such form as the Issuing Lender may
specify from time to time, requesting the Issuing Lender to open a Letter of
Credit.
"Asset Sale": any Disposition of property or series of related
Dispositions of property (excluding any such Disposition permitted by clause
(b), (c), (d) or (e) of Section 7.5).
"Assignee": as defined in Section 10.6(c).
"Assignment and Acceptance": an Assignment and Acceptance, substantially
in the form of Exhibit D.
"Assignor": as defined in Section 10.6(c).
"Available Revolving Commitment": as to any Lender at any time, an
amount equal to the excess, if any, of (a) such Lender's Revolving Commitment
then in effect over (b) such Lender's Revolving Extensions of Credit then
outstanding.
"Benefitted Lender": as defined in Section 10.7(a).
"Board": the Board of Governors of the Federal Reserve System of the
United States (or any successor).
"Borrower": as defined in the preamble hereto.
"Borrowing Date": any Business Day specified by the Borrower as a date
on which the Borrower requests the Lenders to make Loans hereunder.
<PAGE> 8
3
"Business": as defined in Section 4.17(b).
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in either Los Angeles or New York City are authorized or
required by law to close, provided that with respect to notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Loans, such day is also a day for trading by and between banks in
Dollar deposits in the interbank eurodollar market.
"Business Plan Projections": the projections of the Borrower delivered
to Union Bank of California, N.A. on or about June 11, 1998 in connection with
the credit facilities provided herein.
"Capital Expenditures": for any period, with respect to any Person, the
aggregate of all expenditures by such Person and its Subsidiaries for the
acquisition or leasing (pursuant to a capital lease) of fixed or capital assets
or additions to equipment (including replacements, capitalized repairs and
improvements during such period) that should be capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP and, for the purposes of
this Agreement, the amount of such obligations at any time shall be the
capitalized amount thereof at such time determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants, rights or options to purchase any of the foregoing.
"Cash Equivalents": (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; (b)
certificates of deposit, time deposits, eurodollar time deposits or overnight
bank deposits having maturities of six months or less from the date of
acquisition issued by any Lender or by any commercial bank organized under the
laws of the United States or any state thereof having combined capital and
surplus of not less than $500,000,000; (c) commercial paper of an issuer rated
at least A-1 by Standard & Poor's Ratings Services ("S&P") or P-1 by Moody's
Investors Service, Inc. ("Moody's"), or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of commercial paper issuers generally, and maturing
within six months from the date of acquisition; (d) repurchase obligations of
any Lender or of any commercial bank satisfying the requirements of clause (b)
of this definition, having a term of not more than 30 days, with respect to
securities issued or fully guaranteed or insured by the United States
government; (e) securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States, by any political subdivision or taxing
<PAGE> 9
4
authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be) are
rated at least A by S&P or A by Moody's; (f) securities with maturities of six
months or less from the date of acquisition backed by standby letters of credit
issued by any Lender or any commercial bank satisfying the requirements of
clause (b) of this definition; or (g) shares of money market mutual or similar
funds which invest exclusively in assets satisfying the requirements of clauses
(a) through (f) of this definition.
"CinemaStar Partners": CinemaStar Acquisition Partners, a Delaware
limited partnership.
"Closing Date": the date on which the conditions precedent set forth in
Section 5.1 shall have been satisfied, which date is October 19, 1998.
"Code": the Internal Revenue Code of 1986, as amended from time to time.
"Collateral": all property of the Loan Parties, now owned or hereafter
acquired, upon which a Lien is purported to be created by any Security Document.
"Commitment Fee Rate": 1/2 of 1% per annum.
"Commonly Controlled Entity": an entity, whether or not incorporated,
that is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group that includes the Borrower and that is
treated as a single employer under Section 414 of the Code.
"Compliance Certificate": a certificate duly executed by a Responsible
Officer substantially in the form of Exhibit B.
"Consolidated Current Assets": at any date, all amounts (other than cash
and Cash Equivalents) that would, in conformity with GAAP, be set forth opposite
the caption "total current assets" (or any like caption) on a consolidated
balance sheet of the Borrower and its Subsidiaries at such date.
"Consolidated Current Liabilities": at any date, all amounts that would,
in conformity with GAAP, be set forth opposite the caption "total current
liabilities" (or any like caption) on a consolidated balance sheet of the
Borrower and its Subsidiaries at such date, but excluding all Indebtedness
consisting of Loans to the extent otherwise included therein.
"Consolidated EBITDA": for any period, Consolidated Net Income for such
period plus, without duplication and to the extent reflected as a charge in the
statement of such Consolidated Net Income for such period, the sum of (a) income
tax expense, (b) interest expense, amortization or writeoff of debt discount and
debt issuance costs and commissions, discounts and other fees and charges
associated with Indebtedness (including the Loans), (c) depreciation and
amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any extraordinary, unusual or
non-recurring non-cash
<PAGE> 10
5
expenses or losses (including, whether or not otherwise includable as a separate
item in the statement of such Consolidated Net Income for such period, non-cash
losses on sales of assets outside of the ordinary course of business), and (f)
any other non-cash charges, including without limitation, deferred rent accrual,
and minus, to the extent included in the statement of such Consolidated Net
Income for such period, the sum of (a) interest income, (b) any extraordinary,
unusual or non-recurring income or gains (including, whether or not otherwise
includable as a separate item in the statement of such Consolidated Net Income
for such period, gains on the sales of assets outside of the ordinary course of
business) and (c) any other non-cash income, all as determined on a consolidated
basis; provided, however, that (i) the contribution to Consolidated EBITDA from
the operations of the Borrower and its Subsidiaries outside of the United States
shall not exceed 10% and (ii) for purposes of determining Consolidated EBITDA
for the fiscal quarters ending September 30, 1998, December 31, 1998 and March
31, 1999 there shall be added to actual Consolidated EBITDA for such period
$5,838,174, $2,392,338 and $240,209, respectively.
"Consolidated EBITDAR": for any period, the sum of (a) Consolidated
EBITDA for such period plus (b) Consolidated Lease Expense for such period.
"Consolidated Fixed Charge Coverage Ratio": for any period, the ratio of
(a) Consolidated EBITDAR for such period to (b) Consolidated Fixed Charges for
such period.
"Consolidated Fixed Charges": for any period, the sum (without
duplication) of (a) Consolidated Interest Expense for such period, (b)
Consolidated Lease Expense for such period, and (c) scheduled payments made
during such period on account of principal of Indebtedness of the Borrower or
any of its Subsidiaries (including payments of Loans accompanying scheduled
reductions of the Revolving Commitments), and (d) income taxes paid in cash by
the Borrower and its Subsidiaries during such period and (e) any Restricted
Payments paid in cash during such period pursuant to Section 7.6.
"Consolidated Interest Coverage Ratio": for any period, the ratio of (a)
Consolidated EBITDA for such period to (b) Consolidated Interest Expense for
such period.
"Consolidated Interest Expense": for any period, total cash interest
expense (including that attributable to Capital Lease Obligations) of the
Borrower and its Subsidiaries for such period with respect to all outstanding
Indebtedness of the Borrower and its Subsidiaries (including commitment fees
payable hereunder or otherwise and all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and net costs under Hedge Agreements in respect of interest rates to the extent
such net costs are allocable to such period in accordance with GAAP).
"Consolidated Lease Expense": for any period, the aggregate amount of
fixed and contingent rentals payable by the Borrower and its Subsidiaries for
such period with respect to leases of real and personal property, determined on
a consolidated basis in accordance with GAAP, excluding, however, the amount of
any deferred rent accrual.
<PAGE> 11
6
"Consolidated Leverage Ratio": on any day, the ratio of (a) Consolidated
Total Debt on such day to (b) Consolidated EBITDA for the then most recent four
fiscal quarters of the Borrower.
"Consolidated Net Income": for any period, the consolidated net income
(or loss) of the Borrower and its Subsidiaries, including without limitation
Cinema Luxury Theaters, S.A. de C.V. (so long as such Person is a Subsidiary),
determined on a consolidated basis in accordance with GAAP; provided that there
shall be excluded (a) the income (or deficit) of any Person accrued prior to the
date it becomes a Subsidiary of the Borrower or is merged into or consolidated
with the Borrower or any of its Subsidiaries, (b) the income (or deficit) of any
Person (other than a Subsidiary of the Borrower) in which the Borrower or any of
its Subsidiaries has an ownership interest, except to the extent that any such
income is actually received by the Borrower or such Subsidiary in the form of
dividends or similar distributions and (c) the undistributed earnings of any
Subsidiary of the Borrower to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary is not at the time
permitted by the terms of any Contractual Obligation (other than under any Loan
Document) or Requirement of Law applicable to such Subsidiary.
"Consolidated Total Debt": at any date, the aggregate principal amount
of all Indebtedness of the Borrower and its Subsidiaries at such date,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Working Capital": at any date, the excess of Consolidated
Current Assets on such date over Consolidated Current Liabilities on such date.
"Continuing Directors": the directors of the Borrower on the Closing
Date and each other director, if, in each case, such other director's nomination
for election to the board of directors of the Borrower is recommended by at
least 66-2/3% of the then Continuing Directors or such other director receives
the vote of the Permitted Investors in his or her election by the shareholders
of the Borrower.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Control Investment Affiliate": as to any Person, any other Person that
(a) directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person and (b) is organized by such Person primarily
for the purpose of making equity or debt investments in one or more companies.
For purposes of this definition, "control" of a Person means the power, directly
or indirectly, to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"Default": any of the events specified in Section 8, whether or not any
requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
<PAGE> 12
7
"Disposition": with respect to any property, any sale, lease, sale and
leaseback, assignment, conveyance, transfer or other disposition thereof. The
terms "Dispose" and "Disposed of" shall have correlative meanings.
"Dollars" and "$": dollars in lawful currency of the United States.
"Domestic Subsidiary": any Subsidiary of the Borrower organized under
the laws of any jurisdiction within the United States.
"ECF Percentage": 50%, provided that the ECF Percentage with respect to
any fiscal year shall be reduced to 0% if the Consolidated Leverage Ratio as of
the last day of the period of four consecutive fiscal quarters ending on the
last day of such fiscal year is less than 3.00 to 1.0.
"Environmental Laws": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Base Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, the rate per annum determined on the
basis of the rate for deposits in Dollars for a period equal to such Interest
Period commencing on the first day of such Interest Period appearing on Page
3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two Business
Days prior to the beginning of such Interest Period. In the event that such rate
does not appear on Page 3750 of the Dow Jones Markets screen (or otherwise on
such screen), the "Eurodollar Base Rate" shall be determined by reference to
such other comparable publicly available service for displaying eurodollar rates
as may be selected by the Administrative Agent or, in the absence of such
availability, by reference to the rate at which the Administrative Agent is
offered Dollar deposits at or about 11:00 A.M., Los Angeles time, two Business
Days prior to the beginning of such Interest Period in the interbank eurodollar
market where its eurodollar and foreign currency and exchange operations are
then being conducted for delivery on the first day of such Interest Period for
the number of days comprised therein.
<PAGE> 13
8
"Eurodollar Loans": Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans the
then current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall originally
have been made on the same day).
"Event of Default": any of the events specified in Section 8, provided
that any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Excess Cash Flow": for any fiscal year of the Borrower, the excess, if
any, of (a) the sum, without duplication, of (i) Consolidated Net Income for
such fiscal year, (ii) an amount equal to the amount of all non-cash charges
(including depreciation and amortization) deducted in arriving at such
Consolidated Net Income, (iii) decreases in Consolidated Working Capital for
such fiscal year, and (iv) an amount equal to the aggregate net non-cash loss on
the Disposition of property by the Borrower and its Subsidiaries during such
fiscal year (other than sales of inventory in the ordinary course of business),
to the extent deducted in arriving at such Consolidated Net Income over (b) the
sum, without duplication, of (i) an amount equal to the amount of all non-cash
credits included in arriving at such Consolidated Net Income, (ii) the aggregate
amount actually paid by the Borrower and its Subsidiaries in cash during such
fiscal year on account of Capital Expenditures (excluding the principal amount
of Indebtedness incurred in connection with such expenditures and any such
expenditures financed with the proceeds of any Reinvestment Deferred Amount),
(iii) the aggregate amount of all prepayments of Loans during such fiscal year
to the extent accompanying permanent optional reductions of the Revolving
Commitments, (iv) the aggregate amount of all regularly scheduled principal
payments of Indebtedness of the Borrower and its Subsidiaries made during such
fiscal year (other than in respect of any revolving credit facility to the
extent there is not an equivalent permanent reduction in commitments
thereunder), (v) increases in Consolidated Working Capital for such fiscal year,
and (vi) an amount equal to the aggregate net non-cash gain on the Disposition
of property by the Borrower and its Subsidiaries during such fiscal year (other
than sales of inventory in the ordinary course of business), to the extent
included in arriving at such Consolidated Net Income.
"Excess Cash Flow Application Date": as defined in Section 2.6(c).
"Federal Funds Effective Rate": for any day, 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 on the next
succeeding 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
<PAGE> 14
9
average of the quotations for the day of such transactions received by the
Reference Lender from three federal funds brokers of recognized standing
selected by it.
"Foreign Subsidiary": any Subsidiary of the Borrower that is not a
Domestic Subsidiary.
"Funding Office": the office of the Administrative Agent specified in
Section 10.2 or such other office as may be specified from time to time by the
Administrative Agent as its funding office by written notice to the Borrower and
the Lenders.
"GAAP": generally accepted accounting principles in the United States as
in effect from time to time, except that for purposes of Section 7.1 GAAP shall
be determined on the basis of such principles in effect on the date hereof and
consistent with those used in the preparation of the most recent audited
financial statements delivered pursuant to Section 4.1(b).
"Guarantee and Collateral Agreement": the Guarantee and Collateral
Agreement to be executed and delivered by the Borrower and each Subsidiary
Guarantor, substantially in the form of Exhibit A, as the same may be amended,
supplemented or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
any obligation of (a) the guaranteeing person or (b) another Person (including
any bank under any letter of credit) to induce the creation of which the
guaranteeing person has issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
of any other third Person (the "primary obligor") in any manner, whether
directly or indirectly, including any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (1) for the purchase or payment of any such primary obligation or
(2) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof; provided, however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing person
shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.
<PAGE> 15
10
"Hedge Agreements": all interest rate swaps, caps or collar agreements
or similar arrangements providing for protection against fluctuations in
interest rates or currency exchange rates or the exchange of nominal interest
obligations, either generally or under specific contingencies.
"Indebtedness": of any Person at any date, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of property or services (other than
current trade payables incurred in the ordinary course of such Person's
business), (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all Capital Lease Obligations of
such Person, (f) all obligations of such Person, contingent or otherwise, as an
account party under acceptance, letter of credit or similar facilities, (g) the
liquidation value of all redeemable preferred Capital Stock of such Person, (h)
all Guarantee Obligations of such Person in respect of obligations of the kind
referred to in clauses (a) through (g) above; (i) all obligations of the kind
referred to in clauses (a) through (h) above secured by (or for which the holder
of such obligation has an existing right, contingent or otherwise, to be secured
by) any Lien on property (including accounts and contract rights) owned by such
Person, whether or not such Person has assumed or become liable for the payment
of such obligation; and (j) for the purposes of Section 8(e) only, all
obligations of such Person in respect of Hedge Agreements.
"Insolvency": with respect to any Multiemployer Plan, the condition that
such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Intellectual Property": the collective reference to all rights,
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including
copyrights, copyright licenses, patents, patent licenses, trademarks, trademark
licenses, technology, know-how and processes, and all rights to sue at law or in
equity for any infringement or other impairment thereof, including the right to
receive all proceeds and damages therefrom.
"Interest Payment Date": (a) as to any ABR Loan, the last day of each
March, June, September and December to occur while such Loan is outstanding and
the final maturity date of such Loan, (b) as to any Eurodollar Loan having an
Interest Period of three months or less, the last day of such Interest Period,
(c) as to any Eurodollar Loan having an Interest Period longer than three
months, each day that is three months, or a whole multiple thereof, after the
first day of such Interest Period and the last day of such Interest Period and
(d) as to any Eurodollar Loan, the date of any repayment or prepayment made in
respect thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially, the period
commencing on the borrowing or conversion date, as the case may be, with respect
to such Eurodollar Loan and ending one, two, three, or six, or, if available to
all Lenders, twelve months thereafter, as
<PAGE> 16
11
selected by the Borrower in its notice of borrowing or notice of conversion, as
the case may be, given with respect thereto; and (b) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable to
such Eurodollar Loan and ending one, two, three, or six, or, if available to all
Lenders, twelve months thereafter, as selected by the Borrower by irrevocable
notice to the Administrative Agent not less than three Business Days prior to
the last day of the then current Interest Period with respect thereto; provided
that all of the foregoing provisions relating to Interest Periods are subject to
the following:
(i) if any Interest Period would otherwise end on a day
that is not a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless the result
of such extension would be to carry such Interest Period into
another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend
beyond the Revolving Termination Date shall end on the Revolving
Termination Date;
(iii) 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 end on the last Business Day
of a calendar month; and
(iv) the Borrower shall select Interest Periods so as
not to require a payment or prepayment of any Eurodollar Loan
during an Interest Period for such Loan.
"Investments": as defined in Section 7.8.
"Issuing Lender": Union Bank of California, N.A., in its capacity as
issuer of any Letter of Credit.
"L/C Commitment": $2,000,000.
"L/C Fee Payment Date": the last day of each March, June, September and
December and the last day of the Revolving Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit that
have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the Lenders other
than the Issuing Lender.
"Lenders": as defined in the preamble hereto.
"Letters of Credit": as defined in Section 3.1(a).
<PAGE> 17
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"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any conditional sale or
other title retention agreement and any capital lease having substantially the
same economic effect as any of the foregoing).
"Loan": as defined in Section 2.1.
"Loan Documents": this Agreement, the Security Documents and the Notes.
"Loan Parties": the Borrower and each Subsidiary of the Borrower that is
a party to a Loan Document.
"Material Adverse Effect": a material adverse effect on (a) the
business, property, operations, condition (financial or otherwise) or prospects
of the Borrower and its Subsidiaries taken as a whole, (b) the validity or
enforceability of this Agreement or any of the other Loan Documents or the
rights or remedies of the Administrative Agent or the Lenders hereunder or
thereunder or (c) the ability of the Borrower to perform any of its obligations
under this Agreement.
"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including asbestos, polychlorinated biphenyls
and urea-formaldehyde insulation.
"Mortgaged Properties": the real properties (owned or leased) listed on
Schedule 1.1B, as to which the Administrative Agent for the benefit of the
Lenders shall be granted a Lien pursuant to the Mortgages if required pursuant
to Section 6.10(b).
"Mortgages": each of the mortgages (including leasehold mortgages) and
deeds of trust made by any Loan Party in favor of, or for the benefit of, the
Administrative Agent for the benefit of the Lenders, in a form, reasonably
satisfactory to the Administrative Agent, as the same may be amended,
supplemented or otherwise modified from time to time.
"Multiemployer Plan": a Plan that is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with any Asset Sale or any
Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents
(including any such proceeds received by way of deferred payment of principal
pursuant to a note or installment receivable or purchase price adjustment
receivable or otherwise, but only as and when received) of such Asset Sale or
Recovery Event, net of attorneys' fees, accountants' fees, investment banking
fees, amounts required to be applied to the repayment of Indebtedness secured by
a Lien expressly permitted hereunder on any asset that is the subject of such
Asset Sale or Recovery Event (other than any Lien pursuant to a Security
Document) and other customary fees and expenses actually incurred in connection
therewith and net of taxes paid or reasonably estimated
<PAGE> 18
13
to be payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements) and (b) in connection
with any issuance or sale of equity securities or debt securities or instruments
or the incurrence of loans, the cash proceeds received from such issuance or
incurrence, net of attorneys' fees, investment banking fees, accountants' fees,
underwriting discounts and commissions and other customary fees and expenses
actually incurred in connection therewith.
"Non-Excluded Taxes": as defined in Section 2.14(a).
"Non-U.S. Lender": as defined in Section 2.14(d).
"Notes": the collective reference to any promissory note evidencing
Loans.
"Obligations": the unpaid principal of and interest on (including
interest accruing after the maturity of the Loans and Reimbursement Obligations
and interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Borrower, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding) the Loans and all other obligations and
liabilities of the Borrower to the Administrative Agent or to any Lender (or, in
the case of Hedge Agreements, any affiliate of any Lender), whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, this
Agreement, any other Loan Document, the Letters of Credit, any Hedge Agreement
entered into with any Lender or any affiliate of any Lender or any other
document made, delivered or given in connection herewith or therewith, whether
on account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including all fees, charges and disbursements of counsel to the
Administrative Agent or to any Lender that are required to be paid by the
Borrower pursuant hereto) or otherwise.
"Other Taxes": any and all present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies arising from
any payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, this Agreement or any other Loan Document.
"Participant": as defined in Section 10.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA (or any successor).
"Permitted Business Acquisitions": any acquisition of all or
substantially all the assets of, or shares or other equity interests in a Person
in the theater exhibitor or related business, or a division, line of business or
asset useful in the theater exhibitor or related business of any Person (or any
subsequent investment made in a previously acquired Permitted Business
Acquisitions) if immediately after giving effect thereto: (a) no Default or
Event of Default shall have occurred and be continuing or would result
therefrom, (b) all transactions related thereto shall be consummated in
accordance with applicable laws, (c) any acquired or newly formed corporation,
partnership, association or other business entity shall be a Wholly Owned
<PAGE> 19
14
Subsidiary (d) all actions required to be taken, if any, with respect to such
acquisition under Section 6.10 shall have been taken and (e)(i) the Borrower and
the Subsidiaries shall be in compliance, on a pro forma basis after giving
effect to such acquisition or formation, with the covenants contained in Section
7.1 recomputed as at the last day of the most recently ended fiscal quarter of
the Borrower and the Subsidiaries as if such acquisition and related financings
or other transactions had occurred on the first day of the period for testing
such compliance, and, if the amount of such investment of series of related
investments exceeds $250,000, then the Borrower shall have delivered to the
Agent an officers' certificate to such effect, together with all relevant
financial information for such Subsidiary or assets, and (ii) any acquired or
newly formed Subsidiary shall not be liable for any Indebtedness (except for
Indebtedness permitted by Section 7.2).
"Permitted Investors": the collective reference to SCP and Rust and
their Control Investment Affiliates.
"Person": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan that is covered
by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is
(or, if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Pricing Grid": the pricing grid attached hereto as Annex A.
"Projections": as defined in Section 6.2(c).
"Properties": as defined in Section 4.17(a).
"Recovery Event": any settlement of or payment in respect of any
property or casualty insurance claim or any condemnation proceeding relating to
any asset of the Borrower or any of its Subsidiaries; provided that no Recovery
Event shall be deemed to occur until the aggregate amount of all such
settlements or payments subsequent to the date of this Agreement has exceeded
$50,000.
"Reference Lender": Union Bank of California, N.A.
"Register": as defined in Section 10.6(d).
"Regulation U": Regulation U of the Board as in effect from time to
time.
"Reimbursement Obligation": the obligation of the Borrower to reimburse
the Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of
Credit.
<PAGE> 20
15
"Reinvestment Deferred Amount": with respect to any Reinvestment Event,
the aggregate Net Cash Proceeds received by the Borrower or any of its
Subsidiaries in connection therewith that are not applied to reduce the
Revolving Commitments pursuant to Section 2.6(b) as a result of the delivery of
a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect of
which the Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a Responsible
Officer stating that no Event of Default has occurred and is continuing and that
the Borrower (directly or indirectly through a Subsidiary) intends and expects
to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or
Recovery Event to acquire assets useful in its business.
"Reinvestment Prepayment Amount": with respect to any Reinvestment
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended prior to the relevant Reinvestment Prepayment Date to acquire assets
useful in the Borrower's business.
"Reinvestment Prepayment Date": with respect to any Reinvestment Event,
the earlier of (a) the date occurring twelve months after such Reinvestment
Event and (b) the date on which the Borrower shall have determined not to, or
shall have otherwise ceased to, acquire assets useful in the Borrower's business
with all or any portion of the relevant Reinvestment Deferred Amount.
"Reorganization": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg.
Section 4043.
"Required Lenders": at any time, the holders of more than 66-2/3% of (a)
until the Closing Date, the Total Revolving Commitments then in effect and (b)
thereafter, the Total Revolving Commitments then in effect or, if the Revolving
Commitments have been terminated, the Total Revolving Extensions of Credit then
outstanding.
"Requirement of Law": as to any Person, the Certificate of Incorporation
and By-Laws or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation or determination of an arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Responsible Officer": the chief executive officer, president or chief
financial officer of the Borrower, but in any event, with respect to financial
matters, the chief financial officer of the Borrower.
"Restricted Payments": as defined in Section 7.6.
<PAGE> 21
16
"Revolving Commitment": as to any Lender, the obligation of such Lender
to make Loans and participate in Letters of Credit in an aggregate principal
and/or face amount not to exceed the amount set forth under the heading
"Revolving Commitment" opposite such Lender's name on Schedule 1.1A or in the
Assignment and Acceptance pursuant to which such Lender became a party hereto,
as the same may be changed from time to time pursuant to the terms hereof. The
original amount of the Total Revolving Commitments is $15,000,000.
"Revolving Commitment Period": the period from and including the Closing
Date to the Revolving Termination Date.
"Revolving Extensions of Credit": as to any Lender at any time, an
amount equal to the sum of (a) the aggregate principal amount of all Loans held
by such Lender then outstanding and (b) such Lender's Revolving Percentage of
the L/C Obligations then outstanding.
"Revolving Percentage": as to any Lender at any time, the percentage
which such Lender's Revolving Commitment then constitutes of the Total Revolving
Commitments (or, at any time after the Revolving Commitments shall have expired
or terminated, the percentage which the aggregate principal amount of such
Lender's Loans then outstanding constitutes of the aggregate principal amount of
the Loans then outstanding).
"Revolving Termination Date": August 31, 2005.
"Rust": Rust Group, L.L.P.
"SCP": SCP Private Equity Partners, L.L.P.
"SEC": the Securities and Exchange Commission, any successor thereto and
any analogous Governmental Authority.
"Security Documents": the collective reference to the Guarantee and
Collateral Agreement, the Mortgages and all other security documents hereafter
delivered to the Administrative Agent granting a Lien on any property of any
Person to secure the obligations and liabilities of any Loan Party under any
Loan Document.
"Single Employer Plan": any Plan that is covered by Title IV of ERISA,
but that is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of any
date of determination, (a) the amount of the "present fair saleable value" of
the assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not have,
as of such date, an unreasonably small amount of capital with which to conduct
its business, and (d) such Person will be able to pay its debts as they
<PAGE> 22
17
mature. For purposes of this definition, (i) "debt" means liability on a
"claim", and (ii) "claim" means any (x) right to payment, whether or not such a
right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured
or (y) right to an equitable remedy for breach of performance if such breach
gives rise to a right to payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured or unmatured,
disputed, undisputed, secured or unsecured.
"Subsidiary": as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Borrower.
"Subsidiary Guarantor": each Subsidiary of the Borrower that guarantees
the Obligations pursuant to the Guarantee and Collateral Agreement.
"Total Revolving Commitments": at any time, the aggregate amount of the
Revolving Commitments then in effect.
"Total Revolving Extensions of Credit": at any time, the aggregate
amount of the Revolving Extensions of Credit of the Lenders outstanding at such
time.
"Transferee": any Assignee or Participant.
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as the same may be amended from time to time.
"United States": the United States of America.
"Warrant Agreement":
"Wholly Owned Subsidiary": as to any Person, any other Person all of the
Capital Stock of which (other than directors' qualifying shares required by law)
is owned by such Person directly and/or through other Wholly Owned Subsidiaries.
"Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is a
Wholly Owned Subsidiary of the Borrower.
<PAGE> 23
18
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any certificate
or other document made or delivered pursuant hereto or thereto, (i) accounting
terms relating to the Borrower and its Subsidiaries not defined in Section 1.1
and accounting terms partly defined in Section 1.1, to the extent not defined,
shall have the respective meanings given to them under GAAP, (ii) the words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation", and (iii) the word "incur" shall be construed to
mean incur, create, issue, assume, become liable in respect of or suffer to
exist (and the words "incurred" and "incurrence" shall have correlative
meanings), and (iv) the words "asset" and "property" shall be construed to have
the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, Capital Stock, securities, revenues,
accounts, leasehold interests and contract rights.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Commitments. (a) Subject to the terms and conditions
hereof, each Lender severally agrees to make revolving credit loans ("Loans") to
the Borrower from time to time during the Revolving Commitment Period in an
aggregate principal amount at any one time outstanding which, when added to such
Lender's Revolving Percentage of the L/C Obligations then outstanding does not
exceed the amount of such Lender's Revolving Commitment then in effect. During
the Revolving Commitment Period, the Borrower may use the Revolving Commitments
by borrowing, prepaying the Loans in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof. The Loans may from time to time
be Eurodollar Loans or ABR Loans, as determined by the Borrower and notified to
the Administrative Agent in accordance with Sections 2.2 and 2.7.
(b) The Borrower shall repay all outstanding Loans on the Revolving
Termination Date.
(c) The Revolving Commitments shall be reduced (and each Lender's
Commitment shall be ratably reduced) on consecutive quarterly dates, commencing
on March 31, 2000, by the amount set forth opposite each date below:
<PAGE> 24
19
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
March 31, 2000 $375,000
June 30, 2000 $375,000
September 30, 2000 $375,000
December 31, 2000 $375,000
March 31, 2001 $375,000
June 30, 2001 $375,000
September 30, 2001 $375,000
December 31, 2001 $375,000
March 31, 2002 $656,250
June 30, 2002 $656,250
September 30, 2002 $656,250
December 31, 2002 $656,250
March 31, 2003 $843,750
June 30, 2003 $843,750
September 30, 2003 $843,750
December 31, 2003 $843,750
March 31, 2004 $937,500
June 30, 2004 $937,500
September 30, 2004 $937,500
December 31, 2004 $937,500
March 31, 2005 $750,000
June 30, 2005 $750,000
August 31, 2005 $750,000
</TABLE>
2.2 Procedure for Borrowing. The Borrower may borrow under the Revolving
Commitments during the Revolving Commitment Period on any Business Day, provided
that the Borrower shall give the Administrative Agent irrevocable notice (which
notice must be received by the Administrative Agent prior to 12:00 Noon, Los
Angeles time, (a) three Business Days prior to the requested Borrowing Date, in
the case of Eurodollar Loans, or (b) one Business Day prior to the requested
Borrowing Date, in the case of ABR Loans), specifying (i) the amount and Type of
Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the case of
Eurodollar Loans, the respective amounts of each such Type of Loan and the
respective lengths of the initial Interest Period therefor. Each borrowing under
the Revolving Commitments shall be in an amount equal to (x) in the case of ABR
Loans, $100,000 or a whole multiple thereof (or, if the then aggregate Available
Revolving Commitments are less than $100,000, such lesser amount) and (y) in the
case of Eurodollar Loans, $500,000 or a whole multiple of $100,000 in excess
thereof. Upon receipt of any such notice from the Borrower, the Administrative
Agent shall promptly notify each Lender thereof. Each Lender will make the
amount of its pro rata share of each borrowing available to the Administrative
Agent for the account of the Borrower at the Funding Office prior to 12:00 Noon,
Los Angeles time, on the Borrowing Date requested by the Borrower in funds
immediately available to the Administrative Agent. Such borrowing will then be
made available to the Borrower by the Administrative Agent crediting the account
of the Borrower on the books of such office with the aggregate of the
<PAGE> 25
20
amounts made available to the Administrative Agent by the Lenders and in like
funds as received by the Administrative Agent.
2.3 Commitment Fees, etc. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee for the
period from and including the Closing Date to the last day of the Revolving
Commitment Period, computed at the Commitment Fee Rate on the average daily
amount of the Available Revolving Commitment of such Lender during the period
for which payment is made, payable quarterly in arrears on the last day of each
March, June, September and December and on the Revolving Termination Date,
commencing on the first of such dates to occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent the fees in
the amounts and on the dates previously agreed to in writing by the Borrower and
the Administrative Agent.
2.4 Termination or Reduction of Revolving Commitments. The Borrower
shall have the right, upon not less than three Business Days' notice to the
Administrative Agent, to terminate the Revolving Commitments or, from time to
time, to reduce the amount of the Revolving Commitments; provided that no such
termination or reduction of Revolving Commitments shall be permitted if, after
giving effect thereto and to any prepayments of the Loans made on the effective
date thereof, the Total Revolving Extensions of Credit would exceed the Total
Revolving Commitments. Any such reduction shall be in an amount equal to
$500,000, or a whole multiple thereof, and shall reduce permanently the
Revolving Commitments then in effect.
2.5 Optional Prepayments. The Borrower may at any time and from time to
time prepay the Loans, in whole or in part, without premium or penalty, upon
irrevocable notice delivered to the Administrative Agent at least three Business
Days prior thereto in the case of Eurodollar Loans and at least one Business Day
prior thereto in the case of ABR Loans, which notice shall specify the date and
amount of prepayment and whether the prepayment is of Eurodollar Loans or ABR
Loans; provided that if a Eurodollar Loan is prepaid on any day other than the
last day of the Interest Period applicable thereto the Borrower shall also pay
any amounts owing pursuant to Section 2.15. Upon receipt of any such notice the
Administrative Agent shall promptly notify each Lender thereof. If any such
notice is given, the amount specified in such notice shall be due and payable on
the date specified therein, together with (except in the case of Loans that are
ABR Loans) accrued interest to such date on the amount prepaid. Partial
prepayments of Loans shall be in an aggregate principal amount of $500,000 or a
whole multiple thereof.
2.6 Mandatory Prepayments and Commitment Reductions. (a) Unless the
Required Lenders shall otherwise agree, if any Capital Stock or Indebtedness
shall be issued or incurred by the Borrower or any of its Subsidiaries
(excluding (i) any Indebtedness incurred in accordance with Section 7.2 (ii) any
Capital Stock issued to the Permitted Investors the Net Cash Proceeds of which
are less than $10,000,000 (in the aggregate for the duration of this Agreement),
(iii) any Capital Stock issued to any employee of the Borrower or its
Subsidiaries pursuant to any employee benefit plan of the Borrower or any
Subsidiary, and (iv) any Capital
<PAGE> 26
21
Stock issued by the Borrower in respect of the warrants identified on Schedule
4.15(b) pursuant to the Warrant Agreement, and in each case, so long as no
Default or Event of Default shall have occurred and be continuing at such time),
an amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the
date of such issuance or incurrence toward the permanent reduction of the
Revolving Commitments as set forth in Section 2.6(d).
(b) Unless the Required Lenders shall otherwise agree, if on any date
the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any
Asset Sale or Recovery Event then, unless a Reinvestment Notice shall be
delivered in respect thereof, such Net Cash Proceeds shall be applied on such
date toward the permanent reduction of the Revolving Commitments as set forth in
Section 2.6(d); provided that, notwithstanding the foregoing, (i) the aggregate
Net Cash Proceeds of Asset Sales and Recovery Events that may be excluded from
the foregoing requirement pursuant to a Reinvestment Notice shall not exceed
$50,000 in any fiscal year of the Borrower and (ii) on each Reinvestment
Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with
respect to the relevant Reinvestment Event shall be applied toward the permanent
reduction of the Revolving Commitments as set forth in Section 2.6(d).
(c) Unless the Required Lenders shall otherwise agree, if, for any
fiscal year of the Borrower commencing with the fiscal year ending March 31,
2001 there shall be Excess Cash Flow, the Borrower shall on the relevant Excess
Cash Flow Application Date apply the ECF Percentage of such Excess Cash Flow
toward the permanent reduction of the Revolving Commitments as set forth in
Section 2.6(d). Each such prepayment and commitment reduction shall be made on a
date (an "Excess Cash Flow Application Date") no later than five days after the
earlier of (i) the date on which the financial statements of the Borrower
referred to in Section 6.1(a), for the fiscal year with respect to which such
prepayment is made, are required to be delivered to the Lenders and (ii) the
date such financial statements are actually delivered.
(d) Any reductions of the Revolving Commitments made pursuant to this
Section 2.6 shall not reduce the amount of any scheduled reductions in the
Revolving Commitments pursuant to Section 2.1(c) until the Revolving Commitments
have been reduced in full. Any reductions of the Revolving Commitments made
pursuant to this Section 2.6 or Section 2.1(c) shall be accompanied by
prepayment of the Loans to the extent, if any, that the Total Revolving
Extensions of Credit exceed the amount of the Total Revolving Commitments as so
reduced, provided that if the aggregate principal amount of Loans then
outstanding is less than the amount of such excess (because L/C Obligations
constitute a portion thereof), the Borrower shall, to the extent of the balance
of such excess, replace outstanding Letters of Credit and/or deposit an amount
in cash in a cash collateral account established with the Administrative Agent
for the benefit of the Lenders on terms and conditions satisfactory to the
Administrative Agent. The application of any prepayment pursuant to this Section
shall be made, first, to ABR Loans and, second, to Eurodollar Loans. Each
prepayment of the Loans under this Section shall be accompanied by accrued
interest to the date of such prepayment on the amount prepaid.
2.7 Conversion and Continuation Options. (a) The Borrower may elect from
time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent at least two Business Days' prior irrevocable notice of
such election, provided that any such
<PAGE> 27
22
conversion of Eurodollar Loans may only be made on the last day of an Interest
Period with respect thereto. The Borrower may elect from time to time to convert
ABR Loans to Eurodollar Loans by giving the Administrative Agent at least three
Business Days' prior irrevocable notice of such election (which notice shall
specify the length of the initial Interest Period therefor), provided that no
ABR Loan may be converted into a Eurodollar Loan when any Event of Default has
occurred and is continuing and the Administrative Agent or the Required Lenders
have determined in its or their sole discretion not to permit such conversions.
Upon receipt of any such notice the Administrative Agent shall promptly notify
each Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration of
the then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, provided
that no Eurodollar Loan may be continued as such when any Event of Default has
occurred and is continuing and the Administrative Agent has or the Required
Lenders have determined in its or their sole discretion not to permit such
continuations, and provided, further, that if the Borrower shall fail to give
any required notice as described above in this paragraph or if such continuation
is not permitted pursuant to the preceding proviso such Loans shall be
automatically converted to ABR Loans on the last day of such then expiring
Interest Period. Upon receipt of any such notice the Administrative Agent shall
promptly notify each Lender thereof.
2.8 Limitations on Eurodollar Tranches. Notwithstanding anything to the
contrary in this Agreement, all borrowings, conversions and continuations of
Eurodollar Loans hereunder and all selections of Interest Periods hereunder
shall be in such amounts and be made pursuant to such elections so that, (a)
after giving effect thereto, the aggregate principal amount of the Eurodollar
Loans comprising each Eurodollar Tranche shall be equal to $500,000 or a whole
multiple of $100,000 in excess thereof and (b) no more than five Eurodollar
Tranches shall be outstanding at any one time.
2.9 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the
ABR plus the Applicable Margin.
(c) If all or a portion of the principal amount of any Loan or
Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement
Obligations (whether or not overdue) shall bear interest at a rate per annum
equal to (x) in the case of the Loans, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this Section plus 2%
or (y) in the case of Reimbursement Obligations, the rate applicable to ABR
Loans plus 2%, and (ii) if all or a portion of any interest payable on any Loan
or Reimbursement Obligation or any commitment fee or other amount payable
hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a rate
<PAGE> 28
23
per annum equal to the rate then applicable to ABR Loans plus 2%, in each case,
with respect to clauses (i) and (ii) above, from the date of such non-payment
until such amount is paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest
Payment Date, provided that interest accruing pursuant to paragraph (c) of this
Section shall be payable from time to time on demand.
2.10 Computation of Interest and Fees. (a) Interest and fees
payable pursuant hereto shall be calculated on the basis of a 360-day year for
the actual days elapsed, except that, with respect to ABR Loans the rate of
interest on which is calculated on the basis of the Base Rate, the interest
thereon shall be calculated on the basis of a 365- (or 366-, as the case may be)
day year for the actual days elapsed. The Administrative Agent shall as soon as
practicable notify the Borrower and the Lenders of each determination of a
Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the ABR or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable notify the
Borrower and the Lenders of the effective date and the amount of each such
change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.9(a).
2.11 Inability to Determine Interest Rate. If prior to the first
day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that,
by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for
such Interest Period, or
(b) the Administrative Agent shall have received notice from the
Required Lenders that the Eurodollar Rate determined or to be determined
for such Interest Period will not adequately and fairly reflect the cost
to such Lenders (as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given (x) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as ABR Loans, (y) any Loans that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be
converted, on the last day of the then-current Interest Period, to ABR Loans.
Until such notice has been withdrawn by the Administrative Agent, no further
Eurodollar Loans shall be
<PAGE> 29
24
made or continued as such, nor shall the Borrower have the right to convert
Loans to Eurodollar Loans.
2.12 Pro Rata Treatment and Payments. (a) Each borrowing by the
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee and any reduction of the Revolving Commitments of the Lenders
shall be made pro rata according to the respective Revolving Percentages of the
Lenders.
(b) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Loans shall be made pro rata
according to the respective outstanding principal amounts of the Loans then held
by the Lenders.
(c) All payments (including prepayments) to be made by the
Borrower hereunder, whether on account of principal, interest, fees or
otherwise, shall be made without setoff or counterclaim and shall be made prior
to 11:00 A.M., Los Angeles time, on the due date thereof to the Administrative
Agent, for the account of the Lenders, at the Funding Office, in Dollars and in
immediately available funds. The Administrative Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as received. If any
payment hereunder (other than payments on the Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day. If any payment on a Eurodollar Loan becomes
due and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day unless the result of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Business Day. In
the case of any extension of any payment of principal pursuant to the preceding
two sentences, interest thereon shall be payable at the then applicable rate
during such extension.
(d) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative Agent, on demand, such amount with interest thereon at a
rate equal to the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this paragraph shall be conclusive in the
absence of manifest error. If such Lender's share of such borrowing is not made
available to the Administrative Agent by such Lender within three Business Days
of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
ABR Loans, on demand, from the Borrower.
(e) Unless the Administrative Agent shall have been notified in
writing by the Borrower prior to the date of any payment being made hereunder
that the Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the
<PAGE> 30
25
Borrower is making such payment, and the Administrative Agent may, but shall not
be required to, in reliance upon such assumption, make available to the Lenders
their respective pro rata shares of a corresponding amount. If such payment is
not made to the Administrative Agent by the Borrower within three Business Days
of such required date, the Administrative Agent shall be entitled to recover, on
demand, from each Lender to which any amount which was made available pursuant
to the preceding sentence, such amount with interest thereon at the rate per
annum equal to the daily average Federal Funds Effective Rate. Nothing herein
shall be deemed to limit the rights of the Administrative Agent or any Lender
against the Borrower.
2.13 Requirements of Law. (a) If the adoption of or any change
in any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Letter of Credit, any
Application or any Eurodollar Loan made by it, or change the basis of
taxation of payments to such Lender in respect thereof (except for
Non-Excluded Taxes covered by Section 2.14 and changes in the rate of
tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar requirement against
assets held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender that is not otherwise
included in the determination of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount that such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender for
such increased cost or reduced amount receivable. If any Lender becomes entitled
to claim any additional amounts pursuant to this paragraph, it shall promptly
notify the Borrower (with a copy to the Administrative Agent) of the event by
reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of or
any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
<PAGE> 31
26
by an amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the Administrative
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction;
provided that the Borrower shall not be required to compensate a Lender pursuant
to this paragraph for any amounts incurred more than six months prior to the
date that such Lender notifies the Borrower of such Lender's intention to claim
compensation therefor; and provided further that, if the circumstances giving
rise to such claim have a retroactive effect, then such six-month period shall
be extended to include the period of such retroactive effect.
(c) A certificate as to any additional amounts payable pursuant
to this Section submitted by any Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrower pursuant to this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.14 Taxes. (a) All payments made by the Borrower under this
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Administrative Agent or any Lender as a result
of a present or former connection between the Administrative Agent or such
Lender and the jurisdiction of the Governmental Authority imposing such tax or
any political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any other Loan Document). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheld
from any amounts payable to the Administrative Agent or any Lender hereunder,
the amounts so payable to the Administrative Agent or such Lender shall be
increased to the extent necessary to yield to the Administrative Agent or such
Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, provided, however, that the Borrower shall not be required to
increase any such amounts payable to any Lender with respect to any Non-Excluded
Taxes (i) that are attributable to such Lender's failure to comply with the
requirements of paragraph (d) or (e) of this Section or (ii) that are United
States withholding taxes imposed on amounts payable to such Lender at the time
the Lender becomes a party to this Agreement, except to the extent that such
Lender's assignor (if any) was entitled, at the time of assignment, to receive
additional amounts from the Borrower with respect to such Non-Excluded Taxes
pursuant to this paragraph.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable
by the Borrower, as promptly as possible thereafter the Borrower shall send to
the Administrative Agent
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for its own account or for the account of the relevant Lender, as the case may
be, a certified copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes or
Other Taxes when due to the appropriate taxing authority or fails to remit to
the Administrative Agent the required receipts or other required documentary
evidence, the Borrower shall indemnify the Administrative Agent and the Lenders
for any incremental taxes, interest or penalties that may become payable by the
Administrative Agent or any Lender as a result of any such failure.
(d) Each Lender (or Transferee) that is not a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S. Lender") shall
deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form
4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a statement substantially in the form of
Exhibit F and a Form W-8, or any subsequent versions thereof or successors
thereto, properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. federal withholding tax on
all payments by the Borrower under this Agreement and the other Loan Documents.
Such forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of any Participant, on or
before the date such Participant purchases the related participation). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other provision of this paragraph, a Non-U.S. Lender shall not be required to
deliver any form pursuant to this paragraph that such Non-U.S. Lender is not
legally able to deliver.
(e) A Lender that is entitled to an exemption from or reduction
of non-U.S. withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law or reasonably requested by the Borrower, such properly completed and
executed documentation prescribed by applicable law as will permit such payments
to be made without withholding or at a reduced rate, provided that such Lender
is legally entitled to complete, execute and deliver such documentation and in
such Lender's judgment such completion, execution or submission would not
materially prejudice the legal position of such Lender.
(f) The agreements in this Section shall survive the termination
of this Agreement and the payment of the Loans and all other amounts payable
hereunder.
2.15 Indemnity. The Borrower agrees to indemnify each Lender and
to hold each Lender harmless from any loss or expense that such Lender may
sustain or incur as a
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consequence of (a) default by the Borrower in making a borrowing of, conversion
into or continuation of Eurodollar Loans after the Borrower has given a notice
requesting the same in accordance with the provisions of this Agreement, (b)
default by the Borrower in making any prepayment of or conversion from
Eurodollar Loans after the Borrower has given a notice thereof in accordance
with the provisions of this Agreement or (c) the making of a prepayment of
Eurodollar Loans on a day that is not the last day of an Interest Period with
respect thereto. Such indemnification may include an amount equal to the excess,
if any, of (i) the amount of interest that would have accrued on the amount so
prepaid, or not so borrowed, converted or continued, for the period from the
date of such prepayment or of such failure to borrow, convert or continue to the
last day of such Interest Period (or, in the case of a failure to borrow,
convert or continue, the Interest Period that would have commenced on the date
of such failure) in each case at the applicable rate of interest for such Loans
provided for herein (excluding, however, the Applicable Margin included therein,
if any) over (ii) the amount of interest (as reasonably determined by such
Lender) that would have accrued to such Lender on such amount by placing such
amount on deposit for a comparable period with leading banks in the interbank
eurodollar market. A certificate as to any amounts payable pursuant to this
Section submitted to the Borrower by any Lender shall be conclusive in the
absence of manifest error. This covenant shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
2.16 Change of Lending Office. Each Lender agrees that, upon the
occurrence of any event giving rise to the operation of Section 2.13 or 2.14(a)
with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided that such
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section shall affect
or postpone any of the obligations of any Borrower or the rights of any Lender
pursuant to Section 2.13 or 2.14(a).
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions
hereof, the Issuing Lender, in reliance on the agreements of the other Lenders
set forth in Section 3.4(a), agrees to issue letters of credit ("Letters of
Credit") for the account of the Borrower on any Business Day during the
Revolving Commitment Period in such form as may be approved from time to time by
the Issuing Lender; provided that the Issuing Lender shall have no obligation to
issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C
Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the
Available Revolving Commitments would be less than zero. Each Letter of Credit
shall (i) be denominated in Dollars and (ii) expire no later than the earlier of
(x) the first anniversary of its date of issuance and (y) the date that is five
Business Days prior to the Revolving Termination Date, provided that any Letter
of Credit with a one-year term may provide for the renewal thereof for
additional one-year periods (which shall in no event extend beyond the date
referred to in clause (y) above).
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(b) Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York.
(c) The Issuing Lender shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Lender or any L/C Participant to exceed any limits imposed by,
any applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may
from time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof. The
Issuing Lender shall promptly furnish to the Administrative Agent, which shall
in turn promptly furnish to the Lenders, notice of the issuance of each Letter
of Credit (including the amount thereof).
3.3 Fees and Other Charges. (a) The Borrower will pay a fee on
all outstanding Letters of Credit at a per annum rate equal to the Applicable
Margin then in effect with respect to Eurodollar Loans shared ratably among the
Lenders and payable quarterly in arrears on each L/C Fee Payment Date after the
issuance date. In addition, the Borrower shall pay to the Issuing Lender for its
own account a fronting fee of 1/4 of 1% per annum on the undrawn and unexpired
amount of each Letter of Credit, payable quarterly in arrears on each L/C Fee
Payment Date after the Issuance Date.
(b) In addition to the foregoing fees, the Borrower shall pay or
reimburse the Issuing Lender for such normal and customary costs and expenses as
are incurred or charged by the Issuing Lender in issuing, negotiating, effecting
payment under, amending or otherwise administering any Letter of Credit.
3.4 L/C Participations. (a) The Issuing Lender irrevocably
agrees to grant and hereby grants to each L/C Participant, and, to induce the
Issuing Lender to issue Letters of Credit hereunder, each L/C Participant
irrevocably agrees to accept and purchase and hereby accepts and purchases from
the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Percentage in the Issuing Lender's obligations and
rights under each Letter of Credit issued hereunder and the amount of each draft
paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and
irrevocably agrees with the Issuing Lender that, if a draft is paid under any
Letter of Credit for which the Issuing Lender is not reimbursed in
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30
full by the Borrower in accordance with the terms of this Agreement, such L/C
Participant shall pay to the Issuing Lender upon demand at the Issuing Lender's
address for notices specified herein an amount equal to such L/C Participant's
Revolving Percentage of the amount of such draft, or any part thereof, that is
not so reimbursed.
(b) If any amount required to be paid by any L/C Participant to
the Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed
portion of any payment made by the Issuing Lender under any Letter of Credit is
paid to the Issuing Lender within three Business Days after the date such
payment is due, such L/C Participant shall pay to the Issuing Lender on demand
an amount equal to the product of (i) such amount, times (ii) the daily average
Federal Funds Effective Rate during the period from and including the date such
payment is required to the date on which such payment is immediately available
to the Issuing Lender, times (iii) a fraction the numerator of which is the
number of days that elapse during such period and the denominator of which is
360. If any such amount required to be paid by any L/C Participant pursuant to
Section 3.4(a) is not made available to the Issuing Lender by such L/C
Participant within three Business Days after the date such payment is due, the
Issuing Lender shall be entitled to recover from such L/C Participant, on
demand, such amount with interest thereon calculated from such due date at the
rate per annum applicable to ABR Loans. A certificate of the Issuing Lender
submitted to any L/C Participant with respect to any amounts owing under this
Section shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made
payment under any Letter of Credit and has received from any L/C Participant its
pro rata share of such payment in accordance with Section 3.4(a), the Issuing
Lender receives any payment related to such Letter of Credit (whether directly
from the Borrower or otherwise, including proceeds of collateral applied thereto
by the Issuing Lender), or any payment of interest on account thereof, the
Issuing Lender will distribute to such L/C Participant its pro rata share
thereof; provided, however, that in the event that any such payment received by
the Issuing Lender shall be required to be returned by the Issuing Lender, such
L/C Participant shall return to the Issuing Lender the portion thereof
previously distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower
agrees to reimburse the Issuing Lender on each date on which the Issuing Lender
notifies the Borrower of the date and amount of a draft presented under any
Letter of Credit and paid by the Issuing Lender for the amount of (a) such draft
so paid and (b) any taxes, fees, charges or other costs or expenses incurred by
the Issuing Lender in connection with such payment. Each such payment shall be
made to the Issuing Lender at its address for notices specified herein in lawful
money of the United States and in immediately available funds. Interest shall be
payable on any and all amounts remaining unpaid by the Borrower under this
Section from the date such amounts become payable (whether at stated maturity,
by acceleration or otherwise) until payment in full at the rate set forth in (i)
until the second Business Day following the date of the applicable drawing,
Section 2.9(b) and (ii) thereafter, Section 2.9(c).
3.6 Obligations Absolute. The Borrower's obligations under this
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment that the
Borrower may have or have had against the
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Issuing Lender, any beneficiary of a Letter of Credit or any other Person. The
Borrower also agrees with the Issuing Lender that the Issuing Lender shall not
be responsible for, and the Borrower's Reimbursement Obligations under Section
3.5 shall not be affected by, among other things, the validity or genuineness of
documents or of any endorsements thereon, even though such documents shall in
fact prove to be invalid, fraudulent or forged, or any dispute between or among
the Borrower and any beneficiary of any Letter of Credit or any other party to
which such Letter of Credit may be transferred or any claims whatsoever of the
Borrower against any beneficiary of such Letter of Credit or any such
transferee. The Issuing Lender shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except for
errors or omissions found by a final and nonappealable decision of a court of
competent jurisdiction to have resulted from the gross negligence or willful
misconduct of the Issuing Lender. The Borrower agrees that any action taken or
omitted by the Issuing Lender under or in connection with any Letter of Credit
or the related drafts or documents, if done in the absence of gross negligence
or willful misconduct and in accordance with the standards of care specified in
the Uniform Commercial Code of the State of New York, shall be binding on the
Borrower and shall not result in any liability of the Issuing Lender to the
Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented
for payment under any Letter of Credit, the Issuing Lender shall promptly notify
the Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.
3.8 Applications. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into
this Agreement and to make the Loans and issue or participate in the Letters of
Credit, the Borrower hereby represents and warrants to the Administrative Agent
and each Lender that:
4.1 Financial Condition. The audited consolidated balance sheets
of the Borrower as at March 31, 1997 and March 31, 1998 and the related
consolidated statements of income and of cash flows for the fiscal years ended
on such dates, reported on by and accompanied by an unqualified report from BDO
Seidman LLP in the case of the March 31, 1997 financial statements and Arthur
Andersen LLP in the case of the March 31, 1998 financial statements, present
fairly the consolidated financial condition of the Borrower as at such dates,
and the consolidated results of its operations and its consolidated cash flows
for the fiscal years then ended. All such financial statements, including the
related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except as approved by the
aforementioned firm of accountants and disclosed therein). The
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Borrower and its Subsidiaries do not have any material Guarantee Obligations,
contingent liabilities and liabilities for taxes, or any long-term leases or
unusual forward or long-term commitments, including any interest rate or foreign
currency swap or exchange transaction or other obligation in respect of
derivatives, that are not reflected in the most recent financial statements
referred to in this paragraph. During the period from March 31, 1998 to and
including the date hereof there has been no Disposition by the Borrower or any
of its Subsidiaries of any material part of its business or property.
4.2 No Change. Since March 31, 1998 there has been no development or
event that has had or could reasonably be expected to have a Material Adverse
Effect.
4.3 Corporate Existence; Compliance with Law. Each of the Borrower and
its Subsidiaries (a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (b) has the corporate
power and authority, and the legal right, to own and operate its property, to
lease the property it operates as lessee and to conduct the business in which it
is currently engaged, (c) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where the failure to so qualify
could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect and (d) is in compliance with all Requirements of Law except to the
extent that the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. Each Loan
Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Loan Documents to which it is a party and, in the case of the Borrower, to
authorize the borrowings on the terms and conditions of this Agreement. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement or any of the Loan
Documents, except (i) consents, authorizations, filings and notices described in
Schedule 4.4, which consents, authorizations, filings and notices have been
obtained or made and are in full force and effect and (ii) the filings referred
to in Section 4.19. Each Loan Document has been duly executed and delivered on
behalf of each Loan Party party thereto. This Agreement constitutes, and each
other Loan Document upon execution will constitute, a legal, valid and binding
obligation of each Loan Party party thereto, enforceable against each such Loan
Party in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
4.5 No Legal Bar. The execution, delivery and performance of this
Agreement and the other Loan Documents, the issuance of Letters of Credit, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or any Contractual Obligation of the Borrower or any of its
Subsidiaries and will not result in, or require, the creation or imposition of
any Lien on any of their respective properties or revenues
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pursuant to any Requirement of Law or any such Contractual Obligation (other
than the Liens created by the Security Documents). No Requirement of Law or
Contractual Obligation applicable to the Borrower or any of its Subsidiaries
could reasonably be expected to have a Material Adverse Effect.
4.6 Litigation. Except as set forth in Schedule 4.6 (which litigations,
investigations or proceedings are identified for disclosure purposes only and in
the aggregate could not reasonably be expected to have a Material Adverse
Effect), no litigation, investigation or proceeding of or before any arbitrator
or Governmental Authority is pending or, to the knowledge of the Borrower,
threatened by or against the Borrower or any of its Subsidiaries or against any
of their respective properties or revenues (a) with respect to any of the Loan
Documents or any of the transactions contemplated hereby or thereby, or (b) that
could reasonably be expected to have a Material Adverse Effect.
4.7 No Default. Neither the Borrower nor any of its Subsidiaries is in
default under or with respect to any of its Contractual Obligations in any
respect that could reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of the Borrower and its
Subsidiaries has title in fee simple to, or a valid leasehold interest in, all
its real property, and good title to, or a valid leasehold interest in, all its
other property, and none of such property is subject to any Lien except as
permitted by Section 7.3.
4.9 Intellectual Property. The Borrower and each of its Subsidiaries
owns, or is licensed to use, all Intellectual Property necessary for the conduct
of its business as currently conducted. No material claim has been asserted and
is pending by any Person challenging or questioning the use of any Intellectual
Property or the validity or effectiveness of any Intellectual Property, nor does
the Borrower know of any valid basis for any such claim. The use of Intellectual
Property by the Borrower and its Subsidiaries does not infringe on the rights of
any Person in any material respect.
4.10 Taxes. Each of the Borrower and each of its Subsidiaries has filed
or caused to be filed all Federal, state and other material tax returns that are
required to be filed and has paid all taxes shown to be due and payable on said
returns or on any assessments made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of that are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or its Subsidiaries, as the case may be); no tax Lien has
been filed, and, to the knowledge of the Borrower, no claim is being asserted,
with respect to any such tax, fee or other charge.
4.11 Federal Regulations. No part of the proceeds of any Loans will be
used for "buying" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U as now and from time to
time hereafter in effect or for any purpose that violates the provisions of the
Regulations of the Board. If requested by any Lender
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or the Administrative Agent, the Borrower will furnish to the Administrative
Agent and each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-3 or FR Form U-1, as applicable, referred to in
Regulation U.
4.12 Labor Matters. Except as, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect: (a) there are no strikes or other
labor disputes against the Borrower or any of its Subsidiaries pending or, to
the knowledge of the Borrower, threatened; (b) hours worked by and payment made
to employees of the Borrower and its Subsidiaries have not been in violation of
the Fair Labor Standards Act or any other applicable Requirement of Law dealing
with such matters; and (c) all payments due from the Borrower or any of its
Subsidiaries on account of employee health and welfare insurance have been paid
or accrued as a liability on the books of the Borrower or the relevant
Subsidiary.
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien
in favor of the PBGC or a Plan has arisen, during such five-year period. The
present value of all accrued benefits under each Single Employer Plan (based on
those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan that
has resulted or could reasonably be expected to result in a material liability
under ERISA, and neither the Borrower nor any Commonly Controlled Entity would
become subject to any material liability under ERISA if the Borrower or any such
Commonly Controlled Entity were to withdraw completely from all Multiemployer
Plans as of the valuation date most closely preceding the date on which this
representation is made or deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent.
4.14 Investment Company Act; Other Regulations. No Loan Party is an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) that limits its ability to incur Indebtedness.
4.15 Subsidiaries. Except as disclosed to the Administrative Agent by
the Borrower in writing from time to time after the Closing Date, (a) Schedule
4.15(a) sets forth the name and jurisdiction of incorporation of each Subsidiary
and, as to each such Subsidiary, the percentage of each class of Capital Stock
owned by any Loan Party and (b) there are no outstanding subscriptions, options,
warrants, calls, rights or other agreements or commitments (other than stock
options granted to employees or directors and directors' qualifying shares) of
any nature relating to any Capital Stock of the Borrower or any Subsidiary,
except as created by the Loan Documents or as described on Schedule 4.15(b).
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4.16 Use of Proceeds. The proceeds of the Loans shall be used to
finance (i) Permitted Business Acquisitions and capital expenditures and (ii)
working capital and general corporate purposes in an aggregate amount not to
exceed $2,000,000; provided that no more than $5,000,000 of the proceeds of the
Loans in the aggregate may be used for theater construction and/or acquisitions
outside of the United States.
4.17 Environmental Matters. Except as, in the aggregate, could
not reasonably be expected to have a Material Adverse Effect:
(a) the facilities and properties owned, leased or operated by
the Borrower or any of its Subsidiaries (the "Properties") do not
contain, and have not previously contained, any Materials of
Environmental Concern in amounts or concentrations or under
circumstances that constitute or constituted a violation of, or could
give rise to liability under, any Environmental Law;
(b) neither the Borrower nor any of its Subsidiaries has
received or is aware of any notice of violation, alleged violation,
non-compliance, liability or potential liability regarding environmental
matters or compliance with Environmental Laws with regard to any of the
Properties or the business operated by the Borrower or any of its
Subsidiaries (the "Business"), nor does the Borrower have knowledge or
reason to believe that any such notice will be received or is being
threatened;
(c) Materials of Environmental Concern have not been transported
or disposed of from the Properties in violation of, or in a manner or to
a location that could give rise to liability under, any Environmental
Law, nor have any Materials of Environmental Concern been generated,
treated, stored or disposed of at, on or under any of the Properties in
violation of, or in a manner that could give rise to liability under,
any applicable Environmental Law;
(d) no judicial proceeding or governmental or administrative
action is pending or, to the knowledge of the Borrower, threatened,
under any Environmental Law to which the Borrower or any Subsidiary is
or will be named as a party with respect to the Properties or the
Business, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other administrative
or judicial requirements outstanding under any Environmental Law with
respect to the Properties or the Business;
(e) there has been no release or threat of release of Materials
of Environmental Concern at or from the Properties, or arising from or
related to the operations of the Borrower or any Subsidiary in
connection with the Properties or otherwise in connection with the
Business, in violation of or in amounts or in a manner that could give
rise to liability under Environmental Laws;
(f) the Properties and all operations at the Properties are in
compliance, and have in the last five years been in compliance, with all
applicable Environmental Laws, and
<PAGE> 41
36
there is no contamination at, under or about the Properties or violation
of any Environmental Law with respect to the Properties or the Business;
and
(g) neither the Borrower nor any of its Subsidiaries has assumed
any liability of any other Person under Environmental Laws.
4.18 Accuracy of Information, etc. No statement or information
contained in this Agreement, any other Loan Document or any other document,
certificate or statement furnished by or on behalf of any Loan Party to the
Administrative Agent or the Lenders, or any of them, for use in connection with
the transactions contemplated by this Agreement or the other Loan Documents,
contained as of the date such statement, information, document or certificate
was so furnished, any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements contained herein or therein not
misleading. The projections and pro forma financial information contained in the
materials referenced above are based upon good faith estimates and assumptions
believed by management of the Borrower to be reasonable at the time made, it
being recognized by the Lenders that such financial information as it relates to
future events is not to be viewed as fact and that actual results during the
period or periods covered by such financial information may differ from the
projected results set forth therein by a material amount. There is no fact known
to any Loan Party that could reasonably be expected to have a Material Adverse
Effect that has not been expressly disclosed herein, in the other Loan Documents
or in any other documents, certificates and statements furnished to the
Administrative Agent and the Lenders for use in connection with the transactions
contemplated hereby and by the other Loan Documents.
4.19 Security Documents. (a) The Guarantee and Collateral
Agreement is effective to create in favor of the Administrative Agent, for the
benefit of the Lenders, a legal, valid and enforceable security interest in the
Collateral described therein and proceeds thereof. In the case of the Pledged
Stock described in the Guarantee and Collateral Agreement, when stock
certificates representing such Pledged Stock are delivered to the Administrative
Agent, and in the case of the other Collateral described in the Guarantee and
Collateral Agreement, when financing statements and other filings specified on
Schedule 4.19 in appropriate form are filed in the offices specified on Schedule
4.19, the Guarantee and Collateral Agreement shall constitute a fully perfected
Lien on, and security interest in, all right, title and interest of the Loan
Parties in such Collateral and the proceeds thereof, as security for the
Obligations (as defined in the Guarantee and Collateral Agreement), in each case
prior and superior in right to any other Person (except, in the case of
Collateral other than Pledged Stock, Liens permitted by Section 7.3).
(b) Each of the Mortgages is effective to create in favor of the
Administrative Agent, for the benefit of the Lenders, a legal, valid and
enforceable Lien on the Mortgaged Properties described therein and proceeds
thereof, and when the Mortgages are filed in the offices specified on Schedule
4.19(b), each such Mortgage shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of the Loan Parties in the
Mortgaged Properties and the proceeds thereof, as security for the Obligations
(as defined in the relevant Mortgage), in each case prior and superior in right
to any other Person (other than the applicable landlord in respect of a
leasehold interest).
<PAGE> 42
37
4.20 Solvency. Each Loan Party is, and after giving effect to
incurrence of all Indebtedness being incurred in connection herewith will be and
will continue to be, Solvent.
4.21 Year 2000 Matters. Any reprogramming required to permit the
proper functioning (but only to the extent that such proper functioning would
otherwise be impaired by the occurrence of the year 2000) in and following the
year 2000 of computer systems and other equipment containing embedded
microchips, in either case owned or operated by the Borrower or any of its
Subsidiaries or used or relied upon in the conduct of their business (including
any such systems and other equipment supplied by others or with which the
computer systems of the Borrower or any of its Subsidiaries interface), and the
testing of all such systems and other equipment as so reprogrammed, will be
completed by March 31, 1999. The costs to the Borrower and its Subsidiaries that
have not been incurred as of the date hereof for such reprogramming and testing
and for the other reasonably foreseeable consequences to them of any improper
functioning of other computer systems and equipment containing embedded
microchips due to the occurrence of the year 2000 could not reasonably be
expected to result in a Default or Event of Default or to have a Material
Adverse Effect. Except for any reprogramming referred to above, the computer
systems of the Borrower and its Subsidiaries are and, with ordinary course
upgrading and maintenance, will continue for the term of this Agreement to be,
sufficient for the conduct of their business as currently conducted.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Effectiveness. The effectiveness of this
Agreement is subject to the satisfaction, prior to or concurrently with the
Closing Date (but in any event no later than October 19, 1998), of the following
conditions precedent:
(a) Credit Agreement; Guarantee and Collateral Agreement. The
Administrative Agent shall have received (i) this Agreement, executed
and delivered by the Administrative Agent, the Borrower and each Lender
(ii) the Guarantee and Collateral Agreement, executed and delivered by
the Borrower and each Subsidiary Guarantor (iii) an Acknowledgment and
Consent in the form attached to the Guarantee and Collateral Agreement,
executed and delivered by each Issuer (as defined therein), if any, that
is not a Loan Party.
(b) Financial Statements and Projections. The Lenders shall have
received and be satisfied with the audited consolidated financial
statements of the Borrower for the 1997 and 1998 fiscal years as well as
the operating projections and capital expenditure budget for the
Borrower and its Subsidiaries.
(c) Approvals. All governmental and third party approvals
(including landlords' and other consents) necessary in connection with
the continuing operations of the Borrower and its Subsidiaries and the
transactions contemplated hereby shall have been obtained and be in full
force and effect, and all applicable waiting periods shall have expired
without any action being taken or threatened by any competent authority
that would restrain, prevent or otherwise impose adverse conditions on
the financing contemplated hereby.
<PAGE> 43
38
(d) Lien Searches. The Administrative Agent shall have received
the results of a recent lien search in each of the jurisdictions where
assets of the Loan Parties are located, and such search shall reveal no
liens on any of the assets of the Borrower or its Subsidiaries except
for liens permitted by Section 7.3 or discharged on or prior to the
Closing Date pursuant to documentation satisfactory to the
Administrative Agent.
(e) Fees. The Lenders and the Administrative Agent shall have
received all fees required to be paid, and all expenses for which
invoices have been presented (including the reasonable fees and expenses
of legal counsel), on or before the Closing Date.
(f) Closing Certificate. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of each Loan
Party, dated the Closing Date, substantially in the form of Exhibit C,
with appropriate insertions and attachments.
(g) Legal Opinions. The Administrative Agent shall have received
the executed legal opinion of Katten Muchin & Zavis, counsel to the
Borrower and its Subsidiaries, substantially in the form of Exhibit E.
Such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent
may reasonably require.
(h) Pledged Stock; Stock Powers; Pledged Notes. The
Administrative Agent shall have received (i) the certificates
representing the shares of Capital Stock pledged pursuant to the
Guarantee and Collateral Agreement, together with an undated stock power
for each such certificate executed in blank by a duly authorized officer
of the pledgor thereof and (ii) each promissory note (if any) pledged to
the Administrative Agent pursuant to the Guarantee and Collateral
Agreement endorsed (without recourse) in blank (or accompanied by an
executed transfer form in blank) by the pledgor thereof.
(i) Filings, Registrations and Recordings. Each document
(including any Uniform Commercial Code financing statement) required by
the Security Documents or under law or reasonably requested by the
Administrative Agent to be filed, registered or recorded in order to
create in favor of the Administrative Agent, for the benefit of the
Lenders, a perfected Lien on the Collateral described therein, prior and
superior in right to any other Person (other than with respect to Liens
expressly permitted by Section 7.3), shall be in proper form for filing,
registration or recordation.
(j) Insurance. The Administrative Agent shall have received
insurance certificates satisfying the requirements of Section 5.3(b) of
the Guarantee and Collateral Agreement.
(k) Due Diligence. The Administrative Agent shall be satisfied
with the results of its due diligence investigation of the Borrower, its
Subsidiaries and prospective Permitted Business Acquisitions and
construction/development projects of the Borrower or its Subsidiaries,
including visits to each business location as it may request.
<PAGE> 44
39
(l) Capitalization and Organizational Structure; Equity Holders
and Management. The Administrative Agent shall be satisfied with the
capital and organizational structure of the Borrower and its
Subsidiaries, its management and equity holders.
(m) Related Agreements. The Administrative Agent shall have
received in a form reasonably satisfactory, with a copy for each Lender,
true and correct copies, certified as to authenticity by the Borrower,
any agreements in respect of the Borrower or its Subsidiaries, the
Warrant Agreement, any equity arrangements, management agreements,
purchase or other acquisition agreements, construction agreements, debt
instrument, lease, security agreement or other contract to which any
Loan Party may be a party.
5.2 Conditions to Each Extension of Credit. The agreement of
each Lender to make any extension of credit requested to be made by it on any
date (including its initial extension of credit) is subject to the satisfaction
of the following conditions precedent:
(a) Representations and Warranties. Each of the representations
and warranties made by any Loan Party in or pursuant to the Loan
Documents shall be true and correct on and as of such date as if made on
and as of such date.
(b) No Default. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
extensions of credit requested to be made on such date.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
Borrower hereby agrees that, so long as the Revolving
Commitments remain in effect, any Letter of Credit remains outstanding or any
Loan or other amount is owing to any Lender or the Administrative Agent
hereunder, the Borrower shall and shall cause each of its Subsidiaries to:
6.1 Financial Statements. Furnish to the Administrative Agent
and each Lender:
(a) as soon as available, but in any event within 120 days after
the end of each fiscal year of the Borrower, a copy of the audited
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such year and the related audited
consolidated statements of income and of cash flows for such year,
setting forth in each case in comparative form the figures for the
previous year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope of
the audit, by Arthur Andersen LLP or other independent certified public
accountants of nationally recognized standing;
<PAGE> 45
40
(b) as soon as available, but in any event not later than
45 days after the end of each of the first three quarterly periods of
each fiscal year of the Borrower, the unaudited consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end
of such quarter and the related unaudited consolidated statements of
income and of cash flows for such quarter and the portion of the
fiscal year through the end of such quarter, setting forth in each
case in comparative form the figures for the previous year, certified
by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments); and
(c) as soon as available, but in any event not later than
45 days after the end of each month occurring during each fiscal year
of the Borrower (other than the third, sixth, ninth and twelfth such
month), the unaudited consolidated balance sheet of the Borrower and
its Subsidiaries as at the end of such month and the related
unaudited consolidated statements of income and of cash flows for
such month and the portion of the fiscal year through the end of such
month, setting forth in each case in comparative form the figures for
the previous year and performance to budget analysis on a
consolidated and individual theater basis, certified by a Responsible
Officer as being fairly stated in all material respects (subject to
normal year-end audit adjustments).
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.2 Certificates; Other Information. Furnish to the
Administrative Agent and each Lender (or, in the case of clause (g), to the
relevant Lender):
(a) concurrently with the delivery of the financial
statements referred to in Section 6.1(a), a certificate of the
independent certified public accountants reporting on such financial
statements stating that in making the examination necessary therefor
no knowledge was obtained of any Default or Event of Default, except
as specified in such certificate;
(b) concurrently with the delivery of any financial
statements pursuant to Section 6.1, (i) a certificate of a
Responsible Officer stating that, to the best of each such
Responsible Officer's knowledge, each Loan Party during such period
has observed or performed all of its covenants and other agreements,
and satisfied every condition, contained in this Agreement and the
other Loan Documents to which it is a party to be observed, performed
or satisfied by it, and that such Responsible Officer has obtained no
knowledge of any Default or Event of Default except as specified in
such certificate and (ii) in the case of quarterly or annual
financial statements, (x) a Compliance Certificate containing all
information and calculations necessary for determining compliance by
the Borrower and its Subsidiaries with the provisions of this
Agreement referred to therein as of the last day of the fiscal
quarter or fiscal year of the Borrower, as the case may be, and (y)
to the extent not previously disclosed to the Administrative Agent, a
listing of any county or state within the United States where any
Loan Party keeps inventory or
<PAGE> 46
41
equipment and of any Intellectual Property acquired by any Loan Party
since the date of the most recent list delivered pursuant to this
clause (y) (or, in the case of the first such list so delivered,
since the Closing Date);
(c) as soon as available, and in any event no later than 60
days after the end of each fiscal year of the Borrower, a detailed
consolidated budget for the following fiscal year (including a
projected consolidated balance sheet of the Borrower and its
Subsidiaries as of the end of the following fiscal year, the related
consolidated statements of projected cash flow, projected changes in
financial position, projected income and projected capital
expenditures and a description of the underlying assumptions
applicable thereto) in a form satisfactory to the Lenders and a
summary forecast of the projected consolidated financial condition
and results of operations of the Borrower and its Subsidiaries
through the Revolving Termination Date, and, as soon as available,
significant revisions, if any, of such budget and projections with
respect to such fiscal year (collectively, the "Projections"), which
Projections shall in each case be accompanied by a certificate of a
Responsible Officer stating that such Projections are based on
reasonable estimates, information and assumptions and that such
Responsible Officer has no reason to believe that such Projections
are incorrect or misleading in any material respect;
(d) concurrently with the delivery of any financial
statements pursuant to Section 6.1, a narrative discussion and
analysis of the financial condition and results of operations of the
Borrower and its Subsidiaries and each of their theaters on an
individual basis for such fiscal period and for the period from the
beginning of the then current fiscal year to the end of such fiscal
period, as compared to the portion of the Projections covering such
periods and to the comparable periods of the previous year;
(e) within five days after the same are sent, copies of all
financial statements and reports that the Borrower sends to the
holders of any class of its debt securities or public equity
securities and, within five days after the same are filed, copies of
all financial statements and reports or the Borrower may make to, or
file with, the SEC; and
(f) promptly, such additional financial and other
information as any Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all its material obligations of whatever nature, except where the
amount or validity thereof is currently being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of the Borrower or its Subsidiaries, as
the case may be.
6.4 Maintenance of Existence; Compliance. (a) (i)
preserve, renew and keep in full force and effect its corporate existence and
(ii) take all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business, except,
in each case, as otherwise permitted by Section 7.4 and except, in the case of
clause (ii) above, to the extent that failure to do so could not reasonably be
expected to have a Material
<PAGE> 47
42
Adverse Effect; and (b) comply with all Contractual Obligations and Requirements
of Law except to the extent that failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep
all property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted and (b) maintain with financially
sound and reputable insurance companies insurance on all its property in at
least such amounts and against at least such risks (but including in any event
public liability, product liability and business interruption) as are usually
insured against in the same general area by companies engaged in the same or a
similar business.
6.6 Inspection of Property; Books and Records;
Discussions. (a) Keep proper books of records and account in which full, true
and correct entries in conformity with GAAP and all Requirements of Law shall be
made of all dealings and transactions in relation to its business and activities
and (b) permit representatives of any Lender to visit and inspect any of its
properties and examine and make abstracts from any of its books and records at
any reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other condition of the
Borrower and its Subsidiaries with officers and employees of the Borrower and
its Subsidiaries and with its independent certified public accountants.
6.7 Notices. Promptly give notice to the
Administrative Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any
Contractual Obligation of the Borrower or any of its Subsidiaries or
(ii) litigation, investigation or proceeding that may exist at any
time between the Borrower or any of its Subsidiaries and any
Governmental Authority, that in either case, if not cured or if
adversely determined, as the case may be, could reasonably be
expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or
any of its Subsidiaries in which the amount involved is $1,000,000 or
more and not covered by insurance or in which injunctive or similar
relief is sought;
(d) the following events, as soon as possible and in any
event within 30 days after the Borrower knows or has reason to know
thereof: (i) the occurrence of any Reportable Event with respect to
any Plan, a failure to make any required contribution to a Plan, the
creation of any Lien in favor of the PBGC or a Plan or any withdrawal
from, or the termination, Reorganization or Insolvency of, any
Multiemployer Plan or (ii) the institution of proceedings or the
taking of any other action by the PBGC or the Borrower or any
Commonly Controlled Entity or any Multiemployer Plan with respect to
the withdrawal from, or the termination, Reorganization or Insolvency
of, any Plan; and
<PAGE> 48
43
(e) any development or event that has had or could
reasonably be expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Borrower or the relevant Subsidiary proposes
to take with respect thereto.
6.8 Environmental Laws. (a) Comply in all material
respects with, and ensure compliance in all material respects by all tenants and
subtenants, if any, with, all applicable Environmental Laws, and obtain and
comply in all material respects with and maintain, and ensure that all tenants
and subtenants obtain and comply in all material respects with and maintain, any
and all licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws.
(b) Conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws.
6.9 Interest Rate Protection: In the case of the
Borrower, (i) within 90 days of the date on which the aggregate principal amount
(the "Hedged Amount") of the Loans equals or exceeds $5,000,000, enter into one
or more Hedge Agreements on terms and conditions satisfactory to the Lenders to
hedge at least 50% of such Loans for a period of not less than two years, and
(ii) thereafter, within 90 days of each date on which the aggregate principal
amount of the Loans initially exceeds the Hedged Amount by one or more
increments of $2,500,000, enter into one or more Hedge Agreements on terms and
conditions satisfactory to the Lenders to hedge at least 50% of such incremental
amount for a period of not less than two years or until the Revolving
Termination Date; provided that if the Borrower enters into an interest rate
cap, such cap shall not exceed, on average, the existing Eurodollar Rate for a
three month interest period by more than 2%.
6.10 Additional Collateral, etc. (a) With respect to
any property acquired after the Closing Date by the Borrower or any of its
Subsidiaries (other than (x) any property described in paragraph (b), (c) or (d)
below and (y) any property subject to a Lien expressly permitted by Section
7.3(g) and (z) property acquired by any Foreign Subsidiary) as to which the
Administrative Agent, for the benefit of the Lenders, does not have a perfected
Lien, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement or such other documents as
the Administrative Agent deems necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, a security interest in
such property and (ii) take all actions necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, a perfected first priority
security interest in such property, including the filing of Uniform Commercial
Code financing statements in such jurisdictions as may be required by the
Guarantee and Collateral Agreement or by law or as may be requested by the
Administrative Agent.
<PAGE> 49
44
(b) With respect to any fee or leasehold interest
provided that, with respect to any leasehold interest as to which landlord
consent is necessary for the delivery of a Mortgage to the Administrative Agent
for the benefit of the Lenders, the Borrower shall not be required to comply
with the requirements of this Section 6.10(b) until such time as the Borrower
has obtained such consent) in any real property having a value (together with
improvements thereof) of at least $250,000 owned or leased on or acquired after
the Closing Date by the Borrower or any of its Subsidiaries (other than any real
property acquired by any Foreign Subsidiary), promptly (i) execute and deliver a
first priority mortgage in form and substance satisfactory to the Administrative
Agent, in favor of the Administrative Agent, for the benefit of the Lenders,
covering such real property, (ii) if requested by the Administrative Agent,
provide the Lenders with (x) title and extended coverage insurance covering such
real property in an amount at least equal to the purchase price of such real
property (or such other amount as shall be reasonably specified by the
Administrative Agent) as well as a current ALTA survey thereof, together with a
surveyor's certificate and (y) any consents or estoppels reasonably deemed
necessary or advisable by the Administrative Agent in connection with such
mortgage or deed of trust, each of the foregoing in form and substance
reasonably satisfactory to the Administrative Agent and (iii) if requested by
the Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Administrative
Agent.
(c) With respect to any new Subsidiary (other than a
Foreign Subsidiary) created or acquired after the Closing Date by the Borrower
(which, for the purposes of this paragraph (c), shall include any existing
Subsidiary that ceases to be an Foreign Subsidiary), the Borrower or any of its
Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement as the Administrative Agent
deems necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary that is owned by the Borrower or any of its
Subsidiaries, (ii) deliver to the Administrative Agent the certificates
representing such Capital Stock, together with undated stock powers, in blank,
executed and delivered by a duly authorized officer of the Borrower or such
Subsidiary, as the case may be, (iii) cause such new Subsidiary (A) to become a
party to the Guarantee and Collateral Agreement, (B) to take such actions
necessary or advisable to grant to the Administrative Agent for the benefit of
the Lenders a perfected first priority security interest in the Collateral
described in the Guarantee and Collateral Agreement with respect to such new
Subsidiary, including the filing of Uniform Commercial Code financing statements
in such jurisdictions as may be required by the Guarantee and Collateral
Agreement or by law or as may be requested by the Administrative Agent and (C)
to deliver to the Administrative Agent a certificate of such Subsidiary,
substantially in the form of Exhibit C, with appropriate insertions and
attachments, and (iv) if requested by the Administrative Agent, deliver to the
Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
(d) With respect to any new Foreign Subsidiary
created or acquired after the Closing Date by the Borrower or any of its
Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement as the Administrative Agent
deems necessary or advisable to grant to the Administrative Agent, for the
<PAGE> 50
45
benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary that is owned by the Borrower or any of its
Subsidiaries (provided that in no event shall more than 65% of the total
outstanding Capital Stock of any such new Subsidiary be required to be so
pledged), (ii) deliver to the Administrative Agent the certificates representing
such Capital Stock, together with undated stock powers, in blank, executed and
delivered by a duly authorized officer of the Borrower or such Subsidiary, as
the case may be, and take such other action as may be necessary or, in the
opinion of the Administrative Agent, desirable to perfect the Administrative
Agent's security interest therein, and (iii) if requested by the Administrative
Agent, deliver to the Administrative Agent legal opinions relating to the
matters described above, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent.
(e) Within 60 days after the Closing Date, use
commercially reasonable efforts to obtain from each landlord in respect of any
property leased by the Borrower or any of its subsidiaries in the United States
a consent (if advisable under the applicable lease) in form and substance
reasonably satisfactory to the Administrative Agent to the granting of a
Mortgage in respect of such property.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Revolving
Commitments remain in effect, any Letter of Credit remains outstanding or any
Loan or other amount is owing to any Lender or the Administrative Agent
hereunder, the Borrower shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly:
7.1 Financial Condition Covenants.
(a) Consolidated Leverage Ratio. Permit the
Consolidated Leverage Ratio on any day during any period set forth below to
exceed the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Consolidated
Fiscal Quarter Leverage Ratio
-------------- --------------
<S> <C>
September 30, 1998-March 30, 1999 4.00 to 1.00
March 31, 1999-March 30, 2001 3.50 to 1.00
March 31, 2001-thereafter 3.00 to 1.00
</TABLE>
(b) Consolidated Interest Coverage Ratio. Permit the
Consolidated Interest Coverage Ratio for any period of four consecutive fiscal
quarters of the Borrower ending with any fiscal quarter set forth below to be
less than the ratio set forth below opposite such fiscal quarter:
<PAGE> 51
46
<TABLE>
<CAPTION>
Consolidated Interest
Fiscal Quarter Coverage Ratio
-------------- ---------------------
<S> <C>
September 30, 1998 2.00 to 1.00
December 31, 1998 2.00 to 1.00
March 31, 1999 2.00 to 1.00
June 30, 1999 2.00 to 1.00
September 30, 1999 2.00 to 1.00
December 31, 1999 2.00 to 1.00
March 31, 2000 2.25 to 1.00
June 30, 2000 2.25 to 1.00
September 30, 2000 2.25 to 1.00
December 31, 2000 2.25 to 1.00
March 31, 2001 - thereafter 2.50 to 1.00
</TABLE>
(c) Consolidated Fixed Charge Coverage Ratio. Permit
the Consolidated Fixed Charge Coverage Ratio for any period of four consecutive
fiscal quarters of the Borrower to be less than 1.10 to 1.00.
(d) Consolidated EBITDA. Permit Consolidated EBITDA for
any period of four consecutive fiscal quarters of the Borrower ending with any
fiscal quarter set forth below to be less than the amount set forth below
opposite such fiscal quarter:
<TABLE>
<CAPTION>
Consolidated
Fiscal Quarter EBITDA
-------------- ------------
<S> <C>
September 30, 1998 $2,700,000
December 31, 1998 $2,700,000
March 31, 1999 $2,700,000
June 30, 1999 $2,700,000
September 30, 1999 $2,700,000
December 31, 1999 $2,700,000
March 31, 2000 $4,400,000
June 30, 2000 $4,400,000
September 30, 2000 $4,400,000
December 31, 2000 $4,400,000
March 31, 2001-thereafter $5,500,000
</TABLE>
7.2 Indebtedness. Create, issue, incur, assume,
become liable in respect of or suffer to exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan
Document;
(b) Indebtedness of the Borrower to any Subsidiary and of
any Wholly Owned Subsidiary Guarantor to the Borrower or any other
Subsidiary;
<PAGE> 52
47
(c) Guarantee Obligations incurred in the ordinary course
of business by the Borrower or any of its Subsidiaries of obligations
of any Wholly Owned Subsidiary Guarantor;
(d) Indebtedness outstanding on the date hereof and listed
on Schedule 7.2(d) and any refinancings, refundings, renewals or
extensions thereof (without increasing, or shortening the maturity
of, the principal amount thereof);
(e) Indebtedness (including, without limitation, Capital
Lease Obligations) secured by Liens permitted by Section 7.3(g) in an
aggregate principal amount not to exceed $3,000,000 at any one time
outstanding; and
(f) additional unsecured Indebtedness of the Borrower or
any of its Subsidiaries in an aggregate principal amount (for the
Borrower and all Subsidiaries) not to exceed $250,000 at any one time
outstanding.
7.3 Liens. Create, incur, assume or suffer to exist any
Lien upon any of its property, whether now owned or hereafter acquired, except
for:
(a) Liens for taxes not yet due or that are being contested
in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the
Borrower or its Subsidiaries, as the case may be, in conformity with
GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business that are not overdue for a period of more than 30 days or
that are being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation;
(d) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(e) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of business
that, in the aggregate, are not substantial in amount and that do not
in any case materially detract from the value of the property subject
thereto or materially interfere with the ordinary conduct of the
business of the Borrower or any of its Subsidiaries;
(f) Liens in existence on the date hereof listed on
Schedule 7.3(f), securing Indebtedness permitted by Section 7.2(d),
provided that no such Lien is spread to cover any additional property
after the Closing Date and that the amount of Indebtedness secured
thereby is not increased;
<PAGE> 53
48
(g) Liens securing Indebtedness of the Borrower or any
other Subsidiary incurred pursuant to Section 7.2(e) to finance the
acquisition of fixed or capital assets, provided that (i) such Liens
shall be created substantially simultaneously with the acquisition of
such fixed or capital assets, (ii) such Liens do not at any time
encumber any property other than the property financed by such
Indebtedness and (iii) the amount of Indebtedness secured thereby is
not increased;
(h) Liens created pursuant to the Security Documents; and
(i) any interest or title of a lessor under any lease
entered into by the Borrower or any other Subsidiary in the ordinary
course of its business and covering only the assets so leased.
7.4 Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or Dispose of, all or substantially all
of its property or business, except that:
(a) any Subsidiary of the Borrower may be merged or
consolidated with or into the Borrower (provided that the Borrower
shall be the continuing or surviving corporation) or with or into any
Wholly Owned Subsidiary Guarantor (provided that the Wholly Owned
Subsidiary Guarantor shall be the continuing or surviving
corporation);
(b) any Subsidiary of the Borrower may Dispose of any or
all of its assets (upon voluntary liquidation or otherwise) to the
Borrower or any Wholly Owned Subsidiary Guarantor; and
(c) the Borrower may reincorporate as a Delaware
corporation, or may merge into a Delaware corporation to be formed
with the same name upon prior written notice to the Administrative
Agent, provided that the Borrower and such Delaware corporation
provide the Administrative Agent with such documents and instruments
as it may reasonably request with respect thereto prior to such
merger or reincorporation, including, without limitation, an
assumption agreement pursuant to which such surviving Person would
assume the obligations and liabilities of the Borrower under this
Agreement and the other Loan Documents.
7.5 Disposition of Property. Dispose of any of its
property, whether now owned or hereafter acquired, or, in the case of any
Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any
Person, except:
(a) the Disposition of obsolete or worn out property in
the ordinary course of business;
(b) the sale of inventory in the ordinary course of
business;
(c) Dispositions permitted by Section 7.4(b);
<PAGE> 54
49
(d) the sale or issuance of any Subsidiary's Capital Stock
to the Borrower or any Wholly Owned Subsidiary Guarantor;
(e) the Disposition of other property having a book value
and a fair market value not to exceed $250,000 in the aggregate
during the term of this Agreement; and
(f) any Asset Sale or Recovery Event, provided that (i) no
Default or Event of Default shall have occurred and be continuing or
would result therefrom on a pro forma basis (and the Borrower shall
have provided the Agent with a certificate detailing such compliance
in a form reasonably satisfactory to the Agent) and (ii) the
requirements of Section 2.6(b) are complied with in connection
therewith.
7.6 Restricted Payments. Declare or pay any dividend
(other than dividends payable solely in common stock of the Person making such
dividend) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any Capital Stock of the Borrower or any
Subsidiary, whether now or hereafter outstanding, or make any other distribution
in respect thereof, either directly or indirectly, whether in cash or property
or in obligations of the Borrower or any Subsidiary (collectively, "Restricted
Payments"), except that any Subsidiary may make Restricted Payments to the
Borrower or any Wholly Owned Subsidiary Guarantor;
7.7 Capital Expenditures. Make or commit to make any
Capital Expenditure, except:
(a) Capital Expenditures of the Borrower and its
Subsidiaries in the ordinary course of business in any fiscal year of
the Borrower not exceeding the amount set forth below opposite such
fiscal year and in compliance with clause (iii) of the proviso below:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
March 31, 1999 $ 9,100,000
March 31, 2000 $ 6,100,000
March 31, 2001 $ 7,600,000
March 31, 2002 $ 7,600,000
March 31, 2003 $ 7,600,000
March 31, 2004 $ 7,600,000
March 31, 2005 $ 7,600,000
April 1, 2005- $ 3,800,000
August 31, 2005
</TABLE>
; provided that (i) any amount referred to above, if not so expended
in the fiscal year for which it is permitted, may be carried over for
expenditure in the next succeeding fiscal year, (ii) Capital
Expenditures made pursuant to this clause (a) during any fiscal year
shall be deemed made, first, in respect of amounts permitted for such
fiscal year as provided above and, second, in respect of amounts
carried over from the prior fiscal year pursuant to subclause (i)
above and (iii) the Borrower shall only make Capital
<PAGE> 55
50
Expenditures as to which the theater locations and number of screens
is explicitly specified in the Business Plan Projections or approved
by the Required Lenders; and
(b) Capital Expenditures made with the proceeds of any
Reinvestment Deferred Amount.
7.8 Investments. Make any advance, loan, extension
of credit (by way of guaranty or otherwise) or capital contribution to, or
purchase any Capital Stock, bonds, notes, debentures or other debt securities
of, or any assets constituting a business unit of, or make any other investment
in, any Person (all of the foregoing, "Investments"), except:
(a) extensions of trade credit in the ordinary course of
business;
(b) investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 7.2;
(d) loans and advances to employees of the Borrower or any
Subsidiary of the Borrower in the ordinary course of business
(including for travel, entertainment and relocation expenses) in an
aggregate amount for the Borrower or any Subsidiary of the Borrower
not to exceed $50,000 at any one time outstanding;
(e) Investments in assets useful in the business of the
Borrower and its Subsidiaries made by the Borrower or any of its
Subsidiaries with the proceeds of any Reinvestment Deferred Amount;
(f) Investments by the Borrower or any of its Subsidiaries
in the Borrower or any Person that, prior to such investment, is a
Wholly Owned Subsidiary Guarantor;
(g) other investments by the Borrower and its Subsidiaries
constituting Permitted Business Acquisitions; provided that no more
than $5,000,000 of the Loans in the aggregate shall be used for
Permitted Business Acquisitions and/or construction or development
projects outside of the United States; and
(h) in addition to Investments otherwise expressly
permitted by this Section, Investments by the Borrower or any of its
Subsidiaries in an aggregate amount (valued at cost) not to exceed
$100,000 during the term of this Agreement.
7.9 Transactions with Affiliates. Except as set
forth in Schedule 7.9, enter into any transaction, including any purchase, sale,
lease or exchange of property, the rendering of any service or the payment of
any management, advisory or similar fees, with any Affiliate (other than the
Borrower or any Wholly Owned Subsidiary Guarantor) unless such transaction is
(a) otherwise permitted under this Agreement, (b) in the ordinary course of
business of the Borrower or such Subsidiary, as the case may be, and (c) upon
fair and reasonable terms no less favorable to the Borrower or such Subsidiary,
as the case may be, than it would obtain in a comparable arm's length
transaction with a Person that is not an Affiliate.
<PAGE> 56
51
7.10 Sales and Leasebacks. Enter into any arrangement
with any Person providing for the leasing by the Borrower or any Subsidiary of
real or personal property that has been or is to be sold or transferred by the
Borrower or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of the Borrower or such Subsidiary.
7.11 Changes in Fiscal Periods. Permit the fiscal
year of the Borrower to end on a day other than March 31 or change the
Borrower's method of determining fiscal quarters.
7.12 Negative Pledge Clauses. Enter into or suffer to
exist or become effective any agreement that prohibits or limits the ability of
the Borrower or any of its Subsidiaries to create, incur, assume or suffer to
exist any Lien upon any of its property or revenues, whether now owned or
hereafter acquired, to secure its obligations under the Loan Documents to which
it is a party other than (a) this Agreement and the other Loan Documents and (b)
any agreements governing any purchase money Liens or Capital Lease Obligations
otherwise permitted hereby (in which case, any prohibition or limitation shall
only be effective against the assets financed thereby).
7.13 Clauses Restricting Subsidiary Distributions.
Enter into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Subsidiary of the Borrower to (a) make
Restricted Payments in respect of any Capital Stock of such Subsidiary held by,
or pay any Indebtedness owed to, the Borrower or any other Subsidiary of the
Borrower, (b) make loans or advances to, or other Investments in, the Borrower
or any other Subsidiary of the Borrower or (c) transfer any of its assets to the
Borrower or any other Subsidiary of the Borrower, except for such encumbrances
or restrictions existing under or by reason of (i) any restrictions existing
under the Loan Documents and (ii) any restrictions with respect to a Subsidiary
imposed pursuant to an agreement that has been entered into in connection with
the Disposition of all or substantially all of the Capital Stock or assets of
such Subsidiary.
7.14 Lines of Business. Enter into any business,
either directly or through any Subsidiary, except for those businesses in which
the Borrower and its Subsidiaries are engaged on the date of this Agreement or
that are reasonably related thereto.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be
continuing:
(a) the Borrower shall fail to pay any principal of any
Loan or Reimbursement Obligation when due in accordance with the
terms hereof; or the Borrower shall fail to pay any interest on any
Loan or Reimbursement Obligation, or any other amount payable
hereunder or under any other Loan Document, within five days after
any such interest or other amount becomes due in accordance with the
terms hereof; or
<PAGE> 57
52
(b) any representation or warranty made or deemed made by
any Loan Party herein or in any other Loan Document or that is
contained in any certificate, document or financial or other
statement furnished by it at any time under or in connection with
this Agreement or any such other Loan Document shall prove to have
been inaccurate in any material respect on or as of the date made or
deemed made; or
(c) any Loan Party shall default in the observance or
performance of any agreement contained in clause (i) or (ii) of
Section 6.4(a) (with respect to Borrower only), Section 6.7(a) or
Section 7 of this Agreement or Sections 5.5 and 5.7(b) of the
Guarantee and Collateral Agreement; or
(d) any Loan Party shall default in the observance or
performance of any other agreement contained in this Agreement or any
other Loan Document (other than as provided in paragraphs (a) through
(c) of this Section), and such default shall continue unremedied for
a period of 30 days after notice to the Borrower from the
Administrative Agent or any Lender; or
(e) the Borrower or any of its Subsidiaries shall (i)
default in making any payment of any principal of any Indebtedness
(including any Guarantee Obligation, but excluding the Loans) on the
scheduled or original due date with respect thereto; or (ii) default
in making any payment of any interest on any such Indebtedness beyond
the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness was created; or (iii) default in the
observance or performance of any other agreement or condition
relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or
other event or condition is to cause, or to permit the holder or
beneficiary of such Indebtedness (or a trustee or agent on behalf of
such holder or beneficiary) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated
maturity or (in the case of any such Indebtedness constituting a
Guarantee Obligation) to become payable; provided, that a default,
event or condition described in clause (i), (ii) or (iii) of this
paragraph (e) shall not at any time constitute an Event of Default
unless, at such time, one or more defaults, events or conditions of
the type described in clauses (i), (ii) and (iii) of this paragraph
(e) shall have occurred and be continuing with respect to
Indebtedness the outstanding principal amount of which exceeds in the
aggregate $250,000; or
(f) (i) the Borrower or any of its Subsidiaries shall
commence any case, proceeding or other action (A) under any existing
or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian, conservator or
other similar official for it or for all or any substantial part of
its assets, or the Borrower or any of its Subsidiaries shall make a
general assignment for the benefit of its creditors; or (ii) there
shall be commenced against the Borrower or any of its Subsidiaries
any case,
<PAGE> 58
53
proceeding or other action of a nature referred to in clause (i)
above that (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there
shall be commenced against the Borrower or any of its Subsidiaries
any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or
any substantial part of its assets that results in the entry of an
order for any such relief that shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from
the entry thereof; or (iv) the Borrower or any of its Subsidiaries
shall take any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the acts set forth in
clause (i), (ii), or (iii) above; or (v) the Borrower or any of its
Subsidiaries shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due;
or
(g) (i) any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan, (ii) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not
waived, shall exist with respect to any Plan or any Lien in favor of
the PBGC or a Plan shall arise on the assets of the Borrower or any
Commonly Controlled Entity, (iii) a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to
terminate, any Single Employer Plan, which Reportable Event or
commencement of proceedings or appointment of a trustee is, in the
reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of
ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or
in the reasonable opinion of the Required Lenders is likely to, incur
any liability in connection with a withdrawal from, or the Insolvency
or Reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist with respect to a Plan; and in each
case in clauses (i) through (vi) above, such event or condition,
together with all other such events or conditions, if any, could, in
the sole judgment of the Required Lenders, reasonably be expected to
have a Material Adverse Effect; or
(h) one or more judgments or decrees shall be entered
against the Borrower or any of its Subsidiaries involving in the
aggregate a liability (not paid or fully covered by insurance as to
which the relevant insurance company has acknowledged coverage) of
$250,000 or more, and all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within 30
days from the entry thereof; or
(i) any of the Security Documents shall cease, for any
reason, to be in full force and effect, or any Loan Party or any
Affiliate of any Loan Party shall so assert, or any Lien created by
any of the Security Documents shall cease to be enforceable and of
the same effect and priority purported to be created thereby; or
(j) the guarantee contained in Section 2 of the Guarantee
and Collateral Agreement shall cease, for any reason, to be in full
force and effect or any Loan Party or any Affiliate of any Loan Party
shall so assert; or
<PAGE> 59
54
(k) (i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) other than the Permitted Investors, (A)
shall become, or obtain rights (whether by means or warrants, options
or otherwise) to become, the "beneficial owner" (as defined in Rules
13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly,
of more than 20% of the outstanding common stock of the Borrower or
(B) shall obtain the power (whether or not exercised) to elect a
majority of the Borrower's board of directors; or (ii) the board of
directors of the Borrower shall cease to consist of a majority of
Continuing Directors; or (iii) the Permitted Investors shall fail to
be the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5
under the Exchange Act), directly or indirectly, of more than 50.1%
of the outstanding common stock of the Borrower; or (iv) the Rust
Group shall fail to be the "beneficial owner" (as defined in Rules
13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly,
of at least 2.9% of the outstanding common stock of the Borrower;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Revolving Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement and the other Loan Documents (including all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) shall immediately
become due and payable, and (B) if such event is any other Event of Default,
either or both of the following actions may be taken: (i) with the consent of
the Required Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice to the Borrower
declare the Revolving Commitments to be terminated forthwith, whereupon the
Revolving Commitments shall immediately terminate; and (ii) with the consent of
the Required Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice to the Borrower,
declare the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and the other Loan Documents (including all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) to be due and payable forthwith, whereupon the same shall
immediately become due and payable. With respect to all Letters of Credit with
respect to which presentment for honor shall not have occurred at the time of an
acceleration pursuant to this paragraph, the Borrower shall at such time deposit
in a cash collateral account opened by the Administrative Agent an amount equal
to the aggregate then undrawn and unexpired amount of such Letters of Credit.
Amounts held in such cash collateral account shall be applied by the
Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Borrower hereunder and under the other Loan Documents. After
all such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrower hereunder and under the other Loan Documents shall have been paid
in full, the balance, if any, in such cash collateral account shall be returned
to the Borrower (or such other Person as may be lawfully entitled thereto).
Except as expressly provided above in this Section, presentment, demand, protest
and all other notices of any kind are hereby expressly waived by the Borrower.
<PAGE> 60
55
SECTION 9. THE ADMINISTRATIVE AGENT
9.1 Appointment. Each Lender hereby irrevocably
designates and appoints the Administrative Agent as the agent of such Lender
under this Agreement and the other Loan Documents, and each such Lender
irrevocably authorizes the Administrative Agent, in such capacity, to take such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Administrative Agent by the terms of this Agreement and the
other Loan Documents, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the
Administrative Agent.
9.2 Delegation of Duties. The Administrative Agent
may execute any of its duties under this Agreement and the other Loan Documents
by or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys in-fact selected by it with reasonable care.
9.3 Exculpatory Provisions. Neither the
Administrative Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be (i) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection with
this Agreement or any other Loan Document (except to the extent that any of the
foregoing are found by a final and nonappealable decision of a court of
competent jurisdiction to have resulted from its or such Person's own gross
negligence or willful misconduct) or (ii) responsible in any manner to any of
the Lenders for any recitals, statements, representations or warranties made by
any Loan Party or any officer thereof contained in this Agreement or any other
Loan Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the Administrative Agent under or
in connection with, this Agreement or any other Loan Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document or for any failure of any Loan Party a
party thereto to perform its obligations hereunder or thereunder. The
Administrative Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.
9.4 Reliance by Administrative Agent. The
Administrative Agent shall be entitled to rely, and shall be fully protected in
relying, upon any instrument, writing, resolution, notice, consent, certificate,
affidavit, letter, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon advice
and statements of legal counsel (including counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment, negotiation or
<PAGE> 61
56
transfer thereof shall have been filed with the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders (or, if so specified
by this Agreement, all Lenders) as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense that may be incurred by it by reason of taking or continuing to take any
such action. The Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement and the other Loan
Documents in accordance with a request of the Required Lenders (or, if so
specified by this Agreement, all Lenders), and such request and any action taken
or failure to act pursuant thereto shall be binding upon all the Lenders and all
future holders of the Loans.
9.5 Notice of Default. The Administrative Agent
shall not be deemed to have knowledge or notice of the occurrence of any Default
or Event of Default hereunder unless the Administrative Agent has received
notice from a Lender or the Borrower referring to this Agreement, describing
such Default or Event of Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice, the
Administrative Agent shall give notice thereof to the Lenders. The
Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders (or, if
so specified by this Agreement, all Lenders); provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
9.6 Non-Reliance on Administrative Agent and Other
Lenders. Each Lender expressly acknowledges that neither the Administrative
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates have made any representations or warranties to it and that no act
by the Administrative Agent hereinafter taken, including any review of the
affairs of a Loan Party or any affiliate of a Loan Party, shall be deemed to
constitute any representation or warranty by the Administrative Agent to any
Lender. Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and their affiliates and made its own decision to make its Loans
hereunder and enter into this Agreement. Each Lender also represents that it
will, independently and without reliance upon the Administrative Agent 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 analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of the Loan Parties and their affiliates. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Administrative Agent hereunder, the Administrative Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of any Loan Party or any
affiliate of a Loan Party that may come into the possession of the
<PAGE> 62
57
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
9.7 Indemnification. The Lenders agree to indemnify
the Administrative Agent in its capacity as such (to the extent not reimbursed
by the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective Aggregate Exposure Percentages in effect
on the date on which indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the Revolving Commitments
shall have terminated and the Loans shall have been paid in full, ratably in
accordance with such Aggregate Exposure Percentages immediately prior to such
date), from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever that may at any time (whether before or after the payment of the
Loans) be imposed on, incurred by or asserted against the Administrative Agent
in any way relating to or arising out of, the Revolving Commitments, this
Agreement, any of the other Loan Documents or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
or any action taken or omitted by the Administrative Agent under or in
connection with any of the foregoing; provided that no Lender shall be liable
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
that are found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the Administrative Agent's gross negligence
or willful misconduct. The agreements in this Section shall survive the payment
of the Loans and all other amounts payable hereunder.
9.8 Administrative Agent in Its Individual Capacity.
The Administrative Agent and its affiliates may make loans to, accept deposits
from and generally engage in any kind of business with any Loan Party as though
it was not the Administrative. With respect to its Loans made or renewed by it
and with respect to any Letter of Credit issued or participated in by it, the
Administrative Agent shall have the same rights and powers under this Agreement
and the other Loan Documents as any Lender and may exercise the same as though
it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall
include the Administrative Agent in its individual capacity.
9.9 Successor Administrative Agent. The
Administrative Agent may resign as Administrative Agent upon 10 days' notice to
the Lenders and the Borrower. If the Administrative Agent shall resign as
Administrative Agent under this Agreement and the other Loan Documents, then the
Required Lenders shall appoint from among the Lenders a successor agent for the
Lenders, which successor agent shall (unless an Event of Default under Section
8(a) or Section 8(f) with respect to the Borrower shall have occurred and be
continuing) be subject to approval by the Borrower (which approval shall not be
unreasonably withheld or delayed), whereupon such successor agent shall succeed
to the rights, powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon such
appointment and approval, and the former Administrative Agent's rights, powers
and duties as Administrative Agent shall be terminated, without any other or
further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Loans. If no successor agent
has accepted appointment as Administrative Agent by the date that is 10 days
following a retiring Administrative Agent's notice of
<PAGE> 63
58
resignation, the retiring Administrative Agent's resignation shall nevertheless
thereupon become effective and the Lenders shall assume and perform all of the
duties of the Administrative Agent hereunder until such time, if any, as the
Required Lenders appoint a successor agent as provided for above. After any
retiring Administrative Agent's resignation as Administrative Agent, the
provisions of this Section 9 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Administrative Agent under this
Agreement and the other Loan Documents.
9.10 Authorization to Release Guarantees and Liens.
Notwithstanding anything to the contrary contained herein or in any other Loan
Document, the Administrative Agent is hereby irrevocably authorized by each of
the Lenders (without requirement of notice to or consent of any Lender except as
expressly required by Section 10.1) to take any action requested by the Borrower
having the effect of releasing any Collateral or guarantee obligations to the
extent necessary to permit consummation of any transaction not prohibited by any
Loan Document or that has been consented to in accordance with Section 10.1.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement,
any other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
Section 10.1. The Required Lenders and each Loan Party party to the relevant
Loan Document may, or, with the written consent of the Required Lenders, the
Administrative Agent and each Loan Party party to the relevant Loan Document
may, from time to time, (a) enter into written amendments, supplements or
modifications hereto and to the other Loan Documents for the purpose of adding
any provisions to this Agreement or the other Loan Documents or changing in any
manner the rights of the Lenders or of the Loan Parties hereunder or thereunder
or (b) waive, on such terms and conditions as the Required Lenders or the
Administrative Agent, as the case may be, may specify in such instrument, any of
the requirements of this Agreement or the other Loan Documents or any Default or
Event of Default and its consequences; provided, however, that no such waiver
and no such amendment, supplement or modification shall (i) forgive the
principal amount or extend the final scheduled date of maturity of any Loan,
extend the scheduled date of any reduction of Revolving Commitments, reduce the
stated rate of any interest or fee payable hereunder or extend the scheduled
date of any payment thereof, or increase the amount or extend the expiration
date of any Lender's Revolving Commitment, in each case without the consent of
each Lender directly affected thereby; (ii) amend, modify or waive any provision
of this Section 10.1 or reduce any percentage specified in the definition of
Required Lenders, consent to the assignment or transfer by the Borrower of any
of its rights and obligations under this Agreement and the other Loan Documents,
release all or substantially all of the Collateral or release all or
substantially all of the Guarantors from their obligations under the Guarantee
and Collateral Agreement, in each case without the written consent of all
Lenders; (iii) reduce the percentage specified in the definition of Required
Lenders without the written consent of all Lenders; (iv) amend, modify or waive
any provision of Section 9 without the written consent of the Administrative
Agent; or (v) amend, modify or waive any provision of Section 3 without the
written consent of the Issuing Lender. Any such waiver and any such amendment,
supplement or modification shall apply equally to each of the Lenders and shall
be binding upon the Loan Parties, the Lenders, the Administrative
<PAGE> 64
59
Agent and all future holders of the Loans. In the case of any waiver, the Loan
Parties, the Lenders and the Administrative Agent shall be restored to their
former position and rights hereunder and under the other Loan Documents, and any
Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or
upon the respective parties hereto to be effective shall be in writing
(including by telecopy), and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made when delivered, or three Business Days
after being deposited in the mail, postage prepaid, or, in the case of telecopy
notice, when received, addressed as follows in the case of the Borrower and the
Administrative Agent, and as set forth in an administrative questionnaire
delivered to the Administrative Agent in the case of the Lenders, or to such
other address as may be hereafter notified by the respective parties hereto:
The Borrower:
CinemaStar Luxury Theaters, Inc.
12230 El Camino Real, Suite 320
San Diego, California 92130
Attention: Norman Dowling
Telecopy: (619) 509-9426
Telephone: (619) 509-9415
The Administrative Agent:
Union Bank of California, N.A.
445 South Figueroa Street
Los Angeles, California 90071-1602
Attention: Christine P. Ball
Telecopy: (213) 236-5747
Telephone: (213) 236-6176
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders shall not be effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Administrative Agent or
any Lender, any right, remedy, power or privilege hereunder or under the other
Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
10.4 Survival of Representations and Warranties. All
representations and warranties made hereunder, in the other Loan Documents and
in any document, certificate or
<PAGE> 65
60
statement delivered pursuant hereto or in connection herewith shall survive the
execution and delivery of this Agreement and the making of the Loans and other
extensions of credit hereunder.
10.5 Payment of Expenses and Taxes. The Borrower
agrees (a) to pay or reimburse the Administrative Agent for all its reasonable
out-of-pocket costs and expenses incurred in connection with the development,
preparation and execution of, and any amendment, supplement or modification to,
this Agreement and the other Loan Documents and any other documents prepared in
connection herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including the reasonable fees and
disbursements of counsel to the Administrative Agent and filing and recording
fees and expenses, with statements with respect to the foregoing to be submitted
to the Borrower prior to the Closing Date (in the case of amounts to be paid on
the Closing Date) and from time to time thereafter on a quarterly basis or such
other periodic basis as the Administrative Agent shall deem appropriate, (b) to
pay or reimburse each Lender and the Administrative Agent for all its reasonable
costs and expenses incurred in connection with the enforcement or preservation
of any rights under this Agreement, the other Loan Documents and any such other
documents, including the reasonable fees and disbursements of counsel (including
the allocated fees and expenses of in-house counsel) to each Lender and of
counsel to the Administrative Agent, (c) to pay, indemnify, and hold each Lender
and the Administrative Agent harmless from, any and all recording and filing
fees and any and all liabilities with respect to, or resulting from any delay in
paying, stamp, excise and other taxes, if any, that may be payable or determined
to be payable in connection with the execution and delivery of, or consummation
or administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Loan Documents and any such other documents, and (d)
to pay, indemnify, and hold each Lender and the Administrative Agent and their
respective officers, directors, employees, affiliates, agents and controlling
persons (each, an "Indemnitee") harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents and any such other documents, including any
of the foregoing relating to the use of proceeds of the Loans or the violation
of, noncompliance with or liability under, any Environmental Law applicable to
the operations of the Borrower any of its Subsidiaries or any of the Properties
and the reasonable fees and expenses of legal counsel in connection with claims,
actions or proceedings by any Indemnitee against any Loan Party under any Loan
Document (all the foregoing in this clause (d), collectively, the "Indemnified
Liabilities"), provided, that the Borrower shall have no obligation hereunder to
any Indemnitee with respect to Indemnified Liabilities to the extent such
Indemnified Liabilities are found by a final and nonappealable decision of a
court of competent jurisdiction to have resulted from the gross negligence or
willful misconduct of such Indemnitee. Without limiting the foregoing, and to
the extent permitted by applicable law, the Borrower agrees not to assert and to
cause its Subsidiaries not to assert, and hereby waives and agrees to cause its
Subsidiaries to so waive, all rights for contribution or any other rights of
recovery with respect to all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, under or
related to Environmental Laws, that any of them might have by statute or
otherwise against any Indemnitee. All amounts due under this Section 10.5 shall
be payable promptly after written demand therefor. Statements payable by the
<PAGE> 66
61
Borrower pursuant to this Section 10.5 shall be submitted to Norman Dowling
(Telephone No. (619) 509-9415) (Telecopy No. (619) 509-9426), at the address of
the Borrower set forth in Section 10.2, or to such other Person or address as
may be hereafter designated by the Borrower in a written notice to the
Administrative Agent. The agreements in this Section 10.5 shall survive
repayment of the Loans and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and
Assignments. (a) This Agreement shall be binding upon and inure to the benefit
of the Borrower, the Lenders, the Administrative Agent, all future holders of
the Loans and their respective successors and assigns, except that the Borrower
may not assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of each Lender.
(b) Any Lender may, without the consent of the
Borrower, in accordance with applicable law, at any time sell to one or more
banks, financial institutions or other entities (each, a "Participant")
participating interests in any Loan owing to such Lender, any Revolving
Commitment of such Lender or any other interest of such Lender hereunder and
under the other Loan Documents. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Loan for all purposes under this Agreement
and the other Loan Documents, 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 and the other Loan
Documents. In no event shall any Participant under any such participation have
any right to approve any amendment or waiver of any provision of any Loan
Document, or any consent to any departure by any Loan Party therefrom, except to
the extent that such amendment, waiver or consent would reduce the principal of,
or interest on, the Loans or any fees payable hereunder, or postpone the date of
the final maturity of the Loans, in each case to the extent subject to such
participation. The Borrower agrees that if amounts outstanding under this
Agreement and the Loans are due or unpaid, or shall have been declared or shall
have become due and payable upon the occurrence of an Event of Default, each
Participant shall, to the maximum extent permitted by applicable law, be deemed
to have the right of setoff in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement, provided that, in purchasing such participating interest, such
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in Section 10.7(a) as fully as if it were a Lender
hereunder. The Borrower also agrees that each Participant shall be entitled to
the benefits of Sections 2.13, 2.14 and 2.15 with respect to its participation
in the Revolving Commitments and the Loans outstanding from time to time as if
it was a Lender; provided that, in the case of Section 2.14, such Participant
shall have complied with the requirements of said Section and provided, further,
that no Participant shall be entitled to receive any greater amount pursuant to
any such Section than the transferor Lender would have been entitled to receive
in respect of the amount of the participation transferred by such transferor
Lender to such Participant had no such transfer occurred.
<PAGE> 67
62
(c) Any Lender (an "Assignor") may, in accordance
with applicable law, at any time and from time to time assign to any Lender or
any affiliate thereof or, with the consent of the Borrower and the
Administrative Agent (which, in each case, shall not be unreasonably withheld or
delayed), to an additional bank, financial institution or other entity (an
"Assignee") all or any part of its rights and obligations under this Agreement
pursuant to an Assignment and Acceptance, executed by such Assignee, such
Assignor and any other Person whose consent is required pursuant to this
paragraph, and delivered to the Administrative Agent for its acceptance and
recording in the Register; provided that no such assignment to an Assignee
(other than any Lender or any affiliate thereof) shall be in an aggregate
principal amount of less than $2,500,000 (other than in the case of an
assignment of all of a Lender's interests under this Agreement), unless
otherwise agreed by the Borrower and the Administrative Agent. Upon such
execution, delivery, acceptance and recording, from and after the effective date
determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
with a Revolving Commitment and/or Loans as set forth therein, and (y) the
Assignor thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of an Assignor's rights and
obligations under this Agreement, such Assignor shall cease to be a party
hereto). Notwithstanding any provision of this Section 10.6, the consent of the
Borrower shall not be required for any assignment that occurs when an Event of
Default pursuant to Section 8(f) shall have occurred and be continuing with
respect to the Borrower.
(d) The Administrative Agent shall, on behalf of the
Borrower, maintain at its address referred to in Section 10.2 a copy of each
Assignment and Acceptance delivered to it and a register (the "Register") for
the recordation of the names and addresses of the Lenders and the Revolving
Commitment of, and the principal amount of the Loans owing to, each Lender from
time to time. The entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrower, each other Loan Party, the Administrative
Agent and the Lenders shall treat each Person whose name is recorded in the
Register as the owner of the Loans and any Notes evidencing the Loans recorded
therein for all purposes of this Agreement. Any assignment of any Loan, whether
or not evidenced by a Note, shall be effective only upon appropriate entries
with respect thereto being made in the Register (and each Note shall expressly
so provide). Any assignment or transfer of all or part of a Loan evidenced by a
Note shall be registered on the Register only upon surrender for registration of
assignment or transfer of the Note evidencing such Loan, accompanied by a duly
executed Assignment and Acceptance, and thereupon one or more new Notes shall be
issued to the designated Assignee.
(e) Upon its receipt of an Assignment and Acceptance
executed by an Assignor, an Assignee and any other Person whose consent is
required by Section 10.6(c), together with payment to the Administrative Agent
of a registration and processing fee of $3,500, the Administrative Agent shall
(i) promptly accept such Assignment and Acceptance and (ii) record the
information contained therein in the Register on the effective date determined
pursuant thereto.
(f) For avoidance of doubt, the parties to this
Agreement acknowledge that the provisions of this Section 10.6 concerning
assignments of Loans and Notes relate only to
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63
absolute assignments and that such provisions do not prohibit assignments
creating security interests, including any pledge or assignment by a Lender of
any Loan or Note to any Federal Reserve Bank in accordance with applicable law.
(g) The Borrower, upon receipt of written notice from
the relevant Lender, agrees to issue Notes to any Lender requiring Notes to
facilitate transactions of the type described in paragraph (f) above.
10.7 Adjustments; Set-off. (a) Except to the extent
that this Agreement expressly provides for payments to be allocated to a
particular Lender, if any Lender (a "Benefitted Lender") shall receive any
payment of all or part of the Obligations owing to it, or receive any collateral
in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant
to events or proceedings of the nature referred to in Section 8(f), or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of the Obligations owing to
such other Lender, such Benefitted Lender shall purchase for cash from the other
Lenders a participating interest in such portion of the Obligations owing to
each such other Lender, or shall provide such other Lenders with the benefits of
any such collateral, as shall be necessary to cause such Benefitted Lender to
share the excess payment or benefits of such collateral ratably with each of the
Lenders; provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such Benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest.
(b) In addition to any rights and remedies of the
Lenders provided by law, each Lender shall have the right, without prior notice
to the Borrower, any such notice being expressly waived by the Borrower to the
extent permitted by applicable law, upon any amount becoming due and payable by
the Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise), to set off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of the Borrower, as the case may be.
Each Lender agrees promptly to notify the Borrower and the Administrative Agent
after any such setoff and application made by such Lender, provided that the
failure to give such notice shall not affect the validity of such setoff and
application.
10.8 Counterparts. This Agreement may be executed by
one or more of the parties to this Agreement on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. Delivery of an executed signature page
of this Agreement by facsimile transmission shall be effective as delivery of a
manually executed counterpart hereof. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
10.9 Severability. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
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64
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan
Documents represent the agreement of the Borrower, the Administrative Agent and
the Lenders with respect to the subject matter hereof, and there are no
promises, undertakings, representations or warranties by the Administrative
Agent or any Lender relative to subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. The
Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action
or proceeding relating to this Agreement and the other Loan Documents
to which it is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general
jurisdiction of the courts of the State of California, the courts of
the United States for the Central District of California, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Borrower, as the case may be at its address set forth
in Section 10.2 or at such other address of which the Administrative
Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law,
any right it may have to claim or recover in any legal action or
proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
10.13 Acknowledgments. The Borrower hereby
acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan
Documents;
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65
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or
in connection with this Agreement or any of the other Loan Documents,
and the relationship between Administrative Agent and Lenders, on one
hand, and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Borrower and the
Lenders.
10.14 Confidentiality. Each of the Administrative
Agent and each Lender agrees to keep confidential all non-public information
provided to it by any Loan Party pursuant to this Agreement that is designated
by such Loan Party as confidential; provided that nothing herein shall prevent
the Administrative Agent or any Lender from disclosing any such information (a)
to the Administrative Agent, any other Lender or any affiliate of any Lender,
(b) to any Transferee or prospective Transferee that agrees to comply with the
provisions of this Section, (c) to its employees, directors, agents, attorneys,
accountants and other professional advisors or those of any of its affiliates,
(d) upon the request or demand of any Governmental Authority, (e) in response to
any order of any court or other Governmental Authority or as may otherwise be
required pursuant to any Requirement of Law, (f) if requested or required to do
so in connection with any litigation or similar proceeding, (g) that has been
publicly disclosed, (h) to the National Association of Insurance Commissioners
or any similar organization or any nationally recognized rating agency that
requires access to information about a Lender's investment portfolio in
connection with ratings issued with respect to such Lender, or (i) in connection
with the exercise of any remedy hereunder or under any other Loan Document.
10.15 WAIVERS OF JURY TRIAL. THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
CINEMASTAR LUXURY THEATER, INC.
By: /s/ NORMAN DOWLING
---------------------------------
Title: Chief Financial Officer
and Vice President
UNION BANK OF CALIFORNIA, N.A.
By:
---------------------------------
Title:
<PAGE> 72
Annex A
PRICING GRID
<TABLE>
<CAPTION>
Consolidated Leverage Ratio Applicable Margin Applicable Margin for ABR
for Eurodollar Loans Loans
--------------------------- -------------------- ------------------------
<S> <C> <C>
>=4.00 to 1.00 2.75% 1.75%
>=3.50 to 1.00 but 2.50% 1.50%
<4.00 to 1:00
>=3.00 to 1.00 but 2.25% 1.25%
<3.50 to 1.00
<3.00 to 1.00 2.00% 1.00%
</TABLE>
Changes in the Applicable Margin with respect to the Loans resulting from
changes in the Consolidated Leverage Ratio shall become effective on the date
(the "Adjustment Date") on which financial statements and the related Compliance
Certificate are delivered to the Lenders pursuant to Sections 6.1 and 6.2 (but
in any event not later than the 45th day after the end of each of the first
three quarterly periods of each fiscal year or the 90th day after the end of
each fiscal year, as the case may be) fiscal quarter) and shall remain in effect
until the next change to be effected pursuant to this paragraph. If any
financial statements and the related Compliance Certificate referred to above
are not delivered within the time periods specified above, then, until such
financial statements and related Compliance Certificate are delivered, the
Consolidated Leverage Ratio as at the end of the fiscal period that would have
been covered thereby shall for the purposes of this definition be deemed to be
greater than 4.00 to 1.00. Each determination of the Consolidated Leverage Ratio
pursuant to this pricing grid shall be made with respect to (or, in the case of
Consolidated Total Debt, as at the end of) the quarterly period of four
consecutive fiscal quarters of the Borrower covered by the relevant financial
statements. Prior to the initial Adjustment Date, the Applicable Margin shall be
determined by the Consolidated Leverage Ratio after giving effect to the
aggregate principal amount of the Loans then outstanding.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,975,411
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,484,901
<PP&E> 18,282,061
<DEPRECIATION> 6,249,179
<TOTAL-ASSETS> 16,811,747
<CURRENT-LIABILITIES> 3,112,178
<BONDS> 0
0
0
<COMMON> 22,628,671
<OTHER-SE> (14,277,776)
<TOTAL-LIABILITY-AND-EQUITY> 16,811,747
<SALES> 15,377,777
<TOTAL-REVENUES> 15,377,777
<CGS> 6,731,620
<TOTAL-COSTS> 15,540,108
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155,132
<INCOME-PRETAX> (239,043)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (240,643)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (240,643)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
