UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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þ
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended December 31, 2007
or
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from _______ to ______
Commission
File No. 1-8625
READING
INTERNATIONAL, INC.
(Exact
name of registrant as specified in its charter)
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NEVADA
(State
or other jurisdiction of incorporation or organization)
500
Citadel Drive, Suite 300
Commerce,
CA
(Address
of principal executive offices)
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95-3885184
(I.R.S.
Employer Identification Number)
90040
(Zip
Code)
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Registrant’s
telephone number, including Area Code: (213) 235-2240
Securities
Registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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Class
A Nonvoting Common Stock, $0.01 par value
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American
Stock Exchange
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Class
B Voting Common Stock, $0.01 par value
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American
Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes ¨ No þ
If this report is an annual or
transition report, indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934. Yes ¨ No þ
Indicate by check mark whether
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act of 1934 during the preceding 12 months (or for shorter
period than the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þNo ¨
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K of any amendments to this Form 10-K. ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨ Accelerated
filer þ Non-accelerated
filer ¨ Smaller
reporting company ¨
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No þ
Indicate the number of shares
outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date. As of March 17, 2007, there were 20,992,909 shares
of Class A Non-voting Common Stock, par value $0.01 per share and 1,495,490
shares of Class B Voting Common Stock, par value $0.01 per share,
outstanding. The aggregate market value of voting and nonvoting stock held
by non-affiliates of the Registrant was $153,983,000
as of March 26, 2007.
READING INTERNATIONAL, INC.
ANNUAL
REPORT ON FORM 10-K
YEAR
ENDED DECEMBER 31, 2007
INDEX
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Item 1 – Our
Business
General Description of Our
Business
Reading International, Inc., a Nevada
corporation (“RDI”), was incorporated in 1999 incident to our reincorporation in
Nevada. However, we trace our corporate roots back to the Reading
Railroad and its corporate predecessors, first incorporated in
1833. Our Class A Nonvoting Common Stock (“Class A Stock”) and Class
B Voting Common Stock (“Class B Stock”) are listed for trading on the American
Stock Exchange under the symbols RDI and RDI.B. Our principal
executive offices are located at 500 Citadel Drive, Suite 300, Commerce,
California 90040. Our general telephone number is (213)
235-2240. Our website can be found at www.readingrdi.com. In
this Annual Report, we from time to time use terms such as the “Company,”
“Reading” and “we,” “us,” or “our” to refer collectively to RDI and our various
consolidated subsidiaries and corporate predecessors.
We are an internationally diversified
company principally focused on the ownership and development of land and brick,
mortar entertainment and real property assets. Our businesses consist
primarily of:
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the
development, ownership and operation of multiplex cinemas in the United
States, Australia, and New Zealand;
and
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the
development, ownership, and operation of retail and commercial real estate
in Australia, New Zealand, and the United States, including
entertainment-themed retail centers (“ETRCs”) in Australia and New Zealand
and live theater assets in Manhattan and Chicago in the United
States.
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Recognizing that we are part of a world
economy, we endeavor to keep a balance between our US and overseas
assets. Taking into account acquisitions made in February 2008 as
described more fully below, we currently have approximately 35% of our assets
(based on book value) in the United States, 44% in Australia and 21% in New
Zealand.
While we do not believe the cinema
exhibition business to be a growth business at this time, we do believe it to be
a business that will likely continue to generate fairly consistent cash flows in
the years ahead even in a recessionary or inflationary
environment. This is based on our belief that people will continue to
spend some reasonable portion of their entertainment dollar on entertainment
outside of the home and that, when compared to other forms of outside the home
entertainment, movies continue to be a popular, and competitively priced
option. However, since we believe the cinema exhibition business to
be a mature business with most markets either adequately screened or
over-screened, we see our future asset growth coming more from our real estate
development activities and from the acquisition of existing cinemas rather than
from the development of new cinemas. Over time, we anticipate that
our cinema operations will become increasingly a source of cash flow to support
our real estate oriented activities, rather than a focus of growth, and that our
real estate activities will, again, over time become the principal thrust of our
business. We also, from time to time, invest in the shares of other
companies, where we believe the business or assets of those companies to be
attractive or to offer synergies to our existing entertainment and real estate
businesses.
Consistent with this philosophy, on
February 22, 2008 we acquired from two commonly owned companies, Pacific
Theatres and Consolidated Amusement Theatres, substantially all of their cinema
assets in Hawaii, San Diego County, and Northern California for $69.3
million. In total, we acquired fourteen mature leasehold cinemas and
the management rights to one additional mature cinema, representing a total of
181 screens. In saying that these cinema are “mature” we mean that
they have been in operation for some years, and are, in our view, proven
performers in their markets. For the fiscal year ended December 28,
2007, we estimate that these theatres produced gross revenues of approximately
$78.0 million. We refer to these cinemas from time to time in this
report as Consolidated Cinemas. While this was a major acquisition
for us, we believe it to have been a reasonably conservative investment, given
the mature status of these assets and the fact that our Chairman and Chief
Operating Officer are both familiar with these assets and the markets in which
they operate due to their prior association with the sellers.
Our acquisition of the Consolidated
Cinemas was financed, principally with a combination of commercial lenders
institutional finance ($50.0 million) and seller finance ($21.0
million). Accordingly, our investment was approximately $2.2 million
to cover for transaction related costs and expenses such as attorneys’ fees,
financing fees,
and
transfer fees. Reading International, our parent company, has
provided a guarantee on the commercial lending up until the time when the
leverage ratio reaches a 2.75 to 1.00. The sellers financing is
recourse to companies having as their only assets the Consolidated Cinemas and
two of our domestic cinemas, our Manville and Angelika Dallas
cinemas.
While we have not yet completed a 2007
audit of the results of the operation of these cinema assets, we believe based
upon information provided to us by the sellers that these cinemas generated
approximately $78.0 million in gross revenue for the twelve months ended
December 31, 2007 as compared to gross revenues of approximately $76.7 million
for the twelve months ended December 31, 2006. This compares to
approximately $103.5 million in revenue for our existing cinemas for the year
ended December 31, 2007. While the ultimate purchase price is subject
to various downward adjustments (including adjustments to reflect currently
anticipated competition from announced cinema developments in the markets
serviced by Consolidated Cinemas), we believe that the purchase price represents
an approximately 5.5X EBITDA multiple, based upon the proforma EBITDA for these
cinemas (calculated without reference to general and administrative costs
incurred at levels above the cinema operating level) used in our evaluation of
the purchase of these assets. We believe that these cinemas
represented an approximately 70% market share of Hawaii and 12% market share of
the San Diego County cinema markets for this period. For book
purposes, we will carrying Consolidated Cinemas at an initial value of $69.3
million, but as previously noted, this price is subject to
adjustment. While no assurances can be given, we currently anticipate
a reduction in this amount of between $6.25 million and $22.7 million, depending
principally upon competitive developments over the next several
years.
We also acquired for 5.1 million
(AUS$6.0 million) a 20% interest in Becker Group Limited (“BGL”), which is in
the art film exhibition and distribution business in Australia and the
television remote and special event broadcast business in Australia and New
Zealand. In February, BGL announced that it had entered into an
agreement to sell its cinema and film distribution business for approximately
$18.4 million (AUS$21.0 million) in cash to Icon Film Distribution Pty Limited
(a company associated with Mel Gibson). BGL is controlled by Prime
Media Group Limited, which owns approximately 76% of the outstanding shares of
that company.
We are currently in discussions with
the owners of other cinema circuits as to the possible acquisition of one or
more of those circuits or in some cases, for portions of the cinema assets being
offered for sale. In New Zealand, SkyCity Cinemas has announced its
interest in selling its New Zealand circuit and we have made a non-binding
proposal to acquire a substantial portion of those assets. However,
no assurances can be given as to the ultimate outcome of those discussions, and
we are limited by our confidentiality arrangements from discussing the details
of our proposals. We are also in discussion with the owner of a
circuit in the United States, but again those discussions are subject to a
confidentiality agreement.
On the real estate front, we acquired
the long-term ground lease interest underlying our Tower Theatre in Sacramento,
we acquired directly fee interests in New Zealand representing some 16,000
square feet of land and some 25,000 square feet of improvements, and through our
affiliate, Landplan Property Partners, Ltd (“Landplan”) acquired two
developmental properties in New Zealand representing some 2.8 million square
feet of land, and 8,700 square feet of current improvements, for a total
purchase price of $20.6 million.
Financing
Historically,
we have endeavored to match the currency in which we have financed our
development with the jurisdiction within which these developments are
located. However, believing that the US Dollar was likely to
materially decrease in value versus the New Zealand and Australian Dollars, in
February 2007 we privately placed $50.0 million of 20-year Trust Preferred
Securities, with dividends fixed at 9.22% for the first five years, to serve as
a long term financing foundation for our real estate assets and to pay down our
New Zealand and Australia Dollar denominated debt.
There are
no principal payments until maturity in 2027 when the notes are paid in
full. Although structured as the issuance of trust preferred
securities by a related trust, the financing is essentially the same as an
issuance of fully subordinated debt: the payments are tax deductible to us and
the default remedies are the same as debt. The net proceeds of this
issuance were used principally to retire all of our then outstanding bank
indebtedness in New Zealand of $34.4 million (NZ$50.0 million) and to pay down
our bank indebtedness in Australia by $5.8 million (AUS$7.4
million).
Summary
In short,
while we do have operating company attributes, we see ourselves principally as a
hard asset company and intend to add to shareholder value by building the value
of our portfolio of tangible assets including both entertainment and other types
of land, brick, and mortar assets. We are endeavoring to maintain a
reasonable balance between our domestic and overseas assets and operations, and
a reasonable balance between our cash generating cinema operations and our cash
consuming real estate development activities. We believe that by
blending the cash generating capabilities of a cinema company with the
investment and development opportunities of a real estate development company,
we are unique among public companies in our business plan.
At
December 31, 2007, our assets include:
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interests
in 44 cinemas comprising some 286
screens;
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fee
ownership of approximately 1.1 million square feet of developed commercial
real estate, and approximately 15.3 million square feet of land (including
approximately 5.2 million square feet of land held for development),
located principally in urbanized areas of Australia, New Zealand and the
United States;
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cash,
cash equivalents and investments in marketable securities aggregating
$20.8 million;
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a
25% interest in the limited liability company that developed Place 57, the 36-story, 68-residential
unit mixed use condominium project on 57th Street near 3rd Avenue in
Manhattan, the principal remaining asset of which is approximately 3,700
square feet of retail space on the ground floor of that building onto 57th
Street;
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an
approximately 20% interest in BGL, described above;
and
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an
18.4% interest in Malulani Investments Limited (“MIL”), a private Hawaiian
corporation whose assets consist primarily of real estate, including
approximately 22,000 acres of land (a portion of which is improved with
the Guenoc Winery and vineyards), located in Napa and Lake Counties, in
California.
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At
December 31, 2007, the book value of our assets was approximately $346.1
million; and as of that same date, we had a consolidated stockholders’ book
equity of approximately $121.4 million. Calculated based on book
value, nearly 68% of our assets, or approximately $235.3 million, relates to our
real estate activities. Calculated based on book value, nearly 78% of
our assets, or approximately $270.9 million, represents assets located in
Australia and New Zealand. However, taking into account our
acquisition of Consolidated Cinemas, this allocation is now approximately 57%
and 65% respectively.
At
December 31, 2007, the allocation between our cinema assets and our non-cinema
assets was approximately 23% and 77%, respectively. However, taking
into account our acquisition of Consolidated Cinemas, this allocation is now
approximately 36% and 64%, respectively.
We believe that, given the nature of
our real estate oriented balance sheet, our development activities, and the
appreciation enjoyed by real estate assets over the past several years, that our
book value substantially understates the fair market value of our
assets.
Summary of Our Cinema
Exhibition Activities
We
conduct our cinema operations on four basic and rather simple
premises:
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first,
notwithstanding the enormous advances that have been made in home
entertainment technology, humans are essentially social beings, and will
continue to want to go beyond the home for their entertainment, provided
that the they are offered clean, comfortable and convenient facilities,
with state of the art technology;
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second,
cinemas can be used as anchors for larger retail developments, and our
involvement in the cinema business can give us an advantage over other
real estate developers or redevelopers who must identify and negotiate
exclusively with third party anchor
tenants;
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third,
pure cinema operators can get themselves into financial difficulty as
demands upon them to produce cinema based earnings growth tempt them into
reinvesting their cash flow into increasingly marginal cinema
sites. While we believe that there will continue to be
attractive cinema acquisition opportunities in the future, and believe
that we have taken advantage of one such opportunity through our purchase
of Consolidated Cinemas, we do not feel pressure to build or acquire
cinemas for the sake of simply adding on units, and intend to focus our
cash flow on our real estate development and operating activities, to the
extent that attractive cinema opportunities are not available to us;
and
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fourth,
we are never afraid to convert an entertainment property to another use,
if that is a higher and better use of our property, or to sell individual
assets, if we are presented with an attractive opportunity. Our
former Sutton Theater, for example, provided the real estate base for our
Place 57 development.
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Our
current cinema assets are described in the following chart:
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Wholly
Owned
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Consolidated1
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Unconsolidated2
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Managed3
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Totals
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Australia
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16
cinemas
120
screens
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3
cinemas
16
screens
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1
cinema4
16
screens
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None
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20
cinemas
152
screens
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New
Zealand
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9
cinemas
48
screens
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None
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6
cinemas5
30
screens
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None
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15
cinemas
78
screens
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United
States
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6
cinemas
41
screens
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1
cinema6
6
screens
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None
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2
cinemas
9
screens
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9
cinemas
56
screens
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Totals
without Consolidated Cinemas
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31
cinemas
209
screens
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4
cinemas
22
screens
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7
cinemas
46
screens
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2
cinemas
9
screens
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44
cinemas
286
screens
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Consolidated
Cinemas
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14
cinemas
173
screens
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None
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None
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1
cinemas
8
screens
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15
cinemas
181
screens
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Totals
with Consolidated Cinemas
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45
cinemas
382
screens
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4
cinemas
22
screens
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7
cinemas
46
screens
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3
cinemas
17
screens
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59
cinemas
467
screens
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1 Cinemas
owned and operated through consolidated, but not wholly owned, majority owned
subsidiaries.
2 Cinemas
owned and operated through unconsolidated subsidiaries.
3 Cinemas
in which we have no ownership interest, but which are operated by us under
management agreements.
6 The
Angelika Film Center and Café in Manhattan is owned by a limited liability
company in which we own a 50% interest with rights to
manage.
We focus on the ownership and operation
of three categories of cinemas:
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first,
modern stadium seating multiplex cinemas featuring conventional film
product;
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second,
specialty and art cinemas, such as our Angelika Film Centers in Manhattan
and Dallas and the Rialto cinema chain in New Zealand;
and
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third,
in some markets, particularly small town markets that will not support the
development of a modern stadium design multiplex cinema, conventional
sloped floor cinemas.
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With the
exception of certain of our joint venture cinemas, we operate and book all of
our cinemas on an “in-house” basis, through cinema executives located in
Manhattan, Melbourne, Australia and Wellington, New Zealand.
Summary of Our Real Estate
Activities
Our real estate activities have
historically consisted principally of:
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the
ownership of fee or long term leasehold interests in properties used in
our cinema exhibition and live theater activities or which were acquired
in anticipation of the development of cinemas or
ETRCs;
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the
acquisition of fee interests for the development of cinemas or ETRCs;
and
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the
redevelopment of existing cinema sites to their highest and best
use.
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For example, Place 57, a 36-story
68-residential unit mixed-use condominium project on 57th Street
near 3rd Avenue
was the result of the redevelopment of one of our Manhattan cinema
sites. Recently, however, we have begun to diversify into other types
of real estate investments.
In 2006, we formed Landplan Property
Partners, Ltd, to identify, acquire and develop or redevelop properties on an
opportunistic basis. Typically, properties are acquired or held in
individual special purpose entities. We refer to Landplan Property
Partners, Ltd, collectively with these special purpose entities as
“Landplan.” As of December 31 2007, Landplan has acquired one
property in Australia and two properties in New Zealand for an aggregate
investment of $16.0 million.
In addition, we have acquired an
approximately 18.4% common equity interest in Malulani Investments Limited, a
closely held Hawaiian company which currently owns approximately 22,000 acres of
agricultural land in Northern California. Included among Malulani’s
assets are the Guenoc Winery, consisting of approximately 400 acres of vineyard
land and a winery configured to bottle up to 120,000 cases of wine annually and
Langtry Estates and Vineyards. This land and commercial real estate
holdings are encumbered by debt.
To date, we have developed, in
Australia and New Zealand, three ETRCs comprising approximately 337,000 square
feet of development and the shopping center component of a fourth proposed ETRC,
comprising some 100,000 square of development. The 100,000 square
feet of shopping center space in this fourth proposed ETRC is fully leased, and
it is anticipated that the cinema component will be completed in
2009.
Our US holdings include the fee
interest in three live theatres in Manhattan (the Union Square, Orpheum and
Minetta Lane) a multi-stage live theatre in Chicago (the Royal George) and a 75%
interest in the limited liability company that owns the fee interest in our
Cinemas 1, 2 & 3 property in Manhattan.
In total, taking into account the
acquisition of Consolidated Cinemas, on a consolidated basis, we own
approximately 15.3 million square feet of land and approximately 2.3 million
square feet of improvements, of which approximately 1.7 million square feet is
leased by us as tenant under various cinema leases.
Our real estate activities, holdings,
and development are described in more detail in the Item 2 –
Properties.
Certain Segment and
Geographical Distribution Information
Financial Information about our various
segments is set out in Note 22 – Business Segments and Geographic
Area Information.
The following table sets forth the book
value of our property and equipment by geographical area as of December 31, 2007
(dollars in thousands):
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December 31,
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2007
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2006
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Australia
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$ | 90,956 | $ | 86,317 | ||||
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New
Zealand
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44,030 | 38,772 | ||||||
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United
States
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43,188 | 45,578 | ||||||
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Property
and equipment
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$ | 178,174 | $ | 170,667 | ||||
The
following table sets forth our revenues by geographical area (dollars in
thousands):
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December 31,
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2007
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2006
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2005
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Australia
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$ | 63,657 | $ | 53,434 | $ | 47,181 | ||||||
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New
Zealand
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24,371 | 21,230 | 20,179 | |||||||||
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United
States
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31,207 | 31,461 | 30,745 | |||||||||
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Total
Revenues
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$ | 119,235 | $ | 106,125 | $ | 98,105 | ||||||
We Are a Controlled Company
under American Stock Exchange Rules and Regulations
We are a “Controlled Company” under
Section 801(a) of the American Stock Exchange Company
Guide. Accordingly, we are not subject to the American Stock Exchange
requirements that at least half of our directors be independent or that we have
an independent nominating committee.
As of December 31, 2007, we had
outstanding 20,987,115 shares of our Class A Stock and 1,495,490 shares of our
Class B Stock. As of this same date, Mr. James J. Cotter was our
controlling stockholder, with fully diluted beneficial ownership of 1,123,888
shares of our Class B Stock, representing approximately 70.4% of such
shares. In addition, Mr. Cotter, his affiliates, and members of his
immediate family are the fully diluted beneficial owners of 5,610,833 shares of
our Class A Stock. Collectively, their beneficial ownership
represents approximately 30.0% of our aggregate outstanding Class A Stock and
Class B Stock.
Mr. Cotter and two of his children,
Margaret Cotter and James J. Cotter, Jr., currently serve as three of the eight
members of our Company’s Board of Directors. Mr. James J. Cotter, Jr.
is the Vice-Chairman of our Company. Ms. Ellen Cotter, also a child
of Mr. Cotter, Sr., is the Chief Operating Officer for our Domestic Cinemas and
will be responsible for running the recently acquired Consolidated
Cinemas. A company wholly owned by Ms. Margaret Cotter manages our
live theater operations. Sutton Hill Capital (a partnership in which
Mr. Cotter (i) owns a 50% interest) owns a 25% interest in the limited liability
company that owns our Cinemas 1, 2 & 3 property in Manhattan, (ii) owns the
ground lease interest and is the sublandlord under our sublease of our Village
East property, also in Manhattan, and (iii) holds notes issued by RDI in the
amount of $14.0 million.
The Cotter Family has advised us that
they consider their investment in our Company to be a long term investment, and
that they do not currently contemplate any change of control transaction with
respect to the Company or any material portion of its assets.
A discussion of related party
transactions is set forth in Note 25 – Related Parties and
Transactions to the 2007 Consolidated Financial Statements.
A More Detailed Description
of Our Business
Our Pacific Rim Cinema
Operations (Australia and New Zealand)
General
On a consolidated basis, we currently
own or operate 19 cinemas consisting of 136 screens in Australia, and 15 cinemas
with 78 screens in New Zealand. We also own, directly or indirectly,
50% unincorporated joint venture interests in six cinemas, consisting of 30
screens, in New Zealand and a 33% unincorporated joint venture interest in a
16-screen cinema in the Brisbane area of Australia.
We commenced activities in Australia in
mid-1995, conducting business in Australia through our wholly owned subsidiary,
Reading Entertainment Australia Pty Ltd (“REA” and, collectively with its
consolidated subsidiaries, “Reading Australia”).
We commenced operations in New Zealand
in 1997, conducting operations in New Zealand through our wholly owned
affiliate, Reading New Zealand Limited (“RNZ” and collectively with its
consolidated subsidiaries, “Reading New Zealand”).
Our Australian and New Zealand cinemas
derive approximately 73% of their 2007 revenues from box office
receipts. Ticket prices vary by location, and provide for reduced
rates for senior citizens and children. Box office receipts are
reported net of state and local sales or service taxes. Show times
and features are placed in advertisements in local newspapers with the costs of
such advertisements paid by the exhibitor. Film distributors may
advertise certain feature films and pay the cost of such
advertising. Film rental costs average approximately 42% of box
office revenues in Australia and in New Zealand.
Concession sales account for
approximately 24% and 22% of our total 2007 revenues in Australia and New
Zealand, respectively. Concession products primarily include popcorn,
candy, and soda; although certain of Reading’s Australia and New Zealand cinemas
have licenses for the sale and consumption of alcoholic
beverages. During 2007, we realized a gross margin on concession
sales of approximately 22% and 26% in Australia and New Zealand,
respectively.
Screen
advertising and other revenues contributed approximately 4% and 5% of our total
2007 revenues in Australia and New Zealand, respectively. The screen
advertising business in Australia and New Zealand has moved to prominently 35mm
film advertisements by national advertisers. Local advertising is
undertaken by individual cinema operators on a site-by-site basis and is largely
undertaken via the improved technology offered by digital
projection. Our cinemas, where it is applicable, undertake slide
advertising as an ancillary function to the overall cinema
business.
Joint Venture
Interests
Two of our cinemas, consisting of 11
screens and located in country towns, are owned by Australia Country Cinemas
Pty, Limited (“ACC”), a company owned 75% by Reading Australia and 25% by a
company owned by an individual familiar with the market for cinemas in country
towns. ACC has a limited right of first refusal to develop any cinema
sites identified by Reading Australia that are located in country
towns. Our interest in this joint venture is reported on a
consolidated basis.
One of our cinemas, a 5-screen facility
in Melbourne, is owned by a joint venture in which we have a 66.6%
unincorporated joint venture interest with the original owner. Our
interest in this joint venture is likewise reported on a consolidated
basis.
Through
Rialto Entertainment, we are a 50% joint venture partner with SkyCity Leisure
Ltd (“Sky”) in Rialto Cinemas, the largest art cinema circuit in New
Zealand. The joint venture owns or manages five cinemas with 22
screens in the New Zealand cities of Auckland, Wellington, Dunedin, Hamilton,
and Christchurch. All of the cinemas are in leased
facilities. Our interest in this joint venture is accounted for using
the equity method.
We also
own a one-third interest in Rialto Distribution. Rialto Distribution,
an unincorporated joint venture, is engaged in the business of distributing art
film in New Zealand and Australia. The remaining 2/3rd
interest is owned by the founders of the company, who have been in the art film
distribution business since 1993. While prior to our acquisition of
this interest in late 2005, we have not historically been involved in the
distribution of film, we believe that this investment complements our cinema
exhibition operations in Australia and New Zealand and could potentially
complement our art film exhibition activities in the United
States. Our interest in this joint venture is accounted for using the
equity method.
One of our cinemas, consisting of eight
screens, in Botany Downs, New Zealand is held in a 50/50 unincorporated joint
venture with Everard Entertainment. We also have a 33% unincorporated
joint venture interest in a 16-screen multiplex cinema located in a suburb of
Brisbane, and operated under the Birch Carroll & Coyle name. Our
interest in these joint ventures is accounted for using the equity
method.
Management of
Cinemas
Our employees manage Reading
Australia’s wholly owned and consolidated cinemas and Reading New Zealand’s
wholly owned cinemas. Our six New Zealand joint venture cinemas are
operated by two joint ventures in which Reading New Zealand is, directly or
indirectly, a 50% joint venture partner. While our employees are
actively involved in the management of the Botany Downs joint venture, the
management of the five cinemas operated under the Rialto name is, generally
speaking, performed by Sky, while we are principally responsible for the booking
of the Rialto Cinemas. The 16-screen Brisbane joint venture cinema is
operated under the supervision of a management committee over which each of the
joint venture partners holds certain veto rights and is managed by Birch Carroll
& Coyle.
Background Information
Concerning Australia
Australia is a self-governing and fully
independent member of the Commonwealth of Nations. The constitution
resembles that of the United States in that it creates a federal form of
government, under which the powers of the central government are specified and
all residual powers are left to the states. The country is organized
into five mainland states (New South Wales, Queensland, South Australia,
Victoria and Western Australia), one island state (Tasmania) and two territories
(Australian Capital Territory and the Northern Territory).
The ceremonial supreme executive is the
British monarch, represented by the governor-general and in each of the six
states by a governor. These officials are appointed by the British
monarch, but appointments are always recommended by the Australian
government. True executive power rests with the prime minister, the
leader of the majority party in the House of Representatives. The
legislature is bicameral, with a Senate and a House of Representatives, and the
ministers are appointed by the prime minister from the membership of the House
and the Senate. The organization of the state government is similar
to that of the central government. Each state has an appointed
governor, an elected premier, and a legislature.
Australia is the sixth largest country
in the world in landmass with a population of approximately 20.4 million
people. This population is concentrated in a few coastal urban areas,
with approximately 4.1 million in the greater Sydney area, 3.9 million in the
greater Melbourne area, 1.8 million in the Brisbane area, 1.5 million in Perth
and 1.1 million in Adelaide. Australia is one of the richest
countries in the world in terms of natural resources per capita and one of the
most economically developed countries in the world, although vast areas of the
interior, known as “the Outback,” remain all but uninhabited. The
principal language is English, and the largest part of the population traces its
origin to Britain and Europe, although an increasing portion of the population
has emigrated from the Far East. Australian taste in film has
historically been similar to that of American audiences.
Internal trade is dominated by the two
most populous states, New South Wales (mainly Sydney) and Victoria (mainly
Melbourne). Together these two states account for a majority of all
wholesale trade and a significant percentage of retail sales. At the
present time, Australia’s principal trading partners are Japan and the European
Union.
Australia
does not restrict the flow of currency into the country from the U.S. or out of
Australia to the U.S. Also, subject to certain review procedures,
U.S. companies are typically permitted to operate businesses and to own real
estate. On July 1, 2000, Australia implemented a goods and services
tax (“GST”) on all goods and services at a consistent rate of 10%. We
do not believe that the GST has had a significant impact on our
business.
Background Information
Concerning New Zealand
New Zealand is also a self-governing
member of the Commonwealth of Nations. It is comprised of two large
islands, and numerous small islands, with a total land area of approximately
104,500 square miles. The country has a population of approximately
4.1 million people, most of who are of European descent and the principal
language is English. Wellington, with a population of approximately
550,000, is the capital and Auckland, with a population of approximately 1.3
million, is the largest city. Most of the population lives in urban
areas.
New Zealand is a prosperous country
with a high standard of social services. The national economy is
largely dependent upon the export of raw and processed foods, timber, and
machinery. Principally a trading nation, New Zealand exports about
30% of its gross national product. In the past (particularly before
the United Kingdom entered the Common Market in 1973), New Zealand’s marketing
focused on a small number of countries, principally the United
Kingdom. Currently, only approximately 5% of New Zealand’s trade is
with the United Kingdom. Australia and the United States are New
Zealand’s principal trading partners. New Zealand’s economy remains
sensitive to fluctuations in demand for its principal exports.
Like Australia, New Zealand has a
largely ceremonial governor-general, appointed by the Queen of
England. However, the executive branch is run by a prime minister,
typically the leader of the majority party in Parliament, and appointed
ministers (typically chosen from the members of Parliament). The
Parliament is elected by universal adult suffrage using a mixed member
proportional system. Under this system, each voter casts two votes at
the federal level, one for a local representative and one for a
party. Fifty percent of the 120 seats in Parliament are determined by
the direct election of local representatives, and the remaining fifty percent
are elected based
upon the number of votes garnered by the parties. The Prime Minister
and his cabinet serve so long as they retain the confidence of the
Parliament.
With the exception of special excise
taxes on tobacco, liquor, petroleum products and motor vehicles the only general
sales tax is a GST imposed on all such services at the consistent rate of
12.5%. In effect, by a series of refunds, GST is only paid by the
end-user of the goods or services in question. Resident companies pay
income tax at a rate of 33%; however, dividend imputation credits generally
prevent double taxation of company profits. There are no restrictions
on repatriation of capital or profits, but some payments to overseas parties are
subject to withholding tax. There is no capital gains tax, and there
are tax treaties with many countries, including the United States.
The laws for monitoring and approving
significant overseas investment into New Zealand reflect the country’s generally
receptive attitude towards such investment and the generally facilitating nature
of the country’s foreign investment policies. One hundred percent
overseas ownership can be approved in nearly all industry sectors, including
motion picture exhibition and distribution. A review process is also
applicable to certain land transactions and the purchase of businesses or assets
having a value of NZ$100,000 or more.
Licensing/Pricing
Films exhibited in Australia and New
Zealand are licensed under agreements with major film distributors and several
local distributors who distribute specialized films. Film exhibitors
are provided with an opportunity to view films prior to negotiating with the
film distributor the commercial terms applicable to its
release. Films are licensed on a film-by-film, theater-by-theater
basis. Reading Australia and Reading New Zealand license films from
all film distributors as appropriate to each of our cinema
location. Generally, film payment terms are based upon various
formulas that provide for payments based upon a specified percentage of box
office receipts.
Competition
The film exhibition market in both
Australia and New Zealand is highly concentrated and, in certain cases in
Australia, vertically integrated. The principal exhibitors in
Australia include a joint venture of Greater Union and Village (GUV) in certain
suburban multiplexes. The major exhibitors control approximately 68%
of the total cinema box office: Village/Greater Union/Birch Carroll and Coyle
45% and Hoyts Cinemas (“Hoyts”) 21%. Greater Union have 243 screens
nationally; Village 218 screens; Birch Carroll & Coyle (a subsidiary of
Greater Union) 230 screens and Hoyts 333 screens. By comparison, our
cinemas represent approximately 6% of the total box office.
The major players in New Zealand are
Sky Cinemas with 94 screens nationally, Reading with 59 screens (not including
partnerships), and Hoyts with 61 screens. The major exhibitors in New
Zealand control approximately 71% of the total box office: Sky Cinemas 31%,
Reading 21% and Hoyts 19%, (Sky and Reading market share figures again do not
include any partnership theaters). Sky has announced that it is
interested in selling its cinema assets and is currently conducting a controlled
auction of those assets. We have made a proposal to acquire a portion
of those assets. We understand that Hoyts is also interested in
acquiring all or some substantial portion of those assets. Due to
antitrust limitations, we believe it unlikely that either Hoyts or we would be
permitted by the New Zealand anti-trust authorities to acquire all of Sky’s New
Zealand cinema assets.
In 2003, we acquired a 33%
unincorporated joint venture interest in an existing 16-screen cinema located in
suburban Brisbane that is currently owned in principal part by Village and Birch
Carroll & Coyle. This is our only joint venture arrangement with
any of the Major Exhibitors in Australia. We are a 50/50 joint
venture partner with Sky in the Rialto circuit in New Zealand.
Greater Union is the owner of Birch
Carroll & Coyle. Generally speaking, all new multiplex cinema
projects announced by Village are being jointly developed by a joint venture
comprised of Greater Union and Village. These companies have
substantial capital resources. Village had a publicly reported
consolidated net worth of approximately $709.8 million (AUS$808.8 billion) at
June 30, 2007. The Greater Union organization does not separately
publish financial reports, but its parent, Amalgamated Holdings, had a publicly
reported consolidated net worth of approximately $445.4 million (AUS$507.6
million) at June 30, 2007. Hoyts does not separately publish
financial reports. Hoyts is currently owned by Pacific Equity
Partners.
The industry is also somewhat
vertically integrated in that Roadshow Film Distributors serves as a distributor
of film in Australia and New Zealand for Warner Brothers and New Line
Cinema. Films produced or distributed by the majority of the local
international independent producers are also distributed by Roadshow Film
Distributors. Hoyts has also begun involvement in film production and
distribution.
In our view, the principal competitive
restraint on the development of our business in Australia and New Zealand is the
limited availability of good sites for future development. We already
have access to substantially all first run film on competitive terms at all of
our cinemas. However, our competitors and certain major commercial
real estate interests have historically utilized land use development laws and
regulations in Australia to prevent or delay our construction of freestanding
cinemas in new entertainment oriented complexes, particularly where those
complexes are located outside of an established central business district or
shopping center development. We also face ongoing competition for
alternative sources of entertainment, including, in particular, increased
compensation from in-the-home viewing alternatives. These competitive
issues are discussed in greater detail below under the caption, Competition, and under the
caption, Item 1A - Risk Factors.
Currency
Risk
Generally speaking, we do not engage in
currency hedging. Rather, to the extent practicable, we operate our
Australian and New Zealand operations on a self-funding basis. Other
than the capitalization of existing debt from time to time, no funds have been
contributed from our U.S. operations to our Australia or New Zealand operations
since 2001 until our February 2007 Trust Preferred Offering described
below. The book value, stated in U.S. dollars, of our net assets in
Australia and New Zealand, (assets less third party liabilities and without
intercompany debt), at December 31, 2007 are as follows (dollars in
thousands):
|
Net
Assets
|
||||
|
Reading
Australia
|
$ | 81,318 | ||
|
Reading
New Zealand
|
71,214 | |||
|
Net
Assets
|
$ | 152,532 | ||
In 2006, we determined that it would be
beneficial to have a layer of long-term fully subordinated debt financing to
help support our long-term real estate assets. On February 5, 2007 we
issued $50.0 million in 20-year fully subordinated notes, interest fixed for
five years at 9.22%, to a trust which we control, and which in turn issued $50.0
million in trust preferred securities in a private placement. There
are no principal payments until maturity in 2027 when the notes are paid in
full. The trust is essentially a pass through, and the transaction is
accounted for on our books as the issuance of fully subordinated
notes. The placement generated $48.4 million in net proceeds, which
were used principally to retire all of our bank indebtedness in New Zealand
$34.4 million (NZ$50.0 million) and to retire a portion of our bank indebtedness
in Australia $5.8 million (AUS$7.4 million). This is a departure from
our historic practice of borrowing principally in local currencies and adds an
increased element of currency risk to our Company. We believe that
this currency risk is mitigated by the comparatively favorable interest rate and
the long-term nature of the fully subordinated notes. Since February
5, 2007 through December 31, 2007, the US dollar has dropped vis-à-vis both the
Australian and the New Zealand dollar.
Virtually all of our operating costs in
Australia and New Zealand are denominated in the respective currencies of these
two countries. Our concessions are purchased locally, and our film
rental is calculated as a percentage of box office receipts. We have
also attempted to keep our general and administrative costs localized, although
in recent periods, we have begun concentrating more of our financial reporting,
control and analysis functions in our Los Angeles corporate
headquarters.
Set forth below is a chart of the
exchange ratios between these three currencies over the past ten
years:
Seasonality
Major films are generally released to
coincide with the school holiday periods, particularly the summer
holidays. Accordingly, our Australian and New Zealand operations
typically record greater revenues and earnings during the first half of the
calendar year.
Employees
Reading Australia has 23 full time
executive and administrative employees and approximately 707 cinema and property
employees. None of our Australia based employees is
unionized. Reading New Zealand has 8 full time executive and
administrative employees and approximately 261 cinema and property level
employees. On January 26, 2007, we entered into a collective
agreement with the employees of our Courtenay Central complex which has an
18-month term. This agreement defines the terms of engagement of our
employees and is consistent with other industry
agreements. Notwithstanding the unionization effort in New Zealand,
we believe our relations with our employees to be generally good.
Our Domestic
Cinemas
General
We currently operate 237 screens in 24
cinemas in the United States (including 3 managed cinemas with 17
screens). Our domestic cinema operations engage in the exhibition of
mainstream general release film in our conventional cinemas, such as the Cinemas
1, 2 & 3, the Village East Theatre and the East 86th Street
Cinema in Manhattan and the Manville 12 in Manville, New Jersey and the
Consolidated Cinemas. We also engage in the exhibition of art and
specialty film at our art cinemas such as the Angelika Film Centers in
Manhattan, Dallas, Houston and Plano and the Tower Theatre in Sacramento,
California.
Most of
our domestic cinemas are leased, other than the Cinemas 1, 2 & 3 property
(which is owned by a subsidiary in which we have a 75% interest) and three
cinemas which are operated pursuant to management contracts. Our
Angelika cinema in Manhattan is owned by a limited liability company owned 50%
by us and 50% by a subsidiary of National Auto Credit, but it is under our
management. Three of our cinemas are held pursuant
to
ground
leases which in each case allow long-term renewal rights and provide us with
flexibility for altering the use of the property: our Manville 12 in New Jersey,
Kapolei 16 in Hawaii, and the Tower Theatre in Sacramento. A fourth
theatre, the Village East in Manhattan, is held pursuant to a sublease of a long
term ground lease, and we have an option under that sublease to acquire the
ground lease estate held by our sublandlord.
In recent years, the domestic cinema
exhibition industry has gone through major retrenchment and consolidation,
creating considerable uncertainty as to the direction of the domestic film
exhibition industry, and our role in that industry. Several major
cinema exhibition companies have gone through bankruptcy over the past five
years, or have been otherwise financially restructured. Regal Cinemas
emerged from bankruptcy and combined with Edwards and United Artists (which also
went through bankruptcy) to create a circuit that has now grown to approximately
6,388 screens, in approximately 527 cinemas. AMC now has
approximately 5,138 screens in approximately 359 cinemas in the United States
and Canada. Landmark Theaters, the largest art and specialty film
exhibitor in the United States, has also emerged from bankruptcy and is now
owned by a private company controlled by Mark Cuban (an individual with a
reported personal net worth of $2.3 billion). These companies, having
used bankruptcy to restructure their debt and to rid themselves of burdensome
leases and in some cases to consolidate, are now much stronger competitors than
they were just a few years ago.
A significant number of older
conventional screens have, as a result of this consolidation process, been taken
out of the market. We estimate that the total domestic screen count
has decreased from 37,396 in 2000 to 36,165 in 2005. Industry
analysts project further consolidation in the industry, as players such as
Cablevision seek to divest their domestic cinema exhibition
assets. Accordingly, while we believe that recent developments may in
some ways have aided the overall health of the domestic cinema exhibition
industry, there remains considerable uncertainty as to the impact of this
consolidation trend on us and our domestic cinema exhibition business, as we are
forced to compete with these stronger and reinvigorated competitors and the
significant market share commanded by these competitors.
There is also considerable uncertainty
as to the future of digital exhibition and in-the-home entertainment
alternatives. In the case of digital exhibition, there is currently
considerable discussion within the industry as to the benefits and detriments of
moving from conventional film projection to digital projection
technology. There are issues:
|
|
·
|
as
to when it will be available on an economically attractive
basis;
|
|
|
·
|
as
to who will pay for the conversion from conventional to digital technology
between exhibitors and
distributors;
|
|
|
·
|
as
to what the impact will be on film licensing expense;
and
|
|
|
·
|
as
to how to deal with security and potential pirating issues if film is
distributed in a digital format.
|
Several
major exhibitors have now announced plans to convert their cinemas to digital
projection. At some point, this will compel us likewise to incur the
costs of conversion, as the costs of digital production are much less than the
cost of conventional film production, from the studio’s point of view and as
distributors will, at some point in time cease distributing film
prints. We estimate that, at the present time, it would likely cost
in the range of $23.7 million for us to convert our wholly owned cinemas to
digital distribution on a worldwide basis.
In the
case of in-the-home entertainment alternatives, the industry is faced with the
significant leaps achieved in recent periods in both the quality and
affordability of in-the-home entertainment systems and in the accessibility to
entertainment programming through cable, satellite, and DVD distribution
channels. These alternative distribution channels are putting
pressure on cinema exhibitors to reduce the time period between theatrical and
secondary release dates, and certain distributors are talking about possible
simultaneous or near simultaneous releases in multiple channels of
distribution. These are issues common to both our domestic and
international cinema operations.
Our domestic cinemas derive
approximately 40% of their revenues from box office receipts. Ticket
prices vary by location, and provide for reduced rates for senior citizens and
children. Box office receipts are reported net of state and local
sales or service taxes. Show times and features are placed in
advertisements in local newspapers and, in some cases, Reading contributes a
small percentage of these costs. Film distributors may also advertise
certain feature films and those costs are generally paid by
distributors. Film rental expense represented approximately 39% of
box office receipts for 2007.
Concession sales account for
approximately 20% of total revenues. Concession products primarily
include popcorn, candy and soda, but Reading’s art cinemas typically offer a
wider variety of concession offerings. Our Angelika cinemas in
Manhattan, Dallas, Houston, and Plano include café facilities, and the
operations in Dallas, Houston, and Plano are licensed to sell alcoholic
beverages. Our domestic cinemas achieved a gross margin on concession
sales of approximately 14% for 2007.
Screen
advertising and other revenues contribute approximately 8% of total revenues for
2007. Other sources of revenue include revenues from theater rentals
for meetings, conferences, special film exhibitions and vending machine receipts
or rentals.
Licensing/Pricing
Film product is available from a
variety of sources ranging from the major film distributors such as Columbia,
Disney, Buena Vista, DreamWorks, Fox, MGM, Paramount, Warner Bros and Universal,
to a variety of smaller independent film distributors such as
Miramax. The major film distributors dominate the market for
mainstream conventional films. Similarly, most art and specialty
films come from the art and specialty divisions of these major distributors,
such as Fox’s Searchlight and Disney’s Miramax. Generally speaking,
film payment terms are based upon an agreed upon percentage of box office
receipts.
Until recently, the surplus of screens
currently available to distributors had eroded the bargaining power of the
exhibitors and that bargaining power has been on the side of the
distributors. However, with the emergence of the mega circuits, it
appears that the balance of power may be somewhat shifting towards the
exhibitors. Indeed, as discussed in greater detail below, we believe
that in certain situations, our access to first-run film has been adversely
affected by the market power of exhibitors such as Regal and AMC.
Competition
The principal factor in the success or
failure of a particular cinema is access to popular film products. If
a particular film is only offered at one cinema in a given market, then
customers wishing to see that film will, of necessity, go to that
cinema. If two or more cinemas in the same market offer the same
film, then customers will typically take into account factors such as the
relative convenience and quality of the various cinemas. In many
markets, the number of prints in distribution is less than the number of
exhibitors seeking that film for that market, and distributors typically take
the position that they are free to provide or not provide their films to
particular exhibitors, at their complete and absolute discretion.
Accordingly, competition for films can
be intense, depending upon the number of cinemas in a particular
market. Our ability to obtain top grossing first run feature films
may be adversely impacted by our comparatively small size, and the limited
number of screens we can supply to distributors. Moreover, as a
result of the dramatic and recent consolidation of screens into the hands of a
few very large and powerful exhibitors such as Regal and AMC, these mega
exhibition companies are in a position to offer distributors access to many more
screens in major markets than we can. Accordingly, distributors may
decide to give preferences to these mega exhibitors when it comes to licensing
top grossing films, rather than deal with independents such as
ourselves. The situation is different in Australia and New Zealand
where typically every major multiplex cinema has access to all of the film
currently in distribution, regardless of the ownership of that multiplex
cinema.
In addition, the competitive situation
facing our Company is uncertain given the ongoing development of in-the-home
entertainment alternatives such as DVD, cable and satellite distribution of
films, and the increasing quality and declining cost of in-the-home
entertainment components.
Seasonality
Traditionally, the exhibition of
mainstream commercial films has been somewhat seasonal, with most of the
revenues being generated over the summer and Christmas holiday
seasons. However, with the increasing number of releases, this
seasonality is becoming less of a factor. The exhibition of art and
specialty films has historically been less seasonal than the exhibition of
mainstream commercial films.
All of our domestic cinemas are managed
by our officers and employees. Angelika Film Center, LLC (the owner
of the Angelika Film Center & Café in the Soho district of New York), is
owned by us on a 50/50 basis with a subsidiary of National Auto Credit, Inc
(“NAC”). However, we manage that theater pursuant to a management
contract. Furthermore, the operating agreement of Angelika Film
Center, LLC provides that, in the event of deadlock our Chairman will cast the
deciding vote.
Employees
At December 31, 2007, we employed
approximately 354 individuals to operate our domestic cinemas and to attend to
our real property operations. On January 31, 2003, we renegotiated
our collective bargaining agreement with the projectionist union with respect to
our Manhattan cinemas. We negotiated a termination of our contract
with the union effective January 31, 2007. Our principal executive
and administrative offices are located in Commerce,
California. Approximately 7 executives and 23 other employees are
located at our executive offices in Commerce and Manhattan. We
believe our relations with our employees to be good.
With the acquisition of Consolidated
Cinemas, we took on an additional 580 employees in Hawaii and
California. We also assumed two union contracts, previously
negotiated by the sellers of those assets. These contracts have terms
through August 2008.
Our Real Estate
Activities
General
While we report our real estate as a
separate segment, it has historically operated as an integral portion of our
overall business. Since our entry into the cinema exhibition
business, our real estate activities have principally been in support of that
business. Accordingly, in this Annual Report, consistent with our
practice in prior periods, we have described our real estate activities as an
integrated portion of our cinema operating and development
activities.
However, in light of our view that
future growth opportunities in the cinema industries are now quite limited in
the countries in which we operate, and, as we have no current plan to enter any
new foreign markets, we intend to focus more on our real estate activities as a
separate business activity.
Our real estate activities, holdings,
and development are described in more detail in the Item 2 –
Properties.
Landplan Property Partners,
Ltd
In 2006,
we formed Landplan Property Partners, Ltd, to identify, acquire and develop or
redevelop properties on an opportunistic basis. In connection with
the formation of Landplan, we entered into an agreement with Mr. Doug Osborne
pursuant to which (i) Mr. Osborne will serve as the chief executive officer of
Landplan and (ii) Mr. Osborne’s affiliate, Landplan Property Group, Ltd (“LPG”),
will perform certain property management services for Landplan. The
agreement provides for Mr. Osborne to hold an equity interest in the entities
formed to hold these properties; such equity interest to be (i) subordinate to
our right to an 11% compounded return on investment and (ii) subject to
adjustment depending upon various factors including the term of the investment
and the amount invested. Generally speaking, this equity interest
will range from 27.5% to 15%.
Malulani
Investments
In
addition, we have acquired an approximately 18.4% common equity interest in
Malulani Investments Limited (MIL), a closely held Hawaiian company which
currently owns developed real estate principally in California, and Hawaii, and
approximately 22,000 acres of agricultural land in Northern
California. Included among Malulani’s assets are the Guenoc Winery,
consisting of approximately 400 acres of vineyard land and a winery configured
to bottle up to 120,000 cases of wine annually and Langtry Estates and
Vineyards. This land and commercial real estate holdings are
encumbered by debt. To date, our requests to management for
information about MIL, including consolidated financial information, have not
been honored. We have brought litigation against MIL and
certain of its directors in an effort to improve our access to information,
including consolidated financial information. While we believe that
we should prevail in our efforts in this regard, as in all litigation matters,
no assurances can be given.
Incident
to that investment, we have entered into a shareholders’ agreement with Magoon
Acquisition & Development, LLC (“Magoon LLC”), which includes certain rights
of first refusal and cost sharing provisions and which grants to James J. Cotter
(our Chairman, Chief Executive Officer and controlling shareholder), a proxy to
vote the shares held by Magoon LLC in MIL and in MIL's parent company, The
Malulani Group, Limited (“TMG”). Magoon LLC owns approximately 12% of
MIL and 30% of TMG. Accordingly, through Mr. Cotter, we currently
vote 30% of the shares of MIL and TMG which represents a voting interest
sufficient to elect one representative to the boards of directors of each of
these two companies. Through the use of this voting power, we have
elected Mr. Cotter to the Board of Directors of MIL. The shareholders
agreement also gives us the right to cause Magoon LLC to join with us in the
formation of a limited liability company which we would control, and which would
provide to us, after return of capital on a last in, first out basis, a 20%
preferred allocation of profits and distributions.
In
January of this year, we contributed 100 shares of the Class A Common Stock
(representing approximately 0.04% of our interest in MIL) to the RDI Employee
Investment Fund, LLC (the “Employee Fund”). The Employee Fund
currently has 49 members, in addition to Reading.
Investing
in our securities involves risk. Set forth below is a summary of
various risk factors which you should consider in connection with your
investment in our company. This summary should be considered in the
context of our overall Annual Report on Form 10K, as many of the topics
addressed below are discussed in significantly greater detail in the context of
specific discussions of our business plan, our operating results, and the
various competitive forces that we face.
Business Risk
Factors
We are
currently engaged principally in the cinema exhibition and real estate
businesses. Since we operate in two business segments (cinema
exhibition and real estate), we have discussed separately the risks we believe
to be material to our involvement in each of these segments. We have
discussed separately certain risks relating to the international nature of our
business activities, our use of leverage, and our status as a controlled
corporation. Please note, that while we report the results of our
live theatre operations as real estate operations – since we are principally in
the business or renting space to producers rather than in licensing or producing
plays ourselves – the cinema exhibition and live theatre businesses share
certain risk factors and are, accordingly, discussed together
below.
Cinema Exhibition and Live
Theatre Business Risk Factors
We
operate in a highly competitive environment, with many competitors who are
significantly larger and may have significantly better access to funds than do
we.
We are a
comparatively small cinema operator and face competition from much larger cinema
exhibitors. These larger circuits are able to offer distributors more
screens in more markets – including markets where they may be the exclusive
exhibitor – than can we. In some cases, faced with such competition,
we may not be able to get access to all of the films we want, which may
adversely affect our revenues and profitability.
These
larger competitors may also enjoy (i) greater cash flow, which can be used to
develop additional cinemas, including cinemas that may be competitive with our
existing cinemas, (ii) better access to equity capital and debt, and (iii)
better visibility to landlords and real estate developers, than do
we.
In the
case of our live theatres, we compete for shows not only with other “for profit”
off-Broadway theaters, but also with not-for-profit operators and, increasingly,
with Broadway theaters. We believe our live theaters are generally
competitive with other off-Broadway venues. However, due to the increased cost
of staging live theater productions, we are seeing an increasing tendency for
plays which would historically have been staged in an off-Broadway theatre,
moving directly to larger Broadway venues.
We
face competition from other sources of entertainment and other entertainment
delivery systems.
Both our
cinema and live theatre operations face competition from developing “in-home”
sources of entertainment. These include competition from DVDs, pay
television, cable and satellite television, the internet and other sources of
entertainment, and video games. The quality of in-house entertainment
systems has increased while the cost of such systems has decreased in recent
periods, and some consumers may prefer the security of an at-home entertainment
experience to the more public experience offered by our cinemas and live
theaters. The movie distributors have been responding to these
developments by, in some cases, decreasing the period of time between cinema
release and the date such product is made available to “in-home” forms of
distribution.
The
narrowing of this so-called “window” for cinema exhibition may be problematic
since film licensing fees have historically been front end loaded. On
the other hand, the significant quantity of films produced in recent periods has
probably had more to do, at least to date, with the shortening of the time most
movies play in the cinemas, than any shortening of the cinema exhibition
window. In recent periods, there has been discussion about the
possibility of eliminating the cinema window altogether for certain films, in
favor of a simultaneous release in multiple channels of distribution, such as
theaters, pay-per-view, and DVD. However, again to date, this move
has been strenuously resisted by the cinema exhibition industry and we view the
total elimination of the cinema exhibition window, while theoretically possible,
to be unlikely.
We also
face competition from various other forms of beyond-the-home entertainment,
including sporting events, concerts, restaurants, casinos, video game arcades,
and nightclubs. Our cinemas also face competition from live theatres
and visa versa.
Our
cinemas operations depend upon access to film that is attractive to our patrons
and our live theatre operations depend upon the continued attractiveness of our
theaters to producers.
Our
ability to generate revenues and profits is largely dependent on factors outside
of our control; specifically the continued ability of motion picture and live
theater producers to produce films and plays that are attractive to audiences,
and the willingness of these producers to license their films to our cinemas and
to rent our theatres for the presentation of their plays. To the
extent that popular movies and plays are produced, our cinema and live theatre
activities are ultimately dependent upon our ability, in the face of competition
from other cinema and live theater operators, to book these movies and plays
into our facilities.
Adverse
economic conditions could materially affect our business by reducing
discretionary income.
Cinema
and live theater attendance is a luxury, not a
necessity. Accordingly, a decline in the economy resulting in a
decrease in discretionary income, or a perception of such a decline, may result
in decreased discretionary spending, which could adversely affect our cinema and
live-theatre businesses.
Our
screen advertising revenues may decline.
Over the
past several years, cinema exhibitors have been looking increasingly to screen
advertising as a way to boost income. No assurances can be given that
this source of income will be continuing or that the use of such advertising
will not ultimately prove to be counter productive by giving consumers a
disincentive to choose going to the movies over at-home entertainment
alternatives.
We
face uncertainty as to the timing and direction of technological innovations in
the cinema exhibition business and as to our access to those
technologies.
It is
generally assumed that eventually, and perhaps in the relatively near future,
cinema exhibition will change over from film projection to digital projection
technology. Such technology offers various cost benefits to both
distributors and exhibitors. While the cost of such a conversion
could be substantial, it is presently difficult to forecast the costs of such
conversion, as it is not presently clear how these costs would be allocated as
between exhibitors and distributors. Also, we anticipate that, as
with most technologies, the cost of the equipment will reduce significantly over
time. As technologies are always evolving, it is, of course, also
possible that other new technologies may evolve that will adversely affect the
competitiveness of current cinema exhibition technology.
Real Estate Development and
Ownership Business Risks.
We
operate in a highly competitive environment, in which we must compete against
companies with much greater financial and human resources than we
have.
We have
limited financial and human resources, compared to our principal real estate
competitors. In recent periods, we have relied heavily on outside
professionals in connection with our real estate development
activities. Many of our competitors have significantly greater
resources than do we and may be able to achieve greater economies of scale than
can we.
Risks Related to the Real
Estate Industry Generally
Our
financial performance will be affected by risks associated with the real estate
industry generally.
Events and conditions generally
applicable to developers, owners and operators of real property will affect our
performance as well. These include (i) changes in the national,
regional and local economic climate; (ii) local conditions such as an oversupply
of, or a reduction in demand for commercial space and/or entertainment oriented
properties; (iii) reduced attractiveness of our properties to tenants; (iv)
competition from other properties; (v) inability to collect rent from tenants;
(vi) increased operating costs, including real estate taxes, insurance premiums
and utilities; (vii) costs of complying with changes in government regulations;
and (viii) the relative illiquidity of real estate
investments. In
addition, periods of economic slowdown or recession, rising interest rates or
declining demand for real estate, or the public perception that any of these
events may occur, could result in declining rents or increased lease
defaults.
We
may incur costs complying with the Americans with Disabilities Act and similar
laws.
Under the Americans with Disabilities
Act and similar statutory regimes in Australia and New Zealand or under
applicable state law, all places of public accommodation (including cinemas and
theaters) are required to meet certain governmental requirements related to
access and use by persons with disabilities. A determination that we
are not in compliance with those governmental requirements with respect to any
of our properties could result in the imposition of fines or an award of damages
to private litigants. The cost of addressing these issues could be
substantial. Fortunately, the great majority of our facilities were
built after the adoption of the Americans with Disabilities Act.
Illiquidity
of real estate investments could impede our ability to respond to adverse
changes in the performance of our properties.
Real estate investments are relatively
illiquid and, therefore, tend to limit our ability to vary our portfolio
promptly in response to changes in economic or other conditions. Many
of our properties are either (i) “special purpose” properties that could not be
readily converted to general residential, retail or office use, or (ii)
undeveloped land. In addition, certain significant expenditures
associated with real estate investment, such as real estate taxes and
maintenance costs, are generally not reduced when circumstances cause a
reduction in income from the investment and competitive factors may prevent the
pass-though of such costs to tenants.
Real
estate development involves a variety of risks.
Real
estate development includes a variety of risks, including the
following:
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The identification and
acquisition of suitable development
properties. Competition for suitable development
properties is intense. Our ability to identify and acquire
development properties may be limited by our size and
resources. Also, as we and our affiliates are considered to be
“foreign owned” for purposes of certain Australia and New Zealand
statutes, we have been in the past, and may in the future be, subject to
regulations that are not applicable to other persons doing business in
those countries.
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The procurement of necessary
land use entitlements for the project. This process can
take many years, particularly if opposed by competing
interests. Competitors and community groups (sometimes funded
by such competitors) may object based on various factors including, for
example, impacts on density, parking, traffic, noise levels and the
historic or architectural nature of the building being
replaced. If they are unsuccessful at the local governmental
level, they may seek recourse to the courts or other
tribunals. This can delay projects and increase
costs.
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The construction of the
project on time and on budget. Construction risks
include the availability and cost of finance; the availability and costs
of material and labor, the costs of dealing with unknown site conditions
(including addressing pollution or environmental wastes deposited upon the
property by prior owners), inclement weather conditions, and the ever
present potential for labor related
disruptions.
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The leasing or sell-out of the
project. Ultimately, there are the risks involved in the
leasing of a rental property or the sale of condominium or built-for-sale
property. Leasing or sale can be influenced by economic factors
that are neither known nor knowable at the commencement of the development
process and by local, national, and even international economic
conditions, both real and
perceived.
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The refinancing of completed
properties. Properties are often developed using
relatively short-term loans. Upon completion of the project, it
may be necessary to find replacement financing for these
loans. This process involves risk as to the availability of
such permanent or other take-out financing, the interest rates, and the
payment terms applicable to such financing, which may be adversely
influenced by local, national, or international factors. To
date, we have been successful in negotiating development loans with roll
over or other provisions mitigating our need to refinance immediately upon
completion of construction.
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The
ownership of properties involves risk.
The
ownership of investment properties involves risks, such as: (i)
ongoing leasing and re-leasing risks, (ii) ongoing financing and re-financing
risks, (iii) market risks as to the multiples offered by buyers of investment
properties, (iv) risks related to the ongoing compliance with changing
governmental regulation clause (iv) (including, without limitation,
environmental laws and requirements to remediate environmental contamination
that may exist on a property, even though not deposited on the property by us)
(v) relative illiquidity compared to some other types of assets, and (vi)
susceptibility of assets to uninsurable risks, such as biological, chemical or
nuclear terrorism. Furthermore, as our properties are typically
developed around an entertainment use, the attractiveness of these properties to
tenants, sources of finance and real estate investors will be influenced by
market perceptions of the benefits and detriments of such entertainment type
properties.
International Business
Risks
Our
international operations are subject to a variety of risks, including the
following:
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Risk of currency
fluctuations. While we report our earnings and assets in
US dollars, substantial portions of our revenues and of our obligations
are denominated in either Australian or New Zealand
dollars. The value of these currencies can vary significantly
compared to the US dollar and compared to each other. We
typically have not hedged against these currency fluctuations, but rather
have relied upon the natural hedges that exist as a result of the fact
that our film costs are typically fixed as a percentage of box office, and
our local operating costs and obligations are likewise typically
denominated in local currencies.
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Risk of adverse government
regulation. At the present time, we believe that
relations between the United States, Australia, and New Zealand are
good. However, no assurances can be given that this
relationship will continue and that Australia and New Zealand will not in
the future seek to regulate more highly the business done by US companies
in their countries.
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Risks Associated with
Certain Discontinued Operations
Certain
of our subsidiaries were previously in industrial businesses. As a
consequence, properties that are currently owned or may have in the past been
owned by these subsidiaries may prove to have environmental
issues. While we have, where we have knowledge of such environmental
issues and are in a position to make an assessment as to our exposure,
established what we believe to be appropriate reserves, we are exposed to the
risk that currently unknown problems may be discovered. These
subsidiaries are also exposed to potential claims related to exposure of former
employees to coal dust, asbestos, and other materials now considered to be, or
which in the future may be found to be, carcinogenic or otherwise injurious to
health.
Operating Results, Financial
Structure and Certain Tax Matters
We
have negative working capital.
In recent
years, as we have invested our cash in new acquisitions and the development of
our existing properties, we have moved from a positive to a negative working
capital situation. This negative working capital, which we consider
to be akin to an interest free loan, is typical in the cinema exhibition
industry, since revenues are received in advance of our obligation to pay film
licensing fees, rent and other costs. At the present time, we have
credit facilities in place which, if drawn upon, could be used to eliminate this
negative working capital position.
We
have substantial short to medium term debt.
Generally
speaking, we have financed our operations through relatively short-term
debt. No assurances can be given that we will be able to refinance
this debt, or if we can, that the terms will be reasonable. However,
as a counterbalance to this debt, we have significant unencumbered real property
assets, which could be sold to pay debt or encumbered to assist in the
refinancing of existing debt, if necessary. In February 2007, we
issued $50.0 million in 20-year Trust Preferred Securities, and utilized the net
proceeds principally to retire short-term bank debt in New Zealand and
Australia. However, the interest rate on our Trust Preferred
Securities is only fixed for five years, and since we have used US Dollar
denominated obligations to retire debt denominated in New Zealand and Australian
Dollars, this transaction and use of net proceeds has increased our exposure to
currency risk.
With the
acquisition of Consolidated Cinemas we have taken on substantial additional
debt. This transaction was, in essence, 100% financed, resulting in
an increase in our debt for book purposes from $177.2 million at December 31,
2007 to $248.2 million as of February 22, 2008.
We
have substantial lease liabilities.
Most of
our cinemas operate in leased facilities. These leases typically have
cost of living or other rent adjustment features and require that we operate the
properties as cinemas. A down turn in our cinema exhibition business
might, depending on its severity, adversely affect the ability of our cinema
operating subsidiaries to meet these rental obligations. Even if our
cinema exhibition business remains relatively constant, cinema level cash flow
will likely be adversely affected unless we can increase our revenues
sufficiently to offset increases in our rental liabilities.
The
Internal Revenue Service has given us notice of a claimed liability of $20.9
million in back taxes, plus interest of $17.9 million.
While we
believe that we have good defenses to this liability, the claimed exposure is
substantial compared to our net worth, and significantly in excess of our
current or anticipated near term liquidity. This contingent liability
is discussed in greater detail under Item 3 – Legal Proceedings: Tax
Audit. If we were to lose on this matter, we would also be confronted
with a potential additional $5.4 million in taxes to the California Franchise
Tax Board, plus interest of approximately $4.6 million.
Our
stock is thinly traded.
Our stock
is thinly traded, with an average daily volume in 2007 of only approximately
4,900 shares. This can result in significant volatility, as demand by
buyers and sellers can easily get out of balance.
Ownership Structure,
Corporate Governance and Change of Control Risks
The
interests of our controlling stockholder may conflict with your
interests.
Mr. James
J. Cotter beneficially owns 70.4% of our outstanding Class B Voting Common
Stock. Our Class A Non-Voting Common Stock is essentially
non-voting, while our Class B Voting Common Stock represents all of the
voting power of our Company. As a result, as of December 31,
2007, Mr. Cotter controlled 70.4% of the voting power of all of our outstanding
common stock. For as long as Mr. Cotter continues to own shares of
common stock representing more than 50% of the voting power of our common stock,
he will be able to elect all of the members of our board of directors and
determine the outcome of all matters submitted to a vote of our stockholders,
including matters involving mergers or other business combinations, the
acquisition or disposition of assets, the incurrence of indebtedness, the
issuance of any additional shares of common stock or other equity securities and
the payment of dividends on common stock. Mr. Cotter will also have
the power to prevent or cause a change in control, and could take other actions
that might be desirable to Mr. Cotter but not to other
stockholders. In addition, Mr. Cotter and his affiliates have
controlling interests in companies in related and unrelated
industries. In the future, we may participate in transactions with
these companies (see Note 25 – Related Parties and
Transactions).
Since
we are a Controlled Company, our Directors have determined to take advantage of
certain exemptions provide by the American Stock Exchange from the corporate
governance rules adopted by that Exchange.
Generally
speaking, the American Stock Exchange requires listed companies to meet certain
minimum corporate governance provisions. However, a Controlled
Corporation, such as we, may elect not to be governed by certain of these
provisions. Our board of directors has elected to exempt our Company
from requirements that (i) at least a majority of our directors be independent,
(ii) nominees to our board of directors be nominated by a committee comprised
entirely of independent directors or by a majority of our Company’s independent
directors, and (iii) the compensation of our chief executive officer be
determined or recommended to our board of directors by a compensation committee
comprised entirely of independent directors or by a majority of our Company’s
independent directors. Notwithstanding the determination by our board
of directors to opt-out of these American Stock Exchange requirements, a
majority of our board of directors is nevertheless currently comprised of
independent directors, and our compensation committee is nevertheless currently
comprised entirely of independent directors.
Item 1B -
Unresolved Staff Comments
Not applicable.
Item 2 –
Properties
Executive and Administrative
Offices
We lease approximately 8,000 square
feet of office space in Commerce, California to serve as our executive
headquarters. During 2005, we purchased a 9,000 square foot office
building in Melbourne, Australia, to serve as the headquarters for our Australia
and New Zealand operations. We occupy approximately 2,000 square feet
of our Village East leasehold property for administrative purposes.
Entertainment
Properties
Leasehold
Interests
As of December 31, 2007, we lease
approximately 1.6 million square feet of completed cinema space in the United
States, Australia, and New Zealand as follows:
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Aggregate
Square Footage
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Approximate
Range of Remaining Lease Terms (including renewals)
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United
States
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339,000
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5 –
42 years
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Australia
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869,000
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29
– 40 years
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New
Zealand
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402,000
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5 –
10 years
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On
February 22, 2008, we acquired Consolidated Cinemas, comprising approximately
727,000 square feet of cinema improvements. This has increased our
worldwide aggregate square footage of property under lease to approximately 2.3
million square feet and our aggregate square footage of property under lease in
the United States of 1.1 million square feet.
Fee
Interests
In Australia, we owned as of December
31, 2008 approximately 3.2 million square feet of land at eight locations plus
one strata title estate consisting of 22,000 square feet. Most of
this land is located in the greater metropolitan areas of Brisbane, Melbourne,
Perth, and Sydney, including the 50.6-acre Burwood site in suburban
Melbourne.
In New Zealand, we own a 190,000 square
foot site, which includes an existing 245,000 square foot, nine level parking
structure in the heart of Wellington, the capital of New Zealand. All
but 38,000 square feet of the Wellington site has been developed as an ETRC
which incorporates the existing parking garage. The remaining land is
currently leased and is slated for development as phase two of our Wellington
ETRC. We own the fee interests underlying three additional cinemas in
New Zealand, which properties include approximately 12,000 square feet of
ancillary retail space. In 2007, we acquired through our
Landplan subsidiary an approximately 64-acre parcel of land in the
transportation corridor between the Auckland airport and the Auckland central
business district. That land is currently zoned and used exclusively
for agricultural purposes, and we are working to rezone the property for
commercial/industrial use. Also through Landplan, we acquired a
1.0-acre property on Lake Taupo, a popular recreational
destination. At the time we acquired our Lake Taupo property, it was
improved as a motel. We are currently in the process of redeveloping
that property into condominiums.
Since the close of 2007, we have
acquired or entered into agreements to acquire approximately 50,000 square foot
of property in Taringa, Australia, comprising four contiguous properties, which
we intend to develop. The aggregate purchase price of these
properties is $11.3 million (AUS$12.9 million), of which $1.7 million (AUS$2.0
million) relates to the three properties that have been acquired and $9.6
million (AUS$10.9 million) relates to the one property that is still under
contract which is subject to certain rezoning conditions.
In the United States, we owned as of
December 31, 2007, on a consolidated basis, approximately 121,000 square feet of
improved real estate comprised of four live theater buildings which include
approximately 58,000 square feet of leasable space, the fee interest in our
Cinemas 1, 2 & 3 in Manhattan (held through a limited liability company in
which we have a 75% managing member interest), and a residential condominium
unit in Los Angeles, used as executive office and residential space by our
Chairman and Chief Executive Officer.
Live Theaters (Liberty
Theaters)
Included among our real estate holdings
are four “Off Broadway” style live theaters, operated through our Liberty
Theaters subsidiary. We lease theater auditoriums to the producers of
“Off Broadway” theatrical productions and provide various box office and
concession services. The terms of our leases are, naturally,
principally dependent upon the commercial success of our
tenants. STOMP has been playing at our Orpheum Theatre for many
years. While we attempt to choose productions that we believe will be
successful, we have no control over the production itself. At the
current time, we have three single auditorium theaters in
Manhattan:
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the
Minetta Lane (399 seats);
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the
Orpheum (364 seats); and
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the
Union Square (499 seats).
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We also
own a four auditorium theater complex, the Royal George in Chicago (main stage
452 seats, cabaret 199 seats, great room 100 seats and gallery 60
seats). We own the fee interest in each of these
theaters. Two of the properties, the Union Square and the Royal
George, have ancillary retail and office space.
We are
basically in the business of leasing theatre space, and accordingly we do not
typically invest in plays. However, we may from time to time
participate as a minority investor in order to facilitate the production of a
play at one of our facilities, and do from time to time rent space on a basis
that allows us to share in a productions revenues or
profits. Revenues, expenses, and profits are reported as apart of the
real estate segment of our business.
Joint Venture
Interests
We also hold real estate through
several unincorporated joint ventures, two 75% owned subsidiaries, and one
majority-owned subsidiary, as described below:
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in
Australia, we own a 66% unincorporated joint venture interest in a leased
5-screen multiplex cinema in Melbourne, a 75% interest in a subsidiary
company that leases two cinemas with eleven screens in two Australian
country towns, and a 33% unincorporated joint venture interest in a
16-screen leasehold cinema in a suburb of
Brisbane.
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in
New Zealand, we own a 50% unincorporated joint venture interest in an
eight-screen mainstream cinema in a suburb of Auckland and we own a 50%
unincorporated joint venture interest in five cinemas with 22 screens in
the New Zealand cities of Auckland, Christchurch, Wellington, Dunedin, and
Hamilton.
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in
the United States, we own a 50% membership interest in Angelika Film
Center, LLC, which holds the lease to the approximately 17,000 square foot
Angelika Film Center & Café in the Soho district of
Manhattan. We also hold the management rights with respect to
this asset. We also own a 75% managing member
interest in the limited liability company that owns our Cinemas 1, 2 &
3 property.
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Real Estate
Development
We are engaged through Reading
Australia and Reading New Zealand in real estate development. We have
to date developed three Entertainment-Themed Retail Center Developments
(so-called ETRCs) each of which consist of a multiplex cinema, complementary
restaurant and retail facilities, and convenient parking on land that we own or
control. These centers are located in Perth and Auburn (a suburb of
Sydney) in Australia and Wellington in New Zealand. We have completed
the retail portions of a fourth ETRC (located in a suburb of Brisbane in
Australia) and have completed the entitlement process for the construction of
the cinema component, which we are in the process of evaluating.
In addition, we are pursuing the
development of four additional sites in Australia and three sites in New
Zealand. The largest of these are our projects at Burwood and Moonee
Ponds, both located in the area of Melbourne, Victoria, and our projects at
Wellington and Manukau (a suburb of Auckland) in New Zealand.
Australia
Auburn,
New South Wales
We own 109,000 square foot ETRC in
Auburn anchored by a 10 screen, 57,000 square foot cinema commonly known as “Red
Yard.” Adjacent to this property, we own approximately 93,000 square
feet of the site that is currently unimproved, and is intended to provide
expansion space for phase II of our Red Yard project. The centre also
includes an 871 space subterranean parking garage. The Auburn City
Council, in coordination with other local governments, is currently reviewing
the land use parameters for the areas adjacent to Parramatta Road in which our
property is located. Parramatta Road, which runs adjacent to Homebush
Bay, the site of the 2000 Olympic Games, is one of the busiest arterial roadways
in the greater Sydney area, and is considered by many to be the “gateway” to
Sydney. Consequently, there is significant community interest in
rezoning the uses along this road. As a major landowner in this area,
we intend to be actively involved in this process and are hopeful that this
rezoning process will materially enhance the value of our remaining unimproved
parcel. We have deferred further work on phase II until we get a
better idea of the opportunities that may be opened by this rezoning
process. This unimproved parcel is currently carried on our books at
$2.4 million (AUS$2.7 million). We are currently considering whether
to sell this property, and have to date received a number of offers which we are
actively considering.
Burwood,
Victoria
The biggest real estate project in our
pipeline is the development of our 50.6-acre Burwood Project, a suburban area
within the Melbourne metropolitan area. In December 1995, we acquired
the site initially as a potential ETRC location. In late 2003, that
site was designated as a “major activity centre” by the Victorian State
Government and in February 2006 was rezoned to permit a broad range of
entertainment, retail, commercial and residential uses. On February
20, 2006, the Victoria State Government approved a rezoning of that parcel from
an industrial classification to a mixed-use classification allowing a broad
range of entertainment, retail, commercial and residential uses. We
are continuing to work to remediate environmental issues at the site and to
refine that zoning, so as to be able to achieve commercial levels of density on
the site.
We contemplate developing the project
in a series of phases, with final completion sometime in 2015. While
the land use issues are now resolved, individual development plans will need to
be prepared and approved for each of the phases, dealing with issues such as
project design and traffic management. Ultimately, we estimate that
the total project will require development funding of approximately $500.0
million. We currently carry this property on our books at $42.0
million (AUS$47.8 million).
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the
site is the largest undeveloped parcel of land in the Burwood Heights
“major activity centre” and the largest undeveloped parcel of land in any
“major activity centre” in Victoria. Approximately 430,000
people live within five miles of the site, which is well served by both
public transit and surface streets. We estimate that
approximately 70,000 people pass by the site each
day.
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we
anticipate that the project will be built in phases, over a significant
period of years, and will not likely be completed before sometime in
2015. The initial phase, however, will likely be an ETRC, as
this is the area of development and construction with which we are most
familiar.
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we
do not currently have any funding in place for the development, and are
paying for current master planning activities out of cash flow and working
capital. The permitted uses outlined in the rezoning for the
site are being defined through a Development Plan Overlay review by local
government. We currently estimate that complete build-out of
the site will require funding in the range of $500.0 million (AUS$570.0
million).
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our
original cost basis in the site is approximately $4.2 million (AUS$5.3
million). The property was originally acquired in 1996, but was
revalued upward in connection with our Consolidation in 2001, which was
treated as a purchase for accounting purposes. This revaluation
was made prior to the designation of the site as a “major activity center”
in 2004. The current book value of this property under
construction is $42.0 million (AUS$47.8
million).
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We
are currently working to refine our entitlements for the site, with the
intention of increasing densities to commercially reasonable
levels.
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as
the property was used by its prior owner as a brickworks, it has been
necessary to remove or encapsulate the contaminated soil that resulted
from those operations from the site before it can be used for
mixed-use
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retail,
entertainment, commercial and residential purposes. During
2007, we conducted further testing on the site and developed a plan to
address these environmental concerns. Substantially all of the
contaminated soil slated for removal has now been removed. As
of December 31, 2007, we estimate that the total site preparation costs
associated with the removal of this contaminated soil will be $7.9 million
(AUS$9.0 million) and accordingly are not, in our view, material to the
overall projected development costs for the
project.
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Indooroopilly,
Brisbane
In
September 2006, we acquired a land area of 11,000 square feet, and a two-story
3,000 square foot building. We paid US$1.8 million (AUS$2.3 million)
for the land. The site is zoned for commercial
purposes. We have obtained approval to develop the property to be a
28,000 square foot grade A commercial office building comprising six floors of
office space and two basement levels of parking with 33 parking
spaces. We expect to spend US$8 million (AUS$9.4 million) in
development costs. We plan to complete the project in December
2008.
Moonee
Ponds, Victoria
We are
also in the planning stages of the development for our 3.3-acre Moonee Ponds
site. This property is within the Moonee Ponds designated “Principal
Activity Area,” allowing high-density development. Accordingly, our
plans for that property will be necessarily influenced by the manner in which
adjacent properties are developed within the “Principal Activity
Area.” We are currently in the planning phase for a multi-use
development. This site is located within the Moonee Ponds “Principal
Activity Area” as designated by the Victorian State Government. The
site represents an accumulation of three parcels, the last of which was acquired
in 2006. We acquired 2.9 acres of the property in April 1997, for a
purchase price of $4.9 million (AUS$6.4 million). The remaining 0.4
acres was acquired in September 2006 for a purchase price of $2.5 million
(AUS$3.3 million). We intend to work towards the finalization of a
plan for the development of this site during 2008.
Newmarket,
Queensland
On November 28, 2005, we opened some of
the retail elements of our Newmarket ETRC, a 100,000 square foot retail facility
situated on an approximately 177,000 square foot parcel in Newmarket, a suburban
of Brisbane, the remainder of the retail areas being rented out during the first
half of 2006. Plans for a 6-screen cinema as part of the project have
been approved by applicable governmental authorities, and it is anticipated that
construction of this entertainment component will commence later this
year.
New
Zealand
Lake
Taupo, New Zealand
In 2007,
through Landplan Property Partners, we acquired a 1.0-acre property on Lake
Taupo, a popular recreational destination, for approximately $4.9 million
(NZ$6.9 million).. At the time we acquired our Lake Taupo property,
it was improved as a motel. We are currently in the process of
redeveloping that property into condominiums.
Manukau,
New Zealand
This is an approximately 64-acre site
located in the transit corridor between Auckland Airport and the Auckland
central business district. We acquired the property in July 2007 for
$9.3 million (NZ$12.1 million). The property is currently zoned for
agricultural uses only and used for grazing. We intend to develop a
master land use plan for the property and to work to effect a zoning change
permitting a more intense use for the land. We believe that the
property can be rezoned and developed for a mixture of commercial/industrial
uses.
Wellington,
New Zealand
We are
currently the owner operator of an approximately 160,000 square foot ETRC in
Wellington, New Zealand, known as Courtenay Central. The existing
ETRC consists of a 10 screen cinema and approximately 38,000 square feet of
retail space. The property also includes a separate nine level
parking structure, with approximately
1,086
parking spaces. During 2006, approximately 3.5 million people went
through the center. We are currently reviewing our options for the
second phase of our Wellington ETRC. While we were successful in
obtaining regulatory approval during 2006 for an approximately 162,000 square
foot expansion of our existing centre, the timing of the development of that
space will ultimately depend upon the retail market in Wellington, which has not
been strong in recent periods. Accordingly, our plans for that site
are currently in a holding pattern, while we wait for demand for retail space to
improve and consider other complementary entertainment center uses for the
property. The 38,000 square foot pad intended to support this second
phase is currently carried on our books at $2.9 million (NZ$3.7 million), and is
being currently rented on a month-to-month basis as a car sales
yard. The retail market has significantly softened in Wellington and
this has delayed our ability to secure suitable anchor tenants for the
development. Accordingly, phase II is currently in a holding pattern
as we wait for the retail market to improve and consider alternative uses for
the property.
Real Estate
Holdings
Our current real estate holdings are
described in detail in Item 2, Properties, below. At December 31,
2007, we owned fee interests in approximately 920,000 square feet of income
producing properties (including certain properties principally occupied by our
cinemas). In the case of properties leased to our cinema operations,
these number include an internal allocation of “rent” for such
facilities.
|
Property1
|
Square
Feet of Improvements
(rental/entertainment)
|
Percentage
Leased
|
Gross
Book Value
(in
U.S. Dollars)
|
|
Auburn
100
Parramatta Road
Auburn,
NSW, Australia
|
57,000
/ 57,000
Plus
an 871-space subterranean parking structure
|
71%
|
$31,380,000
|
|
Belmont
Knutsford
Ave and Fulham St
Belmont,
WA, Australia
|
19,000
/ 49,000
|
80%
|
$13,263,000
|
|
Cinemas
1, 2 & 32
1003
Third Avenue
Manhattan,
NY, USA
|
0 /
24,000
|
N/A
|
$23,674,000
|
|
Courtenay
Central
100
Courtenay Place
Wellington,
New Zealand
|
38,000
/ 68,000
Plus
a 245,000 square foot parking structure
|
76%
|
$24,343,000
|
|
Invercargill
Cinema
29
Dee Street
Invercargill,
New Zealand
|
7,000
/ 20,000
|
85%
|
$2,996,000
|
|
Maitland
Cinema
Ken
Tubman Drive
Maitland,
NSW, Australia
|
0 /
22,000
|
N/A
|
$2,088,000
|
|
Minetta
Lane Theatre
18-22
Minetta Lane
Manhattan,
NY, USA
|
0 /
9,000
|
N/A
|
$8,228,000
|
|
Napier
Cinema
154
Station Street
Napier,
New Zealand
|
5,000
/ 18,000
|
100%
|
$3,102,000
|
|
Newmarket3
Newmarket,
QLD, Australia
|
93,000
/ 0
|
99%
|
$37,874,000
|
|
Orpheum
Theatre
126
2nd
Street
Manhattan,
NY, USA
|
0 /
5,000
|
N/A
|
$3,256,000
|
|
Royal
George
1633
N. Halsted Street
Chicago,
IL, USA
|
37,000
/ 23,000
Plus
21,000 square feet of parking
|
91%
|
$3,306,000
|
|
Rotorua
Cinema
1281
Eruera Street
Rotorua,
New Zealand
|
0 /
19,000
|
N/A
|
$2,827,000
|
|
Union
Square Theatre
100
E. 17th
Street
Manhattan,
NY, USA
|
21,000
/ 17,000
|
100%
|
$8,971,000
|
1 A number
of our properties include entertainment components rented to one or more of our
subsidiaries. The rental area and percentage leased numbers are net
of such entertainment components as is the book value. Book value and
rental information are as of December 31, 2007.
2 This
property is owned by a limited liability company in which we hold a 75% managing
interest. The remaining 25% is owned by Sutton Hill Investments, LLC,
a company owned in equal parts by our Chairman and Chief Executive Officer, Mr.
James J. Cotter, and Michael Forman, a major shareholder in our
Company.
3 The
rental components of this project have been opened for business. The
cinema component is, however, still in the design phase and not anticipated to
open until some time in 2009.
In
addition, in certain cases we have long-term leases which we view more akin to
real estate investments than cinema leases As of December 31, 2007, we had
approximately 179,000 square foot of space subject to such long-term
leases.
|
Property1
|
Square
Footage
(rental/entertainment)
|
Percentage
Leased
|
Gross
Book Value
(in
U.S. Dollars)
|
|
Manville
|
0 /
63,000
|
N/A
|
$1,642,000
|
|
Tower
|
0 /
16,000
|
N/A
|
$ 151,000
|
|
Village
East
|
5,000
/ 37,000
|
100%
|
$2,589,000
|
|
Waurn
Ponds
|
6,000
/ 52,000
|
100%
|
$6,177,000
|
1 A number
of our properties include entertainment components rented to one or more of our
subsidiaries. The rental area and percentage leased numbers are net
of such entertainment components. Book value, however, includes the
entire investment in the leased property, including any cinema
fit-out. Rental and book value information is as of December 31,
2006.
Other
Property Interests and Investments
Domestic
Minority
Investments in Real Estate Companies
Place
57, Manhattan
We own a
25% membership interest in the limited liability company that has developed the
site of our former Sutton Cinema on 57th Street
just east of 3rd Avenue
in Manhattan, as a 143,000 square foot residential condominium tower, with the
ground floor retail unit and the resident manager’s apartment. The
project is essentially sold out, as all of the residential units have been
conveyed and only the ground floor commercial unit is still available for
sale. We are currently looking for a tenant for the commercial space,
which faces on to 57th Street.
At December 31, 2007, all debt on the project had been repaid, and we had
received distributions totaling $9.8 million from this project, on an investment
of $3.0 million made in 2004.
Malulani
Investments, Limited
We own an
18.4% equity interest in Malulani Investments, Limited (“MIL”) a closely held
private company organized under the laws of the State of Hawaii. The
assets of MIL consist principally of commercial properties in Hawaii and
California. MIL’s assets include the Guenoc Winery and approximately
22,000 acres of contiguous property located in Northern
California. Approximately 400 acres of the property in California
consists of vineyards, while the remainder is used for agricultural
purposes. The property is currently subdivided into approximately 60
separate legal parcels. This land and commercial real estate holdings
are encumbered by debt. To date, our requests to management for
information about MIL, including consolidated financial information, have not
been honored. We have brought litigation against MIL and
certain of its directors in an effort to improve our access to information,
including consolidated financial information. While we believe that
we should prevail in our efforts in this regard, as in all litigation matters,
no assurances can be given.
In
connection with this investment we have entered into a shareholders agreement
with Magoon Acquisition and Development, LLC, a limited liability company
organized under the laws of the state of California (“Magoon
LLC”). Magoon LLC owns an approximately 12% equity interest in MIL
and a 30% interest in The Malulani Group, Limited, a closely held private
Hawaiian corporation (“TMG”), and the owner of 70% equity interest in
MIL. That shareholders agreement grants to us voting control over the
MIL and TMG shares held by Magoon, LLC, and provides for various rights of first
refusal and cost sharing. In addition, the shareholders agreement
grants to us the right to require Magoon LLC to contribute its MIL and TMG
shares into a new limited liability company, which would also own our MIL
shares, of which we would be the sole managing member. As the sole
managing member, we would be entitled to receive 20% of any distributions as a
management fee, after return of capital to the members. MIL and TMG
both have cumulative voting, and together with Magoon LLC, we have elected James
J. Cotter to serve as a member of the Board of Directors of MIL.
Non-operating
Properties
We own
the fee interest in 25 parcels comprising 195 acres in Pennsylvania and
Delaware. These acres consist primarily of vacant land. We
believe the value of these properties to be immaterial to our asset base, and
while they are available for sale, we are not actively involved in the marketing
of such properties. With the exception of certain properties located
in Philadelphia (including the raised railroad bed leading to the old Reading
Railroad Station), the properties are principally located in rural areas of
Pennsylvania and Delaware.
Additionally,
we own a condominium in the Los Angeles, California area which is used for
offsite corporate meetings and by our Chief Executive Officer when he is in
town.
Australia
Melbourne Office
Building
On
September 29, 2005, we purchased an office building in Melbourne, Australia for
$2.0 million (AUS$2.6 million) to serve as the headquarters for our Australia
and New Zealand operations. We fully financed this property by
drawing on our Australian Credit Facility.
Item 3 –
Legal Proceedings
Tax
Audit/Litigation
The
Internal Revenue Service (the “IRS”) completed its audits of the tax return of
Reading Entertainment Inc. (RDGE) for its tax years ended December 31, 1996
through December 31, 1999 and the tax return of Craig Corporation (CRG) for its
tax year ended June 30, 1997. With respect to both of these
companies, the principal focus of these audits was the treatment of the
contribution by RDGE to our wholly owned subsidiary, Reading Australia, and
thereafter the subsequent repurchase by Stater Bros. Inc. from Reading Australia
of certain preferred stock in Stater Bros. Inc. (the “Stater Stock”) received by
RDGE from CRG as a part of a private placement of securities by RDGE which
closed in October 1996. A second issue involving equipment-leasing
transactions entered into by RDGE (discussed below) is also
involved.
By
letters dated November 9, 2001, the IRS issued reports of examination proposing
changes to the tax returns of RDGE and CRG for the years in question (the
“Examination Reports”). The Examination Report for each of RDGE and
CRG proposed that the gains on the disposition by RDGE of Stater Stock, reported
as taxable on the RDGE return, should be allocated to CRG. As
reported, the gain resulted in no additional tax to RDGE inasmuch as the gain
was entirely offset by a net operating loss carry forward of
RDGE. This proposed change would result in an additional tax
liability for CRG of approximately $20.9 million plus interest of approximately
$17.9 million as of December 31, 2007. In addition, this proposal
would result in California tax liability of approximately $5.4 million plus
interest of approximately $4.6 million as of December 31,
2007. Accordingly, this proposed change represented, as of December
31, 2007, an exposure of approximately $48.8 million.
Moreover,
California has “amnesty” provisions imposing additional liability on taxpayers
who are determined to have materially underreported their taxable
income. While these provisions have been criticized by a number of
corporate taxpayers to the extent that they apply to tax liabilities that are
being contested in good faith, no assurances can be given that these new
provisions will be applied in a manner that would mitigate the impact on such
taxpayers. Accordingly, these provisions may cause an additional $4.0
million exposure to CRG, for a total exposure of approximately $52.8
million. We have accrued $4.5 million as a probable loss in relation
to this exposure and believe that the possible total settlement amount will be
between $4.0 million and $52.8 million.
In early
February 2005, we had a mediation conference with the IRS concerning this
proposed change. The mediation was conducted by two mediators, one of
whom was selected by the taxpayer from the private sector and one of whom was an
employee of the IRS. In connection with this mediation, we and the
IRS each prepared written submissions to the mediators setting forth our
respective cases. In its written submission, the IRS noted that it
had offered to settle its claims against us at 30% of the proposed change, and
reiterated this offer at the mediation. This offer constituted, in
effect, an offer to settle for a payment of $5.0 million federal tax, plus
interest, for an aggregate settlement amount of approximately $8.0
million. Based on advice of counsel given after reviewing the
materials submitted by the IRS to the mediation panel, and the oral presentation
made by the IRS to the mediation panel and the comments of the mediators
(including the IRS mediator), we determined not to accept this
offer.
Notices
of deficiency (“N/D”) dated June 29, 2006 were received with respect to each
of RDGE and CRG determining proposed deficiencies of $20.9 million
for CRG and a total of $349,000 for RDGE for the tax years 1997, 1998 and
1999.
We intend
to litigate aggressively these matters in the U.S. Tax Court and an appeal was
filed with the court on September 26, 2006. While there are always
risks in litigation, we believe that a settlement at the level currently offered
by the IRS would substantially understate the strength of our position and the
likelihood that we would prevail in a trial of these matters. We are
currently in the discovery process, and do not anticipate a trial of this issue
before 2010.
Since
these tax liabilities relate to time periods prior to the Consolidation of CDL,
RDGE, and CRG into Reading International, Inc. and since RDGE and CRG continue
to exist as wholly owned subsidiaries of RII, it is expected that any adverse
determination would be limited in recourse to the assets of RDGE or CRG, as the
case may be, and not to the general assets of RII. At the present
time, the assets of these subsidiaries are comprised principally of RII
securities. Accordingly, we do not anticipate, even if there were to
be an adverse judgment in favor of the IRS that the satisfaction of that
judgment would interfere with the internal operation or result in
any
levy upon
or loss of any of our material operating assets. The satisfaction of
any such adverse judgment would, however, result in a material dilution to
existing stockholder interests.
The N/D
issued to RDGE does not cover its tax year 1996 which will be held in abeyance
pending the resolution of the CRG case. An adjustment to 1996 taxable
income for RDGE would result in a refund of alternative minimum tax paid that
year. The N/D issued to RDGE eliminated the gains booked by RDGE in
1996 as a consequence of its acquisition certain computer equipment and sale of
the anticipated income stream from the lease of such equipment to third parties
and disallowed depreciation deductions that we took with respect to that
equipment in 1997, 1998 and 1999. Such disallowance has the effect of
decreasing net operating losses but did not result in any additional regular
federal income tax for such years. However, the depreciation
disallowance would increase RDGE state tax liability for those years by
approximately $170,000 plus interest. The only tax liability
reflected in the RDGE N/D is alternative minimum tax in the total amount of
approximately $349,000 plus interest. On September 26, 2006, we filed
an appeal on this N/D with the U.S. Tax Court.
Environmental and Asbestos
Claims
Certain
of our subsidiaries were historically involved in railroad operations, coal
mining and manufacturing. Also, certain of these subsidiaries appear
in the chain of title of properties which may suffer from
pollution. Accordingly, certain of these subsidiaries have, from time
to time, been named in and may in the future be named in various actions brought
under applicable environmental laws. Also, we are in the real estate
development business and may encounter from time to time unanticipated
environmental conditions at properties that we have acquired for
development. These environmental conditions can increase the cost of
such projects, and adversely affect the value and potential for profit of such
projects. We do not currently believe that our exposure under
applicable environmental laws is material in amount.
From time
to time, we have claims brought against us relating to the exposure of former
employees of our railroad operations to asbestos and coal dust. These
are generally covered by an insurance settlement reached in September 1990 with
our insurance carriers. However, this insurance settlement does not
cover litigation by people who were not our employees and who may claim second
hand exposure to asbestos, coal dust and/or other chemicals or elements now
recognized as potentially causing cancer in humans.
We are in
the process of remediating certain environmental issues with respect to our
50-acre Burwood site in Melbourne. That property was at one time used
as a brickwork, and we have discovered petroleum and asbestos at the
site. During 2007, we developed a plan for the remediation of these
materials, in some cases through removal and in other cases through
encapsulation. The total site preparation costs associated with the
removal of this contaminated soil is estimated to be $7.9 million (AUS$9.0
million). As of December 31, 2007, we had incurred a total of $7.1
million (AUS$8.1 million) of these costs. We do not believe that this
has added materially to the overall development cost of the site, as much of the
work is being done in connection with excavation and other development activity
already contemplated for the property.
Whitehorse Center
Litigation
On October 30, 2000, we commenced
litigation in the Supreme Court of Victoria at Melbourne, Commercial and Equity
Division, against our joint venture partner and the controlling stockholders of
our joint venture partner in the Whitehorse Shopping Center. That
action is entitled Reading Entertainment Australia Pty, Ltd vs. Burstone
Victoria Pty, Ltd and May Way Khor and David Frederick Burr, and was brought to
collect on a promissory note (the “K/B Promissory Note”) evidencing a loan that
we made to Ms. Khor and Mr. Burr and that was guaranteed by Burstone Victoria
Pty, Ltd (“Burstone” and collectively with Ms. Khor and Mr. Burr, the “Burstone
Parties”). This loan balance has been previously written off and is
no longer recorded on our books. The Burstone Parties asserted in
defense certain set-offs and counterclaims, alleging, in essence, that we had
breached our alleged obligations to proceed with the development of the
Whitehorse Shopping Center, causing the Burstone Parties damages. The
matter is currently on appeal. However, if the trial court is
ultimately sustained the result will be a payment from the Burstone Parties to
us of $1.1 million (AUS$1.2 million), as of December 31, 2007. That
amount continues to accrue interest at the rate of approximately
10%.
Mackie
Litigation
On November 7, 2005, we were sued in
the Supreme Court of Victoria at Melbourne by a former construction contractor
with respect to the discontinued development of an ETRC at Frankston,
Victoria. The action is entitled Mackie Group Pty Ltd v. Reading
Properties Pty Ltd, and in it the former contractor seeks payment of a claimed
fee in the amount of $788,000 (AUS$1.0 million). We do not believe
that any such fee is owed, and are contesting the claim. Discovery
has now been completed by both parties. The next step in the
litigation is likely to be mediation.
In a hearing conducted on November 22
and 29, 2006, Reading successfully defended an application for summary judgment
brought by Mackie and was awarded costs for part of the preparation of its
defense to the application. A bill of costs has been prepared by a
cost consultant in the sum of $20,000 (AUS$25,000) (including
disbursements). On 27 April 2007, we received payment from Khor &
Burr for those costs in the sum of $17,000 (AUS$19,000).
A
mediation was held in this matter on 12 July 2007, at which time the matter
failed to settle. Reading has subsequently made an offer of
compromise to Mackie Group in the sum of $150,000 plus party/party costs, which
has not been accepted. The matter has not yet been fixed for trial,
however orders have now been made for the preparation of material for trial, and
we expect that the matter will be set down for trial before the end of the
year.
Malulani Investments
Litigation
In December 2006, we commenced a
lawsuit against certain officers and directors of Malulani Investments Limited
(“MIL”) alleging various direct and derivative claims for breach of fiduciary
duty and waste and seeking, among other things, access to various company books
and records. As certain of these claims were brought derivatively,
MIL was also named as a defendant in that litigation. That case is
called Magoon Acquisition
& Development, LLC; a California limited liability company, Reading
International, Inc.; a Nevada corporation, and James J. Cotter vs. Malulani
Investments, Limited, a Hawaii Corporation, Easton T. Mason; John R. Dwyer, Jr.;
Philip Gray; Kenwei Chong (Civil No. 06-1-2156-12 (GWBC) and is currently
pending before Judge Chang in the circuit Court of the First circuit State of
Hawaii, in Honolulu.
On July 26, 2007, the Court granted
TMG’s motion to intervene in the Hawaii action. On March 24, 2008,
MIL filed a counter claim against us, alleging that we are green mailers, that
our purpose in bringing the lawsuit was to harass and harm MIL, and that we
should be liable to MIL for the damage resulting from our harassment, including
the bringing of our lawsuit (the “MIL Counterclaim”).
We do not believe that we have any
meaningful exposure with respect to the MIL Counterclaim, and intend to continue
to prosecute our claims against the Defendant Directors. We have
filed a counterclaim against TMG, alleging various breached of fiduciary duty on
its part, as the controlling shareholder of MIL, and are currently seeking
permission to amend our initial complaint to add additional allegations
principally growing out of the ongoing conduct by the Defendant Directors since
the filing of our initial complaint. The action is currently in its
discovery phase, with trail currently set for November of this
year.
Other Claims – Credit Card
Claims
During 2006, the bank, which
administers our credit card activities, asserted a claim of potential loss
suffered in relation to the use by third parties of counterfeit credit cards and
related credit card company fines. At the end of 2006, we expected
the associated claims from the bank and credit card companies for these losses
and fines to total approximately $1.2 million. For this reason, we
expensed $1.2 million during the year ending December 31,
2006. During 2007, the majority of the credit card claims and
penalties were assessed and paid resulting in realized losses of $429,000 and
$160,000 for the years ending December 31, 2007 and 2006, respectively, and
returned restricted cash of $551,000 during 2007. The restricted cash
balance at December 31, 2007 was $59,000 relating to the remaining unresolved
credit card claims.
Item 4 –
Submission of Matters to a Vote of Security Holders
At our
2007, Annual Meeting of Stockholders held on May 10, 2007, the stockholders
voted on the following proposals:
|
|
·
|
by
the following vote, our eight directors were reelected to serve on the
Board of Directors until the 2008 Annual Meeting of
Stockholders:
|
|
Election
of Directors
|
For
|
Withheld
|
|
James
J. Cotter
|
1,117,201
|
28
|
|
Eric
Barr
|
1,117,201
|
28
|
|
James
J. Cotter, Jr.
|
1,117,201
|
28
|
|
Margaret
Cotter
|
1,117,201
|
28
|
|
William
D. Gould
|
1,117,201
|
28
|
|
Edward
L. Kane
|
1,117,201
|
28
|
|
Gerard
P. Laheney
|
1,117,201
|
28
|
|
Alfred
Villaseñor
|
1,117,201
|
28
|
PART
II
Item 5 – Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
|
(a)
|
Market Price of and
Dividends on the Registrant’s Common Equity and Related Stockholder
Matters
|
Market
Information
Reading
International, Inc., a Nevada corporation (“RDI” and collectively with our
consolidated subsidiaries and corporate predecessors, the “Company,” “Reading”
and “we,” “us,” or “our”), was incorporated in 1999 and, following the
consummation of a consolidation transaction on December 31, 2001 (the
“Consolidation”), is now the owner of the consolidated businesses and assets of
Reading Entertainment, Inc. (“RDGE”), Craig Corporation (“CRG”), and Citadel
Holding Corporation (“CDL”). Until the consolidation of CDL, RDGE,
and CRG on December 31, 2001, our common stock was listed and quoted on the
American Stock Exchange (“AMEX”) under the symbols CDL.A and
CDL.B. Following the consolidation, we changed our name to
RDI. Effective January 2, 2002, our common stock traded on the
American Stock Exchange under the symbols RDI.A and RDI.B. In March
2004, we changed our nonvoting stock symbol from RDI.A to RDI.
The
following table sets forth the high and low closing prices of the RDI and RDI.B
common stock for each of the quarters in 2007 and 2006 as reported by
AMEX:
|
Class
A Nonvoting
|
Class
B Voting
|
||||||||||||||||
|
Common Stock
|
Common Stock
|
||||||||||||||||
|
High
|
Low
|
High
|
Low
|
||||||||||||||
|
2007:
|
Fourth
Quarter
|
$ | 10.22 | $ | 9.60 | $ | 10.50 | $ | 10.00 | ||||||||
|
Third
Quarter
|
$ | 10.64 | $ | 9.53 | $ | 10.75 | $ | 9.40 | |||||||||
|
Second
Quarter
|
$ | 9.34 | $ | 8.35 | $ | 9.57 | $ | 8.30 | |||||||||
|
First
Quarter
|
$ | 8.70 | $ | 8.18 | $ | 8.50 | $ | 8.00 | |||||||||
|
2006:
|
Fourth
Quarter
|
$ | 8.53 | $ | 7.77 | $ | 8.35 | $ | 7.65 | ||||||||
|
Third
Quarter
|
$ | 8.18 | $ | 7.75 | $ | 8.00 | $ | 7.35 | |||||||||
|
Second
Quarter
|
$ | 8.42 | $ | 7.89 | $ | 8.35 | $ | 7.50 | |||||||||
|
First
Quarter
|
$ | 8.62 | $ | 7.50 | $ | 8.60 | $ | 7.30 | |||||||||
Holders
of Record
The
number of holders of record of our Class A and Class B Stock in 2007 was
approximately 3,500 and 300, respectively. On March 26, 2007, the
closing price per share of our Class A Stock was $9.42, and the closing price
per share of our Class B Stock was $10.20.
Dividends
on Common Stock
We have
never declared a cash dividend on our common stock and we have no current plans
to declare a dividend; however, we review this matter on an ongoing
basis.
|
(b)
|
Recent Sales of
Unregistered Securities; Use of Proceeds from Registered
Securities
|
None.
|
(c)
|
Purchases of Equity
Securities by the Issuer and Affiliated
Purchasers
|
None.
Item 6 –
Selected Financial Data
The table
below sets forth certain historical financial data regarding our
Company. This information is derived in part from, and should be read
in conjunction with our consolidated financial statements included in Item 8 of
this Annual Report on Form 10-K for the year ended December 31, 2007 (the “2007
Annual Report”), and the related notes to the consolidated financial statements
(dollars in thousands, except per share amounts).
|
At or for the Year Ended December
31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Revenue
|
$ | 119,235 | $ | 106,125 | $ | 98,105 | $ | 84,089 | $ | 73,911 | ||||||||||
|
Gain
(loss) from discontinued operations
|
$ | 1,912 | $ | -- | $ | 12,231 | $ | (469 | ) | $ | (288 | ) | ||||||||
|
Operating
income (loss)
|
$ | 5,149 | $ | 2,415 | $ | (6,372 | ) | $ | (6,322 | ) | $ | (5,839 | ) | |||||||
|
Net
income (loss)
|
$ | (2,103 | ) | $ | 3,856 | $ | 989 | $ | (8,463 | ) | $ | (5,928 | ) | |||||||
|
Basic
earnings (loss) per share – continuing operations
|
$ | (0.18 | ) | $ | 0.17 | $ | (0.51 | ) | $ | (0.37 | ) | $ | (0.26 | ) | ||||||
|
Basic
earnings (loss) per share – discontinued operations
|
$ | 0.09 | $ | -- | $ | 0.55 | $ | (0.02 | ) | $ | (0.01 | ) | ||||||||
|
Basic
earnings (loss) per share
|
$ | (0.09 | ) | $ | 0.17 | $ | 0.04 | $ | (0.39 | ) | $ | (0.27 | ) | |||||||
|
Diluted
earnings (loss) per share – continuing operations
|
$ | (0.18 | ) | $ | 0.17 | $ | (0.51 | ) | $ | (0.37 | ) | $ | (0.26 | ) | ||||||
|
Diluted
earnings (loss) per share – discontinued operations
|
$ | 0.09 | $ | -- | $ | 0.55 | $ | (0.02 | ) | $ | (0.01 | ) | ||||||||
|
Diluted
earnings (loss) per share
|
$ | (0.09 | ) | $ | 0.17 | $ | 0.04 | $ | (0.39 | ) | $ | (0.27 | ) | |||||||
|
Other
Information:
|
||||||||||||||||||||
|
Shares
outstanding
|
22,482,605 | 22,476,355 | 22,485,948 | 21,998,239 | 21,899,290 | |||||||||||||||
|
Weighted
average shares outstanding
|
22,478,145 | 22,425,941 | 22,249,967 | 21,948,065 | 21,860,222 | |||||||||||||||
|
Weighted
average dilutive shares outstanding
|
22,478,145 | 22,674,818 | 22,249,967 | 21,948,065 | 21,860,222 | |||||||||||||||
|
Total
assets
|
$ | 346,071 | $ | 289,231 | $ | 253,057 | $ | 230,227 | $ | 222,866 | ||||||||||
|
Total
debt
|
$ | 177,195 | $ | 130,212 | $ | 109,320 | $ | 72,879 | $ | 60,765 | ||||||||||
|
Working
capital (deficit)
|
$ | 6,345 | $ | (6,997 | ) | $ | (14,282 | ) | $ | (6,915 | ) | $ | (154 | ) | ||||||
|
Stockholders’
equity
|
$ | 121,362 | $ | 107,659 | $ | 99,404 | $ | 102,010 | $ | 108,491 | ||||||||||
|
EBIT
|
$ | 8,098 | $ | 12,734 | $ | 6,671 | $ | (4,339 | ) | $ | (2,650 | ) | ||||||||
|
Depreciation
and amortization
|
$ | 11,921 | $ | 13,212 | $ | 12,384 | $ | 11,823 | $ | 10,952 | ||||||||||
|
Add: Adjustments
for discontinued operations
|
$ | -- | $ | -- | $ | 567 | $ | 1,915 | $ | 1,907 | ||||||||||
|
EBITDA
|
$ | 20,019 | $ | 25,946 | $ | 19,622 | $ | 9,399 | $ | 10,209 | ||||||||||
|
Debt
to EBITDA
|
8.85 | 5.02 | 5.57 | 7.75 | 5.95 | |||||||||||||||
|
Capital
expenditure (including acquisitions)
|
$ | 42,414 | $ | 16,389 | $ | 53,954 | $ | 33,180 | $ | 5,809 | ||||||||||
|
Number
of employees at 12/31
|
1,383 | 1,451 | 1,523 | 1,677 | 1,453 | |||||||||||||||
EBIT
presented above represents net income (loss) adjusted for interest expense
(calculated net of interest income) and income tax expense. EBIT is
presented for informational purposes to show the significance of depreciation
and amortization in the calculation of EBITDA. We use EBIT in our
evaluation of our operating results since we believe that it is useful as a
measure of financial performance, particularly for us as a multinational
company. We believe it is a useful measure of financial performance
principally for the following reasons:
|
|
·
|
since
we operate in multiple tax jurisdictions, we find EBIT removes the impact
of the varying tax rates and tax regimes in the jurisdictions in which we
operate.
|
|
|
·
|
in
addition, we find EBIT useful as a financial measure that removes the
impact from our effective tax rate of factors not directly related to our
business operations, such as, whether we have acquired operating assets by
purchasing those assets directly, or indirectly by purchasing the stock of
a company that might hold such operating
assets.
|
|
|
·
|
the
use of EBIT as a financial measure also (i) removes the impact of tax
timing differences which may vary from time to time and from jurisdiction
to jurisdiction, (ii) allows us to compare our performance to that
achieved by other companies, and (iii) is useful as a financial measure
that removes the impact of our historically significant net loss
carryforwards.
|
|
|
·
|
the
elimination of net interest expense helps us to compare our operating
performance to those companies that may have more or less debt than we
do.
|
EBITDA
presented above is net income (loss) adjusted for interest expense (again,
calculated net of interest income), income tax expense, and in addition
depreciation and amortization expense. We use EBITDA in our
evaluation of our performance since we believe that EBITDA provides a useful
measure of financial performance and value. We believe this
principally for the following reasons:
|
|
·
|
we
believe that EBITDA is an industry comparative measure of financial
performance. It is, in our experience, a measure commonly used
by analysts and financial commentators who report on the cinema exhibition
and real estate industries and a measure used by financial institutions in
underwriting the creditworthiness of companies in these
industries. Accordingly, our management monitors this
calculation as a method of judging our performance against our peers and
market expectations and our
creditworthiness.
|
|
|
·
|
also,
analysts, financial commentators, and persons active in the cinema
exhibition and real estate industries typically value enterprises engaged
in these businesses at various multiples of
EBITDA. Accordingly, we find EBITDA valuable as an indicator of
the underlying value of our
businesses.
|
We expect
that investors may use EBITDA to judge our ability to generate cash, as a basis
of comparison to other companies engaged in the cinema exhibition and real
estate businesses and as a basis to value our company against such other
companies.
Neither
EBIT nor EBITDA is a measurement of financial performance under accounting
principles generally accepted in the United States of America and should not be
considered in isolation or construed as a substitute for net income or other
operations data or cash flow data prepared in accordance with accounting
principles generally accepted in the United States for purposes of analyzing our
profitability. The exclusion of various components such as interest,
taxes, depreciation and amortization necessarily limit the usefulness of these
measures when assessing our financial performance, as not all funds depicted by
EBITDA are available for management’s discretionary use. For example,
a substantial portion of such funds are subject to contractual restrictions and
functional requirements to service debt, to fund necessary capital expenditures
and to meet other commitments from time to time as described in more detail in
this Annual Report on Form 10-K.
EBIT and
EBITDA also fail to take into account the cost of interest and
taxes. Interest is clearly a real cost that for us is paid
periodically as accrued. Taxes may or may not be a current cash item
but are nevertheless real costs which, in most situations, must eventually be
paid. A company that realizes taxable earnings in high tax
jurisdictions may be ultimately less valuable than a company that realizes the
same amount of taxable earnings in a low tax jurisdiction. EBITDA
fails to take into account the cost of depreciation and amortization and the
fact that assets will eventually wear out and have to be replaced.
EBITDA,
as calculated by us, may not be comparable to similarly titled measures reported
by other companies. A reconciliation of net income (loss) to EBIT and
EBITDA is presented below (dollars in thousands):
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Net
income (loss)
|
$ | (2,103 | ) | $ | 3,856 | $ | 989 | $ | (8,463 | ) | $ | (5,928 | ) | |||||||
|
Add: Interest
expense, net
|
8,163 | 6,608 | 4,473 | 3,078 | 2,567 | |||||||||||||||
|
Add: Income
tax expense
|
2,038 | 2,270 | 1,209 | 1,046 | 711 | |||||||||||||||
|
EBIT
|
$ | 8,098 | $ | 12,734 | $ | 6,671 | $ | (4,339 | ) | $ | (2,650 | ) | ||||||||
|
Add:Depreciation
and amortization
|
11,921 | 13,212 | 12,384 | 11,823 | 10,952 | |||||||||||||||
|
Adjustments
for discontinued operations:
|
||||||||||||||||||||
|
Add: Interest
expense, net
|
-- | -- | 310 | 839 | 856 | |||||||||||||||
|
Add: Depreciation
and amortization
|
-- | -- | 257 | 1,076 | 1,051 | |||||||||||||||
|
EBITDA
|
$ | 20,019 | $ | 25,946 | $ | 19,622 | $ | 9,399 | $ | 10,209 | ||||||||||
Item 7 –
Management’s Discussions and Analysis of Financial Condition and Results of
Operations
The following review should be read in
conjunction with the consolidated financial statements and related notes
included in our 2007 Annual Report. Historical results and percentage
relationships do not necessarily indicate operating results for any future
periods.
Overview
Today, our businesses consist primarily
of:
|
|
·
|
the
development, ownership and operation of multiplex cinemas in the United
States, Australia, and New Zealand;
and
|
|
|
·
|
the
development, ownership, and operation of retail and commercial real estate
in Australia, New Zealand, and the United States, including
entertainment-themed retail centers (“ETRCs”) in Australia and New Zealand
and live theater assets in Manhattan and Chicago in the United
States.
|
We manage
our worldwide cinema businesses under various different brands:
|
|
·
|
in
the US, under the Reading, Angelika Film Center, Consolidated Amusements,
and City Cinemas brands;
|
|
|
·
|
in
Australia, under the Reading brand;
and
|
|
|
·
|
in
New Zealand, under the Reading, Berkeley Cinemas, and Rialto
brands.
|
While we do not believe the cinema
exhibition business to be a growth business at this time, we do believe it to be
a business that will likely continue to generate fairly consistent cash flows in
the years ahead. This is based on our belief that people will
continue to spend some reasonable portion of their entertainment dollar on
entertainment outside of the home and that, when compared to other forms of
outside the home entertainment, movies continue to be a popular and
competitively priced option. While we intend to be opportunistic in
adding to our existing cinema portfolio (and to continue to work to expand our
art cinema operations), we believe it likely that, going forward, we will be
reinvesting a greater percentage of our free cash flow in our general real
estate development. Over time, we anticipate that our cinema
operations will become an increasing source of cash flow to support our real
estate oriented activities and that our real estate activities will become the
principal thrust of our business.
In short, while we do have operating
company attributes, we see ourselves principally as a hard asset company that
will add to shareholder value by building the value of our portfolio of tangible
assets.
Business
Climate
Cinema
Exhibition - General
There is continuing uncertainty in the
film industry as to the future of digital exhibition and in-the-home
entertainment alternatives. In the case of digital exhibition, there
is currently considerable discussion within the industry as to the benefits and
detriments of moving from conventional film projection to digital projection
technology. There are issues as to when it will be available on an
economically attractive basis, as to who will pay for the conversion from
conventional to digital technology between exhibitors and distributors, as to
what the impact will be on film licensing expense, and as to how to deal with
security and potential pirating issues if film is distributed in a digital
format. In the case of in-the-home entertainment alternatives, the
industry is faced with the significant leaps achieved in recent periods in both
the quality and affordability of in-the-home entertainment systems and in the
accessibility to entertainment programming through cable, satellite, and DVD
distribution channels. These are issues common to both our domestic
and international cinema operations.
Cinema Exhibition –
Australia / New Zealand
The film exhibition industry in
Australia and New Zealand is highly concentrated and somewhat vertically
integrated in that one of the Major Exhibitors, Roadshow Film Distributors, also
serves as a distributor of film in Australia and New Zealand for Warner Bros.
and New Line. Films produced or distributed by the majority of the
local international independent producers are also distributed by
Roadshow. Typically, the Major Exhibitors own the newer multiplex and
mega-plex cinemas, while the independent exhibitors typically have older and
smaller cinemas. Accordingly, we believe it likely that the Major
Exhibitors may control upwards of 65% of the total cinema box office in
Australia and New Zealand. Also, the Major Exhibitors have in recent
periods built a number of new multiplexes as joint venture partners or
under-shared facility arrangements, and have historically not engaged in
head-to-head competition, except in the downtown areas of Sydney and
Melbourne.
Cinema Exhibition – North
America
In North America, distributors may find
it more commercially appealing to deal with major exhibitors, rather than to
deal with independents like us, which tends to suppress supply screens in a very
limited number of markets. This competitive disadvantage has
increased significantly in recent periods with the development of mega circuits
like Regal and AMC, who are able to offer distributors access to screens on a
truly nationwide basis, or on the other hand, to deny access if their desires
with respect to film supply are not satisfied.
These consolidations have adversely
affected our ability to get film in certain domestic markets where we compete
against major exhibitors. With the restructuring and consolidation
undertaken in the industry, and the emergence of increasingly attractive in-home
entertainment alternatives, strategic cinema acquisitions by our North American
operation can be a way to combat such a competitive disadvantage.
Real Estate – Australia and
New Zealand
Commercial
and retail property values have remained high in Australia and New Zealand due
to sound economic growth and, until recently, controlled interest
rates. New Zealand has enjoyed consistent growth in rentals and
values with some recent signs that this has plateaued in the short
term. Project commencements have declined with indications that
construction prices will tighten this year. There are continuing
signs that large Australian-based funds are actively seeking out opportunities
in New Zealand.
The Australian commercial sector of the
real estate market has remained buoyant in Australia during 2007. The
large institutional funds are still seeking out prime assets with premium prices
being paid for good retail and commercial investments and development
opportunities. Leasing interest in growth areas such as Brisbane is
driving positive returns. Many large residential unit developments in
Sydney and Melbourne have however resulted in some oversupply and this sector
has softening values.
Real Estate – North
America
In the
U.S., our real estate interests are predominantly centered on our live theatre
rental operations, with the exception of one property relating to a cinema asset
that we operate. In addition, our geographic focus of real estate
holdings is narrowed to New York and Illinois, and there specifically Manhattan
and Chicago.
The four
properties that we own relative to our live theatre operations are therefore
affected by i) our ability to secure the right live production and ii) the
potential for redevelopment of any one site. Any ancillary rental
stream, which would be affected by the general state of the US property market,
is minor compared to that. Likewise, the rental stream of the one
cinema that we own depends solely on our cinema operation, and its value to us
depends on this and its redevelopment potential.
The
market for redevelopment sites in Manhattan and Chicago has begun to stabilize
from the rapid rise in appreciation values over the past few years.
Business
Segments
As indicated above, our two primary
business segments are cinema exhibition and the holding and development of real
estate. These segments are summarized as follows:
Cinema
Exhibition
One of
our primary businesses consists of the ownership and operation of
cinemas. At December 31, 2007 we:
|
|
·
|
directly
operated 35 cinemas with 231
screens;
|
|
|
·
|
had
interests in certain unconsolidated joint ventures in which we have
varying interests, which own an additional 7 cinemas with 46
screens;
|
|
|
·
|
managed
2 cinemas with 9 screens;
|
|
|
·
|
had
entered into an agreement for lease with respect to a new 8-screen cinema
currently under development in a regional shopping center located in a
fast growing suburban area in Australia. It is anticipated that
this cinema will open in March 2008;
and
|
Consistent
with our philosophy to look for opportunities in the cinema exhibition industry,
on February 22, 2008 we acquired from two related companies, Pacific Theatres
and Consolidated Amusement Theatres, substantially all of their cinema assets in
Hawaii of nine complexes (98 screens), San Diego County of four complexes (51
screens), and Northern California of two complexes (32 screens). In
total, we acquired fourteen mature leasehold cinemas and the management rights
to one additional mature cinema with 8 screens. In saying that these
cinema are “mature” we mean that they have been in operation for some years, and
are, in our view, proven performers in their markets. We refer to
these cinemas from time to time in this report as Consolidated
Cinemas.
Our
cinema revenue consists of admissions, concessions, and
advertising. The cinema operating expense consists of the costs
directly attributable to the operation of the cinemas including
employee-related, occupancy, and operating costs and film rent
expense. Cinema revenue and expense fluctuates with the availability
of quality first-run films and the numbers of weeks the first–run films stay in
the market.
Rental Real Estate
Holdings
For fiscal 2007, our rental generating
real estate holdings consisted of the following properties:
|
|
·
|
our
Belmont, Western Australia ETRC, our Auburn, New South Wales ETRC and our
Wellington, New Zealand ETRC;
|
|
|
·
|
our
Newmarket shopping center in Newmarket, Queensland, a suburb of
Brisbane. The center is ultimately intended to be an ETRC, and
we recently obtained final government approvals for the construction of an
approximately 33,000 square foot cinema as a part of the
complex;
|
|
|
·
|
three
single auditorium live theaters in Manhattan (Minetta Lane, Orpheum, and
Union Square) and a four auditorium live theater complex in Chicago (The
Royal George) and, in the case of the Union Square and the Royal George
their accompanying ancillary retail and commercial
tenants;
|
|
|
·
|
a
New Zealand property rented to an unrelated third party, to be held for
current income and long-term
appreciation;
|
|
|
·
|
our
Lake Taupo property in New Zealand that is currently improved with a motel
which we are in the process of renovating its units to be
condominiums. A portion of this property includes unimproved
land that we do not intend to develop;
and
|
|
|
·
|
the
ancillary retail and commercial tenants at some of our non-ETRC cinema
properties.
|
In
addition, we have approximately 5.3 million square feet of unimproved real
estate held for development in Australia and New Zealand, discussed in greater
detail below, and certain unimproved land in the United States that was used in
our historic activities. We also own an 8,783 square foot commercial
building in Melbourne, which serves as our administrative headquarters for
Australia and New Zealand.
In 2007,
we acquired the following real property interests:
|
|
·
|
Manukau
Land. On July 27, 2007, we purchased through a Landplan
Property Partners property trust a 64.0 acre parcel of undeveloped
agricultural real estate for approximately $9.3 million (NZ$12.1
million). We intend to rezone the property from its current
agricultural use to commercial use, and thereafter to redevelop the
property in accordance with its new zoning. No assurances can
be given that such rezoning will be achieved, or if achieved, that it will
occur in the near term.
|
|
|
·
|
New Zealand Commercial
Property. On June 29, 2007, we acquired a commercial
property for $5.9 million (NZ$7.6 million), rented to an unrelated third
party, to be held for current income and long-term
appreciation.
|
|
|
·
|
Cinemas 1, 2, & 3
Building. On June 28, 2007, we purchased the building
associated with our Cinemas 1, 2, & 3 for $100,000 from Sutton Hill
Capital (“SHC”). Our option to purchase that building has been
previously disclosed, and was granted to us by SHC at the time that we
acquired the underlying ground lease from SHC on June 1,
2005. As SHC is a related party to our corporation, our Board’s
Audit and Conflicts Committee, comprised entirely of outside independent
directors, and subsequently our entire Board of Directors unanimously
approved the purchase of the property. The Cinemas 1, 2 & 3
is located on 3rd Avenue between 59th and 60th
Streets.
|
|
|
·
|
Lake Taupo
Property. On February 14, 2007, we acquired, through a
Landplan Property Partners property trust, a 1.0 acre parcel of commercial
real estate for approximately $4.9 million (NZ$6.9
million). The property was improved with a motel, but we are
currently renovating the property’s units to be condominiums. A
portion of this property includes unimproved land that we do not intend to
develop. This land was determined to have a fair value of $1.8
million (NZ$2.6 million) at the time of purchase and is included on our
balance sheet as land held for sale. The remaining property and
its cost basis of $3.1 million (NZ$4.3 million) was included in property
under development. The operating activities of the motel are
not material.
|
|
|
·
|
Tower Ground
Lease. On February 8, 2007, we purchased the tenant’s
interest in the ground lease underlying the building lease for one of our
domestic cinemas for $493,000.
|
In 2006,
we acquired the following real property interests:
|
|
·
|
Indooroopilly
Land. On September 18, 2006, we purchased a 0.3 acre
property for $1.8 million (AUS$2.3 million) as part of our Landplan
Property Partners initiative. We have obtained approval to
develop the property to be a 28,000 square foot grade A commercial office
building comprising six floors of office space and two basement levels of
parking with 33 parking spaces. We expect to spend US$8.2
million (AUS$9.4 million) in development costs. We plan to
complete the project in December
2008.
|
|
|
·
|
Moonee Ponds
Land. On September 1, 2006, we purchased two parcels of
land aggregating 0.4 acres adjacent to our Moonee Ponds property for $2.5
million (AUS$3.3 million). This acquisition increases our
holdings at Moonee Ponds to 3.3 acres and gives us frontage facing the
principal transit station servicing the area. We are currently
working to finalize plans for the development of this property into a
mixed-use entertainment based retail and commercial
complex.
|
|
|
·
|
Malulani
Investments. On June 28, 2006, we acquired for $1.8
million, an 18.4% equity interest in Malulani Investments, Limited
(“MIL”), a closely held Hawaiian company which currently owns
approximately 763,000 square feet of developed commercial real estate
principally in California, Hawaii, and Texas, and approximately 22,000
acres of agricultural land in Northern California. Included
among MIL’s assets is the Guenoc Winery, consisting of approximately 400
acres of vineyard land and a winery equipped to bottle up to 120,000 cases
of wine annually. This land and commercial real estate holdings
are encumbered by debt.
|
Property Held For or Under
Development
For fiscal 2007, our investments in
property held for or under development consisted of:
|
|
·
|
an
approximately 50.6 acre property located in the Burwood area of Melbourne,
Australia, recently rezoned from an essentially industrial zone to a
priority zone allowing a variety of retail, entertainment, commercial and
residential uses and currently in the planning stages of
development;
|
|
|
·
|
an
approximately 3.3 acre property located in the Moonee Ponds area of
Melbourne, Australia. We are currently working to finalize
plans for the development of this property into a mixed use entertainment
based retail and commercial
complex;
|
|
|
·
|
an
approximately 0.9 acre property located adjacent to the Courtenay Central
ETRC in Wellington, New Zealand. We have received all necessary
governmental approvals to develop the site for retail, commercial and
entertainment purposes as Phase II of our existing ETRC. We
anticipate the construction of an approximately 162,000 square foot retail
project which, when completed, will be integrated into the common areas of
our existing ETRC;
|
|
|
·
|
a
25% interest, representing an investment of $3.0 million, in the company
redeveloping the site of our old Sutton Cinema site in Manhattan, New
York. The property has been redeveloped as an approximately
100,000 square foot residential condominium project with ground floor
retail and marketed under the name “Place
57.” In 2006, the joint venture was able to close on the
sales of 59 condominiums resulting in gross sales of $117.7 million and
equity earnings from unconsolidated joint venture to us of $8.3
million. During 2007, this joint venture sold the remaining
eight residential condominiums resulting in gross sales of $25.7 million
and equity earnings from unconsolidated joint venture to us of $1.3
million. Only the commercial unit is still available for
sale;
|
|
|
·
|
a
0.3 acre property with a two-story 3,464 square foot building
Indooroopilly, Brisbane, Australia. We have obtained approval
to develop the property to be a 28,000 square foot grade A commercial
office building comprising six floors of office space and two basement
levels of parking with 33 parking spaces. We expect to spend
US$8 million (AUS$9.4 million) in development costs. We plan to
complete the project in December
2008;
|
|
|
·
|
the
Manukau land parcel was purchased on July 27, 2007 through a Landplan
Property Partners property trust a 64.0 acre parcel of undeveloped
agricultural real estate for approximately $9.3 million (NZ$12.1
million). We intend to rezone the property from its current
agricultural use to commercial use, and thereafter to redevelop the
property in accordance with its new zoning. No assurances can
be given that such rezoning will be achieved, or if achieved, that it will
occur in the near term; and
|
|
|
·
|
a
1.0-acre parcel of commercial real estate located in Lake Taupo, New
Zealand. The property was improved with a motel, but we are
currently renovating the property’s units to be
condominiums.
|
Property Held For
Sale
At December 31, 2007, the adjacent
unimproved land to our recently purchased Lake Taupo property acquired in 2007
was held for sale.
Recent Business
Developments
We look
to take advantage of those opportunities that may present themselves to expand
strategically our existing cinema circuits. However, we do not intend
to acquire cinema assets simply for the sake of growing. Rather, we
intend to be disciplined in our approach to acquiring and developing cinema
assets.
We have,
in the past, and may, in the future, dispose of, or put to alternative use some
or all of our interests in various operating assets, in order to maximize the
values of such assets. Generally speaking, since the Consolidation,
we have disposed of our non-cinema and non-real estate related assets so as to
focus on our principal two businesses.
During
the past 24 months, we have engaged in the following transactions which we
believe are consistent with our business plan:
|
·
|
Consolidated
Cinemas. On October 8, 2007, we entered into agreements
to acquire leasehold interests in 15 cinemas then owned by Pacific
Theatres Exhibition Corp. and its’ affiliates. The cinemas,
which are located in the United States, contain 181 screens with annual
revenue of approximately $78.0 million. The aggregate purchase
price of the cinemas and related assets is $69.3 million. This
acquisition closed on February 22,
2008.
|
|
·
|
Manukau
Land. On July 27, 2007, we purchased through a Landplan
Property Partners property trust a 64.0 acre parcel of undeveloped
agricultural real estate for approximately $9.3 million (NZ$12.1
million). We intend to rezone the property from its current
agricultural use to commercial use, and thereafter to redevelop the
property in accordance with its new zoning. No assurances can
be given that such rezoning will be achieved, or if achieved, that it will
occur in the near term.
|
|
·
|
New Zealand Commercial
Property. On June 29, 2007, we acquired a commercial
property for $5.9 million (NZ$7.6 million), rented to an unrelated third
party, to be held for current income and long-term
appreciation. The purchase price allocation for this
acquisition is $1.2 million (NZ$1.6 million) allocated to land and $4.7
million (NZ$6.1 million) allocated to
building.
|
|
·
|
Lake Taupo
Property. On February 14, 2007, we acquired, through a
Landplan Property Partners property trust, a 1.0 acre parcel of commercial
real estate for approximately $4.9 million (NZ$6.9
million). The property was improved with a motel, but we are
currently renovating the property’s units to be condominiums. A
portion of this property includes unimproved land that we do not intend to
develop. This land was determined to have a fair value of $1.8
million (NZ$2.6 million) at the time of purchase and is included on our
balance sheet as land held for sale. The remaining property and
its cost basis of $3.1 million (NZ$4.3 million) was included in property
under development. The operating activities of the motel are
not material.
|
|
·
|
Cinemas 1, 2, & 3
Building. On June 28, 2007, we purchased the building
associated with our Cinemas 1, 2, & 3 for $100,000 from Sutton Hill
Capital (“SHC”). Our option to purchase that building has been
previously disclosed, and was granted to us by SHC at the time that we
acquired the underlying ground lease from SHC on June 1,
2005. As SHC is a related party to our corporation, our Board’s
Audit and Conflicts Committee, comprised entirely of outside independent
directors, and subsequently our entire Board of Directors unanimously
approved the purchase of the property. The Cinemas 1, 2 & 3
is located on 3rd Avenue between 59th and 60th
Streets.
|
|
·
|
Tower Ground
Lease. On February 8, 2007, we purchased the tenant’s
interest in the ground lease underlying the building lease for one of our
domestic cinemas. The purchase price of $493,000 was paid in
two installments; $243,000 was paid on February 8, 2007 and $250,000 was
paid on June 28, 2007.
|
|
·
|
Place 57,
Manhattan. We own a 25% membership interest in the
limited liability company that has been developing the site of our former
Sutton Cinema on 57th
Street just east of 3rd
Avenue in Manhattan, as a 143,000 square foot residential condominium
tower, with the ground floor retail unit and the resident manager’s
apartment. All of the residential units have now been sold and
only the commercial unit is still available for sale. As of
December 31, 2007, we had received distributions totaling $9.8 million
from the earnings of this project and we have received $1.9 million of
return of capital investment.
|
|
·
|
Indooroopilly
Land. On September 18, 2006, we purchased a 0.3 acre
property for $1.8 million (AUS$2.3 million) as part of our newly
established Landplan Property Partners initiative. We have
obtained approval to develop the property to be a 28,000 square foot grade
A commercial office building comprising six floors of office space and two
basement levels of parking with 33 parking spaces. We expect to
spend US$8.2 million (AUS$9.4 million) in development costs. We
plan to complete the project in December
2008.
|
|
·
|
Moonee Ponds
Land. On September 1, 2006, we purchased two parcels of
land aggregating 0.4 acres adjacent to our Moonee Ponds property for $2.5
million (AUS$3.3 million). This acquisition increased our
holdings at Moonee Ponds to 3.3 acres and gave us frontage facing the
principal transit station servicing the area. We are now in the
process of developing the entire site and anticipate completion of this
project in 2008.
|
|
·
|
Berkeley
Cinemas. On August 28, 2006, we sold to our joint
venture partner our interest in the cinemas at Whangaparaoa, Takapuna and
Mission Bay, New Zealand, the Berkeley Cinema Group, for $4.6 million
(NZ$7.2 million) in cash and the assumption of $1.6 million (NZ$2.5
million) in debt. The sale resulted in a gain on sale of
unconsolidated joint venture in 2006 of $3.4 million (NZ$5.4
million). See Note 11 – Investments in and Advances to
Unconsolidated Joint Ventures and Entities for the Berkeley Cinema
Group Condensed Balance Sheet and Statement of
Operations.
|
Additionally,
effective April 1, 2006, we purchased from our Joint Venture partner the 50%
share that we did not already own of the Palms cinema located in Christchurch,
New Zealand for cash of $2.6 million (NZ$4.1 million) and the proportionate
share of assumed debt which amounted to $987,000 (NZ$1.6
million). This 8-screen, leasehold cinema had previously been
included in our Berkeley Cinemas Joint Venture investment and was not previously
consolidated for accounting purposes. Subsequent to April 1, 2006, we
have consolidated this entity into our financial statements.
As a
result of these transactions, the only cinema owned by this joint venture is the
Botany Downs cinema, located in suburban Auckland.
|
·
|
Malulani Investments,
Ltd. On June 26, 2006, we acquired for $1.8 million, an
18.4% interest in a private real estate company with holdings principally
in California, Texas and Hawaii including, the Guenoc Winery located on
approximately 22,000 acres of land located in Northern
California. This land and commercial real estate holdings are
encumbered by debt.
|
|
·
|
Queenstown
Cinema. Effective February 23, 2006, we purchased a
3-screen leasehold cinema in Queenstown, New Zealand for $939,000 (NZ$1.4
million). We funded this acquisition through internal
sources.
|
|
·
|
Newmarket
Property: At the end of 2005 and during the first few
months of 2006, we opened the retail elements of our Newmarket ETRC, a
100,373 square foot retail facility situated on an approximately 177,497
square foot parcel in Newmarket, a suburb of Brisbane. The
total construction costs for the site were $26.7 million (AUS$34.2
million) including $1.4 million (AUS$1.9 million) of capitalized
interest. This project was funded through our $78.8 million
(AUS$100.0 million) Australian Corporate Credit Facility with the Bank of
Western Australia, Ltd.
|
Critical Accounting
Policies
The Securities and Exchange Commission
defines critical accounting policies as those that are, in management’s view,
most important to the portrayal of the company’s financial condition and results
of operations and the most demanding in their calls on judgment. We
believe our most critical accounting policies relate to:
|
|
·
|
impairment
of long-lived assets, including goodwill and intangible
assets;
|
|
|
·
|
tax
valuation allowance and obligations;
and
|
|
|
·
|
legal
and environmental obligations.
|
We review long-lived assets, including
goodwill and intangibles, for impairment as part of our annual budgeting
process, in the fourth quarter, and whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be fully
recoverable. We review internal management reports on a monthly basis
as well as monitor current and potential future competition in film markets for
indications of potential impairment. We evaluate our long-lived
assets using historical and projected data of cash flow as our primary indicator
of potential impairment and we take into consideration, the seasonality of our
business. If the sum of the estimated future cash flows,
undiscounted, were to be less than the carrying amount of the asset, then an
impairment would be recognized for the amount by which the carrying value of the
asset exceeds its estimated fair value based on a discounted cash flow
calculation. Goodwill and intangible assets are evaluated on a
reporting unit basis. The impairment evaluation is based on the
present value of estimated future cash flows of the segment plus the expected
terminal value. There are significant assumptions and estimates used
in determining the future cash flows and terminal value. Accordingly,
actual results could vary materially from such estimates. We recorded
an impairment loss for one of our cinema locations for the year ended December
31, 2007.
We record our estimated future tax
benefits and liabilities arising from the temporary differences between the tax
bases of assets and liabilities and amounts reported in the accompanying
consolidated balance sheets, as well as operating loss carry
forwards. We estimate the recoverability of any tax assets recorded
on the balance sheet and provide any necessary allowances as
required. As of December 31, 2007, we had recorded approximately
$57.9 million of deferred tax assets related to the temporary differences
between the tax bases of assets and liabilities and amounts reported in the
accompanying consolidated balance sheets, as well as operating loss carry
forwards and tax credit carry forwards. These deferred tax assets
were fully offset by a valuation allowance in the same amount, resulting in a
net deferred tax asset of zero. The recoverability of deferred tax
assets is dependent upon our ability to generate future taxable
income. There is no assurance that sufficient future taxable income
will be generated to benefit from our tax loss carry forwards and tax credit
carry forwards.
Due to
our historical involvement in the railroad industry under RDGE, we have a number
of former employees of RDGE claiming monetary compensation for hearing loss,
black lung and other asbestos related illness suffered as a result of their past
employment with RDGE. With respect to the personal injury claims, our
insurance carrier generally pays approximately 98% of the claims and we do not
believe that we have a significant exposure. However, we can give no
assurance that such reimbursement will continue. In addition, we have
an environmental contamination dispute with the City of Philadelphia that has
been on going for some time and an EPA claim in relation to one of our formerly
owned railroad sites. We intend to defend vigorously our positions,
as we believe a complete disclosure about the property was made at the time we
sold the property: however, no assurances can be given that we will
prevail.
From time
to time, we are involved with claims and lawsuits arising in the ordinary course
of our business which may include contractual obligations; insurance claims; IRS
claims; employment matters; and anti-trust issues, among other
matters.
Results of
Operations
We currently operate two operating
segments: Cinema and Real Estate. Our cinema segment includes the
operations of our consolidated cinemas. Our real estate segment
includes the operating results of our commercial real estate holdings, cinema
real estate, live theater real estate and ETRCs. Effective the fourth
quarter of 2006, we have changed the presentation of our segment reporting such
that our intersegment revenues and expenses are reported separately from our
segments’ operating activity. The effect of this change is to include
intercompany rent revenues and rent expenses into their respective cinema and
real estate business segments. The revenues and expenses for 2005
have been adjusted to conform to the current year presentation. We
believe that this presentation more accurately portrays how our operating
decision makers’ view the operations, how they assess segment performance, and
how they make decisions about allocating resources to the segments.
The
tables below summarize the results of operations for our principal business
segments for the years ended December 31, 2007, 2006 and 2005 (dollars in
thousands).
|
Year
Ended December 31, 2007
|
Cinema
|
Real
Estate
|
Intersegment
Eliminations
|
Total
|
||||||||||||
|
Revenue
|
$ | 103,467 | $ | 21,887 | $ | (6,119 | ) | $ | 119,235 | |||||||
|
Operating
expense
|
83,875 | 8,324 | (6,119 | ) | 86,080 | |||||||||||
|
Depreciation
& amortization
|
6,942 | 4,418 | -- | 11,360 | ||||||||||||
|
General
& administrative expense
|
3,195 | 831 | -- | 4,026 | ||||||||||||
|
Segment
operating income
|
$ | 9,455 | $ | 8,314 | $ | -- | $ | 17,769 | ||||||||
|
Year
Ended December 31, 2006
|
Cinema
|
Real
Estate
|
Intersegment
Eliminations
|
Total
|
||||||||||||
|
Revenue
|
$ | 94,048 | $ | 17,285 | $ | (5,208 | ) | $ | 106,125 | |||||||
|
Operating
expense
|
75,350 | 7,365 | (5,208 | ) | 77,507 | |||||||||||
|
Depreciation
& amortization
|
8,648 | 4,080 | -- | 12,728 | ||||||||||||
|
General
& administrative expense
|
3,658 | 782 | -- | 4,440 | ||||||||||||
|
Segment
operating income
|
$ | 6,392 | $ | 5,058 | $ | -- | $ | 11,450 | ||||||||
|
Year
Ended December 31, 2005
|
Cinema
|
Real
Estate
|
Intersegment
Eliminations
|
Total
|
||||||||||||
|
Revenue
|
$ | 86,760 | $ | 16,523 | $ | (5,178 | ) | $ | 98,105 | |||||||
|
Operating
expense
|
72,665 | 7,359 | (5,178 | ) | 74,846 | |||||||||||
|
Depreciation
& amortization
|
8,323 | 3,674 | -- | 11,997 | ||||||||||||
|
General
& administrative expense
|
6,802 | 328 | -- | 7,130 | ||||||||||||
|
Segment
operating income (loss)
|
$ | (1,030 | ) | $ | 5,162 | $ | -- | $ | 4,132 | |||||||
|
Reconciliation
to net income:
|
2007
|
2006
|
2005
|
|||||||||
|
Total
segment operating income
|
$ | 17,769 | $ | 11,450 | $ | 4,132 | ||||||
|
Non-segment:
|
||||||||||||
|
Depreciation and amortization
expense
|
561 | 484 | 387 | |||||||||
|
General and administrative
expense
|
12,059 | 8,551 | 10,117 | |||||||||
|
Operating
income (loss)
|
5,149 | 2,415 | (6,372 | ) | ||||||||
|
Interest expense,
net
|
(8,163 | ) | (6,608 | ) | (4,473 | ) | ||||||
|
Other income
(expense)
|
(505 | ) | (1,998 | ) | 19 | |||||||
|
Minority
interest
|
(1,003 | ) | (672 | ) | (579 | ) | ||||||
|
Gain on disposal of discontinued
operations
|
1,912 | -- | 13,610 | 1 | ||||||||
|
Loss from discontinued
operations
|
-- | -- | (1,379 | ) | ||||||||
|
Income tax
expense
|
(2,038 | ) | (2,270 | ) | (1,209 | ) | ||||||
|
Equity earnings of
unconsolidated joint ventures and entities
|
2,545 | 9,547 | 1,372 | |||||||||
|
Gain on sale of unconsolidated
joint venture
|
-- | 3,442 | -- | |||||||||
|
Net
income (loss)
|
$ | (2,103 | ) | $ | 3,856 | $ | 989 | |||||
Cinema
Segment
Effective
the fourth quarter of 2006, we have changed the presentation of our segment
reporting such that our intersegment revenues and expenses are reported
separately from our segments’ operating activity. The effect of this
change is to include intercompany rent revenues and rent expenses into their
respective cinema and real estate business segments. The revenues and
expenses for 2005 have been adjusted to conform to the current year
presentation.
The
following tables and discussion which follows detail our operating results for
our 2007, 2006 and 2005 cinema segment, adjusted to reflect the discontinuation,
in June 2005, of our Puerto Rico cinema operations, respectively (dollars in
thousands):
|
Year
Ended December 31, 2007
|
United
States
|
Australia
|
New
Zealand
|
Total
|
||||||||||||
|
Admissions
revenue
|
$ | 18,647 | $ | 41,722 | $ | 14,683 | $ | 75,052 | ||||||||
|
Concessions
revenue
|
5,314 | 13,577 | 4,302 | 23,193 | ||||||||||||
|
Advertising
and other revenues
|
2,043 | 2,277 | 902 | 5,222 | ||||||||||||
|
Total
revenues
|
26,004 | 57,576 | 19,887 | 103,467 | ||||||||||||
|
Cinema
costs
|
18,385 | 44,460 | 15,868 | 78,713 | ||||||||||||
|
Concession
costs
|
1,029 | 3,017 | 1,116 | 5,162 | ||||||||||||
|
Total
operating expense
|
19,414 | 47,477 | 16,984 | 83,875 | ||||||||||||
|
Depreciation
and amortization
|
2,003 | 3,212 | 1,727 | 6,942 | ||||||||||||
|
General
& administrative expense
|
2,140 | 1,036 | 19 | 3,195 | ||||||||||||
|
Segment
operating income
|
$ | 2,447 | $ | 5,851 | $ | 1,157 | $ | 9,455 | ||||||||
|
Year
Ended December 31, 2006
|
United
States
|
Australia
|
New
Zealand
|
Total
|
||||||||||||
|
Admissions
revenue
|
$ | 18,891 | $ | 36,564 | $ | 13,109 | $ | 68,564 | ||||||||
|
Concessions
revenue
|
5,472 | 11,288 | 4,001 | 20,761 | ||||||||||||
|
Advertising
and other revenues
|
1,710 | 2,098 | 915 | 4,723 | ||||||||||||
|
Total
revenues
|
26,073 | 49,950 | 18,025 | 94,048 | ||||||||||||
|
Cinema
costs
|
18,176 | 38,743 | 13,763 | 70,682 | ||||||||||||
|
Concession
costs
|
1,047 | 2,584 | 1,037 | 4,668 | ||||||||||||
|
Total
operating expense
|
19,223 | 41,327 | 14,800 | 75,350 | ||||||||||||
|
Depreciation
and amortization
|
1,890 | 5,445 | 1,313 | 8,648 | ||||||||||||
|
General
& administrative expense
|
2,614 | 1,027 | 17 | 3,658 | ||||||||||||
|
Segment
operating income (loss)
|
$ | 2,346 | $ | 2,151 | $ | 1,895 | $ | 6,392 | ||||||||
|
Year
Ended December 31, 2005
|
United
States
|
Australia
|
New
Zealand
|
Total
|
||||||||||||
|
Admissions
revenue
|
$ | 17,802 | $ | 33,142 | $ | 11,926 | $ | 62,870 | ||||||||
|
Concessions
revenue
|
4,979 | 10,505 | 3,618 | 19,102 | ||||||||||||
|
Advertising
and other revenues
|
1,646 | 2,233 | 909 | 4,788 | ||||||||||||
|
Total
revenues
|
24,427 | 45,880 | 16,453 | 86,760 | ||||||||||||
|
Cinema
costs
|
17,869 | 38,045 | 12,157 | 68,071 | ||||||||||||
|
Concession
costs
|
1,054 | 2,448 | 1,092 | 4,594 | ||||||||||||
|
Total
operating expense
|
18,923 | 40,493 | 13,249 | 72,665 | ||||||||||||
|
Depreciation
and amortization
|
1,822 | 5,537 | 964 | 8,323 | ||||||||||||
|
General
& administrative expense
|
5,839 | 982 | (19 | ) | 6,802 | |||||||||||
|
Segment
operating income (loss)
|
$ | (2,157 | ) | $ | (1,132 | ) | $ | 2,259 | $ | (1,030 | ) | |||||
Cinema Results for 2007
Compared to 2006
|
|
·
|
cinema
revenue increased in 2007 by $9.4 million or 10.0% compared to
2006. The geographic activity of our revenues can be summarized
as follows:
|
|
|
o
|
United
States - Revenues in the United States decreased by $69,000 or
0.3%. This decrease in revenues was attributable to a decrease
in admissions revenues of $244,000 and concessions revenues of $158,000
offset by in increase in advertising and other revenues of
$333,000. The decrease in admissions and concessions revenues
resulted from lower year-end holiday admissions compared to last
year. The increase in others revenues related to more screen
rentals during 2007 than in 2006.
|
|
|
o
|
Australia
- Revenues in Australia increased by $7.6 million or
15.3%. This increase in revenues was attributable to an
increase in admissions revenues of $5.2 million related to an increase in
box office admissions of 118,000 coupled with a $0.52 increase in average
ticket price, concessions revenues of $2.3 million, and advertising and
other revenues of $179,000. This increase in revenues was
primarily related to more appealing film product in late 2007 compared to
the film offerings in 2006 coupled with an increase in the average
admissions price of 5.3%.
|
|
|
o
|
New
Zealand - Revenues in New Zealand increased by $1.9 million or
10.3%. This increase in revenues was attributable to an
increase in admissions revenues of $1.6 million primarily related to a
$0.42 increase in average ticket price, an increase in concessions
revenues of $301,000, and a decrease in advertising and other revenues of
$13,000. This increase in revenues was primarily related to
improved film product in 2007 compared to
2006.
|
|
|
·
|
operating
expense increased in 2007 by $8.5 million or 11.3% compared to
2006. The year on year comparison of operating expenses held
steady in relation to revenues at 81% in 2007 compared to 80% in
2006.
|
|
|
o
|
United
States - Operating expenses in the United States increased by $191,000 or
1.0%.
|
|
|
o
|
Australia
- Operating expenses in Australia increased by $6.2 million or
14.9%. This increase was in line with the above-mentioned
increase in cinema revenues.
|
|
|
o
|
New
Zealand - Operating expenses in New Zealand increased by $2.2 million or
14.8%. This increase was somewhat in line with the increase in
revenues noted above.
|
|
|
·
|
depreciation
expense decreased in 2007 by $1.7 million or 19.7% compared to
2006. This decrease is primarily related to several Australia
cinema assets reaching the end of their depreciable lives as of December
31, 2006.
|
|
|
·
|
general
and administrative expense decreased in 2007 by $463,000 or 12.7% compared
to 2006. The change was primarily related to a decrease in
legal costs associated with our anti-trust claims against Regal and
certain distributors.
|
|
|
·
|
the
Australia and New Zealand annual average exchange rates have changed by
11.4% and 13.5%, respectively, since 2006, which had an impact on the
individual components of the income statement. However, the
overall effect of the foreign currency change on operating income was
minimal.
|
|
|
·
|
cinema
segment operating income increased in 2007 by $3.1 million compared to
2006 primarily resulting from our improved cinema operations in each
region, our increased admissions from better film product, and a reduction
in general and administrative expense primarily associated with legal
expenses.
|
Cinema Results for 2006
Compared to 2005
|
|
·
|
cinema
revenue increased in 2006 by $7.3 million or 8.4% compared to
2005. The geographic activity of our revenues can be summarized
as follows:
|
|
|
o
|
United
States - Revenues in the United States increased by $1.6 million or
6.7%. This increase in revenues was attributable to an increase
in admissions revenues by $1.1 million, concessions revenues by $493,000,
and advertising and other revenues by $64,000. The significant
increase in admissions revenues resulted from higher admissions related in
part to more appealing film product in 2006 compared to the film offerings
in 2005.
|
|
|
o
|
Australia
- Revenues in Australia increased by $4.1 million or 8.9%. This
increase in revenues was attributable to an increase in admissions
revenues by $3.4 million, concessions revenues by $783,000, and
advertising offset by a decrease in other revenues of
$135,000. This increase in revenues was primarily related to
more appealing film product in 2006 compared to the film offerings in
2005.
|
|
|
o
|
New
Zealand - Revenues in New Zealand increased by $1.6 million or
9.6%. This increase in revenues was attributable to an increase
in admissions revenues by $1.2 million, concessions revenues by $383,000,
and advertising and other revenues by $6,000. This increase in
revenues was primarily related to the acquisition of the Queenstown cinema
in February 2006 and the inclusion of 100% of the revenues from the Palms
cinema after our purchase of the remaining 50% which we did not already
own, at the beginning of the second quarter of
2006.
|
|
|
·
|
operating
expense increased in 2006 by $2.7 million or 3.7% compared to
2005.
|
|
|
o
|
United
States - Operating expenses in the United States increased by only
$300,000 or 1.6%. This small increase was due to efforts to
hold operating costs steady even with increased
admissions.
|
|
|
o
|
Australia
- Operating expenses in Australia increased by only $834,000 or
2.1%. This small increase was due to efforts to hold operating
costs steady even with increased
admissions.
|
|
|
o
|
New
Zealand - Operating expenses in New Zealand increased by $1.6 million or
11.7%. This increase was due to higher admissions and
concessions predominately resulting from the addition of the Queenstown
and Palms cinemas in 2006.
|
|
|
·
|
depreciation
expense increased in 2006 by $325,000 or 3.9% compared to
2005. The increase was primarily from our 2006 acquisitions in
New Zealand of the Queenstown Cinema in February 2006 and the Palms Cinema
in early April 2006.
|
|
|
·
|
general
and administrative expense decreased in 2006 by $3.1 million or 46.2%
compared to 2005. The change was primarily related to a
decrease in legal costs associated with our anti-trust claims against
Regal and certain distributors.
|
|
|
·
|
cinema
segment operating income increased in 2006 by $7.4 million compared to
2005 primarily resulting from our improved cinema operations in each
region, our increased admissions from better film product, and a dramatic
reduction in general and administrative expense, driven by a reduction in
legal expenses.
|
Real Estate
Segment
As
discussed above, our other major business segment is the development and
management of real estate. These holdings include our rental live
theaters, certain fee owned properties used in our cinema business, and
unimproved real estate held for development. Effective the fourth
quarter of 2006, we have changed the presentation of our segment reporting such
that our intersegment revenues and expenses are reported separately from our
segments’ operating activity. The effect of this change is to include
intercompany rent revenues and rent expenses into their respective cinema and
real estate business segments. The revenues and expenses for 2005
have been adjusted to conform to the current year presentation. The
tables and discussion which follow detail our operating results for our 2007,
2006 and 2005 real estate segment adjusted to reflect the sale of our Glendale
property in May 2005 (dollars in thousands):
|
Year
Ended December 31, 2007
|
United
States
|
Australia
|
New
Zealand
|
Total
|
||||||||||||
|
Live
theater rental and ancillary income
|
$ | 4,043 | $ | -- | $ | -- | $ | 4,043 | ||||||||
|
Property
rental income
|
1,534 | 9,336 | 6,974 | 17,844 | ||||||||||||
|
Total
revenues
|
5,577 | 9,336 | 6,974 | 21,887 | ||||||||||||
|
Live
theater costs
|
2,105 | -- | -- | 2,105 | ||||||||||||
|
Property
rental cost
|
1,210 | 3,076 | 1,933 | 6,219 | ||||||||||||
|
Total
operating expense
|
3,315 | 3,076 | 1,933 | 8,324 | ||||||||||||
|
Depreciation
and amortization
|
376 | 2,355 | 1,687 | 4,418 | ||||||||||||
|
General
& administrative expense
|
15 | 665 | 151 | 831 | ||||||||||||
|
Segment
operating income
|
$ | 1,871 | $ | 3,240 | $ | 3,203 | $ | 8,314 | ||||||||
|
Year
Ended December 31, 2006
|
United
States
|
Australia
|
New
Zealand
|
Total
|
||||||||||||
|
Live
theater rental and ancillary income
|
$ | 3,667 | $ | -- | $ | -- | $ | 3,667 | ||||||||
|
Property
rental income
|
1,720 | 6,334 | 5,564 | 13,618 | ||||||||||||
|
Total
revenues
|
5,387 | 6,334 | 5,564 | 17,285 | ||||||||||||
|
Live
theater costs
|
2,193 | -- | -- | 2,193 | ||||||||||||
|
Property
rental cost
|
1,164 | 2,658 | 1,350 | 5,172 | ||||||||||||
|
Total
operating expense
|
3,357 | 2,658 | 1,350 | 7,365 | ||||||||||||
|
Depreciation
and amortization
|
427 | 2,129 | 1,524 | 4,080 | ||||||||||||
|
General
& administrative expense
|
-- | 782 | -- | 782 | ||||||||||||
|
Segment
operating income
|
$ | 1,603 | $ | 765 | $ | 2,690 | $ | 5,058 | ||||||||
|
Year
Ended December 31, 2005
|
United
States
|
Australia
|
New
Zealand
|
Total
|
||||||||||||
|
Live
theater rental and ancillary income
|
$ | 5,199 | $ | -- | $ | -- | $ | 5,199 | ||||||||
|
Property
rental income
|
1,118 | 4,266 | 5,940 | 11,324 | ||||||||||||
|
Total
revenues
|
6,317 | 4,266 | 5,940 | 16,523 | ||||||||||||
|
Live
theater costs
|
2,925 | -- | -- | 2,925 | ||||||||||||
|
Property
rental cost
|
692 | 2,118 | 1,624 | 4,434 | ||||||||||||
|
Total
operating expense
|
3,617 | 2,118 | 1,624 | 7,359 | ||||||||||||
|
Depreciation
and amortization
|
296 | 1,588 | 1,790 | 3,674 | ||||||||||||
|
General
& administrative expense
|
29 | 298 | 1 | 328 | ||||||||||||
|
Segment
operating income
|
$ | 2,375 | $ | 262 | $ | 2,525 | $ | 5,162 | ||||||||
Real Estate Results for 2007
Compared to 2006
For 2007,
we achieved the following results in our real estate segment:
|
|
·
|
revenue
increased by $4.6 million or 26.6% when compared 2006. The
increase was primarily related to an enhanced rental stream from our
Australia Newmarket shopping center, opened in 2006, and our New Zealand
properties. This increase in rents was offset in part by
decreased rents from our domestic live theatres due to fewer shows in 2007
compared to 2006.
|
|
|
·
|
operating
expense increased by $959,000 or 13.0% when compared to
2006. This increase in expense was primarily due to higher
operating costs related to our recently opened Australia Newmarket
shopping center.
|
|
|
·
|
depreciation
expense increased by $338,000 or 8.3% when compared to
2006. The majority of this increase was attributed to the
Newmarket shopping center assets in Australia which were put into service
during the first quarter 2006.
|
|
|
·
|
general
and administrative expense increased by $49,000 when compared to 2006
primarily due to increased property activities related to our acquisitions
in New Zealand.
|
|
|
·
|
the
Australia and New Zealand annual average exchange rates have changed by
11.4% and 13.5%, respectively, since 2006, which had an impact on the
individual components of the income statement. However, the
overall effect of the foreign currency change on operating income was
minimal.
|
|
|
·
|
real
estate segment operating income increased by $3.3 million when compared to
2006 mostly related to an increase in revenues in Australia from our
Newmarket shopping centre offset by a decrease in domestic live theater
income.
|
Real Estate Results for 2006
Compared to 2005
For 2006,
we achieved the following results in our real estate segment:
|
|
·
|
revenue
increased by $762,000 or 4.6% when compared 2005. Of this
increase, approximately $2.1 million was primarily attributable to an
increase in rent from our Newmarket shopping centre that opened early
2006. This increase in rents was offset in part by decreased
rents from our domestic live theatres due to fewer shows in 2006 compared
to 2005.
|
|
|
·
|
operating
expense increased by $6,000 or 0.1% when compared to 2005. This
decrease primarily relates to a decrease in costs associated with our live
theater facilities offset in part by increased costs from our newly opened
Newmarket shopping centre.
|
|
|
·
|
depreciation
expense increased by $406,000 or 11.1% when compared to
2005. The majority of this increase was attributable to our
newly opened Newmarket shopping centre in
Australia.
|
|
|
·
|
general
and administrative expense increased by $454,000 when compared to 2005
primarily due to increased property activities related to our Australia
properties.
|
|
|
·
|
real
estate segment operating income decreased by $104,000 when compared to
2005 mostly related to an increase in revenues in Australia from our
Newmarket shopping centre offset by a decrease in domestic live theater
income.
|
Non-Segment
Activity
2007 Compared to
2006
Non-segment
expense/income includes expense and/or income that is not directly attributable
to our other operating segments.
During
2007, the increase of $3.5 million in corporate General and Administrative
expense was primarily made up of:
|
·
|
$320,000
in increased corporate compensation expense related to the granting of
70,000 fully vested options to our directors coupled with an $85,000
increase in director fees;
|
|
·
|
$437,000
in increased corporate compensation expense related to the
granting of 844,255 options that are vesting over a 24 month
period;
|
|
·
|
$413,000
of compensation for our Chief Operating Officer appointed in February
2007;
|
|
·
|
$840,000
of legal and professional fees associated principally with our real estate
acquisition and investment activities;
and
|
|
·
|
$342,000
related to our newly adopted Supplemental Executive Retirement
Plan.
|
During
2007:
|
·
|
our
net interest expense increased by $1.6 million primarily related to a
higher outstanding loan balances in 2007 compared to
2006;
|
|
·
|
our
other expense decreased by $1.5 million primarily due to lower
mark-to-market charges relating to an option liability held by Sutton Hill
Capital LLC to acquire a 25% non-managing membership interest in our
Cinemas 1, 2 & 3 property which option they exercised in July
2007;
|
|
·
|
our
minority interest expense increased by $331,000 compared to 2006 due to an
improvement in cinema admission sales particularly in our Australia, joint
venture cinemas and an increased activity in Landplan Property
Partners;
|
|
·
|
the
recording of a deferred gain on the sale of a discontinued operation upon
the fulfillment of our commitment of $1.9 million associated with a
previously sold property;
|
|
·
|
income
tax expense decreased by $232,000 primarily related less tax expense
incurred for our equity earnings from our investment in 205-209 East 57th Street
Associates, LLC;
|
|
·
|
equity
earnings from unconsolidated joint ventures and entities decreased by $7.0
million primarily due to lower earnings from our investment in 205-209 East 57th Street
Associates, LLC, that has completed most of the development of a
residential condominium complex in midtown Manhattan, called Place
57. The joint venture closed on the sale of 59
condominiums during 2006, resulting in gross sales of $117.7 million and
equity earnings from unconsolidated joint ventures and entities to us of
$8.3 million compared to eight condominiums during the year ended December
31, 2007 resulting in gross sales of $25.4 million and net equity earnings
from this unconsolidated joint venture of $1.3 million. All of
the residential condominiums have been sold and only the retail
condominium is still available for sale;
and
|
|
·
|
in
addition to the aforementioned equity earnings, we recorded a gain on sale
of an unconsolidated joint venture of $3.4 million (NZ$5.4 million) during
2006 which was not repeated in 2007, from the sale of our 50% interest in
the cinemas at Whangaparaoa, Takapuna and Mission Bay, New
Zealand.
|
2006 Compared to
2005
Non-segment
expense/income includes expense and/or income that is not directly attributable
to our other operating segments.
During
2006, the decrease of $1.6 million in corporate General and Administrative
expense was primarily made up of:
|
·
|
$1.1
million from an additional bonus accrual for our Chief Executive Officer’s
new employment contract in 2005 not reoccurring in 2006;
and
|
|
·
|
$565,000
decrease in Australia legal fees in part related to fewer fees for our
Whitehorse lawsuit.
|
During
2006:
|
·
|
our
net interest expense increased by $2.1 million primarily related to a
higher outstanding loan balance in Australia and due to the effective
completion of construction of our Newmarket Shopping Centre in early 2006
which decreased the amount of interest being capitalized. This
interest increase was offset by a decrease in interest expense related to
the mark-to-market adjustment of our interest rate swaps compared to the
adjustment in 2005;
|
|
·
|
our
other expense increased by $2.0 million primarily due to a $1.6 million
mark-to-market charge relating to an option liability held by Sutton Hill
Capital LLC to acquire a 25% non-managing membership interest in our
Cinemas 1, 2 & 3 property;
|
|
·
|
our
minority interest expense increased by $93,000 compared to 2005 due to an
improvement in cinema admission sales particularly in our Australia
cinemas;
|
|
·
|
income
tax expense increased by $1.1 million primarily related to the tax expense
incurred for our equity earnings from our investment in 205-209 East 57th Street
Associates, LLC;
|
|
·
|
equity
earnings from unconsolidated joint ventures and entities increased by $8.2
million primarily from our investment in 205-209 East 57th Street
Associates, LLC, that has been developing a residential condominium
complex in midtown Manhattan, called Place
57. The joint venture closed on the sale of 59
condominiums during 2006, resulting in gross sales of $117.7 million and
equity earnings from unconsolidated joint ventures and entities to us of
$8.3 million; and
|
|
·
|
in
addition to the aforementioned equity earnings, we recorded a gain on sale
of an unconsolidated joint venture of $3.4 million (NZ$5.4 million), from
the sale of our 50% interest in the cinemas at Whangaparaoa, Takapuna and
Mission Bay, New Zealand.
|
Income
taxes
We are
subject to income taxation in several jurisdictions throughout the
world. Our effective tax rate and income tax liabilities will be
affected by a number of factors, such as:
|
·
|
the
amount of taxable income in particular
jurisdictions;
|
|
·
|
the
tax rates in particular
jurisdictions;
|
|
·
|
tax
treaties between jurisdictions;
|
|
·
|
the
extent to which income is repatriated;
and
|
|
·
|
future
changes in law.
|
Generally,
we file consolidated or combined tax returns in jurisdictions that permit or
require such filings. For jurisdictions which do not permit such a
filing, we may owe income, franchise, or capital taxes even though, on an
overall basis, we may have incurred a net loss for the tax year.
Consolidated net income
(loss)
For the
year ending 2007, our consolidated business unit produced a net loss of $2.1
million. For 2006 and 2005, we achieved net income of $3.9 million
and $989,000, respectively. For the years prior to 2005, we
consistently experienced net losses. However, as explained in the
Cinema and Real Estate segment sections above, we have noted improvements in our
operating income such that we have a positive operating income for 2007 and 2006
which in years past has typically been negative. Although we cannot
assure that this trend will continue, we are committed to the overall
improvement of earnings through good fiscal management.
Business Plan, Liquidity and
Capital Resources of the Company
Business
Plan
Our business plan has evolved from a
belief that while cinema exhibition is not a growth business at this time, we do
believe it to be a business that will likely continue to generate fairly
consistent cash flows in the years ahead. This is based on our belief
that people will continue to spend some reasonable portion of their
entertainment dollar on entertainment outside of the home and that, when
compared to other forms of outside the home entertainment; movies continue to be
a popular and competitively priced option. Since we believe the
cinema exhibition business to be a mature business with most markets either
adequately screened or over-screened, we see our future asset growth coming more
from our real estate development activities rather than from the development of
new cinemas. While we intend to be opportunistic in adding to our
existing cinema portfolio, especially in strategic geographic areas, we believe
it likely that, going forward, we will be reinvesting our free cash flow more in
our general real estate development activities than in the acquisition or
development of additional cinemas. Over time, we anticipate that our
cinema operations will become increasingly a source of cash flow to support our
real estate oriented activities, rather than a focus of growth, and that our
real estate activities will become the principal thrust of our
business.
In short, while we do have operating
company attributes, we see ourselves principally as a hard asset company and
intend to add to shareholder value by building the value of our portfolio of
tangible assets. Therefore, while we intend to maintain our
entertainment focus, we may from time to time acquire interests in
non-entertainment real estate.
In
February 2006, we completed the process of rezoning our 50.6-acre site in
suburban Melbourne from an essentially industrial zone into a priority zone
permitting a wide variety of retail, entertainment, commercial and residential
uses. The full development of this property is currently anticipated
to require approximately 9 years and funding of approximately $500.0
million. Accordingly, this project is anticipated to be a major focus
of our efforts in the years to come. As the property was previously
operated by its prior owner as a brickworks, it will be necessary to remove the
contaminated soil that resulted from those operations before we can take
advantage of this new zoning. In late February 2007, it became
apparent that our cost estimates with respect to the Burwood site preparation
were low, as the extent of the contaminated soil present at the site – a former
brickworks – was greater than we had originally believed. Our
previous estimated cost of $500.0 million included approximately $1.4 million
(AUS$1.8 million) of estimated cost to remove the contaminated
soil. As we were not the source of this contamination, we are not
currently under any legal obligation to remove this contaminated soil from the
site. However, as a practical matter, we intend to address these
issues in connection with our planned redevelopment of this site as a mixed-use
retail, entertainment, commercial and residential complex. As of
December 31, 2007, we estimate that the total site preparation costs associated
with the removal of this contaminated soil will be $7.9 million (AUS$9.0
million) and as of that date we had incurred a total of $7.1 million (AUS$8.1
million) of these costs. In accordance with Emerging Issues Task
Force (“EITF”) 90-8 Capitalization of Costs to Treat
Environmental Contamination, contamination clean up costs that improve
the property from its original acquisition state are capitalized as part of the
property’s overall development costs.
Liquidity and Capital
Resources
Our ability to generate sufficient cash
flows from operating activities in order to meet our obligations and commitments
drives our liquidity position. This is further affected by our
ability to obtain adequate, reasonable financing and/or to convert
non-performing or non-strategic assets into cash. We cannot separate
liquidity from capital resources in achieving our long-term goals or in order to
meet our debt servicing requirements.
Currently, our liquidity needs continue
to arise mainly from:
|
|
·
|
working
capital requirements;
|
|
|
·
|
capital
expenditures including the acquisition, holding and development of real
property assets; and
|
|
|
·
|
debt
servicing requirements.
|
With the
recent changes to the worldwide credit markets, the business community is
concerned that credit will be more difficult to obtain especially for
potentially risky ventures like business and asset
acquisitions. However, we believe that our acquisitions over the past
few years coupled with our strengthening operational cash flows demonstrate our
ability to improve our profitability. We believe that this business
model will help us to demonstrate to lending institutions our ability not only
to do new acquisitions but also to service the associated debt.
Discussion of Our Statement
of Cash Flows
The following discussion compares the
changes in our cash flows over the past three years.
Operating
Activities
2007 Compared to
2006. Cash provided by operations was $13.3 million in the
2007 compared to $11.9 million in 2006. The decrease in cash provided
by operations of $1.5 million was primarily related to
|
|
·
|
increased
cinema operational cash flow primarily from our Australia
operations;
|
|
|
·
|
increased
real estate operational cash flow predominately from our Australia
operations. This increase can be particularly attributed to our
Newmarket shopping center in Brisbane, Australia; offset
by
|
|
|
·
|
a
decrease in distributions from unconsolidated joint ventures and entities
of $1.8 million was predominately related to lower distributions from our
Place 57 joint venture.
|
2006 Compared to
2005. Cash provided by operations was $11.9 million in the
2006 compared to $2.6 million in 2005. The increase in cash provided
by operations of $9.3 million was primarily related to
|
|
·
|
cash
distributions from our investments in unconsolidated joint ventures and
entities of $6.6 million, including $5.9 million received as a return on
investment on our $3.0 million investment in Place
57;
|
|
|
·
|
increased
cinema operational cash flow from our Australia operations due primarily
to increased cinema admissions and improved operational costs;
and
|
|
|
·
|
improved
cash flow from our U.S. cinemas during 2006 resulting from the sale of our
formerly underperforming Puerto Rico operations in June
2005.
|
Investing
Activities
Cash used in investing activities for
2007 was $38.3 million compared to $23.4 million in 2006, and $36.8 million in
2005. The following summarizes our investing activities for each of
the three years ending December 31, 2007:
The $38.3 million cash used in 2007 was
primarily related to:
|
|
·
|
$15.7
million to purchase marketable
securities;
|
|
|
·
|
$22.6
million to purchase real estate assets
including
|
|
|
o
|
$20.1
million for real estate purchases in New
Zealand,
|
|
|
o
|
$100,000
for the purchase of the Cinemas 1, 2, & 3
building,
|
|
|
o
|
$2.0
million acquisition deposit for our acquisition of Consolidated Cinemas,
and
|
|
|
o
|
$493,000
for the purchase of the ground lease of our Tower Cinema in Sacramento,
California;
|
|
|
·
|
$2.8
million in property enhancements to our existing
properties;
|
|
|
·
|
$19.0
million in development costs associated with our properties under
development; and
|
|
|
·
|
$1.5
million in our investment in Reading International Trust I securities (the
issuer of our Trust Preferred
Securities);
|
offset
by
|
|
·
|
$19.9
million in cash provided by the sale of marketable
securities;
|
|
|
·
|
981,000
decrease in restricted cash related to settled claims by our credit card
companies; and
|
|
|
·
|
$2.4
million in distributions from our investment in joint
ventures.
|
The
$23.4 million cash used in 2006 was primarily related
to:
|
|
·
|
$8.1
million in acquisitions including:
|
|
|
o
|
$939,000
in cash used to purchase the Queenstown Cinema in New
Zealand,
|
|
|
o
|
$2.6
million in cash used to purchase the 50% share that we did not already own
of the Palms cinema located in Christchurch, New
Zealand,
|
|
|
o
|
$1.8
million for the Australia Indooroopilly property,
and
|
|
|
o
|
$2.5
million for the adjacent parcel to our Moonee Ponds
property;
|
|
|
·
|
$8.3
million in cash used to complete the Newmarket property and for property
enhancements to our Australia, New Zealand and U.S.
properties;
|
|
|
·
|
$2.7
million in cash used to invest in unconsolidated joint ventures and
entities including $1.8 million paid for Malulani Investments, Ltd. stock
and $876,000 additional cash invested in Rialto Cinemas used to pay off
their bank debt;
|
|
|
·
|
$844,000
increase in restricted cash related to potential claims by our credit card
companies; and
|
|
|
·
|
$8.1
million in cash used to purchase marketable
securities.
|
offset
by
|
|
·
|
$4.6
million cash received from the sale of our interest the cinemas at
Whangaparaoa, Takapuna and Mission Bay, New
Zealand.
|
The
$36.8 million cash used in 2005 was primarily related to:
|
|
·
|
$12.6
million in net proceeds from the sales of our Glendale office building and
Puerto Rico operations;
|
|
|
·
|
$1.0
million cash provided by a decrease in restricted cash;
and
|
|
|
·
|
$515,000
in cash proceeds from the sale of certain surplus properties used in
connection with our historic railroad
activities;
|
offset
by
|
|
·
|
$13.7
million paid for acquisitions including $11.8 million for the acquisition
of the fee interest lessor’s ground lease interest and lessee’s ground
lease interest of the Cinemas 1, 2 & 3 property in New York City and
$2.0 million (AUS$2.6 million) paid for our new Melbourne
office building;
|
|
|
·
|
$6.5
million primarily paid to invest in or add capital to our unconsolidated
joint ventures and entities including $4.8 million (NZ$6.9
million) to purchase 100% of the stock of Rialto Entertainment, $694,000
(NZ$1.0 million) to purchase a 1/3 interest in Rialto Distribution, and
$719,000 paid as additional capital contributions with respect to our
joint venture investment in Place
57;
|
|
|
·
|
$30.5
million in purchases of equipment and development of
property. In Australia, $28.4 million related primarily to the
construction work on our Newmarket development in a suburb of Brisbane and
the fit-out of our 8-screen Adelaide cinema which opened on October 20,
2005. $2.1 million in purchases of equipment primarily related
to the renovation of our U.S. and New Zealand cinemas;
and
|
|
|
·
|
$376,000
paid to purchase certain marketable
securities.
|
Financing
Activities
Cash provided by financing activities
for 2007 was $33.9 million compared to $13.9 million in 2006, and $30.4 million
in 2005. The following summarizes our financing activities for each
of the three years ending December 31, 2007:
The
$33.9 million cash used in 2007 was primarily related to:
|
|
·
|
$49.9
million of net proceeds from our new Trust Preferred
Securities;
|
|
|
·
|
$14.4
million of net proceeds from our new Euro-Hypo
loan;
|
|
|
·
|
$3.1
million of proceeds from our margin account on marketable securities;
and
|
|
|
·
|
$27.9
million of additional borrowing on our Australia and New Zealand credit
facilities;
|
offset
by
|
|
·
|
$57.6
million of cash used to retire bank indebtedness which primarily includes
$34.4 million (NZ$50.0 million) to pay off our New Zealand term debt, $5.8
million (AUS$7.4 million) to retire a portion of our bank indebtedness in
Australia, $3.1 million to pay off our margin account on marketable
securities, $12.1 million (NZ$15.7 million) to pay down our New Zealand
Westpac line of credit in August 2007, and $1.7 million for the final
balloon payment on the Royal George Theater Term Loan;
and
|
|
|
·
|
$3.9
million in distributions to minority
interests.
|
The
$13.9 million cash used in 2006 was primarily related to:
|
|
·
|
$19.1
million of net borrowings which includes $11.8 million from our existing
Australian Corporate Credit Facility and $7.3 million of net proceeds from
a renegotiated mortgage on our Union Square Property;
and
|
|
|
·
|
$3.0
million of a deposit received from Sutton Hill Capital, LLC for the option
to purchase a 25% non-managing membership interest in the limited
liability company that owns the Cinemas 1, 2 &
3;
|
offset
by
|
|
·
|
$6.2
million of cash used to pay down long-term debt which was primarily
related to the payoff of $3.2 million on the mortgage on our Union Square
Property as part of a renegotiation of the loan; the payoff of our
Movieland purchase note payable of approximately $512,000; the payoff of
the Palms – Christchurch Cinema bank debt of approximately $1.9 million;
and on the pay down of our Australian Corporate Credit Facility by
$280,000;
|
|
|
·
|
$791,000
of cash used to repurchase the Class A Nonvoting Common Stock (these
shares were previously issued to the Movieland sellers who exercised their
put option during 2006 to sell back to us the shares they had received in
partial consideration for the sale of the Movieland cinemas);
and
|
|
|
·
|
$1.2
million in distributions to minority
interests.
|
The $30.4 million cash used in 2005
was primarily related to:
|
|
·
|
borrowings
from our Australian Corporate Credit Facility of approximately $9.2
million (AUS$11.9 million) and our Newmarket Construction Loan of $22.5
million (AUS$29.6 million)
|
offset
by
· $944,000
of minority interest distributions; and
· $513,000
of scheduled loan principal payments.
Future Liquidity and Capital
Resources
We
believe that we have sufficient borrowing capacity to meet our short-term
working capital requirements (see discussion below regarding our Trust Preferred
Securities).
During
the past 24 months, we have put into place several measures that have already
had a positive effect on our overall liquidity, including:
|
|
·
|
on
June 28, 2007, Sutton Hill Properties LLC (“SHP”), one of our consolidated
subsidiaries, entered into a $15.0 million loan that is secured by SHP’s
interest in the Cinemas 1, 2, & 3 land and building. SHP is
owned 75% by Reading and 25% by Sutton Hill Capital, LLC (“SHC”), a joint
venture indirectly wholly owned by Mr. James J. Cotter, our Chairman and
Chief Executive Officer, and Mr. Michael
Forman.
|
|
|
·
|
in
February 5, 2007, we issued $51.5 million in Trust Preferred Securities
through our wholly owned trust subsidiary. This transaction
closed on February 5, 2007 and we used the funds principally to payoff our
bank indebtedness in New Zealand by $34.4 million (AUS$50.0 million) and
to pay down our indebtedness in Australia by $5.8 million (AUS$7.4
million).
|
|
|
·
|
on
December 15, 2006, our New Zealand Corporate Credit Facility with the
Westpac Banking Corporation was increased from $35.2 million (NZ$50.0
million) to $42.3 million (NZ$60.0 million) and the facility’s related
principal payments were deferred to begin until February
2009.
|
|
|
·
|
on
December 4, 2006, we renegotiated our loan agreement with a financial
institution secured by our Union Square Theatre in Manhattan from a $3.2
million loan to a $7.5 million
loan.
|
Potential
uses for funds during 2008 that would reduce our liquidity, other than those
relating to working capital needs and debt service requirements
include:
|
|
·
|
the
development of our currently held for development
projects;
|
|
|
·
|
the
acquisition of additional cinemas and/or real estate properties currently
under consideration; and
|
|
|
·
|
the
possible further investments in
securities.
|
Based
upon the current levels of the consolidated operations, further anticipated cost
savings and future growth, we believe our cash flow from operations, together
with both the existing and anticipated lines-of-credit and other sources of
liquidity (including future potential asset sales) will be adequate to meet our
anticipated requirements for interest payments and other debt service
obligations, working capital, capital expenditures and other operating
needs.
Estimated
at approximately $500.0 million (AUS$570.0 million), our development in Burwood,
Australia will clearly not be funded from normal working capital even in a
phased approach. We have approached several financing sources who
have already given a high-level, favorable response to this
funding. However, we continue to investigate all options available to
us including debt financing, equity financing, and joint venture partnering to
achieve the optimal financing structure for this most significant
development.
In late
February 2007, it became apparent that our cost estimates with respect to the
Burwood site preparation were low, as the extent of the contaminated soil
present at the site – a former brickworks – was greater than we had originally
believed. Our previous estimated cost of $500.0 million included
approximately $1.4 million (AUS$1.8 million) of estimated cost to remove the
contaminated soil. As we were not the source of this contamination,
we are not currently under any legal obligation to remove this contaminated soil
from the site. However, as a practical matter, we intend to address
these issues in connection with our planned redevelopment of this site as a
mixed-use retail, entertainment, commercial and residential
complex. As of December 31, 2007, we estimate that the total site
preparation costs associated with the removal of this contaminated soil will be
$7.9 million (AUS$9.0 million) and as of that date we had incurred a total of
$7.1 million (AUS$8.1 million) of these costs. In accordance with
EITF 90-8 Capitalization of Costs to Treat Environmental Contamination,
contamination clean up costs that improve the property from its original
acquisition state are capitalized as part of the property’s overall development
costs.
There can
be no assurance, however, that the business will continue to generate cash flow
at or above current levels or that estimated cost savings or growth can be
achieved. Future operating performance and our ability to service or
refinance existing indebtedness will be subject to future economic conditions
and to financial and other factors, such as access to first-run films, many of
which are beyond our control. If our cash flow from operations and/or
proceeds from anticipated borrowings should prove to be insufficient to meet our
funding needs, our current intention is either:
|
|
·
|
to
defer construction of projects currently slated for land presently owned
by us;
|
|
|
·
|
to
take on joint venture partners with respect to such development projects;
and/or
|
|
|
·
|
to
sell assets.
|
Contractual
Obligations
The
following table provides information with respect to the maturities and
scheduled principal repayments of our secured debt and lease obligations at
December 31, 2007 (in thousands):
|
2008
|
2009
|
2010
|
2011
|
2012
|
Thereafter
|
|||||||||||||||||||
|
Long-term
debt
|
$ | 395 | $ | 88,470 | $ | 7,257 | $ | 176 | $ | 15,132 | $ | 218 | ||||||||||||
|
Long-term
debt to related parties
|
5,000 | -- | 9,000 | -- | -- | -- | ||||||||||||||||||
|
Subordinated
notes
|
-- | -- | -- | -- | -- | 51,547 | ||||||||||||||||||
|
Pension
liability
|
5 | 10 | 15 | 20 | 25 | 2,370 | ||||||||||||||||||
|
Lease
obligations
|
11,675 | 11,699 | 11,495 | 10,827 | 8,528 | 61,613 | ||||||||||||||||||
|
Interest
on long-term debt
|
13,880 | 6,940 | 6,400 | 5,619 | 5,114 | 66,083 | ||||||||||||||||||
|
Total
|
$ | 30,955 | $ | 107,119 | $ | 34,167 | $ | 16,642 | $ | 28,799 | $ | 181,831 | ||||||||||||
Estimated interest on long-term debt is
based on the anticipated loan balances for future periods calculated against
current fixed and variable interest rates.
We
adopted FASB Interpretation (“FIN”) 48, Accounting for Uncertainty in Income
Taxes on January 1, 2007. As of adoption, the total amount of
gross unrecognized tax benefits for uncertain tax positions was $12.5 million
increasing to $13.7 million as of December 31, 2007. We do not expect
a significant tax payment related to these obligations within the 12
months.
Unconsolidated Joint Venture
Debt
Total debt of unconsolidated joint
ventures was $4.2 million and $4.8 million as of December 31, 2007 and December
31, 2006, respectively. Our share of unconsolidated debt, based on
our ownership percentage, was $2.0 million and $2.2 million as of December 31,
2007 and December 31, 2006, respectively. Each loan is without
recourse to any assets other than our interests in the individual joint
venture.
Off-Balance Sheet
Arrangements
There are
no off-balance sheet transactions, arrangements or obligations (including
contingent obligations) that have, or are reasonably likely to have, a current
or future material effect on our financial condition, changes in the financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
Financial Risk
Management
Our
internally developed risk management procedure, seeks to minimize the
potentially negative effects of changes in foreign exchange rates and interest
rates on the results of operations. Our primary exposure to
fluctuations in the financial markets is currently due to changes in foreign
exchange rates between U.S and Australia and New Zealand, and interest
rates.
In 2006, we determined that it would be
beneficial to have a layer of long-term fully subordinated debt financing to
help support our long-term real estate assets. On February 5, 2007 we
issued $51.5 million in 20-year fully subordinated notes, interest fixed for
five years at 9.22%, to a trust which we control, and which in turn issued $50.0
million in trust preferred securities in a private placement. There
are no principal payments until maturity in 2027 when the notes are paid in
full. The trust is essentially a pass through, and the transaction is
accounted for on our books as the issuance of fully subordinated
notes. The placement generated $48.4 million in net proceeds, which
were used principally to retire all of our bank indebtedness in New Zealand
$34.4 million (NZ$50.0 million) and to retire a portion of our bank indebtedness
in Australia $5.8 million (AUS$7.4 million).
If our
operational focus shifts more to Australia and New Zealand, unrealized foreign
currency translation gains and losses could materially affect our financial
position. Historically, we managed our currency exposure by creating
natural hedges in Australia and New Zealand. This involves local
country sourcing of goods and services as well as borrowing in local
currencies. However, by paying off our New Zealand debt and paying
down on our Australia debt with the proceeds of our Trust Preferred Securities,
we have added an increased element of currency risk to our
Company. We believe that this currency risk is mitigated by the
comparatively favorable interest rate and the long-term nature of the fully
subordinated notes.
Our
exposure to interest rate risk arises out of our long-term debt
obligations. Consistent with our internally developed guidelines, we
seek to reduce the negative effects of changes in interest rates by changing the
character of the interest rate on our long-term debt, converting a fixed rate
into a variable rate and vice versa. Our internal procedures allow us
to enter into derivative contracts on certain borrowing transactions to achieve
this goal. Our Australian Credit Facility provides for floating
interest rates based on the Bank Bill Swap Bid Rate (BBSY bid rate), but
requires that not less than 70% of the loan be swapped into fixed rate
obligations.
In
accordance with Statement of Financial Accounting Standards (SFAS) No. 133 -
Accounting for Derivative
Instruments and Hedging Activities, we marked our Australian interest
swap instruments to market on the consolidated balance sheet resulting in a
$320,000 (AUS$338,000) decrease to interest expense during 2007, an $845,000
(AUS$1.1 million) decrease to interest expense during 2006, and a $171,000
(AUS$180,000) increase to interest expense during 2005.
Inflation
We
continually monitor inflation and the effects of changing
prices. Inflation increases the cost of goods and services
used. Competitive conditions in many of our markets restrict our
ability to recover fully the higher costs of acquired goods and services through
price increases. We attempt to mitigate the impact of inflation by
implementing continuous process improvement solutions to enhance productivity
and efficiency and, as a result, lower costs and operating
expenses. In our opinion, the effects of inflation have been managed
appropriately and as a result, have not had a material impact on our operations
and the resulting financial position or liquidity.
Recent Accounting
Pronouncements
Statement of Financial
Accounting Standards No. 157
In
September 2006, the Financial Accounting Standards Board released SFAS No. 157,
Fair Value
Measurements, and is effective for fiscal years beginning after November
15, 2007, which is the year ending December 31, 2008 for the
Company. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in GAAP, and expands disclosures about fair value
measurements. In November 2007, FASB agreed to a one-year deferral of
the effective date for non-financial assets and liabilities that are recognized
or disclosed at fair value on a non-recurring basis. We are currently
in the process of evaluating the impact on our financial results if any of the
adoption of this pronouncement.
Statement of Financial
Accounting Standards No. 159
In
February 2007, the Financial Accounting Standards Board released SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities, and is effective for fiscal
years beginning after November 15, 2007, which is the year ending December 31,
2008 for the Company. This Statement permits entities to choose to
measure many financial instruments and certain other items at fair
value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. We are currently evaluating the
impact of the adoption of SFAS No. 159, if any, on our consolidated financial
position and results of operations.
Statement of Financial
Accounting Standards No. 141-R
In
December 2007, the Financial Accounting Standards Board released SFAS No. 141-R,
Business
Combinations. This Statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, which
will include business combinations in the year ending December 31, 2009 for the
Company. The objective of this Statement is to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a business
combination. The Statement changes the requirements for an acquirer’s
recognition and measurement of the assets acquired and the liabilities assumed
in a business combination. We anticipate that this pronouncement will
only have an impact on our financial statements in so far as we will not be able
to capitalize indirect deal costs to our acquisitions.
Statement of Financial
Accounting Standards No. 160
In December 2007, the FASB issued
Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in
Consolidated Financial Statements — an amendment of ARB No. 51 (Statement No.
160). SFAS 160 requires (i) that noncontrolling (minority)
interests be reported as a component of shareholders’ equity, (ii) that net
income attributable to the parent and to the noncontrolling interest be
separately identified in the consolidated statement of operations, (iii) that
changes in a parent’s ownership interest while the parent retains its
controlling interest be accounted for as equity transactions, (iv) that any
retained noncontrolling equity investment upon the deconsolidation of a
subsidiary be initially measured at fair value, and (v) that sufficient
disclosures are provided that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS 160
is effective for annual periods beginning after December 15, 2008, which is the
year ending December 31, 2009 for the Company, and should be applied
prospectively. However, the presentation and disclosure requirements
of the statement shall be applied retrospectively for all periods
presented. The adoption of the provisions of SFAS 160 is not
anticipated to materially impact the company’s consolidated financial position
and results of operations. We are currently in the process of
evaluating the impact on our income statement and balance sheet from adopting
this pronouncement.
Forward-Looking
Statements
Our
statements in this annual report contain a variety of forward-looking statements
as defined by the Securities Litigation Reform Act of
1995. Forward-looking statements reflect only our expectations
regarding future events and operating performance and necessarily speak only as
of the date the information was prepared. No guarantees can be given
that our expectation will in fact be realized, in whole or in
part. You can recognize these statements by our use of words such as,
by way of example, “may,” “will,” “expect,” “believe,” and “anticipate” or other
similar terminology.
These
forward-looking statements reflect our expectation after having considered a
variety of risks and uncertainties. However, they are necessarily the
product of internal discussion and do not necessarily completely reflect the
views of individual members of our Board of Directors or of our management
team. Individual Board members and individual members of our
management team may have different view as to the risks and uncertainties
involved, and may have different views as to future events or our operating
performance.
Among the
factors that could cause actual results to differ materially from those
expressed in or underlying our forward-looking statements are the
following:
|
|
·
|
with
respect to our cinema operations:
|
|
|
o
|
the
number and attractiveness to movie goers of the films released in future
periods;
|
|
|
o
|
the
amount of money spent by film distributors to promote their motion
pictures;
|
|
|
o
|
the
licensing fees and terms required by film distributors from motion picture
exhibitors in order to exhibit their
films;
|
|
|
o
|
the
comparative attractiveness of motion pictures as a source of entertainment
and willingness and/or ability of consumers (i) to spend their dollars on
entertainment and (ii) to spend their entertainment dollars on movies in
an outside the home environment;
|
|
|
o
|
the
extent to which we encounter competition from other cinema exhibitors,
from other sources of outside of the home entertainment, and from inside
the home entertainment options, such as “home theaters” and competitive
film product distribution technology such as, by way of example, cable,
satellite broadcast, DVD and VHS rentals and sales, and so called “movies
on demand;” and
|
|
|
o
|
the
extent to and the efficiency with which, we are able to integrate
acquisitions of cinema circuits with our existing
operations.
|
|
|
·
|
with
respect to our real estate development and operation
activities:
|
|
|
o
|
the
rental rates and capitalization rates applicable to the markets in which
we operate and the quality of properties that we
own;
|
|
|
o
|
the
extent to which we can obtain on a timely basis the various land use
approvals and entitlements needed to develop our
properties;
|
|
|
o
|
the
risks and uncertainties associated with real estate
development;
|
|
|
o
|
the
availability and cost of labor and
materials;
|
|
|
o
|
competition
for development sites and tenants;
|
|
|
o
|
environmental
remediation issues; and
|
|
|
o
|
the
extent to which our cinemas can continue to serve as an anchor tenant who
will, in turn, be influenced by the same factors as will influence
generally the results of our cinema
operations.
|
|
|
·
|
with
respect to our operations generally as an international company involved
in both the development and operation of cinemas and the development and
operation of real estate; and previously engaged for many years in the
railroad business in the United
States:
|
|
|
o
|
our
ongoing access to borrowed funds and capital and the interest that must be
paid on that debt and the returns that must be paid on such
capital;
|
|
|
o
|
the
relative values of the currency used in the countries in which we
operate;
|
|
|
o
|
changes
in government regulation, including by way of example, the costs resulting
from the implementation of the requirements of
Sarbanes-Oxley;
|
|
|
o
|
our
labor relations and costs of labor (including future government
requirements with respect to pension liabilities, disability insurance and
health coverage, and vacations and
leave);
|
|
|
o
|
our
exposure from time to time to legal claims and to uninsurable risks such
as those related to our historic railroad operations, including potential
environmental claims and health related claims relating to alleged
exposure to asbestos or other substances now or in the future recognized
as being possible causes of cancer or other health related
problems;
|
|
|
o
|
changes
in future effective tax rates and the results of currently ongoing and
future potential audits by taxing authorities having jurisdiction over our
various companies; and
|
|
|
o
|
changes
in applicable accounting policies and
practices.
|
The above
list is not necessarily exhaustive, as business is by definition unpredictable
and risky, and subject to influence by numerous factors outside of our control
such as changes in government regulation or policy, competition, interest rates,
supply, technological innovation, changes in consumer taste and fancy, weather,
and the extent to which consumers in our markets have the economic wherewithal
to spend money on beyond-the-home entertainment.
Given the
variety and unpredictability of the factors that will ultimately influence our
businesses and our results of operation, it naturally follows that no guarantees
can be given that any of our forward-looking statements will ultimately prove to
be correct. Actual results will undoubtedly vary and there is no
guarantee as to how our securities will perform either when considered in
isolation or when compared to other securities or investment
opportunities.
Finally,
please understand that we undertake no obligation to update publicly or to
revise any of our forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required under
applicable law. Accordingly, you should always note the date to which
our forward-looking statements speak.
Additionally,
certain of the presentations included in this annual report may contain
“non-GAAP financial measures.” In such case, a reconciliation of this
information to our GAAP financial statements will be made available in
connection with such statements.
Item 7A –
Quantitative and Qualitative Disclosure about Market Risk
The
Securities and Exchange Commission requires that registrants include information
about potential effects of changes in currency exchange and interest rates in
their Form 10-K filings. Several alternatives, all with some
limitations, have been offered. The following discussion is based on
a sensitivity analysis, which models the effects of fluctuations in currency
exchange rates and interest rates. This analysis is constrained by
several factors, including the following:
|
|
·
|
it
is based on a single point in time.
|
|
|
·
|
it
does not include the effects of other complex market reactions that would
arise from the changes modeled.
|
Although
the results of such an analysis may be useful as a benchmark, they should not be
viewed as forecasts.
At December 31, 2007, approximately 51%
and 25% of our assets (determined by the book value of such assets) were
invested in assets denominated in Australian dollars (Reading Australia) and New
Zealand dollars (Reading New Zealand), respectively, including approximately
$10.3 million in cash and cash equivalents. Following the acquisition
of Consolidated Cinemas on February 22, 2008, these percentages decreased to 43%
and 21%, respectively. At December 31, 2006, approximately 49% and
23% of our assets were invested in assets denominated in Australian and New
Zealand dollars, respectively, including approximately $9.0 million in cash and
cash equivalents.
Our policy in Australia and New Zealand
is to match revenue and expenses, whenever possible, in local
currencies. As a result, a majority of our expenses in Australia and
New Zealand have been procured in local currencies. Due to the
developing nature of our operations in Australia and New Zealand, our revenue is
not yet significantly greater than our operating expense. The
resulting natural operating hedge has led to a negligible foreign currency
effect on our earnings. As we continue to progress our acquisition
and development activities in Australia and New Zealand, we cannot assure you
that the foreign currency effect on our earnings will be insignificant in the
future.
Historically,
our policy has been to borrow in local currencies to finance the development and
construction of our entertainment complexes in Australia and New Zealand
whenever possible. As a result, the borrowings in local currencies
have provided somewhat of a natural hedge against the foreign currency exchange
exposure. Even so, approximately 46% and 82% of our Australian and
New Zealand assets (based on book value), respectively, remain subject to such
exposure unless we elect to hedge our foreign currency exchange between the U.S.
and Australian and New Zealand dollars. If the foreign currency rates
were to fluctuate by 10% the resulting change in Australian and New Zealand
assets would be $8.1 million and $7.1 million, respectively, and the change in
annual net income would be $64,000 and $181,000, respectively. At the
present time, we have no plan to hedge such exposure. On February 5,
2007 we issued $51.5 million in 20-year fully subordinated notes and paid off
our bank indebtedness in New Zealand $34.4 million (NZ$50.0 million) and retired
a portion of our bank indebtedness in Australia $5.8 million (AUS$7.4
million). By paying off our New Zealand debt and paying down on our
Australia debt with the proceeds of our Trust Preferred Securities, we have
added an increased element of currency risk to our Company. We
believe that this currency risk is mitigated by the comparatively favorable
interest rate and the long-term nature of the fully subordinated
notes.
We record unrealized foreign currency
translation gains or losses which could materially affect our financial
position. We have accumulated unrealized foreign currency translation
gains of approximately $48.2 million and $33.4 million as of December 31, 2007
and 2006, respectively.
Historically,
we maintained most of our cash and cash equivalent balances in short-term money
market instruments with original maturities of six months or
less. Some of our money market investments may decline in value if
interest rates increase. Due to the short-term nature of such
investments, a change of 1% in short-term interest rates would not have a
material effect on our financial condition.
The
majority of our U.S. bank loans have fixed interest rates; however, one of our
domestic loans has a variable interest rate and a change of approximately 1% in
short-term interest rates would have resulted in approximately $50,000 increase
or decrease in our 2007 interest expense.
While we
have typically used fixed rate financing (secured by first mortgages) in the
U.S., fixed rate financing is typically not available to corporate borrowers in
Australia and New Zealand. The majority of our Australian and New
Zealand bank loans have variable rates. The Australian facilities
provide for floating interest rates, but require that not less than a certain
percentage of the loans be swapped into fixed rate obligations (see Financial Risk Management
above). If we consider the interest rate swaps, a 1% increase
in short-term interest rates would have resulted in approximately $90,000
increase in 2007 Australian and New Zealand interest expense while a 1% decrease
in short-term interest rates would have resulted in approximately $93,000
decrease 2007 Australian and New Zealand interest expense.
Item 8 –
Financial Statements and Supplementary Data
TABLE OF
CONTENTS
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Report of Independent Registered Public
Accountants
To the
Board of Directors and Stockholders of
Reading
International, Inc.
Los
Angeles, California
We have
audited the accompanying consolidated balance sheets of Reading
International, Inc. (the "Company") as of December 31, 2007 and 2006,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 2007. Our audits also included the financial statement
schedule listed in the Index at Item 15. These financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In
our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Reading International, Inc. at
December 31, 2007 and 2006, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2007, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
As
discussed in Note 14 to the Consolidated Financial Statements, effective
January 1, 2007, the Company adopted Financial Accounting Standards Board,
or FASB, Interpretation No. 48, Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement
No. 109.
We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Company's internal control over
financial reporting as of December 31, 2007, based on the criteria
established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 28, 2008
expressed an unqualified opinion on the Company's internal control over
financial reporting.
/s/ DELOITTE & TOUCHE LLP
Deloitte
& Touche LLP
Los
Angeles, California
March 28,
2008
Reading International, Inc. and Subsidiaries
Consolidated
Balance Sheets as of December 31, 2007 and 2006
(U.S.
dollars in thousands)
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
ASSETS
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 20,782 | $ | 11,008 | ||||
|
Receivables
|
5,671 | 6,612 | ||||||
|
Inventory
|
654 | 606 | ||||||
|
Investment
in marketable securities
|
4,533 | 8,436 | ||||||
|
Restricted
cash
|
59 | 1,040 | ||||||
|
Prepaid
and other current assets
|
3,800 | 2,589 | ||||||
|
Total
current assets
|
35,499 | 30,291 | ||||||
|
Land
held for sale
|
1,984 | -- | ||||||
|
Property
held for development
|
11,068 | 1,598 | ||||||
|
Property
under development
|
66,787 | 38,876 | ||||||
|
Property
& equipment, net
|
178,174 | 170,667 | ||||||
|
Investment
in unconsolidated joint ventures and entities
|
15,480 | 19,067 | ||||||
|
Investment
in Reading International Trust I
|
1,547 | -- | ||||||
|
Goodwill
|
19,100 | 17,919 | ||||||
|
Intangible
assets, net
|
8,448 | 7,954 | ||||||
|
Other
assets
|
7,984 | 2,859 | ||||||
|
Total
assets
|
$ | 346,071 | $ | 289,231 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable and accrued liabilities
|
$ | 12,331 | $ | 13,539 | ||||
|
Film
rent payable
|
3,275 | 4,642 | ||||||
|
Notes
payable – current portion
|
395 | 2,237 | ||||||
|
Note
payable to related party – current portion
|
5,000 | 5,000 | ||||||
|
Taxes
payable
|
4,770 | 9,128 | ||||||
|
Deferred
current revenue
|
3,214 | 2,565 | ||||||
|
Other
current liabilities
|
169 | 177 | ||||||
|
Total
current liabilities
|
29,154 | 37,288 | ||||||
|
Notes
payable – long-term portion
|
111,253 | 113,975 | ||||||
|
Notes
payable to related party – long-term portion
|
9,000 | 9,000 | ||||||
|
Subordinated
debt
|
51,547 | -- | ||||||
|
Noncurrent
tax liabilities
|
5,418 | -- | ||||||
|
Deferred
non-current revenue
|
566 | 528 | ||||||
|
Other
liabilities
|
14,936 | 18,178 | ||||||
|
Total
liabilities
|
221,874 | 178,969 | ||||||
|
Commitments
and contingencies (Note 19)
|
||||||||
|
Minority
interest in consolidated affiliates
|
2,835 | 2,603 | ||||||
|
Stockholders’
equity:
|
||||||||
|
Class
A Nonvoting Common Stock, par value $0.01, 100,000,000 shares authorized,
35,564,339 issued and 20,987,115 outstanding at December 31, 2007 and
35,558,089 issued and 20,980,865 outstanding at December 31,
2006
|
216 | 216 | ||||||
|
Class
B Voting Common Stock, par value $0.01, 20,000,000 shares authorized and
1,495,490 issued and outstanding at December 31, 2007 and at December 31,
2006
|
15 | 15 | ||||||
|
Nonvoting
Preferred Stock, par value $0.01, 12,000 shares authorized and no
outstanding shares at December 31, 2007 and 2006
|
-- | -- | ||||||
|
Additional
paid-in capital
|
131,930 | 128,399 | ||||||
|
Accumulated
deficit
|
(52,670 | ) | (50,058 | ) | ||||
|
Treasury
shares
|
(4,306 | ) | (4,306 | ) | ||||
|
Accumulated
other comprehensive income
|
46,177 | 33,393 | ||||||
|
Total
stockholders’ equity
|
121,362 | 107,659 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 346,071 | $ | 289,231 | ||||
See
accompanying notes to consolidated financial statements.
Reading International, Inc. and
Subsidiaries
Consolidated
Statements of Operations for the Three Years Ended December 31,
2007
(U.S.
dollars in thousands, except per share amounts)
|
Year Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Operating
revenue
|
||||||||||||
|
Cinema
|
$ | 103,467 | $ | 94,048 | $ | 86,760 | ||||||
|
Real estate
|
15,768 | 12,077 | 11,345 | |||||||||
|
Total operating
revenue
|
119,235 | 106,125 | 98,105 | |||||||||
|
Operating
expense
|
||||||||||||
|
Cinema
|
77,756 | 70,142 | 67,487 | |||||||||
|
Real estate
|
8,324 | 7,365 | 7,359 | |||||||||
|
Depreciation and
amortization
|
11,921 | 13,212 | 12,384 | |||||||||
|
General and
administrative
|
16,085 | 12,991 | 17,247 | |||||||||
|
Total operating
expense
|
114,086 | 103,710 | 104,477 | |||||||||
|
Operating
income (loss)
|
5,149 | 2,415 | (6,372 | ) | ||||||||
|
Non-operating
income (expense)
|
||||||||||||
|
Interest income
|
798 | 308 | 209 | |||||||||
|
Interest expense
|
(8,961 | ) | (6,916 | ) | (4,682 | ) | ||||||
|
Net loss on sale of
assets
|
(185 | ) | (45 | ) | (32 | ) | ||||||
|
Other income
(expense)
|
(320 | ) | (1,953 | ) | 51 | |||||||
|
Loss
before minority interest, discontinued operations, income tax
expense and equity earnings of
unconsolidated joint ventures and entities
|
(3,519 | ) | (6,191 | ) | (10,826 | ) | ||||||
|
Minority
interest
|
(1,003 | ) | (672 | ) | (579 | ) | ||||||
|
Loss
from continuing operations
|
(4,522 | ) | (6,863 | ) | (11,405 | ) | ||||||
|
Discontinued
operations:
|
||||||||||||
|
Gain on disposal of business
operations
|
1,912 | -- | 13,610 | |||||||||
|
Loss from discontinued operations,
net of tax
|
-- | -- | (1,379 | ) | ||||||||
|
Income
(loss) before income tax expense and equity earnings of unconsolidated
joint ventures and entities
|
(2,610 | ) | (6,863 | ) | 826 | |||||||
|
Income
tax expense
|
(2,038 | ) | (2,270 | ) | (1,209 | ) | ||||||
|
Loss
before equity earnings of unconsolidated joint ventures and
entities
|
(4,648 | ) | (9,133 | ) | (383 | ) | ||||||
|
Equity
earnings of unconsolidated joint ventures and entities
|
2,545 | 9,547 | 1,372 | |||||||||
|
Gain
on sale of unconsolidated joint venture
|
-- | 3,442 | -- | |||||||||
|
Net
income (loss)
|
$ | (2,103 | ) | $ | 3,856 | $ | 989 | |||||
|
Earnings
(loss) per common share – basic:
|
||||||||||||
|
Earnings
(loss) from continuing operations
|
$ | (0.18 | ) | $ | 0.17 | $ | (0.51 | ) | ||||
|
Earnings
from discontinued operations, net
|
0.09 | -- | 0.55 | |||||||||
|
Basic
earnings (loss) per share
|
$ | (0.09 | ) | $ | 0.17 | $ | 0.04 | |||||
|
Weighted
average number of shares outstanding – basic
|
22,478,145 | 22,425,941 | 22,249,967 | |||||||||
|
Earnings
(loss) per common share – diluted:
|
||||||||||||
|
Earnings
(loss) from continuing operations
|
$ | (0.18 | ) | $ | 0.17 | $ | (0.51 | ) | ||||
|
Earnings
from discontinued operations, net
|
0.09 | -- | 0.55 | |||||||||
|
Diluted
earnings (loss) per share
|
$ | (0.09 | ) | $ | 0.17 | $ | 0.04 | |||||
|
Weighted
average number of shares outstanding – diluted
|
22,478,145 | 22,674,818 | 22,249,967 | |||||||||
See
accompanying notes to consolidated financial statements.
Reading International, Inc. and
Subsidiaries
Consolidated
Statements of Stockholders’ Equity for the Three Years Ended December 31,
2007
(U.S.
dollars in thousands)
|
Common
Stock
|
||||||||||||||||||||||||||||||||||||
|
Class
A Shares
|
Class
A Par Value
|
Class
B Shares
|
Class
B
Par
Value
|
Additional
Paid-In
Capital
|
Treasury
Stock
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Income/(Loss)
|
Total
Stockholders’
Equity
|
||||||||||||||||||||||||||||
|
At
January 1, 2005
|
20,453 | $ | 205 | 1,545 | $ | 15 | $ | 124,307 | $ | -- | $ | (54,903 | ) | $ | 32,386 | $ | 102,010 | |||||||||||||||||||
|
Net
income
|
-- | -- | -- | -- | -- | -- | 989 | -- | 989 | |||||||||||||||||||||||||||
|
Other
comprehensive income:
|
||||||||||||||||||||||||||||||||||||
|
Cumulative
foreign exchange rate adjustment
|
-- | -- | -- | -- | -- | -- | -- | (3,822 | ) | (3,822 | ) | |||||||||||||||||||||||||
|
Unrealized
gain on securities
|
-- | -- | -- | -- | -- | -- | -- | 11 | 11 | |||||||||||||||||||||||||||
|
Total
comprehensive loss
|
-- | -- | -- | -- | -- | -- | -- | -- | (2,822 | ) | ||||||||||||||||||||||||||
|
Class
B common stock received from stockholder in exchange for Class A common
stock
|
50 | -- | (50 | ) | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||
|
Class
A common stock issued for stock options exercised in exchange for cash or
treasury shares
|
487 | 10 | -- | -- | 3,721 | (3,515 | ) | -- | -- | 216 | ||||||||||||||||||||||||||
|
At
December 31, 2005
|
20,990 | 215 | 1,495 | 15 | $ | 128,028 | (3,515 | ) | (53,914 | ) | 28,575 | 99,404 | ||||||||||||||||||||||||
|
Net
income
|
-- | -- | -- | -- | -- | -- | 3,856 | -- | 3,856 | |||||||||||||||||||||||||||
|
Other
comprehensive income:
|
||||||||||||||||||||||||||||||||||||
|
Cumulative
foreign exchange rate adjustment
|
-- | -- | -- | -- | -- | -- | -- | 4,928 | 4,928 | |||||||||||||||||||||||||||
|
Unrealized
loss on securities
|
-- | -- | -- | -- | -- | -- | -- | (110 | ) | (110 | ) | |||||||||||||||||||||||||
|
Total
comprehensive income
|
-- | -- | -- | -- | -- | -- | -- | -- | 8,674 | |||||||||||||||||||||||||||
|
Stock
option and restricted stock compensation expense
|
16 | -- | -- | -- | 284 | -- | -- | -- | 284 | |||||||||||||||||||||||||||
|
Class
A common stock received upon exercise of put option
|
(99 | ) | -- | -- | -- | -- | (791 | ) | -- | -- | (791 | ) | ||||||||||||||||||||||||
|
Class
A common stock issued for stock options exercised
|
74 | 1 | -- | -- | 87 | - | -- | -- | 88 | |||||||||||||||||||||||||||
|
At
December 31, 2006
|
20,981 | 216 | 1,495 | 15 | $ | 128,399 | (4,306 | ) | (50,058 | ) | 33,393 | 107,659 | ||||||||||||||||||||||||
|
Net
loss
|
-- | -- | -- | -- | -- | -- | (2,103 | ) | -- | (2,103 | ) | |||||||||||||||||||||||||
|
Other
comprehensive income:
|
||||||||||||||||||||||||||||||||||||
|
Cumulative
foreign exchange rate adjustment
|
-- | -- | -- | -- | -- | -- | -- | 14,731 | 14,731 | |||||||||||||||||||||||||||
|
Accrued
pension service costs
|
-- | -- | -- | -- | -- | -- | -- | (2,063 | ) | (2,063 | ) | |||||||||||||||||||||||||
|
Unrealized
gain on securities
|
-- | -- | -- | -- | -- | -- | -- | 116 | 116 | |||||||||||||||||||||||||||
|
Total
comprehensive income
|
-- | -- | -- | -- | -- | -- | -- | -- | 10,681 | |||||||||||||||||||||||||||
|
Stock
option and restricted stock compensation expense
|
-- | -- | -- | -- | 994 | -- | -- | -- | 994 | |||||||||||||||||||||||||||
|
Adjustment
to accumulated deficit for adoption of FIN 48
|
-- | -- | -- | -- | -- | -- | (509 | ) | -- | (509 | ) | |||||||||||||||||||||||||
|
Exercise
of Sutton Hill Properties option
|
-- | -- | -- | -- | 2,512 | -- | -- | -- | 2,512 | |||||||||||||||||||||||||||
|
Class
A common stock issued for stock options exercised
|
6 | -- | -- | -- | 25 | - | -- | -- | 25 | |||||||||||||||||||||||||||
|
At
December 31, 2007
|
20,987 | $ | 216 | 1,495 | $ | 15 | $ | 131,930 | $ | (4,306 | ) | $ | (52,670 | ) | $ | 46,177 | $ | 121,362 | ||||||||||||||||||
See
accompanying notes to consolidated financial statements.
Reading International, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows for the Three Years Ended December 31,
2007
(U.S.
dollars in thousands)
|
Year Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Operating
Activities
|
||||||||||||
|
Net
income (loss)
|
$ | (2,103 | ) | $ | 3,856 | $ | 989 | |||||
|
Adjustments
to reconcile net income( loss) to net cash provided by operating
activities:
|
||||||||||||
|
Realized
(gain) loss on foreign currency translation
|
(131 | ) | 38 | (417 | ) | |||||||
|
Equity
earnings of unconsolidated joint ventures and entities
|
(2,545 | ) | (9,547 | ) | (1,372 | ) | ||||||
|
Distributions
of earnings from unconsolidated joint ventures and
entities
|
4,619 | 6,647 | 855 | |||||||||
|
Gain
on the sale of unconsolidated joint venture
|
-- | (3,442 | ) | -- | ||||||||
|
Gain
on sale of Puerto Rico
|
-- | -- | (1,597 | ) | ||||||||
|
Gain
on sale of Glendale Building
|
(1,912 | ) | -- | (12,013 | ) | |||||||
|
Gain
on sale of marketable securities
|
(773 | ) | -- | -- | ||||||||
|
Actuarial
gain on pension plan
|
385 | -- | -- | |||||||||
|
Loss
provision on marketable securities
|
779 | -- | -- | |||||||||
|
Loss
provision on impairment of asset
|
89 | -- | -- | |||||||||
|
Loss
on extinguishment of debt
|
99 | 167 | -- | |||||||||
|
Loss
on sale of assets, net
|
185 | 45 | 32 | |||||||||
|
Depreciation
and amortization
|
11,921 | 13,212 | 12,384 | |||||||||
|
Amortization
of prior service costs related to pension plan
|
253 | -- | -- | |||||||||
|
Stock
based compensation expense
|
994 | 284 | -- | |||||||||
|
Minority
interest
|
1,003 | 672 | 579 | |||||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
(Increase) decrease in
receivables
|
1,377 | (556 | ) | 1,559 | ||||||||
|
(Increase) decrease in prepaid
and other assets
|
(1,753 | ) | (1,914 | ) | 797 | |||||||
|
Increase in payable and accrued
liabilities
|
307 | 1,108 | 748 | |||||||||
|
Increase (decrease) in film rent
payable
|
(1,631 | ) | (103 | ) | 549 | |||||||
|
Increase (decrease) in deferred
revenues and other liabilities
|
2,121 | 1,442 | (506 | ) | ||||||||
|
Net
cash provided by operating activities
|
13,284 | 11,909 | 2,587 | |||||||||
|
Investing
Activities
|
||||||||||||
|
Proceeds from sale of
unconsolidated joint venture
|
-- | 4,573 | -- | |||||||||
|
Proceeds from sale of Puerto
Rico
|
-- | -- | 2,335 | |||||||||
|
Proceeds from sale of Glendale
Building
|
-- | -- | 10,300 | |||||||||
|
Acquisitions of real estate and
leasehold interests
|
(20,633 | ) | (8,087 | ) | (13,693 | ) | ||||||
|
Acquisition
deposit
|
(2,000 | ) | -- | -- | ||||||||
|
Purchases of and additions to
property and equipment
|
(21,781 | ) | (8,302 | ) | (30,461 | ) | ||||||
|
Investment in Reading
International Trust I
|
(1,547 | ) | -- | -- | ||||||||
|
Distributions of investment in
unconsolidated joint ventures and entities
|
2,445 | -- | -- | |||||||||
|
Investment in unconsolidated
joint ventures and entities
|
-- | (2,676 | ) | (6,468 | ) | |||||||
|
(Increase) decrease in
restricted cash
|
981 | (844 | ) | 1,011 | ||||||||
|
Purchases of marketable
securities
|
(15,651 | ) | (8,109 | ) | (376 | ) | ||||||
|
Sale of marketable
securities
|
19,900 | -- | -- | |||||||||
|
Proceeds from disposal of
assets, net
|
-- | -- | 515 | |||||||||
|
Net
cash used in investing activities
|
(38,286 | ) | (23,445 | ) | (36,837 | ) | ||||||
|
Financing
Activities
|
||||||||||||
|
Repayment of long-term
borrowings
|
(57,560 | ) | (6,242 | ) | (513 | ) | ||||||
|
Proceeds from
borrowings
|
97,632 | 19,274 | 31,666 | |||||||||
|
Capitalized borrowing
costs
|
(2,334 | ) | (223 | ) | -- | |||||||
|
Option deposit
received
|
-- | 3,000 | -- | |||||||||
|
Proceeds from exercise of stock
options
|
25 | 88 | 161 | |||||||||
|
Repurchase of Class A Nonvoting
Common Stock
|
-- | (791 | ) | -- | ||||||||
|
Proceeds from contributions to
minority interest
|
50 | -- | -- | |||||||||
|
Minority interest
distributions
|
(3,870 | ) | (1,167 | ) | (944 | ) | ||||||
|
Net
cash provided by financing activities
|
33,943 | 13,939 | 30,370 | |||||||||
|
Effect
of exchange rate on cash
|
833 | 57 | 136 | |||||||||
|
Increase
(decrease) in cash and cash equivalents
|
9,774 | 2,460 | (3,744 | ) | ||||||||
|
Cash
and cash equivalents at beginning of year
|
11,008 | 8,548 | 12,292 | |||||||||
|
Cash
and cash equivalents at end of year
|
$ | 20,782 | $ | 11,008 | $ | 8,548 | ||||||
|
Supplemental
Disclosures
|
||||||||||||
|
Cash paid during the period
for:
|
||||||||||||
|
Interest
on borrowings
|
$ | 12,389 | $ | 8,731 | $ | 6,188 | ||||||
|
Income
taxes
|
$ | 282 | $ | 585 | $ | 328 | ||||||
|
Non-Cash
Transactions
|
||||||||||||
|
Increase
in cost basis of Cinemas 1, 2, & 3 related to the purchase price
adjustment of the call option liability to a related party
|
(2,100 | ) | 1,087 | -- | ||||||||
|
Debt
issued to purchase Cinemas 1, 2, 3 (Note 8)
|
-- | -- | 9,000 | |||||||||
|
Deposit
applied to Cinemas 1, 2, 3 (Note 8)
|
-- | -- | 800 | |||||||||
|
Property
addition from purchase option asset (Note 8)
|
-- | -- | 1,337 | |||||||||
|
Buyer
assumption of note payable on Glendale Building (Note 9)
|
-- | -- | (10,103 | ) | ||||||||
|
Common
stock issued for note receivable (Note 21)
|
-- | -- | 55 | |||||||||
|
Treasury
shares received (Note 21)
|
-- | -- | (3,515 | ) | ||||||||
|
Stock
options exercised in exchange for treasury shares received (Note
21)
|
-- | -- | 3,515 | |||||||||
|
Adjustment to retained earnings
related to adoption of FIN 48 (Note 10)
|
509 | -- | -- | |||||||||
|
Decrease in deposit payable and
increase in minority interest liability related to the exercise of the
Cinemas 1, 2 & 3 call option by a related party (Note
15)
|
(3,000 | ) | -- | -- | ||||||||
|
Decrease in call option liability
and increase in additional paid in capital related to the exercise of the
Cinemas 1, 2 & 3 call option by a related party (Note
15)
|
(2,512 | ) | -- | -- | ||||||||
|
Accrued
addition to property and equipment
|
385 | -- | -- | |||||||||
See
accompanying notes to consolidated financial statements.
Reading International, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 2007
Note 1 – Nature of
Business
Reading International, Inc., a Nevada
corporation (“RDI” and collectively with our consolidated subsidiaries and
corporate predecessors, the “Company,” “Reading” and “we,” “us,” or “our”), was
incorporated in 1999 and, following the consummation of a consolidation
transaction on December 31, 2001 (the “Consolidation”), is now the owner of the
consolidated businesses and assets of Reading Entertainment, Inc. (“RDGE”),
Craig Corporation (“CRG”), and Citadel Holding Corporation
(“CDL”). Our businesses consist primarily of:
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the
development, ownership and operation of multiplex cinemas in the United
States, Australia, and New Zealand;
and
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the
development, ownership, and operation of retail and commercial real estate
in Australia, New Zealand, and the United States, including
entertainment-themed retail centers (“ETRC”) in Australia and New Zealand
and live theater assets in Manhattan and Chicago in the United
States.
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Note 2 – Summary of
Significant Accounting Policies
Basis of
Consolidation
The consolidated financial statements
of RDI and its subsidiaries include the accounts of CDL, RDGE and
CRG. Also consolidated are Angelika Film Center LLC (“AFC”), in which
we own a 50% controlling membership interest and whose only asset is the
Angelika Film Center in Manhattan; Australia Country Cinemas Pty, Limited
(“ACC”), a company in which we own a 75% interest, and whose only assets are our
leasehold cinemas in Townsville and Dubbo, Australia; and the Elsternwick
Classic, an unincorporated joint venture in which we own a 66.6% interest and
whose only asset is the Elsternwick Classic cinema in Melbourne,
Australia.
With the
exception of one other investment, we have concluded that all other investment
interests are appropriately accounted for unconsolidated joint ventures and
entities, and accordingly, our unconsolidated joint ventures and entities in 20%
to 50% owned companies are accounted
for on the equity method. These investment interests include
our
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33.3%
undivided interest in the unincorporated joint venture that owns the Mt.
Gravatt cinema in a suburb of Brisbane, Australia;
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our
50% undivided interest in the unincorporated joint venture that owns a
cinema in the greater Auckland area of New Zealand;
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our
25% undivided interest in the unincorporated joint venture that owns
205-209 East 57th
Street Associates, LLC (Place 57) a limited
liability company formed to redevelop our former cinema site at 205 East
57th
Street in Manhattan;
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our
33.3% undivided interest in Rialto Distribution, an unincorporated joint
venture engaged in the business of distributing art film in New Zealand
and Australia; and
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our
50% undivided interest in the unincorporated joint venture that owns
Rialto Cinemas.
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We also
have an 18.4% undivided interest in a private real estate company with holdings
principally in California, Texas and Hawaii, including the Guenoc Winery and
other land located in Northern California. We have been in contact
with the controlling shareholder of Malulani Investments, Ltd. (“MIL”) and
requested quarterly or annual operating financials. To date, he has
not responded to our request for relevant financial information (see Note 19 –
Commitments and
Contingencies). Based on this situation, we do not believe
that we can assert significant influence over the dealings of this
entity. As such and in accordance with Financial Accounting Standards
Board (FASB) Interpretation No. 35 – Criteria for Applying the Equity
Method of Accounting for Investments in Common Stock – an Interpretation of APB
Opinion No. 18, we are treating this investment on a cost basis by
recognizing earnings as they are distributed to us.
Accounting
Principles
Our
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (“US
GAAP”).
Cash and Cash
Equivalents
We
consider all highly liquid investments with original maturities of three months
or less to be cash equivalents.
Receivables
Our
receivables balance is composed primarily of credit card receivables,
representing the purchase price of tickets or coupon books sold at our various
businesses. Sales charged on customer credit cards are collected when
the credit card transactions are processed. The remaining receivables
balance is primarily made up of the goods and services tax (“GST”) refund
receivable from our Australian taxing authorities and the management fee
receivable from the managed cinemas. We have no history of
significant bad debt losses and we establish an allowance for accounts that we
deem uncollectible.
Inventory
Inventory
is composed of concession goods used in theater operations and is stated at the
lower of cost (first-in, first-out method) or net realizable value.
Investment in Marketable
Securities
We
account for investments in marketable debt and equity securities in accordance
with Statement of Financial Accounting Standards (SFAS) No. 115, “Accounting for Certain Investments
in Debt and Equity Securities” (SFAS No. 115). Our
investment in Marketable Securities includes equity instruments which are
classified as available for sale and are recorded at market using the specific
identification method. In accordance with SFAS No. 115,
available for sale securities are carried at their fair market value and any
difference between cost and market value is recorded as unrealized gain or loss,
net of income taxes, and is reported as accumulated other comprehensive income
in the consolidated statement of stockholders’ equity. Premiums and discounts of
debt instruments are recognized in interest income using the effective interest
method. Realized gains and losses and declines in value expected to
be other-than-temporary on available for sale securities are included in other
expense. During 2007, we realized a loss of $779,000 on certain
marketable securities due to an other than temporary decline in market
price. There were no unrealized gains or losses at December 31,
2007. The cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available
for sale are included in interest income.
Restricted
Cash
We
classify restricted cash as those cash accounts for which the use of funds is
restricted by contract or bank covenant. At December 31, 2006, our
restricted cash balance was $1.0 million made up of deposits transferred to
restricted cash accounts under our name by, and in accordance with, our
agreement with our domestic credit card processing bank. The deposits
were transferred to cover any potential loss suffered by the bank in relation to
the use by third parties of counterfeit credit cards and related credit card
company fines. During 2007, the majority of the credit card claims
and penalties were assessed and resulted in paid claims of $429,000 and $160,000
for the years ending December 31, 2007 and 2006, respectively, and returned
restricted cash of $551,000 during 2007. This activity resulted in a
restricted cash balance at December 31, 2007 of $59,000 due to the remaining
unresolved credit card claims.
Fair Value of Financial
Instruments
The
carrying amounts of our cash and cash equivalents, restricted cash and accounts
payable approximate fair value due to their short-term
maturities. The carrying amounts of our variable-rate secured debt
approximate fair value since the interest rates on these instruments are
equivalent to rates currently offered to us. See Note 16 – Fair Value of Financial
Instruments.
Derivative
Financial Instruments
In
accordance with SFAS No. 133 - Accounting for Derivative
Instruments and Hedging Activities, as subsequently amended by SFAS No.
138 - Accounting for Certain
Derivative Instruments and Certain Hedging Activities an Amendment of SFAS No.
133, we carry all derivative financial instruments on our Consolidated
Balance Sheets at fair value. Derivatives are generally executed for
interest rate management purposes but are not designated as hedges in accordance
with SFAS No. 133 and SFAS No. 138. Therefore, changes in market
values are recognized in current earnings.
Property Held for
Development
Property
held for development consists of land (including land acquisition costs)
initially acquired for the potential development of multiplex cinemas and/or
ETRC’s. Property held for development is carried at
cost. At the time construction of the related multiplex cinema, ETRC,
or other development commences, the property is transferred to “property under
development.”
Property Under
Development
Property
under development consists of land, new buildings and improvements under
development, and their associated capitalized interest and other development
costs. These building and improvement costs are directly associated
with the development of potential cinemas (whether for sale or lease), the
development of ETRC locations, or other improvements to real
property. Start-up costs (such as pre-opening cinema advertising and
training expense) and other costs not directly related to the acquisition and
development of long-term assets are expensed as incurred.
Incident
to the development of our Burwood property, in late 2006, we began various fill
and earth moving operations. In late February 2007, it became
apparent that our cost estimates with respect to site preparation were low, as
the extent of the contaminated soil present at the site – a former brickworks –
was greater than we had originally believed. Our previous estimated
cost of $500.0 million included approximately $1.4 million (AUS$1.8 million) of
estimated cost to remove the contaminated soil. As we were not the
source of this contamination, we are not currently under any legal obligation to
remove this contaminated soil from the site. However, as a practical
matter, we intend to address these issues in connection with our planned
redevelopment of the site as a mixed-use retail, entertainment, commercial and
residential complex. As of December 31, 2007, we estimate that the
total site preparation costs associated with the removal of this contaminated
soil will be $7.9 million (AUS$9.0 million) and as of that date we had incurred
a total of $7.1 million (AUS$8.1 million) of these costs. In
accordance with EITF 90-8, Capitalization of Costs to Treat
Environmental Contamination, contamination clean up costs that improve
the property from its original acquisition state are capitalized as part of the
property’s overall development costs.
Property and
Equipment
Property
and equipment consists of land, buildings and improvements, leasehold
improvements, fixtures and equipment. With the exception of land,
property and equipment is carried at cost and depreciated over the useful lives
of the related assets. In accordance with US GAAP, land is not
depreciated.
Construction-in-Progress
Costs
Construction-in-progress
includes costs associated with already existing buildings, property, furniture
and fixtures for which we are in the process of improving the site or its
associated business assets.
Accounting for the
Impairment of Long Lived Assets
We assess
whether there has been an impairment in the value of our long-lived assets
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and
used is then measured by a comparison of the carrying amount to the future net
cash flows, undiscounted and without interest, expected to be generated by the
asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of
are reported at the lower of the carrying amount or fair value, less costs to
sell. At December 31, 2007, no impairment in the net carrying values
of our investments in real estate and cinema leasehold interests or in
unconsolidated real estate entities had occurred for the periods
presented.
Goodwill and Intangible
Assets
We use
the purchase method of accounting for all business
combinations. Goodwill and intangible assets with indefinite useful
lives are not amortized, but instead, tested for impairment at least
annually. Prior to conducting our goodwill impairment analysis, we
assess long-lived assets for impairment in accordance with SFAS 144, Accounting for the Impairment or
Disposal of Long-lived Assets. We then perform the impairment
analysis at the reporting unit level (one level below the operating segment
level) (see Note 10 – Goodwill
and Intangibles) as defined by SFAS 142. This analysis
requires management to make a series of critical assumptions to: (1) evaluate
whether any impairment exists; and (2) measure the amount of
impairment. We estimate the fair value of our reporting units as
compared with their estimated book value. If the estimated fair value
of a reporting unit is less than the book value, then impairment is deemed to
have occurred. In estimating the fair value of our reporting units,
we primarily use the income approach (which uses forecasted, discounted cash
flows to estimate the fair value of the reporting unit).
Revenue
Recognition
Revenue
from cinema ticket sales and concession sales are recognized when
sold. Revenue from gift certificate sales is deferred and recognized
when the certificates are redeemed. Rental revenue is recognized on a
straight-line basis in accordance with SFAS No. 13 – Accounting for
Leases.
Deferred Leasing/Financing
Costs
Direct
costs incurred in connection with obtaining tenants and/or financing are
amortized over the respective term of the lease or loan on a straight-line
basis.
General and Administrative
Expenses
For the years ended December 31, 2007,
2006 and 2005, we booked gains on the settlement of litigation of $523,000,
$900,000, and $494,000, respectively, as a recovery of legal expenses included
in general and administrative expenses.
Depreciation and
Amortization
Depreciation
and amortization are provided using the straight-line method over the estimated
useful lives of the assets. The estimated useful lives are generally
as follows:
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Building
and improvements
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15-40
years
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Leasehold
improvement
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Shorter
of the life of the lease or useful life of the
improvement
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Theater
equipment
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7
years
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Furniture
and fixtures
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5 –
10 years
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Translation of Non-U.S.
Currency Amounts
The
financial statements and transactions of our Australian and New Zealand cinema
and real estate operations are reported in their functional currencies, namely
Australian and New Zealand dollars, respectively, and are then translated into
U.S. dollars. Assets and liabilities of these operations are
denominated in their functional currencies and are then translated at exchange
rates in effect at the balance sheet date. Revenues and expenses are
translated at the average exchange rate for the reporting
period. Translation adjustments are reported in “Accumulated Other
Comprehensive Income,” a component of Stockholders’ Equity.
The carrying value of our Australian
and New Zealand assets fluctuates due to changes in the exchange rate between
the U.S. dollar and the Australian and New Zealand dollars. The
exchange rates of the U.S. dollar to the Australian dollar were $0.8776 and
$0.7884 as of December 31, 2007 and 2006, respectively. The exchange
rates of the U.S. dollar to the New Zealand dollar were $0.7678 and $0.7046 as
of December 31, 2007 and 2006, respectively.
Earnings Per
Share
Basic
earnings per share is calculated using the weighted average number of shares of
Class A and Class B Stock outstanding during the years ended December 31, 2007,
2006, and 2005, respectively. Diluted earnings per share is
calculated by dividing net earnings available to common stockholders by the
weighted average common shares
outstanding
plus the dilutive effect of stock options. Stock options to purchase
577,850, 514,100, and 521,100 shares of Class A Common Stock were outstanding at
December 31, 2007, 2006, and 2005, respectively, at a weighted average exercise
price of $5.60, $5.21, and $5.00 per share, respectively. Stock
options to purchase 185,100 shares of Class B Common Stock were outstanding at
each of the years ended December 31, 2007, 2006, and 2005 at a weighted average
exercise price of $9.90 per share. In accordance with SFAS 128 –
Earnings Per Share, as
we had recorded an operating loss before discontinued operations for the years
ended December 31, 2007 and 2005, the effect of the stock options was
anti-dilutive and accordingly excluded from the earnings per share
computation.
Real Estate Purchase Price
Allocation
We
allocate the purchase price to tangible assets of an acquired property (which
includes land, building and tenant improvements) based on the estimated fair
values of those tangible assets assuming the building was
vacant. Estimates of fair value for land are based on factors such as
comparisons to other properties sold in the same geographic area adjusted for
unique characteristics. Estimates of fair values of buildings and
tenant improvements are based on present values determined based upon the
application of hypothetical leases with market rates and terms.
We record
above-market and below-market in-place lease values for acquired properties
based on the present value (using an interest rate which reflects the risks
associated with the leases acquired) of the difference between (i) the
contractual amounts to be paid pursuant to the in-place leases and (ii)
management’s estimate of fair market lease rates for the corresponding in-place
leases, measured over a period equal to the remaining non-cancelable term of the
lease. We amortize any capitalized above-market lease values as a
reduction of rental income over the remaining non-cancelable terms of the
respective leases. We amortize any capitalized below-market lease
values as an increase to rental income over the initial term and any fixed-rate
renewal periods in the respective leases.
We
measure the aggregate value of other intangible assets acquired based on the
difference between (i) the property valued with existing in-place leases
adjusted to market rental rates and (ii) the property valued as if
vacant. Management’s estimates of value are made using methods
similar to those used by independent appraisers (e.g., discounted cash flow
analysis). Factors considered by management in its analysis include
an estimate of carrying costs during hypothetical expected lease-up periods
considering current market conditions, and costs to execute similar
leases. We also consider information obtained about each property as
a result of our pre-acquisition due diligence, marketing, and leasing activities
in estimating the fair value of the tangible and intangible assets
acquired. In estimating carrying costs, management includes real
estate taxes, insurance and other operating expenses and estimates of lost
rentals at market rates during the expected lease-up
periods. Management also estimates costs to execute similar leases
including leasing commissions, legal, and other related expenses to the extent
that such costs are not already incurred in connection with a new lease
origination as part of the transaction.
The total
amount of other intangible assets acquired is further allocated to in-place
lease values and customer relationship intangible values based on management’s
evaluation of the specific characteristics of each tenant’s lease and our
overall relationship with that respective tenant. Characteristics
considered by management in allocating these values include the nature and
extent of our existing business relationships with the tenant, growth prospects
for developing new business with the tenant, the tenant’s credit quality and
expectations of lease renewals (including those existing under the terms of the
lease agreement), among other factors.
We
amortize the value of in-place leases to expense over the initial term of the
respective leases. The value of customer relationship intangibles is
amortized to expense over the initial term and any renewal periods in the
respective leases, but in no event may the amortization period for intangible
assets exceed the remaining depreciable life of the building. Should
a tenant terminate its lease, the unamortized portion of the in-place lease
value and customer relationship intangibles would be charged to
expense.
These
assessments have a direct impact on net income and revenues. If we
assign more fair value to the in-place leases versus buildings and tenant
improvements, assigned costs would generally be depreciated over a shorter
period, resulting in more depreciation expense and a lower net income on an
annual basis. Likewise, if we estimate that more of our leases
in-place at acquisition are on terms believed to be above the current market
rates for similar properties, the calculated present value of the amount above
market would be amortized monthly as a direct reduction to rental revenues and
ultimately reduce the amount of net income.
Business
Acquisition Valuations Under FAS 141
The
assets and liabilities of businesses acquired are recorded at their respective
preliminary fair values as of the acquisition date in accordance with SFAS 141 -
Business
Combinations. We obtain third-party valuations of material
property, plant and equipment, intangible assets, debt and certain other assets
and liabilities acquired. We also perform valuations and physical
counts of property, plant and equipment, valuations of investments and the
involuntary termination of employees, as necessary. Costs in excess
of the net fair values of assets and liabilities acquired is recorded as
goodwill.
We record
and amortize above-market and below-market operating leases assumed in the
acquisition of a business in the same way as those under real estate
acquisitions.
The fair
values of any other intangible assets acquired are based on the expected
discounted cash flows of the identified intangible
assets. Finite-lived intangible assets are amortized using the
straight-line method of amortization over the expected period in which those
assets are expected to contribute to our future cash flows. We do not
amortize indefinite lived intangibles and goodwill.
Recent Accounting
Pronouncements
Statement of Financial
Accounting Standards No. 157
In
September 2006, the Financial Accounting Standards Board released SFAS No. 157,
Fair Value
Measurements, and is effective for fiscal years beginning after November
15, 2007, which is the year ending December 31, 2008 for the Company. SFAS No.
157 defines fair value, establishes a framework for measuring fair value in
GAAP, and expands disclosures about fair value measurements. In November 2007,
FASB agreed to a one-year deferral of the effective date for non-financial
assets and liabilities that are recognized or disclosed at fair value on a
non-recurring basis. We are currently in the process of evaluating
the impact on our financial results if any of the adoption of this
pronouncement.
Statement of Financial
Accounting Standards No. 159
In
February 2007, the Financial Accounting Standards Board released SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities, and is effective for fiscal
years beginning after November 15, 2007, which is the year ending December 31,
2008 for the Company. SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair
value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. We are currently evaluating the
impact of the adoption of SFAS No. 159, if any, on our consolidated financial
position and results of operations.
Statement of Financial
Accounting Standards No. 141-R
In
December 2007, the Financial Accounting Standards Board released SFAS No. 141-R,
Business
Combinations. This Statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, which
will include business combinations in the year ending December 31, 2009 for the
Company. The objective of this Statement is to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a business
combination. SFAS No. 141-R changes the requirements for an
acquirer’s recognition and measurement of the assets acquired and the
liabilities assumed in a business combination. We anticipate that
this pronouncement will only have an impact on our financial statements in so
far as we will not be able to capitalize indirect deal costs to our
acquisitions.
Statement of Financial
Accounting Standards No. 160
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements — an amendment of ARB No.
51. SFAS 160 requires (i) that noncontrolling (minority)
interests be reported as a component of shareholders’ equity, (ii) that net
income attributable to the parent and to the noncontrolling interest be
separately identified in the consolidated statement of operations, (iii) that
changes in a parent’s ownership interest while the parent retains its
controlling interest be accounted for as equity transactions, (iv) that any
retained noncontrolling equity investment upon the deconsolidation of a
subsidiary be initially measured at fair value, and (v) that sufficient
disclosures are provided that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS 160
is effective for annual periods beginning after December 15,
2008,
which is
the year ending December 31, 2009 for the Company, and should be applied
prospectively. However, the presentation and disclosure requirements
of the statement shall be applied retrospectively for all periods
presented. The adoption of the provisions of SFAS 160 is not
anticipated to materially impact the company’s consolidated financial position
and results of operations.
Use of
Estimates
The
preparation of financial statements in conformity with US GAAP requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
Note 3 – Stock Based
Compensation and Employee Stock Option Plan
Stock Based
Compensation
As part
of his compensation package, Mr. James J. Cotter, our Chairman of the Board and
Chief Executive Officer, was granted $250,000 of restricted Class A Non-Voting
Common Stock for each of the years ending December 31, 2006 and 2005 and
$350,000 for the year ending December 31, 2007. These stock grants
each have a vesting period of two years, a stock grant price of $7.79, $8.26,
$9.99, respectively; and a total unrealized gain in market value at December 31,
2007 of $26,000. At December 31, 2007, in recognition of the vesting
of one-half of his 2006 and one-half of his 2005 stock grants, we issued to Mr.
Cotter 15,133 and 16,047 shares, respectively, of Class A Non-Voting Common
Stock which had a stock grant price of $8.26 and $7.79 per share and fair market
values of $151,000 and $160,000, respectively. At December 31, 2006,
in recognition of the vesting of one-half of the 2005 stock grant, we issued to
Mr. Cotter 16,047 shares of Class A Non-Voting Common Stock which had a stock
grant price of $7.79 per share and a fair market value of $133,000.
As part
of his compensation package, Mr. John Hunter, our Chief Operating Officer, was
granted $100,000 of restricted Class A Non-Voting Common Stock on February 12,
2007. This stock grant has a vesting period of two years, a stock
grant exercise price of $8.63, and a total unrealized gain in market value at
December 31, 2007 of $8,000.
During
the year ended December 31, 2007 and 2006, we recorded compensation expense of
$238,000 and $188,000, respectively, for the vesting of restricted stock
grants. The following table details the grants and vesting of
restricted stock to our employees (dollars in thousands):
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Non-Vested
Restricted Stock
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Weighted
Average Fair Value at Grant Date
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Outstanding
– January 1, 2005
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-- | $ | -- | |||||
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Granted
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32,094 | 250 | ||||||
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Outstanding
– December 31, 2005
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32,094 | 250 | ||||||
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Granted
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30,266 | 250 | ||||||
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Vested
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(16,047 | ) | (188 | ) | ||||
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Outstanding
– December 31, 2006
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46,313 | 312 | ||||||
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Granted
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46,623 | 450 | ||||||
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Vested
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(31,180 | ) | (238 | ) | ||||
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Outstanding
– December 31, 2007
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61,756 | $ | 524 | |||||
In 2006,
we formed Landplan Property Partners, Ltd (“LPP”), to identify, acquire and
develop or redevelop properties on an opportunistic basis. In
connection with the formation of Landplan, we entered into an agreement with Mr.
Doug Osborne pursuant to which (i) Mr. Osborne will serve as the chief executive
officer of Landplan and (ii) Mr. Osborne’s affiliate, Landplan Property Group,
Ltd (“LPG”), will perform certain property management services for
Landplan. The agreement provides for Mr. Osborne to hold an equity
interest in the entities formed to hold these properties; such equity interest
to be (i) subordinate to our right to an 11% compounded return on investment and
(ii) subject to adjustment depending upon various factors including the term of
the investment and the amount invested. In general, this equity
interest will range from 27.5% to 15%.
During
2006, Landplan acquired one property in Indooroopilly, Brisbane, Australia and,
during 2007, Landplan acquired two properties in New Zealand; the first called
the Lake Taupo Motel and the other is a parcel of land referred to as the
Manukau property. With the purchase of these properties, based on
SFAS 123(R), we calculated the fair value of Mr. Osborne’s equity interest in
their various trusts to be $482,000 and $77,000 at December 31, 2007 and 2006,
respectively. Based on SFAS 123(R), we have calculated the fair value
of Mr. Osborne’s interest at $77,000 for the Indooroopilly property, $171,000
for the Lake Taupo Motel and $234,000 for the Manukau
property. During the years ended December 31, 2007 and 2006, we
expensed $215,000 and $14,000, respectively, associated with Mr. Osborne’s
interests. At December 31, 2007, the total unrecognized compensation
expense related to the LPP equity awards was $231,000, which is expected to be
recognized over the remaining weighted average period of approximately 91
months.
Employee Stock Option
Plan
We have a
long-term incentive stock option plan that provides for the grant to eligible
employees and non-employee directors of incentive stock options and
non-qualified stock options to purchase shares of the Company’s Class A
Nonvoting Common Stock. For the stock options exercised during the
year ending December 31, 2007, we issued for cash to an employee of the
corporation under this stock based compensation plan, 6,250 shares of Class A
Nonvoting Common Stock at an exercise price of $4.01, and, for the stock options
exercised during the year ending December 31, 2006, 12,000 shares and 15,000
shares of Class A Nonvoting Common Stock were issued at exercise prices of $3.80
and $2.76 per share, respectively. During the year ending December
31, 2005, we did not issue any shares under this stock based compensation
plan.
Prior to
January 1, 2006, we accounted for stock-based employee compensation under the
intrinsic value method as outlined in the provisions of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations while disclosing pro-forma net
income and pro-forma net income per share as if the fair value method had been
applied in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation. Under the intrinsic value method, we did not
recognize any compensation expense when the exercise price of the stock options
equaled or exceeded the market price of the underlying stock on the date of
grant. We issued all stock option grants with exercise prices equal
to, or greater than, the market value of the common stock on the date of
grant. No stock compensation expense was recognized in the
consolidated statements of operations through December 31, 2005.
Effective
January 1, 2006, we adopted SFAS No. 123(R), Share-Based Payment (SFAS
123(R)) which replaces SFAS No. 123 and supersedes APB Opinion No.
25. SFAS 123(R) requires that all stock-based compensation be
recognized as an expense in the financial statements and that such costs be
measured at the fair value of the award. This statement was adopted
using the modified prospective method, which requires that we recognize
compensation expense on a prospective basis for all newly granted options and
any modifications or cancellations of previously granted
awards. Therefore, prior period consolidated financial statements
have not been restated. Under this method, in addition to reflecting
compensation expense for new share-based payment awards, modifications to
awards, and cancellations of awards, expense is also recognized to reflect the
remaining vesting period of awards that had been included in pro-forma
disclosures in prior periods. We estimate the valuation of stock
based compensation using a Black-Scholes option pricing formula.
When our
tax deduction from an option exercise exceeds the compensation cost resulting
from the option, a tax benefit is created. SFAS 123(R) requires that
excess tax benefits related to stock option exercises be reflected as financing
cash inflows instead of operating cash inflows. Had we previously
adopted SFAS 123(R), there would have been no impact on our presentation of the
consolidated statement of cash flows because there were no recognized tax
benefits relating to the years ended December 31, 2005. For the years
ended December 31, 2007 and 2006, there was also no impact to the consolidated
statements of cash flows because there were no recognized tax benefits during
these periods.
SFAS No.
123(R) requires companies to estimate forfeitures. Based on our
historical experience, we did not estimate any forfeitures for the granted
options during the years ended December 31, 2007 and 2006.
In
November 2005, the FASB issued FASB Staff Position No. SFAS 123(R)-3, Transition Election Related to
Accounting for Tax Effects of Share-Based Payment Awards. The
Company has elected to adopt the alternative transition method provided in this
FASB Staff Position for calculating the tax effects of share-based compensation
pursuant to SFAS No. 123(R). The alternative transition method
includes a simplified method to establish the beginning balance of
the
additional
paid-in capital pool or APIC pool related to the tax effects of employee
share-based compensation, which is available to absorb tax deficiencies
recognized subsequent to the adoption of SFAS No. 123(R).
In
accordance with SFAS No. 123(R), we estimate the fair value of our options using
the Black-Scholes option-pricing model, which takes into account assumptions
such as the dividend yield, the risk-free interest rate, the expected stock
price volatility, and the expected life of the options. The dividend
yield is excluded from the calculation, as it is our present intention to retain
all earnings. We estimated the expected stock price volatility based
on our historical price volatility measured using daily share prices back to the
inception of the Company in its current form beginning on December 31,
2001. We estimate the expected option life based on our historical
share option exercise experience during this same period. We expense
the estimated grant date fair values of options issued on a straight-line basis
over the vesting period.
There
were 7,500 options granted during the year ended December 31,
2005. In accordance with APB 25, we used the intrinsic value method
and did not recognize any compensation expense when the exercise price of the
stock options equaled or exceeded the market price of the underlying stock on
the date of grant. For the 301,250 and 20,000 options granted during
2007 and 2006, respectively, we estimated the fair value of these options at the
date of grant using a Black-Scholes option-pricing model with the following
weighted average assumptions:
|
2007
|
2006
|
|
|
Stock
option exercise price
|
$8.35
– $10.30
|
$
8.10
|
|
Risk-free
interest rate
|
4.636
– 4.824%
|
4.22%
|
|
Expected
dividend yield
|
--
|
--
|
|
Expected
option life
|
9.60
– 9.96 yrs
|
5.97
yrs
|
|
Expected
volatility
|
33.64
– 45.47%
|
34.70%
|
|
Weighted
average fair value
|
$
4.42 – $4.82
|
$
4.33
|
Using the
above assumptions and in accordance with the SFAS No. 123(R) modified
prospective method, we recorded $756,000 and $98,000 in compensation expense for
the total estimated grant date fair value of stock options that vested during
the years ended December 31, 2007 and 2006, respectively. The effect
on earnings per share of the compensation charge was $0.03 per share in 2007 and
less than $0.01 in 2006. At December 31, 2007 and 2006, the total
unrecognized estimated compensation cost related to non-vested stock options
granted was $876,000 and $90,000, respectively, which is expected to be
recognized over a weighted average vesting period of 1.27 and 2.09 years,
respectively. The total realized value of stock options exercised
during the years ended December 31, 2007, 2006, and 2005 was $37,000, $136,000,
and $102,000, respectively. The grant date fair value of options that
vested during the year ending December 31, 2007 was $55,000 and for each of the
years ending December 31, 2006 and 2005 was $199,000. We recorded
cash received from stock options exercised of $25,000, $88,000, and $161,000
during the years ended December 31, 2007, 2006, and 2005,
respectively. The intrinsic, unrealized value of all options
outstanding, vested and expected to vest, at December 31, 2007 and 2006 was $2.5
million and $1.6 million, respectively, of which 98.7% and 99.9%, respectively,
were currently exercisable.
All stock
options granted have a contractual life of 10 years at the grant
date. The aggregate total number of shares of Class A Nonvoting
Common Stock and Class B Voting Common Stock authorized for issuance under our
1999 Stock Option Plan is 1,287,150. At the time that options are
exercised, at the discretion of management, we will either issue treasury shares
or make a new issuance of shares to the employee or board
member. Dependent on the grant letter to the employee or board
member, the required service period for option vesting is between zero and four
years.
We had
the following stock options outstanding and exercisable:
|
Common Stock Options
Outstanding
|
Weighted Average Exercise
Price of Options
Outstanding
|
Common Stock Exercisable
Options
|
Weighted Average
Price of Exercisable
Options
|
|||||||||||||||||||||||||||||
|
Class
A
|
Class
B
|
Class
A
|
Class
B
|
Class
A
|
Class
B
|
Class
A
|
Class
B
|
|||||||||||||||||||||||||
|
Outstanding-
January 1, 2005
|
1,488,200 | 185,100 | $ | 4.19 | $ | 9.90 | 1,377,700 | 185,100 | $ | 4.80 | $ | 9.90 | ||||||||||||||||||||
|
Granted
|
7,500 | -- | $ | 7.86 | $ | -- | ||||||||||||||||||||||||||
|
Exercised
|
(974,600 | ) | -- | $ | 3.78 | $ | -- | |||||||||||||||||||||||||
|
Outstanding-December
31, 2005
|
521,100 | 185,100 | $ | 5.00 | $ | 9.90 | 474,600 | 185,100 | $ | 5.04 | $ | 9.90 | ||||||||||||||||||||
|
Granted
|
20,000 | -- | $ | 8.10 | $ | -- | ||||||||||||||||||||||||||
|
Exercised
|
(27,000 | ) | -- | $ | 3.22 | $ | -- | |||||||||||||||||||||||||
|
Outstanding-December
31, 2006
|
514,100 | 185,100 | $ | 5.21 | $ | 9.90 | 488,475 | 185,100 | $ | 5.06 | $ | 9.90 | ||||||||||||||||||||
|
Granted
|
151,250 | 150,000 | $ | 9.37 | $ | 10.24 | ||||||||||||||||||||||||||
|
Exercised
|
(6,250 | ) | -- | $ | 4.01 | $ | -- | |||||||||||||||||||||||||
|
Expired
|
(81,250 | ) | (150,000 | ) | $ | 10.25 | $ | 10.24 | ||||||||||||||||||||||||
|
Outstanding-December
31, 2007
|
577,850 | 185,100 | $ | 5.60 | $ | 9.90 | 477,850 | 35,100 | $ | 4.72 | $ | 8.47 | ||||||||||||||||||||
The
weighted average remaining contractual life of all options outstanding, vested
and expected to vest, at December 31, 2007 and 2006 were approximately 6.22 and
3.60 years, respectively. The weighted average remaining contractual
life of the exercisable options outstanding at December 31, 2007 and 2006 was
approximately 4.74 and 3.39, respectively.
The
following table illustrates the effect on net income per common share for the
year ended December 31, 2005 as if we had consistently measured the compensation
cost for stock option programs under the fair value method adopted on January 1,
2006 (dollars in thousands):
|
Pro
forma net income (loss):
|
2005
|
|||
|
Net
income (loss)
|
$ | 989 | ||
|
Add:
Stock-based compensation costs included in reported net
loss
|
-- | |||
|
Deduct:
Stock-based compensation costs under SFAS 123
|
83 | |||
|
Proforma
net income (loss)
|
$ | 906 | ||
|
Pro
forma basic net earnings (loss) per common share:
|
||||
|
Pro
forma net earnings (loss) per common share-basic and
diluted
|
$ | 0.04 | ||
|
Reported
net earnings (loss) per common share-basic and diluted
|
$ | 0.04 | ||
Note 4 – Earnings (Loss) Per
Share
For the three years ended December 31,
2007, we calculated the following earnings (loss) per share (dollars in
thousands, except per share amounts):
|
2007
|
2006
|
2005
|
||||||||||
|
Income
(loss) from continuing operations
|
$ | (4,015 | ) | $ | 3,856 | $ | (11,242 | ) | ||||
|
Income
from discontinued operations
|
1,912 | -- | 12,231 | |||||||||
|
Net
income (loss)
|
(2,103 | ) | 3,856 | 989 | ||||||||
|
Weighted
average shares of common stock – basic
|
22,478,145 | 22,425,941 | 22,249,967 | |||||||||
|
Weighted
average shares of common stock – diluted
|
22,478,145 | 22,674,818 | 22,249,967 | |||||||||
|
Earnings
(loss) per share:
|
||||||||||||
|
Earnings (loss) from continuing
operations – basic and diluted
|
$ | (0.18 | ) | $ | 0.17 | $ | (0.51 | ) | ||||
|
Earnings (loss) from
discontinued operations – basic and diluted
|
$ | 0.09 | $ | -- | $ | 0.55 | ||||||
|
Earnings (loss) per share –
basic and diluted
|
$ | (0.09 | ) | $ | 0.17 | $ | 0.04 | |||||
Note 5 – Prepaid and Other
Assets
Prepaid
and other assets are summarized as follows (dollars in thousands):
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Prepaid
and other current assets
|
||||||||
|
Prepaid
expenses
|
$ | 569 | $ | 1,214 | ||||
|
Prepaid taxes
|
602 | 552 | ||||||
|
Deposits
|
2,097 | 534 | ||||||
|
Other
|
532 | 289 | ||||||
|
Total prepaid and other current
assets
|
$ | 3,800 | $ | 2,589 | ||||
|
Other
non-current assets
|
||||||||
|
Other non-cinema and non-rental
real estate assets
|
$ | 1,270 | $ | 1,270 | ||||
|
Deferred financing costs,
net
|
2,805 | 898 | ||||||
|
Interest rate
swap
|
526 | 206 | ||||||
|
Other
receivables
|
1,648 | -- | ||||||
|
Pre-acquisition
costs
|
948 | -- | ||||||
|
Other
|
787 | 485 | ||||||
|
Total non-current
assets
|
$ | 7,984 | $ | 2,859 | ||||
Note 6 – Property Under
Development
Property
under development is summarized as follows (dollars in thousands):
|
December 31,
|
||||||||
|
Property
Under Development
|
2007
|
2006
|
||||||
|
Land
|
$ | 36,994 | $ | 30,296 | ||||
|
Construction-in-progress
(including capitalized interest)
|
29,793 | 8,580 | ||||||
|
Property
Under Development
|
$ | 66,787 | $ | 38,876 | ||||
The amount of capitalized interest for
our properties under development was $4.4 million, $1.8 million, and $2.6
million for the three years ending December 31, 2007, 2006 and 2005,
respectively.
Note 7 – Property and
Equipment
Property
and equipment is summarized as follows (dollars in thousands):
|
December 31,
|
||||||||
|
Property
and Equipment
|
2007
|
2006
|
||||||
|
Land
|
$ | 58,757 | $ | 56,830 | ||||
|
Building
and improvements
|
112,818 | 99,285 | ||||||
|
Leasehold
interests
|
12,430 | 11,138 | ||||||
|
Construction-in-progress
|
1,318 | 425 | ||||||
|
Fixtures
and equipment
|
64,648 | 58,164 | ||||||
|
Total cost
|
249,971 | 225,842 | ||||||
|
Less
accumulated depreciation
|
(71,797 | ) | (55,175 | ) | ||||
|
Property
and equipment, net
|
$ | 178,174 | $ | 170,667 | ||||
Depreciation expense for property and
equipment was $11.1 million, $12.3 million, and $9.6 million, for the three
years ending December 31, 2007, 2006 and 2005, respectively.
Note 8 – Acquisitions and
Property Development
2007 Acquisitions and
Property Development
Acquisition of Consolidated
Cinemas
On
October 8, 2007, we entered into agreements to acquire leasehold interests in 15
cinemas then owned by Pacific Theatres Exhibition Corp. and its
affiliates. The cinemas, which are located in the United States,
contain 181 screens. The aggregate purchase price of the cinemas and
related assets is $69.3 million.
We subsequently closed on this
acquisition on February 22, 2008 (see Note 27 - Subsequent
Events). The acquisition was made through a wholly owned
subsidiary of RDI and was financed principally by a combination of debt
financing and seller financing.
New Zealand Property
Acquisitions
On July
27, 2007, we purchased through a Landplan Property Partners property trust a
64.0 acre parcel of undeveloped agricultural real estate for approximately $9.3
million (NZ$12.1 million). We intend to rezone the property from its
current agricultural use to commercial use, and thereafter to redevelop the
property in accordance with its new zoning. No assurances can be
given that such rezoning will be achieved, or if achieved, that it will occur in
the near term.
On June
29, 2007, we acquired a commercial property for $5.9 million (NZ$7.6 million),
rented to an unrelated third party, to be held for current income and long-term
appreciation. We have completed our purchase price allocation for
this property and the related acquired operating lease in accordance with SFAS
141 – Business
Combinations. The initial purchase price allocation was based
on the assets acquired from the seller. The purchase price allocation
for this acquisition is $1.2 million (NZ$1.6 million) allocated to land and $4.7
million (NZ$6.1 million) allocated to building.
On
February 14, 2007, we acquired, through a Landplan Property Partners property
trust, a 1.0 acre parcel of commercial real estate for approximately $4.9
million (NZ$6.9 million). The property was improved with a motel, but
we are currently renovating the property’s units to be
condominiums. A portion of this property includes unimproved land
that we do not intend to develop. This land was determined to have a
fair value of $1.8 million (NZ$2.6 million) at the time of purchase and is
included on our balance sheet as land held for sale. The remaining
property and its cost basis of $3.1 million (NZ$4.3 million) was included in
property under development. The operating activities of the motel are
not material. We have completed our purchase price allocation for
this property in accordance with SFAS 141 - Business
Combinations.
Cinemas 1, 2, & 3
Building
On June
28, 2007, we purchased the building associated with our Cinemas 1, 2, & 3
for $100,000 from Sutton Hill Capital (“SHC”). Our option to purchase
that building has been previously disclosed, and was granted to us by SHC at the
time that we acquired the underlying ground lease from SHC on June 1,
2005. As SHC is a related party to our corporation, our Board’s Audit
and Conflicts Committee, comprised entirely of outside independent directors,
and subsequently our entire Board of Directors unanimously approved the purchase
of the property. The Cinemas 1, 2 & 3 is located on 3rd Avenue
between 59th and 60th Streets in New York City.
Tower Ground
Lease
On February 8, 2007, we purchased the
tenant’s interest in the ground lease underlying the building lease for one of
our domestic cinemas. The purchase price of $493,000 was paid in two
installments; $243,000 was paid on February 8, 2007 and $250,000 was paid on
June 28, 2007. The purchase price for the ground lease is being
amortized to rent expense over the remaining ground lease term.
2006 Acquisitions and
Property Development
Indooroopilly
Land
On September 18, 2006, we purchased a
0.3 acre property for $1.8 million (AUS$2.3 million) as part of our newly
established Landplan Property Partners arrangement with Mr. Doug
Osborne. We have obtained approval to develop the property to be a
28,000 square foot grade A commercial office building comprising six floors of
office space and two basement levels of parking with 33 parking
spaces. We expect to spend US$8 million (AUS$9.4 million) in
development costs. We plan to complete the project in December
2008.
In July 2006, we entered into an
agreement with Mr. Doug Osborne pursuant to which (i) Mr. Osborne will serve as
the chief executive officer of our newly formed Australian subsidiary Landplan
Property Partners, Ltd (“LPP”) and (ii) Mr. Osborne’s affiliate, Landplan
Property Group, Ltd (“LPG”), will perform certain property management services
for LPP. LPP was formed to identify, acquire, develop, and operate
properties in Australia and New Zealand offering redevelopment possibilities
and, ultimately, to sell the resultant redeveloped properties. The
agreement provides for a base salary and an equity interest to Mr. Osborne in
these properties. Mr. Osborne’s ownership interest in these
properties, however, is subordinate to our right to an 11% compounded return on
investment and is subject to adjustment
depending upon his length of service and the amounts we invest. In
general, his ownership interest will range from 27.5% to 15% based on meeting
the defined service requirements and depending on our level of
investment. At December 31, 2006, Landplan had acquired one property
in Indooroopilly, Brisbane, Australia. With the purchase of the
Indooroopilly property, based on SFAS 123(R), we calculated the fair value of
Mr. Osborne’s equity interest in the Indooroopilly Trust at the grant date as
$77,000 (AUS$98,000) and we have expensed $49,000 (AUS$59,000) and $13,000
(AUS$17,000) of this value during the years ended December 31, 2007 and 2006,
respectively.
Moonee Ponds
Land
On September 1, 2006, we purchased two
parcels of land aggregating 0.4 acres adjacent to our Moonee Ponds property for
$2.5 million (AUS$3.3 million). This acquisition increases our
holdings at Moonee Ponds to 3.3 acres and gives us frontage facing the principal
transit station servicing the area. We are now in the planning
process of developing this property.
Berkeley
Cinemas
Additionally,
effective April 1, 2006, we purchased from our Joint Venture partner the 50%
share that we did not already own of the Palms cinema located in Christchurch,
New Zealand for cash of $2.6 million (NZ$4.1 million) and the proportionate
share of assumed debt which amounted to $987,000 (NZ$1.6
million). This 8-screen, leasehold cinema had previously been
included in our Berkeley Cinemas Joint Venture investment and was not previously
consolidated for accounting purposes. We drew down $4.8 million
(AUS$6.3 million) on our Australian Corporate Credit Facility to purchase the
Palms cinema and to payoff its bank debt of $2.0 million (NZ$3.1
million). We have finalized the purchase price allocation of this
acquisition, which resulted in a 50% step up in basis of assets acquired and
liabilities assumed, in accordance with SFAS No. 141 - Business
Combinations. A summary of the increased assets and
liabilities relating to this acquisition as recorded at estimated fair values is
as follows (dollars in thousands):
|
Palms
Cinema
|
||||
|
Assets
|
||||
|
Accounts
receivable
|
$ | 31 | ||
|
Inventory
|
11 | |||
|
Other
assets
|
8 | |||
|
Property
and equipment
|
1,430 | |||
|
Goodwill
|
2,310 | |||
|
Total assets
|
3,790 | |||
|
Liabilities
|
||||
|
Accounts
payable and accrued liabilities
|
178 | |||
|
Note
payable
|
987 | |||
|
Other
liabilities
|
12 | |||
|
Total
liabilities
|
1,177 | |||
|
Total
net assets
|
$ | 2,613 | ||
As a
result of these transactions, the only cinema held in the Berkeley Joint Venture
at December 31, 2006 was the Botany Downs cinema in suburban
Auckland.
Malulani Investments,
Ltd.
On June
26, 2006, we acquired for $1.8 million, an 18.4% interest in a private real
estate company with holdings principally in California, Texas and Hawaii,
including the Guenoc Winery and other land located in Northern
California.
Queenstown
Cinema
Effective
February 23, 2006, we purchased a 3-screen leasehold cinema in Queenstown, New
Zealand for $939,000 (NZ$1.4 million). Of this purchase price,
$647,000 (NZ$977,000) was allocated to the acquired fixed assets and $297,000
(NZ$448,000) was allocated to goodwill. We funded this acquisition
through internal sources.
Newmarket
ETRC
During the first quarter of 2006, we
completed the development and opened the remaining retail portion of an ETRC on
our 177,497 square foot parcel in Newmarket, a suburb of Brisbane, in
Queensland, Australia. The total construction costs for the site were
$26.7 million (AUS$34.2 million) including $1.4 million (AUS$1.9 million) of
capitalized interest. This project was primarily funded through our
$78.8 million (AUS$100.0 million) Australian Corporate Credit Facility with the
Bank of Western Australia, Ltd. As of December 31, 2007, this
property was 99% leased.
2005 Acquisitions and
Property Development
Newmarket
ETRC
During 2005, we developed and partially
opened the retail portion of an ETRC on our 177,497 square foot parcel in
Newmarket, a suburb of Brisbane, in Queensland, Australia. At
December 31, 2005, the remaining tenants were scheduled to take occupancy by
April 2006. Through December 31, 2005, the construction costs of the
site were $24.2 million (AUS$32.5 million) including $1.4 million (AUS$1.9
million) of capitalized interest. Most of this project was funded by a $23.8
million (AUS$32.7 million) construction loan with the Bank of Western Australia,
Ltd. As of December 31, 2005, the balance on this loan was $21.7
million (AUS$29.6 million) related to the construction on this
property.
Elizabeth
Cinema
During 2005, we developed the leasehold
interest in an 8-screen cinema in Adelaide, Australia. The cost to us
of the leasehold development was $2.2 million (AUS$2.9 million) and was funded
from internal sources.
Rialto
Cinemas
Effective
October 1, 2005, we purchased, indirectly, a beneficial ownership of 100% in the
stock of Rialto Entertainment for $4.8 million (NZ$6.9
million). Rialto Entertainment is a 50% joint venture partner with
Village Roadshow Ltd (“Village”) and SkyCity Leisure Ltd (“Sky”) in Rialto
Cinemas the largest art cinema circuit in New Zealand. The joint
venture owns or manages five cinemas with 22 screens in the New Zealand cities
of Auckland, Christchurch, Wellington, Dunedin and Hamilton.
Rialto
Distribution
Effective
October 1, 2005, we purchased for $694,000 (NZ$1.0 million) a 1/3 interest in
Rialto Distribution which we funded from internal sources. Rialto
Distribution, an unincorporated joint venture, is engaged in the business of
distributing art film in New Zealand and Australia.
Melbourne Office
Building
On
September 29, 2005, we purchased an office building in Melbourne, Australia for
$2.0 million (AUS$2.6 million) to serve as our Australia
headquarters. We fully financed this property by drawing on our
Australian Corporate Credit Facility.
Cinemas 1, 2 & 3 Ground
Lease
On
September 19, 2005, we acquired the tenant’s interest in the ground lease estate
that is currently between (i) our fee ownership of the underlying land and (ii)
our current possessory interest as the tenant in the building and improvements
constituting the Cinemas 1, 2 & 3 in Manhattan. This tenant’s
ground lease interest was purchased from Sutton Hill Capital LLC (“SHC”) for a
$9.0 million promissory note, bearing interest at a fixed rate of 8.25% and
maturing on December 31, 2010. As SHC is a related party to our
corporation, our Board’s Audit and Conflicts Committee, comprised entirely of
outside independent directors, and subsequently our entire Board of Directors
unanimously approved the purchase of the property (see Note 25 – Related Parties and
Transactions). The Cinemas 1, 2 & 3 is located on 3rd Avenue
between 59th and
60th
Streets.
The
acquisition of the tenant’s ground lease interest finalized the acquisition side
of a tax deferred exchange under Section 1031 of the Internal Revenue Code
designed to exchange our interest in our only non-entertainment oriented fee
property in the United States for the fee interest underlying our leasehold
estate in the Cinemas 1, 2 & 3. The acquisition of this tenant’s
ground lease interest and the Cinemas 1, 2, 3 Fee Interest described below have
resulted in a book value of approximately $23.9 million and a tax basis of $10.4
million (which includes $1.3 million of option fees paid in 2000 as part of the
City Cinemas Master Lease Agreement, see Note 10 – Goodwill and Intangible
Assets).
Cinemas 1, 2 & 3 Fee
Interest
On June
1, 2005, we acquired for $12.6 million the fee interest and the landlord’s
ground lease interest underlying our Cinemas 1, 2 & 3 property in Manhattan,
as a part of a tax deferred exchange under Section 1031 of the Internal Revenue
Code. The funds used for the acquisition came primarily from the sale
proceeds of our Glendale, California office building. As a result of
the acquisition of this fee interest, the landlord’s interest in the ground
lease and the tenant’s interest in the ground lease, our effective rental
expense with respect to the Cinemas 1, 2 & 3 and the Village East cinema has
decreased by approximately $1.0 million annually beginning September 30,
2005.
As part
of the purchase of this ground lease interest, we agreed in principal, as a part
of our negotiations to acquire the land and the SHC interests in the Cinemas 1,
2 & 3, to grant an option to Sutton Hill Capital, LLC, a limited liability
company beneficially owned in equal 50/50 shares by Messrs. James J. Cotter and
Michael Forman (see Note 25 – Related Parties and
Transactions) to acquire, at cost, up to a 25% non-managing membership
interest in the limited liability company that we formed to acquire these
interests. In relation to this option, we recorded $3.7 million and $1.0 million
as call option liabilities in our other liabilities at December 31, 2006 and
2005, respectively. In accordance with SFAS No. 141 – Business Combinations, the
purchase price allocation was finalized in the first quarter of
2006.
Note 9 – Discontinued
Operations and Disposals
2007
Transactions
In June
2007, upon the fulfillment of our commitment, we recorded the release of a
deferred gain on the sale of a discontinued operation of $1.9 million associated
with a previously sold property.
2006
Transactions
Berkeley Cinema
Group. On August 28, 2006, we sold to our joint venture
partner our interest in the cinemas at Whangaparaoa, Takapuna and Mission Bay,
New Zealand for $4.6 million (NZ$7.2 million) in cash and the assumption of $1.6
million (NZ$2.5 million) in debt. The sale resulted in a gain on sale
of unconsolidated joint venture for the year ended December 31, 2006 of $3.4
million (NZ$5.4 million).
2005
Transactions
Railroad
Properties
On
September 26, 2005, we sold certain surplus properties used in connection with
our historic railroad activities for cash totaling $515,000 resulting in a
nominal loss on sale.
Glendale
Building
On May 17, 2005, we
sold our Glendale office building in Glendale, California for $10.3 million cash
and $10.1 million of assumed debt resulting in a $12.0 million
gain. All the cash proceeds from the sale were used in the purchase
for $12.6 million of the Cinemas 1, 2 & 3 fee interest and of the landlord’s
interest in the ground lease, encumbering that land, as part of a tax-deferred
exchange under Section 1031 of the Internal Revenue Code.
For the
year ended December 31, 2005, we recorded the following results for the Glendale
building discontinued operations:
|
2005
|
||||
|
Revenue
|
$ | 1,103 | ||
|
Operating
expense
|
355 | |||
|
Depreciation
& amortization expense
|
51 | |||
|
General
& administrative expense
|
-- | |||
|
Operating
income
|
697 | |||
|
Interest
income
|
2 | |||
|
Interest
expense
|
312 | |||
|
Income
from discontinued operations before gain on sale
|
387 | |||
|
Gain
on sale
|
12,013 | |||
|
Total
income from discontinued operations
|
$ | 12,400 | ||
Puerto Rico Cinema
Operations
On June
8, 2005, we sold our assets and certain liabilities associated with our Puerto
Rico cinema operations for $2.3 million resulting in a $1.6 million
gain.
For the
year ended December 31, 2005, we recorded the following results for the Puerto
Rico discontinued operations:
|
2005
|
||||
|
Revenue
|
$ | 4,575 | ||
|
Operating
expense
|
5,752 | |||
|
Depreciation
& amortization expense
|
206 | |||
|
General
& administrative expense
|
383 | |||
|
Loss
from discontinued operations before gain on sale
|
(1,766 | ) | ||
|
Gain
on sale
|
1,597 | |||
|
Total
loss from discontinued operations
|
$ | (169 | ) | |
Note 10 – Goodwill and
Intangible Assets
Goodwill associated with our asset
acquisitions is tested for impairment in the third quarter with continued
evaluation through the fourth quarter of every year. Based on the
projected profits and cash flows of the related assets, it was determined that
there is no indication of impairment to our goodwill as of December 31, 2007 or
2006. Goodwill increased during the period primarily due to 2006
acquisitions discussed in Note 8 – Acquisitions and Property
Development. At December 31, 2007 and 2006, our goodwill
consisted of the following (dollars in thousands):
|
2007
|
Cinema
|
Real
Estate
|
Total
|
|||||||||
|
Balance
as of January 1, 2007
|
$ | 12,713 | $ | 5,206 | $ | 17,919 | ||||||
|
Foreign
currency translation adjustment
|
1,114 | 67 | 1,181 | |||||||||
|
Balance
at December 31, 2007
|
$ | 13,827 | $ | 5,273 | $ | 19,100 | ||||||
|
2006
|
Cinema
|
Real
Estate
|
Total
|
|||||||||
|
Balance
as of January 1, 2006
|
$ | 9,489 | $ | 5,164 | $ | 14,653 | ||||||
|
Goodwill
acquired during 2006
|
2,849 | -- | 2,849 | |||||||||
|
Foreign
currency translation adjustment
|
375 | 42 | 417 | |||||||||
|
Balance
at December 31, 2006
|
$ | 12,713 | $ | 5,206 | $ | 17,919 | ||||||
We have intangible assets subject to
amortization consisting of the following (dollars in thousands):
|
As
of December 31, 2007
|
Beneficial
Lease
|
Option
Fee
|
Other
Intangibles
|
Total
|
||||||||||||
|
Gross
carrying amount
|
$ | 12,295 | $ | 2,773 | $ | 238 | $ | 15,306 | ||||||||
|
Less:
Accumulated amortization
|
4,311 | 2,521 | 26 | 6,858 | ||||||||||||
|
Total, net
|
$ | 7,984 | $ | 252 | $ | 212 | $ | 8,448 | ||||||||
|
As
of December 31, 2006
|
Beneficial
Lease
|
Option
Fee
|
Other
Intangibles
|
Total
|
||||||||||||
|
Gross
carrying amount
|
$ | 10,984 | $ | 2,773 | $ | 219 | $ | 13,976 | ||||||||
|
Less:
Accumulated amortization
|
3,577 | 2,426 | 19 | 6,022 | ||||||||||||
|
Total, net
|
$ | 7,407 | $ | 347 | $ | 200 | $ | 7,954 | ||||||||
We
amortize our beneficial leases over the lease terms of up to twenty years and
our option fees over 10 years. For the years ended December 31, 2007,
2006 and 2005, our amortization expense totaled $836,000, $868,000, and $1.1
million, per year, respectively. The estimated amortization expense
in the five succeeding years and thereafter is as follows (dollars in
thousands):
|
Year
Ending December 31,
|
||||
|
2008
|
$ | 1,057 | ||
|
2009
|
1,057 | |||
|
2010
|
1,025 | |||
|
2011
|
962 | |||
|
2012
|
770 | |||
|
Thereafter
|
3,577 | |||
|
Total
future amortization expense
|
$ | 8,448 | ||
Note 11 – Investments in and
Advances to Unconsolidated Joint Ventures and Entities
Investments
in and advances to unconsolidated joint ventures and entities are accounted for
under the equity method of accounting except for Malulani Investments, Ltd. as
described below. As of December 31, 2007 and 2006, these investments
in and advances to unconsolidated joint ventures and entities include the
following (dollars in thousands):
|
December 31,
|
||||||||||||
|
Interest
|
2007
|
2006
|
||||||||||
|
Malulani
Investments
|
18.4 | % | $ | 1,800 | $ | 1,800 | ||||||
|
Rialto
Distribution
|
33.3 | % | 1,029 | 782 | ||||||||
|
Rialto
Cinemas
|
50.0 | % | 5,717 | 5,608 | ||||||||
|
205-209
East 57th
Street Associates, LLC
|
25.0 | % | 1,059 | 5,557 | ||||||||
|
Mt.
Gravatt
|
33.3 | % | 5,159 | 4,713 | ||||||||
|
Berkeley
Cinema – Group
|
50.0 | % | -- | -- | ||||||||
|
Berkeley
Cinemas – Palms & Botany
|
50.0 | % | 716 | 607 | ||||||||
|
Total
|
$ | 15,480 | $ | 19,067 | ||||||||
For the
years ending December 31, 2007, 2006 and 2005, we recorded our share of equity
earnings (loss) from our unconsolidated joint ventures and entities as
follows:
|
December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Rialto
Distribution
|
$ | 250 | $ | 25 | $ | 50 | ||||||
|
Rialto
Cinemas
|
(101) | (169 | ) | -- | ||||||||
|
205-209
East 57th
Street Associates, LLC
|
1,329 | 8,277 | (56 | ) | ||||||||
|
Mt.
Gravatt
|
793 | 648 | 501 | |||||||||
|
Berkeley
Cinema – Group
|
-- | 322 | 383 | |||||||||
|
Berkeley
Cinemas – Palms & Botany
|
274 | 444 | 494 | |||||||||
|
Total
|
$ | 2,545 | $ | 9,547 | $ | 1,372 | ||||||
Malulani Investments,
Ltd.
On June
26, 2006, we acquired for $1.8 million, an 18.4% interest in a private real
estate company with holdings principally in California, Texas and Hawaii,
including the Guenoc Winery and other land in Northern
California. This land and commercial real estate holdings are
encumbered by debt. We have been in contact with Malulani
Investments, Ltd. (“MIL”) and requested quarterly or annual operating
financials. To date, we have received no response to our request for
relevant financial information as described more fully in Note 19 – Commitments and
Contingencies. Based on this situation, we do not believe that
we can assert significant influence over the dealings of this
entity. As such and in accordance with FASB Interpretation No. 35 –
Criteria for Applying the
Equity Method of Accounting for Investments in Common Stock – an Interpretation
of APB Opinion No. 18, we are treating this investment on a cost basis by
recognizing earnings as they are distributed to us.
Rialto
Distribution
Effective
October 1, 2005, we purchased for $694,000 (NZ$1.0 million) a 1/3 interest in
Rialto Distribution. Rialto Distribution, an unincorporated joint
venture, is engaged in the business of distributing art film in New Zealand and
Australia. We own an undivided 1/3 interest in the assets and
liabilities of the joint venture and treat our interest as an equity method
interest in an unconsolidated joint venture.
Rialto
Cinemas
Effective
October 1, 2005, we purchased, indirectly, beneficial ownership of 100% of the
stock of Rialto Entertainment for $4.8 million (NZ$6.9
million). Rialto Entertainment is a 50% joint venture partner with
Village and Sky in Rialto Cinemas, the largest art cinema circuit in New
Zealand. We own an undivided 50% interest in the assets and
liabilities of the joint venture and treat our interest as an equity method
interest in an unconsolidated joint venture. The joint venture owns
or manages five cinemas with 22 screens in the New Zealand cities of Auckland,
Christchurch, Wellington, Dunedin and Hamilton.
As of
December 31, 2005, we were in dispute with our joint venture partner, which
precluded us from receiving timely financial reporting which required us to
treat our ownership of Rialto Cinemas on a cost basis. We resolved
the dispute and are receiving regular financial reporting on the results of the
cinemas. Also during the third quarter of 2006, we contributed an
additional $876,000 (NZ$1.4 million) to the partnership that was used to pay off
the bank loans owed by the cinemas.
205-209 East 57th Street Associates,
LLC
We own a
non-managing 25% membership interest in 205-209 East 57th Street
Associates, LLC a limited liability company formed to redevelop our former
cinema site at 205 East 57th Street
in Manhattan. During the first quarter of 2005, we increased our
investment by $719,000 in the 205-209 East 57th Street Associates, LLC to
maintain our 25% equity ownership in the joint venture in light of increased
budgeted construction costs.
During
2005, the project was only in its development stage which resulted in an equity
loss from unconsolidated joint venture of $125,000. In 2006, the
joint venture was able to close on the sales of 59 condominiums resulting in
gross sales of $117.7 million and equity earnings from unconsolidated joint
venture to us of $8.3 million. During 2007, this joint venture sold
the remaining eight condominiums resulting in gross sales of $25.4 million and
net equity earnings from this unconsolidated joint venture of $1.3
million. Only the commercial unit is still available for
sale. The condensed balance sheet and statement of operations of
205-209 East 57th Street Associates, LLC are as follows:
205-209
East 57th Street
Associates, LLC Condensed Balance Sheet Information:
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Current
assets
|
$ | 2,306 | $ | 4,456 | ||||
|
Non
current assets
|
3,126 | 18,488 | ||||||
|
Current
liabilities
|
857 | 2,187 | ||||||
|
Non
current liabilities
|
320 | -- | ||||||
|
Members’
equity
|
4,255 | 20,757 | ||||||
205-209
East 57th Street
Associates, LLC Condensed Statements of Operations Information:
|
December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Total
revenue
|
$ | 25,673 | $ | 117,708 | $ | -- | ||||||
|
Net
income
|
6,805 | 33,106 | (500 | ) | ||||||||
Mt.
Gravatt
We own an
undivided 1/3 interest in Mt. Gravatt, an unincorporated joint venture that owns
and operates a 16-screen multiplex cinema in Australia. The condensed
balance sheet and statement of operations of Mt. Gravatt are as
follows:
Mt.
Gravatt Condensed Balance Sheet Information:
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Current
assets
|
$ | 1,458 | $ | 1,195 | ||||
|
Non
current assets
|
3,421 | 3,228 | ||||||
|
Current
liabilities
|
825 | 550 | ||||||
|
Noncurrent
liabilities
|
49 | 40 | ||||||
|
Members’
equity
|
4,005 | 3,833 | ||||||
Mt.
Gravatt Condensed Statements of Operations Information:
|
December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Total
revenue
|
$ | 10,603 | $ | 9,078 | $ | 8,739 | ||||||
|
Net
income
|
2,381 | 1,946 | 1,505 | |||||||||
Berkeley Cinemas - Group and
Berkeley Cinemas –Palms & Botany
We
previously had investments in three joint ventures with Everard Entertainment
Ltd in New Zealand (the “NZ JVs”). We entered into the first joint
venture in 1998, the second in 2003, and the third in 2004. These
joint ventures were unincorporated and as such, we own an undivided 50% interest
in the assets and liabilities of each of the joint ventures and treat our
interest as an equity method interest in an unconsolidated joint
venture.
On August
28, 2006, we sold to our joint venture partner our interest in the cinemas at
Whangaparaoa, Takapuna and Mission Bay, New Zealand, the Berkeley Cinema Group
for $4.6 million (NZ$7.2 million) in cash and the assumption of $1.6 million
(NZ$2.5 million) in debt. The sale resulted in a gain on sale of
unconsolidated joint venture for the year ending December 31, 2006 of $3.4
million (NZ$5.4 million). The condensed statement of operations for
the Berkeley Cinema Group is as follows (dollars in thousands):
Berkeley
Cinemas - Group Condensed Statements of Operations Information:
|
December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Total
revenue
|
$ | -- | $ | 3,440 | $ | 5,292 | ||||||
|
Net
income
|
-- | 644 | 765 | |||||||||
Additionally,
effective April 1, 2006, we purchased from our Joint Venture partner the 50%
share that we did not already own of the Palms cinema located in Christchurch,
New Zealand for cash of $2.6 million (NZ$4.1 million) and the proportionate
share of assumed debt which amounted to $987,000 (NZ$1.6
million). This 8-screen, leasehold cinema had previously been
included in our Berkeley Cinemas – Palms & Botany investment and was not
previously consolidated for accounting purposes. Subsequent to April
1, 2006, we have consolidated this entity into our financial
statements. See Note 8 – Acquisitions and Property
Development.
As of
December 31, 2007, the only remaining cinema owned by this joint venture is the
Botany Downs cinema, located in suburban Auckland.
Combined Condensed Financial
Information
The
combined condensed financial information for all of the above unconsolidated
joint ventures and entities accounted for under the equity method is as follows;
therefore, this only excludes Malulani Investments (dollars in
thousands):
Condensed
Balance Sheet Information (Unaudited):
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Current
assets
|
$ | 11,005 | $ | 10,153 | ||||
|
Non
current assets
|
15,034 | 30,573 | ||||||
|
Current
liabilities
|
6,289 | 5,004 | ||||||
|
Non
current liabilities
|
3,550 | 4,109 | ||||||
|
Member’s
equity
|
16,200 | 31,613 | ||||||
Condensed
Statements of Operations Information (Unaudited):
|
December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Total
revenue
|
$ | 53,440 | $ | 135,675 | $ | 34,156 | ||||||
|
Net
income
|
10,247 | 35,697 | 4,484 | |||||||||
Note 12 - Notes
Payable
Notes
payable are summarized as follows (dollars in thousands):
|
December 31,
|
December 31,
|
||||||||||||||||
|
Name
of Note Payable
|
2007
Interest
Rate
|
2006
Interest
Rate
|
Maturity
Date
|
2007
Balance
|
2006
Balance
|
||||||||||||
|
Australian
Corporate Credit Facility
|
7.75 | % | 7.33 | % |
January
1, 2009
|
$ | 85,772 | $ | 70,516 | ||||||||
|
Australian
Shopping Center Loans
|
-- | -- |
2007-2013
|
1,066 | 1,147 | ||||||||||||
|
Euro-Hypo
Loan
|
6.73 | % | -- |
July
1, 2012
|
15,000 | -- | |||||||||||
|
New
Zealand Corporate Credit Facility
|
10.10 | % | 9.15 | % |
November
23, 2010
|
2,488 | 35,230 | ||||||||||
|
Trust
Preferred Securities
|
9.22 | % | -- |
April
30, 2027
|
51,547 | -- | |||||||||||
|
US
Royal George Theatre Term Loan
|
-- | 7.86 | % |
November
29, 2007
|
-- | 1,819 | |||||||||||
|
US
Sutton Hill Capital Note 1 – Related Party
|
9.91 | % | 9.69 | % |
July
28, 2008
|
5,000 | 5,000 | ||||||||||
|
US
Sutton Hill Capital Note 2 – Related Party
|
8.25 | % | 8.25 | % |
December
31, 2010
|
9,000 | 9,000 | ||||||||||
|
US
Union Square Theatre Term Loan
|
6.26 | % | 6.26 | % |
January
1, 2010
|
7,322 | 7,500 | ||||||||||
|
Total Notes
Payable
|
$ | 177,195 | $ | 130,212 | |||||||||||||
Australia
Australian Corporate Credit
Facility
As
prescribed by the credit agreement, during 2006, our Australian Corporate Credit
Facility with the Bank of Western Australia, Ltd through our Australian
subsidiary, Reading Entertainment Australia Pty Ltd (the “Australia Credit
Facility”) was combined with our Newmarket Construction Loan upon completion of
the retail portions of our Newmarket ETRC. In October 2007, we
negotiated an increase of our total borrowing limit of the Australia Corporate
Credit Facility from $87.8 million (AUS$100.0 million) to $96.5 million
(AUS$110.0 million). At December 31, 2007, we had drawn a total of
$85.8 million (AUS$97.7 million) against this facility and issued lease
guarantees as the lessee of $3.2 million (AUS$4.0 million) leaving an available,
undrawn balance of $7.2 million (AUS$8.3 million). Effective
September 30, 2006, we renegotiated the payment terms of this facility such that
it is unlikely that we will be required to make any further principal payments
on the loan until the facility comes to term on January 1, 2009. Interest
payments for this loan are required on a quarterly basis.
During
2006, we drew down $4.8 million (AUS$6.3 million) to purchase the Palms –
Christchurch Cinema and to payoff the Palms – Christchurch Cinema
bank debt (see Note 8 – Acquisitions and Property
Development), $2.2 million (AUS$3.0 million) to purchase a 0.4 acre
commercial site adjacent to our Moonee Ponds property in Melbourne, Australia,
$1.6 million (AUS$2.2 million) to purchase a commercial development in
Indooroopilly a suburb of Brisbane, Australia, and $1.1 million (AUS$1.4
million) to make capital improvements to our existing cinema
sites. Additionally, we drew down $2.3 million (AUS$3.1 million) on
our Newmarket Construction Loan used to finance the completion of the retail
portions of our Newmarket Shopping Centre development in Brisbane,
Australia.
This
credit facility is secured by substantially all of our cinema assets in
Australia, and is only guaranteed by several of our wholly owned Australian
subsidiaries. The credit facility includes a number of affirmative
and negative covenants designed to protect the Bank’s security
interests. The most restrictive covenant of the facility is a
limitation on the total amount that we are able to drawdown based on the total
assets that are securing the loan. Our Australian Credit Facility
provides for floating interest rates based on the Bank Bill Swap Bid Rate (BBSY
bid rate), but requires that not less than 70% of the loan be swapped into fixed
rate obligations. For further information regarding our swap
agreements, see Note 13 – Derivative
Instruments. All interest rates above include a 1.00% interest
rate margin.
Fair Value of Interest Rate
Swap Agreements
In
accordance with SFAS No. 133, we marked our Australian interest rate swap
instruments to market resulting in an $320,000 (AUS$338,000) decrease, an
$845,000 (AUS$1.1 million) decrease, and a $171,000 (AUS$180,000) increase to
interest expense during 2007, 2006 and 2005, respectively (See Note 13 – Derivative
Instruments).
Australian Shopping Center
Loans
As part
of the Anderson Circuit, in July 2004, we assumed the three loans on the
properties of Epping, Rhodes, and West Lakes. The total amount
assumed on the transaction date was $1.5 million (AUS$2.1 million) and the loans
carry no interest as long as we make timely principal payments of approximately
$280,000 (AUS$320,000) per year. The balance of these loans at
December 31, 2007 and 2006 was $1.1 million (AUS$1.2 million) and $1.1 million
(AUS$1.4 million), respectively. Early repayment is possible without
penalty. The only recourse on default of these loans is the security
on the properties. During 2007, we have not paid $88,000
(AUS$100,000) of principal
payments
on the West Lakes loan due to a dispute that we have with the
landlord. We are currently in the process of resolving this
dispute.
New
Zealand
Corporate Credit
Facility
On June
29, 2007, we finalized the renegotiation of our New Zealand Corporate Credit
Facility as a $46.4 million (NZ$60.0 million) line of credit. This
renegotiated agreement carries the same terms as the previous agreement except
that it is now a line of credit instead of term debt, the maturity date has been
extended by one year to November 23, 2010, the interest rate for the facility is
based on the 90-day Bank Bill Bid Rate (BBBR) plus a 1.00% margin, and a 0.20%
line charge will be incurred on the total line of credit of $46.4 million
(NZ$60.0 million). The agreement calls for principal payments to be
deferred until February 2009 after which we will be required to make quarterly
principal payments of $750,000 until the loan comes due in on November 23,
2010. The facility is secured by substantially all of our New Zealand
assets, but has not been guaranteed by any entity other than several of our New
Zealand subsidiaries. The facility includes various affirmative and
negative covenants designed to protect the bank’s security, limits capital
expenditures and the repatriation of funds out of New Zealand without the
approval of the bank. Also included in the restrictive covenants of
the facility is the restriction of transferring funds from subsidiary to
parent. Interest payments for this loan are required on a monthly
basis.
During the February 2007, we paid off
our term debt of this facility of $34.4 million (NZ$50.0 million) as a use of
the proceeds from our new Subordinated Notes from Reading International Trust
I. On June 29, 2007, we drew down on this line of credit by $5.2
million (NZ$6.7 million) to purchase a property in New Zealand and on July 29,
2007 we drew down an additional $9.4 million (NZ$12.2 million) to purchase the
Manukau property in New Zealand (see Note 8 – Acquisitions and
Dispositions). On August 2, 2007, we paid down this facility
by $12.0 million (NZ$15.7 million) from the proceeds of the sale of certain
marketable securities.
Movieland Note
Payable
On February 27, 2006, we paid off the
balance of our New Zealand Movieland Note Payable which we had issued in August
2004 in connection with the purchase of our Movieland Circuit. The
balance of the purchase money promissory note was paid in full for $520,000
(NZ$784,000) plus $14,000 (NZ$22,000) of accrued interest.
Domestic
Subordinated Notes – Reading
International Trust I
On
February 5, 2007, we issued $51.5 million in 20-year fully subordinated notes to
a trust which we control, and which in turn issued $51.5 million in
securities. Of the $51.5 million, $50.0 million in trust preferred
securities were issued to unrelated investors in a private placement and $1.5
million of common trust securities were issued by the trust to
Reading. This $1.5 million is shown on our balance sheet as
“Investment in Reading International Trust I.” The interest on the
notes and preferred dividends on the trust securities carry a fixed rate for
five years of 9.22% after which the interest will be based on an adjustable rate
of LIBOR plus 4.00% unless we exercise our right to refix the rate at the
current market rate at that time. There are no principal payments due
until maturity in 2027 when the notes and the trust securities are scheduled to
be paid in full. We may pay off the debt after the first five years
at 100.0% of the principal amount without any penalty. The trust is
essentially a pass through, and the transaction is accounted for on our books as
the issuance of fully subordinated notes. The credit facility
includes a number of affirmative and negative covenants designed to monitor our
ability to service the debt. Currently, the most restrictive covenant
of the facility requires that we must maintain a fixed charge coverage ratio at
a certain level. The placement generated $49.9 million in net
proceeds, which were used principally to make our investment in the common trust
securities of $1.5 million, to retire all of our bank indebtedness in New
Zealand of $34.4 million (NZ$50.0 million) and to retire a portion of our bank
indebtedness in Australia of $5.8 million (AUS$7.4 million). During
the year ended December 31, 2007, we paid $3.4 million in preferred dividends to
the unrelated investors which is included in interest expense. At
December 31, 2007, we had preferred dividends payable of $768,000. Interest
payments for this loan are required every three months.
Sutton Hill Capital Note 1 -
City Cinemas Standby Credit Facility
In
connection with the City Cinemas Transaction, we undertook to lend SHC up to
$28.0 million commencing in July 2007. With the release of the Murray
Hill cinema from the Operating Lease in February 2002, this
obligation
decreased
to $18.0 million. As more fully described in Note 26 – Related Parties and
Transactions, the City Cinemas Standby Credit Facility, in connection
with the sale of the Sutton Property, the Operating Lease was further reduced by
$5.0 million from $18.0 million to $13.0 million and the draw down date was
changed to the earlier of October 2005 or the payment of the Sutton Purchase
Money Note.
Prior to
the sale of the Sutton Property in 2003, our funding obligation under the City
Cinemas Standby Credit Facility was not recorded on our Consolidated Balance
Sheet. Instead, it was disclosed as an off balance sheet future loan
commitment. Following the October 2003 sale of the Sutton Property,
this loan commitment was recorded as an “other non-current liability” on our
Consolidated Balance Sheet. On September 14, 2004, the Sutton
Purchase Money Note was paid, and $13.0 million of the proceeds were called by
SHC as the final drawdown of the City Cinemas Standby Credit
Facility.
On
September 14, 2004, we issued a $5.0 million promissory note to SHC which
carries an interest rate at December 31, 2007 of 9.91% per annum with interest
only payments payable monthly and a balloon principal payment due on the loan
maturity date. The loan maturity date has been extended twice and is
currently July 28, 2008. We used the proceeds to in part invest in
205-209 East 57th Street
Associates, LLC a limited liability company formed to redevelop our former
cinema site at 205 East 57th Street
in Manhattan. Interest payments for this loan are required on a
monthly basis.
Royal George Theatre Term
Loan
On November 29, 2002, we entered into a
$2.5 million loan agreement with a financial institution, secured by our Royal
George Theatre in Chicago, Illinois. The loan was a 5-year term loan
that accrues a variable interest rate payable monthly in
arrears. Pursuant to the credit agreement, we paid off this loan
balance as a final balloon payment of $1.7 million in November
2007.
Sutton Hill Capital Note
2
On
September 19, 2005, we issued a $9.0 million promissory note, bearing interest
at a fixed rate of 8.25% with interest only payments payable monthly and a
balloon principal payment due on December 31, 2010, the loan maturity date, in
exchange for the tenant’s interest in the ground lease estate that is currently
between (i) our fee ownership of the underlying land and (ii) our current
possessory interest as the tenant in the building and improvements constituting
the Cinemas 1, 2 & 3 in Manhattan. This tenant’s ground lease
interest was purchased from Sutton Hill Capital LLC (“SHC”). As SHC
is a related party to our corporation, our Board’s Audit and Conflicts
Committee, comprised entirely of outside independent directors, and subsequently
our entire Board of Directors unanimously approved issuance of debt in
connection with the purchase of the property. The Cinemas 1, 2 &
3 is located on 3rd Avenue
between 59th and
60th
Streets. Interest payments for this loan are required on a monthly
basis.
Union Square Theatre Term
Loan
On December 4, 2006, we renegotiated
our loan agreement which is secured by our Union Square Theatre in
Manhattan. The new loan increased our borrowing amount from $3.2
million to $7.5 million and reduced our annual interest rate from 7.31% to
6.26%. This three-year term loan requires monthly scheduled principal
and interest payments. We owed $7.3 million and $7.5 million on this
term loan for the years ended December 31, 2007 and 2006,
respectively. While this loan is structured as a limited recourse
liability (the only collateral being our Union Square building and the tenant
leases with respect to that building), this limited recourse structure is
somewhat offset by our inter-company obligation under the lease of the live
theater portion of the building, which provides for an annual rent of
$546,000. Interest payments for this loan are required on a monthly
basis.
Euro-Hypo
Loan
On June
28, 2007, Sutton Hill Properties LLC (“SHP”), one of our consolidated
subsidiaries, entered into a $15.0 million loan that is secured by SHP’s
interest in the Cinemas 1, 2, & 3 land and building. SHP is owned
75% by Reading and 25% by Sutton Hill Capital, LLC (“SHC”), a joint venture
indirectly wholly owned by Mr. James J. Cotter, our Chairman and Chief Executive
Officer, and Mr. Michael Forman. Under the terms of the credit
agreement, this loan bears a fixed interest rate of 6.73% per annum payable
monthly. The loan matures on July 1, 2012. No principal
payments are due until maturity. SHP distributed the proceeds of the
loan to Reading and to SHC in the amount of $10.6 million and $3.5 million,
respectively. Because, the cash flows from SHP are currently
insufficient to cover its obligations, Reading and Sutton Hill Capital, LLC,
have agreed to contribute the capital required to service the
debt. Reading will be responsible for 75% and SHC will be responsible
for 25% of such capital payments. Interest payments for this loan are
required on a monthly basis.
UBS Financial Services Line
of Credit
In order to finance a portion of our
purchases of marketable securities, we had arranged a line of credit (a broker
margin account) with UBS Financial Services, Inc. which carried an interest rate
of 7.25%. The line of credit was secured by the marketable securities
which we purchased on the account. Under the line of credit, we were
able to borrow approximately 50% of the market value of our securities in our
UBS account. During the second quarter of 2007, we paid off this line
of credit in conjunction with our sale of the associated marketable
securities.
Summary of Notes
Payable
Our aggregate future principal loan
payments are as follows (dollars in thousands):
|
Year
Ending December 31,
|
||||
|
2008
|
$ | 5,395 | ||
|
2009
|
88,470 | |||
|
2010
|
16,257 | |||
|
2011
|
176 | |||
|
2012
|
15,132 | |||
|
Thereafter
|
51,765 | |||
|
Total
future principal loan payments
|
$ | 177,195 | ||
Since approximately $89.3 million of
our total debt of $177.2 million at December 31, 2007 consisted of debt
denominated in Australian and New Zealand dollars, the U.S dollar amounts of
these repayments will fluctuate in accordance with the relative values of these
currencies.
Note 13 – Derivative
Instruments
We are
exposed to interest rate changes from our outstanding floating rate
borrowings. We manage our fixed to floating rate debt mix to mitigate
the impact of adverse changes in interest rates on earnings and cash flows and
on the market value of our borrowings. From time to time, we may
enter into interest rate hedging contracts which effectively convert a portion
of our Australian dollar and/or New Zealand dollar denominated variable rate
debt to a fixed rate over the term of the interest rate swap. In the
case of our Australian borrowings, we are presently required to swap no less
than 70% of our drawdowns under our Australian Corporate Credit Facility into
fixed interest rate obligations.
The
following table sets forth the terms of our interest rate swap derivative
instruments at December 31, 2007:
|
Type of Instrument
|
Notional Amount
|
Pay Fixed Rate
|
Receive Variable Rate
|
Maturity Date
|
|||||||||
|
Interest
rate swap
|
$ | 15,138,000 | 6.4400 | % | 6.9350 | % |
January
1, 2009
|
||||||
|
Interest
rate swap
|
$ | 23,322,000 | 6.6800 | % | 6.9350 | % |
January
1, 2009
|
||||||
|
Interest
rate swap
|
$ | 10,685,000 | 5.5800 | % | 6.9350 | % |
January
1, 2009
|
||||||
|
Interest
rate swap
|
$ | 3,072,000 | 6.3600 | % | 6.9350 | % |
January
1, 2009
|
||||||
|
Interest
rate swap
|
$ | 3,072,000 | 6.9600 | % | 6.9350 | % |
January
1, 2009
|
||||||
|
Interest
rate swap
|
$ | 2,457,000 | 7.0000 | % | 6.9350 | % |
January
1, 2009
|
||||||
|
Interest
rate swap
|
$ | 1,220,000 | 7.1900 | % | 6.9350 | % |
January
1, 2009
|
||||||
|
Interest
rate swap
|
$ | 2,466,000 | 7.5900 | % | n/a |
January
1, 2009
|
|||||||
In
accordance with SFAS No. 133 - Accounting for Derivative
Instruments and Hedging Activities, we marked our Australian interest
swap instruments to market on the consolidated balance sheet resulting in a
$320,000 (AUS$338,000) decrease to interest expense during 2007, an $845,000
(AUS$1.1 million) decrease to interest expense during 2006, and a $171,000
(AUS$180,000) increase to interest expense during 2005. At December
31, 2007 and 2006, we recorded the fair market value of our interest rate swaps
at $526,000 (AUS$600,000) and $206,000 (AUS$261,000) as an other long-term
asset. The swap with a notional amount of $2,466,000 does not have a
Receive Variable Rate because we had not drawn on the facility as of December
31, 2007. In accordance with SFAS No. 133, we have not designated any
of our current interest rate swap positions as financial reporting
hedges.
Note 14 - Income
Taxes
Income
(loss) before income tax expense includes the following (dollars in
thousands):
|
Year Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
United
States
|
$ | 737 | $ | (4,460 | ) | $ | (1,863 | ) | ||||
|
Foreign
|
(3,347 | ) | (2,403 | ) | 2,689 | |||||||
|
Income
(loss) before income tax expense and equity earnings of unconsolidated
joint ventures and entities
|
$ | (2,610 | ) | $ | (6,863 | ) | $ | 826 | ||||
|
Equity earnings and gain on
sale of unconsolidated subsidiary:
|
||||||||||||
|
United
States
|
1,328 | 8,277 | (56 | ) | ||||||||
|
Foreign
|
1,217 | 4,712 | 1,428 | |||||||||
|
Income
(loss) before income tax expense
|
$ | (65 | ) | $ | 6,126 | $ | 2,198 | |||||
Significant
components of the provision for income taxes are as follows (dollars in
thousands):
|
Year Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Current
income tax expense
|
||||||||||||
|
Federal
|
$ | 510 | $ | 688 | $ | 444 | ||||||
|
State
|
511 | 409 | 186 | |||||||||
|
Foreign
|
1,017 | 1,173 | 579 | |||||||||
|
Total
|
2,038 | 2,270 | 1,209 | |||||||||
|
Deferred
income tax expense
|
||||||||||||
|
Federal
|
-- | -- | -- | |||||||||
|
State
|
-- | -- | -- | |||||||||
|
Foreign
|
-- | -- | -- | |||||||||
|
Total
|
-- | -- | -- | |||||||||
|
Total
income tax expense
|
$ | 2,038 | $ | 2,270 | $ | 1,209 | ||||||
Deferred
income taxes reflect the net tax effect of “temporary differences” between the
financial statement carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
components of the deferred tax liabilities and assets are as follows (dollars in
thousands):
|
December 31,
|
||||||||
|
Components
of Deferred Tax Assets and Liabilities
|
2007
|
2006
|
||||||
|
Deferred
Tax Assets:
|
||||||||
|
Net
operating loss carry forwards
|
$ | 43,215 | $ | 46,573 | ||||
|
Impairment
reserves
|
1,142 | 1,060 | ||||||
|
Alternative
minimum tax carry forwards
|
3,714 | 3,624 | ||||||
|
Installment
sale of cinema property
|
5,070 | 5,070 | ||||||
|
Other
|
10,477 | 6,781 | ||||||
|
Total Deferred Tax
Assets
|
63,618 | 63,108 | ||||||
|
Deferred
Tax Liabilities:
|
||||||||
|
Acquired
and option properties
|
6,408 | 6,890 | ||||||
|
Net
deferred tax assets before valuation allowance
|
57,210 | 56,218 | ||||||
|
Valuation
allowance
|
(57,210 | ) | (56,218 | ) | ||||
|
Net
deferred tax asset
|
$ | -- | $ | -- | ||||
In
accordance with SFAS 109, we record net deferred tax assets to the extent we
believe these assets will more likely than not be realized. In making
such determination, we consider all available positive and negative evidence,
including scheduled reversals of deferred tax liabilities, projected future
taxable income, tax planning strategies and
recent
financial performance. SFAS 109 presumes that a valuation allowance
is required when there is substantial negative evidence about realization of
deferred tax assets, such as a pattern of losses in recent years, coupled with
facts that suggest such losses may continue. Because of such negative
evidence available for the U.S. and other countries, as of December 31, 2007 we
recorded a full valuation allowance of $57.2 million.
As of
December 31, 2007, we had the following U.S. net operating loss carry forwards
(dollars in thousands):
|
Expiration
Date
|
Amount
|
|||
|
2018
|
$ | 4 | ||
|
2019
|
1,320 | |||
|
2021
|
2,718 | |||
|
2022
|
1,636 | |||
|
2025
|
28,345 | |||
|
Total
net operating loss carryforwards
|
$ | 34,023 | ||
In addition to the above net operating
loss carryforwards having expiration dates, we have the following carryforwards
that have no expiration date at December 31, 2007:
|
|
·
|
approximately
$3.7 million in alternative minimum tax credit
carryforwards;
|
|
|
·
|
approximately
$54.6 million in Australian loss carry forwards;
and
|
|
|
·
|
approximately
$1.2 million in New Zealand loss
carryforwards.
|
We disposed of our Puerto Rico
operations during 2005 and plan no further investment in Puerto Rico for the
foreseeable future. We have approximately $31.3 million in Puerto
Rico loss carry forwards expiring no later than 2014. No material
future tax benefits from Puerto Rico loss carry forwards can be recognized by
the Company unless it re-enters the Puerto Rico market.
We expect no other substantial
limitations on the future use of U.S. or foreign loss carry forwards except for
reductions in unused U.S. loss carry forwards that may occur in connection with
the 1996 Tax Audit described in Note 18 - Commitments and
Contingencies.
U.S.
income taxes have not been recognized on the temporary differences between book
value and tax basis of investment in foreign subsidiaries. These
differences become taxable upon a sale of the subsidiary or upon distribution of
assets from the subsidiary to U.S. shareholders. We expect neither of
these events will occur in the foreseeable future for any of our foreign
subsidiaries.
The
provision for income taxes is different from amounts computed by applying U.S.
statutory rates to consolidated losses before taxes. The significant
reason for these differences follows (dollars in thousands):
|
Year Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Expected
tax provision (benefit)
|
$ | (23 | ) | $ | 2,149 | $ | 769 | |||||
|
Reduction
(increase) in taxes resulting from:
|
||||||||||||
|
Change in valuation
allowance
|
992 | (2,366 | ) | (596 | ) | |||||||
|
Foreign tax
provision
|
1,017 | 1,173 | 579 | |||||||||
|
Tax effect of foreign tax rates
on current income
|
(60 | ) | 425 | 740 | ||||||||
|
State and local tax
provision
|
511 | 409 | 186 | |||||||||
|
Other items
|
(399 | ) | 480 | (469 | ) | |||||||
|
Actual
tax provision
|
$ | 2,038 | $ | 2,270 | $ | 1,209 | ||||||
Pursuant
to APB No.23, Accounting for Income Taxes -
Special Areas, a provision should be made for the tax effect of earnings
of foreign subsidiaries which are not permanently invested outside the United
States. Our intent is that earnings of our foreign subsidiaries are
not permanently invested outside the United States. No current or
cumulative earnings were available for distribution in the Reading Australia
consolidated group of subsidiaries or in the Puerto Rico subsidiary as of
December 31, 2007. The Reading New Zealand consolidated group of
subsidiaries did not generate earnings in 2007, but has cumulative earnings
available for distribution. We have provided $280,000 in foreign
withholding taxes connected with these retained earnings.
We have
accrued $15.5 million in income tax liabilities as of December 31, 2007, of
which $10.0 million have been classified as income taxes payable and $5.5
million have been classified as other non-current liabilities. As
part of income taxes payable, we have accrued $4.5 million as a probable loss in
connection with the “Appeal of IRS Deficiency Notices” and we believe that the
possible total settlement amount will be between $4.5 million and $52.8 million
(see Note 19 – Commitments and
Contingencies). We believe these amounts represent an adequate
provision for our income tax exposures, including income tax contingencies
related to foreign withholding taxes described in Note 15 – Other
Liabilities.
The
following table is a summary of the activity related to unrecognized tax
benefits for the year ending December 31, 2007 (dollars in
thousands):
|
Year Ended December 31,
2007
|
||||
|
Unrecognized
tax benefits – beginning balance
|
$ | 10,857 | ||
|
Gross
increases – prior period tax provisions
|
47 | |||
|
Gross
decreases – prior period tax positions
|
-- | |||
|
Gross
increases – current period tax positions
|
513 | |||
|
Settlements
|
-- | |||
|
Statute
of limitations lapse
|
-- | |||
|
Unrecognized
tax benefits – ending balance
|
$ | 11,417 | ||
We
adopted FASB Interpretation (FIN) 48 on January 1, 2007. As a result,
we recognized a $509,000 cumulative increase to reserves for uncertain tax
positions, which was accounted for as an adjustment to the beginning balance of
accumulated deficit in 2007. As of that date, we also reclassified
approximately $4.0 million in reserves from current taxes liabilities to
noncurrent tax liabilities. Interest and/or penalties related to
income tax matters are recorded as part of income tax expense. We had
approximately $10.8 million of gross tax benefits and $1.7 million of tax
interest unrecognized on the financial statements as of the date of adoption,
mostly reflecting operating loss carry forwards and the IRS litigation matter
described below. Of the $12.5 million total gross unrecognized tax
benefits at January 1, 2007, $4.5 million would impact the effective tax rate if
recognized. The remaining balance consists of items that would not
impact the effective tax rate due to the existence of the valuation
allowance. We recorded an increase to our gross unrecognized tax
benefits of approximately $0.6 million and an increase to tax interest of
approximately $0.6 million during the period January 1, 2007 to December 31,
2007, and the total balance at December 31, 2007 was approximately
$13.7
million.
The
incremental effects of applying FIN 48 on line items in the accompanying
consolidated balance sheet at January 1, 2007 were as follows (dollars in
thousands):
|
Before
Application of FIN 48 on January 1, 2007
|
FIN
48 Adjustments as of January 1, 2007
|
After
Application of FIN 48 on January 1, 2007
|
||||||||||
|
Current
tax liabilities
|
$ | 9,128 | $ | (4,000 | ) | $ | 5,128 | |||||
|
Noncurrent
tax liabilities
|
$ | -- | $ | 4,509 | $ | 4,509 | ||||||
|
Accumulated
deficit
|
$ | (50,058 | ) | $ | (509 | ) | $ | (50,567 | ) | |||
Our
company and subsidiaries are subject to U.S. federal income tax, income tax in
various U.S. states, and income tax in Australia, New Zealand, and Puerto
Rico.
Generally,
changes to our federal and most state income tax returns for the calendar year
2003 and earlier are barred by statutes of limitations. Certain
domestic subsidiaries filed federal and state tax returns for periods before
these entities became consolidated with us. These subsidiaries were
examined by IRS for the years 1996 to 1999 and significant tax deficiencies were
assessed for those years. We are contesting these deficiencies in Tax
Court. Our income tax returns of Australia filed since inception in
1995 are open for examination. The income tax returns filed
in
New
Zealand and Puerto Rico for calendar year 2002 and afterward generally remain
open for examination as of December 31, 2007. The income tax returns
of certain New Zealand subsidiaries are under examination for years 2002 through
2004. We anticipate the results of this examination will have no
material effect on our financial reporting.
We do not
anticipate that within 12 months following December 31, 2007 our total
unrecognized tax benefits will change significantly because of settlement of
audits and expiration of statutes of limitations.
Note 15 – Other
Liabilities
Other
liabilities are summarized as follows (dollars in thousands):
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Current
liabilities
|
||||||||
|
Security deposit
payable
|
$ | 168 | $ | 177 | ||||
|
Other
|
1 | -- | ||||||
|
Other current
liabilities
|
$ | 169 | $ | 177 | ||||
|
Other
liabilities
|
||||||||
|
Foreign withholding
taxes
|
$ | 5,480 | $ | 5,212 | ||||
|
Straight-line rent
liability
|
3,783 | 3,693 | ||||||
|
Option
liability
|
-- | 3,681 | ||||||
|
Environmental
reserve
|
1,656 | 1,656 | ||||||
|
Accrued pension
|
2,626 | -- | ||||||
|
Option deposit
|
-- | 3,000 | ||||||
|
Other
|
1,391 | 936 | ||||||
|
Other
liabilities
|
$ | 14,936 | $ | 18,178 | ||||
Sutton Hill Capital –
Cinemas 1, 2, & 3 Purchase Option
As part of the purchase of the real
property underlying our leasehold interest in the Cinemas 1, 2, & 3 on June
1, 2005, we granted a purchase option to Sutton Hill Capital, LLC (“SHC”), a
limited liability company beneficially owned in equal 50/50 shares by Messrs.
James J. Cotter and Michael Forman, to acquire at the acquisition date cost
basis, up to a 25% non-managing membership interest in Sutton Hill Properties,
LLC (“SHP”). SHP is the limited liability company that we formed to
acquire these interests. In relation to this option, we estimated,
based on a June 2007 property appraisal, the fair value of the option had
increased for year ended December 31, 2007 by $950,000 which was expensed for
during the year. During 2006, the value of the option at December 31,
2006 increased to approximately $3.7 million, resulting in an expense for the
year ended December 31, 2006 of $1.6 million.
On June 28, 2007, SHC exercised this
option, paying the option exercise price through the application of their $3.0
million deposit plus the assumption of its proportionate share of SHP’s
liabilities giving it a 25% non-managing membership interest in
SHP. Upon exercise, the settlement of the previously capitalized
option liability of $4.6 million resulted in an increase in additional
paid-in-capital of $2.5 million as the transfer of the 25% non-managing
membership interest to SHC constituted a transfer of an equity interest between
entities under common control.
Union Pension
Withdrawal
During
the first quarter of 2006, the Motion Picture Projectionists, Video Technicians
and Allied Crafts Union (“Union”) asserted that due to the Company’s reduced
reliance on union labor in New York City, there was a partial withdrawal from
the union pension plan by the Company in 2003 resulting in a funding liability
on the part of the Company of approximately $342,000. We believe that
the estimated amount of our obligation to the Union for their pension plan is in
question and disputable. For this reason, we intend to discuss
further the matter with the Union. However, to reflect the Union’s
asserted assessment at this time, we have recorded a $264,000 liability in our
other liabilities and paid to the Union $78,000 at December 31,
2007.
Note 16 – Fair Value of
Financial Instruments
The
carrying amounts of our cash and cash equivalents, restricted cash and accounts
payable approximate fair value due to their short-term
maturities. Interest rate swap contracts are carried at fair value
and included in other liabilities on the consolidated balance
sheet. The carrying amounts of our variable-rate secured debt
approximate fair value since the interest rates on these instruments are
equivalent to rates currently offered us. The following table
summarizes our financial instruments and their calculated fair values (dollars
in thousands):
|
Book Value
|
Fair Value
|
|||||||||||||||
|
Financial
Instrument
|
2007
|
2006
|
2007
|
2006
|
||||||||||||
|
Cash
|
$ | 20,782 | $ | 11,008 | $ | 20,782 | $ | 11,008 | ||||||||
|
Accounts
receivable
|
$ | 5,671 | $ | 6,612 | $ | 5,671 | $ | 6,612 | ||||||||
|
Investment
in marketable securities
|
$ | 4,533 | $ | 8,436 | $ | 4,533 | $ | 8,436 | ||||||||
|
Restricted
cash
|
$ | 59 | $ | 1,040 | $ | 59 | $ | 1,040 | ||||||||
|
Accounts
and film rent payable
|
$ | 15,606 | $ | 18,181 | $ | 15,606 | $ | 18,181 | ||||||||
|
Notes
payable
|
$ | 111,648 | $ | 116,212 | $ | 112,344 | $ | 116,471 | ||||||||
|
Notes
payable to related party
|
$ | 14,000 | $ | 14,000 | $ | 13,942 | $ | 13,862 | ||||||||
|
Subordinated
debt
|
$ | 51,547 | $ | -- | $ | 45,356 | $ | -- | ||||||||
|
Interest
rate swaps asset
|
$ | 526 | $ | 206 | $ | 526 | $ | 206 | ||||||||
Note 17 – Lease
Agreements
Most of
our cinemas conduct their operations in leased facilities. Nine of
our thirteen operating multiplexes in Australia, three of our seven cinemas in
New Zealand and all but one of our cinemas in the United States are in leased
facilities. These cinema leases have remaining terms inclusive of
options of 10 to 50 years. Certain of our cinema leases provide for
contingent rentals based upon a specified percentage of theater revenues with a
guaranteed minimum. Substantially all of our leases require the
payment of property taxes, insurance and other costs applicable to the
property. We also lease office space and equipment under
non-cancelable operating leases. All of our leases are accounted for
as operating leases and accordingly, we have no leases of facilities which
require capitalization.
We
determine the annual base rent expense of our cinemas by amortizing total
minimum lease obligations on a straight-line basis over the lease
terms. Base rent expense and contingent rental expense under the
operating leases totaled approximately $11.9 million and $515,000 for 2007,
respectively; $10.8 million and $332,000 for 2006, respectively; and $9.8
million and $719,000 for 2005, respectively. Future minimum lease
payments by year and, in the aggregate, under non-cancelable operating leases
consisted of the following at December 31, 2007 (dollars in
thousands):
|
Minimum
Lease Payments
|
||||
|
2008
|
$ | 11,675 | ||
|
2009
|
11,699 | |||
|
2010
|
11,495 | |||
|
2011
|
10,827 | |||
|
2012
|
8,528 | |||
|
Thereafter
|
61,613 | |||
|
Total
minimum lease payments
|
$ | 115,837 | ||
Since approximately $85.1 million of
our total minimum lease payments of $115.8 million as of December 31, 2007
consisted of lease obligations denominated in Australian and New Zealand
dollars, the U.S dollar amounts of these obligations will fluctuate in
accordance with the relative values of these currencies.
Note 18 – Pension
Liabilities
In March 2007, the Board of Directors
of Reading International, Inc. (“Reading”) approved a Supplemental Executive
Retirement Plan (“SERP”) pursuant to which Reading has agreed to provide James
J. Cotter, its Chief Executive Officer and Chairman of the Board of Directors,
supplemental retirement benefits effective March 1, 2007. Under the
SERP, Mr. Cotter will receive a monthly payment of the greater of (i) 40% of the
average monthly earnings over the highest consecutive 36-month period of
earnings prior to Mr. Cotter’s separation from service with Reading or (ii)
$25,000 per month for the remainder of his life, with a guarantee of 180 monthly
payments following his separation from service with Reading or following his
death. The beneficiaries under the SERP may be designated by Mr.
Cotter or by his beneficiary following his or his beneficiary’s
death. The benefits under the SERP are fully vested as of March 1,
2007.
The SERP initially will be unfunded,
but Reading may choose to establish one or more grantor trusts from which to pay
the SERP benefits. As such, the SERP benefits are unsecured, general
obligations of Reading. The SERP is administered by the Compensation
Committee of the Board of Directors of Reading. In accordance with
SFAS 158 - Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans—an
amendment of FASB Statements No. 87, 88, 106, and 132(R), the initial
pension benefit obligation of $2.7 million was included in our other liabilities
with a corresponding amount of unrecognized prior service cost included in
accumulated other comprehensive income on March 1, 2007 (see Note 24 – Comprehensive
Income). The initial benefit obligation was based on a
discount rate of 5.75% and a compensation increase rate of 3.5%. The
$2.7 million is being amortized as a prior service cost over the estimated
service period of 10 years combined with an annual interest cost. For
the year ended December 31, 2007, we recognized $129,000 of interest cost and
$253,000 of amortized prior service cost. The balance of the other
liability for this pension plan was $2.4 million at December 31, 2007 and the
accumulated other comprehensive income balance was $2.1 million at December 31,
2007. The December 31, 2007 value of the SERP is based on a discount
rate of 6.25% and an annual compensation growth rate of 3.50%.
In addition to the aforementioned SERP,
Mr. S. Craig Tompkins has a vested interest in the pension plan originally
established by Craig Corporation prior to its merger with our company of
$181,000 and $174,000 at December 31, 2007 and 2006,
respectively. The balance accrues interest at 30 day LIBOR and is
maintained as an unfunded Executive Pension Plan obligation included in other
liabilities.
The change in the SERP pension benefit
obligation and the funded status for the year ending December 31, 2007 is as
follows (dollars in thousands):
|
Change
in Benefit Obligation
|
For
the year ending December 31, 2007
|
|||
|
Benefit
obligation at March 1, 2007
|
$ | 2,701 | ||
|
Service
cost
|
-- | |||
|
Interest
cost
|
129 | |||
|
Actuarial
gain
|
(385 | ) | ||
|
Benefit
obligation at December 31, 2007
|
2,445 | |||
|
Plan
assets
|
-- | |||
|
Funded
status at December 31, 2007
|
$ | (2,445 | ) | |
The actuarial gain during 2007 was the
result of an increase in the discount rate from 5.75% at inception to 6.25% as
of the December 31, 2007 measurement date.
Amount recognized in balance sheet
consists of (dollars in thousands):
|
At
December 31, 2007
|
||||
|
Noncurrent
assets
|
$ | -- | ||
|
Current
liabilities
|
5 | |||
|
Noncurrent
liabilities
|
2,440 | |||
Items not yet recognized as a component
of net periodic pension cost consist of (dollars in thousands):
|
At
December 31, 2007
|
||||
|
Unamortized
actuarial gain
|
$ | (385 | ) | |
|
Prior
service costs
|
2,448 | |||
|
Accumulated
other comprehensive loss
|
2,063 | |||
The components of the net periodic
benefit cost and other amounts recognized in other comprehensive income are as
follows (dollars in thousands):
|
Net
periodic benefit cost
|
From
March 1, 2007 to December 31, 2007
|
|||
|
Service
cost
|
$ | -- | ||
|
Interest
cost
|
129 | |||
|
Expected
return on plan assets
|
-- | |||
|
Amortization
of prior service costs
|
253 | |||
|
Amortization
of net (gain) loss
|
-- | |||
|
Net
periodic benefit cost
|
$ | 382 | ||
|
Other
changes in plan assets and benefit obligations recognized in other
comprehensive income
|
||||
|
Net
gain
|
$ | (385 | ) | |
|
Prior
service cost
|
-- | |||
|
Amortization
of prior service cost
|
(253 | ) | ||
|
Amortization
of net gain (loss)
|
-- | |||
|
Total
recognized in other comprehensive income
|
$ | (638 | ) | |
|
Total
recognized in net periodic benefit cost and other comprehensive
income
|
$ | (256 | ) | |
The
estimated net gain and prior service cost for the defined benefit pension plan
that will be amortized from accumulated other comprehensive income into net
periodic benefit cost over the next fiscal year are $18,000 and $304,000,
respectively.
The following weighted average
assumptions were used to determine the plan benefit obligations at December 31,
2007:
|
At
December 31, 2007
|
||||
|
Discount
rate
|
6.25 | % | ||
|
Rate
of compensation increase
|
3.50 | % | ||
The following weighted-average
assumptions were used to determine net periodic benefit cost for the year ended
December 31, 2007:
|
At
December 31, 2007
|
||||
|
Discount
rate
|
6.25 | % | ||
|
Expected
long-term return on plan assets
|
0.00 | % | ||
|
Rate
of compensation increase
|
3.50 | % | ||
The benefit payments, which reflect
expected future service, as appropriate, are expected to be paid over the
following periods (dollars in thousands):
|
Pension
Payments
|
||||
|
2008
|
$ | 5 | ||
|
2009
|
10 | |||
|
2010
|
15 | |||
|
2011
|
20 | |||
|
2012
|
25 | |||
|
Thereafter
|
2,370 | |||
|
Total
pension payments
|
$ | 2,445 | ||
Note 19 - Commitments and
Contingencies
Acquisition
of Consolidated Cinemas
On
October 8, 2007, we entered into agreements to acquire leasehold interests in 15
cinemas then owned by Pacific Theatres Exhibition Corp. and its
affiliates. The cinemas, which are located in the United States,
contain 181 screens. The aggregate purchase price of the cinemas and
related assets was $69.3 million. The acquisition was made through a
wholly owned subsidiary of RDI and was financed principally by a combination of
debt financing from GE Capital Corporation and seller financing. We
subsequently closed on this acquisition on February 22, 2008 (see Note 27 -
Subsequent
Events).
Taringa
Properties
As of December 31, 2007, we had entered
into agreements to acquire approximately 50,000 square foot of property in
Taringa, Australia, comprising three contiguous properties, which we intend to
develop. The aggregate purchase price of these properties is $10.6
million (AUS$12.1 million). We subsequently closed on the purchase of
two of these properties in January 2008 (see Note 27 - Subsequent
Events).
Unconsolidated
Joint Venture Loans
The following section describes the
loans associated with our investments in unconsolidated joint
ventures. As they are unconsolidated, their associated bank loans are
not reflected in our Consolidated Balance Sheet at December 31,
2007. Each loan is without recourse to any assets other than our
interests in the individual joint venture.
Rialto
Distribution
We are the 33.3% co-owners of the
assets of Rialto Distribution. At December 31, 2007 and 2006, the
total line of credit was $1.5 million (NZ$2.0 million) and $1.4 million (NZ$2.0
million), respectively, and had an outstanding balance of $801,000 (NZ$1.0
million) and $1.1 million (NZ$1.6 million), respectively. This loan is
without recourse to any assets other than our interest in the joint
venture.
Berkeley
Cinemas
We are the 50% co-owners with the
Everard Entertainment Ltd of the assets comprising an unincorporated joint
venture in New Zealand, referred to in these financial statements as the
Berkeley Cinemas Joint Venture. The balance of the bank loan at
December 31, 2007 and 2006 was $3.4 million (NZ$4.4 million) and $3.7 million
(NZ$5.2 million), respectively, which is secured by a first mortgage over the
land and building assets of the joint venture. This loan is without
recourse to any assets other than our interest in the joint
venture.
Tax
Audit/Litigation
The
Internal Revenue Service (the “IRS”) completed its audits of the tax return of
Reading Entertainment Inc. (RDGE) for its tax years ended December 31, 1996
through December 31, 1999 and the tax return of Craig Corporation (CRG) for its
tax year ended June 30, 1997. With respect to both of these
companies, the principal focus of these audits was the treatment of the
contribution by RDGE to our wholly owned subsidiary, Reading Australia, and
thereafter the subsequent repurchase by Stater Bros. Inc. from Reading Australia
of certain preferred stock in Stater Bros. Inc. (the “Stater Stock”) received by
RDGE from CRG as a part of a private placement of securities by RDGE which
closed in October 1996. A second issue involving equipment-leasing
transactions entered into by RDGE (discussed below) is also
involved.
By
letters dated November 9, 2001, the IRS issued reports of examination proposing
changes to the tax returns of RDGE and CRG for the years in question (the
“Examination Reports”). The Examination Report for each of RDGE and
CRG proposed that the gains on the disposition by RDGE of Stater Stock, reported
as taxable on the RDGE return, should be allocated to CRG. As
reported, the gain resulted in no additional tax to RDGE inasmuch as the gain
was entirely offset by a net operating loss carry forward of
RDGE. This proposed change would result in an additional tax
liability for CRG of approximately $20.9 million plus interest of approximately
$17.9 million as of December 31, 2007. In addition, this proposal
would result in California tax liability of approximately $5.4 million plus
interest of approximately $4.6 million as of December 31,
2007. Accordingly, this proposed change represented, as of December
31, 2007, an exposure of approximately $48.8 million.
Moreover,
California has “amnesty” provisions imposing additional liability on taxpayers
who are determined to have materially underreported their taxable
income. While these provisions have been criticized by a number of
corporate taxpayers to the extent that they apply to tax liabilities that are
being contested in good faith, no assurances can be given that these new
provisions will be applied in a manner that would mitigate the impact on such
taxpayers. Accordingly,
these provisions may cause an additional $4.0 million exposure to CRG, for a
total exposure of approximately $52.8 million. We have accrued $4.5
million as a probable loss in relation to this exposure and believe that the
possible total settlement amount will be between $4.0 million and $52.8
million.
In early
February 2005, we had a mediation conference with the IRS concerning this
proposed change. The mediation was conducted by two mediators, one of
whom was selected by the taxpayer from the private sector and one of whom was an
employee of the IRS. In connection with this mediation, we and the
IRS each prepared written submissions to the mediators setting forth our
respective cases. In its written submission, the IRS noted that it
had offered to settle its claims against us at 30% of the proposed change, and
reiterated this offer at the mediation. This offer constituted, in
effect, an offer to settle for a payment of $5.0 million federal tax, plus
interest, for an aggregate settlement amount of approximately $8.0
million. Based on advice of counsel given after reviewing the
materials submitted by the IRS to the mediation panel, and the oral presentation
made by the IRS to the mediation panel and the comments of the mediators
(including the IRS mediator), we determined not to accept this
offer.
Notices
of deficiency (“N/D”) dated June 29, 2006 were received with respect to each
of RDGE and CRG determining proposed deficiencies of $20.9 million
for CRG and a total of $349,000 for RDGE for the tax years 1997, 1998 and
1999.
We intend
to litigate aggressively these matters in the U.S. Tax Court and an appeal was
filed with the court on September 26, 2006. While there are always
risks in litigation, we believe that a settlement at the level currently offered
by the IRS would substantially understate the strength of our position and the
likelihood that we would prevail in a trial of these matters. We are
currently in the discovery process, and do not anticipate a trial of this issue
before 2010.
Since
these tax liabilities relate to time periods prior to the Consolidation of CDL,
RDGE, and CRG into Reading International, Inc. and since RDGE and CRG continue
to exist as wholly owned subsidiaries of RII, it is expected that any adverse
determination would be limited in recourse to the assets of RDGE or CRG, as the
case may be, and not to the general assets of RII. At the present
time, the assets of these subsidiaries are comprised principally of RII
securities. Accordingly, we do not anticipate, even if there were to
be an adverse judgment in favor of the IRS that the satisfaction of that
judgment would interfere with the internal operation or result in any levy upon
or loss of any of our material operating assets. The satisfaction of
any such adverse judgment would, however, result in a material dilution to
existing stockholder interests.
The N/D
issued to RDGE does not cover its tax year 1996 which will be held in abeyance
pending the resolution of the CRG case. An adjustment to 1996 taxable
income for RDGE would result in a refund of alternative minimum tax paid that
year. The N/D issued to RDGE eliminated the gains booked by RDGE in
1996 as a consequence of its acquisition certain computer equipment and sale of
the anticipated income stream from the lease of such equipment to third parties
and disallowed depreciation deductions that we took with respect to that
equipment in 1997, 1998 and 1999. Such disallowance has the effect of
decreasing net operating losses but did not result in any additional regular
federal income tax for such years. However, the depreciation
disallowance would increase RDGE state tax liability for those years by
approximately $170,000 plus interest. The only tax liability
reflected in the RDGE N/D is alternative minimum tax in the total amount of
approximately $349,000 plus interest. On September 26, 2006, we filed
an appeal on this N/D with the U.S. Tax Court.
Environmental
and Asbestos Claims
Certain
of our subsidiaries were historically involved in railroad operations, coal
mining and manufacturing. Also, certain of these subsidiaries appear
in the chain of title of properties which may suffer from
pollution. Accordingly, certain of these subsidiaries have, from time
to time, been named in and may in the future be named in various actions brought
under applicable environmental laws. Also, we are in the real estate
development business and may encounter from time to time unanticipated
environmental conditions at properties that we have acquired for
development. These environmental conditions can increase the cost of
such projects, and adversely affect the value and potential for profit of such
projects. We do not currently believe that our exposure under
applicable environmental laws is material in amount.
From time
to time, we have claims brought against us relating to the exposure of former
employees of our railroad operations to asbestos and coal dust. These
are generally covered by an insurance settlement reached in September 1990 with
our insurance carriers. However, this insurance settlement does not
cover litigation by people who were
not our employees and who may claim second hand exposure to asbestos, coal dust
and/or other chemicals or elements now recognized as potentially causing cancer
in humans.
Whitehorse
Center Litigation
On October 30, 2000, we commenced
litigation in the Supreme Court of Victoria at Melbourne, Commercial and Equity
Division, against our joint venture partner and the controlling stockholders of
our joint venture partner in the Whitehorse Shopping Center. That
action is entitled Reading Entertainment Australia Pty, Ltd vs. Burstone
Victoria Pty, Ltd and May Way Khor and David Frederick Burr, and was brought to
collect on a promissory note (the “K/B Promissory Note”) evidencing a loan that
we made to Ms. Khor and Mr. Burr and that was guaranteed by Burstone Victoria
Pty, Ltd (“Burstone” and collectively with Ms. Khor and Mr. Burr, the “Burstone
Parties”). This loan balance has been previously written off and is
no longer recorded on our books. The Burstone Parties asserted in
defense certain set-offs and counterclaims, alleging, in essence, that we had
breached our alleged obligations to proceed with the development of the
Whitehorse Shopping Center, causing the Burstone Parties damages. The
matter is currently on appeal. However, if the trial court is
ultimately sustained the result will be a payment from the Burstone Parties to
us of $1.1 million (AUS$1.2 million), as of December 31,
2007. That amount continues to accrue interest at the rate of
approximately 10%. The amount of these payments represent a
contingent gain; therefore, no amount has been recorded in our financial
statements through the year ended December 31, 2007.
Mackie
Litigation
On November 7, 2005, we were sued in
the Supreme Court of Victoria at Melbourne by a former construction contractor
with respect to the discontinued development of an ETRC at Frankston,
Victoria. The action is entitled Mackie Group Pty Ltd v. Reading
Properties Pty Ltd, and in it the former contractor seeks payment of a claimed
fee in the amount of $788,000 (AUS$1.0 million). We do not believe
that any such fee is owed, and are contesting the claim. Discovery
has now been completed by both parties. The next step in the
litigation is likely to be mediation.
In a hearing conducted on November 22
and 29, 2006, Reading successfully defended an application for summary judgment
brought by Mackie and was awarded costs for part of the preparation of its
defense to the application. A bill of costs has been prepared by a
cost consultant in the sum of $20,000 (AUS$25,000) (including
disbursements). On 27 April 2007, we received payment from Khor &
Burr for those costs in the sum of $18,646.60.
A
mediation was held in this matter on 12 July 2007, at which time the matter
failed to settle. Reading has subsequently made an offer of
compromise to Mackie Group in the sum of $150,000 plus party/party costs, which
has not been accepted. The matter has not yet been fixed for trial,
however orders have now been made for the preparation of material for trial and
we expect that the matter will be set down for trial before the end of the
year.
Malulani
Investments Litigation
In December 2006, we commenced a
lawsuit against certain officers and directors of Malulani Investments Limited
(“MIL”) alleging various direct and derivative claims for breach of fiduciary
duty and waste and seeking, among other things, access to various company books
and records. As certain of these claims were brought indirectly, MIL
was also named as a defendant in that litigation. That case is called
Magoon Acquisition &
Development, LLC; a California limited liability company, Reading International,
Inc.; a Nevada corporation, and James J. Cotter vs. Malulani Investments,
Limited, a Hawaii Corporation, Easton T. Mason; John R. Dwyer, Jr.; Philip Gray;
Kenwei Chong and is currently pending before Judge Chang in the circuit
Court of the First circuit State of Hawaii, in
Honolulu.
On July 26, 2007, the Court
granted TMG's motion to intervene in the Hawaii action. On March 24,
2008, MIL filed a counter claim against us, alleging that we are green
mailers, that our purpose in bringing the lawsuit was to harass and harm MIL,
and that we should be liable to MIL for the damage resulting from our
harassment, including the bringing of our lawsuit (the “MIL
Counterclaim”).
We do not believe that we have any
meaningful exposure with respect to the MIL Counterclaim, and intend to continue
to prosecute our claims against the Defendant Directors. We have
filed a counterclaim against TMG, alleging various breached of fiduciary duty on
its part, as the controlling shareholder of MIL, and are currently seeking
permission to amend our initial complaint to add additional allegations
principally growing out of the ongoing conduct by the Defendant Directors since
the filing of our initial complaint. The action is currently in its
discovery phase, with trail currently set for November of this
year.
Other
Claims – Credit Card Claims
During 2006, the bank, which
administers our credit card activities, asserted a claim of potential loss
suffered in relation to the use by third parties of counterfeit credit cards and
related credit card company fines. At the end of 2006, we expected
the associated claims from the bank and credit card companies for these losses
and fines to total approximately $1.2 million. For this reason, we
expensed $1.2 million during the year ending December 31,
2006. During 2007, the majority of the credit card claims and
penalties were assessed and paid resulting in realized losses of $429,000 and
$160,000 for the years ending December 31, 2007 and 2006, respectively, and
returned restricted cash of $551,000 during 2007 which resulted an expense
reversal of this amount during 2007. The restricted cash balance at
December 31, 2007 was $59,000 relating to the remaining unresolved credit card
claims.
Note 20 – Minority
Interest
The minority interests are comprised of
the following:
|
|
·
|
50%
of membership interest in AFC by a subsidiary of National Auto Credit,
Inc. (“NAC”)
|
|
|
·
|
25%
minority interest in Australian Country Cinemas by 21st
Century Pty, Ltd
|
|
|
·
|
33%
minority interest in the Elsternwick joint venture by Champion Pictures
Pty Ltd
|
|
|
·
|
15% to
27.5% minority interest in the Landplan Property Partners, Ltd by Landplan
Property Group, Ltd
|
|
|
·
|
25%
minority interest in the Sutton Hill Properties, LLC owned by Sutton Hill
Capital, LLC
|
|
|
·
|
20%
minority interest in Big 4 Farming LLC by Cecelia Packing
Corporation
|
The
components of minority interest are as follows (dollars in
thousands):
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
AFC
|
$ | 2,256 | $ | 2,264 | ||||
|
Australian
Country Cinemas
|
232 | 174 | ||||||
|
Elsternwick
unincorporated joint venture
|
109 | 151 | ||||||
|
Landplan
Property Partners
|
237 | 13 | ||||||
|
Other
|
1 | 1 | ||||||
|
Total
minority interest
|
$ | 2,835 | $ | 2,603 | ||||
The
components of minority interest expense are as follows (dollars in
thousands):
|
December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
AFC
|
$ | 742 | $ | 624 | $ | 730 | ||||||
|
Australian
Country Cinemas
|
112 | 50 | 10 | |||||||||
|
Elsternwick
unincorporated joint venture
|
21 | (17 | ) | (161 | ) | |||||||
|
Landplan
Property Partners
|
214 | 14 | -- | |||||||||
|
Sutton
Hill Properties
|
(86 | ) | -- | -- | ||||||||
|
Other
|
-- | 1 | -- | |||||||||
|
Total
minority interest
|
$ | 1,003 | $ | 672 | $ | 579 | ||||||
Landplan Property Partners,
Ltd
In 2006,
we formed Landplan Property Partners, Ltd, to identify, acquire and develop or
redevelop properties on an opportunistic basis. In connection with
the formation of Landplan, we entered into an agreement with Mr. Doug Osborne
pursuant to which (i) Mr. Osborne will serve as the chief executive officer of
Landplan and (ii) Mr. Osborne’s affiliate, Landplan Property Group, Ltd (“LPG”),
will perform certain property management services for Landplan. The
agreement provides for Mr. Osborne to hold an equity interest in the entities
formed to hold these properties; such equity interest to be (i) subordinate to
our right to an 11% compounded return on investment and (ii) subject to
adjustment depending upon various factors including the term of the investment
and the amount invested. Generally speaking, this equity interest
will range from 27.5% to 15%. During 2006, Landplan acquired one
property in Indooroopilly, Brisbane, Australia and, during 2007, Landplan
acquired two properties in New Zealand; the first called the Lake Taupo Motel
and the other is a parcel of land called the Manukau property.
Note 21 - Common
Stock
Our
common stock trades on the American Stock Exchange under the symbols RDI and
RDI.B which are our Class A (non-voting) and Class B (voting) stock,
respectively. Our Class A (non-voting) has preference over our Class
B (voting) share upon liquidation. No dividends have ever been issued
for either share class.
At
December 31, 2007, in recognition of the vesting of one-half of his 2006 and
one-half of his 2005 stock grants, we issued to Mr. Cotter 15,133 and 16,047
shares, respectively, of Class A Non-Voting Common Stock which had a stock grant
price of $8.26 and $7.79 per share and fair market values of $151,000 and
$160,000, respectively. At December 31, 2006, in recognition of the
vesting of one-half of the 2006 stock grant, we issued to Mr. Cotter 16,047
shares of Class A Non-Voting Common Stock which had a stock grant price of $7.79
per share and a fair market value of $133,000.
For the
stock options exercised during the third
quarter of 2007, we issued for cash to an employee of the corporation under our
employee stock option plan 6,250 shares of Class A Nonvoting Common Stock at an
exercise price of $4.01 per share.
For the
stock options exercised during 2006, we
issued for cash to an employee of the corporation under our stock based
compensation plan 12,000 shares and 15,000 shares of Class A Nonvoting Common
Stock at exercise prices of $3.80 and $2.76 per share,
respectively. Additionally, in December 2006, we issued to Mr. James
J. Cotter, our Chairman of the Board and Chief Executive Officer, 16,047 shares
of Class A Non-Voting Common Stock at a market price of $7.79 per share as under
the normal vesting schedule of his 2005 restricted stock compensation (see Note
3 - Stock Based Compensation
and Employee Stock Option Plan.
On
February 27, 2006, we paid $791,000 (NZ$1.2 million) to the sellers of the
Movieland Circuit in exchange for 98,949 Class A Common Nonvoting Common
Stock. This transaction resulted from the exercise of their option to
put back to us at an exercise price of NZ$11.94 the shares they received as part
of the purchase price of the Movieland Circuit.
Note 22 – Business Segments
and Geographic Area Information
Effective the fourth quarter of
2006, we have changed the presentation of our segment reporting such that our
intersegment revenues and expenses are reported separately from our segments’
operating activity. The effect of this change is to include
intercompany rent revenues and rent expenses into their respective cinema and
real estate business segments. The revenues and expenses for 2005
have been adjusted to conform to the current year presentation. We
believe that this presentation portrays how our operating decision makers’ view
the operations, how they assess segment performance, and how they make decisions
about allocating resources to the segments.
The table below sets forth certain
information concerning our cinema operations and our real estate operations
(which includes information relating to both our real estate development, retail
rental and live theater rental activities) for the three years ended December
31, 2007 (dollars in thousands):
|
Year
Ended December 31, 2007
|
Cinema
|
Real
Estate
|
Intersegment
Eliminations
|
Total
|
||||||||||||
|
Revenue
|
$ | 103,467 | $ | 21,887 | $ | (6,119 | ) | $ | 119,235 | |||||||
|
Operating
expense
|
83,875 | 8,324 | (6,119 | ) | 86,080 | |||||||||||
|
Depreciation
& amortization
|
6,942 | 4,418 | -- | 11,360 | ||||||||||||
|
General
& administrative expense
|
3,195 | 831 | -- | 4,026 | ||||||||||||
|
Segment
operating income
|
$ | 9,455 | $ | 8,314 | $ | -- | $ | 17,769 | ||||||||
|
Year
Ended December 31, 2006
|
Cinema
|
Real
Estate
|
Intersegment
Eliminations
|
Total
|
||||||||||||
|
Revenue
|
$ | 94,048 | $ | 17,285 | $ | (5,208 | ) | $ | 106,125 | |||||||
|
Operating
expense
|
75,350 | 7,365 | (5,208 | ) | 77,507 | |||||||||||
|
Depreciation
& amortization
|
8,648 | 4,080 | -- | 12,728 | ||||||||||||
|
General
& administrative expense
|
3,658 | 782 | -- | 4,440 | ||||||||||||
|
Segment
operating income
|
$ | 6,392 | $ | 5,058 | $ | -- | $ | 11,450 | ||||||||
|
Year
Ended December 31, 2005
|
Cinema
|
Real
Estate
|
Intersegment
Eliminations
|
Total
|
||||||||||||
|
Revenue
|
$ | 86,760 | $ | 16,523 | $ | (5,178 | ) | $ | 98,105 | |||||||
|
Operating
expense
|
72,665 | 7,359 | (5,178 | ) | 74,846 | |||||||||||
|
Depreciation
& amortization
|
8,323 | 3,674 | -- | 11,997 | ||||||||||||
|
General
& administrative expense
|
6,802 | 328 | -- | 7,130 | ||||||||||||
|
Segment
operating income (loss)
|
$ | (1,030 | ) | $ | 5,162 | $ | -- | $ | 4,132 | |||||||
|
Reconciliation
to net income (loss):
|
2007
|
2006
|
2005
|
|||||||||
|
Total
segment operating income
|
$ | 17,769 | $ | 11,450 | $ | 4,132 | ||||||
|
Non-segment:
|
||||||||||||
|
Depreciation and amortization
expense
|
561 | 484 | 387 | |||||||||
|
General and administrative
expense
|
12,059 | 8,551 | 10,117 | |||||||||
|
Operating
income (loss)
|
5,149 | 2,415 | (6,372 | ) | ||||||||
|
Interest expense,
net
|
(8,163 | ) | (6,608 | ) | (4,473 | ) | ||||||
|
Other income
(expense)
|
(505 | ) | (1,998 | ) | 19 | |||||||
|
Minority
interest
|
(1,003 | ) | (672 | ) | (579 | ) | ||||||
|
Gain on disposal of discontinued
operations
|
1,912 | -- | 13,610 | 1 | ||||||||
|
Loss from discontinued
operations
|
-- | -- | (1,379 | ) | ||||||||
|
Income tax
expense
|
(2,038 | ) | (2,270 | ) | (1,209 | ) | ||||||
|
Equity earnings of
unconsolidated joint ventures and entities
|
2,545 | 9,547 | 1,372 | |||||||||
|
Gain on sale of unconsolidated
joint venture
|
-- | 3,442 | -- | |||||||||
|
Net
income (loss)
|
$ | (2,103 | ) | $ | 3,856 | $ | 989 | |||||
|
Segment
assets
|
$ | 315,582 | $ | 264,963 | ||||||||
|
Corporate
assets
|
30,489 | 24,268 | ||||||||||
|
Total
Assets
|
$ | 346,071 | $ | 289,231 | ||||||||
|
Segment
capital expenditures
|
$ | 42,244 | $ | 16,168 | $ | 51,649 | ||||||
|
Corporate
capital expenditures
|
170 | 221 | 2,305 | |||||||||
|
Total
capital expenditures
|
$ | 42,414 | $ | 16,389 | $ | 53,954 | ||||||
The cinema results shown above include
revenue and operating expense directly linked to our cinema
assets. The real estate results include rental income from our
properties and live theaters and operating expense directly linked to our
property assets.
The following table sets forth the book
value of our property and equipment by geographical area (dollars in
thousands):
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Australia
|
$ | 90,956 | $ | 86,317 | ||||
|
New
Zealand
|
44,030 | 38,772 | ||||||
|
United
States
|
43,188 | 45,578 | ||||||
|
Total
property and equipment
|
$ | 178,174 | $ | 170,667 | ||||
The
following table sets forth our revenues by geographical area (dollars in
thousands):
|
December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Australia
|
$ | 63,657 | $ | 53,434 | $ | 47,181 | ||||||
|
New
Zealand
|
24,371 | 21,230 | 20,179 | |||||||||
|
United
States
|
31,207 | 31,461 | 30,745 | |||||||||
|
Total
Revenues
|
$ | 119,235 | $ | 106,125 | $ | 98,105 | ||||||
Note 23 – Unaudited
Quarterly Financial Information (dollars in thousands, except per share
amounts)
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
|
2007
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
||||||||||||
|
Revenue
|
$ | 27,975 | $ | 30,139 | $ | 32,559 | $ | 28,562 | ||||||||
|
Net
income (loss)
|
$ | (646 | ) | $ | 1,634 | $ | 870 | $ | (3,961 | ) | ||||||
|
Basic
earnings (loss) per share
|
$ | (0.03 | ) | $ | 0.07 | $ | 0.04 | $ | (0.17 | ) | ||||||
|
Diluted
earnings (loss) per share
|
$ | (0.03 | ) | $ | 0.07 | $ | 0.04 | $ | (0.17 | ) | ||||||
|
2006
|
||||||||||||||||
|
Revenue
|
$ | 25,230 | $ | 27,247 | $ | 24,319 | $ | 29,329 | ||||||||
|
Net
income (loss)
|
$ | (3,147 | ) | $ | (234 | ) | $ | 6,093 | $ | 1,144 | ||||||
|
Basic
earnings (loss) per share
|
$ | (0.14 | ) | $ | (0.01 | ) | $ | 0.27 | $ | 0.05 | ||||||
|
Diluted
earnings (loss) per share
|
$ | (0.14 | ) | $ | (0.01 | ) | $ | 0.27 | $ | 0.05 | ||||||
In our opinion, the quarterly financial
information presented above reflects all adjustments that are necessary for a
fair presentation of the results of the quarterly periods
presented.
Note 24 - Comprehensive
Income (Loss)
US GAAP requires us to classify
unrealized gains and losses on equity securities as well as our foreign currency
adjustments as comprehensive income. The following table sets forth
our comprehensive income for the periods indicated (in thousands):
|
Years Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Net
unrealized gains/(losses) on investments
|
||||||||||||
|
Reclassification of realized
gain on available for sale investments included in net income
(loss)
|
$ | (773 | ) | $ | -- | $ | -- | |||||
|
Unrealized gain/(loss) on
available for sale investments
|
889 | (110 | ) | 11 | ||||||||
|
Net unrealized gains/(losses)
on investments
|
116 | (110 | ) | 11 | ||||||||
|
Net
income (loss)
|
(2,103 | ) | 3,856 | 989 | ||||||||
|
Cumulative
foreign currency adjustment
|
14,731 | 4,928 | (3,822 | ) | ||||||||
|
Accrued
pension service costs
|
(2,063 | ) | -- | -- | ||||||||
|
Comprehensive
income (loss)
|
$ | 10,681 | $ | 8,674 | $ | (2,822 | ) | |||||
Note 25 - Future Minimum
Rental Income
Real estate revenue amounted to $15.8
million $12.1 million, and $11.3 million for the years ended December 31, 2007,
2006 and 2005, respectively. For the year ended December 31, 2007,
rental revenue includes the revenue from Courtenay Central, Invercargill,
Rotorua, and Napier in New Zealand; Auburn, Belmont, Bundaberg, Maitland,
Newmarket and Waurn Ponds in Australia; the Union Square Theatre, the Village
East Cinema in New York; and the Royal George Theatre in Chicago.
Future minimum rental income under all
contractual operating leases is summarized as follows (dollars in
thousands):
|
Year
Ending December 31,
|
||||
|
2008
|
$ | 7,354 | ||
|
2009
|
6,023 | |||
|
2010
|
5,481 | |||
|
2011
|
4,908 | |||
|
2012
|
3,961 | |||
|
Thereafter
|
30,967 | |||
|
Total future minimum rental
income
|
$ | 58,694 | ||
Note 26 – Related Parties
and Transactions
Sutton Hill
Transaction
In 2000,
we entered into a transaction with Sutton Hill Capital L.L.C. (“SHC”), a related
party, designed to give us (i) operating control, through an operating lease, of
the 4 cinema “City Cinemas” theater chain in Manhattan, and (ii) the right to
enjoy any appreciation in the underlying real estate assets, though a fixed
price option to purchase these cinemas on an all or nothing basis in
2010. Two of the cinemas included in that chain – the Murray Hill
Cinema and the Sutton Cinema – have now been sold for redevelopment, under terms
that we believe preserve this basic structure and which will, if we exercise our
purchase option, give us the future benefit of any appreciation realized in
those
assets during the time they were under our operation and control. In
addition, during 2005 we acquired as a part of a tax-deferred exchange pursuant
to Section 1031 of the Internal Revenue Code, (i) from a third party, the fee
interest underlying the third of the four cinemas (the Cinemas 1, 2
& 3) and (ii) from SHC its tenant’s interest in the ground lease underlying
the Cinemas 1, 2 & 3. Set out below is a more detailed discussion
of the City Cinemas Transaction, and the subsequent modifications of that
transaction to provide for the release of the Murray Hill Cinema, the Sutton
Cinema and the Cinemas 1, 2 & 3 properties.
In July
2000, we acquired from SHC the Manhattan based City Cinemas circuit in a
transaction structured as a 10 year operating lease (the “City Cinemas Operating
Lease”) with options either to extend the lease for an additional 10 year term
or, alternatively, to purchase the improvements and certain of the real estate
assets underlying that lease (the “City Cinemas Purchase Option”). We
paid an option fee of $5.0 million, which will be applied against the purchase
price if we elect to exercise the City Cinemas Purchase Option. The
aggregate exercise price of the City Cinemas Purchase Option was originally
$48.0 million, and rent was calculated to provide an 8.25% yield to SHC (subject
to an annual modified cost of living adjustment) on the difference between the
exercise price and the $5.0 million option fee. Incident to that
transaction, we agreed to lend to SHC (the “City Cinemas Standby Credit
Facility”) up to $28.0 million, beginning in July 2007, all due and payable in
December 2010 (the principal balance and accrued interest on any such loan was
likewise to be applied against the option exercise price, in the event the
option was exercised). The interest rate on the City Cinemas Standby
Credit Facility was also fixed at 8.25%, subject to the same modified cost of
living adjustment used to calculate rent under the City Cinemas Operating
Lease.
We have
no legal obligation to exercise either the option to extend the City Cinemas
Operating Lease or the City Cinemas Purchase Option. However, our
recourse against SHC on the City Cinemas Standby Credit Facility is limited to
the assets of SHC which consist of, generally speaking, only the assets subject
to the City Cinemas Purchase Option. In this annual report, we refer
to the transaction memorialized by the City Cinemas Operating Lease, City
Cinemas Purchase Option and City Cinemas Standby Credit Agreement as the City
Cinemas Transaction. Because the City Cinemas Operating Lease is an
operating lease and since the City Cinemas Standby Credit Facility was, in our
view, adequately secured, no asset or liability was established on our balance
sheet at the time of the City Cinemas Transaction other than the option fee,
which has been deferred and is being amortized over the 10 year period of the
lease.
SHC is
indirectly owned by Messrs. James J. Cotter and Michael Forman. Mr.
Cotter is our Chairman, Chief Executive Officer and controlling
stockholder. Mr. Forman is a major holder of our Class A
Stock. As the transaction was a related party transaction, it was
reviewed and approved by a committee of our Board of Directors comprised
entirely of independent directors.
Since we
entered into the City Cinemas Transaction, two of the cinema properties involved
in that transaction have been sold to third parties for redevelopment: the
Murray Hill Cinema and the Sutton Cinema. These purchasers paid $10.0
million and $18.0 million respectively for these two properties, which included
the cost of acquiring the fee interest in these properties held by Nationwide
Theatres (an affiliate of SHC), the leasehold interest held by SHC, and our
rights under the City Cinemas Operating Lease and the City Cinemas Purchase
Option. Since we believed that a sale of these properties at these
prices was more beneficial to us than continuing to operate them as cinemas, and
since the original City Cinemas Transaction did not contemplate a piece-meal
release of properties or give us the right to exercise our City Cinemas Purchase
Option either (i) on a piece-meal basis or (ii) prior to July 2010, we worked
with SHC to devise a transaction that would allow us to dispose of our
collective interests in these properties while preserving the fundamental
benefits of the transaction for ourselves and SHC. Included among the
benefits to be preserved by SHC was the deferral of any capital gains tax with
respect to the transfer of the remaining properties until 2010 and assurances
that the various properties involved in the City Cinemas Transaction would only
be acquired by us on an “all or nothing” basis. Included among the
benefits to be preserved for us was the right to get the benefit of 100% of any
appreciation in the properties underlying the City Cinemas Operating Lease
between the date of that lease (July 2000) and the date any such properties were
sold,
provided that we ultimately exercised our purchase rights under the City Cinemas
Purchase Option.
As a
result of these negotiations and the sale of these two properties, our rent
under the City Cinemas Operating Lease was reduced by approximately $1.9 million
per annum, the exercise price of the City Cinemas Purchase Option was reduced
from $48.0 million to $33.0 million, and our funding obligation under the City
Cinemas Standby Line of Credit was reduced from $28.0 million to $13.0
million. In addition, we received in consideration of the release of
our interest in the Murray Hill Cinema a cash payment of $500,000. In
consideration of the transfer of our interest in the Sutton Cinema we received
(i) a $13.0 million purchase money promissory note (the Sutton Purchase Money
Note”) secured by a first mortgage on the Sutton Cinema property (the “Sutton
Purchase Money Mortgage”), (ii) a right to acquire up to a 25% interest in the
special purpose entity formed to redevelop the Sutton Cinema property for a
prorated capital contribution (the “Sutton Reinvestment Option”) or to receive
instead an in lieu fee of $650,000, and (iii) the right to operate the Sutton
Cinema until such time as the Sutton Purchase Money Note was
paid. The Sutton Purchase Money Note was due and payable on October
21, 2005, and carried interest for the first year at 3.85%, increasing in the
second year to 8.25%. On September 14, 2004, the Sutton Purchase
Money Note was prepaid in full and we exercised our Sutton Reinvestment
Option.
In
keeping with the “all or nothing” nature of our rights under the City Cinemas
Purchase Option, we agreed to use the principal proceeds of the Sutton Purchase
Money Promissory Note to fund our remaining $13.0 million obligation under the
City Cinemas Standby Credit Facility. We have also agreed that the
principal amount of the City Cinemas Standby Credit Facility will be forgiven if
we do not exercise our purchase rights under the City Cinemas Purchase
Option. Accordingly, if we exercise our rights under the City Cinemas
Purchase Option to purchase the remaining City Cinemas assets, we will be
acquiring the remaining assets subject to the City Cinemas Operating Lease for
an additional cash payment of $15.0 million, (offsetting against the current
$33.0 million exercise price, the previously paid $5.0 million deposit and the
$13.0 million principal amount of the City Cinemas Standby Credit Facility) and
will receive, in essence, the benefit of 100% of the appreciation in all of the
properties initially subject to the City Cinemas Operating Lease between July
2000, and the date such properties were either disposed of or acquired by us
pursuant to the City Cinemas Purchase Option. If we do not exercise
our option to purchase, then the City Cinemas Credit Facility will be forgiven,
and we will not get the benefit of such appreciation. Immediately
following the sale of the Sutton Cinema, the remaining properties consisted of
(i) the Village East Cinema, which is located at the corner of 2nd Avenue
and 11th Street
in Manhattan, on a 27 year land lease, and (ii) the Cinemas 1, 2 & 3, which
is located on 3rd Avenue
between E. 59th and E.
60th
Streets in Manhattan and which was likewise at that time on a long term ground
lease.
Since the
Murray Hill Cinema sale transaction was structured as a release of our leasehold
interest in the Murray Hill Cinema, we did not recognize any gain or loss for
either book or tax purposes, other than the $500,000 in lieu fee, which was
recognized as non-operating income. We likewise did not book any gain
or loss on the disposition of the Sutton Cinema for book
purposes. However, we did recognize gain in the amount of
approximately $13.0 million for state and federal tax purposes, which gain was
offset against net operating losses. Notwithstanding this offset, we
were still liable for alternative minimum tax on the
transaction. That alternative minimum tax will, however, be offset
against our future tax liabilities. In the event that we decide not
to exercise our City Cinemas Purchase Option, we would at that time recognize a
$13.0 million loss for tax purposes.
Following
the release of our leasehold interest in the Murray Hill Cinema and disposition
of the Sutton Cinema in 2003, we decreased the value of the option fee in the
City Cinemas Purchase Option agreement by $890,000. In addition, in
October 2003 we recorded our loan commitment under the City Cinemas Standby
Credit Facility as a payable in our long-term debt on the Consolidated Balance
Sheet.
In
September 2004, simultaneous with the drawdown by SHC of the remaining $13.0
million under the Standby Credit Facility, SHC lent us $5.0
million. This amount was used principally to fund our purchase of the
25% membership interest in limited liability company that was developing the
Sutton Cinema site, and for working capital purposes. The loan bears
interest currently at 9.26%, payable monthly, with principal due and payable on
July 28, 2008.
On June
1, 2005, we acquired from a third party the fee interest and the landlord’s
interest in the ground lease underlying our leasehold estate in the Cinemas 1, 2
& 3. In consideration of the fact that there was some uncertainty
as to whether the opportunity to acquire this fee interest was an asset of SHC
(as the tenant of the ground lease estate and the owner of the improvements
located upon the land) or an asset of our Company, a compromise was reached
whereby we agreed to grant to SHC an option to acquire – at cost – up to a 25%
membership interest in the special purpose entity that we formed to acquire the
fee interest – Sutton Hill Properties, LLC.
On
September 19, 2005, we acquired from SHC its’ “tenant’s interest” in the ground
lease underlying our leasehold estate in the Cinemas 1, 2 &
3. The purchase price of the “tenant’s interest” was $9.0 million,
and was paid in the form of a 5-year unsecured purchase money promissory note,
bearing interest at 8.25%, interest payable monthly with principal payable
on December 31, 2010 (the “Purchase Money Promissory
Note”). This interest is also held by Sutton Hill Properties, LLC,
the same special purpose entity that acquired the fee interest in the
property. Accordingly, SHC’s option to buy into Sutton Hill
Properties, LLC, is, in essence, a right to buy-back into both the fee interest
acquired from the unrelated third party and the leasehold interest acquired from
SHC. Following the purchase of the “tenant’s interest,” we decreased
the value of the option fee in the City Cinemas Purchase Option agreement by
$1.3 million. In June 2007, we acquired the building and improvements
constituting the Cinemas 1, 2 & 3 from SHC for $100,000.
As a
result of the acquisition of SHC’s tenant’s interest in the ground lease, the
City Cinemas Operating Lease was amended to reduce the rent by an amount equal
to the interest payable under the Purchase Money Promissory Note, and the
exercise price on the City Cinemas Purchase Option was likewise reduced by $9.0
million. Consequently, an exercise of our option to purchase the
Village East Cinema would require a cash payment on our part of $6.0
million.
Each of
the above modification transactions involved was reviewed by a committee of the
independent directors of the Board of Directors. In each case, the
independent directors of the applicable committee have found the transaction to
be fair and in the best interests of our Company and our public
stockholders.
Reflecting
the disposition of the Murray Hill Cinema and the Sutton Cinema, the acquisition
of the fee, the landlord’s interest in the ground lease and the tenant’s
interest in the ground lease underlying the Cinemas 1, 2 & 3, and the
amendments to date with respect to the City Cinemas Transaction, which has
reduced our rent expense for this property to zero. For the years
ended December 31, 2007, 2006 and 2005, rent expense to SHC under the City
Cinemas Operating Lease was $491,000, $495,000, and $1.0 million,
respectively. We have funded our entire $13.0 million obligation
under the City Cinemas Standby Credit Facility. We also have the
option to purchase in July 2010 the remaining assets under the City Cinemas
Operating Agreement (SHC’s long-term leasehold interests in the Village East
Cinema and the improvements comprising this cinema) for an additional payment of
$6.0 million. As separate matters, we currently owe SHC $5.0 million
(due July 28, 2008) with respect to the borrowing used principally to finance
the acquisition of our interest in the limited liability company currently
developing the Sutton Cinema site and $9.0 million on the Purchase Money
Promissory Note (due December 31, 2010), for an aggregate liability of $14.0
million.
Reflecting
the release of the Murray Hill Cinema and the sale of our interest in the Sutton
Cinema, we expensed from the $5.0 million option fee for book purposes $890,000
related to such sales. In connection with the purchase of SHC’s
interest in the Cinemas 1, 2 & 3 property, we allocated $1.3 million of this
option amount to the purchase price of that interest. Accordingly, at
the present time, we carry only $441,000 of the original $5.0 million option fee
as a net asset on our balance sheet.
The
option granted to SHC to buy up to a 25% interest in Sutton Hill Properties, LLC
had been valued at $3.7 million at December 31, 2006 and is reflected in our
other liabilities on our balance sheet (see Note 15 - Other
Liabilities). On June 28, 2007, SHC exercised this option,
paying the option exercise price through the application of their $3.0 million
deposit plus the assumption of its proportionate share of SHP’s liabilities
giving it a 25% non-managing membership interest in SHP.
OBI Management
Agreement
Pursuant to a Theater Management
Agreement (the “Management Agreement”), our live theater operations are managed
by OBI LLC (“OBI Management”), which is wholly owned by Ms. Margaret Cotter who
is the daughter of James J. Cotter and a member of our Board of
Directors.
The
Management Agreement generally provides that we will pay OBI Management a
combination of fixed and incentive fees which historically have equated to
approximately 19% of the net cash flow received by us from our live theaters in
New York. Since the fixed fees are applicable only during such
periods as the New York theaters are booked, OBI Management receives no
compensation with respect to a theater at any time when it is not generating
revenues for us. This arrangement provides an incentive to OBI
Management to keep the theaters booked with the best available shows, and
mitigates the negative cash flow that would result from having an empty
theater. In addition, OBI Management manages our Royal George live
theater complex in Chicago on a fee basis based on theater cash
flow. In 2007, OBI Management earned $377,000 (including $39,000 for
managing the Royal George) which was 18.8% of net live theater cash flows for
the year. In 2006, OBI Management earned $470,000 (including $43,000
for managing the Royal George) which was 23.6% of net live theater cash flows
for the year. In 2005, OBI Management earned $533,000 (including
$74,000 for managing the Royal George) which was 20.7% of net live theater cash
flows for the year. In each year, we reimbursed travel related
expenses for OBI Management personnel with respect to travel between New York
City and Chicago in connection with the management of the Royal George
complex.
OBI
Management conducts its operations from our office facilities on a rent-free
basis, and we share the cost of one administrative employee of OBI
Management. Other than these
expenses and travel-related expenses for OBI Management personnel to travel to
Chicago as referred to above, OBI Management is responsible for all of its costs
and expenses related to the performance of its management
functions. The Management Agreement renews automatically each year
unless either party gives at least six months’ prior notice of its determination
to allow the Management Agreement to expire. In addition, we may
terminate the Management Agreement at any time for cause.
Live Theater Play
Investment
From time to time, our officers and
directors may invest in plays that lease our live theaters. During
2004, an affiliate of Mr. James J. Cotter and Michael Forman have a 25%
investment in the play, I Love
You, You’re Perfect, Now Change, playing in one of our auditoriums at our
Royal George Theatre. We similarly had a 25% investment in the
play. The play has earned for us $27,000, $25,000 and $35,000 during
the years ended December 31, 2007, 2006 and 2005, respectively. This
investment received board approval from our Conflicts Committee on August 12,
2002.
The play
STOMP has been playing in our Orpheum Theatre since prior to the time we
acquired the theater in 2001. Messrs. James J. Cotter and Michael
Forman own an approximately 5% interest in that play, an interest that they have
held since prior to our acquisition of the theater.
Note 27 – Subsequent
Events
Consolidated
Cinemas. On October 8, 2007, we entered into agreements to
acquire leasehold interests in 15 cinemas then owned by Pacific Theatres
Exhibition Corp. and its’ affiliates. The cinemas, which are located
in the United States, contain 181 screens with annual revenue of approximately
$78.0 million. The aggregate purchase price of the cinemas and
related assets is $69.3 million. The acquisition was made through a
wholly owned subsidiary of RDI and was financed principally by a combination of
debt financing from GE Capital Corporation and seller financing. This
acquisition closed on February 22, 2008.
Taringa
Properties. Since the close of 2007, we have acquired or
entered into agreements to acquire approximately 50,000 square foot of property
in Taringa, Australia, comprising four contiguous properties, which we intend to
develop. The aggregate purchase price of these properties is $11.3
million (AUS$12.9 million), of which $1.7 million (AUS$2.0 million) relates to
the three properties that have been acquired and $9.6 million (AUS$10.9 million)
relates to the one property that is still under contract which is subject to
certain rezoning conditions.
Schedule
II – Valuation and Qualifying Accounts
|
Description
|
Balance
at beginning of year
|
Additions
charged to costs and expenses
|
Deductions
|
Balance
at end of year
|
||||||||||||
|
Allowance
for doubtful accounts
|
||||||||||||||||
|
Year-ended December 31, 2007 –
Allowance for doubtful accounts
|
$ | 473 | $ | 62 | $ | 153 | $ | 382 | ||||||||
|
Year-ended December 31, 2006 –
Allowance for doubtful accounts
|
$ | 416 | $ | 247 | $ | 190 | $ | 473 | ||||||||
|
Year-ended December 31, 2005 –
Allowance for doubtful accounts
|
$ | 319 | $ | 183 | $ | 86 | $ | 416 | ||||||||
|
Tax
valuation allowance
|
||||||||||||||||
|
Year-ended December 31, 2007 –
Tax valuation allowance
|
$ | 56,218 | $ | 992 | $ | -- | $ | 57,210 | ||||||||
|
Year-ended December 31, 2006 –
Tax valuation allowance
|
$ | 58,584 | $ | -- | $ | 2,366 | $ | 56,218 | ||||||||
|
Year-ended December 31, 2005 –
Tax valuation allowance
|
$ | 59,180 | $ | -- | $ | 596 | $ | 58,584 | ||||||||
|
Non-current
tax liability for the year ended December 31, 2007
|
$ | 4,509 | $ | 908 | $ | -- | $ | 5,417 | ||||||||
Regarding
the allowance for doubtful accounts, certain prior year amounts were
reclassified to conform to the current year presentation.
Item 9 –
Change in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item 9A —
Controls and Procedures
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Securities Exchange
Act Rules 13a-15(f), including maintenance of (i) records that in
reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets, and (ii) policies and procedures that provide
reasonable assurance that (a) transactions are recorded as necessary to
permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, (b) our
receipts and expenditures are being made only in accordance with authorizations
of management and our Board of Directors and (c) we will prevent or timely
detect unauthorized acquisition, use, or disposition of our assets that could
have a material effect on the financial statements.
Internal
control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of the inherent limitations of any system
of internal control. Internal control over financial reporting is a process that
involves human diligence and compliance and is subject to lapses of judgment and
breakdowns resulting from human failures. Internal control over financial
reporting also can be circumvented by collusion or improper overriding of
controls. As a result of such limitations, there is risk that material
misstatements may not be prevented or detected on a timely basis by internal
control over financial reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is possible to design
into the process safeguards to reduce, though not eliminate, this
risk.
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
criteria established in
Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations (COSO) of the Treadway Commission. Based on our
evaluation under the COSO framework, our management concluded that our internal
control over financial reporting was effective as of December 31,
2007. The effectiveness of internal
control over financial reporting as of December 31, 2007 has been audited
by Deloitte & Touche LLP, an independent registered public accounting
firm, as stated in their report which is included herein.
Disclosure
Controls and Procedures
We have
formally adopted a policy for disclosure controls and procedures that provides
guidance on the evaluation of disclosure controls and procedures and is designed
to ensure that all corporate disclosure is complete and accurate in all material
respects and that all information required to be disclosed in the periodic
reports submitted by us under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods and in the manner
specified in the Securities and Exchange Commission’s rules and forms. As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures. A Disclosure Committee consisting of the principal accounting
officer, general counsel, chief communication officer, senior officers of each
significant business line and other select employees assisted the Chief
Executive Officer and the Chief Financial Officer in this evaluation. Based upon
that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as required
by the Securities Exchange Act Rule 13a-15(c) as of the end of the period
covered by this report.
Changes
in Internal Controls Over Financial Reporting
No
changes in internal control over financial reporting occurred during the last
fiscal quarter that have materially affected, or are likely to materially
affect, our internal control over financial reporting.
-117-
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders of Reading International,
Inc. Los Angeles, California
We have
audited the internal control over financial reporting of Reading International,
Inc. (the "Company") as of December 31, 2007, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management's Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on the criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and
financial statement schedules as of and for the year ended December 31, 2007 of
the Company and our report dated March 28, 2008, expressed an unqualified
opinion on those financial statements and financial statement schedules and
included an explanatory paragraph regarding the Company's adoption of Financial
Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement No. 109.
/s/ DELOITTE & TOUCHE LLP
Deloitte
& Touche LLP
Los
Angeles, California
March 28,
2008
PART
III
Items
10, 11, 12, 13 and 14
Information
required by Part II (Items 10, 11, 12, 13 and 14) of this From 10-K is herby
incorporated by reference from the Reading International, Inc.’s definitive
Proxy Statement for its 2007 Annual Meeting of Stockholders, which will be filed
with the Securities and Exchange Commission, pursuant to Regulation 14A, not
later than 120 days after the end of the fiscal year.
PART
IV
Item 15 – Exhibits,
Financial Statement Schedules.
(a) The
following documents are filed as a part of this report:
1. Financial
Statements
The following financial statements are
filed as part of this report under Item 8 “Financial Statements and
Supplementary Data.”
|
Description
|
Page
|
|
2. Financial Statement Schedules for the years
ended December 31, 2007, 2006 and 2005
|
|
|
Page
|
|
|
(b) Exhibits
Required by Item 601 of Regulation S-K
|
|
|
See
Item (a)3. above.
|
|
|
(c) Financial
Statement Schedule
|
|
|
See
Item (a)2. above.
|
|
Following are consolidated financial statements and
notes of 205-209 EAST 57th STREET
ASSOCIATES, LLC for the periods indicated. We are required to include
in our Report on Form 10-K audited financial statements for the year ended
December 31, 2007 and 2006 and unaudited financial statements for the year ended
December 31, 2005.
205-209
East 57th Street
Associates, LLC
Balance
Sheets
December
31, 2007 and 2006
(U.S.
dollars in thousands)
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
ASSETS
|
||||||||
|
Real
Estate:
|
||||||||
|
Land
|
$ | 780 | $ | 5,230 | ||||
|
Construction
and development costs
|
1,641 | 12,950 | ||||||
|
Residential
manager’s apartment (net of depreciation)
|
659 | -- | ||||||
|
Negotiable
certificates – real estate tax abatements
|
46 | 308 | ||||||
|
Total
real estate
|
3,126 | 18,488 | ||||||
|
Other
Assets:
|
||||||||
|
Cash
and cash equivalents
|
1,933 | 4,449 | ||||||
|
Security
deposits
|
8 | 7 | ||||||
|
Prepaid
income taxes
|
347 | -- | ||||||
|
Other
assets
|
18 | -- | ||||||
|
Total
other assets
|
2,306 | 4,456 | ||||||
|
Total
assets
|
$ | 5,432 | $ | 22,944 | ||||
|
LIABILITIES
AND MEMBERS' EQUITY
|
||||||||
|
Liabilities:
|
||||||||
|
Accounts
payable and accrued liabilities
|
$ | 440 | $ | 340 | ||||
|
Due
to affiliate
|
417 | 236 | ||||||
|
Deferred
rent
|
320 | -- | ||||||
|
Income
taxes payable
|
-- | 860 | ||||||
|
Retainage
payable
|
-- | 751 | ||||||
|
Total liabilities
|
1,177 | 2,187 | ||||||
|
Commitments
and Contingencies (Note 12)
|
||||||||
|
Members’
Equity
|
4,255 | 20,757 | ||||||
|
Total
Liabilities And Members’ Equity
|
$ | 5,432 | $ | 22,944 | ||||
The
accompanying notes are an integral part of these financial
statements.
205-209
East 57th Street
Associates, LLC
Statements
of Operations
For
The Three Years Ended December 31, 2007, 2006 and 2005
(U.S.
dollars in thousands)
|
Years Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
(Unaudited)
|
||||||||||
|
Revenue:
|
||||||||||||
|
Sales
– condominium units
|
$ | 25,401 | $ | 117,329 | $ | -- | ||||||
|
Contract
termination income
|
-- | 239 | -- | |||||||||
|
Dividends
and interest
|
168 | 140 | -- | |||||||||
|
Rental
income
|
104 | -- | -- | |||||||||
|
Total revenue
|
25,673 | 117,708 | -- | |||||||||
|
Expenses:
|
||||||||||||
|
Costs
of sales of condominium units
|
16,987 | 75,382 | -- | |||||||||
|
Selling
costs
|
1,369 | 6,523 | -- | |||||||||
|
Marketing
and advertising
|
184 | 740 | 500 | |||||||||
|
Sponsor
common charges
|
70 | 421 | -- | |||||||||
|
Utilities
|
9 | 90 | -- | |||||||||
|
Contributions
|
- | 6 | -- | |||||||||
|
Depreciation
|
21 | -- | -- | |||||||||
|
Miscellaneous
|
46 | 5 | -- | |||||||||
|
New
York City unincorporated business tax
|
182 | 1,435 | -- | |||||||||
|
Total expenses
|
18,868 | 84,602 | 500 | |||||||||
|
Net
income (loss)
|
$ | 6,805 | $ | 33,106 | $ | (500 | ) | |||||
The
accompanying notes are an integral part of these financial
statements.
205-209
East 57th Street
Associates, LLC
Statements
of Changes in Members’ Equity
For
the Three Years Ended December 31, 2007, 2006 and 2005
(U.S.
dollars in thousands)
|
PGA
Clarett 1, LLC
|
PGA
Clarett 2, LLC
|
PGA
Clarett 3, LLC
|
PGA
Clarett 4, LP
|
Clarett
Partners, LLC
|
CC
Sutton Manager, LLC
|
Citadel
Cinemas, Inc.
|
Total
|
|||||||||||||||||||||||||
|
Members
equity – January 1, 2005 (Unaudited)
|
1,341 | 1,306 | 139 | 1,131 | 65 | 2,546 | 2,177 | 8,705 | ||||||||||||||||||||||||
|
Member
contributions
|
323 | 432 | 387 | 153 | 22 | 842 | 719 | 2,878 | ||||||||||||||||||||||||
|
Assignment
of interest
|
115 | -- | (325 | ) | 210 | -- | -- | -- | -- | |||||||||||||||||||||||
|
Net
loss
|
(72 | ) | (75 | ) | (23 | ) | (55 | ) | (4 | ) | (146 | ) | (125 | ) | (500 | ) | ||||||||||||||||
|
Members
equity – December 31, 2005 (Unaudited)
|
1,707 | 1,663 | 178 | 1,439 | 83 | 3,242 | 2,771 | 11,083 | ||||||||||||||||||||||||
|
Member
distributions
|
(2,813 | ) | (2,739 | ) | (293 | ) | (2,372 | ) | (2,503 | ) | (6,854 | ) | (5,858 | ) | (23,432 | ) | ||||||||||||||||
|
Net
income
|
1,355 | 1,319 | 141 | 1,143 | 11,188 | 9,684 | 8,276 | 33,106 | ||||||||||||||||||||||||
|
Members
equity – December 31, 2006 (Audited)
|
$ | 249 | $ | 243 | $ | 26 | $ | 210 | $ | 8,768 | $ | 6,072 | $ | 5,189 | $ | 20,757 | ||||||||||||||||
|
Member
distributions
|
(280 | ) | (272 | ) | (29 | ) | (236 | ) | (9,846 | ) | (6,817 | ) | (5,827 | ) | (23,307 | ) | ||||||||||||||||
|
Net
income
|
82 | 79 | 8 | 69 | 2,875 | 1,990 | 1,702 | 6,805 | ||||||||||||||||||||||||
|
Members
equity – December 31, 2007 (Audited)
|
$ | 51 | $ | 50 | $ | 5 | $ | 43 | $ | 1,797 | $ | 1,245 | $ | 1,064 | $ | 4,255 | ||||||||||||||||
The
accompanying notes are an integral part of these financial
statements.
205-209
East 57th Street
Associates, LLC
Statements
of Cash Flows
For
the Three Years Ended December 31, 2007, 2006 and 2005
(U.S.
dollars in thousands)
|
Year Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
(Unaudited)
|
||||||||||
|
Cash
Flows from Operating Activities
|
||||||||||||
|
Net
income (loss)
|
$ | 6,805 | $ | 33,106 | $ | (500 | ) | |||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Costs
of sales of condominium units
|
16,987 | 75,382 | -- | |||||||||
|
Amortization
of deferred rent
|
(103 | ) | -- | -- | ||||||||
|
Depreciation
|
21 | -- | -- | |||||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
Acquisition of
land
|
-- | -- | (2,160 | ) | ||||||||
|
Additions to land, construction
and development costs
|
(1,223 | ) | (19,689 | ) | (38,446 | ) | ||||||
|
Inclusionary air
rights
|
-- | -- | (2,500 | ) | ||||||||
|
Acquisition of negotiable
certificates
|
-- | (643 | ) | (863 | ) | |||||||
|
Increase in prepaid
taxes
|
(347 | ) | -- | -- | ||||||||
|
Increase in other
assets
|
(17 | ) | -- | -- | ||||||||
|
Decrease (increase) in security
deposits
|
-- | 58 | (36 | ) | ||||||||
|
Increase (decrease) in accounts
payable and accrued expenses
|
100 | (2,734 | ) | 1,932 | ||||||||
|
(Decrease) increase in income
taxes payable
|
(860 | ) | 860 | -- | ||||||||
|
(Decrease) increase in retainage
payable
|
(751 | ) | (953 | ) | 1,675 | |||||||
|
Increase in due to
affiliates
|
179 | 263 | -- | |||||||||
|
Net
cash provided by (used in) operating activities
|
20,791 | 85,650 | (40,898 | ) | ||||||||
|
Cash
Flows from Financing Activities
|
||||||||||||
|
Proceeds from construction
loan
|
-- | 19,224 | 38,130 | |||||||||
|
Repayment of construction
loan
|
-- | (77,156 | ) | -- | ||||||||
|
Payment of mortgage loan
payable
|
-- | -- | -- | |||||||||
|
(Payments) proceeds from loan
payable Clarett Capital
|
-- | -- | (1 | ) | ||||||||
|
Member
distributions
|
(23,307 | ) | (23,432 | ) | -- | |||||||
|
Member
contributions
|
-- | -- | 2,877 | |||||||||
|
Net
cash (used in) provided by financing activities
|
(23,307 | ) | (81,364 | ) | 41,006 | |||||||
|
Net
(decrease) increase in cash and cash equivalents
|
(2,516 | ) | 4,286 | 108 | ||||||||
|
Cash
and cash equivalents – beginning of year
|
4,449 | 163 | 55 | |||||||||
|
Cash
and cash equivalents – end of year
|
$ | 1,933 | $ | 4,449 | $ | 163 | ||||||
|
Supplemental
disclosure of cash flow information:
|
||||||||||||
|
Cash paid during the year
for:
|
||||||||||||
|
Interest
which was capitalized
|
$ | -- | $ | 4,244 | $ | 1,163 | ||||||
|
Income
taxes
|
$ | 1,390 | $ | 575 | $ | -- | ||||||
The
accompanying notes are an integral part of these financial
statements.
205-209
East 57th Street
Associates, LLC
Notes
to Financial Statements
December
31, 2007
Note 1 - Organization and
Business Purpose
205-209
East 57th Street
Associates, LLC (“the Company”) was formed as a limited liability company under
the laws of the State of Delaware. The Company was formed to acquire,
finance, develop, own, operate, lease and sell property located at 205-209 East
57th
Street, New York, New York. The Company completed construction of the
property, known as “Place 57”, a 143,000 square foot, thirty-six story building
comprised of 68 residential condominium units and one commercial condominium
unit.
From
September 3, 2003 (the “inception date”) through September 14, 2004 the Company
was a single member limited liability company with Clarett Capital, LLC
(“Clarett Capital”) as the sole member. Effective September 14, 2004,
the operating agreement (“the Agreement”) was amended and restated to provide
for the admission of the following new members: Citadel Cinemas, Inc.
(“Citadel”) 25%, CC Sutton Manager, LLC (“CC Sutton”) 29.25%, PGA
Clarett 1, LLC (“PGA 1”) 8.352%, PGA Clarett 2, LLC (“PGA 2”) 15%, PGA Clarett
3, LLC (“PGA 3”) 21.648% and Clarett Partners, LLC (“Clarett Partners”)
0.75%.
Effective
December 30, 2004 PGA Clarett 1, LLC assigned 28.820% of its percentage interest
and PGA 3, assigned 80.791% of its percentage interest to a new member, PGA
Clarett 4, LP (“PGA 4”).
Net
income or loss and distributions are allocated to the members in accordance with
the terms of the Company’s operating agreement. The members of a
limited liability company are generally not individually liable for the
obligations of the limited liability company.
Note 2 - Summary of
Significant Accounting Policies
(a) Income
Taxes
The
Company was formed as a limited liability company and has elected to be taxed as
a partnership. Components of the Company’s net income or loss are
taxable to the members. Accordingly, no provision for federal or
state income taxes is provided for in the accompanying financial
statements.
The
construction project is located in the City of New York where an entity level
income tax is imposed on unincorporated businesses, which, for the year ended
December 31, 2007 and 2006 amounted to $182,502 and $1,435,000,
respectively.
(b) Use
of Estimates in Financial Statement Presentation
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingencies, if any, at the date of the
financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates. Significant estimates include the allocation of costs to
units sold, determination of remaining costs to complete, and estimated sales
prices of unsold units.
(c) Revenue
Recognition
Revenue
has been recognized upon the closing of each condominium unit.
(d) Marketing
and Advertising
Marketing
and promotion costs are charged to operations when incurred. The
Company expensed marketing and promotion costs of $184,122, $740,492, and
$500,000 for the years ended December 31, 2007, 2006 and 2005,
respectively.
(e) Capitalized
Costs
The
Company capitalizes all costs associated with the development
project. Capitalized costs include, but are not limited to,
construction and development costs, construction period interest, real estate
taxes and architect, development and professional fees.
(f) Costs
of Sales of Condominium Units
In
connection with the sale of condominium units during 2007 and 2006, land,
capitalized construction and development costs and negotiable certificates for
real estate tax abatements have been expensed based on the total costs incurred
and the estimated costs to complete, multiplied by the relative sales value of
units sold in 2007 and 2006, respectively. In addition, included in
costs of sales of condominium units for the year ended December 31, 2007 is the
imputed fair value for the rental of the residential manager unit of
$423,506.
(g) Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Cash equivalents consist
of an interest-bearing money fund account.
|
(h)
|
Depreciation
|
Depreciation
of the residential manager’s apartment is provided using the straight-line
method over the estimated useful life of forty years.
Note 3 -
Land
At
December 31, 2007 and 2006, land was comprised of the following (dollars in
thousands):
|
Year Ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Direct
purchase cost
|
$ | 15,339 | $ | 15,339 | ||||
|
Air
rights
|
6,925 | 6,910 | ||||||
|
Mortgage
recording tax
|
1,953 | 1,953 | ||||||
|
Brokerage
fees
|
500 | 500 | ||||||
|
Demolition
costs
|
600 | 600 | ||||||
|
Title
insurance
|
256 | 256 | ||||||
|
Total
land
|
25,573 | 25,558 | ||||||
|
Less:
costs allocated to condominium units sold
|
24,611 | 20,328 | ||||||
|
Less:
cost allocated to residential manager’s apartment
|
182 | -- | ||||||
|
Net
land value
|
$ | 780 | $ | 5,230 | ||||
Note 4 - Construction and
Development Costs
Construction
and development costs include direct and indirect construction
costs. Direct construction costs (“Hard costs”) include those costs
directly related to the construction of the development
project. Indirect costs (“Soft costs”) include costs that have been
capitalized, such as construction period interest and financing costs, real
estate and recording taxes, insurance, development fees and architect
fees.
At
December 31, 2007 and 2006, construction and development costs are comprised of
the following (dollars in thousands):
|
Year Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
(Unaudited)
|
||||||||||
|
Hard
costs
|
$ | 49,426 | $ | 48,355 | $ | 34,597 | ||||||
|
Soft
costs
|
18,588 | 18,451 | 12,570 | |||||||||
|
Total
construction and development costs
|
68,014 | 66,806 | 47,167 | |||||||||
|
Less
: costs allocated to condominium units sold
|
65,887 | 53,856 | 47,167 | |||||||||
|
Less: cost
allocated to residential manager’s apartment
|
486 | -- | -- | |||||||||
|
Net
construction and development costs
|
$ | 1,641 | $ | 12,950 | $ | 47,167 | ||||||
Note 5 - Negotiable
Certificates
In
December 2003, the Company entered into an agreement to purchase 61 negotiable
certificates under Section 421a of the New York State Real Property tax law in
order to obtain real estate tax abatements. Section 421a provides that property
constructed north of 14th Street
in Manhattan, on vacant or underutilized land, is eligible for partial real
estate tax abatements. Abatements are for ten years and provide for
limited real estate tax reductions. The agreement contained an option
to purchase an additional seven certificates, which the Company exercised in
March 2004. The final purchase price was $863,083, which is equal to
the sum of $793,083 for the original 61 certificates plus $10,000 for each of
the seven additional certificates.
In
February 2006, the Company purchased an additional 17 negotiable 421a
certificates for $340,000.
In May
2006, the Company paid a Preliminary Certificate of Eligibility Fee to The City
of New York for $302,681, which is required to be paid in conjunction with these
negotiable certificates.
At
December 31, 2007 and 2006 negotiable certificates is comprised of the following
(dollars in thousands):
|
Year Ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
421a
certificates
|
$ | 1,203 | $ | 1,203 | ||||
|
Preliminary
certificate of eligibility fee
|
303 | 303 | ||||||
|
Total
negotiable certificates
|
1,506 | 1,506 | ||||||
|
Less
: costs allocated to condominium units sold
|
1,449 | 1,198 | ||||||
|
Less: cost
allocated to residential manager’s apartment
|
11 | -- | ||||||
|
Net
negotiable certificates
|
$ | 46 | $ | 308 | ||||
Note 6 - Air
Rights
In 2003,
the Company purchased 25,550 square feet of inclusionary air rights in order to
generate an inclusionary building bonus (air rights) under The Inclusionary
Housing Program, as defined in the Zoning Resolution of the City of New
York. The purchase price was $2,499,750, which has been capitalized
and is included in land.
On July
21, 2004, the Company entered into an exchange agreement with Joseph E. Marx
Company, Inc. (“Marx”) to exchange like-kind property. The Company
exchanged previously acquired land located at 957 Third Avenue, New York, New
York, plus cash of $1,300,000, for excess floor area rights (“air rights”)
having an agreed value of $4,410,000. The value of the air rights has
been capitalized and is included in land.
127,391
square feet out of a total of 128,560 square feet of Inclusionary air rights
were utilized to build the condominium development project. The
Company estimates that the remaining 1,169 square feet of development air rights
will not be able to be sold separately and, accordingly, are included in costs
of sales of condominium units.
Note
7 - Construction Loan Payable
On
September 14, 2004, the Company obtained nonrecourse financing in the form of a
$80,602,000 construction loan facility (the “Construction Project Loan”) from
Corus Bank N.A. (“Construction Lender”) for the development of the property
located at 205-209 East 57th Street
and 957 Third Avenue, New York, New York.
The
Construction Project Loan was comprised of three separate facilities: a
$14,300,000 acquisition loan to retire the $13,000,000 existing mortgage with
Citadel and to finance the payment of $1,300,000 made in connection with the
acquisition of the air rights from Marx (Note 6), a $44,133,805 building loan
facility and a $22,168,195 soft cost loan facility.
Each loan
component was evidenced by a separate note (the “Notes”) and was secured by the
land, including improvements and equipment thereon, a security agreement and the
assignment of leases and rents. The loan was guaranteed by Clarett
Capital.
The
building loan facility was required to be used to pay for certain hard
construction costs incurred in connection with the construction, conversion and
completion of the condominium project. The soft cost facility was
required to be used for soft costs incurred in connection with the project, such
as interest, real estate taxes and certain other fees.
The
$14,300,000 acquisition loan was separated into two tranches each of which
accrued interest at different rates. Tranche A, in the amount of
$5,598,000, bore interest per annum at the greater of 5% or a defined
three-month LIBOR rate plus 3.5%. Tranche B, in the amount of
$8,702,000, bore interest at the rate of 12% per annum and could not be repaid
until the entire balance of the building loan facility, the Tranche A and
Tranche 1 (see below) loans had been paid. The building loan facility
bore interest per annum at the greater of 5% or a defined three-month LIBOR rate
plus 3.5%.
The soft
cost loan facility was comprised of two tranches, each of which accrued at
different interest rates. Tranche 1, in the amount of $20,092,195,
bore interest per annum at the greater of 5% or a defined three-month LIBOR rate
plus 3.5%. Tranche 2, in the amount of $2,076,000, bore interest at
the rate of 12% per annum and could not be repaid until the entire balance of
the building loan facility, the Tranche A and Tranche 1 loans had been
paid.
Construction
loan interest incurred by the Company for the years ended December 31, 2006 and
2005 amounted to $3,846,469 and $2,776,884,
respectively. Construction loan interest was capitalized as
construction and development costs throughout the construction
period.
The
Construction Project Loan agreement provided for the outstanding principal
balance of the loan to be paid to the Lender upon the closing of sale of each
residential condominium unit in an amount equal to the greater of 100% of the
Net Sales Proceeds from each unit, as defined, or 92% of the contract sales
price for the unit.
In the
event of the sale of any retail units, the Construction Project Loan principal
to be paid was to be the greater of 100% of the Net Sales Proceeds, as defined,
or $1,083 per square foot of the ground floor of the retail unit
sold.
During
the year ended December 31, 2006, the Company fully repaid the entire
outstanding principal balance of the Construction Loan, which amounted to
$77,156,151 using proceeds from the sale of the condominium units.
The
Company was obligated to pay an exit fee to the Construction Lender in the
amount of $403,010 (the “Exit Fee”). Portions of this fee were
required to be paid upon the closing of the sale of each condominium unit at a
rate of $15,000 per unit until the Exit Fee was paid in full. This
obligation was paid in full during 2006.
Note 8 - Retainage
Payable
The
construction agreement requires retainage of not less than ten percent of the
costs incurred to the contractor until fifty percent of the work is
completed. Thereafter, Bovis Lend Lease (“Construction manager”) has
the discretion to determine the retainage percentage on a
subcontractor-by-subcontractor basis. As of December 31, 2007
and 2006, the retainage payable amounted to $0 and $751,369,
respectively.
Note
9 - Condominium Sales
In 2004,
the Company initiated a condominium offering plan, which obtained the necessary
approvals in 2005 and 2006. The condominium consists of 68
residential units and one commercial unit. 67 residential units were
offered for sale.
One
residential unit is retained by the Company and leased to the condominium
association at one dollar per year for its residential manager. This
unit is leased for a five year period, which commenced with the date of the
first unit closing. The condominium association is responsible for
real estate taxes, common charges and other operating expenses for this
unit.
As of
December 31, 2007, all of the residential condominium units have been
sold. The commercial unit, which has an estimated sales value of
approximately $4,500,000, is still available for sale or lease.
Note 10 - Residential
Manager’s Apartment
At
December 31, 2007, the residential manager’s apartment is comprised of the
following (dollars in thousands):
|
Land
|
$ | 183 | ||
|
Hard
and soft construction costs
|
486 | |||
|
Negotiable
certificates
|
11 | |||
| 680 | ||||
|
Less:
accumulated depreciation
|
(21 | ) | ||
|
Total
cost
|
$ | 659 |
Note 11 - Deferred
Rent
The
Company recognized deferred rent on the below market lease of the residential
manager’s unit discussed in Note 9. The Company estimates the fair
value of the rent to be approximately $7,000 per month, which over the life of
the lease amounts to approximately $420,000. The Company amortized
approximately $104,000 into rental income for the year ended December 31,
2007.
Note 12 - Selling
Costs
At
December 31, 2007, selling costs are comprised of the following (dollars in
thousands):
|
2007
|
2006
|
|||||||
|
Broker
fees
|
$ | 755 | $ | 3,720 | ||||
|
Commissions
|
614 | 2,783 | ||||||
|
Title
recording
|
-- | 20 | ||||||
|
Total
selling costs
|
$ | 1,369 | $ | 6,523 | ||||
Note 13 - Related Party
Transactions
(a) Due
to Affiliate
At
December 31, 2007 and 2006, the Company owes $416,630 and $236,014,
respectively, to The Clarett Group (“Clarett Group”) for marketing commissions
and other reimbursable expenses paid on behalf of the
Company. Members of the Company are also members in Clarett
Group.
(b) Development
Fees
In
accordance with a development services agreement, the Company is to pay
development fees and expense reimbursements to CC Developer, LLC (“CC
Developer”). The members of CC Developer are also members of CC
Sutton and Clarett Partners. The development services agreement
provides for a total project development fee of $2,685,960. As of
December 31, 2006, this development fee had been fully paid, and for the year
ended December 31, 2006, charges from this affiliate for development fees and
expense reimbursements aggregated $381,773.
(c) Commissions
Clarett
Group had been designated as the exclusive sales agent for selling residential
units pursuant to a Sales Agreement. The Sales Agreement provides for
a commission equal to four percent of the gross sales price of each unit sold
and a sales commission of two percent when sales involve a third-party
broker. For the years ended December 31, 2007 and 2006, the Company
incurred $614,080 and $2,783,140, respectively, of commissions to Clarett
Group.
Note 14 - Commitments and
Contingencies
(a) Operating
Lease
The
Company leased a sales office in New York, New York under a two-year operating
lease, which expired in July 2006. The lease provided for monthly
rental payments of $15,000 plus escalation provisions. In connection
with obtaining the lease, the Company paid a $30,000 security deposit to the
landlord in 2004. $15,000 of the security deposit was returned to the
Company and the remaining $15,000 was used to pay the final month’s
rent. Rent expenditures for the sales office for the years ended
December 31, 2007, 2006 and 2005 amounted to $0, $120,000, and $180,000,
respectively.
(b) Sponsor
Common Charges
The
Company is the sponsor for the condominium and is obligated to pay all common
charges, special assessments and real estate taxes allocated to any unsold units
or commercial units in accordance with the provisions of the
By-Laws. During the years ended December 31, 2007 and 2006, the
Company incurred $69,779 and $420,949, respectively, of sponsor common charges,
which is reflected in the accompanying statement of operations.
(c) Estimated
Costs to Complete
At
December 31, 2007, the Company estimates the cost to complete the development
project to be approximately $462,000.
Note 15 - Construction
Manager Incentive
The
construction management agreement provides for an incentive fee to be paid to
the construction manager in the event that the total cost of construction, as
defined, is less than the guaranteed maximum price of
$49,217,811. Total project costs are expected to exceed the original
projected cost of construction. Accordingly, no construction manager
fee will be paid.
Note 16 - Concentration of
Risk
At
December 31, 2007 and 2006, the Company’s deposits with banks exceeded federal
deposit insurance coverage of $100,000.
The
Company and the constructed property are located in New York City and are
subject to local economic conditions.
The
Company contracted with a single company, Bovis Lend Lease, as the construction
manager for the project.
Report
of Independent Auditors
To the
Members of
205-209
East 57th Street
Associates, LLC:
In our
opinion, the accompanying balance sheets and the related statements of
operations, changes in members' equity, and cash flows present fairly, in all
material respects, the financial position of 205-209 East 57th Street
Associates, LLC (the "Company") at December 31, 2007 and 2006, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS
LLP
New York,
New York
February
11, 2008
Following are consolidated financial statements and
notes of Mt. Gravatt Cinemas Joint Venture for the periods
indicated. We are required to include in our Report on Form 10-K
audited financial statements for the year ended December 31, 2007 and unaudited
financial statements for the year ended December 31, 2006 and
2005.
Mt.
Gravatt Cinemas Joint Venture
Income
Statement
For
the Year Ended December 31, 2007
|
In
AUS$
|
Note
|
2007
|
2006
(unaudited)
|
2005
(unaudited)
|
||||||||||||
|
Revenue
from rendering services
|
7 | $ | 9,095,218 | $ | 8,777,374 | $ | 8,423,526 | |||||||||
|
Revenue
from sale of concession
|
3,546,654 | 3,269,303 | 3,037,909 | |||||||||||||
|
Total
Revenue
|
$ | 12,641,872 | $ | 12,046,677 | $ | 11,461,435 | ||||||||||
|
Cost
of concession
|
(893,473 | ) | (814,500 | ) | (756,512 | ) | ||||||||||
|
Depreciation
and amortization expenses
|
10 | (653,342 | ) | (722,828 | ) | (774,111 | ) | |||||||||
|
Personnel
expenses
|
8 | (1,839,730 | ) | (1,684,754 | ) | (1,632,351 | ) | |||||||||
|
Film
expenses
|
(3,549,246 | ) | (3,390,265 | ) | (3,322,293 | ) | ||||||||||
|
Occupancy
expenses
|
(1,248,608 | ) | (1,280,726 | ) | (1,307,976 | ) | ||||||||||
|
House
expenses
|
(973,931 | ) | (796,373 | ) | (856,203 | ) | ||||||||||
|
Advertising
and marketing costs
|
(285,455 | ) | (283,183 | ) | (315,601 | ) | ||||||||||
|
Management
fees
|
(223,043 | ) | (216,396 | ) | (214,405 | ) | ||||||||||
|
Repairs
and maintenance expense
|
(167,877 | ) | (246,676 | ) | (209,708 | ) | ||||||||||
|
Results
for operating activities
|
$ | 2,807,167 | $ | 2,610,976 | $ | 2,072,275 | ||||||||||
|
Finance
income
|
44,340 | 50,874 | 23,390 | |||||||||||||
|
Finance
expense
|
-- | (82,494 | ) | (112,168 | ) | |||||||||||
|
Net
finance income(expense)
|
9 | $ | 44,340 | $ | (31,620 | ) | $ | (88,778 | ) | |||||||
|
Profit
for the period
|
$ | 2,851,507 | $ | 2,579,356 | $ | 1,983,497 | ||||||||||
The
accompanying notes are an integral part of these financial
statements.
Mt.
Gravatt Cinemas Joint Venture
Statement
of Changes in Members’ Equity
For
the Year Ended December 31, 2007
|
In
AUS$
|
Reading
Exhibition Pty Ltd
|
Village
Roadshow Exhibition Pty Ltd
|
Birch
Carroll & Coyle Limited
|
Total
|
||||||||||||
|
Members’
Equity – January 1, 2005 (unaudited)
|
$ | 629,608 | $ | 629,608 | $ | 629,609 | $ | 1,888,825 | ||||||||
|
Member
distributions
|
(130,000 | ) | (130,000 | ) | (130,000 | ) | (390,000 | ) | ||||||||
|
Net
profit
|
661,166 | 661,166 | 661,165 | 1,983,497 | ||||||||||||
|
Members’
Equity – December 31, 2005 (Unaudited)
|
$ | 1,160,774 | $ | 1,160,774 | $ | 1,160,774 | $ | 3,482,322 | ||||||||
|
Member
distributions
|
(400,000 | ) | (400,000 | ) | (400,000 | ) | (1,200,000 | ) | ||||||||
|
Net
profit
|
859,785 | 859,785 | 859,786 | 2,579,356 | ||||||||||||
|
Members’
Equity – December 31, 2006 (Unaudited)
|
$ | 1,620,559 | $ | 1,620,559 | $ | 1,620,560 | $ | 4,861,678 | ||||||||
|
Member
distributions
|
(1,050,000 | ) | (1,050,000 | ) | (1,050,000 | ) | (3,150,000 | ) | ||||||||
|
Net
profit
|
950,502 | 950,502 | 950,503 | 2,851,507 | ||||||||||||
|
Members’
Equity – December 31, 2007
|
$ | 1,521,061 | $ | 1,521,061 | $ | 1,521,063 | $ | 4,563,185 | ||||||||
The
accompanying notes are an integral part of these financial
statements.
Mt.
Gravatt Cinemas Joint Venture
Balance
Sheet
As
of December 31, 2007
|
In
AUS$
|
Note
|
2007
|
2006
(unaudited)
|
|||||||||
|
ASSETS
|
||||||||||||
|
Current
Assets
|
||||||||||||
|
Cash
and cash equivalents
|
13 | $ | 1,474,386 | $ | 1,300,373 | |||||||
|
Trade
receivables
|
12 | 97,597 | 65,918 | |||||||||
|
Inventories
|
11 | 88,317 | 108,637 | |||||||||
|
Other
assets
|
12 | 534 | 40,727 | |||||||||
|
Total
current assets
|
$ | 1,660,834 | $ | 1,515,655 | ||||||||
|
Property,
plant and equipment
|
10 | 3,897,870 | 4,094,675 | |||||||||
|
Total
non-current assets
|
$ | 3,897,870 | $ | 4,094,675 | ||||||||
|
Total
assets
|
$ | 5,558,704 | $ | 5,610,330 | ||||||||
|
Current
Liabilities
|
||||||||||||
|
Payables
|
15 | 794,733 | 531,836 | |||||||||
|
Employee
benefits
|
14 | 67,745 | 68,667 | |||||||||
|
Deferred
revenue
|
16 | 77,645 | 97,056 | |||||||||
|
Total
current liabilities
|
$ | 940,123 | $ | 697,559 | ||||||||
|
Employee
benefits
|
14 | 55,396 | 51,093 | |||||||||
|
Total
non-current liabilities
|
$ | 55,396 | $ | 51,093 | ||||||||
|
Total
liabilities
|
$ | 995,519 | $ | 748,652 | ||||||||
|
Net
assets
|
$ | 4,563,185 | $ | 4,861,678 | ||||||||
|
Equity
|
||||||||||||
|
Contributed
equity
|
202,593 | 202,593 | ||||||||||
|
Retained
earnings
|
4,360,592 | 4,659,085 | ||||||||||
|
Total
equity
|
$ | 4,563,185 | $ | 4,861,678 | ||||||||
The
accompanying notes are an integral part of these financial
statements.
Mt.
Gravatt Cinemas Joint Venture
Statement
of Cash Flows
For
the Year Ended December 31, 2007
|
In
AUS$
|
Note
|
2007
|
2006
(unaudited)
|
2005
(unaudited)
|
||||||||||||
|
Cash
flows from operating activities
|
||||||||||||||||
|
Cash
receipts from customers
|
$ | 12,617,843 | $ | 12,184,040 | $ | 11,530,420 | ||||||||||
|
Cash
paid to suppliers and employees
|
(8,881,633 | ) | (9,195,814 | ) | (9,041,416 | ) | ||||||||||
|
Cash
generated from operations
|
$ | 3,736,210 | $ | 2,988,226 | $ | 2,489,004 | ||||||||||
|
Interest
received
|
9 | 44,340 | 50,874 | 23,390 | ||||||||||||
|
Interest
paid
|
9 | -- | (82,494 | ) | (112,168 | ) | ||||||||||
|
Net
cash from operating activities
|
20 | $ | 3,780,550 | $ | 2,956,606 | $ | 2,400,226 | |||||||||
|
Cash
flows from investing activities
|
||||||||||||||||
|
Acquisition
of property, plant and equipment
|
10 | (456,537 | ) | (170,042 | ) | (756,402 | ) | |||||||||
|
Net
cash from investing activities
|
$ | (456,537 | ) | $ | (170,042 | ) | $ | (756,402 | ) | |||||||
|
Cash
flows from financing activities
|
||||||||||||||||
|
Distributions
to Joint Venturers
|
(3,150,000 | ) | (1,200,000 | ) | (390,000 | ) | ||||||||||
|
Payment
of finance lease liability
|
-- | (1,416,281 | ) | (859,384 | ) | |||||||||||
|
Net
cash from financing activities
|
$ | (3,150,000 | ) | $ | (2,616,281 | ) | $ | (1,249,384 | ) | |||||||
|
Net
increase in cash and cash equivalents
|
174,013 | 170,283 | 394,440 | |||||||||||||
|
Cash
and cash equivalents at 1 January
|
1,300,373 | 1,130,090 | 735,650 | |||||||||||||
|
Cash
and cash equivalents at December 31
|
13 | $ | 1,474,386 | $ | 1,300,373 | $ | 1,130,090 | |||||||||
The
accompanying notes are an integral part of these financial
statements.
Mt.
Gravatt Cinemas Joint Venture
Notes
to Financial Statements
December
31, 2007
1. Reporting
Entity
Mt.
Gravatt Cinemas Joint Venture (the “Joint Venture”) is an unincorporated joint
venture between Birch Carrol & Coyle Limited, Village Roadshow Exhibition
Pty Ltd and Reading Exhibition Pty Ltd. The Joint Venture is
domiciled and provides services solely in Australia. The address of
the Joint Venture’s registered office is 49 Market Street, Sydney NSW
2000. The Joint Venture primarily is involved in the exhibition of
motion pictures in cinemas.
The joint
venture is to continue in existence until the Joint Venture is terminated and
associated underlying assets have been sold and the proceeds of sale distributed
upon agreement of the members. All distributions of earnings are
required to be agreed upon and distributed evenly to the three Joint
Venturers. The three Joint Venturers will evenly contribute any
future required contributions.
For local
reporting purposes, the Joint Venture has been deemed a non-reporting entity
within the framework of Australian Accounting Standards (AASBs).
2. Basis
of Presentation
(a) Statement
of Compliance
These
financial statements have been prepared in accordance with the International
Financial Reporting Standards (IFRSs) adopted by the International Accounting
Standards Board.
The
financial year end of the Joint Venture is 30 June. For purposes of
the use of these financial statements by one of the Joint Venturers, these
financial statements have been prepared on a 12-month period basis ending on 31
December.
The financial statements were
approved by the Management Committee on March 13, 2008
|
(b)
|
Basis
of Measurement
|
The
financial statements have been prepared on the historical cost
basis. The methods used to measure fair values are discussed further
in Note 4.
|
(c)
|
Functional
and Presentation Currency
|
These
financial statements are presented in Australian dollars, which is also the
Joint Venture’s functional currency.
|
(d)
|
Use
of Estimates and Judgments
|
The
preparation of financial statements requires management to make judgments,
estimates and assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these
estimates.
Estimates
and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimate is
revised and in any future periods affected.
In
particular, information about significant areas of estimation uncertainty and
critical judgments in applying accounting policies that have the most
significant effect on the amount recognized in the financial statements are
described in Note 17 financial instruments.
3. Significant
Accounting Policies
The
accounting policies set out below have been applied consistently to all periods
presented in these financial statements.
The Joint
Venture has not elected to early adopt any accounting standards and
amendments. See Note 3(n).
(a) Financial
Instruments
Non-derivative
financial instruments comprise trade receivables, cash and cash equivalents, and
trade payables.
Non-derivative
financial instruments are recognized initially at fair value plus, for
instruments not at fair value through profit or loss, any directly attributable
transaction costs. Subsequent to initial recognition non-derivative financial
instruments are measured as described below.
A
financial instrument is recognized if the Joint Venture becomes a party to the
contractual provisions of the instrument. Financial assets are derecognized if
the Joint Venture’s contractual rights to the cash flows from the financial
assets expire or if the Joint Venture transfers the financial asset to another
party without retaining control or substantially all risks and rewards of the
asset. Regular way purchases and sales of financial assets are accounted for at
trade date, i.e., the date that the Joint Venture commits itself to purchase or
sell the asset. Financial liabilities are derecognized if the Joint Venture’s
obligations specified in the contract expire, are discharged or
cancelled.
Cash and
cash equivalents comprise cash balances and call deposits. Bank overdrafts that
are repayable on demand and form an integral part of the Joint Venture’s cash
management are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
Accounting
for finance income and expense is discussed in Note 3(k).
(b) Property,
Plant and Equipment
(i) Recognition
and Measurement
Items of
property, plant and equipment are measured at cost less accumulated
depreciation. The cost of property, plant and equipment at 1 July 2004, the date
of transition to IFRS, was determined by reference to its fair value at that
date.
Cost
includes expenditures that are directly attributable to the acquisition of the
asset. The cost of self-constructed assets includes the cost of materials and
direct labour, any other costs directly attributable to bringing the asset to a
working condition for its intended use. Costs also may include
purchases of property, plant and equipment. Purchased software that
is integral to the functionality of the related equipment is capitalised as part
of that equipment. Borrowing costs related to the acquisition or construction of
qualifying assets are recognized in profit or loss as incurred.
When
parts of an item of property, plant and equipment have different useful lives,
they are accounted for as separate items (major components) of property, plant
and equipment.
(ii) Subsequent
Costs
The cost
of replacing part of an item of property, plant and equipment is recognized in
the carrying amount of the item if it is probable that the future economic
benefits embodied within the part will flow to the Joint Venture and its cost
can be measured reliably. The carrying amount of the replaced part is
derecognized. The costs of the day-to-day servicing of property,
plant and equipment are recognized in profit or loss as incurred.
(iii) Depreciation
Depreciation
is recognized in profit or loss on a straight-line basis over the estimated
useful lives of each part of an item of property, plant and
equipment. Leased assets are depreciated over the shorter of the
lease term and their useful lives. Land is not
depreciated.
The
estimated useful lives for the current and comparative periods are as
follows:
|
Leasehold
improvements
|
Shorter
of estimated useful life and term of lease
|
|
Plant and
equipment
|
5.0%
to 33.3%
|
|
Leased
plant and equipment
|
5.0%
to 20.0%
|
Depreciation
methods, useful lives and residual values are reassessed at the reporting
date.
(c) Leased
Assets
Leases in
which the Joint Venture assumes substantially all the risks and rewards of
ownership are classified as finance leases. Upon initial recognition
the leased asset is measured at an amount equal to the lower of its fair value
and the present value of the minimum lease payments. Subsequent to
initial recognition, the asset is accounted for in accordance with the
accounting policy applicable to that asset. The Joint Venture’s one
finance lease expired in June of 2006.
Other
leases are operating leases and are not recognized on the Joint Venture’s
balance sheet.
(d) Inventories
Inventories
are measured at the lower of cost and net realisable value. The cost
of inventories is based on the first-in first-out principle, and includes
expenditure incurred in acquiring the inventories, and other costs incurred in
bringing them to their existing location and condition.
(e) Impairment
(i) Financial
Assets
A
financial asset is assessed at each reporting date to determine whether there is
any objective evidence that it is impaired. A financial asset is
considered to be impaired if objective evidence indicates that one or more
events have had a negative effect on the estimated future cash flows of that
asset.
An
impairment loss in respect of a financial asset measured at amortized cost is
calculated as the difference between its carrying amount, and the present value
of the estimated future cash flows discounted at the original effective interest
rate. An impairment loss in respect of an available-for-sale financial asset is
calculated by reference to its fair value.
All
impairment losses are recognized in profit or loss.
An
impairment loss is reversed if the reversal can be related objectively to an
event occurring after the impairment loss was recognized. For financial assets
measured at amortized cost, the reversal is recognized in profit or
loss.
(ii) Non-financial
Assets
The
carrying amounts of the Joint Venture’s non-financial assets, other than
inventories, are reviewed at each reporting date to determine whether there is
any indication of impairment. If any such indication exists then the asset’s
recoverable amount is estimated.
The
recoverable amount of an asset or cash-generating unit is the greater of its
value in use and its fair value less costs to sell. In assessing value in use,
the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset.
An
impairment loss is recognized if the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount. Impairment
losses are recognized in profit or loss.
In
respect of other assets, impairment losses recognized in prior periods are
assessed at each reporting date for any indications that the loss has decreased
or no longer exists. An impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount. An impairment loss is
reversed only to the extent that the asset’s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation, if no
impairment loss had been recognized.
(f) Employee
Benefits
(i) Long-Term
Employee Benefits
The Joint
Venture’s net obligation in respect of long-term employee benefits is the amount
of future benefit that employees have earned in return for their service in the
current and prior periods plus related on-costs.
(ii) Termination
Benefits
Termination
benefits are recognized as an expense when the Joint Venture is demonstrably
committed, without realistic possibility of withdrawal, to a formal detailed
plan to either terminate employment before the normal retirement date, or to
provide termination benefits as a result of an offer made to encourage voluntary
redundancy. Termination benefits for voluntary redundancies are recognized if
the Joint Venture has made an offer encouraging voluntary redundancy, it is
probable that the offer will be accepted, and the number of acceptances can be
estimated reliably.
(iii) Short-Term
Benefits
Liabilities
for employee benefits for wages, salaries, annual leave and sick leave represent
present obligations resulting from employees’ services provided to reporting
date and are calculated at undiscounted amounts based on remuneration wage and
salary rates that the Joint Venture expects to pay as at reporting date
including related on-costs, such as workers compensation insurance and payroll
tax.
(g) Provisions
A
provision is recognized if, as a result of a past event, the Joint Venture has a
present legal or constructive obligation that can be estimated reliably, and it
is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability.
(h) Contributed
Equity
The Joint
Venture is comprised of three parties who share an equal ownership over the
Joint Venture. The Contributed Equity amount represents the initial
investment in the partnership. Distribution to the partners are made
on behalf of the Joint Venture and are recognized through retained
earnings.
(i) Revenue
(i) Rendering
of Service/Sale of Concessions
Revenues
are generated principally through admissions and concession sales with proceeds
received in cash at the point of sale. Service revenue also includes product
advertising and other ancillary revenues which are recognized as income in the
period earned. The Joint Venture recognizes payments received attributable to
the advertising services provided by the Joint Venture under certain vendor
programs as revenue in the period in which services are delivered.
(j) Lease
Payments
Payments
made under operating leases recognized in profit or loss on a straight-line
basis over the term of the lease on a basis that is representative of the
pattern of benefit derived from the leased property.
Minimum
lease payments made under finance leases are apportioned between the finance
expense and the reduction of the outstanding liability. The finance expense is
allocated to each period during the lease term so as to produce a constant
periodic rate of interest on the remaining balance of the liability. Contingent
lease payments are accounted for by revising the minimum lease payments over the
remaining term of the lease when the contingency no longer exists and the lease
adjustment is known. The Joint Venture’s one finance lease expired in
June of 2006.
(k) Finance
Income and Expenses
Finance
income comprises interest income on cash held in financial
institutions. Interest income is recognized as it accrues in profit
and loss using the effective interest method.
Finance
expenses comprise interest expense on the finance lease.
(l) Taxes
(i) Goods
and Service Tax
Revenue,
expenses and assets are recognized net of the amount of goods and services tax
(GST), except where the amount of GST incurred is not recoverable from the
taxation authority. In these circumstances, the GST is recognized as
part of the cost of acquisition of the asset or as part of the
expense.
Receivables
and payables are stated with the amount of GST included. The net
amount of GST recoverable from, or payable to, the ATO is included as a current
asset or liability in the balance sheet.
Cash
flows are included in the statement of cash flows on a gross
basis. The GST components of cash flows arising from investing and
financing activities which are recoverable from, or payable to, the ATO are
classified as operating cash flows.
(ii) Income
Tax
Under
applicable Australian law, the Joint Venture is not subject to tax on earnings
generated. Accordingly the Joint Venture does not recognise any
income tax expense, or deferred tax balances. Earnings of the Joint
Venture are taxed on the Joint Venturer level.
|
(m)
|
Film
Expense
|
Film
expense is incurred based on a contracted percentage of box office results for
each film. The managing party negotiates terms with each film
distributor on a film-by-film basis. Percentage terms are based on a
sliding scale, with the Joint Venture subject to a higher percentage of box
office results at the beginning of the term and declining each subsequent
week. Different films have different rates dependent upon the
expected popularity of
the film
and forecasted success.
|
(n)
|
New
Standards and Interpretations Not Yet
Adopted
|
The
following standards, amendments to standards and interpretations have been
identified as those which may impact the entity in the period of initial
application. They are available for early adoption at December 31, 2007, but
have not been applied in preparing this financial report:
|
·
|
Revised
AASB 101 Presentation of
Financial Statements (September 2007) introduces as a financial
statement (formerly “primary” statement) the “statement of comprehensive
income”. The revised standard does not change the recognition,
measurement or disclosure of transactions and events that are required by
other AASBs. The revised AASB 101 will become mandatory for the
Joint Venture’s December 31, 2009 financial statements. The
Joint Venture has not yet determined the potential effect of the revised
standard on the Joint Venture’s
disclosures.
|
|
·
|
Revised
AASB 123 Borrowing Costs
removes the option to expense borrowing costs and requires that an
entity capitalise borrowing costs directly attributable to the
acquisition, construction or production of a qualifying asset as part of
the cost of that asset. The revised AASB 123 will become
mandatory for the Joint Venture’s December 31, 2009 financial statements
and will constitute a change in accounting policy for the Joint
Venture. In accordance with the transitional provisions the
Joint Venture will apply the revised AASB 123 to qualifying assets for
which capitalisation of borrowing costs commences on or after the
effective date.
|
|
·
|
AI
13 Customer Loyalty
Programmes addresses the accounting by entities that operate, or
otherwise participate in, customer loyalty programmes for their
customers. It relates to customer loyalty programmes
under which the customer can redeem credits for awards such as free or
discounted goods or services. AI 13, which becomes mandatory
for the Joint Venture’s December 31, 2009 financial statements, is not
expected to have any impact on the financial
report.
|
4. Determination
of Fair Values
A number of the Joint Venture’s
accounting policies and disclosures require the determination of fair value, for
both financial and non-financial assets and liabilities. Fair values have been
determined for measurement and disclosure purposes based on the following
methods. Where applicable, further information about the assumptions made in
determining fair values is disclosed in the notes specific to that asset or
liability.
(a) Trade
and Other Receivables
The fair
value of trade and other receivables is estimated as the present value of future
cash flows, discounted at the market rate of interest at the reporting
date.
(b) Non-Derivative
Financial Liabilities
Fair
value, which is determined for disclosure purposes, is calculated based on the
present value of future principal and interest cash flows, discounted at the
market rate of interest at the reporting date.
5. Financial
Risk Management
Overview
The Joint
Venture has exposure to the following risks;
|
·
|
credit
risk
|
|
·
|
liquidity
risk
|
|
·
|
market
risk.
|
This note
presents information about the Joint Venture’s exposure to each of the above
risks, its objectives, policies and processes for measuring and managing risk,
and the management of capital. Further quantitative disclosures are included
throughout this financial report.
The Joint
Venturers’ have overall responsibility for the establishment and oversight of
the risk management framework and are also responsible for developing and
monitoring risk management policies.
Risk
management policies are established to identify and analyse the risks faced by
the Joint Venture to set appropriate risk limits and controls, and to monitor
risks and adherence to limits. Risk management policies and systems are reviewed
regularly to reflect changes in market conditions and the Joint Venture’s
activities. The Joint Venture, through its training and management standards and
procedures, aims to develop a disciplined and constructive control environment
in which all employees understand their roles and obligations.
The Joint
Venturers’ oversee how management monitors compliance with the Joint Venture’s
risk management policies and procedures and reviews the adequacy of the risk
management framework in relation to the risks faced by the Joint
Venture.
Credit Risk
Credit
risk is the risk of financial loss to the Joint Venture if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Joint Venture’s receivables from
customers.
The Joint
Venture’s exposure to credit risk is influenced mainly by the individual
characteristics of each customer. The demographics of the Joint Venture’s
customer base, including the default risk of the industry and country, in which
customers operate, has less of an influence on credit risk.
The Joint
Venture operates under the managing Joint Venturer’s credit policy under which
each new customer is analysed individually for creditworthiness before the Joint
Venture’s standard payment and delivery terms and conditions are offered. The
Joint Venture’s review includes external ratings, when available, and in some
cases bank references. Purchase limits are established for each customer. These
limits are reviewed periodically. Customers that fail to meet the Joint
Venture’s benchmark creditworthiness may transact with the Joint Venture only on
a prepayment basis.
The Joint
Venture’s trade receivables relate mainly to the Joint Venture’s screen
advertiser and credit card companies. Customers that are graded as
“high risk” are placed on a restricted customer list, and monitored by the Joint
Venturers.
Liquidity Risk
Liquidity
risk is the risk that the Joint Venture will not be able to meet its financial
obligations as they fall due. The Joint Venture’s approach to managing liquidity
is to ensure, as far as possible, that it will have sufficient liquidity to meet
its liabilities when due, under both normal and stressed conditions, without
incurring unacceptable losses or risking damage to the Joint Venture’s
reputation.
Market Risk
Market
risk is the risk that changes in market prices, such as interest rates will
affect the Joint Venture’s income. The objective of market risk management is to
manage and control market risk exposures within acceptable parameters, while
optimising the return.
There
were no changes in the Joint Venture’s approach to capital management during the
year.
The Joint
Venture is not subject to market risks relating to foreign exchange rates or
equity prices.
6. Segment
Reporting
Business Segments
The
business segment of the Joint Venture is the motion picture exhibition in
cinemas which includes the sale of concession goods. The Joint
Venture did not operate in any other business segments during the financial
years.
Geographical Segments
The Joint
Venture operates one cinema location in Queensland, Australia. The
Joint Venture did not operate into any other geographical locations during the
financial years.
7. Revenue
|
In
AUS$
|
2007
|
2006
(unaudited)
|
2005
(unaudited)
|
|||||||||
|
Box
office revenue
|
$ | 8,473,778 | $ | 8,270,416 | $ | 7,996,406 | ||||||
|
Screen
advertising
|
223,462 | 163,456 | 201,869 | |||||||||
|
Other
cinema services
|
397,978 | 343,502 | 225,251 | |||||||||
|
Revenue
from rendering of services
|
$ | 9,095,218 | $ | 8,777,374 | $ | 8,423,526 | ||||||
8. Personnel
Expenses
|
In
AUS$
|
2007
|
2006
(unaudited)
|
2005
(unaudited)
|
|||||||||
|
Wages
and salaries
|
$ | 1,790,110 | $ | 1,652,334 | $ | 1,583,118 | ||||||
|
Employee
annual leave
|
42,849 | 29,698 | 18,451 | |||||||||
|
Employee
long-service leave
|
6,771 | 2,722 | 30,782 | |||||||||
|
Total
personnel expenses
|
$ | 1,839,730 | $ | 1,684,754 | $ | 1,632,351 | ||||||
9. Finance
Income and Expense
|
In
AUS$
|
2007
|
2006
(unaudited)
|
2005
(unaudited)
|
|||||||||
|
Interest
income on bank balances:
|
$ | 44,340 | $ | 50,874 | $ | 23,390 | ||||||
|
Finance
income
|
$ | 44,340 | $ | 50,874 | $ | 23,390 | ||||||
|
Interest
expense on finance lease commitment
|
$ | -- | $ | (82,494 | ) | $ | (112,168 | ) | ||||
|
Finance
expense
|
$ | -- | $ | (82,494 | ) | $ | (112,168 | ) | ||||
|
Net
finance income and expense
|
$ | 44,340 | $ | (31,620 | ) | $ | (88,778 | ) | ||||
10. Property,
Plant and Equipment
|
In
AUS$
|
Plant
and Equipment
|
Leasehold
Improvements
|
Capital
WIP
|
Total
|
||||||||||||
|
Cost
|
||||||||||||||||
|
Balance
at January 1, 2006 (unaudited)
|
$ | 8,187,337 | $ | 1,923,649 | $ | 499,713 | $ | 10,610,699 | ||||||||
|
Additions/(Transfers)
|
65,481 | 530,084 | (425,523 | ) | 170,042 | |||||||||||
|
Balance
at December 31, 2006 (unaudited)
|
$ | 8,252,818 | $ | 2,453,733 | $ | 74,190 | $ | 10,780,741 | ||||||||
|
Balance
at January 1, 2007
|
8,252,818 | 2,453,733 | 74,190 | 10,780,741 | ||||||||||||
|
Additions/(Transfers)
|
417,756 | 112,971 | (74,190 | ) | 456,537 | |||||||||||
|
Balance
at December 31, 2007
|
$ | 8,670,574 | $ | 2,566,704 | $ | -- | $ | 11,237,278 | ||||||||
|
In
AUS$
|
Plant
and Equipment
|
Leasehold
Improvements
|
Capital
WIP
|
Total
|
||||||||||||
|
Depreciation
|
||||||||||||||||
|
Balance
at January 1, 2006 (unaudited)
|
$ | (5,436,684 | ) | $ | (526,514 | ) | $ | -- | $ | (5,963,198 | ) | |||||
|
Depreciation
and amortization for the year
|
(630,523 | ) | (92,345 | ) | -- | (722,868 | ) | |||||||||
|
Balance
at December 31, 2006 (unaudited)
|
$ | (6,067,207 | ) | $ | (618,859 | ) | $ | -- | $ | (6,686,066 | ) | |||||
|
Balance
at January 1,2007
|
(6,067,207 | ) | (618,859 | ) | -- | (6,686,066 | ) | |||||||||
|
Depreciation
and amortization for the year
|
(570,525 | ) | (82,817 | ) | -- | (653,342 | ) | |||||||||
|
Balance
at December 31, 2007
|
$ | (6,637,732 | ) | $ | (701,676 | ) | $ | -- | $ | (7,339,408 | ) | |||||
|
In
AUS$
|
Plant
and Equipment
|
Leasehold
Improvements
|
Capital
WIP
|
Total
|
||||||||||||
|
Carrying
amounts
|
||||||||||||||||
|
At
January 1, 2006 (unaudited)
|
$ | 2,750,653 | $ | 1,397,135 | $ | 499,713 | $ | 4,647,501 | ||||||||
|
At
December 31, 2006 (unaudited)
|
2,185,611 | 1,834,874 | 74,190 | 4,094,675 | ||||||||||||
|
At
January 1, 2007
|
2,185,611 | 1,834,874 | 74,190 | 4,094,675 | ||||||||||||
|
At
December 31, 2007
|
2,032,842 | 1,865,028 | -- | 3,897,870 | ||||||||||||
Leased Plant and Machinery
The Joint Venture leased equipment
under a finance lease agreement. The lease provided the Joint Venture with the
option to purchase the equipment at a beneficial price. The Joint
Venture exercised the purchase option at the end of the finance lease in June of
2006 (unaudited) and assigned a remaining useful live in accordance with Joint
Venture policy.
11. Inventories
|
In
AUS$
|
2007
|
2006
(unaudited)
|
||||||
|
Concession
stores at cost
|
$ | 88,317 | $ | 108,637 | ||||
|
Carrying
amount of inventories
|
88,317 | 108,637 | ||||||
12. Trade
Receivables and Other Assets
|
In
AUS$
|
Note
|
2007
|
2006
(unaudited)
|
|||||||||
|
Trade
receivables
|
17 | $ | 97,597 | $ | 65,918 | |||||||
|
Prepayments
|
534 | 40,727 | ||||||||||
The Joint Venture’s exposure to credit
and currency risks and impairment losses related to trade and other receivables
are disclosed in Note 17.
13. Cash
and Cash Equivalents
|
In
AUS$
|
2007
|
2006
(unaudited)
|
||||||
|
Bank
balances
|
$ | 1,410,567 | $ | 1,150,894 | ||||
|
Cash
in transit
|
28,119 | 112,379 | ||||||
|
Cash
on hand
|
35,700 | 37,100 | ||||||
|
Cash
and cash equivalents in the statement of cash flows
|
$ | 1,474,386 | $ | 1,300,373 | ||||
The Joint
Venture’s exposure to interest rate risk and a sensitivity analysis for
financial assets and liabilities are disclosed in Note 17.
14. Employee
Benefits
|
Current
|
||||||||
|
In
AUS$
|
2007
|
2006
(unaudited)
|
||||||
|
Liability
for annual leave
|
$ | 49,355 | $ | 37,378 | ||||
|
Liability
for long-service leave
|
18,390 | 31,289 | ||||||
|
Total
employee benefits - current
|
$ | 67,745 | $ | 68,667 | ||||
|
Non-current
|
||||||||
|
In
AUS$
|
2007
|
2006
(unaudited)
|
||||||
|
Liability
for long-service leave
|
$ | 55,396 | $ | 51,093 | ||||
|
Total
employee benefits – non current
|
$ | 55,396 | $ | 51,093 | ||||
15. Payables
|
In
AUS$
|
Note
|
2007
|
2006
(unaudited)
|
|||||||||
|
Trade
payables
|
$ | 346,369 | $ | 212,591 | ||||||||
|
Other
creditors and accruals
|
448,364 | 319,245 | ||||||||||
|
Total
payables
|
17 | $ | 794,733 | $ | 531,836 | |||||||
The Joint
Venture’s exposure to liquidity risk related to trade and other payables is
disclosed in Note 17. Trade payables represent payments to trade
creditors. The Joint Venture makes these payments through the
managing parties shared service centre and is charged a management fee for these
services. Disclosure regarding management fee is made in Note
21.
16. Deferred
Revenue
|
In
AUS$
|
2007
|
2006
(unaudited)
|
||||||
|
Deferred
revenue
|
$ | 77,645 | $ | 97,056 | ||||
Deferred
revenue consists of advance funds received from vendors for the exclusive rights
to supply certain concession items. Revenue is released over the term
of the related contract on a straight-line basis and is classified as service
revenue.
17. Financial
Instruments
Credit Risk
Exposure to Credit Risk
The
carrying amount of the Joint Venture’s financial assets represents the maximum
credit exposure. The Joint Venture’s maximum exposure to credit risk
at the reporting date was:
|
Carrying
Amount
|
||||||||||||
|
In
AUS$
|
Note
|
2007
|
2006
(unaudited)
|
|||||||||
|
Trade
receivables
|
12 | $ | 97,597 | $ | 65,918 | |||||||
|
Cash
and cash equivalents
|
13 | 1,474,386 | 1,300,373 | |||||||||
The Joint
Venture’s maximum exposure to credit risk for trade receivables at the reporting
date by type of customer was:
|
Carrying
amount
|
||||||||
|
In
AUS$
|
2007
|
2006
(unaudited)
|
||||||
|
Screen
advertisers
|
$ | 50,145 | $ | 7,242 | ||||
|
Credit
card companies
|
23,204 | 39,492 | ||||||
|
Screen
hire
|
12,137 | -- | ||||||
|
Games,
machine and merchandising companies
|
12,111 | 19,184 | ||||||
|
Total
|
$ | 97,597 | $ | 65,918 | ||||
The Joint
Venture’s most significant customer, a cinema screen advertising service,
accounts for $50,000 of the trade receivables carrying amount at December 31,
2007 (2006: $7,000 unaudited).
Impairment
losses
There
were no trade receivables at the reporting date or comparable period which were
past due. The carrying value of such receivables were $97,597 in 2007
(2006: $65,918 unaudited). There were no allowances for impairment
during the reporting periods.
Liquidity
risk
Financial
liabilities are only trade payables all contractually due within 6
months. The carrying value of such liabilities were $794,733 in 2007
(2006: $531,836 unaudited).
Interest
rate risk
Profile
At the
reporting date the interest rate profile of the Joint Venture’s interest-bearing
financial instruments was:
|
Variable
rate instruments
|
Carrying
amount
|
|||||||
|
In
AUS$
|
2007
|
2006
(unaudited)
|
||||||
|
Bank
Balances
|
$ | 1,410,567 | $ | 1,150,894 | ||||
The Joint
Venture held no fixed rate instruments during financial year 2007 or 2006
(unaudited).
Cash
Flow Sensitivity Analysis for Variable Rate Instruments
A change
of one percentage point in interest rates at the reporting date would have
increased (decreased) equity and profit or loss by the amounts shown below. This
analysis assumes that all other variables remain constant. The analysis is
performed on the same basis for 2006.
|
Profit
or loss
|
Equity
|
|||||||||||||||
|
Effect
In AUS$
|
1
percentage point
Increase
|
1
percentage point
Decrease
|
1
percentage point
Increase
|
1
percentage point
Decrease
|
||||||||||||
|
December
31, 2007
|
||||||||||||||||
|
Variable
rate instruments
|
$ | 6,804 | $ | (6,804 | ) | $ | 6,804 | $ | (6,804 | ) | ||||||
|
Cash
flow sensitivity
|
6,804 | (6,804 | ) | 6,804 | (6,804 | ) | ||||||||||
|
Profit
or loss
|
Equity
|
|||||||||||||||
|
Effect
In AUS$
|
1
percentage point
Increase
|
1
percentage point
Decrease
|
1
percentage point
Increase
|
1
percentage point
Decrease
|
||||||||||||
|
December
31, 2006 (unaudited)
|
||||||||||||||||
|
Variable
rate instruments
|
$ | 8,446 | $ | (8,446 | ) | $ | 8,446 | $ | (8,446 | ) | ||||||
|
Cash
flow sensitivity
|
8,446 | (8,446 | ) | 8,446 | (8,446 | ) | ||||||||||
Fair
Values
Fair
Values versus Carrying Amounts
The fair
values of financial assets and liabilities, together with the carrying amounts
shown in the balance sheet, are as follows:
|
December
31, 2007
|
December
31, 2006
(unaudited)
|
|||||||||||||||
|
In
AUS$
|
Carrying
amount
|
Fair
value
|
Carrying
amount
|
Fair
value
|
||||||||||||
|
Trade
receivables
|
$ | 97,597 | $ | 97,597 | $ | 65,918 | $ | 65,918 | ||||||||
|
Cash
and cash equivalents
|
1,474,386 | 1,474,386 | 1,300,373 | 1,300,373 | ||||||||||||
|
Finance
lease liabilities
|
-- | -- | -- | -- | ||||||||||||
|
Trade
payables
|
794,733 | 794,733 | 531,836 | 531,836 | ||||||||||||
The basis
for determining fair values is disclosed in Note 4. The Joint
Venture’s one finance lease expired in June of 2006.
18. Operating
Leases
Leases as Lessee
|
|
Non-cancellable
operating lease rentals are payable as
follows:
|
|
In
AUS$
|
December
31, 2007
|
December
31, 2006
(unaudited)
|
||||||
|
Less
than one year
|
$ | 993,096 | $ | 993,096 | ||||
|
Between
one and five years
|
3,792,384 | 3,792,384 | ||||||
|
More
than five years
|
5,958,576 | 6,951,672 | ||||||
|
Total
|
$ | 10,744,056 | $ | 11,737,152 | ||||
The Joint
Venture leases the cinema property under operating leases expiring over 12
years.
19. Contingencies
The
nature of the Joint Venture’s operations results in claims for personal injuries
(including public liability and workers compensation) being received from time
to time. As at period end there were no material current or ongoing
outstanding claims.
20. Reconciliation
of Cash Flows from Operating Activities
|
In
AUS$
|
Note
|
2007
|
2006
(unaudited)
|
2005
(unaudited)
|
||||||||||||
|
Cash
flows from operating activities
|
||||||||||||||||
|
Profit
for the period
|
$ | 2,851,507 | $ | 2,579,356 | $ | 1,983,497 | ||||||||||
|
Adjustments
for:
|
||||||||||||||||
|
Depreciation
and amortization
|
10 | 653,342 | 722,828 | 774,111 | ||||||||||||
|
Operating
profit before changes in working capital
|
$ | 3,504,849 | $ | 3,302,184 | $ | 2,757,608 | ||||||||||
|
Change
in trade receivables
|
12 | (31,679 | ) | 105,744 | (19,793 | ) | ||||||||||
|
Change
in inventories
|
11 | 20,320 | (25,839 | ) | 1,776 | |||||||||||
|
Change
in other assets
|
12 | 40,193 | (40,727 | ) | 4,995 | |||||||||||
|
Change
in trade payables
|
15 | 262,897 | (372,760 | ) | (90,186 | ) | ||||||||||
|
Change
in employee benefits
|
14 | 3,381 | 2,547 | 32,861 | ||||||||||||
|
Change
in deferred revenue
|
16 | (19,411 | ) | (14,543 | ) | (287,035 | ) | |||||||||
|
Net
cash from operating activities
|
$ | 3,780,550 | $ | 2,956,606 | $ | 2,400,226 | ||||||||||
21. Related
Parties
|
|
Entities
with joint control or significant influence over the Joint
Venture
|
The
managing Joint Venturer is paid an annual management fee, which is presented
separately in the income statement. The management fee paid is as per
the Joint Venture agreement and is to cover the costs of the managing Joint
Venturer for managing and operating the cinema complex and providing all
relevant accounting and support services. The management fee is based
on a contracted base amount, increased by the Consumer Price Index for the City
of Brisbane as published by the Australian Bureau of Statistics on an annual
basis. Such management fee agreement is binding over the life of the
agreement which shall continue in existence until the Joint Venture is
terminated under agreement by the Joint Venturers.
As of
December 31, 2007, there were no outstanding payable amounts [2006: nil
(unaudited)].
22. Subsequent
Events
Subsequent to December 31, 2007 there
were no events which would have a material effect on the financial
report.
Independent Auditors’
Report
The
Management Committee and Joint Venturers
Mt.
Gravatt Cinemas Joint Venture:
We have
audited the accompanying balance sheet of Mt. Gravatt Cinemas Joint Venture as
of December 31, 2007, and the related income statement, statement of changes in
members’ equity, and statement of cash flows for the year then
ended. These financial statements are the responsibility of the Joint
Venture’s management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Joint
Venture’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Mt. Gravatt Cinemas Joint Venture
as of December 31, 2007, and the results of its operations and its cash flows
for the year then ended in conformity with International Financial Reporting
Standards as published by the International Accounting Standards
Board.
KPMG
Sydney,
Australia
March 13,
2008
Exhibits (Listed by numbers corresponding to Item 601 of
Regulation S-K)
|
3.1
|
Certificate
of Amendment of Restatement Articles of Incorporation of Citadel Holding
Corporation (filed as Exhibit 3.1 to the Company’s Annual Report on Form
10-K for the year ended December 31, 1999, and incorporated herein by
reference).
|
|
3.2
|
Restated
By-laws of Citadel Holding Corporation, a Nevada corporation (filed as
Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 1999, and incorporated herein by
reference).
|
|
3.3
|
Certificate
of Amendment of Articles of Incorporation of Citadel Holding Corporation
(filed as Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2001).
|
|
3.4
|
Articles
of Merger of Craig Merger Sub, Inc. with and into Craig Corporation (filed
as Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2001).
|
|
3.5
|
Articles
of Merger of Reading Merger Sub, Inc. with and into Reading Entertainment,
Inc. (filed as Exhibit 3.5 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2001).
|
|
3.6
|
Restated
By-laws of Reading International, Inc., a Nevada corporation (filed as
Exhibit 3.6 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2004, and incorporated herein by
reference).
|
|
4.1
|
1999
Stock Option Plan of Reading International, Inc. as amended on December
31, 2001 (filed as Exhibit 4.1 to the Company’s Registration Statement on
Form S-8 filed on January 21, 2004, and incorporated herein by
reference).
|
|
4.2
|
Form
of Preferred Security Certificate evidencing the preferred securities of
Reading International Trust I (filed as Exhibit 4.1 to the Company’s
report on Form 8-K dated February 5, 2007, and incorporated herein by
reference).
|
|
4.3
|
Form
of Common Security Certificate evidencing common securities of Reading
International Trust I (filed as Exhibit 4.2 to the Company’s report
on Form 8-K dated February 5, 2007, and incorporated herein by
reference).
|
|
4.4
|
Form
of Reading International, Inc. Floating Rate Junior Subordinated Debt
Security due 2027 (filed as Exhibit 4.3 to the Company’s report on Form
8-K dated February 5, 2007, and incorporated herein by
reference).
|
|
10.1
|
Tax
Disaffiliation Agreement, dated as of August 4, 1994, by and between
Citadel Holding Corporation and Fidelity Federal Bank (filed as Exhibit
10.27 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994, and incorporated herein by
reference).
|
|
10.2
|
Standard
Office lease, dated as of July 15, 1994, by and between Citadel Realty,
Inc. and Fidelity Federal Bank (filed as Exhibit 10.42 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, and
incorporated herein by reference).
|
|
10.3
|
First
Amendment to Standard Office Lease, dated May 15, 1995, by and between
Citadel Realty, Inc. and Fidelity Federal Bank (filed as Exhibit 10.43 to
the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, and incorporated herein by
reference).
|
|
10.4
|
Guaranty
of Payment dated May 15, 1995 by Citadel Holding Corporation in favor of
Fidelity Federal Bank (filed as Exhibit 10.47 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995, and incorporated
herein by reference).
|
|
10.5
|
Exchange
Agreement dated September 4, 1996 among Citadel Holding Corporation,
Citadel Acquisition Corp., Inc. Craig Corporation, Craig Management, Inc.,
Reading Entertainment, Inc., Reading Company (filed as Exhibit 10.51 to
the Company’s Annual Report on Form 10-K for the year ended December 31,
1996 and incorporated herein by
reference).
|
|
10.6
|
Asset
Put and Registration Rights Agreement dated October 15, 1996 among Citadel
Holding Corporation, Citadel Acquisition Corp., Inc., Reading
Entertainment, Inc., and Craig Corporation (filed as Exhibit 10.52 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1996
and incorporated herein by
reference).
|
|
10.7
|
Articles
of Incorporation of Reading Entertainment, Inc., A Nevada Corporation
(filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 1999, and incorporated herein by
reference).
|
|
10.7a
|
Certificate
of Designation of the Series A Voting Cumulative Convertible preferred
stock of Reading Entertainment, Inc. (filed as Exhibit 10.7a to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1999,
and incorporated herein by
reference).
|
|
10.8
|
Lease
between Citadel Realty, Inc., Lesser and Disney Enterprises, Inc., Lessee
dated October 1, 1996 (filed as Exhibit 10.54 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, and
incorporated herein by reference).
|
|
10.9
|
Second
Amendment to Standard Office Lease between Citadel Realty, Inc. and
Fidelity Federal Bank dated October 1, 1996 (filed as Exhibit 10.55 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended September
30, 1996, and incorporated herein by
reference).
|
|
10.10
|
Citadel
1996 Non-employee Director Stock Option Plan (filed as Exhibit 10.57 to
the Company’s Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by
reference).
|
|
10.11
|
Reading
Entertainment, Inc. Annual Report on Form 10-K for the year ended December
31, 1997 (filed as Exhibit 10.58 to the Company’s Annual Report on Form
10-K for the year ended December 31, 1997 and incorporated herein by
reference).
|
|
10.12
|
Stock
Purchase Agreement dated as of April 11, 1997 by and between Citadel
Holding Corporation and Craig Corporation (filed as Exhibit 10.56 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
1997).
|
|
10.13
|
Secured
Promissory Note dated as of April 11, 1997 issued by Craig Corporation to
Citadel Holding Corporation in the principal amount of $1,998,000 (filed
as Exhibit 10.60 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).
|
|
10.14
|
Agreement
for Purchase and Sale of Real Property between Prudential Insurance
Company of America and Big 4 Farming LLC dated August 29, 1997 (filed as
Exhibit 10.61 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
|
|
10.15
|
Second
Amendment to Agreement of Purchase and Sale between Prudential Insurance
Company of America and Big 4 Farming LLC dated November 5, 1997 (filed as
Exhibit 10.62 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
|
|
10.16
|
Partnership
Agreement of Citadel Agricultural Partners No. 1 dated December 19, 1997
(filed as Exhibit 10.63 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 1997 and incorporated herein by
reference).
|
|
10.17
|
Partnership
Agreement of Citadel Agricultural Partners No. 2 dated December 19, 1997
(filed as Exhibit 10.64 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 1997 and incorporated herein by
reference).
|
|
10.18
|
Partnership
Agreement of Citadel Agricultural Partners No. 3 dated December 19, 1997
(filed as Exhibit 10.65 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 1997 and incorporated herein by
reference).
|
|
10.19
|
Farm
Management Agreement dated December 26, 1997 between Citadel Agricultural
Partner No. 1 and Big 4 Farming LLC (filed as Exhibit 10.67 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by
reference).
|
|
10.20
|
Farm
Management Agreement dated December 26, 1997 between Citadel Agricultural
Partner No. 2 and Big 4 Farming LLC (filed as Exhibit 10.68 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by
reference).
|
|
10.21
|
Farm
Management Agreement dated December 26, 1997 between Citadel Agricultural
Partner No. 3 and Big 4 Farming LLC (filed as Exhibit 10.69 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by
reference).
|
|
10.22
|
Line
of Credit Agreement dated December 29, 1997 between Citadel Holding
Corporation and Big 4 Ranch, Inc. (filed as Exhibit 10.70 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference).
|
|
10.23
|
Management
Services Agreement dated December 26, 1997 between Big 4 Farming LLC and
Cecelia Packing (filed as Exhibit 10.71 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 1997 and incorporated herein by
reference).
|
|
10.24
|
Agricultural
Loan Agreement dated December 29, 1997 between Citadel Holding Corporation
and Citadel Agriculture Partner No. 1 (filed as Exhibit 10.72 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by
reference).
|
|
10.25
|
Agricultural
Loan Agreement dated December 29, 1997 between Citadel Holding Corporation
and Citadel Agriculture Partner No. 2 (filed as Exhibit 10.73 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by
reference).
|
|
10.26
|
Agricultural
Loan Agreement dated December 29, 1997 between Citadel Holding Corporation
and Citadel Agriculture Partner No. 3 (filed as Exhibit 10.74 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by
reference).
|
|
10.27
|
Promissory
Note dated December 29, 1997 between Citadel Holding Corporation and
Citadel Agricultural Partners No. 1 (filed as Exhibit 10.75 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by
reference).
|
|
10.28
|
Promissory
Note dated December 29, 1997 between Citadel Holding Corporation and
Citadel Agricultural Partners No. 2 (filed as Exhibit 10.76 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by
reference).
|
|
10.29
|
Promissory
Note dated December 29, 1997 between Citadel Holding Corporation and
Citadel Agricultural Partners No. 3 (filed as Exhibit 10.77 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by
reference).
|
|
10.30
|
Security
Agreement dated December 29, 1997 between Citadel Holding Corporation and
Citadel Agricultural Partnership No. 1 (filed as Exhibit 10.78 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by
reference).
|
|
10.31
|
Security
Agreement dated December 29, 1997 between Citadel Holding Corporation and
Citadel Agricultural Partnership No. 2 (filed as Exhibit 10.79 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by
reference).
|
|
10.32
|
Security
Agreement dated December 29, 1997 between Citadel Holding Corporation and
Citadel Agricultural Partnership No. 3 (filed as Exhibit 10.80 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by
reference).
|
|
10.33
|
Administrative
Services Agreement between Citadel Holding Corporation and Big 4 Ranch,
Inc. dated December 29, 1997 (filed as Exhibit 10.81 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference).
|
|
10.34
|
Reading
Entertainment, Inc. Annual Report on Form 10-K for the year ended December
31, 1998 (filed as Exhibit as 10.41 to the Company’s Annual Report on Form
10-K for the year ended December 31, 1998 and incorporated herein by
reference).
|
|
10.35
|
Reading
Entertainment, Inc. Annual Report on Form 10-K for the year ended December
31, 1999 (filed by Reading Entertainment Inc. as Form 10-K for the year
ended December 31, 1999 on April 14, 2000 and incorporated herein by
reference).
|
|
10.36
|
Promissory
Note dated December 20, 1999 between Citadel Holding Corporation and
Nationwide Life Insurance 3 (filed as Exhibit 10.36 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 1999 and
incorporated herein by reference).
|
|
10.37*
|
Employment
Agreement between Citadel Holding Corporation and Andrzej Matyczynski
(filed as Exhibit 10.37 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 1999 and incorporated herein by
reference).
|
|
10.38
|
Citadel
1999 Employee Stock Option Plan (filed as Exhibit 10.38 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 1999 and
incorporated herein by reference).
|
|
10.39
|
Amendment
and Plan of Merger By and Among Citadel Holding Corporation and
Off-Broadway Theatres, Inc. (filed as Exhibit A to the Company’s Proxy
Statement and incorporated herein by
reference).
|
|
10.40
|
Amended
and Restated Lease Agreement dated as of July 28, 2000 as amended and
restated as of January 29, 2002 between Sutton Hill Capital, L.L.C. and
Citadel Cinemas, Inc. (filed as Exhibit 10.40 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2002 and incorporated
herein by reference).
|
|
10.41
|
Amended
and Restated Citadel Standby Credit Facility dated as of July 28, 2000 as
amended and restated as of January 29, 2002 between Sutton Hill Capital,
L.L.C. and Reading International, Inc. (filed as Exhibit 10.40 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2002
and incorporated herein by
reference).
|
|
10.42
|
Amended
and Restated Security Agreement dated as of July 28, 2000 as amended and
restated as of January 29, 2002 between Sutton Hill Capital, L.L.C. and
Reading International, Inc. (filed as Exhibit 10.40 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2002 and
incorporated herein by reference).
|
|
10.43
|
Amended
and Restated Pledge Agreement dated as of July 28, 2000 as amended and
restated as of January 29, 2002 between Sutton Hill Capital, L.L.C. and
Reading International, Inc. (filed as Exhibit 10.40 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2002 and
incorporated herein by
reference).
|
|
10.44
|
Amended
and Restated Intercreditor Agreement dated as of July 28, 2000 as amended
and restated as of January 29, 2002 between Sutton Hill Capital, L.L.C.
and Reading International, Inc. and Nationwide Theatres Corp. (filed as
Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2002 and incorporated herein by
reference).
|
|
10.45
|
Guaranty
dated July 28, 2000 by Michael R. Forman and James J. Cotter in favor of
Citadel Cinemas, Inc. and Citadel Realty, Inc. (filed as Exhibit 10.40 to
the Company’s Annual Report on Form 10-K for the year ended December 31,
2002 and incorporated herein by
reference).
|
|
10.46
|
Amended
and Restated Agreement with Respect to Fee Option dated as of July 28,
2000 as amended and restated as of January 29, 2002 between Sutton Hill
Capital, L.L.C. and Citadel Realty, Inc. (filed as Exhibit 10.40 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2002
and incorporated herein by
reference).
|
|
10.47
|
Theater
Management Agreement between Liberty Theaters, Inc. and OBI LLC (filed as
Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2002 and incorporated herein by
reference).
|
|
10.48*
|
Non-qualified
Stock Option Agreement between Reading International, Inc. and James J.
Cotter (filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2002 and incorporated herein by
reference).
|
|
10.49
|
Omnibus
Agreement between Citadel Cinemas, Inc. and Sutton Hill Capital, LLC,
dated October 22, 2003 (filed on Quarterly Report Form 10-Q for the period
ended September 30, 2003 and incorporated herein by
reference).
|
|
10.50
|
Pledge
Agreement between Citadel Cinemas, Inc. and Sutton Hill Capital, LLC,
dated October 22, 2003 (filed on Quarterly Report Form 10-Q for the period
ended September 30, 2003 and incorporated herein by
reference).
|
|
10.51
|
Guarantee
of Lenders Obligation Under Standby Credit Agreement in favor of Sutton
Hill Capital, LLC, dated October 22, 2003 (filed on Quarterly Report Form
10-Q for the period ended September 30, 2003 and incorporated herein by
reference).
|
|
10.52*
|
Employment
agreement between Reading International, Inc. and Wayne D. Smith (filed as
exhibit 10.52 to the Company’s Annual Report on Form 10-K for the year
ended December 31, 2004, and incorporated herein by
reference).
|
|
10.53
|
Contract
of Sale between Sutton Hill Capital L.L.C. and Sutton Hill Properties, LLC
dated as of September 19, 2005 (filed as exhibit 10.53 to the Company’s
report on Form 8-K filed on September 21, 2005, and incorporated herein by
reference).
|
|
10.54
|
Installment
Sale Note dated as of September 19, 2005 (filed as exhibit 10.54 to the
Company’s report on Form 8-K filed on September 21, 2005, and incorporated
herein by reference).
|
|
10.55
|
Guaranty
by Reading International, Inc. dated as of September 1, 2005 (filed as
exhibit 10.55 to the Company’s report on Form 8-K filed on September 21,
2005, and incorporated herein by
reference).
|
|
10.56
|
Assignment
and Assumption of Lease between Sutton Hill Capital L.L.C. and Sutton Hill
Properties, LLC dated as of September 19, 2005 (filed as exhibit 10.56 to
the Company’s report on Form 8-K filed on September 21, 2005, and
incorporated herein by reference).
|
|
10.57
|
License
and Option Agreement between Sutton Hill Properties, LLC and Sutton Hill
Capital L.L.C. dated as of September 19, 2005 (filed as exhibit 10.57 to
the Company’s report on Form 8-K filed on September 21, 2005, and
incorporated herein by
reference).
|
|
10.58
|
Second
Amendment to Amended and Restated Master Operating Lease dated as of
September 1, 2005 (filed as exhibit 10.58 to the Company’s report on Form
8-K filed on September 21, 2005, and incorporated herein by
reference).
|
|
10.59
|
Letter
from James J. Cotter dated August 11, 2005 regarding liens (filed as
exhibit 10.59 to the Company’s report on Form 8-K filed on September 21,
2005, and incorporated herein by
reference).
|
|
10.60
|
Letter
amending effective date of transaction to September 19, 2005 (filed as
exhibit 10.60 to the Company’s report on Form 8-K filed on September 21,
2005, and incorporated herein by
reference).
|
|
10.61
|
Promissory
Note by Citadel Cinemas, Inc. in favor of Sutton Hill Capital L.L.C. dated
September 14, 2004 (filed as exhibit 10.61 to the Company’s Annual Report
on Form 10-K for the year ended December 31, 2005, and incorporated herein
by reference).
|
|
10.62
|
Guaranty
by Reading International, Inc. in favor of Sutton Hill Capital L.L.C.
dated September 14, 2004 (filed as exhibit 10.62 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2005, and incorporated
herein by reference).
|
|
10.63
|
Purchase
Agreement, dated February 5, 2007, among Reading International, Inc.,
Reading International Trust I, and Kodiak Warehouse JPM LLC (filed as
Exhibit 10.1 to the Company’s report on Form 8-K dated February 5, 2007,
and incorporated herein by
reference).
|
|
10.64
|
Amended
and Restated Declaration of Trust, dated February 5, 2007, among Reading
International Inc., as sponsor, the Administrators named therein, and
Wells Fargo Bank, N.A., as property trustee, and Wells Fargo Delaware
Trust Company as Delaware trustee (filed as Exhibit 10.2 to the Company’s
report on Form 8-K dated February 5, 2007, and incorporated herein by
reference).
|
|
10.65
|
Indenture
among Reading International, Inc., Reading New Zealand Limited, and Wells
Fargo Bank, N.A., as indenture trustee (filed as Exhibit 10.4 to the
Company’s report on Form 8-K dated February 5, 2007, and incorporated
herein by reference).
|
|
10.66*
|
Employment
Agreement between Reading International, Inc. and John Hunter (filed as
Exhibit 10.66 to the Company’s report on Form 10-K for the year ended
December 31, 2006, and incorporated herein by
reference).
|
|
10.67
|
Asset
Purchase and Sale Agreement dated October 8, 2007 among Pacific Theatres
Exhibition Corp., Consolidated Amusement Theatres, Inc., a Hawaii
corporation, Michael Forman, Christopher Forman, Consolidated Amusement
Theatres, Inc., a Nevada corporation, and Reading International, Inc.
(filed herewith).
|
|
10.68
|
Real
Property Purchase and Sale Agreement dated October 8, 2007 between
Consolidated Amusement Theatres, Inc., a Hawaii corporation, and
Consolidated Amusement Theatres, Inc., a Nevada corporation (filed
herewith).
|
|
10.69
|
Leasehold
Purchase and Sale Agreement dated October 8, 2007 between Kenmore Rohnert,
LLC and Consolidated Amusement Theatres, Inc., a Nevada corporation (filed
herewith).
|
|
10.70
|
Amendment
No. 1 to Asset Purchase and Sale Agreement dated February 8, 2008 among
Pacific Theatres Exhibition Corp., Consolidated Amusement Theatres, Inc.,
a Hawaii corporation, Michael Forman, Christopher Forman, Consolidated
Amusement Theatres, Inc., a Nevada corporation, and Reading International,
Inc. (filed herewith).
|
|
10.71
|
Amendment
No. 2 to Asset Purchase and Sale Agreement dated February 14, 2008 among
Pacific Theatres Exhibition Corp., Consolidated Amusement Theatres, Inc.,
a Hawaii corporation, Michael Forman, Christopher Forman, Consolidated
Amusement Theatres, Inc., a Nevada corporation, and Reading International,
Inc. (filed herewith).
|
|
10.72
|
Credit
Agreement dated February 21, 2008 among Consolidated Amusement Theatres,
Inc., a Nevada corporation, General Electric Capital Corporation, and GE
Capital Markets, Inc. (filed
herewith).
|
|
10.73
|
Reading
Guaranty Agreement dated February 21, 2008 among Consolidated Amusement
Theatres, Inc., a Nevada corporation, General Electric Capital
Corporation, and GE Capital Markets, Inc. (filed
herewith).
|
|
10.74
|
Pledge
and Security Agreement dated February 22, 2008 by Reading Consolidated
Holdings, Inc. in favor of Nationwide Theatres Corp (filed
herewith).
|
|
10.75
|
Promissory
Note dated February 22, 2008 by Reading Consolidated Holdings, inc. in
favor of Nationwide Theatres Corp. (filed
herewith).
|
|
21
|
List
of Subsidiaries (filed herewith).
|
|
23.1
|
Consent
of Independent Auditors, Deloitte & Touche LLP (filed
herewith).
|
|
23.2
|
Consent
of Independent Auditors, Pricewaterhousecoopers LLP (filed
herewith).
|
|
23.3
|
Consent
of Independent Auditors, KPMG LLP (filed
herewith).
|
|
31.1
|
Certification
of Principal Executive Officer dated March 28, 2008 pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|
|
31.2
|
Certification
of Principal Financial Officer dated March 28, 2008 pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|
|
32.1
|
Certification
of Principal Executive Officer dated March 28, 2008 pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
|
|
32.2
|
Certification
of Principal Financial Officer dated March 28, 2008 pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
|
*These
exhibits constitute the executive compensation plans and arrangements of the
Company.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
READING
INTERNATIONAL, INC.
(Registrant)
|
Date: March
28, 2008
|
By:
|
/s/
Andrzej Matyczynski
|
|
Andrzej
Matyczynski
|
||
|
Chief
Financial Officer and Treasurer
|
||
|
(Principal
Financial and Accounting Officer)
|
Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report has
been signed below by the following persons on behalf of Registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title(s)
|
Date
|
|
/s/
James J. Cotter
|
Chairman
of the Board and Director and Chief Executive Officer
|
March
28, 2008
|
|
James
J. Cotter
|
||
|
/s/
Eric Barr
|
Director
|
March
28, 2008
|
|
Eric
Barr
|
||
|
/s/
James J. Cotter, Jr.
|
Director
|
March
28, 2008
|
|
James
J. Cotter, Jr.
|
||
|
/s/
Margaret Cotter
|
Director
|
March
28, 2008
|
|
Margaret
Cotter
|
||
|
/s/
William D. Gould
|
Director
|
March
28, 2008
|
|
William
D. Gould
|
||
|
/s/
Edward L. Kane
|
Director
|
March
28, 2008
|
|
Edward
L Kane
|
||
|
/s/
Gerard P. Laheney
|
Director
|
March
28, 2008
|
|
Gerard
P. Laheney
|
||
|
/s/
Alfred Villaseñor
|
Director
|
March
28, 2008
|
|
Alfred
Villaseñor
|
-157-
EXHIBIT 10.67
ASSET PURCHASE AND SALE
AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT
(this "Agreement") is made
and entered into as of October 8, 2007 (the “Effective Date”) by
and among PACIFIC THEATRES EXHIBITION CORP., a California corporation “Pacific”),
CONSOLIDATED AMUSEMENT THEATRES, INC., a Hawaii corporation (“Consolidated” and,
collectively with Pacific, "Seller"), and, with
respect to Section 7.9 and Articles 12 through 14 below only, MICHAEL FORMAN and
CHRISTOPHER FORMAN (collectively, the “Formans”), on the one
hand, CONSOLIDATED AMUSEMENT THEATRES, INC., a Nevada corporation (“Buyer"), and, with
respect to Sections 1.5, 2.4, 4.2, 5.6 and 14.16 and Articles 11 through 14
below only, READING INTERNATIONAL, INC., a Nevada corporation (“RDI”), on the other
hand, with reference to the following facts:
A. Pacific
or Consolidated is the tenant, among other tenancies, under the leases described
on Exhibit A-1
attached hereto (the "Leases"), which
Leases relate to those certain premises located in the States of California and
Hawaii as more particularly described in the Leases (the "Leased
Premises").
B. Seller
is engaged in the business of the ownership and operation of full length motion
picture theaters (the “Theaters”) and
associated and ancillary activities at the Leased Premises (the ownership and
operation of the Theaters, together with the conduct of the associated
activities, is sometimes referred to herein as the “Business”).
C. The
Formans indirectly own a majority of the issued and outstanding shares of
capital stock of Seller.
D. RDI
indirectly owns all of the issued and outstanding equity interests of
Buyer.
E. Subject
to the terms and conditions of this Agreement, Seller desires to sell, transfer,
convey and assign to Buyer, and Buyer desires to purchase, accept and assume
from Seller the “Purchased Assets” (as defined in Section 1.2
below).
NOW, THEREFORE, in consideration of the
foregoing recitals and the mutual covenants, agreements, representations and
warranties herein contained, the parties hereby agree as follows:
1. Purchase and Sale of Assets;
Assumption of Liabilities.
1.1 Purchase of
Assets. Upon the terms and subject to the conditions
hereinafter set forth, at the “Closing” (as defined in Section 9.1 hereof),
Seller shall sell, transfer, convey and assign to Buyer, and Buyer shall
purchase from Seller, and assume certain liabilities with respect to, the
“Purchased Assets” (as defined in Section 1.2 hereof).
1
1.2 Definition of Purchased
Assets. Subject to the provisions of Section 1.3 hereof, the
"Purchased
Assets" shall mean and consist of:
1.2.1 Leases and
Subleases. All right, title and interest of Seller in, to and
under (a) the Leases (other than the Leases for “Ward Cinemas 16” and “Mililani
14” (both as defined in Exhibit A-1 attached
hereto)), and (b) the subleases described on Exhibit A-2 attached
hereto (the “Subleases”),
including, in the case of the Subleases, any and all claims held by Seller in
its capacity as the sublandlord under such Subleases;
1.2.2 Buildings, Improvements and
Fixtures. All right, title and interest of Seller in and to
all “Buildings” (as defined in Section 1.2.4), improvements and fixtures and
located on or comprising a part of the Leased Premises (other than the Leased
Premises subject to the Leases for the Ward Cinemas 16 and the Mililani
14);
1.2.3 Included
Contracts. All right, title and interest of Seller under (a)
the contracts and other commitments and obligations listed or described on Exhibit B attached
hereto, (b) all film rental agreements with respect to the Theaters to the
extent (i) entered into by Seller in accordance with this Agreement, and (ii) in
effect as of the Closing, and (c) to the extent assignable, all
confidentiality and similar agreements (“CDAs”) entered into
by or on behalf of Seller or its Affiliates with any Person in connection with
the possible sale of all or any part of the Purchased Assets (said contracts and
other commitments and obligations described in this Section 1.2.3 are
hereinafter referred to as the "Included Contracts");
provided, however, that, to the
extent any CDAs pertain to Excluded Assets (as defined in Section 1.3),
from and after the Closing Buyer shall, at Seller’s request, cooperate with
Seller in any reasonable arrangement to afford to Seller the full claims, rights
and benefits under such CDAs as they relate to the Excluded Assets, including
enforcement, at the cost and for the benefit of Seller, of any and all rights
against a third party thereto arising out of the breach by such third party, or
otherwise, and any amount received by Buyer or its Affiliates in respect thereof
shall be held for and paid over to Seller.
1.2.4 Seller FF&E and
Inventory. Subject to Section 1.3 and to the rights of the
landlords under the Leases and the rights of the other parties under the
Included Contracts, all right, title and interest of Seller in and to (a) all
seats, cleaning equipment, concession equipment (including concession
refrigerators and freezers), personal computer hardware and similar office
equipment, projection and sound equipment, screens, cash registers, ticket
machines, point of sale equipment, point of sale, ticketing and concession
software, security systems and related software, signage (subject to the
obligations of Buyer under Section 7.8 hereof), arcade and similar games,
“walkie talkies,” office and training room furniture and equipment (including
the office furniture and equipment located at the Leased Premises covered by the
Leases for the Ward Cinemas 16 and Mililani 14), the furniture and equipment
located in the projection technician’s office at the Leased Premises covered by
the Lease for the “Grossmont Center 10” (as defined in Exhibit A-1 attached
hereto), coin and bill counters, and the
2
projection
supplies (other than projection xenon bulbs) located at the Leased Premises
covered by the Lease for the “Pearlridge West 16” (as defined in Exhibit A-1 attached
hereto), in each case to the extent located in or attached to the buildings
(collectively, the "Buildings") which
comprise part of the Leased Premises on the “Closing Date” (as defined in
Section 9.1), including all of the assets listed on Schedule 1.2.4
attached hereto (other than those assets listed on Schedule 1.2.4 which
are replaced between the Effective Date and the Closing Date in the ordinary
course of business consistent with past practice) (collectively, the "Seller FF&E"),
and (b) all “Included Inventory” (as defined in Section 2.3 below);
1.2.5 Included Warranties and
Permits; Theater Plans; Books and Records. All right, title
and interest of Seller in and to all (a) municipal, state and federal
franchises, permits (including building and occupancy permits and operating
permits and licenses), licenses, waivers and authorizations, and all guaranties
and warranties, in each case (i) to the extent relating to the development,
construction, operation or maintenance of the Leased Premises, the installation
of tenant improvements or Seller FF&E at the Theaters, and (ii) to the
extent transferable, (b) plans and specifications for the Theaters and the
Leased Premises, in each case to the extent the same are in the possession of
Seller or any of Seller’s “Affiliates” (as defined in Article 12) as of the
Effective Date or come into possession of Seller or any of Seller’s Affiliates
prior to or after the Closing Date, and (c) Seller’s files for the Leases and
the Subleases, including all correspondence with the landlords, subtenants or
other counterparties thereunder and all information required to determine common
area maintenance charges and percentage rent obligations for lease years
occurring during any part of 2004, 2005, 2006 or 2007 (the “CAM and Percentage Rent
Information”), in each case to the extent the same are in the possession
of Seller or any of Seller’s Affiliates as of the Effective Date or come into
possession of Seller or any of Seller’s Affiliates prior to or after the Closing
Date, but not including any financial information or financial reports regarding
the operation of the Theaters other than the CAM and Percentage Rent
Information. Notwithstanding the foregoing, from and after the date which is
twenty-one (21) months after the Closing Date, Seller shall incur no liability
for any failure to deliver documents first obtained after the Closing Date and
which Seller would otherwise be obligated to deliver to Buyer pursuant to either
subclause (b) or (c) above so long as Seller delivers such documents to Buyer
within thirty (30) days after Buyer’s written request therefor (provided that
such written request identifies the documents so requested to be delivered with
reasonable specificity); and
1.2.6 Intellectual
Property. All right, title and interest in and to the
“Consolidated Theatres” and “Consolidated Amusements” trade names, including all
related trademarks and service marks, trade dress, logos and artwork,
all applications or registrations pertaining to the foregoing, and all goodwill
associated therewith (the “Consolidated
IP”).
For
purposes of this Section 1.2 only, the term “Seller” shall include all current
Affiliates of Seller, with the intention that the Purchased Assets will include
all right, title and interest of each Seller and all such Affiliates in the
assets and properties described above in this Section 1.2.
3
1.3 Excluded
Assets. Notwithstanding anything to the contrary contained in
Section 1.2 hereof, the Purchased Assets shall not include any “Excluded
Assets.” For purposes of this Agreement, “Excluded Assets” mean
any assets, properties or rights of Seller which are not used exclusively in
connection with the Business, and shall include, without limitation, the
following: (a) any cash, cash equivalents, certificates of deposit or other
marketable or non-marketable securities; (b) any accounts or notes receivable;
(c) any policies of insurance; (d) any vehicles; (e) any claims, settlements or
awards relating to events occurring prior to the Closing Date, (i) including any
claims against the landlords under (1) the “Kahala Lease” (as defined on Exhibit A-1 attached
hereto), and any obligations relating to any such claims, settlements or awards,
and (2) the “Ko’olau Lease” (as defined on Exhibit A-1 attached
hereto) to the extent such claim relates to reimbursement of certain amounts
paid by Seller to such landlord (the “Ko’olau Landlord”) in
connection with alterations and improvements made by the Ko’olau Landlord to the
parking areas in the vicinity of such Leased Premises during and around the year
2000, and any obligations relating to any such claims, settlements or awards,
(ii) but excluding any claims held by Seller in its capacity as sublandlord
under the Subleases (it being the intention of the parties that claims held by
Seller in its capacity as sublandlord under the Subleases be included within the
Purchased Assets); (f) any books, records or files (except to the extent
otherwise included within the Purchased Assets pursuant to Section 1.2.5); (g)
[intentionally omitted]; (h) any computer software, as well as any magnetic
tape, methodology, materials or documents relating thereto (except to the extent
otherwise included within the Purchased Assets pursuant to Section 1.2.4); (i)
any supplies, stock in trade, inventory, signs, or any other items bearing
anywhere thereon the name “Pacific,” or “Pacific Theatres,” either by itself or
in conjunction with any other words or letters (provided that, any of the
foregoing and component parts and letters of signage shall not be deemed
“Excluded Assets” to the extent (1) the name “Pacific” or “Pacific Theatres” can
and is professionally and neatly removed or covered, (2) the same can and is
used without infringing upon the “Pacific” or “Pacific Theatres” trade names or
trademarks, and (3) the same can and is used without violating the terms of the
applicable Leases); (j) any ticket stock to the extent it bears the “Pacific” or
“Pacific Theatres” name; (k) any uniforms or other clothing to the extent
bearing the “Pacific” or “Pacific Theatres” names; (l) any personal property of
Seller's employees, including, but not limited to, apparel, photographs, works
of art and memorabilia; (m) any projection xenon bulbs (other than those located
in any projection equipment on the Closing Date), (n) the “Excluded Inventory”
(as defined in Section 2.3 below) or (o) any other property not owned by Seller
or its Affiliates. Without limiting the generality of the foregoing,
all assets, properties and rights of Seller or its Affiliates located at any
motion picture theater other than the Theaters shall be deemed Excluded Assets
for all purposes under this Agreement.
1.4 Assumed
Liabilities. Effective as of the Closing Date, Buyer shall
assume any and all liabilities and obligations of Seller under the Leases (other
than the Leases for Ward Cinemas 16 and Mililani 14), the Subleases and Included
Contracts which accrue on or after the Closing Date (the “Assumed
Liabilities”). Except for the Assumed Liabilities and except
as otherwise specifically set forth in any of the other
4
“Transaction
Documents” (as such term is defined in Article 12), Buyer is not assuming any
other liabilities or obligations of Seller. Without limiting the generality of
the foregoing, Buyer is specifically not assuming any liability under or with
respect to (a) any pension, retirement, ERISA or other “Benefit Plan” (as such
term is defined in Article 12), including, without limitation, any union
pension, retirement or other Benefit Plan, or with respect to any liability that
may result from the withdrawal of Seller or any of its Affiliates from any
pension, retirement, ERISA or other Benefits Plan, or (b) any obligation to pay
to the landlord under the Lease for the Ward Cinemas 16 amounts for Seller’s
proportionate share of real property taxes due for periods prior to the Closing
Date. The obligations and covenants of Buyer set forth in this
Section 1.4 and elsewhere in this Agreement shall survive the Closing
indefinitely.
1.5 Assignment by
Buyer. Subject to the terms of Section 7.1.1 below, Buyer
shall have the right to assign its right to take title at Closing to some or all
of the Purchased Assets to one or more wholly-owned direct or indirect
subsidiaries of Buyer (the “Buyer Subs”);
provided, however, that, except as provided below in this Section 1.5, no such
assignment shall relieve Buyer of its obligations under this Agreement
(including, without limitation, Section 1.4 and Article 11 hereof) or any
of the other Transaction Documents. Buyer shall provide Seller with
written notice of such election, the identities of the Assignee Subs, and which
of the Purchased Assets are to be acquired by the Assignee Subs at least ten
(10) days prior to the Closing Date. Notwithstanding the foregoing,
Seller and Buyer agree that at the Closing, and provided such Leases remain
included within the Purchased Assets, the Leases for the Gaslamp 15 and Carmel
Mountain Plaza (as each is defined on Exhibit A-1) shall be
assigned to one or more wholly-owned direct or indirect subsidiaries of RDI
(other than Buyer and the Buyer Subs (the “RDI Subs” and
collectively with the Buyer Subs, the “Assignee Subs”), and
not to Buyer or the Buyer Subs, and Buyer shall have no responsibility or
liability with respect to such Leases or any associated assets or
liabilities. The parties agree that, notwithstanding any other
provision of this Agreement, RDI, and not Buyer, shall be solely responsible to
Seller for any and all obligations of Buyer under this Agreement (including,
without limitation, Section 1.4 and Article 11 hereof) with respect to the
Leases and associated assets and liabilities acquired hereunder by the RDI
Subs.
1.6 Intentionally
Omitted.
2. Purchase
Price.
2.1 Purchase
Price. The purchase price for the Purchased Assets shall be
Thirty-Four Million Seven Hundred Thousand Dollars ($34,700,000), which shall be
subject to adjustment and reimbursement as hereinafter provided (the "Purchase
Price"). The Purchase Price shall be payable as
follows:
2.1.1 Deposit. Not
later than five (5) “Business Days” (as defined in Article 12) after the
Effective Date, Buyer shall deposit with Seller a cash deposit of Two Million
Dollars ($2,000,000) (the "Deposit") by wire
transfer of immediately available funds to an account or accounts designated by
Seller concurrently
5
with the
Effective Date. Seller shall not be required to keep the Deposit
separate from its general funds; however, Buyer shall be entitled to receive
from Seller an interest factor on the Deposit at the average interest rate
earned by Seller on its cash and cash equivalents during the period it holds the
Deposit (the “Interest
Factor”). (a) The Deposit, along with the Interest
Factor, shall be either (i) credited against the Purchase Price at the Closing
or (ii) returned to Buyer, within five (5) Business Days, if this Agreement
is terminated prior to the Closing as provided herein and Seller is not entitled
to retain the Deposit pursuant to Section 10.2 below, or (b) the Deposit shall
be retained, and the Interest Factor paid to Buyer, by Seller pursuant to
Section 10.2 below. If, and to the extent, the full amount of the
Deposit (if Buyer is entitled to return of the Deposit) and Interest Factor is
not paid and returned to Buyer within the five (5) Business Day period referred
to in clause (a)(ii) above or Section 10.2 below, the unpaid and unreturned
amount shall thereafter bear interest at the late interest rate provided for in
Section 2.6 hereof until such amount shall have been fully paid and returned to
Buyer.
2.1.2 Balance of Purchase
Price. Buyer shall pay to Seller, at the Closing, the balance of
the Purchase Price by wire transfer of immediately available funds to an account
or accounts designated by Seller. Seller shall designate the account
or accounts not less than two (2) Business Days prior to the Closing
Date.
2.2 Certain Adjustments to
Purchase Price. The Purchase Price shall be subject to
adjustment at the Closing as follows:
2.2.1 Prepaid Expenses, Prorations
and Deposits. The Purchase Price shall be increased or
decreased as required to effectuate the proration of expenses and
receipts (other than those adjusted pursuant to Section 2.2.2), including any
prepaid expenses and receipts, if any, under the Leases (other than the Leases
for Ward Cinemas 16 and Mililani 14), the Subleases, the Included Contracts or
other obligations to be borne pursuant to this Agreement by Seller prior to the
Closing Date and by Buyer on or after the Closing Date. Without
limiting the generality of the foregoing, all expenses arising from the
operation of the Theaters, including, without limitation, rent (other than
“Percentage Rent” (as defined in Section 2.2.2 below)), business and license
fees, film rentals, utility charges, insurance charges, common area operating
expenses, real, excise and personal property Taxes and assessments levied
against the applicable Leased Premises, promotional fund expenses, property and
equipment rentals, concession and merchandise sales and use Taxes, sales service
charges, deposits under the applicable Leases or the Subleases, and similar
prepaid and deferred items, in each case to the extent relating to the operation
of the Theaters, shall be prorated between Buyer and Seller in accordance with
the principle that Seller shall be responsible for all expenses, costs, and
liabilities, and shall be entitled to all receipts, allocable to the period
ending prior to the Closing Date, and Buyer shall be responsible for all
expenses, costs, liabilities and obligations, and shall be entitled to all
receipts, allocable to the period on or after the Closing
Date. Notwithstanding the preceding sentence, but subject to Section
7.7 of this Agreement, there shall be no adjustment for, or reimbursement with
respect to, any deferred revenue arising from the sale or issuance of any
“Coupons and Passes” (as defined in Section 7.7 hereof) prior to the Closing or
any other liabilities or costs directly
6
or
indirectly attributable thereto or arising therefrom. Buyer shall be
entitled to a credit against the Purchase Price for any deposits or advances
received by Seller from any subtenant under any of the Subleases or any
counterparty under the Included Contracts to the extent such deposits or
advances have not been returned to any such subtenant or counterparty or
recouped by any such subtenant or counterparty prior to the Closing
Date.
2.2.2 Percentage
Rent.
2.2.2.1 With
respect to any percentage rent or any other rent based on the income (gross or
otherwise) (“Gross
Income”) of the tenant (collectively, “Percentage Rent”)
payable under any Lease (other than the Leases for Ward Cinemas 16 and Mililani
14) for the applicable lease years or other periods specified thereunder (each,
a “Lease Year”)
during which the Closing occurs, the Percentage Rent (taking into account any
applicable credits or adjustments) shall be prorated between Buyer and Seller
(where Seller is responsible for the period ending immediately prior to the
Closing Date and Buyer is responsible for the period on and after the Closing
Date) such that each party shall pay when due that percent of the total
Percentage Rent payable which equals such party’s respective Gross Income with
respect to the Theater subject to such Lease divided by the total Gross Income
for such Theater for such Lease Year. Seller shall pay to Buyer, or
Buyer shall pay to Seller, as the case may be, its pro rata share due in respect
of such estimated Percentage Rent within thirty (30) days after receipt by the
paying party of the appropriate statements evidencing the amount
thereof.
2.2.2.2 With
respect to any Percentage Rent payable by the subtenant under any Sublease for
the applicable Lease Year during which the Closing occurs, the Percentage Rent
(taking into account any applicable credits or adjustments) shall be prorated
between Buyer and Seller (where Seller is entitled to any Percentage Rent for
the period ending immediately prior to the Closing Date and Buyer is entitled to
any Percentage Rent for the period on and after the Closing Date) such that (a)
Seller receives the total Percentage Rent due for such Lease Year multiplied by
a fraction, the numerator of which is the total number of days in such Lease
Year occurring prior to the Closing Date and the denominator of which is the
total number of days in such Lease Year, and (b) Buyer receive the remaining
Percentage Rent due for such Lease Year. Seller shall pay to Buyer,
or Buyer shall pay to Seller, as the case may be, its pro rata share due in
respect of such estimated Percentage Rent within thirty (30) days after receipt
by the paying party of the appropriate statements evidencing the amount
thereof.
2.2.2.3 Any
dispute arising under this Section 2.2.2 shall be resolved in accordance with
the procedures set forth in Section 2.2.3.3 and 2.2.3.4.
2.2.3 Manner of Determining
Adjustments. The Purchase Price, taking into account the adjustments and
prorations pursuant to this Section, will be determined finally in accordance
with the following procedures:
7
2.2.3.1 Seller shall
prepare and deliver to Buyer not later than five (5) Business Days before the
Closing Date an itemized preliminary settlement statement (the “Preliminary Settlement
Statement”) which shall set forth Seller’s good faith estimate of the
adjustments to the Purchase Price in accordance with Section 2.2.1
hereof.
2.2.3.2 If Seller and Buyer
have not agreed upon a final settlement statement on or before the Closing Date,
then Seller and Buyer shall cooperate in good faith to finalize such settlement
statement as soon as practicable after the Closing; provided, however, the
parties shall use such Seller’s good faith estimated adjustments to the Purchase
Price as set forth in the Preliminary Settlement Statement delivered pursuant to
Section 2.2.3.1 above for purposes of determining the amount of any estimated
adjustment to the Purchase Price paid by Buyer to Seller at
Closing. If Seller and Buyer have not agreed upon a final settlement
statement on or before the Closing Date, not later than sixty (60) days after
the Closing Date, Buyer shall deliver to Seller a statement (the “Buyer Adjustment
Statement”) setting forth, in reasonable detail, its determination of the
adjustments to the Purchase Price and the calculation thereof and reminding
Seller of the thirty (30) day response period set forth in Section
2.2.3.3. If Buyer fails to deliver the Buyer Adjustment Statement to
Seller within the sixty (60) day period specified in the preceding sentence,
Seller’s determination of the adjustments to the Purchase Price as set forth in
the Preliminary Settlement Statement shall be conclusive and binding on the
parties as of the last day of the sixty (60) day period.
2.2.3.3 If Seller disputes
Buyer’s determination of the adjustments to the Purchase Price, it shall deliver
to Buyer a statement notifying Buyer of such dispute within thirty (30) days
after its receipt of the Buyer Adjustment Statement. If Seller
notifies Buyer of its acceptance of the Buyer Adjustment Statement, or if Seller
fails to deliver its statement within the thirty (30) day period specified in
the preceding sentence, Buyer’s determination of the adjustments to the Purchase
Price as set forth in the Buyer Adjustment Statement shall be conclusive and
binding on the parties as of the earlier of the date of notification of such
acceptance or the last day of the thirty (30) day period, and the appropriate
party shall promptly pay to the other party in immediately available funds the
amount of any such adjustment.
2.2.3.4 Seller and Buyer
shall use good faith efforts to resolve any dispute involving the determination
of any adjustments to the Purchase Price, and each party shall afford the other
party and its representatives reasonable access to all appropriate books,
records and statements relating to the subject matter of
the adjustments to the Purchase Price contemplated by this Section
2.2 for such purpose. If the parties are unable to resolve the
dispute within sixty (60) days after Buyer delivers the Buyer Adjustment
Statement to Seller, Seller and Buyer jointly shall designate an independent
accounting firm that has, or a movie theater executive who has, consistent and
recent experience in the finances of movie theaters similar to the Theaters (the
“Designated
Arbitrator”) to resolve the dispute. If, for any reason, the
parties are unable to agree upon the Designated Arbitrator within seventy-five
(75) days after Buyer delivers the Buyer Adjustment Statement to Seller, or the
Designated Arbitrator fails or refuses to accept such engagement within fifteen
(15) days after the parties’ written request therefor, Seller and Buyer shall
jointly designate the Los Angeles office of PriceWaterhouseCoopers (the “Replacement
Arbitrator”) to resolve the dispute. If the Replacement
Arbitrator fails or
8
refuses
to accept such engagement, in either case within fifteen (15) days after the
parties’ written request therefor, either Seller or Buyer may thereafter
petition the Superior Court of Los Angeles County, California for the
appointment of an independent accounting firm to act as the Replacement
Arbitrator and resolve the dispute. Absent fraud or manifest error, (a) the
Designated Arbitrator’s or Replacement Arbitrator’s, as applicable, resolution
of the dispute shall be final and binding on the parties, (b) subject to
Sections 2.4 and 2.5, the appropriate party shall promptly pay to the other
party in immediately available funds the amount of any such adjustment, and (c)
a judgment may be entered in any court of competent jurisdiction if such amount
is not so paid. Any fees and costs of the Designated Arbitrator or
Replacement Arbitrator shall be split equally between the parties.
2.3 Reimbursement. At
least thirty (30) days prior to the Closing Date, Seller shall provide Buyer
with a list of all concession inventory and consumables (including, without
limitation, all food, beverages, candy, ticket stock, cups, bags, paper goods
and related items), and janitorial supplies (collectively, “Theater Inventory”),
then on hand at the Theaters. Within five (5) Business Days after its
receipt of such list, Buyer shall provide written notice to Seller of those
categories of Theater Inventory Buyer elects to exclude from the Purchased
Assets (the “Excluded
Inventory”). All Theater Inventory (other than the Excluded
Inventory) on hand on the Closing Date shall be included in the Purchased Assets
(the “Included
Inventory”), and Buyer shall reimburse to Seller an amount equal to
Seller’s cost of all Included Inventory on hand at the Closing Date, as set
forth in written inventories prepared by Seller’s theater managers at each of
the Theaters as of the close of business on the day immediately preceding the
Closing Date. Any dispute regarding the reimbursement pursuant to
this Section 2.3 shall be resolved by the Designated Arbitrator or the
Replacement Arbitrator pursuant to the mechanism set forth in Section 2.2.3.4,
and each party shall afford the other party and its representatives reasonable
access to all appropriate books, records and statements relating to the subject
matter of the reimbursement contemplated by this Section 2.3 for such
purpose.
2.4 Adjustment for Exclusion of
Kukui Lease. If the Closing occurs, but the Lease for Kukui
Mall 4 (defined on Exhibit A-1) (the
“Kukui Lease”)
is not assigned to Buyer solely by reason of the fact that the landlord under
the Kukui Lease (the “Kukui Landlord”) has
failed to consent to the assignment thereof or exercises its “recapture” rights
under the Kukui Lease (the “Recapture Rights”),
(a) the Purchase Price shall be increased at the Closing by $840,000,
(b) the Kukui Mall 4 Lease shall be excluded from the Purchased Assets, and
(c) if the Kukui Landlord neither consents to the assignment thereof nor
exercises the Recapture Rights, the Kukui Lease shall be subject to Section
7.1.4 below. Any increase in the Purchase Price pursuant to this
Section 2.4 shall be paid by Buyer to Seller at the Closing as provided in
Section 2.1.2; provided, however, that Seller
also shall increase the amount of the “Loans” (as defined in Section 5.6) made
at the Closing by the amount of such increase in the Purchase Price,
9
and the
parties agree such increase in the amount of the Loans shall be evidenced by
increasing the initial principal amount of the “Two Year Note” (as defined in
Section 5.6 below) at the Closing.
2.5 Payment of Adjustments to
and Reimbursements of the Purchase Price. If, pursuant to
Sections 2.2 or 2.3, it is determined after the Closing Date that Buyer shall be
obligated to pay any amounts to Seller, then Buyer shall make such payments in
full to Seller within ten (10) days after such amount is finally determined to
be due. Conversely, if, pursuant to Sections 2.2 or 2.3, it is
determined after the Closing Date that Seller shall be obligated to pay any
amounts to Buyer, then such amounts shall be credited against RDI’s obligations
to Seller under the “Notes” (as defined in Section 5.6) in the following order
and priority: (a) first, against the then outstanding principal balance
under the “Five Year Note” (as defined in Section 5.6, below),
(b) second, against the then outstanding principal balance under the Two
Year Note, (c) third, against any accrued interest under the Five Year
Note, and (d) last, against any accrued interest under the Two Year Note;
provided, however, if after
application of such amounts due against the Notes, there remains amounts due
from Seller to Buyer, then Seller shall pay all such remaining amounts in full
to Buyer within ten (10) days after such amounts are finally determined to be
due.
2.6 Late Interest. If
any amount payable pursuant to the provisions of this Article 2 is not paid
within ten (10) days after such amount is finally determined to be due, such
amount shall thereafter accrue interest until paid in full at an annual rate
equal to the lesser of the “prime” interest rate as announced by The Wall Street Journal from
time to time during such period plus 2%, or the maximum interest rate permitted
by applicable law.
2.7 Allocation of Purchase
Price. Attached hereto as Schedule 2.7 is an
allocation (the “Allocation”) of the
Purchase Price among the Purchased Assets. Buyer and Seller shall (a)
be bound by the Allocation for all Tax purposes; (b) prepare and file all Tax
returns (including IRS Form 8594 and any required exhibits thereto, and any
amendments thereto) in a manner consistent with the Allocation; and (c) take no
position inconsistent with the Allocation in any Tax return or in any proceeding
before any taxing authority. In the event that the Allocation is
disputed by any taxing authority, the party receiving notice of such dispute
shall promptly notify and consult with the other parties and keep the other
parties apprised of material developments concerning resolution of such
dispute.
2.8 Survival. The
parties’ respective obligations under this Article 2 shall survive the
Closing.
3. Representations and
Warranties of Seller.
3.1 Representations and
Warranties of Seller. Seller hereby represents and warrants to
Buyer as follows:
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3.1.1 Organization. Pacific
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California, and Consolidated is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Hawaii. Each of Pacific and Consolidated has all requisite power to own, lease
and license its properties and assets and to carry on its business in the manner
and in the places where such properties and assets are owned, leased, licensed
or operated or such business is conducted.
3.1.2 Authority. Subject
to the terms of any consent provisions of the Leases and the Included Contracts,
each of Pacific and Consolidated has full right, power and authority to enter
into this Agreement and to perform its obligations hereunder. The entry into and
performance of this Agreement have been duly authorized by all necessary action
on the part of each of Pacific and Consolidated in accordance with its Articles
of Incorporation and Bylaws and applicable law. This Agreement
constitutes, and each other document, instrument and agreement to be entered
into by Pacific or Consolidated pursuant to the terms of this Agreement will
constitute, a valid agreement binding upon and enforceable against such entity
in accordance with its terms (except as limited by bankruptcy or similar laws or
the availability of equitable remedies).
3.1.3 Consents. Except
as set forth in Schedule 3.1.3
attached hereto, the execution, delivery and performance by Pacific and
Consolidated of this Agreement, and all other agreements, instruments or
documents referred to herein or contemplated hereby, do not require the consent,
waiver, approval, license or authorization of any Person (other than the
landlords under the Leases) or public authority which has not been obtained or
provided for in this Agreement and do not and will not contravene or violate
(with or without the giving of notice or the passage of time or both), the
Articles of Incorporation or Bylaws of such entity, any other contract or
agreement to which such entity is a party or by which such entity is bound or
any judgment, injunction, order, law, rule or regulation applicable to such
entity. Neither Pacific nor Consolidated is a party to, or subject to or bound
by, any judgment, injunction or decree of any court or governmental authority
which may restrict or interfere with the performance of this Agreement, or such
other agreements, instruments and documents.
3.1.4 Good
Title. Except for Liens granted to Bank of America, N.A., as
Administrative Agent (all of which Liens shall be released on or prior to the
Closing Date), Seller has, and on the Closing Date will have, good title in and
to or valid leasehold interests in, all of the Purchased Assets (other than the
Leased Premises and its interests in the Leases and the Subleases) free and
clear of any “Liens” (as such term is defined in Article 12), ownership
interests or rights to acquire, other than the “Permitted Liens” (as such term
is defined in Article 12). Notwithstanding the foregoing, but
subject to Section 11.2.4 below, no representation or warranty is made with
respect to the title to any point of sale, ticketing, concession or other
computer software included in the Purchased Assets.
3.1.5 The
Leases. Exhibit A-1 sets
forth a true, complete and accurate list of all Leases (including all
amendments, extensions, renewals, ground or
11
master
lessor consents, existing non-disturbance and attornment agreements with respect
thereto), and Exhibit
A-2 sets forth a true, complete and accurate list of all Subleases
(including all amendments, extensions, renewals, ground or master lessor
consents, existing non-disturbance and attornment agreements and guaranties with
respect thereto). Subject to the terms of the Leases and the
Subleases, Seller has, and on the Closing Date will have, valid leasehold
interests in the Leases and the Subleases free and clear of any Liens other than
(a) Permitted Liens, (b) so-called “non-monetary” Liens, including, without
limitation, any ground or underlying leases, easements, parking agreements,
reciprocal easement agreements, conditions, covenants and restrictions,
restrictive covenants, development or similar agreements, zoning limitations and
other restrictions imposed by any Governmental Authority, or any other matter
which a survey of the Leased Premises or a review of the public records
regarding the Leased Property would show, whether created by or in the name of
Seller or any other party, or (c) any other Liens, whether “monetary” or
“non-monetary” Liens, created by or in the name of any Person other than Seller
or any Affiliate of Seller, including, without limitation, by any fee owner or
ground lessor under the Leases or any subtenant under the
Subleases. True, complete and accurate copies of the Leases and the
Subleases, as well as any and all existing guaranties of Seller or its
Affiliates with respect thereto, have been delivered or otherwise made available
to Buyer through Seller’s data site operated by Merrill Corporation (the “Data Site”), and such
Leases and Subleases set forth the entire agreement and understanding between
the parties thereto with respect to the leasing or subleasing, as applicable,
and occupancy of the Leased Premises. Each such Lease and Sublease is
in full force and effect against the applicable Seller and is valid and binding
against the applicable Seller and, to Seller’s Knowledge, the applicable
landlord or subtenant thereunder. Except as set forth on Schedule 3.1.5,
neither Seller nor, to Seller’s Knowledge, any landlord under the Leases or any
subtenant under the Subleases is in default under the Leases or the Subleases,
as applicable, nor has any event occurred or failed to occur or any action been
taken or not taken which, with the giving of notice, the passage of time or both
would mature into or otherwise become a default under the Subleases or the
Leases by Seller or, to Seller’s Knowledge, the applicable landlord or subtenant
thereunder. Except as set forth on Schedule 3.1.5, no
landlord under any Lease or subtenant under any Sublease is an “Affiliate” (as
such term is defined in Article 12) of either Seller. Except for the
Subleases and except as set forth on Schedule 3.1.5,
Seller has not subleased, licensed or otherwise granted any “Person” (as such
term is defined in Article 12) the right to use or occupy the Leased Premises or
any portion thereof and the Seller is in exclusive possession of the Leased
Premises. To Seller’s Knowledge, there is no pending or
threatened condemnation of any part of any Leased Premises by any “Governmental
Authority” (as such term is defined in Article 12).
3.1.6 Improvements. Since
January 1, 2005, with respect to the Business or the Purchased Assets or the
Leased Premises, neither Seller nor its Affiliates has not received any written
notice of, and otherwise has no Knowledge of, any violation of any applicable
federal, state or local laws (other than any applicable “Environmental Laws” (as
defined in Article 12) or the “ADA” (as defined below)), building ordinances, or
health and safety ordinances, which has not been cured in all material
respects. Since January 1, 2005, with respect to the Business or the
Purchased Assets or the Leased
12
Premises,
Seller has not received any written notice from any Governmental Authority, or
to the actual knowledge of Ira Levin and Jay Swerdlow (who, for this purpose
only, shall be deemed to actually know of all information in their respective
business and personal files maintained with respect to the Purchased Assets and
the Business) any other Person, of any violation of any applicable Environmental
Laws or the Americans with Disabilities Act, 42 U.S.C. 12101 et seq. or similar
or comparable state or local laws (collectively, the “ADA”). Except
as expressly set forth in the immediately preceding sentence, no representation
or warranty is made that any Leased Premises or any improvements made by or
constructed for Seller or any third party is in compliance with Environmental
Laws or the ADA. Except as set forth in Schedule 3.1.6 and
except for the improvements covered or to be covered by the repairs described in
Section 7.3.2 below, to Seller’s Knowledge, since January 1, 2005, no
improvements on the Leased Premises have suffered any material casualty or other
material damage that has not been repaired in all material
respects. Notwithstanding the foregoing, the parties acknowledge and
agree that Seller shall not be deemed in breach of the representation and
warranty set forth in the immediately preceding sentence by reason of any
asserted casualty or damage to any such improvements that were set forth in any
written inspection report provided by Buyer to Seller prior to the Effective
Date.
3.1.7 Material
Contracts. Schedule 3.1.7 sets
forth a complete and correct list of the following Included Contracts: (a) all
contracts requiring annual payments in excess of $100,000; (b) all contracts
whose term is greater than one (1) year and which may not be terminated upon
thirty (30) days or less notice without penalty; (c) all contracts with
Affiliates of either Seller; and (d) all non-competition and non-disclosure
agreements to which either Seller is subject other than non-competition and/or
non-disclosure agreements set forth in the Leases or the CDAs (collectively, the
“Material
Contracts”). True, complete and accurate copies of the Material Contracts
have been delivered or otherwise made available to Buyer through the Data Site,
and such Material Contracts set forth the entire agreement and understanding
between the parties thereto with respect to the subject matter
thereof. Each Material Contract is in full force and effect against
the applicable Seller and is valid and binding against the applicable Seller
and, to Seller’s Knowledge, the other parties thereunder. Except as
set forth on Schedule
3.1.7, neither Seller nor, to Seller’s Knowledge, any other party to the
Material Contracts is in default under any of the Material Contracts, nor has
any event occurred or failed to occur or any action been taken or not taken
which, with the giving of notice, the passage of time or both would mature into
or otherwise become a default under any of the Material Contracts by Seller or,
to Seller’s Knowledge, the other parties thereunder.
3.1.8 Compliance with
Law. Except as set forth in Schedule 3.1.8, since
January 1, 2005, to Seller’s Knowledge, the operation of the Business and the
Leased Premises has been conducted in accordance with all applicable laws,
rules, codes, injunctions, decrees, rulings, regulations, orders and other legal
requirements of all Governmental Authorities, the failure to comply with which
could have a Material Adverse Effect. Except as set forth in Schedule 3.1.8, since
January 1, 2005, neither Seller nor its Affiliates have received written notice
of any material violation of any such law, regulation, order or other legal
requirement. Neither Seller nor its Affiliates is in
13
default
with respect to any order, writ, judgment, award, injunction or decree of any
Governmental Authority applicable to the Business or any of the Purchased Assets
or the Leased Premises which has not been cured in all material respects, nor
has any event occurred or failed to occur or any action been taken or not taken
which, with the giving of notice, the passage of time or both would mature into
or otherwise become such a default. Except as set forth in Schedule 3.1.8, to
Seller’s Knowledge, neither Seller nor its Affiliates is under investigation
with respect to any purported violation of (a) any law, regulation, order or
other legal requirement, or (b) any order, writ, judgment, award, injunction or
decree of any Governmental Authority applicable to the Business or any of the
Purchased Assets or the Leased Premises. No representation or
warranty is hereby made by virtue of this Section 3.1.8 in respect of any
matters covered by Sections 3.1.6 or 3.1.10. Additionally, and
notwithstanding anything to the contrary contained in this Agreement or in any
of the other Transaction Documents, (a) no representation or warranty is made
with respect to the compliance of the Theaters’ point of sale ticketing,
concession or other computer software systems with the Fair and Accurate Credit
Transaction Act of 2003, as the same is amended from time to time (“FACTA”), or any
similar federal, state or local law, (b) Buyer acknowledges that Seller has
advised Buyer that the Theaters and the Business will not be Payment Card
Industry (“PCI”) compliant from
and after December 31, 2007, and (c) Seller shall be under no
obligation to take any action either prior to or after the Closing to cause the
Business or any of the Purchased Assets to comply with FACTA or any similar
federal, state or local law, or make the Theaters or the Business PCI compliant,
and shall have no liability to Buyer if no such actions are taken.
3.1.9 Litigation. Except
as set forth in Schedule 3.1.9, to
Seller’s Knowledge, there are no actions, suits, claims, proceedings, hearings,
disputes or investigations currently pending or threatened in writing at any
time after January 1, 2005, before any Governmental Authority or that would come
before any arbitrator, brought by or against Seller involving, affecting or
relating to the Business or any of the Purchased Assets, including, without
limitation, any labor, employment or Tax-related actions, suits, claims,
proceedings, hearings, disputes or investigations. Seller is not
subject to any order, writ, assessments, judgment, award, injunction or decree
of any Governmental Authority relating to the Business or any of the Purchased
Assets. Notwithstanding the foregoing, Seller makes no representation in this
Section 3.1.9 regarding the subject matter of the second sentence of
Section 3.1.6.
3.1.10 Labor
Matters.
3.1.10.1 Employment and Collective
Bargaining Agreements. Except as set forth in Schedule 3.1.10: (a)
neither Seller nor its Affiliates is a party to any outstanding employment or
consulting agreements or change in control contracts with any “Affected
Employee” (as such term is defined in Article 8) that is not terminable at will
without payment of compensation beyond what is owed for services performed
through the date of termination, or that require the payment of any bonus or
commission; (b) there are no collective bargaining agreements or memoranda of
understanding or appendices relating to any collective bargaining agreements
governing
14
the terms
or conditions of employment of the Affected Employees (to the extent set forth
on Schedule
3.1.10, the items described in this clause (b) are referred to herein as
the “Collective
Bargaining Agreements”); and (c) to the Seller’s Knowledge, since January
1, 2005, there have not been any organizational activities with respect to the
Affected Employees not covered by a Collective Bargaining Agreement, nor are
there any pending or, to Seller’s Knowledge, threatened activities or
proceedings of any labor union to organize any such employees.
3.1.10.2 No
Obligation. Neither Seller nor its Affiliates has any
obligation, either pursuant to applicable law, contract or Collective Bargaining
Agreement, to obligate Buyer to offer employment to or employ any of the
Affected Employees, or to obligate Buyer to assume any of the Collective
Bargaining Agreements listed on Schedule
3.1.10.
3.1.10.3 Compliance with Labor and
Employment Laws. Except as set forth in Schedule 3.1.10: (a)
[intentionally omitted]; (b) there is no unfair labor practice charge, other
charge or complaint pending before any federal or state Governmental Authority
or in the Collective Bargaining Agreement grievance process or, to Seller’s
Knowledge, threatened, brought by or on behalf of any of the Affected Employees
or former employees of Seller who are or were employed in connection with the
operation of the Business or any current or former collective bargaining unit
representing any Affected Employees or former employees of the Seller who were
employed in connection with the operation of the Business; (c) there is no labor
strike or slowdown, work stoppage or lockout, pending or, to Seller’s Knowledge,
threatened against or affecting the Business, and since January 1, 2005, Seller
has not experienced any strike, slow down or work stoppage, lockout or other
collective labor action against or affecting the Business; and (d) there is no
representation, claim or petition pending before the NLRB or any similar state
agency against or with respect to the Business.
3.1.11. Certain Tax
Matters. Neither Pacific nor Consolidated is a
“foreign person” within the meaning of Code Section 1445(f) or a “foreign
partner” within the meaning of Code Section 1446. None of the
Purchased Assets is “tax-exempt use property” within the meaning of Code Section
168(h).
3.1.12 Theater
P&Ls. Attached hereto as Schedule 3.1.12 are
the Theater Level Cash Flow Reports for the Theaters for Seller’s fiscal year
ended June 28, 2007 and for the two (2) month period ended August 30, 2007
(collectively, the “Theater
P&Ls”). Except as set forth in Schedule 3.1.12, the
Theater P&Ls present fairly in all material respects the results of
operations for the Theaters along with circuit revenue and expenses allocated to
each region based on attendance, for the periods referred to
therein. Seller maintains its books and records in accordance with
GAAP applied on a consistent basis, and the Theater P&Ls were prepared from
and are consistent with such books and records. However, the Theater
P&Ls do not include the FASB 13 adjustment for straight-line rent required
under GAAP. Additionally, the Theater P&Ls exclude certain
financial statements and lack the footnote disclosures that are required for
GAAP.
15
3.1.13 Affiliate
Transactions. Except as set forth on Schedule 3.1.13
attached hereto, (a) Seller is not a party to any contract or arrangement with,
or indebted, either directly or indirectly, to any of its Affiliates in
connection with the Business or any of the Purchased Assets, and (b) none of
Seller’s Affiliates own any asset, tangible or intangible, which is used in and
material to the operation of the Business or any of the Purchased
Assets.
3.1.14 Brokerage. Except
with respect to the engagement of Lazard Freres & Co. LLC, Seller has not
employed any broker, finder or agent or has incurred or will incur any
obligation or liability to any broker, finder or agent with respect to the
transactions contemplated by this Agreement, and all fees and expenses payable
in connection with the engagement of Lazard Freres & Co. LLC will be paid by
Seller.
3.1.15 Employee
Benefits. Seller acknowledges that Buyer does not intend to
maintain any of Seller’s Benefit Plans after the Closing and that, consequently,
neither Buyer nor any ERISA Affiliate of Buyer shall ever have any obligation to
make any payments, contributions or transfers in respect of, or have any
liability with respect to, any such Benefit Plan. By way of example
and not limitation, if and to the extent that Seller incurs, or ever has
incurred, “withdrawal liability” within the meaning of ERISA Section 4201 with
respect to any such Benefit Plan that is a Multiemployer Plan (as defined in
Section 3(37) of ERISA), neither Buyer nor any ERISA Affiliate of Buyer shall
incur any such liability, and Seller shall satisfy such withdrawal liability in
full.
3.1.16 Trade Names and
Trademarks. Seller has granted no right or license to any
other Person to make use of the trade names or trademarks “Consolidated
Theatres” or “Consolidated Amusements,” and has no Knowledge that any other
Person has or claims any interest in such marks; provided, however, that Seller
has Knowledge that the name “Consolidated Theatres” is being used by a theater
circuit currently headquartered in Charlotte, North Carolina.
3.1.17 Development
Projects. None of the “Selling Parties” (as defined in Section
7.9.1), nor any Affiliate of any of the Selling Parties, is bound by any
agreement or commitment regarding the development, construction or operation of
any proposed development that is currently contemplated to include a commercial
motion picture theater in any part of the “Territory” (as defined in Article 12
below), except that no representation or warranty is made hereby with respect to
the development, construction or operation of any proposed motion picture
theater development within the “Exception Area” (as defined in Section 7.10.1
below).
3.2 Knowledge.
Where any
representation or warranty contained in this Agreement is expressly qualified by
reference “to Seller’s Knowledge,” “to the Knowledge of Seller,” or any similar
language, it refers to the actual knowledge of Neil Haltrecht (Executive Vice
President of Seller), Nora Dashwood (Executive Vice President and Chief
Operating Officer of Seller), Jay Swerdlow (Executive Vice
16
President
of Seller), Ira Levin (Executive Vice President and General Counsel of Seller),
Joe Miraglia (Director of Staff Operations of Seller), and Terri Shimohara (Vice
President, Human Resources of Seller), in each case after due
inquiry.
3.3 “As Is” Purchase.
BUYER ACKNOWLEDGES THAT AS A MATERIAL CONDITION OF THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT, BUYER IS ACQUIRING THE PURCHASED ASSETS ON AN “AS IS, WHERE
IS” BASIS EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
AGREEMENT. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THERE ARE
NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, BUT NOT LIMITED TO,
REPRESENTATIONS AS TO THE PHYSICAL OR OTHER CONDITION OF THE LEASES, THE LEASED
PREMISES, OR THE OTHER PURCHASED ASSETS, OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE LEASES,
THE LEASED PREMISES OR THE OTHER PURCHASED ASSETS. BUYER HAS MADE AND AGREES TO
MAKE A THOROUGH AND CAREFUL EXAMINATION OF THE LEASES, THE LEASED PREMISES AND
THE OTHER PURCHASED ASSETS AND WILL ASSURE ITSELF THAT THE LEASES, THE LEASED
PREMISES AND THE OTHER PURCHASED ASSETS ARE SUITABLE FOR BUYER’S INTENDED
PURPOSE. IF THE CLOSING OCCURS, AND SUBJECT TO THE SPECIFIC AND
EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN, (A) BUYER SHALL BE
DEEMED TO HAVE ACCEPTED THE APPLICABLE LEASES, THE LEASED PREMISES AND THE OTHER
PURCHASED ASSETS WITH AND SUBJECT TO ALL DEFECTS AND DEFICIENCIES, AND (B) BUYER
EXPRESSLY ASSUMES THE RISK THAT SUBSEQUENT EVENTS OR UNDISCOVERED OR UNKNOWN
CONDITIONS COULD MAKE ALL OR PART OF THE APPLICABLE LEASES, THE LEASED PREMISES
OR THE OTHER PURCHASED ASSETS UNSUITABLE FOR BUYER’S INTENDED
PURPOSES.
3.4 Release. As
a material inducement to Seller to enter into and perform its obligations under
this Agreement, Buyer, on behalf of itself and all of its successors, assigns,
Affiliates and representatives, hereby releases and discharges Seller, the
Formans, their respective Affiliates, and their respective officers, directors,
shareholders, partners, members, managers, employees, agents, attorneys and
representatives, and successors and assigns, from any and all claims, demands,
liabilities, obligations, expenses (including attorneys' fees), causes of
action, suits and rights, whether now known or unknown, suspected or
unsuspected, which exist, existed or may exist or have existed at any time now
or in the future and arising out of or relating to the physical condition of the
Purchased Assets, including, without limitation, in connection with any
compliance or non-compliance by Seller or any other party with the ADA or any
similar state or local law, or arising from the presence of any Hazardous
Materials or the Purchased Assets’ or any party’s compliance with any
Environmental Laws; provided, however, that the foregoing release shall not
apply to any claim to the extent arising from (a) the breach of any express
covenant, representation or warranty by Seller under this Agreement or
(b) fraud committed by Seller or any Affiliate of Seller. The
foregoing release extends to, and Buyer hereby waives and relinquishes, all of
its rights
17
under
Section 1542 of the California Civil Code and any similar law or rule of any
other jurisdiction. California Civil Code Section 1542
provides:
"A
general release does not extend to claims which the creditor does not know or
suspect to exist in his or her favor at the time of executing the release, which
if known by him or her must have materially affected his or her settlement with
the debtor."
3.5 Updating of
Schedules. Seller shall, from time to time, prior to the
Closing, update the Schedules to this Agreement, or create any new
schedules revising its representations and warranties, if after the Effective
Date Seller learns of new exceptions to the representations and warranties set
forth in this Agreement (together, the "Updated Schedules"),
and promptly deliver such Updated Schedules to Buyer. If any Updated
Schedule reflects or describes a Material Adverse Effect from the
conditions previously described in the representations and warranties,
then Buyer may, at its option, upon written notice thereof to Seller,
within ten (10) Business Days of Buyer's receipt of an Updated
Schedule, terminate this Agreement upon notice to the other
parties. If Seller's representations and warranties were true and
correct when made, then Buyer's sole remedy in the event of the receipt of
an Updated Schedule shall be to terminate this Agreement in accordance with
the foregoing sentence (or to proceed with the Closing). If the then
scheduled Closing Date would occur prior to the end of the ten (10) Business
Days period set forth in this Section 3.5, the delivery of any Updated Schedule
shall postpone the Closing Date to the date which is ten (10) Business Days
after Buyer’s receipt of such Updated Schedule.
4. Representations and
Warranties of Buyer and RDI.
4.1 Representations and
Warranties of Buyer. Buyer hereby represents and warrants to
Seller as follows:
4.1.1 Organization. Buyer
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada. Buyer has all requisite power to own,
lease and license its properties and assets and to carry on its business in the
manner and in the places where such properties and assets are owned, leased,
licensed or operated or such business is conducted.
4.1.2 Authority. Buyer
has full right, power and authority to enter into this Agreement and to perform
its obligations hereunder. The entry into and performance of this Agreement has
been duly authorized by all necessary action on the part of Buyer in accordance
with its governing documents and applicable law, and this Agreement constitutes,
and each other document, instrument and agreement to be entered into by Buyer
pursuant to the terms of this Agreement will constitute, a valid agreement
binding upon and enforceable against Buyer in accordance with its terms (except
as limited by bankruptcy or similar laws or the availability of equitable
remedies).
4.1.3 Consents. The
execution, delivery and performance by Buyer of this Agreement, and all other
agreements, instruments and documents referred
18
to or
contemplated herein or therein do not require the consent, waiver, approval,
license or authorization of any Person (other than the landlords under the
Leases and any lenders having Liens on the Leased Premises) or public authority
which has not been obtained and do not and will not contravene or violate (with
or without the giving of notice or the passage of time or both) the governing
documents of Buyer or any judgment, injunction, order, law, rule or regulation
applicable to Buyer. Buyer is not a party to, or subject to or bound by, any
judgment, injunction or decree of any court or governmental authority or any
lease, agreement, instrument or document which may restrict or interfere with
the performance by Buyer of this Agreement, or such other leases, agreements,
instruments and documents.
4.1.4 Financial Condition.
Buyer is a newly formed entity, created for the purpose of effectuating the
transactions contemplated by this Agreement. On the Closing Date and
after giving effect to the transactions contemplated by this Agreement, (a)
Buyer will have shareholders’ equity (determined in accordance with GAAP) of not
less than Twenty Million Dollars ($20,000,000), (b) the assets of Buyer shall
include all right, title and interest of the tenant under the lease for RDI’s
movie theater in Manville, New Jersey (the “Manville Theater”),
and (c) Buyer will not have indebtedness for borrowed money in excess of the
aggregate amount of Fifty-Five Million Dollars
($55,000,000). Attached hereto as Schedule 4.1.4 are
(i) a true and complete summary of the material terms of the Lease for the
Manville Theater, and (ii) Theater Level Cash Flow Reports for the Manville
Theater for RDI’s fiscal year ended December 31, 2006 and for the
eight-month period ended August 31, 2007 (collectively, the “Manville
P&Ls”). The Manville P&Ls present fairly in all
material respects the results of operations for the Manville Theater, along with
circuit revenue and expenses allocated to such theater based on attendance, for
the periods referred to therein. RDI maintains its books and records
in accordance with GAAP applied on a consistent basis, and the Manville P&Ls
were prepared from and are consistent with such books and records, except that
the Manville P&Ls exclude certain financial statements and lack the footnote
disclosures that are required for GAAP.
4.1.5 Brokerage. Except
in connection with the “Financing” (as defined in Section 7.4.2), Buyer has
not employed any broker, finder or agent or has incurred or will incur any
obligation or liability to any broker, finder or agent with respect to the
transactions contemplated by this Agreement. Any such obligation or
liability in connection with the Financing shall be borne solely by Buyer or
RDI.
4.2 Representations and
Warranties of RDI. RDI hereby represents and warrants to
Seller as follows:
4.2.1 Organization. RDI
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada. RDI has all requisite power to own,
lease and license its properties and assets and to carry on its business in the
manner and in the places where such properties and assets are owned, leased,
licensed or operated or such business is conducted.
19
4.2.2 Authority. RDI
has full right, power and authority to enter into this Agreement and to perform
its obligations hereunder. The entry into and performance of this Agreement has
been duly authorized by all necessary action on the part of RDI in accordance
with its governing documents and applicable law, and this Agreement constitutes,
and each other document, instrument and agreement to be entered into by RDI
pursuant to the terms of this Agreement will constitute, a valid agreement
binding upon and enforceable against RDI in accordance with its terms (except as
limited by bankruptcy or similar laws or the availability of equitable
remedies).
4.2.3 Consents. The
execution, delivery and performance by RDI of this Agreement, and all other
agreements, instruments and documents referred to or contemplated herein or
therein do not require the consent, waiver, approval, license or authorization
of any Person or public authority (other than as required under the “HSR Act”
(as defined in Section 5.5)) which has not been obtained and do not and will not
contravene or violate (with or without the giving of notice or the passage of
time or both) the governing documents of RDI or any judgment, injunction, order,
law, rule or regulation applicable to RDI. RDI is not a party to, or subject to
or bound by, any judgment, injunction or decree of any court or governmental
authority or any lease, agreement, instrument or document which may restrict or
interfere with the performance by RDI of this Agreement, or such other leases,
agreements, instruments and documents.
4.2.4 Brokerage. Except
in connection with the Financing, RDI has not employed any broker, finder or
agent or has incurred or will incur any obligation or liability to any broker,
finder or agent with respect to the transactions contemplated by this
Agreement. Any such obligation or liability in connection with the
Financing shall be borne solely by Buyer or RDI.
5. Conditions Precedent to
Buyer's Obligations. Buyer's obligations under this Agreement
are subject to the fulfillment of each of the conditions set forth in this
Article 5 at or before the Closing, subject, however, to the right of Buyer to
waive any one or more of such conditions in whole or in part (provided that no
such waiver shall be implied or binding upon Buyer unless given in
writing).
5.1 Performance by
Seller. Seller shall have timely performed and complied with
in all material respects all agreements and conditions required by this
Agreement to be performed and complied with by Seller on or prior to the Closing
Date, including, without limitation, delivery to Buyer of the “Seller
Deliveries” (as defined in Section 9.3 below) in accordance with Section 9.3
below.
5.2 Accuracy of Representation
and Warranties. The representations and warranties herein of
Seller shall be true and correct in all material respects as of the Closing Date
(except to the extent any such representation or warranty is qualified by
materiality, in which case such representation or warranty shall be true in all
respects).
5.3 No
Injunctions. No order shall have been entered in any action or
proceeding before any governmental authority, and no preliminary or
permanent
20
injunction
by any court of competent jurisdiction shall have been issued and remain in
effect, which would have the effect of making the consummation of the
transactions contemplated by this Agreement illegal; provided, however, that if
any such action, proceeding or injunction exists as a result of the wrongful
action or omission to act of Buyer or any of Buyer’s Affiliates, the same shall
be an event of default by Buyer under this Agreement.
5.4 Required
Consents. Buyer and Seller shall have received the following
consents to the assignment by Seller to Buyer or the Assignee Subs of Seller’s
interest under the Leases (all such Leases being defined in Exhibit A-1): (a)
from the landlords under all of the following Leases: (i) Town Square 14; (ii)
Carmel Mountain Plaza; (iii) Gaslamp 15; (iv) Valley Plaza 16; (v)
Pearlridge West 16; (vi) Kapolei 16: (vii) Kahala 8; and (viii) Kaahumanu
6; (b) from the master landlord under the Pearlridge West 16 Lease; and, (c) if
and to the extent that the Nondisturbance and Attornment Agreement dated as of
July 1, 1998 by and among Bishop & Bishop Land, LLC, Pacific and First
Republic Bank (“First
Republic”) remains in effect, from First Republic (or First Republic’s
successor-in-interest). The foregoing consents are hereinafter
referred to as the “Required Leasehold
Assignment Consents, and the Leases affected by any such Required
Leasehold Assignment Consents are hereinafter referred to as the “Required Consent
Leases.”
5.5 HSR
Act. All required filings under Section 7A of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall have
been completed and all applicable time limitations under the HSR Act shall have
expired without a request for further information by the relevant federal
authorities under such Act, or in the event of such a request for further
information, the expiration of all applicable time limitations under the HSR Act
shall have occurred without the objection of such federal
authorities.
5.6 Loan to Reading
International, Inc. Concurrently with the Closing, and subject
to the satisfaction or waiver of all other conditions precedent set forth in
this Article 5, Seller (or an Affiliate or Affiliates of Seller) (the “Lender”) shall have
made loans to RDI in the aggregate original principal amount of $18,000,000 (the
“Loans”). The
original principal amount of the Loans shall be subject to increase pursuant to
Section 2.5 above. The Loans shall be evidenced by Promissory Notes
in substantially the forms of Exhibit C-1 (the
“Five Year
Note”) and Exhibit C-2 (the
“Two Year Note”
and, collectively with the Five Year Note, the “Notes”),
respectively, attached hereto. The Five Year Note shall bear interest
at the annual rate of 4.0% for the first twenty-six (26) months from the Closing
Date, and at the annual rate of 8.5% thereafter. Interest on the Five
Year Note shall be payable on the eighteenth-month anniversary of the Closing
Date and quarterly thereafter, in arrears, on the last day of each calendar
quarter, with all outstanding principal and any accrued and unpaid interest due
and payable in a lump sum upon the fifth anniversary of the Closing Date;
provided that such obligations may be prepaid, in whole or in part, at any time
without penalty or premium. The Two Year Note shall bear interest at
the annual rate of 4.0%, payable quarterly, in arrears, as of the last day of
each calendar quarter, with all outstanding principal and any accrued
and
21
unpaid
interest due and payable in a lump sum upon the second anniversary of the
Closing Date; provided that such obligations may be prepaid, in whole or in
part, at any time without penalty or premium. Notwithstanding
the foregoing, to the extent any interest rate payable under either of the Notes
is less than the minimum Applicable Federal Rate, the parties shall reasonably
cooperate in good faith to increase such interest rate to an interest rate at
least equal to the minimum Applicable Federal Rate, provided that the other
terms of the Notes are similarly adjusted to eliminate any adverse economic
impact on RDI from any such increase in the interest rate.
5.7 Financing. Buyer
shall have received the net proceeds of the Financing described in the
commitment letters referred to in Section 7.4.2 below. Notwithstanding anything
to the contrary contained in this Agreement, the failure to receive any
landlord’s consent to Buyer’s granting of any “Leasehold Mortgage” (as defined
in Section 7.1.3 below) or any other documents contemplated by
subclause (ii) of Section 7.1.3 below, by itself, shall not be a condition
precedent to the performance of Buyer’s obligations under this Agreement other
than the condition precedent set forth in this Section 5.7.
6. Conditions Precedent to
Seller's Obligations. Seller's obligations under this
Agreement are subject to the fulfillment of each of the conditions set forth
below in this Article 6 at or before the Closing, subject, however to the right
of Seller to waive any one or more such conditions in whole or in part (provided
that no such waiver shall be implied or binding upon Seller unless given in
writing).
6.1 Performance by
Buyer. Buyer shall have timely performed and complied with in
all material respects all agreements and conditions required by this Agreement
to be performed and complied with by Buyer on or prior to the Closing Date,
including, without limitation, delivery to Seller of the “Buyer Deliveries” (as
defined in Section 9.2 below) in accordance with Section 9.2 below.
6.2 Accuracy of Representations
and Warranties. The representations and warranties herein of
Buyer shall be true and correct in all material respects as of the Closing Date
(except to the extent any such representation or warranty is qualified by
materiality, in which case such representation or warranty shall be true in all
respects).
6.3 No
Injunctions. No order shall have been entered in any action or
proceeding before any governmental authority, and no preliminary or permanent
injunction by any court of competent jurisdiction shall have been issued and
remain in effect, which would have the effect of making the consummation of the
transactions contemplated by this Agreement illegal; provided, however, that if
any such action, proceeding or injunction exists as a result of the wrongful
action or omission to act of Seller or any of Seller’s Affiliates, the same
shall be an event of default by Seller under this Agreement.
6.4 Required
Consents. Buyer and Seller shall have (a) received all of
the Required Leasehold Assignment Consents, and (b) either (i) Buyer
and Seller shall
22
have
received consent from the Kukui Landlord to the assignment by Seller to Buyer,
or (ii) the Kukui Landlord shall have exercised the Recapture Rights, or
(iii) Buyer and Seller shall have entered into a management agreement for
the Kukui Lease pursuant to Section 7.1.4.
6.5 HSR
Act. All required filings under Section 7A of the HSR Act
shall have been completed and all applicable time limitations under the HSR Act
shall have expired without a request for further information by the relevant
federal authorities under such Act, or in the event of such a request for
further information, the expiration of all applicable time limitations under the
HSR Act shall have occurred without the objection of such federal
authorities.
6.6 Loan to Reading
International, Inc. The Lender shall have received duly
executed originals of the Notes from RDI.
7. Covenants.
7.1 Commercially Reasonable
Efforts.
7.1.1 Upon
the terms and subject to the conditions of this Agreement, the parties hereto
will use commercially reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable consistent with applicable law to consummate and make effective in the
most expeditious manner practicable the transactions contemplated by the
Transaction Documents, including, without limitation, obtaining any
authorizations, consents, orders or approvals of any Person or Governmental
Authority that may be or become necessary in connection with the execution,
delivery or performance of a party’s obligations
hereunder. Notwithstanding the foregoing, neither Seller nor Buyer
shall be required to pay consideration or grant any rights, guarantee or
concession to any third party or to modify in any material manner the terms of
any Lease or Included Contract in order to obtain any such consent or approval
or any such release; provided, however, that if Buyer elects (or is required) to
cause any Assignee Sub to take an assignment of any of Seller’s right, title or
interest under, or assume any of Seller’s obligations under, any of the Leases
being assigned pursuant to this Agreement, and the landlord’s consent is
required under any such Lease, Buyer (in the case of the Buyer Subs) or RDI (in
the case of the RDI subs) shall offer to provide a guarantee to the landlord of
all of such assumed obligations concurrently with Seller’s initial submission to
such landlord of request for such consent.
7.1.2 Buyer
shall use its commercially reasonable efforts and Seller shall use its
commercially reasonable efforts to cooperate fully to obtain promptly all such
authorizations, consents, orders and approvals required to be obtained in
connection with the transactions contemplated hereby. Without limiting the
generality of the foregoing, to the extent such filing is required by the HSR
Act, Seller and Buyer agree that each shall prepare and file a notification and
report form pursuant to the HSR Act as soon as practicable after the Effective
Date, but in no event later than ten (10) days
23
after the
Effective Date. If a filing is made under the HSR Act, Seller and
Buyer each also agree to request early termination in such filing and respond
with reasonable diligence and dispatch to any request for additional information
made in response to such filing. All filing fees associated with
complying with the HSR Act shall be borne 50% by Seller and 50% by
Buyer.
7.1.3 Notwithstanding
the provisions of Section 7.1.2, with respect to the assignment of the Leases
being assigned pursuant to this Agreement from Seller to Buyer and with respect
to the assignment of the master lease for the “Rohnert Park 16” (as such term is
defined in Exhibit
A-1 attached hereto) by Kenmore Rohnert, LLC to Buyer, Seller, at
Seller’s cost and expense, shall use its commercially reasonable effort to
cooperate fully with Buyer, and Buyer, at its cost and expense, shall use its
commercially reasonable efforts to cooperate fully with Seller:
(a) to
obtain promptly from the landlords and all other appropriate parties under such
Leases the consents, if any, required to be obtained in connection with (i) such
assignments and (ii) the grant to the lenders under the “Financing” (as defined
in Section 7.4.2) of Liens on the tenant’s interest in such
Leases and other consents, estoppels and approvals required as
conditions precedent to the closing of the Financing (collectively, the “Leasehold
Mortgages”); provided, however, that Buyer shall bear any expenses
attributable to obtaining the Leasehold Mortgages (as contrasted with the
consents to assignment). In connection therewith, Buyer agrees
promptly to provide all financial and other information and background materials
regarding Buyer, its Affiliates and their respective senior management, and such
lenders, which the landlord or any such other appropriate party under any such
Lease may reasonably request in connection with such landlord’s evaluation of
Seller’s request for consent to any such assignment or grant of such Leasehold
Mortgage. Buyer also agrees to make its and its Affiliates’ senior
management reasonably available to all such landlords and other appropriate
parties for this purpose. Buyer hereby acknowledges that, in those
cases where the landlord’s consent is not required for the assignment of the
applicable Lease to Buyer or to the grant to the lenders under the Financing of
a Leasehold Mortgage with respect to such Lease, Seller may elect to send
notices to various landlords, rather than requests for consents, which notices
describe the transaction contemplated by this Agreement, and some of which
notices seek the “acknowledgment” of a particular landlord to the assignment of
a particular Lease; and
(b) to
obtain releases of Seller’s and its Affiliates’ liability under the
Leases.
With
respect to the matters described in this Section 7.1.3, Seller may elect at any
time to shift to Buyer primary responsibility for obtaining such consents and
agreements under this Section by so notifying Buyer in
writing. Thereafter, Buyer shall, at Seller’s expense as provided
above, use its commercially reasonable efforts to accomplish the matters
described in this Section, and Seller shall use its commercially reasonable
efforts to cooperate fully with Buyer. The parties agree that, if a
landlord or other appropriate party under a Required Consent Lease, or the Kukui
Landlord, who is presented with a
24
combined
request to consent to the assignment of a Lease hereunder and the grant of a
Leasehold Mortgage with respect to such Lease refuses, without explanation, to
provide the consents requested, or it is not otherwise reasonably apparent from
such party’s response to such combined request whether such party would have
consented to the assignment of the applicable Lease if such request had not been
accompanied by a request for a Leasehold Mortgage, it shall be presumed that
such refusal was attributable only to the request for consent to the Leasehold
Mortgage for purposes of determining whether the condition precedent set forth
in Section 5.4 above has been satisfied; provided, however, that Buyer
shall be entitled to rebut such presumption by requiring Seller to present to
such party a separate request for consent to assignment of such Lease only, and
if such party fails for any reason to provide such consent to assignment it
shall be deemed to constitute a failure of the condition precedent set forth in
Section 5.4 above.
7.1.4 If,
despite the commercially reasonable efforts of Seller and Buyer, the parties are
unable to obtain the Kukui Landlord’s consent to the assignment of the Kukui
Lease on or prior to the Closing Date, but the Kukui Landlord shall not have
exercised the Recapture Right, Seller and Buyer shall enter into a management
agreement effective as of the Closing Date with respect to the Theaters operated
under the Kukui Lease if and to the extent the same shall be permitted by the
terms of applicable law and the Kukui Lease, or if the Kukui Landlord gives its
consent to such management agreement. Any such management agreement
shall provide for a fixed annual management fee of $50,000 and otherwise shall
be in a commercially reasonable form agreed upon by Seller and Buyer prior to
the Closing. To the extent that any Purchased Asset (other than any
Lease being assigned pursuant to this Agreement) is not assigned or not
assignable to Buyer or if any necessary consent to such assignment shall not
have been obtained by Seller as of the Closing, this Agreement shall not
constitute an assignment or attempted assignment of such Purchased
Asset. With respect to any such Purchased Asset, from and after the
Closing, Seller shall use their commercially reasonable efforts to obtain any
necessary consents; provided, however, that Seller
shall not be obligated to institute any suit, arbitration or other action to
obtain such consent. If such consents are not obtained, Seller (a)
shall cooperate in any reasonable arrangement designed to provide Buyer with the
benefits of such Purchased Asset and (b) shall enforce at the request of Buyer
at Buyer’s sole cost any rights of Seller arising from such Purchased Asset
(including a right of termination). Buyer agrees to perform at its
sole cost any obligations relating to a Purchased Asset for which benefits are
being provided to Buyer in accordance with the preceding sentence to the same
extent required of Seller, in the same (or as near as practicable) manner and
time, and with the same quality, required of Seller.
7.1.5 In
no event shall Buyer or any Affiliate of Buyer be required to increase the
equity capital of Buyer or to contribute any assets to Buyer, or (except as
otherwise provided in Section 7.1.1 above) to provide any guarantee or other
credit enhancement to or for the benefit of Buyer, in order to obtain any
consent contemplated by this Section 7.1.
25
7.2 Access to Properties and
Records. From and after the Effective Date through the Closing
Date or the earlier termination of this Agreement, Seller shall afford to Buyer,
and to the accountants, counsel and representatives of the Buyer, upon
reasonable prior notice, reasonable access during normal business hours
throughout the period prior to the Closing to the Leased Premises and, during
such period, shall furnish promptly to Buyer all other information concerning
the Purchased Assets and its personnel as such parties may reasonably
request. Notwithstanding anything in this Section to the contrary, no
access pursuant to this Section 7.2 shall unreasonably interfere with Seller’s
conduct of the Business. Buyer shall notify Seller in writing of any
material breach of this provision known to it and shall afford Seller a
reasonable opportunity to cure any such breach.
7.3 Seller’s Operations Prior to
the Closing; Certain Repairs.
7.3.1 Seller’s Operations Prior to
the Closing. From and after the Effective Date until the
Closing, Seller (a) shall not sell, transfer, assign, dispose of or grant any
Lien on, or permit to be sold, transferred, assigned, disposed of or encumbered,
all or any material part of the Purchased Assets as the same shall be
constituted on the Effective Date, except to the extent that any such Lien will
be removed at or prior to the Closing, or remove or permit to be removed all or
any part of the Purchased Assets from the Leased Premises; provided, however
that Seller shall be permitted (i) to sell Seller Inventory in the ordinary
course of its business consistent with past practice (provided that Seller
replaces such sold Seller Inventory in the ordinary course of its business
consistent with past practice), (ii) to acquire, maintain and replace Seller
FF&E in the ordinary course of its business consistent with past practice,
and (iii) to enter into and perform film rental agreements in the ordinary
course of its business consistent with past practice (the parties acknowledging
that some of which film rental agreements may not be fully performed prior to
the Closing Date), provided that Seller will reasonably consult with Buyer in
connection with Seller’s proposed entry into film rental agreements relating to
or reasonably anticipated to relate to periods after the Closing Date; (b) shall
not enter into any lease, contract or commitment or incur any liabilities or
obligations in connection with the Purchased Assets, except as permitted by
subclause (iii) above with respect to film rental agreements and except for
leases, contracts, commitments, liabilities or obligations that will not bind
Buyer, the Purchased Assets or the Business after the Closing; (c) shall not
release, waive or compromise any of its rights with respect to, the Purchased
Assets without the prior written consent of Buyer, which consent shall not be
unreasonably withheld, conditioned or delayed to the extent such proposed action
occurs in the ordinary course of its business consistent with past practice and
which is reasonably expected to be without Material Adverse Effect upon the
value or utility of the Purchased Assets or the value of the Business; (d) shall
not, directly or indirectly, destroy or otherwise dispose of any books, records
or files relating to the Purchased Assets or the Business, other that in the
ordinary course of business, generally consistent with past practice; and (e)
shall otherwise conduct operations at the Leased Premises in the ordinary course
of its business consistent with its past practice at the Leased Premises and in
a manner intended to maintain the goodwill of the Business.
26
7.3.2 Certain
Repairs. Seller shall cause to be undertaken and completed in
a workmanlike manner prior to the Closing the repairs to the Milalani 14,
Rohnert Park 16, Ward Cinemas 16 and Pearlridge West 16 Theaters (as each such
Theater is defined in Exhibit A-1)
described in the scope of work attached hereto as Schedule
7.3.2.
7.4
Cooperation.
7.4.1 Generally. Each
party shall provide the other with such cooperation as may reasonably be
requested, at the expense of the requesting party (unless the requesting party
is to be indemnified with respect thereto, in which case such cooperation shall
be given at the expense of the indemnifying party), in connection with the
defense of any third party litigation relating to the subject matter of this
Agreement. Additionally, until March 31, 2010, Seller shall make
available to Buyer’s independent accountants such information and documentation
regarding the Purchased Assets and the Business to the extent such information
and documentation is reasonably required in connection with an audit by such
independent accountant of Buyer’s financial statements or the preparation of
financial disclosure required under applicable Federal securities laws,
including an audit of acquired businesses as required by 17 CFR § 210.3-05, and
allow Buyer’s independent accountants to make and retain copies of such
information and documentation, provided that (a) such information and
documentation is then in the possession or control of Seller or Seller’s
Affiliates, and (b) so long as Buyer’s independent accountant does not require
that such information or documentation be obtained directly from Seller, such
information and documentation is not otherwise in the possession or control of
Buyer, any of Buyer’s Affiliates or such independent accountant, or is not
otherwise reasonably available from another source to Buyer or such independent
accountant. Seller also agrees to make its and its Affiliates’ senior
management reasonably available to Buyer and its accountants for this
purpose.
7.4.2 Cooperation with respect to
Buyer’s Financing. Buyer hereby represents and warrants to
Seller that (a) it has obtained a written commitment letter and related term
sheet from a financially responsible institution, true and correct copies of
which have been furnished to Seller, for debt financing to be used by Buyer to
fund a portion of the Purchase Price (the “Financing”), and (b)
said commitment letter and related term sheet are in full force and effect, and
Buyer has performed all of its obligations thereunder required to be performed
on or prior to the Effective Date. Prior to the Closing Date, Seller
agrees promptly to provide all financial and other information and materials
regarding the Leases and other Purchased Assets and the Business as reasonably
requested by Buyer or its accountants from time to time in connection with the
preparation of audited financial statements of the Purchased Assets and the
Business for the twelve (12) months ended June 30, 2005, 2006 and 2007,
respectively, and unaudited financial statements for the most recent practicable
interim period subsequent to June 30, 2007 and prior to the Closing
Date. Seller also agrees to make its and its Affiliates’ senior
management reasonably available to Buyer and its accountants for this
purpose. Subject to Seller’s performance of its obligations under
this Section 7.4.2, the completion of said financial statements shall not
be a condition precedent to the
27
obligations
of Buyer under this Agreement, and Seller shall not be in breach or default of
its obligations under this Section 7.4.2 if such audited financial statements
are not completed for any reason by any particular date so long as Seller has
cooperated with Buyer and its accountants as required by this Section
7.4.2. Seller agrees that, effective upon the Closing, Buyer’s
accountants shall be released for the benefit of Buyer and RDI from any and all
obligations of confidentiality that it may owe to Seller or its Affiliates only
to the extent they relate to the Purchased Assets and the Business.
7.5 Delivery of Information;
Delivery of Mail and Assets; Collection of Accounts Receivable. After the
Closing Date, each of the parties hereto shall cause their personnel to provide
the other party with financial accounting, Tax, and similar information
reasonably necessary to prepare Tax returns and other filings relating to the
Theaters, to compute Percentage Rent payable with respect to the Theaters, and
to finalize the prorations and adjustments called for by Section 2.2
hereof. Seller agrees that it will promptly deliver to Buyer any mail
or other communications received by Seller on or after the Closing Date
pertaining to the Purchased Assets and any cash, checks or other instruments of
payment to which Seller is not entitled. Buyer agrees that it will
promptly deliver to Seller any mail or other communications received by Buyer on
or after the Closing Date pertaining to Seller's operations, properties or other
affairs of Seller, any cash, checks or other instruments of payment to which
Buyer is not entitled, and any other Excluded Assets.
7.6 Post-Closing Covenants of
Buyer.
7.6.1 Maintenance of
Insurance. Buyer agrees that from and after the Closing Date,
Buyer shall at all times maintain in complete force and effect, in accordance
with the requirements of the Leases, all policies of insurance required by the
Leases to be maintained by the tenant. Buyer shall deliver to Seller executed
copies of certificates of insurance evidencing the foregoing on the Closing
Date. New certificates shall be delivered promptly whenever policies are renewed
or new policies are written. As often as any such policy shall expire or be
terminated, a renewal or additional policy shall be procured and maintained by
Buyer in like manner and to like extent, and new certificates thereof shall be
delivered to Seller. All policies of insurance maintained by Buyer pursuant to
the requirements of the Leases shall contain a provision that the company
issuing said policy will give Seller not less than ten (10) days' notice in
writing in advance of any cancellation or lapse of the effective date or any
reduction in the amounts of insurance. In the event that Buyer fails to comply
with any of the requirements of this Section 7.6.1, and Buyer fails to cure such
non-compliance within ten (10) days of delivery of notice thereof from Seller,
Seller may obtain any and all policies of insurance required to comply with
tenant's obligations under the Leases, and Buyer shall immediately pay to Seller
any and all costs reasonably incurred by Seller in connection with obtaining and
maintaining such insurance.
7.6.2 Amendment of Real Property
Leases; Exercise of Options; Waiver of Rights. Without
Seller’s prior written consent (which consent may not be unreasonably withheld
or delayed), until the earlier of the date on which (a) Seller and
all
28
of
Seller’s Affiliates are no longer liable on or are released from any further
liability under the applicable Lease, or (b) Buyer delivers to Seller (i) an
audited balance sheet for Buyer showing a net worth (calculated in accordance
with GAAP) of at least $50,000,000, and (ii) an audited income statement for
Buyer showing a ratio of indebtedness to “Theater Level Cash Flow” (as defined
in Article 12 below) for all theaters then operated by Buyer of 5.5-to-1 or
less, Buyer shall not (x) exercise any option to extend or renew the term of any
Lease if, as of the date on which Buyer proposes to exercise any such option,
the Theater operated pursuant to such Lease has Theater Level Cash Flow in the
most recently completed calendar year of less than $200,000, or (y) amend or
modify any Lease to eliminate or materially change, or otherwise waive or
forfeit, any material rights or privileges of the tenant under any such
Lease.
7.7 Coupons and Passes.
Seller, in the ordinary course of its business, has previously issued, and may
continue to issue until the Closing Date, the following coupons, passes, tickets
and certificates (collectively, “Coupons and Passes”):
(a) coupons redeemable in Seller's theaters for food or beverages sold in the
concession stands; (b) passes redeemable for free theater admission and issued
without the payment of consideration to Seller or its Affiliates (“Free Passes”); (c)
passes redeemable for discounted theater admission and issued without the
payment of consideration to Seller or its Affiliates (“Discounted Passes”);
(d) group activity discount theater admission tickets good for theater
admission; and (e) gift certificates which can be used to purchase theater
admission or concession stand items. Except to the extent any such
Coupons and Passes shall have expired in accordance with their terms or
otherwise are not valid, Buyer shall honor and redeem all Coupons and Passes
presented at the Theaters for a period of one (1) year after the Closing Date
(the “Coupon and Pass
Period”). Buyer shall not be entitled to any compensation or
reimbursement from Seller in connection with the honoring or redemption of any
Free Passes or Discounted Passes. With respect to all other Coupons
and Passes (“Reimbursable Coupons and
Passes”), Buyer shall deliver a written statement setting forth its
calculation of the amount the Reimbursable Coupons and Passes so redeemed or
honored (which calculation shall be accompanied by such supporting documentation
as Seller may reasonably request) within ninety (90) days after the end of the
Coupon and Pass Period, and Seller shall reimburse to Buyer the amount thereof
within thirty (30) days after Seller’s receipt of such statement and supporting
documentation. From and after the Effective Date through the Closing
Date, Seller will only issue Coupons and Passes in the markets in which the
Theaters operate in the ordinary course of its business consistent with past
practices; provided, however, that both before and after the Closing Date,
Seller shall have the right to issue Coupons and Passes in all other markets in
which it operates (including, without limitation, Los Angeles County) in
Seller’s sole and absolute discretion and without any obligation to notify or
account therefor to Buyer.
7.8 Theater Names; Prohibition
Against Use of Names "Pacific" or “Pacific Theatres” by
Buyer.
29
7.8.1 Pacific and Pacific
Theatres. Except as otherwise provided in this Section 7.8, at no time
after the Closing shall Buyer be entitled to the use of the names "Pacific" or
“Pacific Theatres” either by themselves or in conjunction with other words or
letters, in connection with the name of the Theaters or otherwise. In no event
shall Buyer, either before or after the Closing, be entitled to use the names
"Pacific" or “Pacific Theatres” in any publication, advertisement, flyer,
ticket, notice or sign, or in any other fashion or manner, whether in referring
or relating to the Theaters or otherwise. Notwithstanding the foregoing, Buyer
shall have the right to use the names “Pacific” and “Pacific Theatres” in
connection with any notices or disclosure required by applicable law, and in a
manner reasonably acceptable to Seller on a transitional basis to announce to
the public the change of ownership of the Theaters. Except to the
extent that Buyer exercises its right under Section 1.3 to continue to use such
signage after the Closing, as soon as practicable after the Closing, and in any
event not later than ten (10) days after the Closing Date, Buyer shall, at
Buyer's expense, remove the names "Pacific" and “Pacific Theatres” from any and
all advertising, fliers, tickets, notices and signs, and from any and all other
manifestations thereof in, on, or in connection with the Buildings, of which
Buyer has knowledge and over which Buyer has possession or control; provided,
however, that if Buyer is unable, or it is commercially impracticable, to remove
the names "Pacific" and “Pacific Theatres” from any signage, including marquees,
within such period, Buyer shall, within such period, cover such names from
public view and shall, as soon as practicable thereafter, remove such names or
the signs on which they are located.
7.8.2 Signage. Subject
to the terms of Sections 1.2.4, 1.3 and 7.8.1 above (including, without
limitation, Buyer’s obligation to remove or cover all components thereof
containing the “Pacific” or “Pacific Theaters” names), all signage at the
Theaters shall be included in the Purchased Assets. Notwithstanding
the foregoing, if Buyer elects to remove any signage from the Theaters
containing the names "Pacific" or “Pacific Theatres” and does not intend to
reuse such signage, Buyer shall notify Seller of the times when it plans to
remove such signage, whereupon Seller shall have the right and option to notify
Buyer that Seller wishes to retain possession and ownership of one or more of
the signs (or portions thereof) which Buyer plans to remove. If Seller exercises
the foregoing right, Buyer shall remove the signs in question in a workmanlike
manner and shall use commercially reasonable efforts not to damage the same,
shall coordinate with Seller the timing of such removal and other aspects
thereof, and shall tender to Seller physical possession of such signs at a
mutually acceptable time and location, provided that if Seller then fails
(through no fault of Buyer) to take possession of such signs within ten (10)
days notice thereof from Buyer to Seller, Buyer shall have the right and option
to destroy and dispose of such signs.
7.8.3 Assignment. Buyer
shall not sell, assign, sublet or otherwise transfer any or all of its interest
in the Leases or the Leased Premises to any Person unless Buyer obtains the
written agreement of such Person to be bound by and observe the terms of this
Section 7.8. If at any time after any such transfer, the Leases or the Leased
Premises, or any portion thereof or interest therein, are retransferred back to
Buyer, Buyer shall again be bound by and observe the terms of this Section
7.8. The
30
provisions
of this Section 7.8.3 shall not apply in respect of any Lien granted by Buyer in
connection with the contemplated by Section 7.4.2.
7.9 Non-Competition;
Exceptions.
7.9.1 Non-Compete. As
a material inducement to Buyer to enter into and perform its obligations under
this Agreement, Seller and the Formans, for themselves and on behalf of their
Affiliates (collectively, the “Selling Parties”),
hereby agree that from and after the Closing Date and continuing for five
(5) years from the Closing Date (the “Restricted Period”),
they shall not, directly or indirectly, as an employee, agent, consultant,
director, equityholder, manager, or in any other individual or representative
capacity, own, operate, manage, control, engage in, invest in, be employed by or
participate in any manner in, render services for, or otherwise assist any
Person that engages in or owns, invests in, operates, manages or controls any
venture or enterprise that directly or indirectly engages in the development,
ownership or operation of movie theaters in the “Territory” (as defined in
Article 12 below) (collectively, “Competitive
Activities”); provided, however, that nothing
contained herein shall be construed to prevent any of the Selling Parties from
engaging in, directly or indirectly, any of the following activities
(collectively, the “Permitted Competitive
Activities”): (a) investing in the securities of any entity engaged
in Competitive Activities whose equity securities are listed on a national
securities exchange or traded in the over-the-counter market so long as such
Selling Party does not own more than five percent (5%) of the outstanding equity
of such entity; (b) investing in the securities of Buyer or any of its
Affiliates; (c) engaging in Competitive Activities within the Territory as
provided in Section 7.10 below; or (d) directly or indirectly engaging in the
ownership, investment, operation, management, development, construction or
control of any retail development or shopping center that contains a movie
theater, provided that such movie theater is not owned, managed or operated by
any of the Selling Parties (a “Non-Affiliated Theater
Owner”), provided, further, that the obligation to pay, or the payment
of, percentage rent to any of the Selling Parties by any such Non-Affiliated
Theater Owner shall not be deemed the ownership or operation of such movie
theater by any such Selling Parties.
7.9.2 Enforceability;
Blue-Pencil. Each of the Selling Parties recognizes that the
restrictive covenants contained herein are valid and enforceable pursuant to
applicable law, including, without limitation, California Business and
Professions Code §16601 and that the territorial, time and scope limitations set
forth in this Section 7.9.1 are reasonable and are properly required for the
protection of Buyer’s legitimate interest in client relationships, goodwill and
trade secrets of the Business. In the event that any such territorial, time or
scope limitation is deemed to be unreasonable by a court of competent
jurisdiction, Buyer and Selling Parties agree, and Selling Parties submit, to
the reduction of any or all of said territorial, time or scope limitations to
such an area, period or scope as said court shall deem reasonable under the
circumstances. If such partial enforcement is not possible, the
provision shall be deemed severed, and the remaining provisions of this
Agreement shall remain in full force and effect.
7.9.3 Remedies. Each
of Selling Parties acknowledges and agrees that the covenants set forth in this
Section 7.9 are reasonable and necessary for the
31
protection
of Buyer’s business interests, that irreparable injury will result to Buyer if a
Selling Party breaches any of the terms of this Section 7.9, and that in the
event of a Selling Party’s actual or threatened breach of any of the provisions
contained in this Section 7.9, Buyer will have no adequate remedy at
law. Notwithstanding anything to the contrary contained herein, each
of Selling Parties accordingly agrees that in the event of any actual or
threatened breach by it of any of the provisions contained in this Section 7.9,
Buyer shall be entitled to seek such injunctive and other equitable relief as
may be deemed necessary or appropriate by a court of competent
jurisdiction. Nothing contained herein shall be construed as
prohibiting Buyer from pursuing any other remedies available to it for such
breach or threatened breach, including the recovery of any damages which it is
able to prove.
7.9.4 Option to
Purchase. If a Selling Party engages in any Competitive
Activities (other than the Permitted Competitive Activities) during the
Restricted Period, then Buyer shall have the right, exercisable for a period of
ninety (90) days after it is determined that such Selling Party has so engaged
in Competitive Activities (other than Permitted Competitive Activities), to
acquire all, but not less than all, of such Selling Party’s interest in such
Competitive Activity for an amount equal to the lesser of (a) such Selling
Party’s basis in such Competitive Activity for U.S. Federal income tax purposes,
or (b) the “fair market value” of such interest.
7.9.5 Partial Reimbursement of the
Purchase Price. If a Selling Party engages in any Competitive
Activities (other than the Permitted Competitive Activities) during the
Restricted Period, and (a) such Selling Party affirmatively challenges
enforceability of the provisions of this Section 7.9 in any proceeding or action
brought by Buyer to enforce the same, or (b) such Selling Party seeks
declaratory or other similar relief from the enforcement of the provisions of
this Section 7.9, then the Purchase Price shall be reduced by the amount of
$7,000,000, and such Selling Party shall reimburse or pay the same to Buyer
within thirty (30) days thereafter. Notwithstanding the foregoing,
nothing herein shall be deemed to prohibit or restrict any Selling Party from
raising or asserting in any proceeding or action to enforce the provisions of
this Section 7.9 a defense that it has not engaged in the purported Competitive
Activity during the Restricted Period.
7.10 Exception
Area. Notwithstanding anything to the contrary contained in
Section 7.9 above, any Selling Party shall have the right during the Restricted
Period and thereafter to engage in Competitive Activities with respect to the
ownership or operation of one movie theater complex located within that part of
San Diego County, California shown as the “Exception Area” on the map attached
hereto as Exhibit
E (the “Exception
Area”). The Exception Area shall include, without limitation,
the shopping center currently commonly known as Westfield UTC.
7.11 Destruction of Books,
Records and Files. If, after the Closing, Seller or any of its
Affiliates proposes to destroy or otherwise dispose of any books, records or
files relating to the Purchased Assets (but not including any financial reports
or other information regarding the Purchased Assets to the extent such financial
reports or other information is integrated into financial reports or other
information regarding the
32
operations
generally of Seller or such Affiliate), Seller shall deliver prior notice
thereof to Buyer and Buyer shall have a period of sixty (60) days from receipt
of such notice to deliver notice to Seller of its desire to take possession of
such books, records or files, in which event Seller shall deliver to Buyer
possession of such books, records or files at the earliest practicable
date. Seller shall not destroy or otherwise dispose of such books,
records or files prior to the end of such sixty (60) day period.
7.12 Screen
Advertising. Buyer hereby agrees to honor the obligations of
Seller imposed under the terms of Seller’s screen advertising agreement with
Screenvision Exhibition, Inc. (“Screenvision”) to
exhibit following the Closing Date all advertising booked or committed to as of
the Closing Date for periods extending beyond the Closing Date, but in no event
existing beyond one (1) year after the Closing Date, provided that such
advertising shall be exhibited by Buyer in accordance with the terms (including
economic terms) of its agreement with Screenvision and not Seller’s agreement
with Screenvision.
7.13 Hawaii Developments during the
Restricted Period. If, during the Restricted Period, any
Selling Party proposes, directly or indirectly, to engage in (a) the development
of any new retail development or shopping center in the State of Hawaii that is
to contain a movie theater, or (b) the redevelopment of any existing retail
development or shopping center in the State of Hawaii that does not currently
contain a movie theater but is to contain a movie theater after the completion
of such redevelopment, and such Selling Party has the right to select the
theater operator for such newly developed or redeveloped retail development or
shopping center, such Selling Party shall send written notice to Buyer of such
election (the “ROFO
Notice”). The ROFO Notice shall contain an offer by such
Selling Party to lease such theater (the “Theater Space”) to
Buyer on the terms contained therein (the "Lease
Terms"). The Lease Terms shall be determined by such Selling
Party in its sole discretion. If Buyer does not, within thirty (30)
days after receipt of the ROFO Notice, deliver written notice to Landlord of
Tenant's election to lease the Theater Space on the Lease Terms, such Selling
Party shall have the right to lease the Theater Space to a Non-Affiliated
Theater Owner on terms which, in the aggregate (taking into account all monetary
terms and concessions on a net present value basis discounted at the rate of 10%
per annum), are not materially less favorable to such Selling Party than the
Lease Terms. If such Selling Party proposes to lease the Theater Space to a
Non-Affiliated Theater Owner on terms which are materially less favorable to
such Selling Party than the Lease Terms, such Selling Party shall provide
written notice to Buyer thereof (which notice shall contain an offer to Buyer to
lease the Theater Space on the revised terms) (the "Revised ROFO
Notice"). If Buyer does not, within fifteen (15) days after
receipt of the Revised ROFO Notice, deliver written notice to such Selling Party
of Buyer's election to lease the Theater Space on the terms contained in the
Revised ROFO Notice, such Selling Party shall have the right to lease the
Theater Space to a Non-Affiliated Theater Owner on the terms contained in the
Revised ROFO Notice. If Buyer timely exercises its right of first offer
contained in this Section 7.13, the parties shall, within thirty (30) days after
Buyer’s exercise of such right of first offer, in good faith negotiate, execute
and deliver a definitive lease for the Theater Space on terms consistent with
the terms agreed upon by such Selling Party and Buyer pursuant to this Section
7.13. In no event during the Restricted Period shall any
Selling Party commence the
33
development
of a movie theater at the real property located at Kalauao, District of Ewa,
City and County of Honolulu, State of Hawaii and commonly known as the “KAM
Drive-In” site.
7.14 Change of
Name. On the Closing Date, Consolidated shall execute such
documents as are necessary to change its corporate name so as to delete
therefrom the word “Consolidated,” and will file, as promptly as practicable
after the Closing Date, such documents as are necessary to reflect such name
changes in its state of organization and other jurisdictions where it is
qualified to do business as a foreign Person. From and after the
Closing Date, the Selling Parties agree that they will not adopt any name that
is confusingly similar to the “Consolidated Amusements” or “Consolidated
Theatres” names.
8. Employees. Seller
shall, effective immediately prior to the Closing, terminate the employment of
all of its employees employed at or solely in connection with the Theaters
(collectively, the “Affected Employees”)
or transfer any such employee to other theaters then operated by Seller or any
Affiliate of Seller. Buyer shall not be obligated to hire or employ
any of the Affected Employees. Buyer shall provide Seller with (a)
written notice at least thirty (30) days prior to the Closing Date of those
Affected Employees employed as a theater manager or assistant theater manager to
whom Buyer intends to offer employment after the Closing, and (b) written notice
at least ten (10) days prior to the Closing Date of all other Affected Employees
to whom Buyer intends to offer employment after the Closing. Buyer
acknowledges that it has been advised by Seller that, as part of Seller’s
compliance with the Worker Adjustment and Retraining Notification Act of 1988 or
any similar or comparable state law (collectively, the “WARN Acts”), Seller
shall send all notices required by the WARN Acts to all of the Affected
Employees and be solely responsible for any and all obligations mandated by the
WARN Acts arising from the transactions contemplated by this
Agreement.
9. Closing.
9.1 Closing
Date. Subject to the satisfaction (or waiver by Buyer or
Seller as provided therein) of the conditions precedent in Articles 5 and 6
hereof, the transactions contemplated by this Agreement shall be consummated at
a closing (the “Closing”) at the
offices of Weissmann Wolff Bergman Coleman Grodin & Evall, LLP, 9665
Wilshire Boulevard, Ninth Floor, Beverly Hills, California 90212. The
Closing shall occur on the date which is the first Friday occurring after the
date which is sixty-five (65) days after the Effective Date (the “Scheduled Closing
Date”). If the Closing does not occur on the Scheduled Closing
Date by reason of the failure of any condition precedent set forth in Article 5
or 6 hereof (a “Non-Satisfied Condition
Precedent”), the party in whose favor the Non-Satisfied Condition
Precedent exists shall have the right to extend the Scheduled Closing Date until
the date which is the second Friday occurring after the date on which the
Non-Satisfied Condition Precedent is satisfied or
waived. Notwithstanding the foregoing, this Agreement shall
automatically terminate if the Closing shall not have occurred on or before the
date which is the first Friday which is more than ninety-five (95) days after
the Effective Date (the “Outside Closing
Date”); provided, however, that if on or prior to the Outside Closing
Date all of the parties’
34
respective
conditions precedent to Closing have been satisfied or waived except for the
condition precedent that the parties shall have received the landlord’s consent
under the “Carmel Mountain Lease” (as defined in Exhibit A-1 attached
hereto) to the assignment of such Lease by Seller to Buyer, then in that case
only the Outside Closing Date shall be extended to the first Friday which is
more than one hundred twenty-five (125) days after the Effective
Date. Notwithstanding anything to the contrary contained herein,
nothing herein shall be deemed to excuse or waive any breach or default by
either party of its obligations under this Agreement. The date of the
Closing is sometimes referred to herein as the "Closing
Date." The Closing shall be effective as of 8:00 a.m. (local
time) on the Closing Date.
9.2 Deliveries by Buyer.
At the Closing, Buyer shall deliver, or cause to be delivered, to Seller the
following (collectively, the "Buyer
Deliveries"):
9.2.1 Payment of Purchase
Price. Immediately available funds in an amount equal to the
Purchase Price paid to and received by Seller.
9.2.2 Assignment and Assumption of
Leases and Subleases. Duly executed and, where necessary,
acknowledged counterparts of the Assignment and Assumption of Leases and
Subleases by and between Buyer and Seller in substantially the form of Exhibit F attached
hereto (the “Assignment and Assumption of
Leases and Subleases”).
9.2.3 Assignment and Assumption of
Contracts. Duly executed counterparts of the Assignment and
Assumption of Contracts by and between Buyer and Seller in substantially the
form of Exhibit
G attached hereto (the “Assignment and Assumption of
Contracts”).
9.2.4 Assignment of Consolidated
IP. Duly executed counterparts of the Assignment of Rights by
and between Buyer and Seller with respect to the Consolidated IP in
substantially the form of Exhibit H attached
hereto (the “Consolidated IP
Assignment”)..
9.2.5 Management
Agreements. Duly executed counterparts of any Management
Agreements entered into pursuant to Section 7.1.4.
9.2.6 Intentionally
omitted.
9.2.7 Intentionally
omitted.
9.2.8 Buyer’s Closing
Certificate. A duly executed certificate, dated as of the
Closing Date, to the effect that the conditions specified in Sections 6.1 and
6.2 have been satisfied in accordance with the terms and provisions
hereof.
35
9.2.9 Additional
Deliveries. Such additional documents, instruments and
agreements, signed and properly acknowledged by Buyer, if appropriate, as may be
necessary to comply with Buyer's obligations under this Agreement.
9.3 Deliveries by
Seller. At the Closing, Seller shall deliver to Buyer all of
the following (collectively, the "Seller
Deliveries"):
9.3.1 Assignment and Assumption of
Leases and Subleases. Duly executed and, where necessary,
acknowledged counterparts of the Assignment and Assumption of Leases and
Subleases.
9.3.2 Assignment and Assumption of
Contracts. Duly executed counterparts of the Assignment and
Assumption of Contracts.
9.3.3 Bill of
Sale. A duly executed Bill of Sale by Seller in favor of Buyer
in substantially the form of Exhibit I attached
hereto.
9.3.4 Assignment of Consolidated
IP. Duly executed counterparts of the Consolidated IP
Assignment.
9.3.5 Management
Agreements. Duly executed counterparts of any Management
Agreements entered into pursuant to Section 7.1.4.
9.3.6 Intentionally
omitted.
9.3.7 Intentionally
omitted.
9.3.8 Seller’s Closing
Certificate. A duly executed certificate, dated as of the
Closing Date, to the effect that the conditions specified in Sections 5.1 and
5.2 have been satisfied in accordance with the terms and provisions
hereof.
9.3.9 Additional
Deliveries. Such additional documents, instruments and
agreements, signed and properly acknowledged by Seller, if appropriate, as may
be necessary to comply with Seller's obligations under this
Agreement.
9.4 Closing
Costs. Buyer and Seller shall each pay 50% of all documentary
transfer, excise or similar Taxes (including all State of Hawaii general excise
or gross income Taxes), if any, payable in connection with the transactions
contemplated by this Agreement. Buyer and Seller shall each bear
their own legal and accounting costs and fees. Buyer and Seller shall each pay
50% of all sales and similar Taxes payable in connection with the transactions
contemplated by this Agreement.
9.5 Possession. Possession
of the Purchased Assets, including, without limitation, the Leased Premises and
the Theaters shall be delivered to Buyer on the Closing Date; provided, however,
that Seller shall deliver possession of all files for the Leases, Subleases and
Included Contracts and all original warranties and guarantees,
36
in each
case to the extent included in the Purchased Assets, within five (5) Business
Days after the Closing Date. Additionally, at or prior to the
Closing, Seller will deliver to Buyer (a) copies of all written film settlement
agreements with respect to the Theaters and covering periods occurring during
the two (2) year period immediately prior to the Closing Date (except that, to
the extent that some or all of such settlement agreements are not available on
the Closing Date, Seller shall deliver the same to Buyer promptly after Seller’s
receipt thereof after the Closing) organized, to the extent that Seller can
accomplish the same without incurring material expenses or expending material
resources, on a film-by-film, week-by-week basis for each Theater, (b) copies of
all written claims for personal injury occurring at the Theaters which have been
received by Seller’s claim administrator since January 1, 2005, (c) copies of
all insurance claims made by Seller with respect to the Theaters since January
1, 2005, and (d) copies of all maintenance claims with respect to the Theaters
received by Joe Miraglia (Director of Staff Operations of Seller) from any
Governmental Authority since January 1, 2005.
10. Termination; Termination
Fee.
10.1 Termination
Generally. Notwithstanding anything to the contrary contained
herein, this Agreement may be terminated at any time before the Closing (a) by
mutual consent of Seller and Buyer; (b) by Buyer, upon written notice to Seller,
if Seller has breached any representation, warranty, covenant or agreement, such
breach has had, either individually or in the aggregate, a Material Adverse
Effect, and such breach is either not capable of being cured prior to the
Closing or, if such breach is capable of being cured, is not so cured within ten
(10) days of notice by Buyer to Seller of such breach; (c) by Seller, upon
written notice to Buyer, if Buyer has breached any representation, warranty,
covenant or agreement, and such breach is either not capable of being cured
prior to the Closing or, if such breach is capable of being cured, is not so
cured within ten (10) days of notice by Seller to Buyer of such breach; or (d)
subject to the terms of Section 9.1 above, by either party hereto if the Closing
shall not have occurred on or prior to the Scheduled Closing Date (as the same
may be extended pursuant to this Agreement). If this Agreement is
terminated, this Agreement shall become null and void and have no further force
or effect, and, except as provided in Section 10.2 below, no party hereto (or
any of such party’s Affiliates, directors, officers, agents or representatives),
shall have any liability or obligation hereunder; provided, however, that (i)
the letter agreement dated as of January 15, 2007 by and among Pacific,
Consolidated and RDI (the “Confidentiality
Agreement”) shall remain in full force and effect, (ii) each party shall
bear its own fees and expenses incurred in connection with the negotiation and
documentation of this Agreement and the Transaction Documents, and (iii)
notwithstanding the foregoing, but subject to the terms of Article 11 below,
termination of this Agreement shall not release any party from any liability for
any breach by such party of any of its representations, warranties, covenants or
agreements contained in this Agreement prior to such termination; and, provided
further, that Buyer shall promptly change its corporate name to a name that does
not include the word “Consolidated” or any derivation of such word or any other
name confusingly similar to the name of Consolidated.
37
10.2 Termination
Fee. It is acknowledged and agreed by Seller and Buyer that
Seller has removed the Purchased Assets from the open market during the term of
this Agreement, and thereby has exposed itself to unknown market
risks. Therefore, if all of the conditions precedent set forth in
Articles 5 and 6 of this Agreement, other than the condition precedent set forth
in Section 5.7, shall have been satisfied or waived and this Agreement is
terminated pursuant to subclause (d) of Section 10.1 by reason of the failure of
the condition precedent in Section 5.7, and Seller shall be released from any
obligation to sell the Purchased Assets to Buyer and Buyer and RDI shall be
released from any obligation to purchase the Purchased Assets. Seller
and Buyer also acknowledge and agree that (a) it would be extremely difficult or
impracticable to compute Seller’s actual losses as a result of such failure to
consummate the transactions contemplated by this Agreement, and (b) that the
amount of the Deposit is a reasonable estimate of what such losses will
be. As such, as a material inducement to Seller to enter into and
perform its obligations under this Agreement, the parties agree that if this
Agreement is terminated prior to the Closing pursuant to subclause (d) of
Section 10.1 solely by reason of the failure of the condition precedent set
forth in Section 5.7 above, Seller shall be entitled to retain the Deposit
(without interest thereon) as a termination fee and as Seller’s sole and
exclusive remedy for such termination under this Agreement, at law or in
equity.
BUYER:/s/
SCT SELLER:/s/
AJS
In the
event this Agreement is terminated and Seller shall become entitled to retain
the Deposit pursuant to this Section 10.2, Seller shall pay to Buyer,
within five (5) Business Days of such termination, the Interest Factor on the
Deposit as provided for in Section 2.1.1. Notwithstanding
anything to the contrary contained in this Agreement, and for the avoidance of
doubt, the parties acknowledge and agree that the condition precedent set forth
in Section 5.6 may only be satisfied concurrently with the Closing and that, if
the condition precedent set forth in Section 5.7 is not satisfied or waived, the
condition precedent set forth in Section 5.6 shall be deemed to be waived by
Buyer.
11. Indemnification.
11.1 Indemnification by Buyer and
RDI.
11.1.1 Subject
to the terms of this Article 11, Buyer shall indemnify and hold Seller, its
Affiliates (including the other Selling Parties) and their respective employees,
officers, directors, members, managers, shareholders, agents, contractors,
attorneys and representatives (collectively, the “Seller Indemnified
Parties”) harmless from and against, and agrees to promptly defend any
Seller Indemnified Party from and reimburse any Seller Indemnified Party for,
any and all any and all liabilities, demands, claims, actions, causes of action,
costs, damages, deficiencies, Taxes, penalties, fines and other losses and
expenses, whether or not arising out of a claim made by any third party,
including all interest, penalties, reasonable attorneys’ fees and expenses, and
all amounts paid or incurred in connection with any action, demand, proceeding,
investigation or claim by any third party (including any Governmental
Authority)
38
(“Losses”) which such
Seller Indemnified Party may at any time suffer or incur, or become subject to,
as a result of or in connection with any of the following:
(a) any
untruth or inaccuracy in any representation or warranty of Buyer or the Buyer
Subs contained in this Agreement or in any other Transaction Document; provided,
however, that for purposes of determining an untruth or inaccuracy in any such
representation or warranty for purposes of this Section 11.1.1(a), the
representations and warranties of Buyer or the Buyer Subs that are limited or
qualified by references to “material” or “materiality” or “Material Adverse
Effect” or similar qualifications shall be construed as if they were not limited
or qualified by such qualifications.
(b) any
failure of Buyer or the Buyer Subs duly to perform or observe any term,
provision, covenant, agreement or condition contained in this Agreement or the
other Transaction Documents to be performed or observed by Buyer or the Buyer
Subs; or
(c) any
claim or cause of action by any party arising on or after the Closing Date
against any Seller Indemnified Party (including, without limitation, any claim
or cause of action arising from the failure to obtain any required consents or
approvals, including, without limitation, consents or approvals from landlords,
to the assignment of the Leases being assigned pursuant to this Agreement to
Buyer or the Buyer Subs) with respect to the Purchased Assets, the obligations
of Seller assumed by Buyer or the Buyer Subs under this Agreement (including the
Assumed Liabilities) or any of the other Transaction Documents, or the operation
of the Business or the Theaters by Buyer or any Buyer Sub on or after the
Closing Date, including any default by Buyer or any Buyer Sub under any Lease
included in the Purchased Assets arising on or after the Closing
Date.
11.1.2 Subject to the terms
of this Article 11, RDI shall indemnify and hold the Seller Indemnified Parties
harmless from and against, and agrees to promptly defend any Seller Indemnified
Party from and reimburse any Seller Indemnified Party for, any and all Losses
which such Seller Indemnified Party may at any time suffer or incur, or become
subject to, as a result of or in connection with any of the
following:
(a) any untruth or
inaccuracy in any representation or warranty of RDI or the RDI Subs contained in
this Agreement or in any other Transaction Document; provided, however, that for
purposes of determining an untruth or inaccuracy in any such representation or
warranty for purposes of this Section 11.1.2(a), the representations and
warranties of RDI or the RDI Subs that are limited or qualified by references to
“material” or “materiality” or “Material Adverse Effect” or similar
qualifications shall be construed as if they were not limited or qualified by
such qualifications; or
(b) any failure of RDI or
the RDI Subs duly to perform or observe any term, provision, covenant, agreement
or condition contained in this
39
Agreement
or the other Transaction Documents to be performed or observed by RDI or the RDI
Subs; or
(c) any claim or cause of
action by any party arising on or after the Closing Date against any Seller
Indemnified Party (including, without limitation, any claim or cause of action
arising from the failure to obtain any required consents or approvals,
including, without limitation, consents or approvals from landlords to the
assignment to the RDI Subs of the Leases for the Gaslamp 15 and Carmel Mountain
Plaza (as each is defined on Exhibit A-1)) with
respect to the Leases for the Gaslamp 15 and Carmel Mountain Plaza and any other
Purchased Assets acquired hereunder by the RDI Subs, the obligations of Seller
assumed by the RDI Subs under this Agreement (including the Assumed Liabilities)
or any of the other Transaction Documents, or the operation of the Business or
the Theaters by any RDI Sub on or after the Closing Date, including any default
by any RDI Sub under the Leases for the Gaslamp 15 or Carmel Mountain Plaza
arising on or after the Closing Date.
11.2 Indemnification by
Seller. Subject to the terms of this Article 11, Seller shall
indemnify and hold the Buyer, its Affiliates and their respective employees,
officers, directors, members, managers, shareholders, agents, contractors,
attorneys and representatives (collectively, the “Buyer Indemnified
Parties”) harmless from and against, and agrees to promptly defend any
Buyer Indemnified Party from and reimburse any Buyer Indemnified Party for, any
and all Losses which such Buyer Indemnified Party may at any time suffer or
incur, or become subject to, as a result of or in connection with any of the
following:
11.2.1 any
untruth or inaccuracy in any representation or warranty of Seller or Kenmore
Rohnert, LLC, a Delaware limited liability company (“Kenmore”) contained
in this Agreement or in any other Transaction Document; provided, however, that
for purposes of determining an untruth or inaccuracy in any such representation
or warranty for purposes of this Section 11.2.1, the representations and
warranties of Seller or Kenmore that are limited or qualified by references to
“material” or “materiality” or “Material Adverse Effect” or similar
qualifications shall be construed as if they were not limited or qualified by
such qualifications.
11.2.2 any
failure of Selling Parties or Kenmore duly to perform or observe any term,
provision, covenant, agreement or condition contained in this Agreement or the
other Transaction Documents to be performed or observed by the Selling Parties
or Kenmore;
11.2.3 except
as otherwise provided by and subject to the terms of Sections 3.3 and 3.4 above,
any claim or cause of action by any party arising on or after the Closing Date
against any Buyer Indemnified Party with respect to the obligations of Seller
retained by Seller or Kenmore under this Agreement or any of the other
Transaction Documents, or the operation of the Business or the Theaters by
Seller or Kenmore prior to the Closing Date, including any default by Seller
under any Lease
40
included
in the Purchased Assets arising prior to the Closing Date or any failure of
Seller to satisfy any of its liabilities other than the Assumed
Liabilities;
11.2.4 any claim or cause of action by
any owner or licensor of any point of sale software included in the Purchased
Assets (the “POS
Software”) to the extent such claim or cause of action arises from the
assertion that Seller or its Affiliates does not have the right to assign or
transfer the right to use such POS Software to Buyer;
11.2.5 any
failure by Seller or its Affiliates to comply with all applicable laws relating
to labor, employment, employment discrimination of all types, employment
practices, pay practices, wages, hours, leave and work breaks, and terms and
conditions of employment, including, without limitation, immigration and
naturalization laws; or
11.2.6 any
material adverse effect on Buyer’s use of or operations at the Leased Premises
covered by the Lease for Pearlridge West 16, but only to the extent such
material adverse effect (a) arises after the Closing, and (b) is caused solely
by reason of the application of the terms of that certain Master Ground Lease
Administration Agreement dated April, 2004 by and between the Trustees of the
Estate of Bernice Pauahi Bishop and Watercress Associates, LP, LLLP; provided,
however, that the foregoing indemnity shall not cover any Losses incurred by any
Buyer Indemnified Party arising in connection with any of Buyer’s or any Buyer
Indemnified Party’s financing of the transactions contemplated by this Agreement
or otherwise (including, without limitation, any breach or default under the
terms of any such financing caused by any such inconsistency), whether occurring
before or after the Closing.
11.3 Notification and Defense of
Claims.
11.3.1 A
party entitled to be indemnified pursuant to Section 11.1 or 11.2 (the “Indemnified Party”)
shall promptly notify the party or parties liable for such indemnification (the
“Indemnifying
Party”) in writing of any claim, action, lawsuit, proceeding,
investigation or demand which the Indemnified Party has determined has given or
could give rise to a right of indemnification under this Agreement; provided,
however, that a failure to give prompt notice or to include any specified
information in any notice will not affect the rights or obligations of any party
hereunder except and only to the extent that, as a result of such failure, any
party which was entitled to receive such notice was prejudiced as a result of
such failure. Subject to the Indemnifying Party’s right to defend in
good faith third party claims as hereinafter provided, the Indemnifying Party
shall satisfy its obligations under this Section 11 within thirty (30) days
after the receipt of written notice thereof from the Indemnified
Party.
11.3.2 If
the Indemnified Party shall notify the Indemnifying Party of any claim or demand
pursuant to Section 11.3.1, and if such claim or demand relates to a claim or
demand asserted by a third party against the Indemnified Party, the Indemnifying
Party shall have the right to defend any such claim or demand asserted against
the Indemnified Party. The Indemnified Party shall have the right to
participate
41
in the
defense of any such claim or demand at its own expense. Without
limiting the generality of the foregoing, the Indemnified Party shall not be
entitled to indemnification for any fees or costs of defending any such claim or
demand unless and until the Indemnifying Party elects not to assume the defense
of such claim or demand. The Indemnifying Party shall notify the
Indemnified Party in writing, as promptly as possible (but in any case five (5)
Business Days before the due date for the answer or response to a claim) after
the date of the notice of claim given by the Indemnified Party to the
Indemnifying Party under Section 11.3.1 of its election to defend any such third
party claim or demand. So long as the Indemnifying Party is defending
in good faith any such claim or demand asserted by a third party against the
Indemnified Party, the Indemnified Party shall not settle or compromise such
claim or demand without the prior written consent of the Indemnifying Party
(which consent may be granted or withheld in the Indemnifying Party’s sole and
absolute discretion), and the Indemnified Party shall make available to the
Indemnifying Party or its agents all records and other material in the
Indemnified Party’s possession reasonably required by it for its use in
contesting any third party claim or demand. In the event the
Indemnifying Party elects to defend such claim or action, the Indemnifying Party
shall have the right to settle or compromise such claim or action without the
consent of the Indemnified Party, provided that the terms of the settlement or
compromise impose no additional obligations on the Indemnified Party with
respect to the subject matter of the claim or demand for which the Indemnifying
Party has not agreed to indemnify the Indemnified Party.
11.4 Survival of Representations
and Warranties. The representations and warranties of the
parties contained in this Agreement and the other Transaction Documents shall
survive the Closing until March 31, 2009, except that the representations and
warranties set forth in Sections 3.1.1, 3.1.2, 3.1.4, 3.1.5 (second, third, and
penultimate sentences only), 3.1.11 and 3.1.15 shall survive
until the applicable statute of limitations has run (the “Survival
Period”). Notwithstanding any other provision to the contrary,
no party shall be required to indemnify, defend or hold harmless any other party
pursuant to Section 11.1.1(a), 11.1.2(a) or 11.2.1, unless the Indemnified Party
has asserted a claim with respect to such matters within the Survival
Period.
11.5 Characterization of
Payments. Any
payments made pursuant to this Article 11 shall be treated for all Tax purposes
as adjustments to the Purchase Price and no party or any of its Affiliates shall
take any position on a Tax return or in any proceeding with any taxing authority
contrary to such treatment, unless otherwise required by law.
11.6 Limitations. Notwithstanding anything
to the contrary contained in this Agreement or in any of the other Transaction
Documents, the parties’ respective indemnification obligations under this
Agreement shall be subject to the limitations contained in this Section
11.6.
11.6.1 Buyer
and RDI shall not be required to indemnify, defend or hold harmless any Seller
Indemnified Party for any inaccuracy in or breach of a
42
representation
or warranty pursuant to Sections 11.1.1(a) and 11.1.2(a), as applicable, and
Seller shall not be required to indemnify, defend or hold harmless any Buyer
Indemnified Party, for any inaccuracy in or breach of a representation or
warranty pursuant to Section 11.2.1, unless the aggregate amount of all such
Losses of the Seller Indemnified Parties or the Buyer Indemnified Parties,
respectively, exceeds an aggregate amount equal to $361,458 (the “Deductible”), after
which event the Seller Indemnified Parties or the Buyer Indemnified Parties, as
applicable, shall be entitled to recover for all Losses in excess of the
Deductible, subject to the other terms of this Agreement; provided, however,
that the limitations set forth in this Section 11.6.1 shall not apply to Losses
resulting from or arising in connection with any breach of the representations
and warranties of Seller under Sections 3.1.15 and 3.1.17 hereof.
11.6.2 Buyer
and RDI shall not be required to indemnify, defend or hold harmless the Seller
Indemnified Parties, and Seller shall not be required to indemnify, defend or
hold harmless the Buyer Indemnified Parties, for Losses in excess of an
aggregate amount equal to 100% of
the Purchase Price; provided, however, that the foregoing limitation shall not
apply to (a) the payment of the Purchase Price by Buyer to Seller, (b) any
indemnification pursuant to any of Sections 11.1.1(c), 11.1.2(c) or 11.2.3, as
applicable, or (c) any indemnification arising out of a breach by Seller of its
representation and warranty in Sections 3.1.4 or 3.1.5 (second, third, and
penultimate sentences only) above.
11.6.3 The
parties agree, for themselves and on behalf of their respective Affiliates,
successors and assigns, that with respect to each indemnification obligation
under this Agreement or any of the other Transaction Documents, the amount of
any Losses shall be reduced by the amount, if any, of any federal, state or
local income Tax benefit realized or any insurance proceeds
received.
11.6.4 The
parties agree that, except as otherwise expressly provided elsewhere in this
Agreement or in any other Transaction Document, the indemnification provisions
of this Article 11 shall be the sole and exclusive remedy for any breach of or
inaccuracy in any representation, warranty, covenant or agreement contained in
this Agreement or in any of the other Transaction Documents; provided, that
either party shall be entitled to seek specific performance of the other party’s
obligation to close the transaction contemplated by this Agreement.
11.6.5 No
Indemnified Party shall seek or be entitled to, or accept payment of, any award
or judgment for consequential, incidental, special, indirect or punitive damages
or lost profits suffered by such Indemnified Party, whether based on statute,
contract, tort or otherwise, and whether or not arising from the Indemnifying
Party’s sole, joint or concurrent negligence, strict liability or other
fault.
11.6.6 Seller
shall have no indemnification obligation hereunder to the extent any Losses
arose out of or resulted from the inaccuracy of any representation or warranty
of Seller, and Buyer or any Affiliate of Buyer had actual
43
knowledge
of such inaccuracy prior to the execution and delivery of this Agreement by
Buyer. For purposes of this Section, the term “actual knowledge”
means the actual knowledge of any one or more of John Hunter, Andrzej
Matyczynski, or S. Craig Tompkins. Additionally, Buyer shall be
deemed to have “actual knowledge” of any fact which has been disclosed in
writing by Seller, its Affiliates or their respective officers, employees,
agents or representatives to any outside attorney or accountant of
Buyer.
12. Certain Defined
Terms. For purposes of this Agreement, the following terms
have the meaning set forth below:
“Affiliate” means, as
to any Person, any other Person which directly or indirectly controls, or is
under common control with, or is controlled by, such Person. As used
in this definition, “control” (including, with its correlative meanings,
“controlled by” and “under common control with”) shall mean possession, directly
or indirectly, of the power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests by contract or otherwise) of such Person; provided, however,
in no event shall either of the Formans be deemed an Affiliate of
Buyer.
“Benefit Plan” means
(i) any “employee benefit plan,” as defined in ERISA Section 3(3), (ii)
any stock purchase, stock option, severance pay, employment,
change-in-control, vacation pay, company awards, salary continuation, sick
leave, excess benefit, bonus, incentive compensation, or life insurance plan,
and (iii) any other plan, contract, program, policy, or other arrangement
(written or oral), whether or not subject to ERISA, under which any present or
former employee, director, or service provider of Seller and any trade of
business that, together with Seller, would be regarded as a single
employer under Code Section 414 (an “ERISA Affiliate”) has any present or future
right to benefits or to which Seller or an ERISA Affiliate of Seller has any
obligation to contribute.
“Business Day” means
Monday through Friday, excluding any day of the year on which banks are required
or authorized to close in California.
“COBRA” means the
Consolidated Omnibus Budget Reconciliation Act of 1986.
“Code” means the
Internal Revenue Code of 1986, as amended, and any successor law.
“Environmental Laws”
means all applicable laws, regulations and other requirements of any
Governmental Authority relating to pollution, health or safety or to the
protection of human health, safety or the environment.
“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended.
“GAAP” means United
States generally accepted accounting principles, as in effect from time to
time.
44
“Governmental
Authority” means any U.S., federal, state or local government,
governmental authority, regulatory or administrative agency or commission or any
court, tribunal, or judicial or arbitral body (or any political subdivision
thereof).
“Hazardous Materials”
means any hazardous substance, hazardous waste, contaminant, pollutant or toxic
substance (as such terms are defined in any applicable Environmental Law);
provided that “Hazardous Materials” shall not include customary products used
and/or stored by Seller in the ordinary course of the Business.
“Lien” means any
mortgage, pledge, security interest, encumbrance, lien (statutory or other) or
charge of any kind, including, without limitation, any conditional sale or other
title retention agreement, any lease in the nature of a conditional sale or
title retention agreement, and including any lien or charge outstanding by
statute or other laws which secures the payment of a debt (including, without
limitation, any Tax) or the performance of an obligation.
“Material Adverse
Effect” means a material adverse effect on the value or the Purchased
Assets, taken as a whole, provided, however that any such material adverse
effect arising out of or resulting from an event or series of events or
circumstances affecting (a) the motion picture industry generally or (b) any one
or more markets in which any of the Theaters included in the Purchased Assets
operate, shall not constitute a Material Adverse Effect, including, without
limitation, the opening for business of any theater competitive to the
Theaters.
“Permitted Liens”
means the following Liens: (a) Liens for Taxes, assessments or other
governmental charges or levies not yet due and payable; (b) statutory Liens of
landlords and Liens of carriers, warehousemen, mechanics, materialmen and other
Liens imposed by Law and on a basis consistent with past practice for amounts
not yet due; (c) Liens incurred or deposits made in the ordinary course of the
Business and on a basis consistent with past practice in connection with
worker’s compensation, unemployment insurance or other types of social security
for amounts not yet due; and (d) Liens incurred in the ordinary course of the
Business and on a basis consistent with past practice securing liabilities under
the Assumed Contracts which are not individually or in the aggregate
material.
“Person” means any
individual, corporation, limited liability company, partnership, joint venture,
association, trust, any other unincorporated organization or Governmental
Authority.
“Tax” or “Taxes” means all
federal, state, local or foreign taxes, including, but not limited to, income,
gross income, gross receipts, capital, production, excise, employment, sales,
use, transfer, transfer gain, ad valorem, premium, profits, license, capital
stock, franchise, severance, stamp, withholding, Social Security, employment,
unemployment, disability, worker’s compensation, payroll, utility, windfall
profits, customs duties, personal property, real property, environmental,
registration, alternative or add-on minimum, estimated and other taxes,
governmental fees or like charges of any
45
kind
whatsoever, including any interest, penalties or additions thereto whether
disputed or not.
“Territory” means (i)
the State of Hawaii, (ii) San Diego County, California, (iii) all property which
is located within a radius of ten (10) miles from 555 Rohnert Park Expressway,
Rohnert Park, California, and (iv) all property which is located within a radius
of ten (10) miles from 2000 Wible Road, Bakersfield, California.
“Theater Level Cash
Flow” means, with respect to any movie theater (including any Theater)
for any period, (i) the gross revenues from the operation of such
Theater for such period, less (ii) the film
costs and cost of concessions for such Theater for such period, less (iii) the
operating expenses (including, without limitation, payroll, payroll benefits,
repairs and maintenance, supplies, utilities, advertising, insurance, security
services, taxes and licenses) of such Theater for such period, and less (iv) the
occupancy expenses (including, without limitation, the base or minimum rent,
percentage rent, additional rent and real estate taxes) of such Theater for such
period, in each case calculated in accordance with GAAP, applied on a consistent
basis (with the exception that rents will not be calculated on a straight line
basis as would otherwise be required under FASB 13). For the
avoidance of doubt, “operating expenses” shall exclude any general or
administrative expenses not incurred at the Theater level, and any depreciation,
amortization, interest or income tax costs.
“Transaction
Documents” means this Agreement and all documents, agreements and
instruments contemplated by and being delivered pursuant to or in connection
with this Agreement.
13. Notices. In
the event either party desires or is required to give notice to the other party
in connection with this Agreement, the same shall be in writing and shall be
delivered in person or by recognized overnight air courier service, or deposited
with the United States Postal Service, postage prepaid, or certified mail,
return receipt requested, addressed to Buyer or Seller at the appropriate
address as set forth below:
If to
either
Seller: Pacific
Theatres Exhibition Corp.
Consolidated Amusement Theatres,
Inc.
120 N. Robertson
Boulevard
Los Angeles, California
90048
Attention: Chief Operating
Officer
With a
copy
to: Weissmann
Wolff Bergman Coleman Grodin & Evall, LLP
9665 Wilshire Boulevard, Ninth
Floor
Beverly Hills, California
90212
Attention: Mitchell Evall
& Andrew Schmerzler
If to
Buyer or
RDI: Consolidated
Amusement Theatres, Inc.
Reading International,
Inc.
46
c/o Reading International,
Inc.
500 Citadel Drive, Suite
300
Commerce, California
90040
Attention: Chief Operating
Officer
With a
copy
to: Troy
& Gould Professional Corporation
1801 Century Park East, Suite
1600
Los Angeles, California
90067
Attention: Dale E. Short,
Esq.
Any such
notice shall be deemed to have been given on the date so delivered, if delivered
personally or by overnight air courier service, or, if mailed, on the date shown
on the return receipt as the date of delivery or the date on which the Post
Office certified that it was unable to deliver, whichever is
applicable. Any party may, by written notice to the other party,
specify a different address to which notices shall be given, by sending notice
thereof in the manner set forth above. No copies of notices given to
any party after the date which is one (1) year after the Closing Date also need
be given to outside counsel for such party.
14. Miscellaneous.
14.1 Entire Agreement;
Amendment. This Agreement (including all Exhibits and
Schedules hereto), the other Transaction Documents, and the Confidentiality
Agreement contain all of the terms and conditions agreed upon by the parties
hereto with reference to the subject hereof. No other prior or
concurrent agreements not specifically referred to herein, oral or otherwise,
shall be deemed to exist or to bind any of the parties hereto. No officer or
employee of any party shall have authority to make any representation or promise
not contained in this Agreement and each of the parties hereto agrees that it is
not executing this Agreement in reliance upon any such representation or
promise. This Agreement may not be modified or changed except by written
instruments signed by all of the parties hereto. Subject to the restrictions on
assignment set forth herein this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and
assigns.
14.2 Assignment. Except
as permitted by Section 1.5, Buyer may not assign or otherwise transfer all or
any of its rights, obligations or interests under this Agreement without the
prior written consent of Seller. Except as permitted by Section 1.6,
neither Seller nor the Formans may assign or otherwise transfer all or any of
their respective rights, obligations or interests under this Agreement without
the prior written consent of Buyer. No assignment of this Agreement
by any party shall be effective until an executed written assumption by such
assignee of the assigning party’s obligations under this Agreement is delivered
to the other party and no such assignment shall relieve any party of its
obligations under this Agreement.
14.3 Governing
Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California, regardless
47
of the
laws that might otherwise govern under applicable principles of conflicts of law
of such state; provided, however, that the provisions of Section 7.9 shall be
governed by and construed and enforced as they pertain to any Theater and the
Business related to such Theater in accordance with the laws of the state in
which such Theater is located..
14.4 Drafting. This
Agreement has been jointly negotiated and drafted, and shall be construed as a
whole according to its fair meaning and not strictly for or against any
party.
14.5 Further
Assurances. Each of the parties hereto agrees that it will,
forthwith upon any request by the other party, cooperate fully in the
preparation, execution, acknowledgment, delivery and recording of any
agreements, instruments, memoranda or documents reflecting or in furtherance of
any of the transactions contemplated by this Agreement.
14.6 Intentionally
omitted.
14.7 Confidentiality; Press
Releases. Except and to the extent required by applicable law
(including, without limitation, Buyer’s obligation to file a report on Form 8-K
with the Securities and Exchange Commission and issue a press release in
connection with the execution and delivery of this Agreement) and the rules and
regulations of the American Stock Exchange, and except as may be necessary to
consummate the transactions contemplated hereby, until the Closing no party
hereto shall disclose the existence of this Agreement, or any of the terms or
provisions hereof, or make any press release or similar disclosure, without the
prior written consent of the other party. To the extent reasonably
feasible, the initial press release or other announcement or notice regarding
the transactions contemplated by this Agreement shall be made jointly by the
parties; provided, however, that nothing in this Agreement shall prohibit any
party from making press release required by applicable law. Upon the Closing,
the confidentiality and non-disclosure obligations of the parties hereunder and
under the Confidentiality Agreement shall terminate, except to the extent that
such obligations relate to documentation or information relating to any motion
picture theaters other than the Theaters (including Seller’s Los Angeles
theaters), which obligations shall survive until the expiration of the
Confidentiality Agreement in accordance with its
terms. Notwithstanding the foregoing, following the Closing, without
the prior written consent of Buyer, neither Seller nor any of its Affiliates
shall, directly or indirectly, disclose to any Person any non-public information
regarding the Purchased Assets or the Business, except that Seller and its
Affiliates may disclose such information (a) in connection with matters related
to the sale of the Purchased Assets or the other transactions contemplated by
the Transaction Documents; (b) in connection with the preparation of reports and
documents to be filed by Seller or any of its Affiliates with any Governmental
Authority; (c) to Seller’s officers, directors, employees, agents,
representatives, attorneys and accountants provided that Seller shall be
responsible for any non-permitted disclosure of such information by any such
Persons; (d) if required to do so by a Governmental Authority of competent
jurisdiction, and (e) if such information do so by a Governmental Authority of
competent jurisdiction, and (e) if such information
48
is in the
public domain or is previously published or disseminated by a third party other
than pursuant to the provisions of a confidentiality agreement entered with
Buyer.
14.8 Waiver. No
action taken pursuant to this Agreement shall be deemed to constitute a waiver
by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
14.9 Third
Parties. Except as otherwise expressly provided for or
contemplated by this Agreement, nothing in this Agreement, express or implied,
shall or is intended to confer upon any Person other than the parties hereto, or
their respective successors or assigns, any rights or remedies of any nature or
kind whatsoever under or by reason of this Agreement.
14.10 Section
Headings. Section headings are provided herein for convenience
only and shall not serve as a basis for interpretation or construction of this
Agreement, nor as evidence of the intention of the parties hereto.
14.11 Severability. If
any provision of this Agreement as applied to either party or to any
circumstance shall be adjudged by a court to be void or unenforceable, the same
shall in no way affect any other provision of this Agreement, the application of
any such provision in any other circumstances or the validity or enforceability
of this Agreement as a whole.
14.12 Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute but one and the
same instrument.
14.13 Reference. Except
as otherwise expressly provided in this Agreement, any dispute of any nature or
character whatsoever between the parties and arising under or with respect to
this Agreement or any of the other Transaction Documents, or the subject matter
hereof or thereof, shall be resolved by a proceeding in accordance with the
provisions of California Code of Civil Procedure Section 638 et seq., for a
determination to be made which shall be binding upon the parties as if tried
before a court or jury. The parties agree specifically as to the
following:
14.13.1 Within
five (5) Business Days after service of a demand by a party hereto, the parties
shall agree upon a single referee who shall then try all issues, whether of fact
or law, and then report a finding or judgment thereon. If the parties
are unable to agree upon a referee either party may seek to have one appointed,
pursuant to California Code of Civil Procedure Section 640, by the presiding
judge of the Los Angeles County Superior Court;
14.13.2 The
compensation of the referee shall be such charge as is customarily charged by
the referee for like services. The cost of such proceedings shall
initially be borne equally by the parties. However, the prevailing
party
49
in such
proceedings shall be entitled, in addition to all other costs, to recover its
contribution for the cost of the reference as an item of damages and/or
recoverable costs;
14.13.3 If
a reporter is requested by either party, then a reporter shall be present at all
proceedings, and the fees of such reporter shall be borne by the party
requesting such reporter. Such fees shall be an item of recoverable
costs. Only a party shall be authorized to request a
reporter;
14.13.4 The
referee shall apply all California Rules of Procedure and Evidence and shall
apply the substantive law of California in deciding the issues to be
heard. Notice of any motions before the referee shall be given, and
all matters shall be set at the convenience of the referee;
14.13.5 The
referee’s decision under California Code of Civil Procedure Section 644, shall
stand as the judgment of the court, subject to appellate review as provided by
the laws of the State of California; and
14.13.6 The
parties agree that they shall in good faith endeavor to cause any such dispute
to be decided within four (4) months. The date of hearing for any
proceeding shall be determined by agreement of the parties and the referee, or
if the parties cannot agree, then by the referee. The referee shall have the
power to award damages and all other relief.
14.14 Interpretative
Matters. Unless the context otherwise requires, (a) all
references to Articles, Sections or Schedules are to Articles, Sections or
Schedules in this Agreement, (b) each accounting term not otherwise defined
in this Agreement has the meaning assigned to it in accordance with GAAP,
(c) words in the singular or plural include the singular and plural, and
pronouns stated in either the masculine, the feminine or neuter gender shall
include the masculine, feminine and neuter and (d) whenever the words “include,”
“includes” or “including” are used in this Agreement they shall be deemed to be
followed by the words “without limitation.”
14.15 No Personal
Liability. Except with respect to the covenants of the Formans
under Section 7.9 above, under no circumstances shall any personal liability or
obligation under this Agreement or under any of the other Transaction Documents
be imposed or assessed against any shareholder, member, manager, officer,
director, employee or agent of any party to this Agreement or of any of such
party’s Affiliates, and no party (nor any party claiming through such party)
shall commence any proceedings or otherwise seek to impose any liability
whatsoever against any such shareholders, member, manager, officer, director,
employee or agents.
14.16 Guaranty. Concurrently
herewith, RDI has executed and delivered to Seller a Guaranty in substantially
the form of Exhibit
J attached hereto.
[Signatures
contained on next page]
50
IN WITNESS WHEREOF, the parties hereto
have executed this Agreement as of the date first above written.
PACIFIC THEATRES EXHIBITION CORP.,
a California corporation
By:/s/ James D.
Vandever
Its:Vice
President
CONSOLIDATED AMUSEMENT
THEATRES, INC., a Hawaii corporation
By:/s/ James D.
Vandever
Its:Vice
President
CONSOLIDATED AMUSEMENT THEATRES, INC., a Nevada corporation
By:/s/ John
Hunter
Its:
Vice
President
AS TO
SECTION 7.9 AND ARTICLES 12 THROUGH 14 ONLY:
/s/ Michael R.
Forman
MICHAEL
FORMAN
/s/ Christopher S.
Forman
CHRISTOPHER
FORMAN
51
AS TO
SECTIONS 1.5, 2.4, 4.2, 5.6 AND 14.16 AND ARTICLES 11 THROUGH 14
ONLY:
READING
INTERNATIONAL, INC.
a Nevada
corporation
By: /s/ John
Hunter
Its: Vice
President
52
LIST
OF EXHIBITS
Exhibit
A-1 The
Leases
Exhibit
A-2 The
Subleases
Exhibit
B Included
Contracts
Exhibit
C-1 Form
of Five Year Note
Exhibit
C-2 Form
of Two Year Note
Exhibit
D Intentionally
omitted
Exhibit
E Exception
Area
Exhibit
F Form
of Assignment and Assumption of Leases and Subleases
Exhibit
G Form
of Assignment and Assumption of Contracts
Exhibit
H Form
of Consolidated IP Assignment
Exhibit
I
Form of Bill of Sale
Exhibit
J
Guaranty of Reading International, Inc.
LIST
OF SCHEDULES
Schedule
1.2.4 FF&E
Inventories
Schedule
2.7 Allocation
of Purchase Price
Schedule
3.1.3 Required
Consents
Schedule
3.1.5 The
Leases and The Subleases
Schedule
3.1.6 Improvements
Schedule
3.1.7 Material
Contracts
Schedule
3.1.8 Compliance
with Laws
Schedule
3.1.9 Litigation
Schedule
3.1.10 Employee
Matters
Schedule
3.1.12 Theater
P&Ls
Schedule
3.1.13 Affiliate
Transactions
Schedule
4.1.4 Manville
Lease Summary and Manville P&Ls
Schedule
7.3.2 Description
and Scope of Repair Work
53
REAL PROPERTY PURCHASE AND
SALE AGREEMENT
THIS REAL PROPERTY PURCHASE AND SALE
AGREEMENT (this "Agreement") is made
and entered into as of October 8, 2007 (the “Effective Date”) by
and between CONSOLIDATED AMUSEMENT THEATRES, INC., a Hawaii corporation (“Seller"), and
CONSOLIDATED AMUSEMENT THEATRES, INC., a Nevada corporation (“Buyer"), with
reference to the following facts:
A. Seller
is the tenant, among other tenancies, under the leases described on Exhibit A attached
hereto (the "Leases"), which
Leases relate to those certain premises located in the State of Hawaii as more
particularly described in the Leases (the "Leased
Premises").
B. Subject
to the terms and conditions of this Agreement, Seller desires to sell, transfer,
convey and assign to Buyer, and Buyer desires to purchase, accept and assume
from Seller, all of the right, title and interest of Seller in the “Property”
(as defined in Section 1.1 below).
NOW, THEREFORE, in consideration of the
foregoing recitals and the mutual covenants, agreements, representations and
warranties herein contained, Seller and Buyer hereby agree as
follows:
1. Purchase and Sale of
Property; Assumption of Liabilities.
1.1 Purchase of
Property. Upon the terms and subject to the conditions
hereinafter set forth, at the “Closing” (as defined in Section 8.1 hereof),
Seller shall sell, transfer, convey and assign to Buyer, and Buyer shall
purchase from Seller, and assume certain liabilities with respect to, all right,
title and interest of Seller in, to and under (a) the Leases and (b) all
buildings, improvements and fixtures located on or comprising a part of the
Leased Premises (collectively, the “Property”).
1.2 Assumed
Liabilities. Effective as of the Closing Date, Buyer shall
assume any and all liabilities and obligations of Seller under the Leases which
accrue on or after the Closing Date (the “Assumed
Liabilities”). Except for the Assumed Liabilities and except
as otherwise specifically set forth in any of the other “Transaction Documents”
(as such term is defined in Article 11), Buyer is not assuming any other
liabilities or obligations of Seller. The obligations and covenants of Buyer set
forth in this Section 1.2 and elsewhere in this Agreement shall survive the
Closing indefinitely.
1.3 Assignment by
Buyer. Subject to the terms of Section 7.1.1 below, Buyer
shall have the right to assign its right to take title at Closing to some or all
of the Property to one or more wholly-owned direct or indirect subsidiaries of
Buyer (the “Buyer
Subs”); provided, however, that no such assignment shall relieve Buyer of
its obligations under this Agreement (including, without limitation, Section 1.2
and Article 10 hereof) or any of the other Transaction Documents. Buyer shall
provide Seller with
1
written
notice of such election, the identities of the Buyer Subs, and which of the
Property is to be acquired by the Buyer Subs at least ten (10) days prior to the
“Closing Date” (as such term is defined in Section 8.1 below).
1.4 Exchange. Seller
intends to transfer its obligations to sell the Property to a “qualified
intermediary,” as defined in Treasury Regulation Sec. 1.1031(k)-1(g)(4)(iii),
for the purpose of effecting an exchange qualifying under Sec. 1031 of the
Code. Buyer agrees to such assignments, if made, and further agrees
that it will execute promptly acknowledgements of its receipts of notices of
such assignments delivered to Buyer by Seller. Buyer and Seller agree
that any such assignment shall not affect the representations, warranties and
other obligations of the parties under this Agreement or Buyer’s title to the
Property, except that the Purchase Price, adjusted as provided herein, shall be
paid to the assignee or assignees identified in such notice or
notices. Buyer further agrees to cooperate with Seller and to execute
such other documents reasonably requested by Seller to effect such exchanges, so
long as Buyer incurs no cost, expense or liability (other than its own
attorneys’ fees and costs incurred in reviewing, negotiating and executing such
documents) as a result of such cooperation. It is understood that,
subject to the performance of Buyer’s obligations under this Agreement, Buyer
shall have no responsibility for the proposed exchanges, and makes no
representations or warranties as to whether any transaction effectuated by
Seller, in fact, will accomplish Seller’s tax objectives.
2. Purchase
Price.
2.1 Purchase
Price. The purchase price for the Property shall be
Twenty-Nine Million Five Hundred Thousand Dollars ($29,500,000), which shall be
subject to adjustment and reimbursement as hereinafter provided (the "Purchase
Price"). Buyer shall pay the Purchase Price to
Seller in full at the Closing by wire transfer of immediately available funds to
an account or accounts designated by Seller not less than two (2) “Business
Days” (as such term is defined in Article 11) prior to the Closing
Date.
2.2 Adjustments to Purchase
Price. The Purchase Price shall be subject to adjustment at
the Closing as follows:
2.2.1 Prepaid Expenses, Prorations
and Deposits. The Purchase Price shall be increased or
decreased as required to effectuate the proration of expenses and receipts
(other than those adjusted pursuant to Section 2.2.2), including any prepaid
expenses and receipts, if any, under the Leases or other obligations to be borne
pursuant to this Agreement by Seller prior to the Closing Date and by Buyer on
or after the Closing Date. Without limiting the generality of the
foregoing, all expenses arising under the Leases, including, without limitation,
rent (other than “Percentage Rent” (as defined in Section 2.2.2 below)), utility
charges, insurance charges, common area operating expenses, real, excise and
personal property Taxes and assessments levied against the Leased Premises,
promotional fund expenses, use Taxes, deposits under the Leases, and similar
prepaid and deferred items, in each case to the extent relating to the Leases,
shall be prorated between Buyer and Seller in accordance with the principle that
Seller shall be
2
responsible
for all expenses, costs, and liabilities, and shall be entitled to all receipts,
allocable to the period ending prior to the Closing Date, and Buyer shall be
responsible for all expenses, costs, liabilities and obligations, and shall be
entitled to all receipts, allocable to the period on or after the Closing
Date.
2.2.2 Percentage
Rent. With respect to any percentage rent or any other rent
based on the income (gross or otherwise) (“Gross Income”) of the
tenant (collectively, “Percentage Rent”)
payable under any Lease for the applicable lease years or other periods
specified thereunder (each, a “Lease Year”) during
which the Closing occurs, the Percentage Rent (taking into account any
applicable credits or adjustments) shall be prorated between Buyer and Seller
(where Seller is responsible for the period ending immediately prior to the
Closing Date and Buyer is responsible for the period on and after the Closing
Date) such that each party shall pay when due that percent of the total
Percentage Rent payable which equals such party’s respective Gross Income under
such Lease divided by the total Gross Income under such Lease for such Lease
Year. Seller shall pay to Buyer, or Buyer shall pay to Seller, as the
case may be, its pro rata share due in respect of such estimated Percentage Rent
within thirty (30) days after receipt by the paying party of the appropriate
statements evidencing the amount thereof. Any dispute arising under
this Section 2.2.2 shall be resolved in accordance with the procedures set forth
in Section 2.2.3.3 and 2.2.3.4.
2.2.3 Manner of Determining
Adjustments. The Purchase Price, taking into account the adjustments and
prorations pursuant to this Section, will be determined finally in accordance
with the following procedures:
2.2.3.1 Seller shall
prepare and deliver to Buyer not later than five (5) Business Days before the
Closing Date an itemized preliminary settlement statement (the “Preliminary Settlement
Statement”) which shall set forth Seller’s good faith estimate of the
adjustments to the Purchase Price in accordance with Section 2.2.1
hereof.
2.2.3.2 If Seller and Buyer
have not agreed upon a final settlement statement on or before the Closing Date,
then Seller and Buyer shall cooperate in good faith to finalize such settlement
statement as soon as practicable after the Closing; provided, however, the
parties shall use such Seller’s good faith estimated adjustments to the Purchase
Price as set forth in the Preliminary Settlement Statement delivered pursuant to
Section 2.2.3.1 above for purposes of determining the amount of any estimated
adjustment to the Purchase Price paid by Buyer to Seller at
Closing. If Seller and Buyer have not agreed upon a final settlement
statement on or before the Closing Date, not later than sixty (60) days after
the Closing Date, Buyer shall deliver to Seller a statement (the “Buyer Adjustment
Statement”) setting forth, in reasonable detail, its determination of the
adjustments to the Purchase Price and the calculation thereof and reminding
Seller of the thirty (30) day response period set forth in Section
2.2.3.3. If Buyer fails to deliver the Buyer Adjustment Statement to
Seller within the sixty (60) day period specified in the preceding sentence,
Seller’s determination of the adjustments to
3
the
Purchase Price as set forth in the Preliminary Settlement Statement shall be
conclusive and binding on the parties as of the last day of the sixty (60) day
period.
2.2.3.3 If Seller disputes
Buyer’s determination of the adjustments to the Purchase Price, it shall deliver
to Buyer a statement notifying Buyer of such dispute within thirty (30) days
after its receipt of the Buyer Adjustment Statement. If Seller
notifies Buyer of its acceptance of the Buyer Adjustment Statement, or if Seller
fails to deliver its statement within the thirty (30) day period specified in
the preceding sentence, Buyer’s determination of the adjustments to the Purchase
Price as set forth in the Buyer Adjustment Statement shall be conclusive and
binding on the parties as of the date of notification of such acceptance or the
last day of the thirty (30) day period, and the appropriate party shall promptly
pay to the other party in immediately available funds the amount of any such
adjustment.
2.2.3.4 Seller and Buyer
shall use good faith efforts to resolve any dispute involving the determination
of any adjustments to the Purchase Price, and each party shall afford the other
party and its representatives reasonable access to all appropriate books,
records and statements relating to the subject matter of
the adjustments to the Purchase Price contemplated by this Section
2.2 for such purpose. If the parties are unable to resolve the
dispute within sixty (60) days after Buyer delivers the Buyer Adjustment
Statement to Seller, Seller and Buyer jointly shall designate an independent
accounting firm that has, or a movie theater executive who has, consistent and
recent experience in real property matters similar to those involving the
Property (the “Designated
Arbitrator”) to resolve the dispute. If, for any reason, the
parties are unable to agree upon the Designated Arbitrator within seventy-five
(75) days after Buyer delivers the Buyer Adjustment Statement to Seller, or the
Designated Arbitrator fails or refuses to accept such engagement within fifteen
(15) days after the parties’ written request therefor, Seller and Buyer shall
jointly designate the Los Angeles office of PriceWaterhouseCoopers (the “Replacement
Arbitrator”) to resolve the dispute. If the Replacement
Arbitrator fails or refuses to accept such engagement, in either case within
fifteen (15) days after the parties’ written request therefor, either Seller or
Buyer may thereafter petition the Superior Court of Los Angeles County,
California for the appointment of an independent accounting firm to act as the
Replacement Arbitrator and resolve the dispute. Absent fraud or manifest error,
(a) the Designated Arbitrator’s or Replacement Arbitrator’s, as applicable,
resolution of the dispute shall be final and binding on the parties, (b) subject
to Section 2.3, the appropriate party shall promptly pay to the other party in
immediately available funds the amount of any such adjustment, and (c) a
judgment may be entered in any court of competent jurisdiction if such amount is
not so paid. Any fees and costs of the Designated Arbitrator or
Replacement Arbitrator shall be split equally between the parties.
2.3 Payment of Adjustments to
and Reimbursements of the Purchase Price. If, pursuant to
Section 2.2, it is determined after the Closing Date that Buyer shall be
obligated to pay any amounts to Seller, then Buyer shall make such payments in
full to Seller within ten (10) days after such amount is finally determined to
be due. Conversely, if, pursuant to Section 2.2, it is determined
after the Closing Date that Seller
4
shall be
obligated to pay any amounts to Buyer, then Seller shall make such payments in
full to Buyer within ten (10) days after such amount is finally determined to be
due.
2.4 Late Interest. If
any amount payable pursuant to the provisions of this Article 2 is not paid
within ten (10) days after such amount is finally determined to be due, such
amount shall thereafter accrue interest until paid in full at an annual rate
equal to the lesser of the “prime” interest rate as announced by The Wall Street Journal from
time to time during such period plus 2%, or the maximum interest rate permitted
by applicable law.
2.5 Allocation of Purchase
Price. The Purchase Price shall be allocated among the
Property as follows: (a) Eleven Million Five Hundred Thousand Dollars
($11,500,000) of the Purchase Price shall be allocated to the Lease for
“Mililani” (as such term is defined in Exhibit A-1 attached
hereto), and (b) Eighteen Million Dollars ($18,000,000) of the Purchase Price
shall be allocated to the Lease for “Ward” (as such term is
defined in Exhibit
A-1 attached hereto). To the extent that the Purchase Price is
increased or decreased pursuant to Section 2.2 above, the amounts allocated to
the Leases for “Mililani” and “Ward” shall increased or decreased
proportionately based on the amount of the total Purchase Price allocated to
such portion of the Property. Buyer and Seller shall (a) be bound by
the Allocation for all Tax purposes; (b) prepare and file all Tax returns
(including IRS Form 8594 and any required exhibits thereto, and any amendments
thereto) in a manner consistent with the Allocation; and (c) take no position
inconsistent with the Allocation in any Tax return or in any proceeding before
any taxing authority. In the event that the Allocation is disputed by
any taxing authority, the party receiving notice of such dispute shall promptly
notify and consult with the other parties and keep the other parties apprised of
material developments concerning resolution of such dispute.
2.6 Survival. The
parties’ respective obligations under this Article 2 shall survive the
Closing.
3. Representations and
Warranties of Seller.
3.1 Representations and
Warranties of Seller. Seller hereby represents and warrants to
Buyer as follows:
3.1.1 Organization. Seller
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Hawaii. Seller has all requisite power to own, lease and
license its properties and assets and to carry on its business in the manner and
in the places where such properties and assets are owned, leased, licensed or
operated or such business is conducted.
3.1.2 Authority. Subject
to the terms of any consent provisions of the Leases, Seller has full right,
power and authority to enter into this Agreement and to perform its obligations
hereunder. The entry into and performance of this Agreement have been duly
authorized by all necessary action on the part of Seller in accordance
with
5
its
Articles of Incorporation and Bylaws and applicable law. This
Agreement constitutes, and each other document, instrument and agreement to be
entered into by Seller pursuant to the terms of this Agreement will constitute,
a valid agreement binding upon and enforceable against Seller in accordance with
its terms (except as limited by bankruptcy or similar laws or the availability
of equitable remedies).
3.1.3 Consents. The
execution, delivery and performance by Seller of this Agreement, and all other
agreements, instruments or documents referred to herein or contemplated hereby,
do not require the consent, waiver, approval, license or authorization of any
Person (other than the landlords under the Leases) or public authority which has
not been obtained or provided for in this Agreement and do not and will not
contravene or violate (with or without the giving of notice or the passage of
time or both), the Articles of Incorporation or Bylaws of Seller, any other
contract or agreement to which such entity is a party or by which such entity is
bound or any judgment, injunction, order, law, rule or regulation applicable to
such entity. Seller is not a party to, or subject to or bound by, any judgment,
injunction or decree of any court or governmental authority which may restrict
or interfere with the performance of this Agreement, or such other agreements,
instruments and documents.
3.1.4 The
Leases. Exhibit A sets forth
a true, complete and accurate list of both of the Leases (including all
amendments, extensions, renewals, ground or master lessor consents, and existing
non-disturbance and attornment agreements with respect
thereto). Subject to the terms of the Leases, Seller has, and on the
Closing Date will have, valid leasehold interests in the Leases free and clear
of any “Liens” (as defined in Article 11) other than (a) “Permitted Liens” (as
defined in Article 11), (b) so-called “non-monetary” Liens, including, without
limitation, any ground or underlying leases, easements, parking agreements,
reciprocal easement agreements, conditions, covenants and restrictions,
restrictive covenants, development or similar agreements, zoning limitations and
other restrictions imposed by any “Governmental Authority” (as defined in
Article 11), or any other matter which a survey of the Leased Premises or a
review of the public records regarding the Leased Property would show, whether
created by or in the name of Seller or any other party, or (c) any other Liens,
whether “monetary” or “non-monetary” Liens, created by or in the name of any
Person other than Seller or any “Affiliate” (as defined in Article 11) of
Seller, including, without limitation, by any fee owner or ground lessor under
the Leases. True, complete and accurate copies of the Leases, as well
as any and all existing guaranties of Seller or its Affiliates with respect
thereto, have been delivered or otherwise made available to Buyer through
Seller’s data site operated by Merrill Corporation (the “Data Site”), and such
Leases set forth the entire agreement and understanding between the parties
thereto with respect to the leasing and occupancy of the Leased
Premises. Each such Lease is in full force and effect against Seller
and is valid and binding against Seller and, to Seller’s Knowledge, the
applicable landlord thereunder. Except as set forth on Schedule 3.1.4,
neither Seller nor, to Seller’s Knowledge, any landlord under the Leases is in
default under the Leases, nor has any event occurred or failed to occur or any
action been taken or not taken which, with the giving of notice, the passage of
time or both would mature into or otherwise become a default under the Leases by
Seller or, to Seller’s Knowledge,
6
the
applicable landlord thereunder. No landlord under any Lease is an
“Affiliate” (as such term is defined in Article 11) of Seller. Seller
has not subleased, licensed or otherwise granted any “Person” (as such term is
defined in Article 11) the right to use or occupy the Leased Premises or any
portion thereof and the Seller is in exclusive possession of the Leased
Premises. To Seller’s Knowledge, there is no pending or threatened
condemnation of any part of any Leased Premises by any Governmental
Authority.
3.1.5 Improvements. Since
January 1, 2005, with respect to the Property, Seller has not received any
written notice of, and otherwise has no Knowledge of, any violation of any
applicable federal, state or local laws (other than any applicable
“Environmental Laws” (as defined in Article 11) or the “ADA” (as defined
below)), building ordinances, or health and safety ordinances, which has not
been cured in all material respects. Since January 1, 2005, with
respect to the Property, Seller has not received any written notice from any
Governmental Authority, or to the actual knowledge of Ira Levin and Jay Swerdlow
(who, for this purpose only, shall be deemed to actually know of all information
in their respective business and personal files maintained with respect to the
Property), any other Person, of any violation of any applicable Environmental
Laws or the Americans with Disabilities Act, 42 U.S.C. 12101 et seq. (the “ADA”). Except
as expressly set forth in the immediately preceding sentence, no representation
or warranty is made that any Leased Premises or any improvements made by or
constructed for Seller or any third party is in compliance with Environmental
Laws or the ADA. Except as set forth in Schedule 3.1.5, to
Seller’s Knowledge, since January 1, 2005, no improvements on the Leased
Premises have suffered any material casualty or other material damage that has
not been repaired in all material respects.
3.1.6 Compliance with
Law. Except as set forth in Schedule 3.1.6, since
January 1, 2005, to Seller’s Knowledge, the operation of the business conducted
at the Leased Premises has been conducted in accordance with all applicable
laws, rules, codes, injunctions, decrees, rulings, regulations, orders and other
legal requirements of all Governmental Authorities, the failure to comply with
which could have a Material Adverse Effect. Except as set forth in
Schedule 3.1.6,
since January 1, 2005, Seller has not received written notice of any material
violation of any such law, regulation, order or other legal
requirement. Seller is not in default with respect to any order,
writ, judgment, award, injunction or decree of any Governmental Authority
applicable to such business or any part of the Property which has not been cured
in all material respects, nor has any event occurred or failed to occur or any
action been taken or not taken which, with the giving of notice, the passage of
time or both would mature into or otherwise become such a
default. Except as set forth in Schedule 3.1.6, to
Seller’s Knowledge, Seller is not under investigation with respect to any
purported violation of (a) any law, regulation, order or other legal
requirement, or (b) any order, writ, judgment, award, injunction or decree of
any Governmental Authority applicable to such business or any part of the
Property. No representation or warranty is hereby made by virtue of
this Section 3.1.6 in respect of any matters covered by Section
3.1.5.
3.1.7 Litigation. Except
as set forth in Schedule 3.1.7, to
Seller’s Knowledge, there are no actions, suits, claims, proceedings, hearings,
disputes or
7
investigations
currently pending or threatened in writing at any time after January 1, 2005,
before any Governmental Authority or that would come before any arbitrator,
brought by or against Seller involving, affecting or relating to the Property,
including, without limitation, any labor, employment or Tax-related actions,
suits, claims, proceedings, hearings, disputes or
investigations. Seller is not subject to any order, writ,
assessments, judgment, award, injunction or decree of any Governmental Authority
relating to the Property. No representation or warranty is
hereby made by virtue of this Section 3.1.7 in respect of any matters covered by
the second sentence of Section 3.1.5.
3.1.8 Certain Tax
Matters. Seller is not a “foreign person” within the meaning
of Code Section 1445(f) or a “foreign partner” within the meaning of Code
Section 1446. No part of the Property is “tax-exempt use property”
within the meaning of Code Section 168(h).
3.1.9 Affiliate
Transactions. Except as set forth on Schedule 3.1.9
attached hereto, (a) Seller is not a party to any contract or arrangement with,
or indebted, either directly or indirectly, to any of its Affiliates in
connection with any part of the Property, and (b) none of Seller’s Affiliates
own any asset, tangible or intangible, which is used in and material to the
operation of any part of the Property.
3.1.10 Brokerage. Except
with respect to the engagement of Lazard Freres & Co. LLC, Seller has not
employed any broker, finder or agent or has incurred or will incur any
obligation or liability to any broker, finder or agent with respect to the
transactions contemplated by this Agreement, and all fees and expenses payable
in connection with the engagement of Lazard Freres & Co. LLC will be paid by
Seller.
3.2 Knowledge.
Where any
representation or warranty contained in this Agreement is expressly qualified by
reference “to Seller’s Knowledge,” “to the Knowledge of Seller,” or any similar
language, it refers to the actual knowledge of Neil Haltrecht (Executive Vice
President of Seller), Nora Dashwood (Executive Vice President and Chief
Operating Officer of Seller), Jay Swerdlow (Executive Vice President of Seller),
Ira Levin (Executive Vice President and General Counsel of Seller), Joe Miraglia
(Director of Staff Operations of Seller), and Terri Shimohara (Vice President,
Human Resources of Seller), in each case after due inquiry.
3.3 “As Is” Purchase.
BUYER ACKNOWLEDGES THAT AS A MATERIAL CONDITION OF THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT, BUYER IS ACQUIRING THE PROPERTY ON AN “AS IS, WHERE IS” BASIS
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT. EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT, THERE ARE NO WARRANTIES, EXPRESS, IMPLIED
OR STATUTORY, INCLUDING, BUT NOT LIMITED TO, REPRESENTATIONS AS TO THE PHYSICAL
OR OTHER CONDITION OF THE LEASES, THE LEASED PREMISES, OR ANY OTHER PORTION OF
THE PROPERTY, OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, WITH
8
RESPECT
TO THE LEASES, THE LEASED PREMISES OR ANY OTHER PORTION OF THE PROPERTY. BUYER
HAS MADE AND AGREES TO MAKE A THOROUGH AND CAREFUL EXAMINATION OF THE LEASES,
THE LEASED PREMISES AND ALL OTHER PORTIONS OF THE PROPERTY AND WILL ASSURE
ITSELF THAT THE LEASES, THE LEASED PREMISES AND ALL OTHER PORTIONS OF THE
PROPERTY ARE SUITABLE FOR BUYER’S INTENDED PURPOSE. IF THE CLOSING
OCCURS, AND SUBJECT TO THE SPECIFIC AND EXPRESS REPRESENTATIONS AND WARRANTIES
CONTAINED HEREIN, (A) BUYER SHALL BE DEEMED TO HAVE ACCEPTED THE LEASES, THE
LEASED PREMISES AND ALL OTHER PORTIONS OF THE PROPERTY WITH AND SUBJECT TO ALL
DEFECTS AND DEFICIENCIES, AND (B) BUYER EXPRESSLY ASSUMES THE RISK THAT
SUBSEQUENT EVENTS OR UNDISCOVERED OR UNKNOWN CONDITIONS COULD MAKE ALL OR PART
OF THE LEASES, THE LEASED PREMISES OR ANY OTHER PORTION OF THE PROPERTY
UNSUITABLE FOR BUYER’S INTENDED PURPOSES.
3.4 Release. As
a material inducement to Seller to enter into and perform its obligations under
this Agreement, Buyer, on behalf of itself and all of its successors, assigns,
Affiliates and representatives, hereby releases and discharges Seller, its
Affiliates, and their respective officers, directors, shareholders, partners,
members. managers, employees, agents, attorneys and representatives, and
successors and assigns, from any and all claims, demands, liabilities,
obligations, expenses (including attorneys' fees), causes of action, suits and
rights, whether now known or unknown, suspected or unsuspected, which exist,
existed or may exist or have existed at any time now or in the future and
arising out of or relating to the physical condition of the Property, including,
without limitation, in connection with any compliance or non-compliance by
Seller or any other party with the ADA or any similar state or local law, or
arising from the presence of any Hazardous Materials or the Property’s or any
party’s compliance with any Environmental Laws; provided, however, that the
foregoing release shall not apply to any claim to the extent arising from (a)
the breach of any express covenant, representation or warranty by Seller under
this Agreement, or (b) fraud committed by Seller or any Affiliate of
Seller. The foregoing release extends to, and Buyer hereby waives and
relinquishes, all of its rights under Section 1542 of the California Civil Code
and any similar law or rule of any other jurisdiction. California
Civil Code Section 1542 provides:
"A
general release does not extend to claims which the creditor does not know or
suspect to exist in his or her favor at the time of executing the release, which
if known by him or her must have materially affected his or her settlement with
the debtor."
3.5 Updating of
Schedules. Seller shall, from time to time, prior to the
Closing, update the Schedules to this Agreement, or create any new
schedules revising its representations and warranties, if after the Effective
Date Seller learns of new exceptions to the representations and warranties set
forth in this Agreement (together, the "Updated Schedules"),
and promptly deliver such Updated Schedules to Buyer. If any Updated
Schedule reflects or describes a Material Adverse Effect from the
conditions previously
9
described
in the representations and warranties, then Buyer may, at its option, upon
written notice thereof to Seller, within ten (10) Business Days of Buyer's
receipt of an Updated Schedule, terminate this Agreement upon notice
to the other party. If Seller's representations and warranties were true
and correct when made, then Buyer's sole remedy in the event of the receipt
of an Updated Schedule shall be to terminate this Agreement in accordance
with the foregoing sentence (or to proceed with the Closing). If the then
scheduled Closing Date would occur prior to the end of the ten (10) Business
Days period set forth in this Section 3.5, the delivery of any Updated Schedule
shall postpone the Closing Date to the date which is ten (10) Business Days
after Buyer’s receipt of such Updated Schedule.
4. Representations and
Warranties of Buyer. Buyer hereby represents and warrants to
Seller as follows:
4.1 Organization. Buyer
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada. Buyer has all requisite power to own,
lease and license its properties and assets and to carry on its business in the
manner and in the places where such properties and assets are owned, leased,
licensed or operated or such business is conducted.
4.2 Authority. Buyer
has full right, power and authority to enter into this Agreement and to perform
its obligations hereunder. The entry into and performance of this Agreement has
been duly authorized by all necessary action on the part of Buyer in accordance
with its governing documents and applicable law, and this Agreement constitutes,
and each other document, instrument and agreement to be entered into by Buyer
pursuant to the terms of this Agreement will constitute, a valid agreement
binding upon and enforceable against Buyer in accordance with its terms (except
as limited by bankruptcy or similar laws or the availability of equitable
remedies).
4.3 Consents. The
execution, delivery and performance by Buyer of this Agreement, and all other
agreements, instruments and documents referred to or contemplated herein or
therein do not require the consent, waiver, approval, license or authorization
of any Person (other than the landlords under the Leases and any lenders having
Liens on the Leased Premises) or public authority which has not been obtained
and do not and will not contravene or violate (with or without the giving of
notice or the passage of time or both) the governing documents of Buyer or any
judgment, injunction, order, law, rule or regulation applicable to Buyer. Buyer
is not a party to, or subject to or bound by, any judgment, injunction or decree
of any court or Governmental Authority or any lease, agreement, instrument or
document which may restrict or interfere with the performance by Buyer of this
Agreement, or such other leases, agreements, instruments and
documents.
4.4 Financial Condition.
Buyer is a newly formed entity, created for the purpose of effectuating the
transactions contemplated by this Agreement. On the Closing Date and
after giving effect to the transactions contemplated by this Agreement, (a)
Buyer will have shareholders’ equity (determined in accordance with GAAP) of
not
10
less than
Twenty Million Dollars ($20,000,000), (b) the assets of Buyer shall include all
right, title and interest of the tenant under the lease for “RDI’s” (as defined
in Section 13.16 below) movie theater in Manville, New Jersey (the “Manville Theater”),
and (c) Buyer will not have indebtedness for borrowed money in excess of the
aggregate amount of Fifty-Five Million Dollars
($55,000,000). Attached hereto as Schedule 4.4 are (i)
a true and complete summary of the material terms of the Lease for the Manville
Theater, and (ii) Theater Level Cash Flow Reports for the Manville Theater for
RDI’s fiscal year ended December 31, 2006 and for the eight-month period
ended August 31, 2007 (collectively, the “Manville
P&Ls”). The Manville P&Ls present fairly in all
material respects the results of operations for the Manville Theater, along with
circuit revenue and expenses allocated to such theater based on attendance, for
the periods referred to therein. RDI maintains its books and records
in accordance with GAAP applied on a consistent basis, and the Manville P&Ls
were prepared from and are consistent with such books and records, except that
the Manville P&Ls exclude certain financial statements and lack the footnote
disclosures that are required for GAAP.
4.5 Brokerage. Except
in connection with the “Financing” (as defined in Section 7.4.2), Buyer has not
employed any broker, finder or agent or has incurred or will incur any
obligation or liability to any broker, finder or agent with respect to the
transactions contemplated by this Agreement. Any such obligation or
liability in connection with the Financing shall be borne solely by Buyer or
RDI.
5. Conditions Precedent to
Buyer's Obligations. Buyer's obligations under this Agreement
are subject to the fulfillment of each of the conditions set forth in this
Article 5 at or before the Closing, subject, however, to the right of Buyer to
waive any one or more of such conditions in whole or in part (provided that no
such waiver shall be implied or binding upon Buyer unless given in
writing).
5.1 Performance by
Seller. Seller shall have timely performed and complied with
in all material respects all agreements and conditions required by this
Agreement to be performed and complied with by Seller on or prior to the Closing
Date, including, without limitation, delivery to Buyer of the “Seller
Deliveries” (as defined in Section 8.3 below) in accordance with Section 8.3
below.
5.2 Accuracy of Representation
and Warranties. The representations and warranties herein of
Seller shall be true and correct in all material respects as of the Closing Date
(except to the extent any such representation or warranty is qualified by
materiality, in which case such representation or warranty shall be true in all
respects).
5.3 No
Injunctions. No order shall have been entered in any action or
proceeding before any Governmental Authority, and no preliminary or permanent
injunction by any court of competent jurisdiction shall have been issued and
remain in effect, which would have the effect of making the consummation of the
transactions contemplated by this Agreement illegal; provided, however, that if
any such action, proceeding or injunction exists as a result of the wrongful
action or omission to act of
11
Buyer or
any of Buyer’s Affiliates, the same shall be an event of default by Buyer under
this Agreement.
5.4 HSR
Act. All required filings under Section 7A of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall have
been completed and all applicable time limitations under the HSR Act shall have
expired without a request for further information by the relevant federal
authorities under such Act, or in the event of such a request for further
information, the expiration of all applicable time limitations under the HSR Act
shall have occurred without the objection of such federal
authorities.
6. Conditions Precedent to
Seller's Obligations. Seller's obligations under this
Agreement are subject to the fulfillment of each of the conditions set forth
below in this Article 6 at or before the Closing, subject, however to the right
of Seller to waive any one or more such conditions in whole or in part (provided
that no such waiver shall be implied or binding upon Seller unless given in
writing).
6.1 Performance by
Buyer. Buyer shall have timely performed and complied with in
all material respects all agreements and conditions required by this Agreement
to be performed and complied with by Buyer on or prior to the Closing Date,
including, without limitation, delivery to Seller of the “Buyer Deliveries” (as
defined in Section 8.2 below) in accordance with Section 8.2 below.
6.2 Accuracy of Representations
and Warranties. The representations and warranties herein of
Buyer shall be true and correct in all material respects as of the Closing Date
(except to the extent any such representation or warranty is qualified by
materiality, in which case such representation or warranty shall be true in all
respects).
6.3 No
Injunctions. No order shall have been entered in any action or
proceeding before any Governmental Authority, and no preliminary or permanent
injunction by any court of competent jurisdiction shall have been issued and
remain in effect, which would have the effect of making the consummation of the
transactions contemplated by this Agreement illegal; provided, however, that if
any such action, proceeding or injunction exists as a result of the wrongful
action or omission to act of Seller or any of Seller’s Affiliates, the same
shall be an event of default by Seller under this Agreement.
6.4 HSR
Act. All required filings under Section 7A of the HSR Act
shall have been completed and all applicable time limitations under the HSR Act
shall have expired without a request for further information by the relevant
federal authorities under such Act, or in the event of such a request for
further information, the expiration of all applicable time limitations under the
HSR Act shall have occurred without the objection of such federal
authorities.
7. Covenants.
12
7.1 Commercially Reasonable
Efforts.
7.1.1 Upon
the terms and subject to the conditions of this Agreement, the parties hereto
will use commercially reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable consistent with applicable law to consummate and make effective in the
most expeditious manner practicable the transactions contemplated by the
Transaction Documents, including, without limitation, obtaining any
authorizations, consents, orders or approvals of any Person or Governmental
Authority that may be or become necessary in connection with the execution,
delivery or performance of a party’s obligations
hereunder. Notwithstanding the foregoing, neither Seller nor Buyer
shall be required to pay consideration or grant any rights, guarantee or
concession to any third party or to modify in any material manner the terms of
any Lease in order to obtain any such consent or approval or any such release;
provided, however, that if Buyer elects to cause any Buyer Sub to take an
assignment of any of Seller’s right, title or interest under, or assume any of
Seller’s obligations under, any of the Leases, and the landlord’s consent is
required under any such Lease, Buyer shall offer to provide a guarantee to the
landlord of all of such assumed obligations concurrently with Seller’s initial
submission to such landlord of request for such consent.
7.1.2 Buyer
shall use its commercially reasonable efforts and Seller shall use its
commercially reasonable efforts to cooperate fully to obtain promptly all such
authorizations, consents, orders and approvals required to be obtained in
connection with the transactions contemplated hereby. Without limiting the
generality of the foregoing, to the extent such filing is required by the HSR
Act, Seller and Buyer agree that each shall prepare and file a notification and
report form pursuant to the HSR Act as soon as practicable after the Effective
Date, but in no event later than ten (10) days after the Effective
Date. If a filing is made under the HSR Act, Seller and Buyer each
also agree to request early termination in such filing and respond with
reasonable diligence and dispatch to any request for additional information made
in response to such filing. All filing fees associated with complying
with the HSR Act shall be borne 50% by Seller and 50% by Buyer.
7.1.3 Notwithstanding
the provisions of Section 7.1.2, with respect to the assignment of the Leases
from Seller to Buyer, Seller, at its cost and expense, shall use its
commercially reasonable efforts, and Buyer, at its cost and expense, shall use
its commercially reasonable efforts to cooperate fully with Seller:
(a) to
obtain promptly from the landlords under the Leases the consents, if any,
required to be obtained in connection with the grant to the lenders under the
“Financing” (as defined in Section 7.4.2) of Liens on the tenant’s interest in
such Leases and other consents, estoppels and approvals required as conditions
precedent to the closing of the Financing (collectively, the “Leasehold
Mortgages”); provided, however, that Buyer shall bear any expenses
attributable to obtaining the Leasehold Mortgages. In connection
therewith, Buyer agrees promptly to provide all financial and other information
and background materials regarding Buyer, its Affiliates and
their
13
respective
senior management, and such lenders, which the landlord under any Lease may
reasonably request in connection with such landlord’s evaluation of Seller’s
request for the grant of such Leasehold Mortgages. Buyer also agrees
to make its and its Affiliates’ senior management reasonably available to all
such landlords for this purpose. Buyer hereby acknowledges that, in
those cases where the landlord’s consent is not required for the grant to the
lenders under the Financing of a Leasehold Mortgage with respect to such Lease,
Seller may elect to send notices to various landlords, rather than requests for
consents, which notices describe the transaction contemplated by this Agreement,
and some of which notices seek the “acknowledgment” of a particular landlord to
the grant of the particular Leasehold Mortgage; and
(b) to
obtain releases of Seller’s and its Affiliates’ liability under the
Leases.
With
respect to the matters described in this Section 7.1.3, Seller may elect at any
time to shift to Buyer primary responsibility for obtaining such agreements
under this Section by so notifying Buyer in writing. Thereafter,
Buyer shall, at Buyer’s expense as provided above, use its commercially
reasonable efforts to accomplish the matters described in this Section, and
Seller shall use its commercially reasonable efforts to cooperate fully with
Buyer.
7.1.4 In
no event shall Buyer or any Affiliate of Buyer be required to increase the
equity capital of Buyer or to contribute any assets to Buyer, or (except as
otherwise provided in Section 7.1.1 above) to provide any guarantee or other
credit enhancement to or for the benefit of Buyer, in order to obtain any
consent contemplated by this Section 7.1.
7.2 Access to Properties and
Records. From and after the Effective Date through the Closing
Date or the earlier termination of this Agreement, Seller shall afford to Buyer,
and to the accountants, counsel and representatives of the Buyer, upon
reasonable prior notice, reasonable access during normal business hours
throughout the period prior to the Closing to the Leased Premises and, during
such period, shall furnish promptly to Buyer all other information concerning
the Property and its personnel as such parties may reasonably
request. Notwithstanding anything in this Section to the contrary, no
access pursuant to this Section 7.2 shall unreasonably interfere with Seller’s
conduct of its business at the Leased Premises. Buyer shall notify
Seller in writing of any material breach of this provision known to it and shall
afford Seller a reasonable opportunity to cure any such breach.
7.3 Seller’s Operations Prior to
the Closing.
7.3.1 Seller’s Operations Prior to
the Closing. From and after the Effective Date until the
Closing, Seller (a) shall not sell, transfer, assign, dispose of or grant any
Lien on, or permit to be sold, transferred, assigned, disposed of or encumbered,
all or any material part of the Property as the same shall be constituted on the
Effective Date, except to the extent that any such Lien will be removed at or
prior to the Closing, or
14
remove or
permit to be removed all or any part of the Property from the Leased Premises;
(b) shall not enter into any lease, contract or commitment or incur any
liabilities or obligations in connection with the Property, except for leases,
contracts, commitments, liabilities or obligations that will not bind Buyer or
the Property after the Closing; (c) shall not release, waive or compromise any
of its rights with respect to, the Property without the prior written consent of
Buyer, which consent shall not be unreasonably withheld, conditioned or delayed
to the extent such proposed action occurs in the ordinary course of its business
consistent with past practice and which is reasonably expected to be without
Material Adverse Effect upon the value or utility of the Property; (d) shall
not, directly or indirectly, destroy or otherwise dispose of any books, records
or files relating to the Property, other that in the ordinary course of
business, generally consistent with past practice; and (e) shall otherwise
conduct operations at the Leased Premises in the ordinary course of its business
consistent with its past practice at the Leased Premises.
7.3.2 Certain
Repairs. Seller shall cause to be undertaken and completed in
a workmanlike manner prior to the Closing the repairs described in the scope of
work attached hereto as Schedule
7.3.2.
7.4
Cooperation.
7.4.1 Generally. Each
party shall provide the other with such cooperation as may reasonably be
requested, at the expense of the requesting party (unless the requesting party
is to be indemnified with respect thereto, in which case such cooperation shall
be given at the expense of the indemnifying party), in connection with the
defense of any third party litigation relating to the subject matter of this
Agreement. Additionally, until March 31, 2010, Seller shall make
available to Buyer’s independent accountants such information and documentation
regarding the Property to the extent such information and documentation is
reasonably required in connection with an audit by such independent accountant
of Buyer’s financial statements or the preparation of financial disclosure
required under applicable Federal securities laws, including an audit of
acquired businesses as required by 17 CFR § 210.3-05, and allow Buyer’s
independent accountants to make and retain copies of such information and
documentation, provided that (a) such information and documentation is then in
the possession or control of Seller or Seller’s Affiliates, and (b) so long as
Buyer’s independent accountant does not require that such information or
documentation be obtained directly from Seller, such information and
documentation is not otherwise in the possession or control of Buyer, any of
Buyer’s Affiliates or such independent accountant, or is not otherwise
reasonably available from another source to Buyer or such independent
accountant. Seller also agrees to make its and its Affiliates’ senior
management reasonably available to Buyer and its accountants for this
purpose.
7.4.2 Cooperation with respect to
Buyer’s Financing. Buyer hereby represents and warrants to
Seller that (a) it has obtained a written commitment letter and related term
sheet from a financially responsible institution, true and correct copies of
which have been furnished to Seller, for debt financing to be used by Buyer to
15
fund a
portion of the Purchase Price (the “Financing”), and (b)
said commitment letter and related term sheet are in full force and effect, and
Buyer has performed all of its obligations thereunder required to be performed
on or prior to the Effective Date. Prior to the Closing Date, Seller
agrees promptly to provide all financial and other information and materials
regarding the Property as reasonably requested by Buyer or its accountants from
time to time in connection with the preparation of audited financial statements
of the Property for the twelve (12) months ended June 30, 2005, 2006 and 2007,
respectively, and unaudited financial statements for the most recent practicable
interim period subsequent to June 30, 2007 and prior to the Closing
Date. Seller also agrees to make its and its Affiliates’ senior
management reasonably available to Buyer and its accountants for this
purpose. Subject to Seller’s performance of its obligations under
this Section 7.4.2, the completion of said financial statements shall not
be a condition precedent to the obligations of Buyer under this Agreement, and
Seller shall not be in breach or default of its obligations under this Section
7.4.2 if such audited financial statements are not completed for any reason by
any particular date so long as Seller has cooperated with Buyer and its
accountants as required by this Section 7.4.2. Seller agrees that,
effective upon the Closing, Buyer’s accountants shall be released for the
benefit of Buyer from any and all obligations of confidentiality that it may owe
to Seller or its Affiliates only to the extent they relate to the
Property.
7.5 Delivery of Information;
Delivery of Mail and Assets; Collection of Accounts Receivable. After the
Closing Date, each of the parties hereto shall cause their personnel to provide
the other party with financial accounting, Tax, and similar information
reasonably necessary to prepare Tax returns and other filings relating to the
Property, to compute Percentage Rent payable under the Leases, and to finalize
the prorations and adjustments called for by Section 2.2
hereof. Seller agrees that it will promptly deliver to Buyer any mail
or other communications received by Seller on or after the Closing Date
pertaining to the Property and any cash, checks or other instruments of payment
to which Seller is not entitled. Buyer agrees that it will promptly
deliver to Seller any mail or other communications received by Buyer on or after
the Closing Date pertaining to Seller's operations, properties or other affairs
of Seller, any cash, checks or other instruments of payment to which Buyer is
not entitled, and any other assets or properties of Seller.
7.6 Post-Closing Covenants of
Buyer.
7.6.1 Maintenance of
Insurance. Buyer agrees that from and after the Closing Date,
Buyer shall at all times maintain in complete force and effect, in accordance
with the requirements of the Leases, all policies of insurance required by the
Leases to be maintained by the tenant. Buyer shall deliver to Seller executed
copies of certificates of insurance evidencing the foregoing on the Closing
Date. New certificates shall be delivered promptly whenever policies are renewed
or new policies are written. As often as any such policy shall expire or be
terminated, a renewal or additional policy shall be procured and maintained by
Buyer in like manner and to like extent, and new certificates thereof shall be
delivered to Seller. All policies of insurance maintained by Buyer pursuant to
the requirements of the Leases shall contain a provision that the
16
company
issuing said policy will give Seller not less than ten (10) days' notice in
writing in advance of any cancellation or lapse of the effective date or any
reduction in the amounts of insurance. In the event that Buyer fails to comply
with any of the requirements of this Section 7.6.1, and Buyer fails to cure such
non-compliance within ten (10) days of delivery of notice thereof from Seller,
Seller may obtain any and all policies of insurance required to comply with
tenant's obligations under the Leases, and Buyer shall immediately pay to Seller
any and all costs reasonably incurred by Seller in connection with obtaining and
maintaining such insurance.
7.6.2 Amendment of Real Property
Leases; Exercise of Options; Waiver of Rights. Without
Seller’s prior written consent (which consent may not be unreasonably withheld
or delayed), until the earlier of the date on which (a) Seller and all of
Seller’s Affiliates are no longer liable on or are released from any further
liability under the applicable Lease, or (b) Buyer delivers to Seller (i) an
audited balance sheet for Buyer showing a net worth (calculated in accordance
with GAAP) of at least $50,000,000, and (ii) an audited income statement for
Buyer showing a ratio of indebtedness to “Theater Level Cash Flow” (as defined
in Article 11 below) for all theaters then operated by Buyer of 5.5-to-1 or
less, Buyer shall not (x) exercise any option to extend or renew the term of any
Lease if, as of the date on which Buyer proposes to exercise any such option,
the theater operated pursuant to such Lease has Theater Level Cash Flow in the
most recently completed calendar year of less than $200,000, or (y) amend or
modify any Lease to eliminate or materially change, or otherwise waive or
forfeit, any material rights or privileges of the tenant under any such
Lease.
7.7 Destruction of Books,
Records and Files. If, after the Closing, Seller or any of its
Affiliates proposes to destroy or otherwise dispose of any books, records or
files relating to the Property (but not including any financial reports or other
information regarding the Property to the extent such financial reports or other
information is integrated into financial reports or other information regarding
the operations generally of Seller or such Affiliate), Seller shall deliver
prior notice thereof to Buyer and Buyer shall have a period of sixty (60) days
from receipt of such notice to deliver notice to Seller of its desire to take
possession of such books, records or files, in which event Seller shall deliver
to Buyer possession of such books, records or files at the earliest practicable
date. Seller shall not destroy or otherwise dispose of such books,
records or files prior to the end of such sixty (60) day period.
8. Closing.
8.1 Closing
Date. Subject to the satisfaction (or waiver by Buyer or
Seller as provided therein) of the conditions precedent in Articles 5 and 6
hereof, the transactions contemplated by this Agreement shall be consummated at
a closing (the “Closing”) at the
offices of Weissmann Wolff Bergman Coleman Grodin & Evall, LLP, 9665
Wilshire Boulevard, Ninth Floor, Beverly Hills, California 90212. The
Closing shall occur on the date which is the first Friday occurring after the
date which is sixty-five (65) days after the Effective Date (the “Scheduled Closing
Date”). If the Closing does not occur on the Scheduled Closing
Date by reason of the failure of any condition
17
precedent
set forth in Article 5 or 6 hereof (a “Non-Satisfied Condition
Precedent”), the party in whose favor the Non-Satisfied Condition
Precedent exists shall have the right to extend the Scheduled Closing Date until
the date which is the second Friday occurring after the date on which the
Non-Satisfied Condition Precedent is satisfied or
waived. Notwithstanding the foregoing, this Agreement shall
automatically terminate if the Closing shall not have occurred on or before the
date which is the first Friday which is more than one hundred twenty-five (125)
days after the Effective Date (the “Outside Closing
Date”). Notwithstanding anything to the contrary contained
herein, nothing herein shall be deemed to excuse or waive any breach or default
by either party of its obligations under this Agreement. The date of
the Closing is sometimes referred to herein as the "Closing
Date." The Closing shall be effective as of 8:00 a.m. (local
time) on the Closing Date.
8.2 Deliveries by Buyer.
At the Closing, Buyer shall deliver to Seller the following (collectively, the
"Buyer
Deliveries"):
8.2.1 Payment of Purchase
Price. Immediately available funds in an amount
equal to the Purchase Price paid to and received by Seller.
8.2.2 Assignment and Assumption of
Leases. Duly executed and, where necessary, acknowledged
counterparts of the Assignment and Assumption of Leases by and between Buyer and
Seller in substantially the form of Exhibit B attached
hereto (the “Assignment and Assumption of
Leases”).
8.2.3 Buyer’s Closing
Certificate. A duly executed certificate, dated as of the
Closing Date, to the effect that the conditions specified in Sections 6.1 and
6.2 have been satisfied in accordance with the terms and provisions
hereof.
8.2.4 Additional
Deliveries. Such additional documents, instruments and
agreements, signed and properly acknowledged by Buyer, if appropriate, as may be
necessary to comply with Buyer's obligations under this Agreement.
8.3 Deliveries by
Seller. At the Closing, Seller shall deliver to Buyer all of
the following (collectively, the "Seller
Deliveries"):
8.3.1 Assignment and Assumption of
Leases. Duly executed and, where necessary, acknowledged
counterparts of the Assignment and Assumption of Leases.
8.3.2 Seller’s Closing
Certificate. A duly executed certificate, dated as of the
Closing Date, to the effect that the conditions specified in Sections 5.1 and
5.2 have been satisfied in accordance with the terms and provisions
hereof.
8.3.3 Additional
Deliveries. Such additional documents, instruments and
agreements, signed and properly acknowledged by Seller, if appropriate, as may
be necessary to comply with Seller's obligations under this
Agreement.
18
8.4 Closing
Costs. Buyer and Seller shall each pay 50% of all documentary
transfer, excise or similar Taxes (including all State of Hawaii general excise
or gross income Taxes), if any, payable in connection with the transactions
contemplated by this Agreement. Buyer and Seller shall each bear
their own legal and accounting costs and fees. Buyer and Seller shall each pay
50% of all sales and similar Taxes payable in connection with the transactions
contemplated by this Agreement.
8.5 Possession. Possession
of the Property, including, without limitation, the Leased Premises shall be
delivered to Buyer on the Closing Date; provided, however, that Seller shall
deliver possession of all files for the Leases, and all original warranties and
guarantees, in each case to the extent included in the Property, within five (5)
Business Days after the Closing Date.
9. Termination. Notwithstanding
anything to the contrary contained herein, this Agreement may be terminated at
any time before the Closing (a) by mutual consent of Seller and Buyer; (b) by
Buyer, upon written notice to Seller, if Seller has breached any representation,
warranty, covenant or agreement, such breach has had, either individually or in
the aggregate, a Material Adverse Effect, and such breach is either not capable
of being cured prior to the Closing or, if such breach is capable of being
cured, is not so cured within ten (10) days of notice by Buyer to Seller of such
breach; (c) by Seller, upon written notice to Buyer, if Buyer has breached any
representation, warranty, covenant or agreement, and such breach is either not
capable of being cured prior to the Closing or, if such breach is capable of
being cured, is not so cured within ten (10) days of notice by Seller to Buyer
of such breach; or (d) subject to the terms of Section 8.1 above, by either
party hereto if the Closing shall not have occurred on or prior to the Scheduled
Closing Date (as the same may be extended pursuant to this
Agreement). If this Agreement is terminated, this Agreement shall
become null and void and have no further force or effect, and no party hereto
(or any of such party’s Affiliates, directors, officers, agents or
representatives), shall have any liability or obligation hereunder; provided,
however, that (i) the letter agreement dated as of January 15, 2007 by and among
Seller, RDI and the other party thereto (the “Confidentiality
Agreement”) shall remain in full force and effect, (ii) each party shall
bear its own fees and expenses incurred in connection with the negotiation and
documentation of this Agreement and the Transaction Documents, and (iii)
notwithstanding the foregoing, but subject to the terms of Article 10 below,
termination of this Agreement shall not release any party from any liability for
any breach by such party of any of its representations, warranties, covenants or
agreements contained in this Agreement prior to such termination; and, provided,
further, that Buyer shall promptly change its corporate name to a name that does
not include the word “Consolidated” or any derivation of such word or any other
name confusingly similar to the name of Consolidated.
10. Indemnification.
10.1 Indemnification by
Buyer. Subject to the terms
of this Article 10, Buyer shall indemnify and hold Seller, its Affiliates and
their respective employees,
19
officers,
directors, members, managers, shareholders, agents, contractors, attorneys and
representatives (collectively, the “Seller Indemnified
Parties”) harmless from and against, and agrees to promptly defend any
Seller Indemnified Party from and reimburse any Seller Indemnified Party for,
any and all any and all liabilities, demands, claims, actions, causes of action,
costs, damages, deficiencies, Taxes, penalties, fines and other losses and
expenses, whether or not arising out of a claim made by any third party,
including all interest, penalties, reasonable attorneys’ fees and expenses, and
all amounts paid or incurred in connection with any action, demand, proceeding,
investigation or claim by any third party (including any Governmental Authority)
(“Losses”)
which such Seller Indemnified Party may at any time suffer or incur, or become
subject to, as a result of or in connection with:
10.1.1 any
untruth or inaccuracy in any representation or warranty of Buyer or the Buyer
Subs contained in this Agreement or in any other Transaction Document; provided,
however, that for purposes of determining an untruth or inaccuracy in any such
representation or warranty for purposes of this Section 10.1.1, the
representations and warranties of Buyer or the Buyer Subs that are limited or
qualified by references to “material” or “materiality” or “Material Adverse
Effect” or similar qualifications shall be construed as if they were not limited
or qualified by such qualifications;
10.1.2 any
failure of Buyer or the Buyer Subs duly to perform or observe any term,
provision, covenant, agreement or condition contained in this Agreement or the
other Transaction Documents to be performed or observed by Buyer or the Buyer
Subs; or
10.1.3 any
claim or cause of action by any party arising on or after the Closing Date
against any Seller Indemnified Party (including, without limitation, any claim
or cause of action arising from the failure to obtain any required consents or
approvals, including, without limitation, consents or approvals from landlords,
to the grant of Leasehold Mortgages) with respect to the Property, the
obligations of Seller assumed by Buyer or the Buyer Subs under this Agreement
(including the Assumed Liabilities) or any of the other Transaction Documents,
including any default by Buyer or any of the Buyer Subs under any of the Leases
arising on or after the Closing Date.
10.2 Indemnification by
Seller. Subject to the terms
of this Article 10, Seller shall indemnify and hold the Buyer, its Affiliates
and their respective employees, officers, directors, members, managers,
shareholders, agents, contractors, attorneys and representatives (collectively,
the “Buyer Indemnified
Parties”) harmless from and against, and agrees to promptly defend any
Buyer Indemnified Party from and reimburse any Buyer Indemnified Party for, any
and all Losses which such Buyer Indemnified Party may at any time suffer or
incur, or become subject to, as a result of or in connection with:
10.2.1 any
untruth or inaccuracy in any representation or warranty of Seller contained in
this Agreement or in any other Transaction Document; provided,
20
however,
that for purposes of determining an untruth or inaccuracy in any such
representation or warranty for purposes of this Section 10.2.1, the
representations and warranties of Seller that are limited or qualified by
references to “material” or “materiality” or “Material Adverse Effect” or
similar qualifications shall be construed as if they were not limited or
qualified by such qualifications;
10.2.2 any
failure of Seller duly to perform or observe any term, provision, covenant,
agreement or condition contained in this Agreement or the other Transaction
Documents to be performed or observed by the Seller;
10.2.3 except
as otherwise provided by and subject to the terms of Sections 3.3 and 3.4 above,
any claim or cause of action by any party arising on or after the Closing Date
against any Buyer Indemnified Party with respect to the obligations of Seller
retained by Seller under this Agreement or any of the other Transaction
Documents, including any default by Seller under any of Leases arising prior to
the Closing Date or any failure of Seller to satisfy any of its liabilities
other than the Assumed Liabilities.
10.3 Notification and Defense of
Claims.
10.3.1 A
party entitled to be indemnified pursuant to Section 10.1 or 10.2 (the “Indemnified Party”)
shall promptly notify the party or parties liable for such indemnification (the
“Indemnifying
Party”) in writing of any claim, action, lawsuit, proceeding,
investigation or demand which the Indemnified Party has determined has given or
could give rise to a right of indemnification under this Agreement; provided,
however, that a failure to give prompt notice or to include any specified
information in any notice will not affect the rights or obligations of any party
hereunder except and only to the extent that, as a result of such failure, any
party which was entitled to receive such notice was prejudiced as a result of
such failure. Subject to the Indemnifying Party’s right to defend in
good faith third party claims as hereinafter provided, the Indemnifying Party
shall satisfy its obligations under this Section 10 within thirty (30) days
after the receipt of written notice thereof from the Indemnified
Party.
10.3.2 If
the Indemnified Party shall notify the Indemnifying Party of any claim or demand
pursuant to Section 10.3.1, and if such claim or demand relates to a claim or
demand asserted by a third party against the Indemnified Party, the Indemnifying
Party shall have the right to defend any such claim or demand asserted against
the Indemnified Party. The Indemnified Party shall have the right to
participate in the defense of any such claim or demand at its own
expense. Without limiting the generality of the foregoing, the
Indemnified Party shall not be entitled to indemnification for any fees or costs
of defending any such claim or demand unless and until the Indemnifying Party
elects not to assume the defense of such claim or demand. The
Indemnifying Party shall notify the Indemnified Party in writing, as promptly as
possible (but in any case five (5) Business Days before the due date for the
answer or response to a claim) after the date of the notice of claim given by
the Indemnified Party to the Indemnifying Party under Section 10.3.1 of its
election to defend any such third party
21
claim or
demand. So long as the Indemnifying Party is defending in good faith
any such claim or demand asserted by a third party against the Indemnified
Party, the Indemnified Party shall not settle or compromise such claim or demand
without the prior written consent of the Indemnifying Party (which consent may
be granted or withheld in the Indemnifying Party’s sole and absolute
discretion), and the Indemnified Party shall make available to the Indemnifying
Party or its agents all records and other material in the Indemnified Party’s
possession reasonably required by it for its use in contesting any third party
claim or demand. In the event the Indemnifying Party elects to defend
such claim or action, the Indemnifying Party shall have the right to settle or
compromise such claim or action without the consent of the Indemnified Party,
provided that the terms of the settlement or compromise impose no additional
obligations on the Indemnified Party with respect to the subject matter of the
claim or demand for which the Indemnifying Party has not agreed to indemnify the
Indemnified Party.
10.4 Survival of Representations
and Warranties. The representations and warranties of the
parties contained in this Agreement and the other Transaction Documents shall
survive the Closing until March 31, 2009, except that the representations and
warranties set forth in Sections 3.1.1, 3.1.2, 3.1.4 (second, third and
penultimate sentences only), and 3.1.8 shall survive until the applicable
statute of limitations has run (the “Survival
Period”). Notwithstanding any other provision to the contrary,
no party shall be required to indemnify, defend or hold harmless any other party
pursuant to Section 10.1.1 or 10.2.1, unless the Indemnified Party has asserted
a claim with respect to such matters within the Survival Period.
10.5 Characterization of
Payments. Any
payments made pursuant to this Article 10 shall be treated for all Tax purposes
as adjustments to the Purchase Price and no party or any of its Affiliates shall
take any position on a Tax return or in any proceeding with any taxing authority
contrary to such treatment, unless otherwise required by law.
10.6 Limitations. Notwithstanding anything
to the contrary contained in this Agreement or in any of the other Transaction
Documents, the parties’ respective indemnification obligations under this
Agreement shall be subject to the limitations contained in this Section
10.6.
10.6.1 Buyer
shall not be required to indemnify, defend or hold harmless any Seller
Indemnified Party, and Seller shall not be required to indemnify, defend or hold
harmless any Buyer Indemnified Party, for any inaccuracy in or breach of a
representation or warranty pursuant to Section 10.1.1 or 10.2.1, as
applicable, the aggregate amount of all such Losses of the Seller
Indemnified Parties or the Buyer Indemnified Parties, respectively, exceeds an
aggregate amount equal to $307,292 (the “Deductible”), after
which event the Seller Indemnified Parties or the Buyer Indemnified Parties,
as applicable, shall be entitled to recover for all Losses in excess of the
Deductible, subject to the other terms of this Agreement.
10.6.2 Buyer
shall not be required to indemnify, defend or hold harmless the Seller
Indemnified Parties, and Seller shall not be required to indemnify,
22
defend or
hold harmless the Buyer Indemnified Parties, for Losses in excess of an
aggregate amount equal to 100% of
the Purchase Price; provided, however, that the foregoing limitation shall not
apply to (a) the payment of the Purchase Price by Buyer to Seller, (b) any
indemnification pursuant to any of Sections 10.1.3 or 10.2.3, as applicable, or
(c) any indemnification arising out of a breach by Seller of its representation
and warranty in Sections 3.1.4 (second, third and penultimate sentences only)
above.
10.6.3 The
parties agree, for themselves and on behalf of their respective Affiliates,
successors and assigns, that with respect to each indemnification obligation
under this Agreement or any of the other Transaction Documents, the amount of
any Losses shall be reduced by the amount, if any, of any federal, state or
local income Tax benefit realized or any insurance proceeds
received.
10.6.4 The
parties agree that, except as otherwise expressly provided elsewhere in this
Agreement or in any other Transaction Document, the indemnification provisions
of this Article 10 shall be the sole and exclusive remedy for any breach of or
inaccuracy in any representation, warranty, covenant or agreement contained in
this Agreement or in any of the other Transaction Documents; provided, that
either party shall be entitled to seek specific performance of the other party’s
obligation to close the transaction contemplated by this Agreement.
10.6.5 No
Indemnified Party shall seek or be entitled to, or accept payment of, any award
or judgment for consequential, incidental, special, indirect or punitive damages
or lost profits suffered by such Indemnified Party, whether based on statute,
contract, tort or otherwise, and whether or not arising from the Indemnifying
Party’s sole, joint or concurrent negligence, strict liability or other
fault.
10.6.6 Seller
shall have no indemnification obligation hereunder to the extent any Losses
arose out of or resulted from the inaccuracy of any representation or warranty
of Seller, and Buyer or any Affiliate of Buyer had actual knowledge of such
inaccuracy prior to the execution and delivery of this Agreement by
Buyer. For purposes of this Section, the term “actual knowledge”
means the actual knowledge of any one or more of John Hunter, Andrzej
Matyczynski, or S. Craig Tompkins. Additionally, Buyer shall be
deemed to have “actual knowledge” of any fact which has been disclosed in
writing by Seller, its Affiliates or their respective officers, employees,
agents or representatives to any outside attorney or accountant of
Buyer.
11. Certain Defined
Terms. For purposes of this Agreement, the following terms
have the meaning set forth below:
“Affiliate” means, as
to any Person, any other Person which directly or indirectly controls, or is
under common control with, or is controlled by, such Person. As used
in this definition, “control” (including, with its correlative meanings,
“controlled by” and “under common control with”) shall mean possession, directly
or indirectly, of the power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests by contract or otherwise) of such
23
Person;
provided, however, in no event shall either of Michael Forman or Christopher
Forman be deemed an Affiliate of Buyer.
“Business Day” means
Monday through Friday, excluding any day of the year on which banks are required
or authorized to close in California.
“Code” means the
Internal Revenue Code of 1986, as amended, and any successor law.
“Environmental Laws”
means all applicable laws, regulations and other requirements of any
Governmental Authority relating to pollution, health or safety or to the
protection of human health, safety or the environment.
“GAAP” means United
States generally accepted accounting principles, as in effect from time to
time.
“Governmental
Authority” means any U.S., federal, state or local government,
governmental authority, regulatory or administrative agency or commission or any
court, tribunal, or judicial or arbitral body (or any political subdivision
thereof).
“Hazardous Materials”
means any hazardous substance, hazardous waste, contaminant, pollutant or toxic
substance (as such terms are defined in any applicable Environmental Law);
provided that “Hazardous Materials” shall not include customary products used
and/or stored by Seller in the ordinary course of its business.
“Lien” means any
mortgage, pledge, security interest, encumbrance, lien (statutory or other) or
charge of any kind, including, without limitation, any conditional sale or other
title retention agreement, any lease in the nature of a conditional sale or
title retention agreement, and including any lien or charge outstanding by
statute or other laws which secures the payment of a debt (including, without
limitation, any Tax) or the performance of an obligation.
“Material Adverse
Effect” means a material adverse effect on the value or the Property,
taken as a whole, provided, however that any such material adverse effect
arising out of or resulting from an event or series of events or circumstances
affecting (a) the motion picture industry generally or (b) any one or more
markets in which any of the theaters operated at the Property operate, shall not
constitute a Material Adverse Effect, including, without limitation, the opening
for business of any theater competitive to any such theater.
“Permitted Liens”
means the following Liens: (a) Liens for Taxes, assessments or other
governmental charges or levies not yet due and payable; and (b) statutory Liens
of landlords
and Liens of carriers, warehousemen, mechanics, materialmen and other Liens
imposed by Law and on a basis consistent with past practice for amounts not yet
due.
24
“Person” means any
individual, corporation, limited liability company, partnership, joint venture,
association, trust, any other unincorporated organization or Governmental
Authority.
“Tax” or “Taxes” means all
federal, state, local or foreign taxes, including, but not limited to, income,
gross income, gross receipts, capital, production, excise, employment, sales,
use, transfer, transfer gain, ad valorem, premium, profits, license, capital
stock, franchise, severance, stamp, withholding, Social Security, employment,
unemployment, disability, worker’s compensation, payroll, utility, windfall
profits, customs duties, personal property, real property, environmental,
registration, alternative or add-on minimum, estimated and other taxes,
governmental fees or like charges of any kind whatsoever, including any
interest, penalties or additions thereto whether disputed or not.
“Theater Level Cash
Flow” means, with respect to any movie theater for any
period, (i) the gross revenues from the operation of such theater for
such period, less (ii) the film
costs and cost of concessions for such theater for such period, less (iii) the
operating expenses (including, without limitation, payroll, payroll benefits,
repairs and maintenance, supplies, utilities, advertising, insurance, security
services, taxes and licenses) of such theater for such period, and less (iv) the
occupancy expenses (including, without limitation, the base or minimum rent,
percentage rent, additional rent and real estate taxes) of such theater for such
period, in each case calculated in accordance with GAAP, applied on a consistent
basis (with the exception that rents will not be calculated on a straight line
basis as would otherwise be required under FASB 13). For the
avoidance of doubt, “operating expenses” shall exclude any general or
administrative expenses not incurred at the theater level, and any depreciation,
amortization, interest or income tax costs.
“Transaction
Documents” means this Agreement and all documents, agreements and
instruments contemplated by and being delivered pursuant to or in connection
with this Agreement.
12. Notices. In
the event either party desires or is required to give notice to the other party
in connection with this Agreement, the same shall be in writing and shall be
delivered in person or by recognized overnight air courier service, or deposited
with the United States Postal Service, postage prepaid, or certified mail,
return receipt requested, addressed to Buyer or Seller at the appropriate
address as set forth below:
If
to either
Seller: Consolidated
Amusement Theatres, Inc.
120 N. Robertson
Boulevard
Los Angeles, California
90048
Attention: Chief Operating
Officer
With a copy
to: Weissmann
Wolff Bergman Coleman
Grodin
& Evall, LLP
9665 Wilshire Boulevard, Ninth
Floor
25
Beverly Hills, California
90212
Attention: Mitchell Evall
& Andrew Schmerzler
If to
Buyer: Consolidated
Amusement Theatres, Inc.
c/o Reading International,
Inc.
500 Citadel Drive, Suite
300
Commerce, California
90040
Attention: Chief Operating
Officer
With a copy
to: Troy
& Gould Professional Corporation
1801 Century Park East, Suite
1600
Los Angeles, California
90067
Attention: Dale E. Short,
Esq.
Any such
notice shall be deemed to have been given on the date so delivered, if delivered
personally or by overnight air courier service, or, if mailed, on the date shown
on the return receipt as the date of delivery or the date on which the Post
Office certified that it was unable to deliver, whichever is applicable. Either
party may, by written notice to the other party, specify a different address to
which notices shall be given, by sending notice thereof in the manner set forth
above. No copies of notices given to any party after the date which
is one (1) year after the Closing Date also need be given to outside counsel for
such party.
13. Miscellaneous.
13.1 Entire Agreement;
Amendment. This Agreement (including all Exhibits and
Schedules hereto), the other Transaction Documents, and the Confidentiality
Agreement contain all of the terms and conditions agreed upon by the parties
hereto with reference to the subject hereof. No other prior or
concurrent agreements not specifically referred to herein, oral or otherwise,
shall be deemed to exist or to bind any of the parties hereto. No officer or
employee of Seller or Buyer shall have authority to make any representation or
promise not contained in this Agreement and each of the parties hereto agrees
that it is not executing this Agreement in reliance upon any such representation
or promise. This Agreement may not be modified or changed except by written
instruments signed by all of the parties hereto. Subject to the restrictions on
assignment set forth herein this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and
assigns.
13.2 Assignment. Except
as permitted by Section 1.3, Buyer may not assign or otherwise transfer all or
any of its rights, obligations or interests under this Agreement without the
prior written consent of Seller. Except as permitted by Section 1.4, Seller may
not assign or otherwise transfer all or any of its rights, obligations or
interests under this Agreement without the prior written consent of
Buyer. No assignment of this Agreement by any party shall be
effective until an executed written assumption by such assignee of the assigning
party’s obligations under this Agreement is
26
delivered
to the other party and no such assignment shall relieve any party of its
obligations under this Agreement.
13.3 Governing
Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Hawaii, regardless of the
laws that might otherwise govern under applicable principles of conflicts of law
of such state.
13.4 Drafting. This
Agreement has been jointly negotiated and drafted, and shall be construed as a
whole according to its fair meaning and not strictly for or against any
party.
13.5 Further
Assurances. Each of the parties hereto agrees that it will,
forthwith upon any request by the other party, cooperate fully in the
preparation, execution, acknowledgment, delivery and recording of any
agreements, instruments, memoranda or documents reflecting or in furtherance of
any of the transactions contemplated by this Agreement.
13.6 Intentionally
omitted.
13.7 Confidentiality; Press
Releases. Except and to the extent required by applicable law
(including, without limitation, Buyer’s obligation to file a report on Form 8-K
with the Securities and Exchange Commission and issue a press release in
connection with the execution and delivery of this Agreement) and the rules and
regulations of the American Stock Exchange, and except as may be necessary to
consummate the transactions contemplated hereby, until the Closing no party
hereto shall disclose the existence of this Agreement, or any of the terms or
provisions hereof, or make any press release or similar disclosure, without the
prior written consent of the other party. To the extent reasonably
feasible, the initial press release or other announcement or notice regarding
the transactions contemplated by this Agreement shall be made jointly by the
parties; provided, however, that nothing in this Agreement shall prohibit any
party from making press release required by applicable law. Upon the Closing,
the confidentiality and non-disclosure obligations of the parties hereunder and
under the Confidentiality Agreement shall terminate, except to the extent that
such obligations relate to documentation or information relating to any
properties of Seller other than the Property and the businesses conducted
thereon, which obligations shall survive until the expiration of the
Confidentiality Agreement in accordance with its
terms. Notwithstanding the foregoing, following the Closing, without
the prior written consent of Buyer, neither Seller nor any of its Affiliates
shall, directly or indirectly, disclose to any Person any non-public information
regarding the Property, except that Seller and its Affiliates may disclose such
information (a) in connection with matters related to the sale of the Property
or the other transactions contemplated by the Transaction Documents; (b) in
connection with the preparation of reports and documents to be filed by Seller
or any of its Affiliates with any Governmental Authority; (c) to Seller’s
officers, directors, employees, agents, representatives, attorneys and
accountants provided that Seller shall be responsible for any non-permitted
disclosure of such
27
information
by any such Persons; (d) if required to do so by a Governmental Authority of
competent jurisdiction, and (e) if such information is in the public domain or
is previously published or disseminated by a third party other than pursuant to
the provisions of a confidentiality agreement entered with Buyer.
13.8 Waiver. No
action taken pursuant to this Agreement shall be deemed to constitute a waiver
by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
13.9 Third
Parties. Except as otherwise expressly provided for or
contemplated by this Agreement, nothing in this Agreement, express or implied,
shall or is intended to confer upon any Person other than the parties hereto, or
their respective successors or assigns, any rights or remedies of any nature or
kind whatsoever under or by reason of this Agreement.
13.10 Section
Headings. Section headings are provided herein for convenience
only and shall not serve as a basis for interpretation or construction of this
Agreement, nor as evidence of the intention of the parties hereto.
13.11 Severability. If
any provision of this Agreement as applied to either party or to any
circumstance shall be adjudged by a court to be void or unenforceable, the same
shall in no way affect any other provision of this Agreement, the application of
any such provision in any other circumstances or the validity or enforceability
of the Agreement as a whole.
13.12 Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute but one and the
same instrument.
13.13 Reference. Except
as otherwise expressly provided in this Agreement, any dispute of any nature or
character whatsoever between the parties and arising under or with respect to
this Agreement or any of the other Transaction Documents, or the subject matter
hereof or thereof, shall be resolved by a proceeding in accordance with the
provisions of California Code of Civil Procedure Section 638 et seq., for a
determination to be made which shall be binding upon the parties as if tried
before a court or jury. The parties agree specifically as to the
following:
13.13.1 Within
five (5) Business Days after service of a demand by a party hereto, the parties
shall agree upon a single referee who shall then try all issues, whether of fact
or law, and then report a finding or judgment thereon. If the parties
are unable to agree upon a referee either party may seek to have one appointed,
pursuant to California Code of Civil Procedure Section 640, by the presiding
judge of the Los Angeles County Superior Court;
28
13.13.2 The
compensation of the referee shall be such charge as is customarily charged by
the referee for like services. The cost of such proceedings shall
initially be borne equally by the parties. However, the prevailing
party in such proceedings shall be entitled, in addition to all other costs, to
recover its contribution for the cost of the reference as an item of damages
and/or recoverable costs;
13.13.3 If
a reporter is requested by either party, then a reporter shall be present at all
proceedings, and the fees of such reporter shall be borne by the party
requesting such reporter. Such fees shall be an item of recoverable
costs. Only a party shall be authorized to request a
reporter;
13.13.4 The
referee shall apply all California Rules of Procedure and Evidence and shall
apply the substantive law of California in deciding the issues to be
heard. Notice of any motions before the referee shall be given, and
all matters shall be set at the convenience of the referee;
13.13.5 The
referee’s decision under California Code of Civil Procedure Section 644, shall
stand as the judgment of the court, subject to appellate review as provided by
the laws of the State of California; and
13.13.6 The
parties agree that they shall in good faith endeavor to cause any such dispute
to be decided within four (4) months. The date of hearing for any
proceeding shall be determined by agreement of the parties and the referee, or
if the parties cannot agree, then by the referee. The referee shall have the
power to award damages and all other relief.
13.14 Interpretative
Matters
. Unless
the context otherwise requires, (a) all references to Articles, Sections or
Schedules are to Articles, Sections or Schedules in this Agreement,
(b) each accounting term not otherwise defined in this Agreement has the
meaning assigned to it in accordance with GAAP, (c) words in the singular
or plural include the singular and plural, and pronouns stated in either the
masculine, the feminine or neuter gender shall include the masculine, feminine
and neuter and (d) whenever the words “include,” “includes” or “including” are
used in this Agreement they shall be deemed to be followed by the words “without
limitation.”
13.15 No Personal
Liability. Under no circumstances shall any personal liability
or obligation under this Agreement or under any of the other Transaction
Documents be imposed or assessed against any shareholder, member, manager,
officer, director, employee or agent of any party to this Agreement or of any of
such party’s Affiliates, and no party (nor any party claiming through such
party) shall commence any proceedings or otherwise seek to impose any liability
whatsoever against any such shareholders, member, manager, officer, director,
employee or agents.
13.16 Guaranty. Concurrently
herewith, Reading International, Inc., a Nevada corporation (“RDI”), has executed
and delivered to Seller a Guaranty in substantially the form of Exhibit C attached
hereto.
29
(Signatures
contained on next page)
30
IN WITNESS WHEREOF, the parties hereto
have executed this Agreement as of the date first above written.
CONSOLIDATED
AMUSEMENT THEATRES,INC., a Hawaii corporation
By:/s/ James D.
Vandever
Its:Vice
President
CONSOLIDATED
AMUSEMENT THEATRES, INC., a
Nevada corporation
By:/s/ John
Hunter
Its:Chief Operating
Officer
31
LIST
OF EXHIBITS
Exhibit
A The
Leases
Exhibit
B Form
of Assignment and Assumption of Leases
Exhibit
C Guaranty
of Reading International, Inc.
LIST
OF SCHEDULES
Schedule
3.1.4 The
Leases
Schedule
3.1.5 Improvements
Schedule
3.1.6 Compliance
with Laws
Schedule
3.1.7 Litigation
Schedule
3.1.9 Affiliate
Transactions
Schedule
4.4 Manville
Lease Summary and Manville P&Ls
Schedule
7.3.2 Description
and Scope of Repair Work
32
LEASEHOLD PURCHASE AND SALE
AGREEMENT
THIS LEASEHOLD PURCHASE AND SALE
AGREEMENT (this "Agreement") is made
and entered into as of October 8, 2007 (the “Effective Date”) by
and between KENMORE ROHNERT, LLC, a Delaware limited liability company (“Seller”), and
CONSOLIDATED AMUSEMENT THEATRES, INC., a Nevada corporation (“Buyer"), with
reference to the following facts:
A. Seller
is the tenant under the lease described on Exhibit A attached
hereto (the "Lease"), which Lease
relates to those certain premises located in Rohnert Park, California, as more
particularly described in the Lease (the "Leased
Premises").
B. Seller
is the sublandlord under the sublease described on Exhibit B attached
hereto (the “Sublease”) with
Pacific Theatres Exhibition Corp., a California corporation (“Pacific”), pursuant
to which Seller subleases the entire Leased Premises to Pacific.
C. Buyer
is party to that certain Asset Purchase and Sale Agreement of even date (the
“Asset Purchase
Agreement”) by and between Buyer and Reading International, Inc., a
Nevada corporation (“RDI”), on the one
hand, and Pacific, Consolidated Amusement Theatres, Inc., a Hawaii corporation,
Michael Forman and Christopher Forman, on the other hand. Capitalized terms used
but not defined herein shall have the respective meanings given them in the
Asset Purchase Agreement.
C. Subject
to the terms and conditions of this Agreement, Seller desires to sell, transfer,
convey and assign to Buyer, and Buyer desires to purchase, accept and assume
from Seller, all of the right, title and interest of Seller in, to and under the
“Property” (as defined in Section 1.1 below).
NOW, THEREFORE, in consideration of the
foregoing recitals and the mutual covenants, agreements, representations and
warranties herein contained, the parties hereby agree as follows:
1. Purchase and Sale of Assets;
Assumption of Liabilities.
1.1 Purchase of
Assets. Upon the terms and subject to the conditions
hereinafter set forth, at the “Closing” (as defined in Section 8.1 hereof),
Seller shall sell, transfer, convey and assign to Buyer, and Buyer shall
purchase from Seller, and assume certain liabilities with respect to, all right,
title and interest of Seller (a) as tenant in, to and under the Lease (the
“Leasehold
Interest”), and (b) as sublandlord in, to and under the Sublease (the
“Subleasehold
Interest” and, with the Leasehold Interest, the “Property”).
1.2 Assumed
Liabilities. Effective as of the Closing Date, Buyer shall
assume any and all liabilities and obligations of Seller as tenant under the
Lease and as
1
sublandlord
under the Sublease, in each case, which accrue on or after the Closing Date (the
“Assumed
Liabilities”). Except for the Assumed Liabilities and except
as otherwise specifically set forth in any of the other “Transaction Documents”
(as defined in Article 11), Buyer is not assuming any other liabilities or
obligations of Seller. The obligations and covenants of Buyer set
forth in this Section 1.2 and elsewhere in this Agreement shall survive the
Closing indefinitely.
1.3 Assignment by
Buyer. Subject to Section 7.1.1 below, Buyer shall have the
right to assign its right to take title at Closing the Property to a
wholly-owned direct or indirect subsidiary of Buyer (the “Buyer Sub”);
provided, however, that no such assignment shall relieve Buyer of its
obligations under this Agreement (including, without limitation, Section 1.2 and
Article 10 hereof) or any of the other “Transaction Documents” (as defined in
Article 11). Buyer shall provide Seller with written notice of such election and
the identity of the Buyer Sub at least ten (10) days prior to the Closing
Date.
1.4 Exchange. Seller
intends to transfer its obligations to sell the Property to a “qualified
intermediary,” as defined in Treasury Regulation Sec. 1.1031(k)-1(g)(4)(iii),
for the purpose of effecting an exchange qualifying under Sec. 1031 of the
“Code” (as defined in Article 11). Buyer agrees to such assignment,
if made, and further agrees that it will execute promptly acknowledgement of its
receipt of notice of such assignment delivered to Buyer by
Seller. Buyer and Seller agree that any such assignment shall not
affect the representations, warranties and other obligations of the parties
under this Agreement or Buyer’s title to the Property, except that the Purchase
Price, adjusted as provided herein, shall be paid to the assignee identified in
such notice. Buyer further agrees to cooperate with Seller and to
execute such other documents reasonably requested by Seller to effect such
exchange, so long as Buyer incurs no cost, expense or liability (other than its
own attorneys’ fees and costs incurred in reviewing, negotiating and executing
such documents) as a result of such cooperation. It is understood
that, subject to the performance of Buyer’s obligations under this Agreement,
Buyer shall have no responsibility for the proposed exchange, and makes no
representations or warranties as to whether any transaction effectuated by
Seller, in fact, will accomplish Seller’s tax objectives.
2. Purchase
Price.
2.1 Purchase
Price. The purchase price for the Leasehold Interest shall be
Seven Million Eight Hundred Thousand Dollars ($7,800,000), which shall be
subject to adjustment and reimbursement as hereinafter provided (the "Purchase
Price"). Buyer shall pay the Purchase Price to Seller in full
concurrently with the Closing by wire transfer of immediately available funds to
an account or accounts designated by Seller not less than two (2) “Business
Days” (as defined in Article 11) prior to the Closing Date.
2.2 Adjustments to Purchase
Price. The Purchase Price shall be subject to adjustment at
the Closing as follows:
2
2.2.1 Prepaid Expenses, Prorations
and Deposits. The Purchase Price shall be increased or
decreased as required to effectuate the proration of expenses and
receipts (other than those adjusted pursuant to Section 2.2.2), including any
prepaid expenses and receipts, if any, under the Lease and the Sublease to be
borne pursuant to this Agreement by Seller prior to the Closing Date and by
Buyer on or after the Closing Date. Without limiting the generality
of the foregoing, all expenses incurred by the tenant under the Lease,
including, without limitation, rent (other than “Percentage Rent” (as defined in
Section 2.2.2 below)), utility charges, insurance charges, common area operating
expenses, real, excise and personal property “Taxes” (as defined in Article 11)
and assessments levied against the Leased Premises, promotional fund expenses,
use Taxes, deposits under the Lease or the Sublease, and similar prepaid and
deferred items, in each case to the extent relating to the Lease or the
Sublease, shall be prorated between Buyer and Seller in accordance with the
principle that Seller shall be responsible for all expenses, costs, and
liabilities, and shall be entitled to all receipts, allocable to the period
ending prior to the Closing Date, and Buyer shall be responsible for all
expenses, costs, liabilities and obligations, and shall be entitled to all
receipts, allocable to the period on or after the Closing Date.
2.2.2 Manner of Determining
Adjustments. The Purchase Price, taking into account the adjustments and
prorations pursuant to this Section, will be determined finally in accordance
with the following procedures:
2.2.2.1 Seller shall
prepare and deliver to Buyer not later than five (5) Business Days before the
Closing Date an itemized preliminary settlement statement (the “Preliminary Settlement
Statement”) which shall set forth Seller’s good faith estimate of the
adjustments to the Purchase Price in accordance with Section 2.2.1
hereof.
2.2.2.2 If Seller and Buyer
have not agreed upon a final settlement statement on or before the Closing Date,
then Seller and Buyer shall cooperate in good faith to finalize such settlement
statement as soon as practicable after the Closing; provided, however, the
parties shall use such Seller’s good faith estimated adjustments to the Purchase
Price as set forth in the Preliminary Settlement Statement delivered pursuant to
Section 2.2.2.1 above for purposes of determining the amount of any estimated
adjustment to the Purchase Price paid by Buyer to Seller at
Closing. If Seller and Buyer have not agreed upon a final settlement
statement on or before the Closing Date, not later than sixty (60) days after
the Closing Date, Buyer shall deliver to Seller a statement (the “Buyer Adjustment
Statement”) setting forth, in reasonable detail, its determination of the
adjustments to the Purchase Price and the calculation thereof and reminding
Seller of the thirty (30) day response period set forth in Section
2.2.2.3. If Buyer fails to deliver the Buyer Adjustment Statement to
Seller within the sixty (60) day period specified in the preceding sentence,
Seller’s determination of the adjustments to the Purchase Price as set forth in
the Preliminary Settlement Statement shall be conclusive and binding on the
parties as of the last day of the sixty (60) day period.
3
2.2.2.3 If Seller disputes
Buyer’s determination of the adjustments to the Purchase Price, it shall deliver
to Buyer a statement notifying Buyer of such dispute within thirty (30) days
after its receipt of the Buyer Adjustment Statement. If Seller
notifies Buyer of its acceptance of the Buyer Adjustment Statement, or if Seller
fails to deliver its statement within the thirty (30) day period specified in
the preceding sentence, Buyer’s determination of the adjustments to the Purchase
Price as set forth in the Buyer Adjustment Statement shall be conclusive and
binding on the parties as of the earlier of the date of notification of such
acceptance or the last day of the thirty (30) day period, and the appropriate
party shall promptly pay to the other party in immediately available funds the
amount of any such adjustment.
2.2.2.4 Seller and Buyer
shall use good faith efforts to resolve any dispute involving the determination
of any adjustments to the Purchase Price, and each party shall afford the other
party and its representatives reasonable access to all appropriate books,
records and statements relating to the subject matter of
the adjustments to the Purchase Price contemplated by this Section
2.2 for such purpose. If the parties are unable to resolve the
dispute within sixty (60) days after Buyer delivers the Buyer Adjustment
Statement to Seller, Seller and Buyer jointly shall designate an independent
accounting firm that has, or a movie theater executive who has, consistent and
recent experience in real property matters similar to those involving the
Property (the “Designated
Arbitrator”) to resolve the dispute. If, for any reason, the
parties are unable to agree upon the Designated Arbitrator within seventy-five
(75) days after Buyer delivers the Buyer Adjustment Statement to Seller, or the
Designated Arbitrator fails or refuses to accept such engagement within fifteen
(15) days after the parties’ written request therefor, Seller and Buyer shall
jointly designate the Los Angeles office of PriceWaterhouseCoopers (the “Replacement
Arbitrator”) to resolve the dispute. If the Replacement
Arbitrator fails or refuses to accept such engagement, in either case within
fifteen (15) days after the parties’ written request therefor, either Seller or
Buyer may thereafter petition the Superior Court of Los Angeles County,
California for the appointment of an independent accounting firm to act as the
Replacement Arbitrator and resolve the dispute. Absent fraud or manifest error,
(a) the Designated Arbitrator’s or Replacement Arbitrator’s, as applicable,
resolution of the dispute shall be final and binding on the parties, (b) subject
to Section 2.3, the appropriate party shall promptly pay to the other party in
immediately available funds the amount of any such adjustment, and (c) a
judgment may be entered in any court of competent jurisdiction if such amount is
not so paid. Any fees and costs of the Designated Arbitrator or
Replacement Arbitrator shall be split equally between the parties.
2.3 Payment of Adjustments to
and Reimbursements of the Purchase Price. If, pursuant to
Section 2.2, it is determined after the Closing Date that Buyer shall be
obligated to pay any amounts to Seller, then Buyer shall make such payments in
full to Seller within ten (10) days after such amount is finally determined to
be due. Conversely, if, pursuant to Section 2.2, it is determined
after the Closing Date that Seller shall be obligated to pay any amounts to
Buyer, then Seller shall make such payments in full to Buyer within ten (10)
days after such amount is finally determined to be due.
4
2.4 Late Interest. If
any amount payable pursuant to the provisions of this Article 2 is not paid
within ten (10) days after such amount is finally determined to be due, such
amount shall thereafter accrue interest until paid in full at an annual rate
equal to
the lesser of the “prime” interest rate as announced by The Wall Street Journal from
time to time during such period plus 2%, or the maximum interest rate permitted
by applicable law.
2.5 Survival. The
parties’ respective obligations under this Article 2 shall survive the
Closing.
3. Representations and
Warranties of Seller.
3.1 Representations and
Warranties of Seller. Seller hereby represents and warrants to
Buyer as follows:
3.1.1 Organization. Seller
is a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Delaware. Seller has all
requisite power to own, lease and license its properties and assets and to carry
on its business in the manner and in the places where such properties and assets
are owned, leased, licensed or operated or such business is
conducted.
3.1.2 Authority. Subject
to the terms of any consent provisions of the Lease, Seller has full right,
power and authority to enter into this Agreement and to perform its obligations
hereunder. The entry into and performance of this Agreement have been duly
authorized by all necessary action on the part of Seller in accordance with its
governing documents and applicable law. This Agreement constitutes,
and each other document, instrument and agreement to be entered into by Seller
pursuant to the terms of this Agreement will constitute, a valid agreement
binding upon and enforceable against Seller in accordance with its terms (except
as limited by bankruptcy or similar laws or the availability of equitable
remedies).
3.1.3 Consents. The
execution, delivery and performance by Seller of this Agreement, and all other
agreements, instruments or documents referred to herein or contemplated hereby,
do not require the consent, waiver, approval, license or authorization of any
Person (other than the consent of First Republic Bank (or any
successor-in-interest of First Republic Bank) if and to the extent that the
Nondisturbance and Attornment Agreement dated as of July 1, 1998 by and among
Bishop & Bishop Land, LLC, Pacific and First Republic Bank remains in
effect) or public authority which has not been obtained or provided for in this
Agreement and do not and will not contravene or violate (with or without the
giving of notice or the passage of time or both), the governing documents of
Seller, any other contract or agreement to which Seller is a party or by which
Seller is bound or any judgment, injunction, order, law, rule or regulation
applicable to Seller. Seller is not a party to, or subject to or bound by, any
judgment, injunction or decree of any court or governmental authority which may
restrict or interfere with the performance of this Agreement, or such other
agreements, instruments and documents.
5
3.1.4 The Lease and the
Sublease. Exhibit A sets forth
a true, complete and accurate description of the Lease (including all
amendments, extensions, renewals,
ground or master lessor consents, and existing non-disturbance and attornment
agreements with respect thereto), and Exhibit B sets forth
a true, complete and accurate description of the Sublease (including all
amendments, extensions, renewals, ground or master lessor consents, and existing
non-disturbance and attornment agreements with respect
thereto). Subject to the terms of the Lease and the Sublease, Seller
has, and on the Closing Date will have, a valid leasehold interest in the Lease
free and clear of any “Liens” (as defined in Article 11) other than (a)
“Permitted Liens” (as defined in Article 11), (b) so-called “non-monetary”
Liens, including, without limitation, any ground or underlying leases,
easements, parking agreements, reciprocal easement agreements, conditions,
covenants and restrictions, restrictive covenants, development or similar
agreements, zoning limitations and other restrictions imposed by any
“Governmental Authority” (as defined in Article 11), or any other matter which a
survey of the Leased Premises or a review of the public records regarding the
Leased Property would show, whether created by or in the name of Seller or any
other party, or (c) any other Liens, whether “monetary” or “non-monetary” Liens,
created by or in the name of any Person other than Seller or any “Affiliate” (as
defined in Article 11) of Seller, including, without limitation, by any fee
owner or ground lessor under the Lease. True, complete and accurate
copies of the Lease and the Sublease have been delivered or otherwise made
available to Buyer through Seller’s Affiliate’s data site operated by Merrill
Corporation (the “Data
Site”), and such Lease and Sublease set forth the entire agreement and
understanding between the parties thereto with respect to the leasing and
occupancy (or, as applicable, subleasing and occupancy) of the Leased
Premises. The Lease and the Sublease are each in full force and
effect against Seller and are valid and binding against Seller and, to Seller’s
Knowledge, the applicable landlord or subtenant thereunder. Neither
Seller nor, to Seller’s Knowledge, the landlord under the Lease or Pacific under
the Sublease is in default under the Lease or the Sublease, as applicable, nor
has any event occurred or failed to occur or any action been taken or not taken
which, with the giving of notice, the passage of time or both would mature into
or otherwise become a default under the Sublease or the Lease by Seller or, to
Seller’s Knowledge, the landlord or Pacific thereunder. The landlord
under the Lease is not an Affiliate of Seller, but Pacific is an Affiliate of
Seller. Except for the Sublease, Seller has not subleased, licensed
or otherwise granted any “Person” (as such term is defined in Article 11) the
right to use or occupy the Leased Premises or any portion thereof and, except
for the Sublease, Seller is in exclusive possession of the Leased Premises. To
Seller’s Knowledge, there is no pending or threatened condemnation of any part
of any Leased Premises by any “Governmental Authority” (as such term is defined
in Article 11).
3.1.5 Litigation. To
Seller’s Knowledge, there are no actions, suits, claims, proceedings, hearings,
disputes or investigations currently pending or threatened in writing at any
time after January 1, 2005, before any Governmental Authority or that would come
before any arbitrator, brought by or against Seller involving, affecting or
relating to the Property, including, without limitation, any labor, employment
or Tax-related actions, suits, claims, proceedings, hearings, disputes or
6
investigations. Seller is not subject to any order,
writ, assessments, judgment, award, injunction or decree of any Governmental
Authority relating to the Property.
3.1.6. Certain Tax
Matters. Seller is not a “foreign person” within the meaning
of Code Section 1445(f) or a “foreign partner” within the meaning of Code
Section 1446. No part of the Property is “tax-exempt use property”
within the meaning of Code Section 168(h).
3.1.7 Affiliate
Transactions. Except for the Sublease, (a) Seller is not a
party to any contract or arrangement with, or indebted, either directly or
indirectly, to any of its Affiliates in connection with any part of the
Property, and (b) none of Seller’s Affiliates own any asset, tangible or
intangible, which is used in and material to the operation of any part of the
Property.
3.1.8 Brokerage. Except
with respect to the engagement of Lazard Freres & Co. LLC by Affiliates of
Seller, Seller has not employed any broker, finder or agent or has incurred or
will incur any obligation or liability to any broker, finder or agent with
respect to the transactions contemplated by this Agreement, and all fees and
expenses payable in connection with the engagement of Lazard Freres & Co.
LLC will be paid by such Affiliates of Seller.
3.1.9 Development
Projects. Neither Seller nor any Affiliate of Seller is bound
by any agreement or commitment regarding the development, construction or
operation of any proposed development that is currently contemplated to include
a commercial motion picture theater in any part of the “Territory” (as defined
in Article 12 below). For purposes of this Agreement, the “Territory”
means all property which is located within a radius of ten (10) miles from 555
Rohnert Park Expressway, Rohnert Park, California.
3.2 Knowledge. Where any
representation or warranty contained in this Agreement is expressly qualified by
reference “to Seller’s Knowledge,” “to the Knowledge of Seller,” or any similar
language, it refers to the actual knowledge of Neil Haltrecht (Executive Vice
President of Pacific), Nora Dashwood (Executive Vice President and Chief
Operating Officer of Pacific), Jay Swerdlow (Executive Vice President of
Pacific), Ira Levin (Executive Vice President and General Counsel of Pacific),
Joe Miraglia (Director of Staff Operations of Pacific), and Terri Shimohara
(Vice President, Human Resources of Pacific), in each case after due
inquiry.
3.3 “As Is” Purchase.
BUYER ACKNOWLEDGES THAT AS A MATERIAL CONDITION OF THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT, BUYER IS ACQUIRING THE PROPERTY ON AN “AS IS, WHERE IS” BASIS
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT. EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT, THERE ARE NO WARRANTIES, EXPRESS, IMPLIED
OR STATUTORY, INCLUDING, BUT NOT LIMITED TO, REPRESENTATIONS AS TO THE PHYSICAL
OR OTHER CONDITION OF THE LEASE, THE LEASED PREMISES OR ANY OTHER PORTION OF THE
PROPERTY, OR IMPLIED WARRANTIES OF
7
MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE LEASE, THE LEASED
PREMISES OR ANY OTHER PORTION OF THE PROPERTY. BUYER HAS MADE AND AGREES TO MAKE
A THOROUGH AND CAREFUL EXAMINATION OF THE LEASE, THE LEASED PREMISES AND ALL
OTHER PORTIONS OF THE PROPERTY AND WILL ASSURE ITSELF THAT THE LEASE, THE LEASED
PREMISES AND THE ALL OTHER PORTIONS OF THE PROPERTY ARE SUITABLE FOR BUYER’S
INTENDED PURPOSE. IF THE CLOSING OCCURS, AND SUBJECT TO THE SPECIFIC
AND EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN, (A) BUYER SHALL BE
DEEMED TO HAVE ACCEPTED THE LEASE, THE LEASED PREMISES AND ALL OTHER PORTIONS OF
THE PROPERTY WITH AND SUBJECT TO ALL DEFECTS AND DEFICIENCIES, AND (B) BUYER
EXPRESSLY ASSUMES THE RISK THAT SUBSEQUENT EVENTS OR UNDISCOVERED OR UNKNOWN
CONDITIONS COULD MAKE ALL OR PART OF THE LEASE, THE LEASED PREMISES OR ANY OTHER
PORTION OF THE PROPERTY UNSUITABLE FOR BUYER’S INTENDED PURPOSES.
3.4 Release. As
a material inducement to Seller to enter into and perform its obligations under
this Agreement, Buyer, on behalf of itself and all of its successors, assigns,
Affiliates and representatives, hereby releases and discharges Seller and its
Affiliates, and their respective officers, directors, shareholders, partners,
members, managers, employees, agents, attorneys and representatives, and
successors and assigns, from any and all claims, demands, liabilities,
obligations, expenses (including attorneys' fees), causes of action, suits and
rights, whether now known or unknown, suspected or unsuspected, which exist,
existed or may exist or have existed at any time now or in the future and
arising out of or relating to the physical condition of the Property, including,
without limitation, in connection with any compliance or non-compliance by
Seller or any other party with the ADA or any similar state or local law, or
arising from the presence of any “Hazardous Materials” (as defined in Article
11) or the Property’s or any party’s compliance with any “Environmental Laws”
(as defined in Article 11); provided, however, that the foregoing release shall
not apply to any claim to the extent arising from (a) the breach of any express
covenant, representation or warranty by Seller under this Agreement or
(b) fraud committed by Seller or any Affiliate of Seller. The
foregoing release extends to, and Buyer hereby waives and relinquishes, all of
its rights under Section 1542 of the California Civil Code and any similar law
or rule of any other jurisdiction. California Civil Code Section 1542
provides:
"A
general release does not extend to claims which the creditor does not know or
suspect to exist in his or her favor at the time of executing the release, which
if known by him or her must have materially affected his or her settlement with
the debtor."
3.5 Updating of
Schedules. Seller shall, from time to time, prior to the
Closing, update the Schedules to this Agreement, or create any new
schedules revising its representations and warranties, if after the Effective
Date Seller learns of new exceptions to the representations and warranties set
forth in this Agreement (together, the "Updated Schedules"),
and promptly deliver such Updated Schedules to Buyer. If any Updated
Schedule reflects or describes a “Material Adverse Effect” (as defined in
Article 11) from
8
the
conditions previously described in the representations and warranties,
then Buyer may, at its option, upon written notice thereof to Seller,
within ten (10) Business Days of Buyer's receipt of an Updated
Schedule, terminate this Agreement upon notice to Seller. If
Seller's representations and warranties were true and correct when made,
then Buyer's sole remedy in the event of the receipt of an Updated Schedule
shall be to terminate this Agreement in accordance with the foregoing
sentence (or to proceed with the Closing). If the then scheduled Closing
Date would occur prior to the end of the ten (10) Business Days period set forth
in this Section 3.5, the delivery of any Updated Schedule shall postpone the
Closing Date to the date which is ten (10) Business Days after Buyer’s receipt
of the Updated Schedule.
4. Representations and
Warranties of Buyer. Buyer hereby represents and warrants to
Seller as follows:
4.1 Organization. Buyer
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada. Buyer has all requisite power to own,
lease and license its properties and assets and to carry on its business in the
manner and in the places where such properties and assets are owned, leased,
licensed or operated or such business is conducted.
4.2 Authority. Buyer
has full right, power and authority to enter into this Agreement and to perform
its obligations hereunder. The entry into and performance of this Agreement has
been duly authorized by all necessary action on the part of Buyer in accordance
with its governing documents and applicable law, and this Agreement constitutes,
and each other document, instrument and agreement to be entered into by Buyer
pursuant to the terms of this Agreement will constitute, a valid agreement
binding upon and enforceable against Buyer in accordance with its terms (except
as limited by bankruptcy or similar laws or the availability of equitable
remedies).
4.3 Consents. The
execution, delivery and performance by Buyer of this Agreement, and all other
agreements, instruments and documents referred to or contemplated herein or
therein do not require the consent, waiver, approval, license or authorization
of any Person (other than the landlord under the Lease and any lenders having
Liens on the Leased Premises) or public authority which has not been obtained
and do not and will not contravene or violate (with or without the giving of
notice or the passage of time or both) the governing documents of Buyer or any
judgment, injunction, order, law, rule or regulation applicable to Buyer. Buyer
is not a party to, or subject to or bound by, any judgment, injunction or decree
of any court or Governmental Authority or any lease, agreement, instrument or
document which may restrict or interfere with the performance by Buyer of this
Agreement, or such other leases, agreements, instruments and
documents.
4.4 Financial Condition.
Buyer is a newly formed entity, created for the purpose of effectuating the
transactions contemplated by this Agreement. On the Closing Date and
after giving effect to the transactions contemplated by this Agreement, (a)
Buyer will have shareholders’ equity (determined in accordance with “GAAP” (as
9
defined
in Article 11)) of not less than Twenty Million Dollars ($20,000,000), (b) the
assets of Buyer shall include all right, title and interest of the tenant under
the lease for “RDI’s” (as defined in Section 13.16 below) movie theater in
Manville, New Jersey (the “Manville Theater”),
and (c) Buyer will not have indebtedness for borrowed money in excess of the
aggregate amount of Fifty-Five Million Dollars
($55,000,000). Attached hereto as Schedule 4.4 are (i)
a true and complete summary of the material terms of the Lease for the Manville
Theater, and (ii) Theater Level Cash Flow Reports for the Manville Theater for
RDI’s fiscal year ended December 31, 2006 and for the eight-month period
ended August 31, 2007 (collectively, the “Manville
P&Ls”). The Manville P&Ls present fairly in all
material respects the results of operations for the Manville Theater, along with
circuit revenue and expenses allocated to such theater based on attendance, for
the periods referred to therein. RDI maintains its books and records
in accordance with GAAP applied on a consistent basis, and the Manville P&Ls
were prepared from and are consistent with such books and records, except that
the Manville P&Ls exclude certain financial statements and lack the footnote
disclosures that are required for GAAP.
4.5 Brokerage. Except
in connection with the “Financing” (as defined in Section 7.4.2 below), Buyer
has not employed any broker, finder or agent or has incurred or will incur any
obligation or liability to any broker, finder or agent with respect to the
transactions contemplated by this Agreement. Any such obligation or
liability in connection with the Financing shall be borne solely by Buyer or
RDI.
5. Conditions Precedent to
Buyer's Obligations. Buyer's obligations under this Agreement
are subject to the fulfillment of each of the conditions set forth in this
Article 5 at or before the Closing, subject, however, to the right of Buyer to
waive any one or more of such conditions in whole or in part (provided that no
such waiver shall be implied or binding upon Buyer unless given in
writing).
5.1 Performance by
Seller. Seller shall have timely performed and complied with
in all material respects all agreements and conditions required by this
Agreement to be performed and complied with by Seller on or prior to the Closing
Date, including, without limitation, delivery to Buyer of the “Seller
Deliveries” (as defined in Section 9.3 below) in accordance with Section 8.3
below.
5.2 Accuracy of Representation
and Warranties. The representations and warranties herein of
Seller shall be true and correct in all material respects as of the Closing Date
(except to the extent any such representation or warranty is qualified by
materiality, in which case such representation or warranty shall be true in all
respects).
5.3 No
Injunctions. No order shall have been entered in any action or
proceeding before any Governmental Authority, and no preliminary or permanent
injunction by any court of competent jurisdiction shall have been issued and
remain in effect, which would have the effect of making the consummation of the
transactions contemplated by this Agreement illegal; provided, however, that if
any such action, proceeding or injunction exists as a result of the wrongful
action or omission to act of
10
Buyer or any of Buyer’s Affiliates, the same shall be an event of
default by Buyer under this Agreement.
5.4 HSR
Act. All required filings under Section 7A of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall have
been completed and all applicable time limitations under the HSR Act shall have
expired without a request for further information by the relevant federal
authorities under such Act, or in the event of such a request for further
information, the expiration of all applicable time limitations under the HSR Act
shall have occurred without the objection of such federal
authorities.
6. Conditions Precedent to
Seller's Obligations. Seller's obligations under this
Agreement are subject to the fulfillment of each of the conditions set forth
below in this Article 6 at or before the Closing, subject, however to the right
of Seller to waive any one or more such conditions in whole or in part (provided
that no such waiver shall be implied or binding upon Seller unless given in
writing).
6.1 Performance by
Buyer. Buyer shall have timely performed and complied with in
all material respects all agreements and conditions required by this Agreement
to be performed and complied with by Buyer on or prior to the Closing Date,
including, without limitation, delivery to Seller of the “Buyer Deliveries” (as
defined in Section 9.2 below) in accordance with Section 8.2 below.
6.2 Accuracy of Representations
and Warranties. The representations and warranties herein of
Buyer shall be true and correct in all material respects as of the Closing Date
(except to the extent any such representation or warranty is qualified by
materiality, in which case such representation or warranty shall be true in all
respects).
6.3 No
Injunctions. No order shall have been entered in any action or
proceeding before any Governmental Authority, and no preliminary or permanent
injunction by any court of competent jurisdiction shall have been issued and
remain in effect, which would have the effect of making the consummation of the
transactions contemplated by this Agreement illegal; provided, however, that if
any such action, proceeding or injunction exists as a result of the wrongful
action or omission to act of Seller or any of Seller’s Affiliates, the same
shall be an event of default by Seller under this Agreement.
6.4 HSR
Act. All required filings under Section 7A of the HSR Act
shall have been completed and all applicable time limitations under the HSR Act
shall have expired without a request for further information by the relevant
federal authorities under such Act, or in the event of such a request for
further information, the expiration of all applicable time limitations under the
HSR Act shall have occurred without the objection of such federal
authorities.
7. Covenants.
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7.1 Commercially Reasonable
Efforts.
7.1.1 Upon the
terms and subject to the conditions of this Agreement, the parties hereto will
use commercially reasonable efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable
consistent with applicable law to consummate and make effective in the most
expeditious manner practicable the transactions contemplated by the Transaction
Documents, including, without limitation, obtaining any authorizations,
consents, orders or approvals of any Person or Governmental Authority that may
be or become necessary in connection with the execution, delivery or performance
of a party’s obligations hereunder. Notwithstanding the foregoing,
neither Seller nor Buyer shall be required to pay consideration or grant any
rights, guarantee or concession to any third party or to modify in any material
manner the terms of the Lease in order to obtain any such consent or approval or
any such release; provided, however, that if Buyer elects to cause a Buyer Sub
to take an assignment of any of Seller’s right, title or interest under, or
assume any of Seller’s obligations under, the Lease, and the landlord’s consent
is required under any such Lease, Buyer shall offer to provide a guarantee to
the landlord of all of such assumed obligations concurrently with Seller’s
initial submission to such landlord of request for such
consent.
7.1.2 Buyer
shall use its commercially reasonable efforts and Seller shall use its
commercially reasonable efforts to cooperate fully to obtain promptly all such
authorizations, consents, orders and approvals required to be obtained in
connection with the transactions contemplated hereby. Without limiting the
generality of the foregoing, to the extent such filing is required by the HSR
Act, Seller and Buyer agree that each shall prepare and file a notification and
report form pursuant to the HSR Act as soon as practicable after the Effective
Date, but in no event later than ten (10) days after the Effective
Date. If a filing is made under the HSR Act, Seller and Buyer each
also agree to request early termination in such filing and respond with
reasonable diligence and dispatch to any request for additional information made
in response to such filing. All filing fees associated with complying
with the HSR Act shall be borne 50% by Seller and 50% by Buyer.
7.1.3 Notwithstanding
the provisions of Section 7.1.2, with respect to the assignment of the Lease
from Seller to Buyer, Seller, at its cost and expense, shall use its
commercially reasonable efforts, and Buyer, at its cost and expense, shall use
its commercially reasonable efforts to cooperate fully with Seller:
(a) to
obtain promptly from the landlord under the Lease and all other appropriate
parties any consent required to be obtained in connection with (i) such
assignment and (ii) the grant to the lenders under the Financing of Liens on the
tenant’s interest in the Lease and other consents, estoppels and approvals
required as conditions precedent to the closing of the Financing (collectively,
the “Leasehold
Mortgages”); provided, however, that Buyer shall bear any expenses
attributable to obtaining the Leasehold Mortgages. In connection
therewith, Buyer agrees promptly to provide all financial and other information
and background materials regarding Buyer, its
12
Affiliates
and their respective senior management, and such lenders, which the landlord or
any other appropriate party under the Lease may reasonably request in connection
with such party’s evaluation of Seller’s request for consent to any such
assignment or grant of any such Leasehold Mortgage. Buyer also agrees
to make its and its Affiliates’ senior management reasonably available to such
parties for this purpose. Buyer hereby acknowledges that, in those
cases where no party’s consent is required for the assignment of the Lease to
Buyer or to the grant to the lenders under the Financing of a Leasehold Mortgage
with respect to such Lease, Seller may elect to send notices to the landlord
and/or all other appropriate parties, rather than requests for consents, which
notices describe the transaction contemplated by this Agreement, and some of
which notices seek the “acknowledgment” of such landlord and such other parties
to the assignment of the Lease; and
(b) to
obtain releases of Seller’s and its Affiliates’ liability under the
Lease.
With
respect to the matters described in this Section 7.1.3, Seller may elect at any
time to shift to Buyer primary responsibility for obtaining the consents and
agreements under this Section by so notifying Buyer in
writing. Thereafter, Buyer shall, at Seller’s expense as provided
above, use its commercially reasonable efforts to accomplish the matters
described in this Section, and Seller shall use its commercially reasonable
efforts to cooperate fully with Buyer. The parties agree that, if the
landlord or any other party is presented with a combined request to consent to
the assignment of the Leasehold Interest hereunder and the grant of a Leasehold
Mortgage with respect to such Leasehold Interest refuses, without explanation,
to provide the consents requested, or it is not otherwise reasonably apparent
from such party’s response to such combined request whether such landlord would
have consented to the assignment of the Leasehold Interest if such request had
not been accompanied by a request for a Leasehold Mortgage, it shall be presumed
that such refusal was attributable only to the request for consent to the
Leasehold Mortgage for purposes of determining whether the condition precedent
set forth in Section 5.4 of the Asset Purchase Agreement has been satisfied;
provided, however, that Buyer shall be entitled to rebut such presumption by
requiring Seller to present to such party a separate request for consent to
assignment of the Leasehold Interest only, and if such party fails for any
reason to provide such consent to assignment it shall be deemed a failure of the
condition precedent set forth in Section 5.4 of the Asset Purchase
Agreement.
7.1.4 In
no event shall Buyer or any Affiliate of Buyer be required to increase the
equity capital of Buyer or to contribute any assets to Buyer, or (except as
otherwise provided in Section 7.1.1 above) to provide any guarantee or other
credit enhancement to or for the benefit of Buyer, in order to obtain any
consent contemplated by this Section 7.1.1.
7.2 Access to Properties and
Records. From and after the Effective Date through the Closing
Date or the earlier termination of this Agreement, Seller shall afford to Buyer,
and to the accountants, counsel and representatives of the Buyer, upon
13
reasonable
prior notice, reasonable access during normal business hours throughout the
period prior to the Closing to the Leased Premises and, during such period,
shall furnish promptly to Buyer all other information concerning the Property
and its personnel as such parties may reasonably
request. Notwithstanding anything in this Section to the contrary, no
access pursuant to this Section 7.2 shall unreasonably interfere with Seller’s
or Pacific’s conduct of its business at the Leased Premises. Buyer
shall notify Seller in writing of any material breach of this provision known to
it and shall afford Seller a reasonable opportunity to cure any such
breach.
7.3 Seller’s Operations Prior to
the Closing. From and after the Effective Date until the
Closing, Seller (a) shall not sell, transfer, assign, dispose of or grant any
Lien on, or permit to be sold, transferred, assigned, disposed of or encumbered,
all or any material part of the Property as the same shall be constituted on the
Effective Date, except to the extent that any such Lien will be removed at or
prior to the Closing; (b) shall not enter into any lease, contract or commitment
or incur any liabilities or obligations in connection with the Property, except
for leases, contracts, commitments, liabilities or obligations that will not
bind Buyer or the Property after the Closing; (c) shall not release, waive or
compromise any of its rights with respect to, the Lease without the prior
written consent of Buyer, which consent shall not be unreasonably withheld,
conditioned or delayed to the extent such proposed action occurs in the ordinary
course of its business consistent with past practice and which is reasonably
expected to be without Material Adverse Effect upon the value or utility of the
Property; and (d) shall not, directly or indirectly, destroy or otherwise
dispose of any books, records or files relating to the Lease or the Property,
other that in the ordinary course of business, generally consistent with past
practice.
7.4
Cooperation.
7.4.1 Generally. Each
party shall provide the other with such cooperation as may reasonably be
requested, at the expense of the requesting party (unless the requesting party
is to be indemnified with respect thereto, in which case such cooperation shall
be given at the expense of the indemnifying party), in connection with the
defense of any third party litigation relating to the subject matter of this
Agreement. Additionally, until March 31, 2010, Seller shall make
available to Buyer’s independent accountants such information and documentation
regarding the Property to the extent such information and documentation is
reasonably required in connection with an audit by such independent accountant
of Buyer’s financial statements or the preparation of financial disclosure
required under applicable Federal securities laws, including an audit of
acquired businesses as required by 17 CFR § 210.3-05, and allow Buyer’s
independent accountants to make and retain copies of such information and
documentation, provided that (a) such information and documentation is then in
the possession or control of Seller or Seller’s Affiliates, and (b) so long as
Buyer’s independent accountant does not require that such information or
documentation be obtained directly from Seller, such information and
documentation is not otherwise in the possession or control of Buyer, any of
Buyer’s Affiliates or such independent accountant, or is not otherwise
reasonably available from another source to Buyer or such independent
accountant. Seller also
14
agrees to make its and its Affiliates’ senior management
reasonably available to Buyer and its accountants for this purpose.
7.4.2 Cooperation with respect to
Buyer’s Financing. Buyer hereby represents and warrants to
Seller that (a) it has obtained a written commitment letter and related term
sheet from a financially responsible institution, true and correct copies of
which have been furnished to Seller, for debt financing to be used by Buyer to
fund a portion of the Purchase Price (the “Financing”), and (b)
said commitment letter and related term sheet are in full force and effect, and
Buyer has performed all of its obligations thereunder required to be performed
on or prior to the Effective Date. Prior to the Closing Date, Seller
agrees promptly to provide all financial and other information and materials
regarding the Property as reasonably requested by Buyer or its accountants from
time to time in connection with the preparation of audited financial statements
of the “Purchased Assets” and the “Business” (each as defined in the Asset
Purchase Agreement) for the twelve (12) months ended June 30, 2005, 2006 and
2007, respectively, and unaudited financial statements for the most recent
practicable interim period subsequent to June 30, 2007 and prior to the Closing
Date. Seller also agrees to make its and its Affiliates’ senior
management reasonably available to Buyer and its accountants for this
purpose. Subject to Seller’s performance of its obligations under
this Section 7.4.2, the completion of said financial statements shall not
be a condition precedent to the obligations of Buyer under this Agreement, and
Seller shall not be in breach or default of its obligations under this Section
7.4.2 if such audited financial statements are not completed for any reason by
any particular date so long as Seller has cooperated with Buyer and its
accountants as required by this Section 7.4.2. Seller agrees that,
effective upon the Closing, Buyer’s accountants shall be released for the
benefit of Buyer and RDI from any and all obligations of confidentiality that it
may owe to Seller or its Affiliates only to the extent they relate to the
Property.
7.5 Delivery of Information;
Delivery of Mail and Assets; Collection of Accounts Receivable. After the
Closing Date, each of the parties hereto shall cause their personnel to provide
the other party with financial accounting, Tax, and similar information
reasonably necessary to prepare Tax returns and other filings relating to the
Lease and to finalize the prorations and adjustments called for by Section 2.2
hereof. Seller agrees that it will promptly deliver to Buyer any mail
or other communications received by Seller on or after the Closing Date
pertaining to the Property and any cash, checks or other instruments of payment
to which Seller is not entitled. Buyer agrees that it will promptly
deliver to Seller any mail or other communications received by Buyer on or after
the Closing Date pertaining to Seller's operations, properties or other affairs
of Seller, any cash, checks or other instruments of payment to which Buyer is
not entitled, and any other assets or properties of Seller.
7.6 Post-Closing Covenants of
Buyer.
7.6.1 Maintenance of
Insurance. Buyer agrees that from and after the Closing Date,
Buyer shall at all times maintain in complete force and effect, in accordance
with the requirements of the Lease, all policies of insurance required by the
15
Lease to
be maintained by the tenant. Buyer shall deliver to Seller executed copies of
certificates of insurance evidencing the foregoing on the Closing Date. New
certificates shall be delivered promptly whenever policies are renewed or new
policies are written. As often as any such policy shall expire or be terminated,
a renewal or additional policy shall be procured and maintained by Buyer in like
manner and to like extent, and new certificates thereof shall be delivered to
Seller. All policies of insurance maintained by Buyer pursuant to the
requirements of the Lease shall contain a provision that the company issuing
said policy will give Seller not less than ten (10) days' notice in writing in
advance of any cancellation or lapse of the effective date or any reduction in
the amounts of insurance. In the event that Buyer fails to comply with any of
the requirements of this Section 7.6.1, and Buyer fails to cure such
non-compliance within ten (10) days of delivery of notice thereof from Seller,
Seller may obtain any and all policies of insurance required to comply with
tenant's obligations under the Lease, and Buyer shall immediately pay to Seller
any and all costs reasonably incurred by Seller in connection with obtaining and
maintaining such insurance.
7.6.2 Amendment of Lease; Exercise
of Options; Waiver of Rights. Without Seller’s prior written
consent (which consent may not be unreasonably withheld or delayed), until the
earlier of the date on which (a) Seller and all of Seller’s Affiliates are no
longer liable on or are released from any further liability under the Lease, or
(b) Buyer delivers to Seller (i) an audited balance sheet for Buyer showing a
net worth (calculated in accordance with GAAP) of at least $50,000,000, and (ii)
an audited income statement for Buyer showing a ratio of indebtedness to
“Theater Level Cash Flow” (as defined in Article 11) for all theaters then
operated by Buyer of 5.5-to-1 or less, Buyer shall not (x) exercise any option
to extend or renew the term of the Lease if, as of the date on which Buyer
proposes to exercise any such option, the theater operated pursuant to the Lease
has Theater Level Cash Flow in the most recently completed calendar year of less
than $200,000, or (y) amend or modify the Lease to eliminate or materially
change, or otherwise waive or forfeit, any material rights or privileges of the
tenant under the Lease.
7.7 Destruction of Books,
Records and Files. If, after the Closing, Seller or any of its
Affiliates proposes to destroy or otherwise dispose of any books, records or
files relating to the Property (but not including any financial reports or other
information regarding the Property to the extent such financial reports or other
information is integrated into financial reports or other information regarding
the operations generally of Seller or such Affiliate), Seller shall deliver
prior notice thereof to Buyer and Buyer shall have a period of sixty (60) days
from receipt of such notice to deliver notice to Seller of its desire to take
possession of such books, records or files, in which event Seller shall deliver
to Buyer possession of such books, records or files at the earliest practicable
date. Seller shall not destroy or otherwise dispose of such books,
records or files prior to the end of such sixty (60) day period.
8. Closing.
8.1 Closing
Date. Subject to the satisfaction (or waiver by Buyer or
Seller as provided therein) of the conditions precedent in Articles 5 and 6
hereof, the
16
transactions
contemplated by this Agreement shall be consummated at a closing (the “Closing”) at the
offices of Weissmann Wolff Bergman Coleman Grodin & Evall, LLP, 9665
Wilshire Boulevard, Ninth Floor, Beverly Hills, California 90212. The
Closing shall occur on the date which is the first Friday occurring after the
date which is sixty-five (65) days after the Effective Date (the “Scheduled Closing
Date”). If the Closing does not occur on the Scheduled Closing
Date by reason of the failure of any condition precedent set forth in Article 5
or 6 hereof (a “Non-Satisfied Condition
Precedent”), the party in whose favor the Non-Satisfied Condition
Precedent exists shall have the right to extend the Scheduled Closing Date until
the date which is the second Friday occurring after the date on which the
Non-Satisfied Condition Precedent is satisfied or
waived. Notwithstanding the foregoing, this Agreement shall
automatically terminate if the Closing shall not have occurred on or before the
date which is the first Friday which is more than one hundred twenty-five (125)
days after the Effective Date (the “Outside Closing
Date”). Notwithstanding anything to the contrary contained
herein, nothing herein shall be deemed to excuse or waive any breach or default
by either party of its obligations under this Agreement. The date of
the Closing is sometimes referred to herein as the "Closing
Date." The Closing shall be effective as of 8:00 a.m. (local
time) on the Closing Date.
8.2 Deliveries by Buyer.
At the Closing, Buyer shall deliver to Seller the following (collectively, the
"Buyer
Deliveries"):
8.2.1 Payment of Purchase
Price. Immediately available funds in an amount equal to the
Purchase Price paid to and received by Seller.
8.2.2 Assignment and Assumption of
Lease and Sublease. Duly executed and, where necessary,
acknowledged counterparts of the Assignment and Assumption of Lease and Sublease
by and between Buyer and Seller in substantially the form of Exhibit C attached
hereto (the “Assignment and Assumption of
Sublease”).
8.2.3 Buyer’s Closing
Certificate. A duly executed certificate, dated as of the
Closing Date, to the effect that the conditions specified in Sections 6.1 and
6.2 have been satisfied in accordance with the terms and provisions
hereof.
8.2.4 Additional
Deliveries. Such additional documents, instruments and
agreements, signed and properly acknowledged by Buyer, if appropriate, as may be
necessary to comply with Buyer's obligations under this Agreement.
8.3 Deliveries by
Seller. At the Closing, Seller shall deliver to Buyer all of
the following (collectively, the "Seller
Deliveries"):
8.3.1 Assignment and Assumption of
Lease and Sublease. Duly executed and, where necessary,
acknowledged counterparts of the Assignment and Assumption of Lease and
Sublease.
17
8.3.2 Seller’s Closing
Certificate. A duly executed certificate, dated as of the
Closing Date, to the effect that the conditions specified in Sections 5.1 and
5.2 have been satisfied in accordance with the terms and provisions
hereof.
8.3.3 Additional
Deliveries. Such additional documents, instruments and
agreements, signed and properly acknowledged by Seller, if appropriate, as may
be necessary to comply with Seller's obligations under this
Agreement.
8.4 Closing
Costs. Buyer and Seller shall each pay 50% of all documentary
transfer, excise or similar Taxes, if any, payable in connection with the
transactions contemplated by this Agreement. Buyer and Seller shall
each bear their own legal and accounting costs and fees. Buyer and Seller shall
each pay 50% of all sales and similar Taxes payable in connection with the
transactions contemplated by this Agreement.
8.5 Possession. Subject
to the terms of the Sublease, possession of the Leased Premises shall be
delivered to Buyer on the Closing Date; provided, however, that Seller shall
deliver possession of all files for the Lease within five (5) Business Days
after the Closing Date.
9. Termination. Notwithstanding
anything to the contrary contained herein, this Agreement may be terminated at
any time before the Closing (a) by mutual consent of Seller and Buyer; (b) by
Buyer, upon written notice to Seller, if Seller has breached any representation,
warranty, covenant or agreement, such breach has had, either individually or in
the aggregate, a Material Adverse Effect, and such breach is either not capable
of being cured prior to the Closing or, if such breach is capable of being
cured, is not so cured within ten (10) days of notice by Buyer to Seller of such
breach; or (c) by Seller, upon written notice to Buyer, if Buyer has breached
any representation, warranty, covenant or agreement, and such breach is either
not capable of being cured prior to the Closing or, if such breach is capable of
being cured, is not so cured within ten (10) days of notice by Seller to Buyer
of such breach. If this Agreement is terminated, this Agreement shall
become null and void and have no further force or effect, and no party hereto
(or any of such party’s Affiliates, directors, officers, agents or
representatives), shall have any liability or obligation hereunder; provided,
however, that (i) the letter agreement dated as of January 15, 2007 by and among
Pacific, Consolidated and RDI (the “Confidentiality
Agreement”) shall remain in full force and effect, (ii) each party shall
bear its own fees and expenses incurred in connection with the negotiation and
documentation of this Agreement and the Transaction Documents, and (iii)
notwithstanding the foregoing, but subject to the terms of Article 10 below,
termination of this Agreement shall not release any party from any liability for
any breach by such party of any of its representations, warranties, covenants or
agreements contained in this Agreement prior to such termination.
10. Indemnification.
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10.1 Indemnification by
Buyer. Subject
to the terms of this Article 10, Buyer shall indemnify and hold Seller, its
Affiliates and their respective employees, officers, directors, members,
managers, shareholders, agents, contractors, attorneys and representatives
(collectively, the “Seller Indemnified
Parties”) harmless from and against, and
agrees to promptly defend any Seller Indemnified Party from and reimburse any
Seller Indemnified Party for, any and all any and all liabilities, demands,
claims, actions, causes of action, costs, damages, deficiencies, Taxes,
penalties, fines and other losses and expenses, whether or not arising out of a
claim made by any third party, including all interest, penalties, reasonable
attorneys’ fees and expenses, and all amounts paid or incurred in connection
with any action, demand, proceeding, investigation or claim by any third party
(including any Governmental Authority) (“Losses”) which such
Seller Indemnified Party may at any time suffer or incur, or become subject to,
as a result of or in connection with:
10.1.1 any
untruth or inaccuracy in any representation or warranty of Buyer or any Buyer
Sub contained in this Agreement or in any other Transaction Document; provided,
however, that for purposes of determining an untruth or inaccuracy in any such
representation or warranty for purposes of this Section 10.1.1, the
representations and warranties of Buyer that are limited or qualified by
references to “material” or “materiality” or “Material Adverse Effect” or
similar qualifications shall be construed as if they were not limited or
qualified by such qualifications.
10.1.2 any
failure of Buyer or any Buyer Sub duly to perform or observe any term,
provision, covenant, agreement or condition contained in this Agreement or the
other Transaction Documents to be performed or observed by Buyer or such Buyer
Sub; or
10.1.3 any
claim or cause of action by any party arising on or after the Closing Date
against any Seller Indemnified Party (including, without limitation, any claim
or cause of action arising from the failure to obtain any required consents or
approvals, including, without limitation, consents or approvals from any party,
to the assignment of the Lease to Buyer) with respect to the Property, the
obligations of Seller assumed by Buyer or an Buyer Sub under this Agreement
(including the Assumed Liabilities) or any of the other Transaction Documents,
including any default by Buyer or any Buyer Sub under the Lease arising on or
after the Closing Date.
10.2 Indemnification by
Seller. Subject to the terms
of this Article 10, Seller shall indemnify and hold the Buyer, its Affiliates
and their respective employees, officers, directors, members, managers,
shareholders, agents, contractors, attorneys and representatives (collectively,
the “Buyer Indemnified
Parties”) harmless from and against, and agrees to promptly defend any
Buyer Indemnified Party from and reimburse any Buyer Indemnified Party for, any
and all Losses which such Buyer Indemnified Party may at any time suffer or
incur, or become subject to, as a result of or in connection
with:
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10.2.1 any
untruth or inaccuracy in any representation or warranty of Seller contained in
this Agreement or in any other Transaction Document; provided, however, that for
purposes of determining an untruth or inaccuracy in any such representation or
warranty for purposes of this Section 10.2.1, the representations and warranties
of Seller that are limited or qualified by references to “material” or
“materiality”
or “Material Adverse Effect” or similar qualifications shall be construed as if
they were not limited or qualified by such qualifications.
10.2.2 any
failure of Seller duly to perform or observe any term, provision, covenant,
agreement or condition contained in this Agreement or the other Transaction
Documents to be performed or observed by the Seller; or
10.2.3 except
as otherwise provided by and subject to the terms of Sections 3.3 and 3.4 above,
any claim or cause of action by any party arising on or after the Closing Date
against any Buyer Indemnified Party with respect to the obligations of Seller
retained by Seller under this Agreement or any of the other Transaction
Documents, including any default by Seller under the Lease arising prior to the
Closing Date or any failure of Seller to satisfy any of its liabilities other
than the Assumed Liabilities.
10.3 Notification and Defense of
Claims.
10.3.1 A
party entitled to be indemnified pursuant to Section 10.1 or 10.2 (the “Indemnified Party”)
shall promptly notify the party or parties liable for such indemnification (the
“Indemnifying
Party”) in writing of any claim, action, lawsuit, proceeding,
investigation or demand which the Indemnified Party has determined has given or
could give rise to a right of indemnification under this Agreement; provided,
however, that a failure to give prompt notice or to include any specified
information in any notice will not affect the rights or obligations of any party
hereunder except and only to the extent that, as a result of such failure, any
party which was entitled to receive such notice was prejudiced as a result of
such failure. Subject to the Indemnifying Party’s right to defend in
good faith third party claims as hereinafter provided, the Indemnifying Party
shall satisfy its obligations under this Section 10 within thirty (30) days
after the receipt of written notice thereof from the Indemnified
Party.
10.3.2 If
the Indemnified Party shall notify the Indemnifying Party of any claim or demand
pursuant to Section 10.3.1, and if such claim or demand relates to a claim or
demand asserted by a third party against the Indemnified Party, the Indemnifying
Party shall have the right to defend any such claim or demand asserted against
the Indemnified Party. The Indemnified Party shall have the right to
participate in the defense of any such claim or demand at its own
expense. Without limiting the generality of the foregoing, the
Indemnified Party shall not be entitled to indemnification for any fees or costs
of defending any such claim or demand unless and until the Indemnifying Party
elects not to assume the defense of such claim or demand. The
Indemnifying Party shall notify the Indemnified Party in writing, as promptly as
possible (but in any case five (5) Business Days before the due date for the
answer or response to
20
a claim)
after the date of the notice of claim given by the Indemnified Party to the
Indemnifying Party under Section 10.3.1 of its election to defend any such third
party claim or demand. So long as the Indemnifying Party is defending
in good faith any such claim or demand asserted by a third party against the
Indemnified Party, the Indemnified Party shall not settle or compromise such
claim or demand without the prior written consent of the Indemnifying Party
(which consent may be granted or withheld in the Indemnifying Party’s sole and
absolute discretion), and the Indemnified Party shall make available to the
Indemnifying Party or its agents all records and other material in the
Indemnified Party’s possession reasonably required by it for its use in
contesting any third party claim or demand. In the event the
Indemnifying Party elects to defend such claim or action, the Indemnifying Party
shall have the right to settle or compromise such claim or action without the
consent of the Indemnified Party, provided that the terms of the settlement or
compromise impose no additional obligations on the Indemnified Party with
respect to the subject matter of the claim or demand for which the Indemnifying
Party has not agreed to indemnify the Indemnified Party.
10.4 Survival of Representations
and Warranties. The representations and warranties of the
parties contained in this Agreement and the other Transaction Documents, shall
survive the Closing until March 31, 2009, except that the representations and
warranties set forth in Sections 3.1.1, 3.1.2, 3.1.4 (second, third, and
penultimate sentences only), and 3.1.6 shall survive until the applicable
statute of limitations has run (the “Survival
Period”). Notwithstanding any other provision to the contrary,
no party shall be required to indemnify, defend or hold harmless any other party
pursuant to Section 10.1.1 or 10.2.1, unless the Indemnified Party has asserted
a claim with respect to such matters within the Survival Period.
10.5 Characterization of
Payments. Any
payments made pursuant to this Article 10 shall be treated for all Tax purposes
as adjustments to the Purchase Price and no party or any of its Affiliates shall
take any position on a Tax return or in any proceeding with any taxing authority
contrary to such treatment, unless otherwise required by law.
10.6 Limitations. Notwithstanding anything
to the contrary contained in this Agreement or in any of the other Transaction
Documents, the parties’ respective indemnification obligations under this
Agreement shall be subject to the limitations contained in this Section
10.6.
10.6.1 Buyer
shall not be required to indemnify, defend or hold harmless any Seller
Indemnified Party, and Seller shall not be required to indemnify, defend or hold
harmless any Buyer Indemnified Party, for any inaccuracy in or breach of a
representation or warranty pursuant to Section 10.1.1 or 10.2.1, as
applicable, the aggregate amount of all such Losses of the Seller
Indemnified Parties or the Buyer Indemnified Parties, respectively, exceeds an
aggregate amount equal to $81,250 (the “Deductible”), after
which event the Seller Indemnified Parties or the Buyer Indemnified Parties, as
applicable, shall be entitled to recover for all Losses in excess of the
Deductible, subject to the other terms of this Agreement; provided, however,
that the
21
limitations set forth in this Section 10.6.1 shall not apply to
Losses resulting from or arising in connection with any breach of the
representations and warranties of Seller under Sections 3.1.9 hereof.
10.6.2 Buyer
shall not be required to indemnify, defend or hold harmless the Seller
Indemnified Parties, and Seller shall not be required to indemnify, defend or
hold harmless the Buyer Indemnified Parties, for Losses in excess of an
aggregate amount equal to 100% of
the Purchase Price; provided, however, that the foregoing limitation shall not
apply to (a) the payment of the Purchase Price by Buyer to Seller, (b) any
indemnification pursuant to any of Sections 10.1.3 or 10.2.3, as applicable, or
(c) any indemnification arising out of a breach by Seller of its representation
and warranty in Sections 3.1.4 (second, third, and penultimate sentences only)
above.
10.6.3 The
parties agree, for themselves and on behalf of their respective Affiliates,
successors and assigns, that with respect to each indemnification obligation
under this Agreement or any of the other Transaction Documents, the amount of
any Losses shall be reduced by the amount, if any, of any federal, state or
local income Tax benefit realized or any insurance proceeds
received.
10.6.4 The
parties agree that, except as otherwise expressly provided elsewhere in this
Agreement or in any other Transaction Document, the indemnification provisions
of this Article 10 shall be the sole and exclusive remedy for any breach of or
inaccuracy in any representation, warranty, covenant or agreement contained in
this Agreement or in any of the other Transaction Documents; provided, that
either party shall be entitled to seek specific performance of the other party’s
obligation to close the transaction contemplated by this
Agreement.
10.6.5 No
Indemnified Party shall seek or be entitled to, or accept payment of, any award
or judgment for consequential, incidental, special, indirect or punitive damages
or lost profits suffered by such Indemnified Party, whether based on statute,
contract, tort or otherwise, and whether or not arising from the Indemnifying
Party’s sole, joint or concurrent negligence, strict liability or other
fault.
10.6.6 Seller
shall have no indemnification obligation hereunder to the extent any Losses
arose out of or resulted from the inaccuracy of any representation or warranty
of Seller, and Buyer or any Affiliate of Buyer had actual knowledge of such
inaccuracy prior to the execution and delivery of this Agreement by
Buyer. For purposes of this Section, the term “actual knowledge”
means the actual knowledge of any one or more of John Hunter, Andrzej
Matyczynski, or S. Craig Tompkins. Additionally, Buyer shall be
deemed to have “actual knowledge” of any fact which has been disclosed in
writing by Seller, its Affiliates or their respective officers, employees,
agents or representatives to any outside attorney or accountant of
Buyer.
11. Certain Defined
Terms. For purposes of this Agreement, the following terms
have the meaning set forth below:
22
“Affiliate” means, as
to any Person, any other Person which directly or indirectly controls, or is
under common control with, or is controlled by, such Person. As used
in this definition, “control” (including, with its correlative meanings,
“controlled by” and “under common control with”) shall mean possession, directly
or indirectly, of the power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests by contract or otherwise) of such Person;
provided, however, in no event shall either of Michael Forman or Christopher
Forman be deemed an Affiliate of Buyer.
“Business Day” means
Monday through Friday, excluding any day of the year on which banks are required
or authorized to close in California.
“Code” means the
Internal Revenue Code of 1986, as amended, and any successor law.
“Environmental Laws”
means all applicable laws, regulations and other requirements of any
Governmental Authority relating to pollution, health or safety or to the
protection of human health, safety or the environment.
“GAAP” means United
States generally accepted accounting principles, as in effect from time to
time.
“Governmental
Authority” means any U.S., federal, state or local government,
governmental authority, regulatory or administrative agency or commission or any
court, tribunal, or judicial or arbitral body (or any political subdivision
thereof).
“Hazardous Materials”
means any hazardous substance, hazardous waste, contaminant, pollutant or toxic
substance (as such terms are defined in any applicable Environmental Law);
provided that “Hazardous Materials” shall not include customary products used
and/or stored by Seller in the ordinary course of its business.
“Lien” means any
mortgage, pledge, security interest, encumbrance, lien (statutory or other) or
charge of any kind, including, without limitation, any conditional sale or other
title retention agreement, any lease in the nature of a conditional sale or
title retention agreement, and including any lien or charge outstanding by
statute or other laws which secures the payment of a debt (including, without
limitation, any Tax) or the performance of an obligation.
“Material Adverse
Effect” means a material adverse effect on the value of the Property,
taken as a whole, provided, however that any such material adverse effect
arising out of or resulting from an event or series of events or circumstances
affecting (a) the motion picture industry generally or (b) any one or more
markets in which any of the theaters operated at the Property are located, shall
not constitute a Material Adverse Effect, including, without limitation, the
opening for business of any theater competitive to any such
theater.
23
“Permitted Liens”
means the following Liens: (a) Liens for Taxes, assessments or other
governmental charges or levies not yet due and payable; and (b) statutory Liens
of landlords and Liens of carriers, warehousemen, mechanics, materialmen and
other Liens imposed by Law and on a basis consistent with past practice for
amounts not yet due.
“Person” means any
individual, corporation, limited liability company, partnership, joint venture,
association, trust, any other unincorporated organization or Governmental
Authority.
“Tax” or “Taxes” means all
federal, state, local or foreign taxes, including, but not limited to, income,
gross income, gross receipts, capital, production, excise, employment, sales,
use, transfer, transfer gain, ad valorem, premium, profits, license, capital
stock, franchise, severance, stamp, withholding, Social Security, employment,
unemployment, disability, worker’s compensation, payroll, utility, windfall
profits, customs duties, personal property, real property, environmental,
registration, alternative or add-on minimum, estimated and other taxes,
governmental fees or like charges of any kind whatsoever, including any
interest, penalties or additions thereto whether disputed or not.
“Theater Level Cash
Flow” means, with respect to any movie theater for any
period, (i) the gross revenues from the operation of such theater for
such period, less (ii) the film
costs and cost of concessions for such theater for such period, less (iii) the
operating expenses (including, without limitation, payroll, payroll benefits,
repairs and maintenance, supplies, utilities, advertising, insurance, security
services, taxes and licenses) of such theater for such period, and less (iv) the
occupancy expenses (including, without limitation, the base or minimum rent,
percentage rent, additional rent and real estate taxes) of such theater for such
period, in each case calculated in accordance with GAAP, applied on a consistent
basis (with the exception that rents will not be calculated on a straight line
basis as would otherwise be required under FASB 13). For the
avoidance of doubt, “operating expenses” shall exclude any general or
administrative expenses not incurred at the theater level, and any depreciation,
amortization, interest or income tax costs.
“Transaction
Documents” means this Agreement and all documents, agreements and
instruments contemplated by and being delivered pursuant to or in connection
with this Agreement.
12. Notices. In
the event either party desires or is required to give notice to the other party
in connection with this Agreement, the same shall be in writing and shall be
delivered in person or by recognized overnight air courier service, or deposited
with the United States Postal Service, postage prepaid, or certified mail,
return receipt requested, addressed to Buyer or Seller at the appropriate
address as set forth below:
If to
Seller: Kenmore
Rohnert, LLC
120 N. Robertson
Boulevard
Los Angeles, California
90048
24
Attention: Ira S. Levin,
Esq.
With a copy
to: Weissmann
Wolff Bergman Coleman
Grodin
& Evall, LLP
9665 Wilshire Boulevard, Ninth
Floor
Beverly Hills, California
90212
Attention: Mitchell Evall
& Andrew Schmerzler
If to
Buyer: Consolidated
Amusement Theatres, Inc.
c/o Reading International,
Inc.
500 Citadel Drive, Suite
300
Commerce, California
90040
Attention: Chief Operating
Officer
With a copy
to: Troy
& Gould Professional Corporation
1801 Century Park East, Suite
1600
Los Angeles, California
90067
Attention: Dale E. Short,
Esq.
Any such
notice shall be deemed to have been given on the date so delivered, if delivered
personally or by overnight air courier service, or, if mailed, on the date shown
on the return receipt as the date of delivery or the date on which the Post
Office certified that it was unable to deliver, whichever is applicable. Any
party may, by written notice to the other party, specify a different address to
which notices shall be given, by sending notice thereof in the manner set forth
above. No copies of notices given to any party after the date which
is one (1) year after the Closing Date also need be given to outside counsel for
such party.
13. Miscellaneous.
13.1 Entire Agreement;
Amendment. This Agreement (including all Exhibits and
Schedules hereto), the other Transaction Documents and the Confidentiality
Agreement contain all of the terms and conditions agreed upon by the parties
hereto with reference to the subject hereof. No other prior or
concurrent agreements not specifically referred to herein, oral or otherwise,
shall be deemed to exist or to bind any of the parties hereto. No officer or
employee of any party shall have authority to make any representation or promise
not contained in this Agreement and each of the parties hereto agrees that it is
not executing this Agreement in reliance upon any such representation or
promise. This Agreement may not be modified or changed except by written
instruments signed by all of the parties hereto. Subject to the restrictions on
assignment set forth herein this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and
assigns.
13.2 Assignment. Except
as permitted by Section 1.3, Buyer may not assign or otherwise transfer all or
any of its rights, obligations or interests under this Agreement without the
prior written consent of Seller. Except as permitted by Section
25
1.4,
Seller may not assign or otherwise transfer all or any of its rights,
obligations or interests under this Agreement without the prior written consent
of Buyer. No assignment of this Agreement by any party shall be
effective until an executed written assumption by such assignee of the assigning
party’s obligations under this Agreement is delivered to the other party and no
such assignment shall relieve any party of its obligations under this
Agreement.
13.3 Governing
Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law of such state.
13.4 Drafting. This
Agreement has been jointly negotiated and drafted, and shall be construed as a
whole according to its fair meaning and not strictly for or against any
party.
13.5 Further
Assurances. Each of the parties hereto agrees that it will,
forthwith upon any request by the other party, cooperate fully in the
preparation, execution, acknowledgment, delivery and recording of any
agreements, instruments, memoranda or documents reflecting or in furtherance of
any of the transactions contemplated by this Agreement.
13.6 Intentionally
omitted.
13.7 Confidentiality; Press
Releases. Except and to the extent required by applicable law
(including, without limitation, Buyer’s obligation to file a report on Form 8-K
with the Securities and Exchange Commission and issue a press release in
connection with the execution and delivery of this Agreement) and the rules and
regulations of the American Stock Exchange, and except as may be necessary to
consummate the transactions contemplated hereby, until the Closing no party
hereto shall disclose the existence of this Agreement, or any of the terms or
provisions hereof, or make any press release or similar disclosure, without the
prior written consent of the other party. To the extent reasonably
feasible, the initial press release or other announcement or notice regarding
the transactions contemplated by this Agreement shall be made jointly by the
parties; provided, however, that nothing in this Agreement shall prohibit any
party from making press release required by applicable law. Upon the Closing,
the confidentiality and non-disclosure obligations of the parties hereunder and
under the Confidentiality Agreement shall terminate, except to the extent that
such obligations relate to documentation or information relating to any
properties of Seller other than the Property and the businesses conducted
thereon, which obligations shall survive until the expiration of the
Confidentiality Agreement in accordance with its
terms. Notwithstanding the foregoing, following the Closing, without
the prior written consent of Buyer, neither Seller nor any of its Affiliates
shall, directly or indirectly, disclose to any Person any non-public information
regarding the Property, except that Seller and its Affiliates may disclose such
information (a) in connection with matters related to the sale of the Property
or the other transactions contemplated by the
26
Transaction
Documents; (b) in connection with the preparation of reports and documents to be
filed by Seller or any of its Affiliates with any Governmental Authority; (c) to
Seller’s officers, directors, members, managers, employees, agents,
representatives, attorneys and accountants provided that Seller shall be
responsible for any non-permitted disclosure of such information by any such
Persons; (d) if required to do so by a Governmental Authority of competent
jurisdiction, and (e) if such information is in the public domain or is
previously published or disseminated by a third party other than pursuant to the
provisions of a confidentiality agreement entered with Buyer.
13.8 Waiver. No
action taken pursuant to this Agreement shall be deemed to constitute a waiver
by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
13.9 Third
Parties. Except as otherwise expressly provided for or
contemplated by this Agreement, nothing in this Agreement, express or implied,
shall or is intended to confer upon any Person other than the parties hereto, or
their respective successors or assigns, any rights or remedies of any nature or
kind whatsoever under or by reason of this Agreement.
13.10 Section
Headings. Section headings are provided herein for convenience
only and shall not serve as a basis for interpretation or construction of this
Agreement, nor as evidence of the intention of the parties hereto.
13.11 Severability. If
any provision of this Agreement as applied to either party or to any
circumstance shall be adjudged by a court to be void or unenforceable, the same
shall in no way affect any other provision of this Agreement, the application of
any such provision in any other circumstances or the validity or enforceability
of this Agreement as a whole.
13.12 Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute but one and the
same instrument.
13.13 Reference. Except
as otherwise expressly provided in this Agreement, any dispute of any nature or
character whatsoever between the parties and arising under or with respect to
this Agreement or any of the other Transaction Documents, or the subject matter
hereof or thereof, shall be resolved by a proceeding in accordance with the
provisions of California Code of Civil Procedure Section 638 et seq., for a
determination to be made which shall be binding upon the parties as if tried
before a court or jury. The parties agree specifically as to the
following:
13.13.1 Within
five (5) Business Days after service of a demand by a party hereto, the parties
shall agree upon a single referee who shall then try all issues, whether of fact
or law, and then report a finding or judgment thereon. If the parties
are unable to agree upon a referee either party may seek to have one
appointed,
27
pursuant to California Code of Civil Procedure Section 640, by the
presiding judge of the Los Angeles County Superior Court;
13.13.2 The
compensation of the referee shall be such charge as is customarily charged by
the referee for like services. The cost of such proceedings shall
initially be borne equally by the parties. However, the prevailing
party in such proceedings shall be entitled, in addition to all other costs, to
recover its contribution for the cost of the reference as an item of damages
and/or recoverable costs;
13.13.3 If
a reporter is requested by either party, then a reporter shall be present at all
proceedings, and the fees of such reporter shall be borne by the party
requesting such reporter. Such fees shall be an item of recoverable
costs. Only a party shall be authorized to request a
reporter;
13.13.4 The
referee shall apply all California Rules of Procedure and Evidence and shall
apply the substantive law of California in deciding the issues to be
heard. Notice of any motions before the referee shall be given, and
all matters shall be set at the convenience of the referee;
13.13.5 The
referee’s decision under California Code of Civil Procedure Section 644, shall
stand as the judgment of the court, subject to appellate review as provided by
the laws of the State of California; and
13.13.6 The
parties agree that they shall in good faith endeavor to cause any such dispute
to be decided within four (4) months. The date of hearing for any
proceeding shall be determined by agreement of the parties and the referee, or
if the parties cannot agree, then by the referee. The referee shall have the
power to award damages and all other relief.
13.14 Interpretative
Matters
. Unless
the context otherwise requires, (a) all references to Articles, Sections or
Schedules are to Articles, Sections or Schedules in this Agreement,
(b) each accounting term not otherwise defined in this Agreement has the
meaning assigned to it in accordance with GAAP, (c) words in the singular
or plural include the singular and plural, and pronouns stated in either the
masculine, the feminine or neuter gender shall include the masculine, feminine
and neuter and (d) whenever the words “include,” “includes” or “including” are
used in this Agreement they shall be deemed to be followed by the words “without
limitation.”
13.15 No Personal
Liability. Under no circumstances shall any personal liability
or obligation under this Agreement or under any of the other Transaction
Documents be imposed or assessed against any shareholder, member, manager,
officer, director, employee or agent of any party to this Agreement or of any of
such party’s Affiliates, and no party (nor any party claiming through such
party) shall commence any proceedings or otherwise seek to impose any liability
whatsoever against any such shareholders, member, manager, officer, director,
employee or agents.
28
13.16 Guaranty. Concurrently
herewith, RDI has executed and delivered to Seller a Guaranty in substantially
the form of Exhibit
D attached hereto.
[Signatures
contained on next page]
29
IN WITNESS WHEREOF, the parties hereto
have executed this Agreement as of the date first above written.
KENMORE ROHNERT, LLC,
a Delaware limited liability
company
By: Kenmore Properties, Inc.,
a Washington corporation,
as its sole member
By: /s/ James D.
Vandever
Its: Vice
President
CONSOLIDATED AMUSEMENT THEATRES, INC.,
a Nevada corporation
By: /s/ John
Hunter
Its: Chief Operating
Officer
30
LIST
OF EXHIBITS
Exhibit
A The
Lease
Exhibit
B The
Sublease
Exhibit
C Assignment
and Assumption of Lease and Sublease
Exhibit
D RDI
Guaranty
LIST
OF SCHEDULES
Schedule
3.1.3 Required
Consents
Schedule
4.1.4 Manville
Lease Summary and Manville P&Ls
31
Amendment
No. 1
To
Asset
Purchase and Sale Agreement
This
AMENDMENT NO. 1 TO ASSET PURCHASE AND SALE AGREEMENT (this “Amendment”) is
entered to as of this 8th day of February, 2008 and reinstates and amends
in certain respects that certain ASSET PURCHASE AND SALE AGREEMENT (the
“Original
Agreement” and as amended by this AMENDMENT, the “Agreement”) made and
entered into as of October 8, 2007 (the “Effective Date”) by
and among PACIFIC THEATRES EXHIBITION CORP., a California corporation (“Pacific”),
CONSOLIDATED AMUSEMENT THEATRES, INC., a Hawaii corporation (“Consolidated” and,
collectively with Pacific, “Seller”), MICHAEL
FORMAN and CHRISTOPHER FORMAN (collectively, the “Formans”), on the one
hand, and CONSOLIDATED AMUSEMENT THEATRES, INC, a Nevada corporation (“Buyer”), and READING
INTERNATIONAL, INC., a Nevada corporation (“RDI”), on the other
hand, with reference to the following facts:
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A.
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WHEREAS,
certain matters have arisen since the Effective Date which the parties
wish to address, and
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B.
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WHEREAS,
the parties desire, notwithstanding these developments, to proceed with
the transaction as set forth in the Original Agreement as modified by this
Amendment,
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NOW,
THEREFORE, in consideration of the foregoing recitals and the mutual covenants,
agreements, representations and warranties herein contained, the parties hereby
agree as follows:
1. The
parties hereby reinstate and adopt the Original Agreement and agree
that except as amended by this Amendment, the terms of the Original
Agreement will continue in full force and effect without
modification. Unless otherwise specifically defined in this
Amendment, all terms used herein will have the same meaning as set forth in the
Original Agreement. However, the term “Notes” as used in the Original
Agreement is amended at each place where such term is used and replaced with the
term “Note”, and all other grammatical changes required to reflect the fact that
the term has been changed from the plural “Notes” to the singular “Note” will be
deemed made as appropriate.
2. The
first paragraph of Section 2.1 of the Original Agreement is deleted and replaced
with the following:
“2.1 Purchase
Price. The purchase price for the Purchased Assets shall be
Thirty-Two Million Dollars ($32,000,000), which shall be subject to adjustment
and
1
reimbursement
as hereinafter provided (the “Purchase
Price”). The Purchase Price shall be payable as
follows:”
3. The
third sentence of Section 2.1.1 of the Original Agreement is hereby amended to
read in its entirety as follows:
“(a) The Deposit, along with the
Interest Factor, shall be either (i) returned to RDI at the Closing or
(ii) returned to RDI, within five (5) Business Days after termination of
this Agreement, if this Agreement is terminated prior to the Closing as provided
herein.”
4. Section
2.1.2 of the Original Agreement is deleted and replaced with the
following:
“2.1.2 Purchase
Price. Buyer shall pay to Seller, at the Closing, the entire
Purchase Price by wire transfer of immediately available funds to an account or
accounts designated by Seller. Seller shall designate the account or
accounts not less than two (2) Business Days prior to the Closing
Date.”
5. Section
2.5 of the Original Agreement is deleted and replaced with the
following:
“2.5 Payment of Adjustments to
and Reimbursements of the Purchase Price. If, pursuant to
Sections 2.2 or 2.3, it is determined after the Closing Date that Buyer shall be
obligated to pay any amounts to Seller, then Buyer shall make such payments in
full to Seller within ten (10) days after such amount is finally determined to
be due. Conversely, if, pursuant to Sections 2.2 or 2.3, it is
determined after the Closing Date that Seller shall be obligated to pay any
amounts to Buyer, then such amounts shall be credited against the obligations of
“RCH, Inc.” (as defined in Section 5.6.1) to Seller under the “Note” (as defined
in Section 5.6.1), such credit to be
applied, effective as though applied from the Closing Date, first against
principal and then against accrued interest.
6. Schedule 2.7 to the
Original Agreement is deleted and replaced with the Schedule 2.7 attached
to this Amendment.
7. Each
party hereby irrevocably waives the condition precedent to such party’s
obligation to close the transactions contemplated by the Agreement that the
parties receive the consent to the assignment by Seller to Buyer of Seller’s
interest under the Pearlridge West 16 Lease from the master landlord under such
Lease (the “Pearlridge
Master Landlord”). Buyer’s waiver of the foregoing is
based upon Seller’s representation to Buyer that Pearlridge Master Landlord has
orally stated to Seller that
2
the
consent of the Pearlridge Master Landlord is not required in connection with
such assignment.
8. Section
5.6 of the Original Agreement is deleted and replaced with the
following:
“5.6 Loan to Reading Consolidated
Holdings,
Inc.
“5.6.1 Concurrently
with the Closing, and subject to the satisfaction or waiver of all other
conditions precedent set forth in this Article 5, Seller (or an Affiliate or
Affiliates of Seller) (the “Lender”) shall have
made a loan to Reading Consolidated Holdings, Inc., a Nevada corporation (“RCH, Inc.”), the
parent company of Consolidated Amusement Holdings, Inc., a Nevada corporation
(“CAH, Inc”),
which is the parent company of Buyer, in the principal amount of Twenty-One
Million Dollars ($21,000,000) (the “RCH Loan”). The
original principal amount of the Loan shall be subject to reduction pursuant to
Section 2.5, above. The RCH Loan shall be evidenced by a
Promissory Note in substantially the form of Exhibit C-1 (the
“RCH Note”),
attached hereto.
“5.6.2 The
RCH Note will be secured by a pledge of the stock of all of the issued and
outstanding shares of capital stock of CAH, Inc. (determined on a fully diluted
and converted basis) pursuant to a Stock Pledge Agreement in the form of Exhibit K attached
hereto (the “Pledge and Security Agreement”). RCH,
Inc. will own all of the issued and outstanding shares of capital
stock of CAH, Inc. (determined on a fully diluted and converted basis) and CAH,
Inc. will own all of the issued and outstanding shares of capital stock of Buyer
(determined on a fully diluted and converted basis). RCH,
Inc. will agree in the Pledge Agreement (i) not to permit CAH, Inc. to incur any
material indebtedness (other guarantees of the obligations of Buyer) or material
liabilities (including liabilities for general and administrative obligations),
and to cause CAH, Inc. to do no business other than the holding of the
securities of Buyer and the guarantee of the obligations of Buyer, and (ii) not
to permit Buyer to make any payments or reimbursements to RDI or any of its
affiliates other than as provided in the Management Agreement attached as Exhibit 5.6.2 hereto
(provided that it is understood that the obligation of the Manager under the
Management Agreement may be assigned to any affiliate of RDI).”
9. Section
10.2 of the Original Agreement is hereby deleted and shall of no further force
or effect. For purposes of clarity, the condition
precedent set
3
forth in
Section 5.7 of the Original Agreement shall remain in full force and effect
without modification; provided, however that the parties acknowledge and agree
that the terms of General Electric Capital Corporation’s original lending
commitment are currently being renegotiated, that the financing
condition set forth in Section 5.7 of the Original Agreement is to apply to the
funding of such financing on such terms, if any, as may ultimately renegotiated
between Buyer and its lender. As a point of clarification, if Buyer
and its lender should ultimately fail to reach agreement as to the revised terms
or if Buyer’s lender should for any other reason fail to fund, then the
financing condition set forth in Section 5.7 of the Original Agreement shall be
deemed not to have been satisfied.
10. A
new Section 7.15 is hereby added to the Original Agreement as
follows:
“7.15 Sublease of Retail Portions
of the Kapolei Property. At and simultaneously with the
Closing, Buyer (as sublandlord) and Seller (as subtenant) will enter into a
sublease in substantially the form of Exhibit L attached
hereto (the “Kapolei
Retail Area Sublease”) of those portions of the Kapolei 16 Property
occupied by the retail leases set forth on Exhibit A-2 of the
Original Agreement (the “Kapolei Retail
Leases”), and Buyer will assign to Seller the Kapolei Retail
Leases. The parties acknowledge and agree that, for purpose of the
Kapolei Retail Area Sublease, the net cash flow for the Kapolei Retail Leases
for the 12 months ended June 30, 2007 was $228,732.”
11. Section
9.1 of the Original Agreement is hereby deleted and replaced with the
following:
“9.1 Closing
Date. Subject to the satisfaction (or waiver by Buyer or
Seller as provided therein) of the conditions precedent in Articles 5 and 6
hereof, the transactions contemplated by this Agreement shall be consummated at
a closing (the “Closing”) at the
offices of Weissmann Wolff Bergman Coleman Grodin & Evall, LLP, 9665
Wilshire Boulevard, Ninth Floor, Beverly Hills, California 90212. The
Closing shall occur on Friday, February 15, 2008 (the “Scheduled Closing
Date”). The
date of the Closing is sometimes referred to herein as the “Closing
Date.” The Closing shall be effective as of 8:00 a.m. (local
time) on the Closing Date.”
12. New
Sections 9.2.10, 9.2.11 and 9.2.12 are hereby added to the Original Agreement as
follows:
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“9.2.10 RCH Note and Pledge
Agreement. The RCH Note and the Pledge Agreement, each
duly executed by RCH, Inc.
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“9.2.11 Kahala Management
Agreement. Duly executed counterparts of the Kahala
Management Agreement by and between
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4
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Buyer
and Seller with respect to the Theater operated at the premises covered by
the “Kahala 8 Lease” (as defined in Exhibit A-1) in
substantially the form of Exhibit M
attached hereto.
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“9.2.12 Kapolei Retail Area
Sublease. Duly executed counterparts of the Kapolei Retail Area
Sublease.”
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13. The
Original Agreement is hereby amended to provide that although the Theater
operated pursuant to the Kahala 8 Lease shall remain a “Theater” for all
purposes under the Agreement, Seller shall not assign its rights as tenant under
the Kahala 8 Lease to Buyer and, in lieu thereof, the parties shall enter into
the Kahala Management Agreement at the Closing. Accordingly,
obtaining the consent of the landlord under the Kahala 8 Lease to the assignment
of the Kahala 8 Lease from Seller to Buyer shall not be a condition precedent to
any party’s obligation to consummate the transactions contemplated by the
Agreement. However, Seller acknowledges and agrees that Buyer is making no
representation or warranty as to the effectiveness of that management agreement
under the Kahala 8 Lease or that the management agreement is permitted under the
Kahala 8 Lease. Seller shall indemnify, hold harmless and
defend Buyer against any and all claims, loss or liability resulting from any
assertion by the landlord under the Kahala 8 Lease that the management agreement
is not effective and/or that it is not permitted under the Kahala 8 Lease to the
extent provided in the Kahala Management Agreement. Without limiting the
generality of the foregoing, and notwithstanding that the Kahala 8 Lease shall
not be assigned by Seller to Buyer at Closing, the Purchased Assets shall
continue to include all furniture, fixtures, equipment and inventory located at
the Theater operated under the Kahala 8 Lease.
14. Buyer
agrees to change its name to Consolidated Entertainment, Inc. within ten (10)
days following the Closing Date.
15. Exhibit B to the
Original Agreement is hereby replaced in its entirety by Exhibit B to this
Amendment. Schedule 3.1.3 to the
Original Agreement is hereby replaced in its entirety by Schedule 3.1.3 to
this Amendment. Exhibits
C-1 and
C-2 to the Original Agreement
are hereby deleted and replaced by Exhibit
C-1 to this
Amendment.
16. Section
7.7 of the Original Agreement is hereby amended to provide that Buyer shall
honor and redeem all Coupons and Passes presented at the Theaters for a period
of two (2) years after the Closing Date, in lieu of the one (1) year period set
forth in the Purchase Agreement.
17. Seller
agrees to leave for Buyer the following amount of cash at each Theater on the
Closing Date: (i) Seller shall leave for Buyer the sum of $2,000 at each of the
following Theaters: Kaahumanu and Kukui; (ii) Seller shall leave for Buyer the
sum of $4,000 at each of the following Theaters: Town Square,
Grossmont, Carmel
5
Mountain,
Gaslamp, Pearlridge, Kahala, Kapolei, Koko Marina, and Koolau; and (ii) Seller
shall leave for Buyer the sum of $10,000 at each of the following Theaters:
Valley Plaza, Mililani, Ward, and Rohnert Park. Seller shall be
entitled to an increase in the Purchase Price payable at the Closing equal
to the amount of such cash.
18. Buyer
has agreed to assume the union contracts set forth as Exhibit 18 to this
Amendment. Notwithstanding such assumption, it is acknowledged and
agreed that Buyer is not assuming any responsibility for any liabilities or
obligations that may have accrued under either such contract or any predecessor
contract or agreement with such unions prior to the
Closing. For example, in the event of any present or future
underfunding of any benefit or retirement plan, program or fund, Buyer’s
obligation shall be calculated only by reference to the hours worked by
employees subsequent to the Closing Date, and Seller shall be responsible for
any balance of any liability, if applicable, with respect to any such
underfunding. The parties agree that the union contracts listed set
forth on Exhibit
18 shall be deemed Material Contracts for purposes of Section
3.7.
19. Concurrently
with the Closing, Seller shall sell, transfer and assign to Buyer, and Buyer
shall purchase and acquire from Seller, the 2004 Ford E350 (Econoline 350) Van
(VIN # 1FTNE24L13HC03895) (the “Van”) for a purchase
price of $8,000.00. The purchase price for the Van shall be paid by
Buyer to Seller by wire transfer of immediately available funds at
Closing. The Van is sold on an “as is” basis, without any
representations or warranties of any kind. Buyer shall be
solely responsible for any taxes or assessments which may arise from the
transfer of the Van, including from submission to the Hawaii Department of Motor
Vehicles of an application for change of title to the Van.
20. Buyer
hereby agrees that, if the landlord under the Gaslamp 15 Lease (as defined in
Exhibit A-1)
conditions its consent to the assignment of such lease to Buyer’s Affiliate (the
“Gaslamp
Assignee”) on the Gaslamp Assignee’s agreement to make monthly or
quarterly impound payments of the Gaslamp Assignee’s share of real property
taxes and/or insurance costs, Buyer and the Gaslamp Assignee shall consent to
make such payments as so requested by such landlord. The
parties agree that notwithstanding the provisions of the agreement to which the
Gaslamp Assignee and Seller are parties evidencing the assignment and assumption
of the Gaslamp 15 Lease, that the Gaslamp Assignee shall have no responsibility
for any obligation of the tenant under the Gaslamp 15 Lease to the extent
arising prior to the Closing Date, that Seller shall continue to have
responsibility for all tenant obligations under the Gaslamp 15 Lease to the
extent arising prior to the Closing Date, and that Seller will indemnify Buyer
against any liability for any such obligation, such indemnity to be without
setoff, deductible or any time limitation other than the applicable statute of
limitations.
21. Intentionally
omitted.
6
22. Buyer hereby represents
and warrants that its credit agreement with its lender includes the
following provision:
“Assignment of
Representations, Warranties, Covenants, Indemnities and Rights. Agent
shall have received a duly executed copy of an Assignment of Representations,
Warranties, Covenants, Indemnities and Rights in respect of Borrower's and
Reading’s rights under the Acquisition Agreement, which assignment shall be
expressly permitted under the Acquisition Agreement or shall have been consented
to by the Sellers and other parties to the Acquisition Agreement in
writing.”
The
Selling Parties agree to execute and deliver to Buyer at Closing duly executed
counterparts of such consent in substantially the form of Exhibit 22 to this
Amendment.
23. At
Buyer’s request, after the Closing Seller shall deliver to Buyer, with respect
to each employee of Seller at the Theaters to whom Buyer has offered employment,
(i) the following information: such employee’s name, address, social security
number, job location, pay rate, and whether they have been classified by Seller
as an exempt or non-exempt employee for the purpose of determining whether such
employee is entitled to overtime pay, and (ii) a copy of such employee’s most
recent performance assessment. As a material inducement to Seller to
make such disclosures to Buyer, Buyer hereby (a) all such disclosures are made
for informational purposes only and without any representation, warranty or
opinion as to any matter (including as to the classification of any employee as
an exempt or non-exempt employee or as to any information contained in any such
performance assessment), and (b) Buyer agrees to indemnify, hold harmless and
defend Seller (its successors and assigns) from and against any matter arising
from or in connection with the provision of such information to
Buyer. Buyer’s indemnification obligations under this Section 23
shall not be subject to any minimum threshold, offset or deductible or to any
time limitation other than the applicable statute of limitations.
24. Seller
commits to make, or agrees to cause one or more of its Affiliates to make, an
additional loan to RDI of up to One Million Five Hundred Thousand Dollars
($1,500,000), or such lesser amount as may be requested by RDI, on or before
July 31, 2008, provided that RDI delivers written notice of the amount of such
loan to Seller not later than June 30, 2008, and Seller commits to make, or
agrees to cause one or more of its Affiliates to make, an additional loan to RDI
of up to One Million Five Hundred Thousand Dollars ($1,500,000), or such lesser
amount as may be requested by RDI, on or before July 31, 2009, provided that RDI
delivers written notice of the amount of such loan to Seller not later than June
30, 2009. The parties also agree as follows with respect to any loans
made to RDI pursuant to this Section 24: (a) such loans shall accrue
interest at the rate of 8.50% per annum, compounded annually; (b) all accrued
interest and the entire principal balance of such loans shall be all due and
payable on the date which is three (3) years after the Closing Date; and (c)
such loans shall be evidenced by one or more promissory notes otherwise
substantially in the form of Promissory Note attached
7
as Exhibit
C-1 to the Original Agreement (and not in the form attached as Exhibit C-1 to this
Agreement).
25. Seller
agrees, following the closing, to maintain the current utilities serving the
Theatres until February 29, 2008 in the name of Seller. Buyer
agrees promptly to reimburse to Seller the cost of such utilities against
receipt of appropriate documentation.
This
Amendment may be executed in two or more counterparts (including facsimile
counterparts), each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature page
follows]
8
IN
WITHNESS WHEREOF, the parties hereto have caused this Amendment to be executed
and delivered as of the date first set forth above.
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PACIFIC
THEATRES EXHIBITION CORP.,
a
California corporation
By: /s/ James D.
Vandever
Name:
James Vandever
Its: V.
P.
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CONSOLIDATED
AMUSEMENT THEATRES, INC., a Hawaii corporation
By: /s/ James D.
Vandever
Name:
James Vandever
Its:
V.P.
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CONSOLIDATED
AMUSEMENT THEATRES, INC., a Nevada corporation
By: /s/ Andrzej
Matyczynski
Name:
Andrzej Matyczynski
Its: CFO
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/s/ Michael R. Forman
MICHAEL
FORMAN
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/s/ Christopher S.
Forman
CHRISTOPHER
FORMAN
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READING INTERNATIONAL, INC.,
a
Nevada corporation
By: /s/ Andrzej
Matyczynski
Name:
Andrzej Matyczynski
Title: CFO
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9
Amendment
No. 2
To
Asset
Purchase and Sale Agreement
This
AMENDMENT NO. 2 TO ASSET PURCHASE AND SALE AGREEMENT (this “Amendment”) is
entered to as of this 14th day of
February, 2008 and amends in certain respects that certain ASSET PURCHASE
AND SALE AGREEMENT made and entered into as of October 8, 2007 (the “Effective Date”), as
amended by that certain Amendment No. 1 to Asset Purchase and Sale Agreement,
dated as of February 8, 2008 (collectively, the “Original Agreement”
and as amended by this AMENDMENT No. 2, the “Agreement”), by and
among PACIFIC THEATRES EXHIBITION CORP., a California corporation (“Pacific”),
CONSOLIDATED AMUSEMENT THEATRES, INC., a Hawaii corporation (“Consolidated” and,
collectively with Pacific, “Seller”), MICHAEL
FORMAN and CHRISTOPHER FORMAN (collectively, the “Formans”), on the one
hand, and CONSOLIDATED AMUSEMENT THEATRES, INC, a Nevada corporation (“Buyer”), and READING
INTERNATIONAL, INC., a Nevada corporation (“RDI”), on the other
hand, with reference to the following facts:
WHEREAS,
the parties desire to amend certain terms of the Original Agreement by entering
into this Amendment;
NOW,
THEREFORE, in consideration of the foregoing recitals and the mutual covenants,
agreements, representations and warranties herein contained, the parties hereby
agree as follows:
1. Section
9.1 of the Original Agreement is hereby deleted and replaced with the
following:
“9.1 Closing
Date. Subject to the satisfaction (or waiver by Buyer or
Seller as provided therein) of the conditions precedent in Articles 5 and 6
hereof, the transactions contemplated by this Agreement shall be consummated at
a closing (the “Closing”) at the
offices of Weissmann Wolff Bergman Coleman Grodin & Evall, LLP, 9665
Wilshire Boulevard, Ninth Floor, Beverly Hills, California 90212. The
Closing shall occur on Friday, February 22, 2008 (the “Scheduled Closing
Date”). The
date of the Closing is sometimes referred to herein as the “Closing
Date.” The Closing shall be effective as of 8:00 a.m. (local
time) on the Closing Date.”
1
2. This
Amendment may be executed in two or more counterparts (including facsimile
counterparts), each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature page
follows]
2
IN
WITHNESS WHEREOF, the parties hereto have caused this Amendment to be executed
and delivered as of the date first set forth above.
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PACIFIC
THEATRES EXHIBITION CORP.,
a
California corporation
By: /s/ Ira S. Levin,
VP
Name:
Ira S. Levin
Its: Vice
President
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CONSOLIDATED
AMUSEMENT THEATRES, INC., a Hawaii corporation
By: /s/ Ira S. Levin,
VP
Name:
Ira S. Levin
Its: Vice
President
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CONSOLIDATED
AMUSEMENT THEATRES, INC., a Nevada corporation
By: /s/ Andrzej
Matyczynski
Name:
Andrzej Matyczynski
Its: CFO
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/s/ Michael R.
Forman
MICHAEL
FORMAN
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/s/ Christopher S.
Forman
CHRISTOPHER
FORMAN
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READING
INTERNATIONAL, INC.,
a
Nevada corporation
By: /s/ Andrzej
Matyczynski
Name:
Andrzej Matyczynski
Title: CFO
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3
CREDIT
AGREEMENT
Dated as
of February 21, 2008
among
CONSOLIDATED
AMUSEMENT THEATRES, INC.,
as
Borrower,
THE OTHER
CREDIT PARTIES SIGNATORY HERETO,
as Credit
Parties,
THE
LENDERS SIGNATORY HERETO
FROM TIME
TO TIME,
as
Lenders,
and
GENERAL
ELECTRIC CAPITAL CORPORATION,
as
Administrative Agent, Agent and Lender
GE
CAPITAL MARKETS, INC.
as Lead
Arranger
TABLE
OF CONTENTS
Page
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1. AMOUNT
AND TERMS OF CREDIT
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1
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1.1Credit
Facilities
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2
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1.2Letters
of Credit
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5
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1.3Prepayments
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5
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1.4Use
of Proceeds
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8
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1.5Interest
and Applicable Margins
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8
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1.6Reserved
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11
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1.7Reserved
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11
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1.8Cash
Management Systems
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11
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1.9Fees
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11
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1.10Receipt
of Payments
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11
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1.11Application
and Allocation of Payments
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11
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1.12Loan
Account and Accounting
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12
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1.13Indemnity
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13
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1.14Access
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14
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1.15Taxes
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14
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1.16Capital
Adequacy; Increased Costs; Illegality
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15
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1.17Single
Loan
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17
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2. CONDITIONS
PRECEDENT
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17
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2.1Conditions
to the Initial Loans
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17
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2.2Further
Conditions to Each Loan
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19
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3. REPRESENTATIONS
AND WARRANTIES
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19
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3.1Corporate
Existence; Compliance with Law
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19
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3.2Executive
Offices, Collateral Locations, FEIN, Organizational Number
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20
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|
3.3Corporate
Power, Authorization, Enforceable Obligations
|
20
|
|
3.4Financial
Statements and Projections
|
20
|
|
3.5Material
Adverse Effect
|
21
|
|
3.6Ownership
of Property; Liens
|
22
|
|
3.7Labor
Matters
|
22
|
|
3.8Ventures,
Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness
|
23
|
|
3.9Government
Regulation
|
23
|
|
3.10Margin
Regulations
|
23
|
|
3.11Taxes
|
23
|
|
3.12ERISA
|
24
|
|
3.13No
Litigation
|
25
|
|
3.14Brokers
|
25
|
|
3.15Intellectual
Property
|
25
|
|
3.16Full
Disclosure
|
25
|
|
3.17Environmental
Matters
|
26
|
|
3.18Insurance
|
27
|
|
3.19Deposit
and Disbursement Accounts
|
27
|
|
3.20[Reserved]
|
27
|
|
3.21Trade
Relations
|
27
|
|
3.22Bonding;
Licenses
|
27
|
|
3.23Solvency
|
27
|
|
3.24Acquisition
Agreement
|
27
|
|
3.25Status
of Holdings
|
28
|
|
3.26OFAC
|
28
|
|
3.27Patriot
Act
|
28
|
|
4. FINANCIAL
STATEMENTS AND INFORMATION
|
28
|
|
4.1Reports
and Notices
|
28
|
|
4.2Communication
with Accountants
|
28
|
|
5. AFFIRMATIVE
COVENANTS
|
29
|
|
5.1Maintenance
of Existence and Conduct of Business
|
29
|
|
5.2Payment
of Charges.
|
29
|
|
5.3Books
and Records
|
30
|
|
5.4Insurance;
Damage to or Destruction of Collateral
|
30
|
|
5.5Compliance
with Laws
|
31
|
|
5.6Supplemental
Disclosure
|
31
|
|
5.7Intellectual
Property
|
32
|
|
5.8Environmental
Matters
|
32
|
|
5.9Access
Agreements; Liens on Real Estate Interests
|
32
|
|
5.10Interest
Rate/Currency Fluctuations Protection
|
33
|
|
5.11Further
Assurances
|
34
|
|
5.12Future
Credit Parties
|
34
|
|
5.13Post
Closing
|
34
|
|
6. NEGATIVE
COVENANTS
|
35
|
|
6.1Mergers,
Subsidiaries, Etc.
|
35
|
|
6.2Investments;
Loans and Advances
|
38
|
|
6.3Indebtedness
|
39
|
|
6.4Employee
Loans and Affiliate Transactions
|
39
|
|
6.5Capital
Structure and Business
|
40
|
|
6.6Guaranteed
Indebtedness
|
40
|
|
6.7Liens
|
40
|
|
6.8Sale
of Stock and Assets
|
41
|
|
6.9ERISA
|
41
|
|
6.10Financial
Covenants
|
41
|
|
6.11Hazardous
Materials
|
41
|
|
6.12Sale
Leasebacks
|
42
|
|
6.13Restricted
Payments
|
42
|
|
6.14Change
of Corporate Name or Location; Change of Fiscal Year
|
42
|
|
6.15No
Impairment of Intercompany Transfers
|
42
|
|
6.16Real
Estate Purchases
|
42
|
|
6.17Changes
Relating to Material Contracts
|
43
|
|
6.18Holdings
|
43
|
|
7. TERM
|
43
|
|
7.1Termination
|
43
|
|
7.2Survival
of Obligations Upon Termination of Financing Arrangements
|
43
|
|
8. EVENTS
OF DEFAULT; RIGHTS AND REMEDIES
|
44
|
|
8.1Events
of Default
|
44
|
|
8.2Remedies
|
46
|
|
8.3Waivers
by Credit Parties
|
46
|
|
9. ASSIGNMENT
AND PARTICIPATIONS; APPOINTMENT OF AGENT
|
47
|
|
9.1Assignment
and Participations
|
47
|
|
9.2Appointment
of Agent
|
50
|
|
9.3Agent's
Reliance, Etc.
|
51
|
|
9.4GE
Capital and Affiliates
|
51
|
|
9.5Lender
Credit Decision
|
51
|
|
9.6Indemnification
|
52
|
|
9.7Successor
Agent
|
52
|
|
9.8Setoff
and Sharing of Payments
|
53
|
|
9.9Advances;
Payments; Non-Funding Lenders; Information; Actions in
Concert
|
53
|
|
10. SUCCESSORS
AND ASSIGNS
|
55
|
|
10.1Successors
and Assigns
|
55
|
|
11. MISCELLANEOUS
|
56
|
|
11.1Complete
Agreement; Modification of Agreement
|
56
|
|
11.2Amendments
and Waivers
|
56
|
|
11.3Fees
and Expenses
|
58
|
|
11.4No
Waiver
|
59
|
|
11.5Remedies
|
60
|
|
11.6Severability
|
60
|
|
11.7Conflict
of Terms
|
60
|
|
11.8Confidentiality
|
60
|
|
11.9GOVERNING
LAW
|
61
|
|
11.10Notices
|
61
|
|
11.11Section
Titles
|
63
|
|
11.12Counterparts
|
63
|
|
11.13WAIVER
OF JURY TRIAL
|
63
|
|
11.14Press
Releases and Related Matters
|
63
|
|
11.15Reinstatement
|
64
|
|
11.16Advice
of Counsel
|
64
|
|
11.17No
Strict Construction
|
64
|
INDEX OF
APPENDICES
|
Annex
A (Recitals)
|
-Definitions
|
|
Annex
B (Section 1.2)
|
-Letters
of Credit
|
|
Annex
C (Section 1.8)
|
-Cash
Management System
|
|
Annex
D (Section 2.1(a))
|
-Closing
Checklist
|
|
Annex
E (Section 4.1(a))
|
-Financial
Statements and Projections -- Reporting
|
|
Annex
F (Section 4.1(b))
|
-Collateral
Reports
|
|
Annex
G (Section 6.10)
|
-Financial
Covenants
|
|
Annex
H (Section 9.9(a))
|
-Lenders'
Wire Transfer Information
|
|
Annex
I (Section 11.10)
|
-Notice
Addresses
|
|
Annex
J (from Annex A-Commitments definition)
|
-Commitments
as of Closing Date
|
|
Exhibit
1.1(a)(i)
|
-Form
of Notice of Revolving Credit Advance
|
|
Exhibit
1.1(a)(ii)
|
-Form
of Revolving Note
|
|
Exhibit
1.1(b)
|
-Form
of Term Note
|
|
Exhibit
1.5(e)
|
-Form
of Notice of Conversion/Continuation
|
|
Exhibit
9.1(a)
|
-Form
of Assignment Agreement
|
|
Exhibit
B-1
|
-Application
for Standby Letter of Credit
|
|
Schedule 1.1
|
-Agent's
Representatives
|
|
Disclosure
Schedule 1.4
|
-Sources
and Uses; Funds Flow Memorandum
|
|
Disclosure
Schedule 3.1
|
-Type
of Entity; State of Organization
|
|
Disclosure
Schedule 3.2
|
-Executive
Offices, Collateral Locations, FEIN
|
|
Disclosure
Schedule 3.4(a)
|
-Financial
Statements
|
|
Disclosure
Schedule 3.4(b)
|
-Pro
Forma
|
|
Disclosure
Schedule 3.4(c)
|
-Projections
|
|
Disclosure
Schedule 3.6
|
-Real
Estate and Leases
|
|
Disclosure
Schedule 3.7
|
-Labor
Matters
|
|
Disclosure
Schedule 3.8
|
-Ventures,
Subsidiaries and Affiliates; Outstanding Stock
|
|
Disclosure
Schedule 3.11
|
-Tax
Matters
|
|
Disclosure
Schedule 3.12
|
-ERISA
Plans
|
|
Disclosure
Schedule 3.13
|
-Litigation
|
|
Disclosure
Schedule 3.14
|
-Brokers
|
|
Disclosure
Schedule 3.15
|
-Intellectual
Property
|
|
Disclosure
Schedule 3.17
|
-Hazardous
Materials
|
|
Disclosure
Schedule 3.18
|
-Insurance
|
|
Disclosure
Schedule 3.19
|
-Deposit
and Disbursement Accounts
|
|
Disclosure
Schedule 3.22
|
-Bonds;
Patent, Trademark Licenses
|
|
Disclosure
Schedule 6.3
|
-Indebtedness
|
|
Disclosure
Schedule 6.4(a)
|
-Transactions
with Affiliates
|
|
Disclosure
Schedule 6.7
|
-Existing
Liens
|
This
CREDIT AGREEMENT (this “Agreement”), dated as of February 21, 2008 among
CONSOLIDATED AMUSEMENT THEATRES, INC., a Nevada corporation (“Borrower”); the other
Credit Parties signatory hereto; GENERAL ELECTRIC CAPITAL CORPORATION, a
Delaware corporation (in its individual capacity, “GE Capital”), for
itself, as Lender, and as Agent for Lenders, and the other Lenders signatory
hereto from time to time.
RECITALS
WHEREAS,
Borrower has requested that Lenders extend revolving and term credit facilities
to Borrower of up to Fifty Five Million Dollars ($55,000,000) in the aggregate
for the purpose of funding a portion of the Acquisition (as defined herein) and
to provide (a) working capital financing for Borrower and its Subsidiaries and
(b) funds for other general corporate purposes of Borrower and its
Subsidiaries; and for these purposes, Lenders are willing to make certain loans
and other extensions of credit to Borrower of up to such amount upon the terms
and conditions set forth herein; and
WHEREAS,
Borrower has agreed to secure all of its obligations under the Loan Documents
(as defined herein) by granting to Agent (as defined herein), for the benefit of
Agent and Lenders, a security interest in and lien upon all of its existing and
after-acquired personal and real property; and
WHEREAS,
Reading International, Inc., a Nevada corporation (“Reading”) is willing
to guarantee all of the obligations of Borrower to Agent and Lenders under the
Loan Documents, subject to certain release provisions more particularly set
forth in the Reading Guaranty (as defined herein); and
WHEREAS,
Consolidated Amusement Holdings, Inc., a Nevada corporation (“Holdings”) is willing
to guarantee all of the obligations of Borrower to Agent and Lenders under the
Loan Documents and to pledge to Agent, for the benefit of Agent and Lenders, all
of the Stock of Borrower to secure such guaranty; and
WHEREAS,
all Domestic Subsidiaries of Borrower are willing to guarantee all of the
obligations of Borrower to Agent and Lenders under the Loan Documents and to
grant to Agent, for the benefit of Agent and Lenders, a security interest in and
lien upon all of such existing and after-acquired personal and real property to
secure such guaranty; and
WHEREAS,
capitalized terms used in this Agreement shall have the meanings ascribed to
them in Annex A
and, for purposes of this Agreement and the other Loan Documents, the rules of
construction set forth in Annex A shall
govern. All Annexes, Disclosure Schedules, Exhibits and other
attachments (collectively, “Appendices”) hereto,
or expressly identified to this Agreement, are incorporated herein by reference,
and taken together with this Agreement, shall constitute but a single
agreement. These Recitals shall be construed as part of the
Agreement.
NOW,
THEREFORE, in consideration of the premises and the mutual covenants hereinafter
contained, and for other good and valuable consideration, the parties hereto
agree as follows:
1. AMOUNT
AND TERMS OF CREDIT
1
1.1 Credit
Facilities.
(a) Revolving Credit
Facility.
(i) Subject
to the terms and conditions hereof, each Revolving Lender agrees to make
available to Borrower from time to time until the Commitment Termination Date
its Pro Rata Share of advances (each, a “Revolving Credit
Advance”). The Pro Rata Share of the Revolving Loan of any
Revolving Lender shall not at any time exceed its separate Revolving Loan
Commitment. The obligations of each Revolving Lender hereunder shall
be several and not joint. Until the Commitment Termination Date and
subject to the terms and conditions hereof, Borrower may from time to time
borrow, repay and reborrow under this Section 1.1(a); provided, that the
amount of any Revolving Credit Advance to be made at any time shall not exceed
Borrowing Availability at such time. Each Revolving Credit Advance
shall be made on notice by Borrower to one of the representatives of Agent
identified in Schedule
1.1 at the address specified therein. Any such notice must be
given no later than (1) 1:00p.m. (New York time) on the Business Day of the
proposed Revolving Credit Advance, in the case of an Index Rate Loan, or (2)
1:00 p.m. (New York time) on the date which is three (3) Business Days prior to
the proposed Revolving Credit Advance, in the case of a LIBOR
Loan. Each such notice (a ”Notice of Revolving Credit
Advance”) must be given in writing (by telecopy, overnight courier, or
Electronic Transmission) substantially in the form of Exhibit 1.1(a)(i),
and shall include the information required in such Exhibit and such other
information as may be reasonably required by Agent with respect to the use of
proceeds. If
Borrower desires to have the Revolving Credit Advances bear interest by
reference to a LIBOR Rate, it must comply with Section
1.5(e).
(ii) Except
as provided in Section
1.12, Borrower shall execute and deliver to each Revolving Lender a note
to evidence the Revolving Loan Commitment of that Revolving
Lender. Each note shall be in the principal amount of the Revolving
Loan Commitment of the applicable Revolving Lender, dated the Closing Date and
substantially in the form of Exhibit
1.1(a)(ii) (each a “Revolving Note” and,
collectively, the “Revolving
Notes”). Each Revolving Note shall represent the obligation of
Borrower to pay the amount of the applicable Revolving Lender’s Revolving Loan
Commitment or, if less, such Revolving Lender's Pro Rata Share of the aggregate
unpaid principal amount of all Revolving Credit Advances to Borrower together
with interest thereon as prescribed in Section
1.5. The entire unpaid balance of the Revolving Loan and all
other non-contingent Obligations shall be immediately due and payable in full in
immediately available funds on the Commitment Termination Date.
(iii) Each
payment of principal with respect to the Revolving Loan shall be paid to Agent
for the ratable benefit of each Revolving Loan Lender making a Revolving Loan,
ratably in proportion to each such Revolving Loan Lender’s respective Revolving
Loan Commitment.
(b) Term Loan
B.
(i) Subject
to the terms and conditions hereof, each Term Lender agrees to make a term loan
(collectively, the “Term Loan B”) on the
Closing Date to Borrower in the original principal amount of its Term Loan B
Commitment. The obligations of each Term
2
Lender
hereunder shall be several and not joint. The Term Loan B shall be
evidenced by promissory notes substantially in the form of Exhibit 1.1(b) (each
a “Term B Note”
and collectively the “Term B Notes”), and,
except as provided in Section 1.12,
Borrower shall execute and deliver each Term B Note to the applicable Term
Lender. Each Term B Note shall represent the obligation of Borrower
to pay the amount of the applicable Term Lender's Term Loan B Commitment,
together with interest thereon as prescribed in Section
1.5.
(ii) Borrower
shall repay the principal amount of the Term Loan B in twenty (20) consecutive
quarterly installments on the last day of March, June, September and December of
each year, commencing March 31, 2008, as follows:
Payment Installment
Dates Amounts
March 31,
2008 $125,000.00
June 30,
2008 $125,000.00
September
30,
2008 $125,000.00
December
31,
2008 $125,000.00
March 31,
2009 $125,000.00
June 30,
2009 $125,000.00
September
30,
2009 $125,000.00
December
31,
2009 $125,000.00
March 31,
2010 $125,000.00
June 30,
2010 $125,000.00
September
30,
2010 $125,000.00
December
31,
2010 $125,000.00
March 31,
2011 $125,000.00
June 30,
2011 $125,000.00
September
30,
2011 $125,000.00
December
31,
2011 $125,000.00
March 31,
2012 $125,000.00
June 30,
2012 $125,000.00
September
30,
2012 $125,000.00
December
31,
2012 $125,000.00
The final
installment due on February 21, 2013 shall be in the amount equal to $47,500,000
or, if different the remaining principal balance of the Term Loan
B.
(iii) Notwithstanding
Section
1.1(b)(ii), the aggregate outstanding principal balance of the Term Loan
B shall be due and payable in full in immediately available funds on the
Commitment Termination Date, if not sooner paid in full. No payment
with respect to the Term Loan B may be reborrowed.
3
(iv) Each
payment of principal with respect to the Term Loan B shall be paid to Agent for
the ratable benefit of each Term Lender, ratably in proportion to each such Term
Lender's respective Term Loan B Commitment.
(c) Incremental Term Loan B
Facility.
(i) The
Borrower may, from time to time until the Commitment Termination Date, request
the Lenders or, subject to Agent and Requisite Lenders’ prior approval and the
other provisions of this clause (c), other financial institutions as set forth
below, to provide additional Commitments with respect to the Term Loan B, at the
Borrower’s option up to an aggregate amount not in excess of Fifteen Million
Dollars ($15,000,000) (the “Incremental Term Loan B Facility”); provided, however, that (i) the
Borrower shall have given Agent at least twenty (20) days advance written notice
of its intention to obtain the Incremental Term Loan B Facility, the desired
amount of the Incremental Term Loan B Facility and the intended Incremental
Facility Effective Date (as hereinafter defined), (ii) all conditions precedent
set forth in Section
2.1 and Section 2.2, as the
case may be, applied as if the Incremental Term Loan B Facility became effective
on the Closing Date, shall have been satisfied as of the Incremental Facility
Effective Date; (iii) Agent shall have received on or prior to the Incremental
Facility Effective Date a certificate of the Secretary or an Assistant Secretary
of each Credit Party, in form and substance satisfactory to Agent, certifying
the resolutions of such Person’s board of directors (or equivalent governing
body) approving and authorizing the Incremental Term Loan B Facility to the
extent of the stated desired amount of such Incremental Term Loan B Facility,
and certifying that none of the organizational documents of such Credit Party
delivered to the Agent prior thereto have been modified or altered in any way
(or if modifications have occurred, certifying new copies of such organizational
documents), (iv) Agent shall have received an opinion of counsel to the Credit
Parties in form and substance and from counsel reasonably satisfactory to the
Agent and addressed to Agent dated the Incremental Facility Effective Date and
addressing such matters as the Agent may reasonably request, (v) no Default or
Event of Default exists or results therefrom and after giving pro forma effect
thereto, Borrower is in compliance with the Financial Covenants set forth on
Annex
G and (vi) Agent shall have received such new Notes, reaffirmations
of guaranties, security agreements, pledge agreements and subordination
agreements as it shall request, together with amendments to all Mortgages
reflecting that the Incremental Term Loan B Facility is secured pari passu
with the Loans outstanding immediately prior to giving effect to the
Incremental Term Loan B Facility, together with such endorsements to title
policies as the Agent shall request.
(ii) The
Borrower shall offer the Incremental Term Loan B Facility to (x) first, the
Lenders, and each Lender will have the right, but not any obligation, to
commit their Pro Rata Share of the proposed Incremental Term
Loan B Facility; provided that, if any
Lender or Lenders shall decline to commit to such proposed
Incremental Term Loan B Facility, then each other Lender which shall
have committed to provide its Pro Rata Share of such proposed Incremental
Facility shall have the right, but not any obligation to increase its
commitment to such Incremental Term Loan B Facility, or (y) if all existing
Lenders fail to provide the entire requested amount of such Incremental Term
Loan B Facility as set forth above, then with the prior approval of Agent,
Borrower may designate any other bank or other financial institution provided,
however, that any new bank or financial institution must be acceptable to the
Agent (an “Additional
Lender”); and such Lender or Additional Lender shall have executed
an
4
assumption
agreement in form and substance satisfactory to Agent (an “Assumption
Agreement”) pursuant to which such Lender or Additional Lender shall
agree to commit to all or a portion of such Incremental Term Loan B Facility
and, in the case of an Additional Lender, to be bound by the terms of this
Agreement as a Lender. On the effective date provided for in the Assumption
Agreements providing for an Incremental Term Loan B Facility (each a “Incremental Facility
Effective Date”), the Commitments in question will be increased, as
appropriate, by the additional amount(s) committed to by each Lender or
Additional Lender on the Incremental Facility Effective Date in regard
thereto. In the event there are Lenders and Additional Lenders that
have committed to the Incremental Term Loan B Facility in excess of the
maximum amount requested (or permitted), then the Agent shall have the right to
allocate such commitments, first, to Lenders and then to Additional
Lenders.
(iii) The
Incremental Term Loan B Facility (i) shall rank pari passu in right of
payment with the Term Loan B, (ii) shall not have a final maturity earlier than
the then existing maturity date for the existing Term Loan B, (iii) shall
amortize at 1% per year (with the remainder payable at maturity), (iv) shall
have an Applicable Margin equal to or greater than the Applicable Margin then in
effect for the existing Term Loan B; provided if such Applicable Margin is
greater than the Applicable Margin then in effect for the existing Term Loan B,
the Applicable Margin for such Term Loan B shall automatically be increased such
that the Applicable Margins for the Term Loan B and the Incremental Term Loan B
Facility shall be equal and (v) except for any differences permitted hereby,
shall have the same terms and conditions as the Term Loan B (it being understood
that Incremental Term Loan B Facility may be made as part of the existing
tranche of Term Loan B). Any amendments necessary to effectuate this
clause (c) may be made with the Agent’s and Borrower’s consent
only.
(d) Reliance on
Notices. Agent shall be entitled to rely upon, and shall be
fully protected in relying upon, any Notice of Revolving Credit Advance, Notice
of Conversion/Continuation or similar notice believed by Agent to be
genuine. Agent may assume that each Person executing and delivering
any notice in accordance herewith was duly authorized, unless the responsible
individual acting thereon for Agent has actual knowledge to the
contrary.
1.2 Letters of
Credit. Subject
to and in accordance with the terms and conditions contained herein and in Annex B, Borrower
shall have the right to request, and Revolving Lenders agree to incur, or
purchase participations in, Letter of Credit Obligations in respect of
Borrower.
1.3 Prepayments.
(a) Voluntary
Prepayments. Borrower may at any time on at least five (5)
days' prior written notice to Agent voluntarily prepay all or part of the Term
Loan B; provided that any
such prepayments shall be in a minimum amount of $500,000 and integral multiples
of $100,000 in excess of such amount. In addition, Borrower may at
any time on at least ten (10) days' prior written notice to Agent terminate the
Revolving Loan Commitment; provided that upon
such termination, all Loans and other Obligations shall be immediately due and
payable in full and all Letter of Credit Obligations shall be cash
collateralized or otherwise satisfied in accordance with Annex B; provided, however, that any
such notice may state that it is
5
conditioned
upon the effectiveness of a refinancing and/or payment in full of the
Obligations from the proceeds of other credit facilities, the consummation of a
particular disposition or the occurrence of a change of control, in which case
such notice may be revoked by Borrower (by notice to Agent on or prior to the
specified prepayment date) if such condition is not satisfied, in which case no
payment obligation shall arise. Any such voluntary prepayment and any
such termination of the Revolving Loan Commitment must be accompanied by the
payment any LIBOR funding breakage costs in accordance with Section
1.13(b). Upon any such prepayment and termination of the
Revolving Loan Commitment, Borrower's right to request Revolving Credit
Advances, or request that Letter of Credit Obligations be incurred on its
behalf, shall simultaneously be terminated. Any partial prepayments
of the Term Loan B made by Borrower shall be applied to prepay the scheduled
installments of the Term Loan B in inverse order of maturity.
(b) Mandatory
Prepayments.
(i) If
at any time the outstanding balance of the Revolving Loan exceeds the Maximum
Amount, Borrower shall immediately repay the aggregate outstanding Revolving
Credit Advances to the extent required to eliminate such excess. If
any such excess remains after repayment in full of the aggregate outstanding
Revolving Credit Advances, Borrower shall provide cash collateral for the Letter
of Credit Obligations in the manner set forth in Annex B to the extent
required to eliminate such excess.
(ii) Immediately
upon receipt by any Credit Party of any cash proceeds of any asset disposition,
Borrower shall prepay the Loans in an amount equal to all such proceeds, net of
(A) commissions and other reasonable transaction costs, fees and expenses
properly attributable to such transaction and payable by such Credit Party in
connection therewith (in each case, paid to non-Affiliates), (B) transfer taxes,
(C) amounts payable to holders of Liens on such asset (to the extent such Liens
constitute Liens permitted hereunder), if any, and (D) an appropriate reserve
for income taxes paid or payable in accordance with GAAP in connection
therewith, including any reserves required to be established in accordance with
GAAP against liabilities reasonably anticipated and attributable to the subject
asset disposition, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under indemnification obligations associated with such
asset disposition; provided that upon the reversal of any such reserve, such
amounts so reversed shall be immediately used to repay the Loans in accordance
herewith. Any such prepayment shall be applied in accordance with
Section
1.3(c). The following shall not be subject to mandatory
prepayment under this clause
(ii): (1) proceeds of sales and dispositions permitted under
Section 6.8 (a), (b),
(c) or (d), and (2) asset disposition proceeds that are reinvested in the
Business within two hundred seventy (270) days following receipt thereof and
until reinvested are used to repay outstanding Revolving Loans or if no
Revolving Loans are then outstanding are deposited in a Blocked Account in which
Agent has a first priority perfected Lien; provided that Borrower notifies Agent
of its intent to reinvest at the time such proceeds are received and when such
reinvestment occurs. Thereafter, such funds shall be made available
to such Credit Party for reinvestment as follows: (i) Borrower shall request a
Revolving Credit Advance or release from the Blocked Account be made to such
Credit Party in the amount requested to be released; and (ii) so long as the
conditions set forth in Section 2.2 have been
met, Revolving Lenders shall make such Revolving Credit Advance or Agent shall
release funds from
6
such
Blocked Account. To the extent not reinvested, such proceeds shall be
applied in accordance with Section 1.3(c); provided that in the
case of proceeds pertaining to any Credit Party other than Borrower, such
proceeds shall be applied to the Loans owing by Borrower.
(iii) If
any Credit Party issues Stock (other than Stock issuances to Reading or its
Affiliates the proceeds of which are contributed to the Borrower and used for
the improvement or expansion of the Business, Permitted Acquisitions, Capital
Expenditures or Investments permitted hereunder) or any Credit Party incurs
Indebtedness (other than Indebtedness incurred pursuant to Section 6.3), no
later than the Business Day following the date of receipt of the proceeds
thereof, Borrower shall prepay the Loans (and cash collateralize Letter of
Credit Obligations) in an amount equal to all such proceeds from the issuance of
such Stock or incurrence of Indebtedness, net of underwriting discounts and
commissions and other reasonable costs paid to non-Affiliates in connection
therewith. Any such prepayment shall be applied in accordance with
Section
1.3(c). The following shall not be subject to prepayment under
this clause
(iii): proceeds of Stock issuances to employees of Holdings
and its Subsidiaries.
(iv) Until
the Termination Date, Borrower shall prepay the Obligations on March 31 of each
Fiscal Year in an amount equal to seventy five percent (75%) of Excess Cash Flow
for the immediately preceding Fiscal Year, commencing with the Fiscal Year
ending December 31, 2008 which shall be payable on March 31,
2009. Any prepayments from Excess Cash Flow paid pursuant to this
clause (iv)
shall be applied in accordance with Section
1.3(c). Each such prepayment shall be accompanied by a
certificate signed by a Responsible Financial Officer of the Borrower certifying
the manner in which Excess Cash Flow and the resulting prepayment were
calculated, which certificate shall be in form and substance reasonably
satisfactory to Agent.
(v) If
as of the last day of any Fiscal Quarter, the Loan to Contributed Capital Ratio
is more than 82.5%, no later than 5 Business Days after the end of such Fiscal
Quarter Borrower shall prepay the Loans (and cash collateralize Letter of Credit
Obligations) in an amount equal to the amount that would result in such Loan to
Contributed Capital Ratio equaling no more than 82.5%. Any such
prepayment shall be applied in accordance with Section
1.3(c).
(c) Application of Certain
Mandatory Prepayments. Any prepayments made by Borrower
pursuant to Sections
1.3(b)(ii), (b)(iii), (b)(iv) or (v) above and any prepayments
from insurance or condemnation proceeds in accordance with Section 5.4(b) or (c)
and the Mortgage(s), respectively, shall be applied as follows: first, to Fees and
reimbursable expenses of Agent then due and payable pursuant to any of the Loan
Documents; second, to interest
then due and payable on the Term Loan B; third, to prepay the
scheduled principal installments of the Term Loan B in inverse order of
maturity, until such Term Loan B shall have been prepaid in full; fourth, to interest
then due and payable on the Revolving Credit Advances; fifth, to the
outstanding principal balance of Revolving Credit Advances until the same has
been paid in full; and sixth, to any Letter
of Credit Obligations, to provide cash collateral therefor in the manner set
forth in Annex
B, until all such Letter of Credit Obligations have been fully cash
collateralized in the manner set forth in Annex B; provided, however, that
if an Event of Default has occurred and is continuing, such prepayment occurs
other than through the exercise of remedies pursuant to the terms of the Loan
Documents and the Requisite Revolving Lenders so
7
elect,
any such prepayments shall be applied as follows: first, to Fees and
reimbursable expenses of Agent then due and payable pursuant to any of the Loan
Documents; second, to interest
then due and payable on the Term Loan B and Revolving Loan; third, to prepay the
Term Loan B and the Revolving Loan, applied pro rata to scheduled principal
installments of the Term Loan B, and applied to Revolving Credit Advances before
application to provide cash collateral for any Letter of Credit Obligations in
the manner set forth in Annex B. The Revolving Loan Commitment shall
not be permanently reduced by the amount of any such prepayments.
(d) No Implied
Consent. Nothing in this Section 1.3 shall be
construed to constitute Agent's or any Lender's consent to any transaction that
is not permitted by other provisions of this Agreement or the other
Loan Documents.
1.4 Use of
Proceeds. Borrower
shall utilize the proceeds of the Loans solely for the Acquisition and Permitted
Acquisitions (and to pay any related transaction expenses), and for the
financing of the ordinary working capital and general corporate needs of
Borrower and its Subsidiaries. Disclosure Schedule
(1.4) contains a description of Borrower's sources and uses of funds as
of the Closing Date, including Loans and Letter of Credit Obligations to be made
or incurred on that date, and a funds flow memorandum detailing how funds from
each source are to be transferred to particular uses.
1.5 Interest and Applicable
Margins.
(a) Borrower
shall pay interest to Agent, for the ratable benefit of Lenders in accordance
with the various Loans being made by each Lender, in arrears on each applicable
Interest Payment Date, at the following rates with respect to the Revolving
Credit Advances and the Term Loan B, the Index Rate plus the Applicable Index
Margin per annum or, at the election of Borrower, the applicable LIBOR Rate plus
the Applicable LIBOR Margin per annum.
As of the
Closing Date the Applicable Margins are as follows:
|
Applicable
Index Margin
|
2.75%
|
|
Applicable
LIBOR Margin
|
4.00%
|
The
Applicable Margins may be adjusted by reference to the following
grids:
|
If Leverage Ratio is:
|
Level
of
Applicable Margins:
|
|
> 3.25
|
Level
I
|
|
> 2.75, but < 3.25
|
Level
II
|
|
> 2.25, but < 2.75
|
Level
III
|
|
<
2.25
|
Level
IV
|
8
|
Applicable Margins
|
||||
|
Level I
|
Level II
|
Level III
|
Level IV
|
|
|
Applicable
Index
Margin
|
2.75%
|
2.50%
|
2.25%
|
2.00%
|
|
Applicable
LIBOR Margin
|
4.00%
|
3.75%
|
3.50%
|
3.25%
|
Adjustments
in the Applicable Margins commencing with the Fiscal Quarter ending March 31,
2008 shall be implemented quarterly on a prospective basis, for each calendar
month commencing at least five (5) days after the date of delivery to Lenders of
the quarterly unaudited or annual audited (as applicable) Financial Statements
evidencing the need for an adjustment. Concurrently with the delivery
of those Financial Statements, Borrower shall deliver to Agent and Lenders a
certificate, signed by a Responsible Financial Officer of the Borrower, setting
forth in reasonable detail the basis for the continuance of, or any change in,
the Applicable Margins. Failure to timely
deliver such Financial Statements shall, in addition to any other remedy
provided for in this Agreement, result in an increase in the Applicable Margins
to the highest level set forth in the foregoing grid, until the date that is
five (5) days following the delivery of those Financial Statements demonstrating
that such an increase is not required. If an Event of Default has
occurred and is continuing at the time any reduction in the Applicable Margins
is to be implemented, that reduction shall be deferred until the first day of
the first calendar month following the date on which such Event of Default is
waived or cured. In the event that any Financial Statement or
Compliance Certificate delivered hereunder is shown to be inaccurate (regardless
of whether this Agreement or the Commitments are in effect when such inaccuracy
is discovered), and such inaccuracy, if corrected, would have led to the
application of a higher Applicable Margin based upon the foregoing pricing grid
(the “Accurate
Applicable Margin”) for any period that such Financial statement or
Compliance Certificate covered, then (i) Borrower shall immediately, following
actual knowledge of the Borrower of the occurrence thereof, deliver to the Agent
a correct Financial Statement or Compliance Certificate, as the case may be, for
such period, (ii) the Applicable Margin shall be adjusted such that after giving
effect to the corrected Financial Statements or Compliance Certificate, as the
case may be, the Applicable Margin shall be reset to the Accurate Applicable
Margin based upon the foregoing pricing grid for such period as set forth in the
foregoing pricing grid for such period and (iii) shall concurrently with the
delivery of the corrected Financial Statement or Compliance Certificate, as the
case may be, pay to the Agent, for the account of the Lenders, the accrued
additional interest owing as a result of such Accurate Applicable Margin for
such period. The provisions of this definition shall not
limit the rights of the Agent and the Lenders with respect to Section 1.5(d) or
Article
VIII.
(b) Solely
for purposes of the payment of interest and not in connection with the
calculation of Financial Covenants or otherwise, if any payment on any Loan
becomes due and payable on a day other than a Business Day, the maturity thereof
will be extended to the next succeeding Business Day (except as set forth in the
definition of LIBOR Period) and, with respect
to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
9
(c) All
computations of Fees calculated on a per annum basis and interest shall be made
by Agent on the basis of a 360-day year, in each case for the actual number of
days occurring in the period for which such interest and Fees are
payable. The Index Rate is a floating rate determined for each
day. Each determination by Agent of interest rates and Fees hereunder
shall be presumptive evidence of the correctness of such rates and
Fees.
(d) So
long as an Event of Default has occurred and is continuing under Section 8.1(a), (g) or
(h), or so long as any other Event of Default has occurred and is
continuing and at the election of Agent (or upon the written request of
Requisite Lenders) confirmed by written notice from Agent to Borrower (a “Default Rate
Notice”), the interest rates applicable to the Loans and the Letter of
Credit Fees shall be increased by two percentage points (2%) per annum above the
rates of interest or the rate of such Fees otherwise applicable hereunder unless
Agent or Requisite Lenders elect to impose a smaller increase (the “Default Rate”), and
all outstanding Obligations shall bear interest at the Default Rate applicable
to such Obligations. Interest and Letter of Credit Fees at the
Default Rate shall accrue from the initial date of such Event of Default (if in
respect of such an Event of Default under Section 8.1(a), (g) or (h)) or in the case
of any other Event of Default from and after receipt by Borrower of a Default
Rate Notice, in either case, until the subject Event of Default is cured or
waived and shall be payable upon demand.
(e) Subject
to the conditions precedent set forth in Section 2.2, Borrower
shall have the option to (i) request that any Revolving Credit Advance be made
as a LIBOR Loan, (ii) convert at any time all or any part of outstanding Loans
from Index Rate Loans to LIBOR Loans, (iii) convert any LIBOR Loan to an Index
Rate Loan, subject to payment of LIBOR breakage costs in accordance with Section 1.13(b) if
such conversion is made prior to the expiration of the LIBOR Period applicable
thereto, or (iv) continue all or any portion of any Loan as a LIBOR Loan upon
the expiration of the applicable LIBOR Period and the succeeding LIBOR Period of
that continued Loan shall commence on the first day after the last day of the
LIBOR Period of the Loan to be continued. Any Loan or group of Loans
having the same proposed LIBOR Period to be made or continued as, or converted
into, a LIBOR Loan must be in a minimum amount of $250,000 and integral
multiples of $100,000 in excess of such amount. Any such election
must be made by 1:00 p.m. (New York time) on the third Business Day prior to
(1) the date of any proposed Advance which is to bear interest at the LIBOR
Rate, (2) the end of each LIBOR Period with respect to any LIBOR Loans to be
continued as such, or (3) the date on which Borrower wishes to convert any
Index Rate Loan to a LIBOR Loan for a LIBOR Period designated by Borrower in
such election. If no election is received with respect to a LIBOR
Loan by 1:00 p.m. (New York time) on the third Business Day prior to the end of
the LIBOR Period with respect thereto (or if a Default or an Event of Default
has occurred and is continuing), that LIBOR Loan shall be converted to an Index
Rate Loan at the end of its LIBOR Period. Borrower must make such
election by notice to Agent in writing, by telecopy, overnight courier or
Electronic Transmission. In the case of any conversion or
continuation, such election must be made pursuant to a written notice (a “Notice of
Conversion/Continuation”) in the form of Exhibit
1.5(e).
(f) Notwithstanding
anything to the contrary set forth in this Section 1.5, if
a court of competent jurisdiction determines in a final non-appealable order
that the rate of interest payable hereunder exceeds the highest rate of interest
permissible under law (the “Maximum
10
Lawful Rate”), then
so long as the Maximum Lawful Rate would be so exceeded, the rate of interest
payable hereunder shall be equal to the Maximum Lawful Rate; provided, however, that if at
any time thereafter the rate of interest payable hereunder is less than the
Maximum Lawful Rate, Borrower shall continue to pay interest hereunder at the
Maximum Lawful Rate until such time as the total interest received by Agent, on
behalf of Lenders, is equal to the total interest that would have been received
had the interest rate payable hereunder been (but for the operation of this
paragraph) the interest rate payable since the Closing Date as otherwise
provided in this Agreement. In no event shall the total interest
received by any Lender pursuant to the terms hereof exceed the amount that such
Lender could lawfully have received had the interest due hereunder been
calculated for the full term hereof at the Maximum Lawful Rate.
1.6 Reserved
1.7 Reserved.
1.8 Cash Management
Systems. On
or prior to the Closing Date, Borrower will establish and will
maintain until the Termination Date, the cash management systems described in
Annex C (the
“Cash Management
Systems”).
1.9 Fees.
(a) Borrower
shall pay to GE Capital, individually, the Fees specified in the GE Capital Fee
Letter.
(b) As
additional compensation for the Revolving Lenders, Borrower shall pay to Agent,
for the ratable benefit of such Lenders, in arrears, on the last day of each
calendar quarter prior to the Commitment Termination Date and on the Commitment
Termination Date, a Fee for Borrower's non-use of available funds in an amount
equal to one-half of one percent (0.50%) per annum (calculated on the basis of a
360 day year for actual days elapsed) multiplied by the difference between (x)
the Maximum Amount (as it may be reduced from time to time) and (y) the average
for the period of the daily closing balance of the Revolving Loan outstanding
during the period for which the such Fee is due.
(c) Borrower
shall pay to Agent, for the ratable benefit of Revolving Lenders, the Letter of
Credit Fee as provided in Annex B.
1.10 Receipt of
Payments. Borrower
shall make each payment under this Agreement not later than 2:00 p.m. (New York
time) on the day when due in immediately available funds in Dollars to the
Collection Account. For purposes of computing interest and Fees and
Borrowing Availability of any date, all payments shall be deemed received on the
Business Day on which immediately available funds therefor are received in the
Collection Account prior to 2:00 p.m. New York time. Payments
received after 2:00 p.m. New York time on any Business Day or on a day that is
not a Business Day shall be deemed to have been received on the following
Business Day.
1.11 Application and Allocation of
Payments.
11
(a) So
long as no Event of Default has occurred and is continuing, (i) payments
matching specific scheduled payments then due shall be applied to those
scheduled payments; (iii) voluntary prepayments shall be applied in accordance
with the provisions of Section 1.3(a); and
(iii) mandatory prepayments shall be applied as set forth in Section
1.3(c). All payments and prepayments applied to a particular
Loan shall be applied ratably to the portion thereof held by each Lender as
determined by its Pro Rata Share; provided that any such payments received shall
be applied first to repay Loans outstanding as Index Rate Loans and then to
Loans outstanding as LIBOR Rate Loans, with those LIBOR Rate Loans having
earlier expiring LIBOR Periods being repaid prior to those with later expiring
LIBOR Periods. As to any other payment, and as to all payments made
when an Event of Default has occurred and is continuing or following the
Commitment Termination Date, Borrower hereby irrevocably waives the right to
direct the application of any and all payments received from or on behalf of
Borrower, and Borrower hereby irrevocably agrees that Agent shall have the
continuing exclusive right to apply any and all such payments against the
Obligations as Agent may deem advisable notwithstanding any previous entry by
Agent in the Loan Account or any other books and records. In the
absence of a specific determination by Agent with respect thereto, payments from
proceeds of Collateral following the exercise of remedies shall be applied to
amounts then due and payable in the following order: (1) to Fees and Agent's
expenses reimbursable hereunder; (2) to interest on the Loans, ratably in
proportion to the interest accrued as to each Loan; (3) to principal payments on
the other Loans and any Obligations under any Secured Rate Contract and to
provide cash collateral for Letter of Credit Obligations in the manner described
in Annex B,
ratably to the aggregate, combined principal balance of the other Loans,
Obligations under any Secured Rate Contracts and outstanding Letter of Credit
Obligations; and (4) to all other Obligations including expenses of Lenders to
the extent reimbursable under Section
11.3.
(b) Agent
is authorized to, and at its sole election may, charge to the Revolving Loan
balance on behalf of Borrower and cause to be paid all Fees, expenses, Charges,
costs (including insurance premiums in accordance with Section 5.4(a)) and
interest and principal, other than principal of the Revolving Loan, owing by
Borrower under this Agreement or any of the other Loan Documents if and to the
extent Borrower fails to pay promptly any such amounts as and when due (and, in
the case of any expenses, Charges, and costs, following the presentment of an
invoice therefor), even if the amount of such charges would exceed Borrowing
Availability at such time. At Agent's option and to the extent
permitted by law, any charges so made shall constitute part of the Revolving
Loan hereunder.
1.12 Loan Account and
Accounting. Agent
shall maintain a loan account (the “Loan Account”) on its
books to record: all Advances and the Term Loan B, all payments made by
Borrower, and all other debits and credits as provided in this Agreement with
respect to the Loans or any other Obligations. All entries in the
Loan Account shall be made in accordance with Agent's customary accounting
practices as in effect from time to time. The balance in the Loan Account, as
recorded on Agent's most recent printout or other written statement, shall,
absent manifest error, be presumptive evidence of the amounts due and owing to
Agent and Lenders by Borrower; provided that any
failure to so record or any error in so recording shall not limit or otherwise
affect Borrower's duty to pay the Obligations. Agent shall render to
Borrower a monthly accounting of transactions with respect to the Loans setting
forth the balance of the Loan Account for the immediately preceding
month. Unless Borrower notifies Agent in writing of any objection to
any such accounting (specifically describing the basis for such objection),
12
within
thirty (30) days after the date thereof, each and every such accounting shall be
presumptive evidence of all matters reflected therein. Only those
items expressly objected to in such notice shall be deemed to be disputed by
Borrower. Notwithstanding any provision herein contained to the
contrary, any Lender may elect (which election may be revoked) to dispense with
the issuance of Notes to that Lender and may rely on the Loan Account as
evidence of the amount of Obligations from time to time owing to
it.
1.13 Indemnity.
(a) Each
Credit Party that is a signatory hereto shall jointly and severally indemnify
and hold harmless each of Agent, Lenders and their respective Affiliates, and
each such Person’s respective officers, directors, employees, attorneys, agents
and representatives (each, an “Indemnified Person”),
from and against any and all suits, actions, proceedings, claims, damages,
losses, liabilities and expenses (including reasonable attorneys’ fees and
disbursements and other costs of investigation or defense, including those
incurred upon any appeal) that may be instituted or asserted by any Credit Party, any affiliate
thereof or any third party against or incurred by any such Indemnified
Person as the result of credit having been extended, suspended or terminated
under this Agreement and the other Loan Documents and the administration of such
credit, and in connection with or arising out of the Loan Documents, the
commitment and proposal letters related thereto, the transactions contemplated
hereunder and thereunder and any actions or failures to act in connection
therewith, including any and all losses associated with Electronic
Transmissions or E-Systems as well as for failures caused by a Credit Party’s
equipment, software, services or otherwise used in connection therewith, and any
and all Environmental Liabilities and legal costs and expenses arising out of or
incurred in connection with disputes between or among any parties to any of the
Loan Documents with respect to, or relating to the transactions under, the Loan
Documents and any investigation, litigation, or proceeding related to any such
matters (collectively, “Indemnified
Liabilities”); provided, that no
such Credit Party shall be liable for any indemnification to an Indemnified
Person to the extent that any such suit, action, proceeding, claim, damage,
loss, liability or expense results from that Indemnified Person’s gross negligence or
willful misconduct as finally determined by a court of competent
jurisdiction. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO
ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY
BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY
THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES
WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR
TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION
CONTEMPLATED HEREUNDER OR THEREUNDER.
(b) To
induce Lenders to provide the LIBOR Rate option on the terms provided herein, if
(i) any LIBOR Loans are repaid in whole or in part prior to the last day of any
applicable LIBOR Period (whether that repayment is made pursuant to any
provision of this Agreement or any other Loan Document or occurs as a result of
acceleration, by operation of law or otherwise); (ii) Borrower shall default in
payment when due of the principal amount of or interest on any LIBOR Loan; (iii)
Borrower shall refuse to accept any borrowing of, or shall request a termination
of any borrowing, conversion into or continuation of LIBOR Loans after Borrower
has given notice requesting the same in accordance herewith; or (iv) Borrower
shall
13
fail to
make any prepayment of a LIBOR Loan after Borrower has given a notice thereof in
accordance herewith, then Borrower shall indemnify and hold harmless each Lender
from and against all losses, costs and expenses resulting from or arising from
any of the foregoing. Such indemnification shall include any loss
(excluding loss of margin) or expense arising from the reemployment of funds
obtained by it or from fees payable to terminate deposits from which such funds
were obtained. For the purpose of calculating amounts payable to a
Lender under this subsection, each Lender shall be deemed to have actually
funded its relevant LIBOR Loan through the purchase of a deposit bearing
interest at the LIBOR Rate in an amount equal to the amount of that LIBOR Loan
and having a maturity comparable to the relevant LIBOR Period; provided, that each
Lender may fund each of its LIBOR Loans in any manner it sees fit, and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this subsection. This covenant shall survive the
termination of this Agreement and the payment of the Notes and all other amounts
payable hereunder. As promptly as practicable under the
circumstances, each Lender shall provide Borrower with its written, reasonably
detailed, calculation of all amounts payable pursuant to this Section 1.13(b), and
such calculation shall be binding on the parties hereto unless Borrower shall
object in writing within ten (10) Business Days of receipt thereof, specifying
the basis for such objection in detail.
1.14 Access. Each
Credit Party that is a party hereto shall, during normal business hours, from
time to time upon five (5) Business Days’ prior written notice as frequently as
Agent reasonably determines to be appropriate: (a) provide Agent and any of its
officers, employees and agents access to its properties, facilities, advisors,
officers and employees of each Credit Party and to the Collateral, (b) permit
Agent, and any of its officers, employees and agents, to inspect, audit and make
extracts from any Credit Party's books and records, and (c) permit Agent, and
its officers, employees and agents, to inspect, review, evaluate and make test
verifications and counts of the Accounts, Inventory and other Collateral of any
Credit Party. If an Event of Default has occurred and is continuing,
each such Credit Party shall provide such access to Agent and to each Lender at
all times and without advance notice. Furthermore, so long as any
Event of Default under Section 8.1(a), (g) or
(h) has occurred and is continuing, Borrower shall provide Agent and each
Lender with access to its material suppliers. Each Credit Party shall
make available to Agent and its counsel reasonably promptly originals or copies
of all books and records that Agent may reasonably request. Each
Credit Party shall deliver any document or instrument necessary for Agent, as it
may from time to time reasonably request, to obtain records from any service
bureau or other Person that maintains records for such Credit Party, and shall
maintain duplicate records or supporting documentation on media, including
computer tapes and discs owned by such Credit Party. Agent will give
Lenders at least five (5) Business Days’ prior written notice of regularly
scheduled audits, which audits, in the absence of the existence of an Event of
Default, shall occur no more frequently than
annually. Representatives of other Lenders may accompany Agent's
representatives on regularly scheduled audits at no charge to
Borrower.
1.15 Taxes.
(a) Any
and all payments by Borrower hereunder or under the Notes shall be made, in
accordance with this Section 1.15, free
and clear of and without deduction for any and all present or future
Taxes. If Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under the Notes, (i) the sum
payable shall be increased
14
as much
as shall be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 1.15) Agent
or Lenders, as applicable, receive an amount equal to the sum they would have
received had no such deductions been made, (ii) Borrower shall make such
deductions, and (iii) Borrower shall pay the full amount deducted to the
relevant taxing or other authority in accordance with applicable
law. Within thirty (30) days after the date of any payment of Taxes,
Borrower shall furnish to Agent the original or a certified copy of a receipt
evidencing payment thereof.
(b) Each
Credit Party that is a signatory hereto shall indemnify and, within ten (10)
days of demand therefor, pay Agent and each Lender for the full amount of Taxes
(including any Taxes imposed by any jurisdiction on amounts payable under this
Section 1.15)
paid by Agent or such Lender, as appropriate, and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes were correctly or legally asserted.
(c) Each
Lender organized under the laws of a state of the United States shall provide to
Borrower and Agent a properly completed and executed IRS Form W-9. Each Lender
organized under the laws of a jurisdiction outside the United States (a “Foreign Lender”) as
to which payments to be made under this Agreement or under the Notes are exempt
from United States withholding tax under an applicable statute or tax treaty
shall provide to Borrower and Agent a properly completed and executed IRS Form
W-8ECI or Form W-8BEN -or other applicable form, certificate or document
prescribed by the IRS or the United States certifying as to such Foreign
Lender's entitlement to such exemption (a “Certificate of
Exemption”). The Agent shall have the right to refuse to allow
a Person to be a Lender under this Agreement if such Person has not provided to
the Agent a Form W-9 or a Certificate of Exemption prior to becoming a Lender
hereunder.
1.16 Capital Adequacy; Increased
Costs; Illegality.
(a) If
any law, treaty, governmental (or quasi-governmental) rule, regulation,
guideline or order regarding capital adequacy, reserve requirements or similar
requirements or compliance by any Lender with any request or directive regarding
capital adequacy, reserve requirements or similar requirements (whether or not
having the force of law), in each case, adopted after the Closing Date, from any
central bank or other Governmental Authority increases or would have the effect
of increasing the amount of capital, reserves or other funds required to be
maintained by such Lender and thereby reducing the rate of return on such
Lender's capital as a consequence of its obligations hereunder, then Borrower
shall from time to time upon demand by such Lender (with a copy of such demand
to Agent) pay to Agent, for the account of such Lender, additional amounts
sufficient to compensate such Lender for such reduction. A
certificate as to the amount of that reduction and showing the basis of the
computation thereof submitted by such Lender to Borrower and to Agent shall be
presumptive evidence of the matters set forth therein.
(b) If,
due to either (i) the introduction of or any change in any law or
regulation (or any change in the interpretation thereof) or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), in each case
adopted after the Closing Date, there shall be any increase in the cost
15
to any
Lender of agreeing to make or making, funding or maintaining any Loan, then
Borrower shall from time to time, upon demand by such Lender (with a copy of
such demand to Agent), pay to Agent for the account of such Lender additional
amounts sufficient to compensate such Lender for such increased
cost. A certificate as to the amount of such increased cost,
submitted to Borrower and to Agent by such Lender, shall be presumptive evidence
of the matters set forth therein. Each Lender agrees that, as
promptly as practicable after it becomes aware of any circumstances referred to
above which would result in any such increased cost, the affected Lender shall,
to the extent not inconsistent with such Lender's internal policies of general
application, use reasonable commercial efforts to minimize costs and expenses
incurred by it and payable to it by Borrower pursuant to this Section
1.16(b).
(c) Notwithstanding
anything to the contrary contained herein, if the introduction of or any change
in any law or regulation (or any change in the interpretation thereof) shall
make it unlawful, or any central bank or other Governmental Authority shall
assert that it is unlawful, for any Lender to agree to make or to make or to
continue to fund or maintain any LIBOR Loan, then, unless that Lender is able to
make or to continue to fund or to maintain such LIBOR Loan at another branch or
office of that Lender without, in that Lender's reasonable opinion, materially
adversely affecting it or its Loans or the income obtained therefrom, on notice
thereof and demand therefor by such Lender to Borrower through Agent,
(i) the obligation of such Lender to agree to make or to make or to
continue to fund or maintain LIBOR Loans shall terminate and (ii) Borrower
shall forthwith prepay in full all outstanding LIBOR Loans owing to such Lender,
together with interest accrued thereon, unless Borrower,
within five (5) Business Days after the delivery of such notice and demand,
converts all LIBOR Loans into Index Rate Loans.
(d) Within
forty five (45) days after receipt by Borrower of written notice and demand from
any Lender (an “Affected Lender”) for
payment of additional amounts or increased costs as provided in Sections 1.15(a), 1.16(a) or
1.16(b), Borrower may, at its option, notify Agent and such Affected
Lender of its intention to replace the Affected Lender. So long as no
Default or Event of Default has occurred and is continuing, Borrower, with the
consent of Agent, may obtain, at Borrower's expense, a replacement Lender
(“Replacement
Lender”) for the Affected Lender, which Replacement Lender must be
reasonably satisfactory to Agent. If Borrower obtains a Replacement
Lender within ninety (90) days following notice of its intention to do so, the
Affected Lender must sell and assign its Loans and Commitments to such
Replacement Lender for an amount equal to the principal balance of all Loans
held by the Affected Lender and all accrued interest and Fees with respect
thereto through the date of such sale and such assignment shall not require the
payment of an assignment fee to Agent; provided, that
Borrower shall have reimbursed such Affected Lender for the additional amounts
or increased costs that it is entitled to receive under this Agreement through
the date of such sale and assignment. Notwithstanding the foregoing,
Borrower shall not have the right to obtain a Replacement Lender if the Affected
Lender rescinds its demand for increased costs or additional amounts within 15
days following its receipt of Borrower's notice of intention to replace such
Affected Lender. Furthermore, if Borrower gives a notice of intention
to replace and does not so replace such Affected Lender within ninety (90) days
thereafter, Borrower's rights under this Section 1.16(d) shall
terminate with respect to such Affected Lender and Borrower shall promptly
pay all increased costs or additional amounts demanded by such Affected Lender
pursuant to Sections
1.15(a), 1.16(a) and 1.16(b).
16
1.17 Single
Loan. All
Loans to Borrower and all of the other Obligations of Borrower arising under
this Agreement and the other Loan Documents shall constitute one general
obligation of Borrower secured, until the Termination Date, by all of the
Collateral.
2. CONDITIONS
PRECEDENT
2.1 Conditions to the Initial
Loans. No
Lender shall be obligated to make any Loan or incur any Letter of Credit
Obligations on the Closing Date, or to take, fulfill, or perform any other
action hereunder, until the following conditions have been satisfied or provided
for in a manner reasonably satisfactory to Agent, or waived in writing by Agent
and Requisite Lenders:
(a) Credit Agreement; Loan
Documents. This Agreement or counterparts hereof shall have
been duly executed by, and delivered to, Borrower, each other Credit Party,
Agent and Lenders; and Agent shall have received such documents, instruments,
agreements and legal opinions as Agent shall reasonably request in connection
with the transactions contemplated by this Agreement and the other Loan
Documents, including all those listed in the Closing Checklist attached hereto
as Annex D,
each in form and substance reasonably satisfactory to Agent.
(b) Acquisition of Assets Free
and Clear. Agent shall have received evidence that the assets
acquired in the Acquisition are being acquired free and clear of any Liens
(other than Liens permitted hereunder), such evidence to be reflected in
documentation reasonably acceptable to Agent.
(c) Approvals. Agent
shall have received (i) satisfactory evidence that the Credit Parties have
obtained all required consents and approvals of all Persons including all
requisite Governmental Authorities, to the execution, delivery and performance
of this Agreement and the other Loan Documents and the consummation of the
Related Transactions or (ii) an officer's certificate in form and substance
reasonably satisfactory to Agent affirming that no such consents or approvals
are required.
(d) Payment of
Fees. Borrower shall have paid the Fees required to be paid on
the Closing Date in the respective amounts specified in Section 1.9
(including the Fees specified in the GE Capital Fee Letter), and shall have
reimbursed Agent for all reasonable, documented and out-of-pocket fees, costs
and expenses of closing presented as of the Closing Date.
(e) Capital Structure: Other
Indebtedness. The capital structure of each Credit Party, the
corporate structure of the Credit Parties, the terms and conditions of all
Indebtedness of each Credit Party, and all governing organizational documents of
the Credit Parties, as well as the tax effects resulting from the
Acquisition, shall be reasonably acceptable to Agent in its sole
discretion.
(f) Due
Diligence. Agent shall have completed its business,
environmental, and legal due diligence, including without limitation as to
Material Contracts, other debt instruments,
equity and member agreements, management agreements, incentive and employment
agreements, acquisition agreement, tax agreements and other material agreements
and governing documents of the Credit Parties, with results reasonably
satisfactory to Agent.
17
(g) Evidence of Competitive Free
Film Zone. Agent shall be satisfied that all Acquired Theatres
(other than Kaahumanu) shall operate in a “competitive free film
zone”.
(h) Maximum Leverage Ratio/Loan
to Contributed Capital Ratio. After giving pro forma effect to
the Related Transactions, Borrower and its Subsidiaries shall have, on a
consolidated basis, for the twelve months ending on December 31, 2007, a
Leverage Ratio of not more than 3.6:1.0. After giving pro forma
effect to the Related Transactions, the Loan to Contributed Capital Ratio as of
the Closing Date shall not exceed 69%.
(i) Minimum
EBITDA. After giving pro forma effect to the Related
Transactions, Borrower and its Subsidiaries shall have, on a consolidated basis,
EBITDA for the twelve month period ending on December 31, 2007 of not less than
$13,789,000.
(j) Consummation of Related
Transactions. Agent shall have received fully executed copies
of the Acquisition Agreement and final and complete copies of each of the other
Related Transactions Documents, each of which shall be in full force and effect
in form and substance reasonably satisfactory to Agent. The
Acquisition and the other Related Transactions shall have been consummated in
accordance with the terms of the Acquisition Agreement and the other Related
Transactions Documents. The Acquisition shall include solely the
Acquired Theatres and the purchase price shall not exceed
$69,300,000. Additionally, Agent shall have received evidence that
(i) the Closing Date Equity Contribution shall have been made on terms and
conditions reasonably satisfactory to the Agent and (ii) the Manville Theatre
Contribution and the Dallas Theatre Contribution shall have been consummated, in
form and substance reasonably satisfactory to Agent.
(k) No Material
Changes. As of the Closing Date, (i) since the Sellers’
audited financial statements dated June 30, 2007, there not occurring or
becoming known to the Agent any event, development or circumstance that has
caused or could reasonably be expected to cause any material adverse condition
or material adverse change in or affecting the industry in which the Borrower
operates, the business, operations, property (including but not limited to the
Collateral), condition (financial or otherwise) or prospects or projections of
the Borrower and its affiliates, or of any other Credit Party, (ii) there not
occurring or becoming known to the Agent any information or other matter
affecting the Acquired Theatres, or Borrower, any of its affiliates, Guarantors
or the Related Transactions that in the Agent’s judgment is inconsistent in a
material and adverse manner with any such information or other matter disclosed
to the Lenders prior to the date hereof, (iii) no litigation commenced which
would challenge the Related Transactions or which, if successful, would have a
material adverse impact on the Borrower, its business, or its ability to repay
the Obligations, (iv) since the Sellers’ most recent audited financial
statements, no material increase in the liabilities, liquidated or contingent,
or a material decrease in the assets.
(l) Minimum Cash on
Hand. After giving pro forma effect to the Related
Transactions, Borrower and its Subsidiaries shall have, on a consolidated basis,
cash on hand of not less than $700,000.
18
2.2 Further Conditions to Each
Loan. Except
as otherwise expressly provided herein, no Lender shall be obligated to fund any
Advance or incur any Letter of Credit Obligation, if, as of the date
thereof:
(a) any
representation or warranty by any Credit Party contained herein or in any other
Loan Document is untrue or incorrect as of such date (A) as stated if such
representation or warranty contains an express materiality qualification or (B)
in any material respect if such representation or warranty does not contain such
a qualification, except to the extent that such representation or warranty
expressly relates to an earlier date (in which case such representation or
warranty shall not have been untrue or incorrect as of such earlier date (A) as
stated if such representation or warranty contains an express materiality
qualification or (B) in any material respect if such representation or warranty
does not contain such a qualification) and except for changes therein expressly
permitted or expressly contemplated by this Agreement, and Agent or Requisite
Revolving Lenders have determined not to make such Revolving Credit Advance or
incur any Letter of Credit Obligation as a result of the fact that such
representation or warranty is untrue or incorrect as aforesaid;
(b)
any Default or Event of Default has occurred and is continuing or would result
after giving effect to any Advance (or the incurrence of any Letter of Credit
Obligation), and Agent or Requisite Revolving Lenders shall have determined not
to make any Advance or incur any Letter of Credit Obligation as a result of that
Default or Event of Default; or
(c) after
giving effect to any Advance (or the incurrence of any Letter of Credit
Obligations), the outstanding principal amount of the Revolving Loan would
exceed the Maximum Amount.
The
request and acceptance by Borrower of the proceeds of any Advance, or the
incurrence of any Letter of Credit Obligations shall be deemed to constitute, as
of the date thereof, (i) a representation and warranty by Borrower that the
conditions in this Section
2.2 have been satisfied and (ii) a reaffirmation by Borrower
of the granting and continuance of Agent's Liens, on behalf of itself and
Lenders, pursuant to the Collateral Documents.
3. REPRESENTATIONS
AND WARRANTIES
To induce
Lenders to make the Loans and to incur Letter of Credit Obligations, the Credit
Parties executing this Agreement, jointly and severally, make the following
representations and warranties to Agent and each Lender with respect to all
Credit Parties, each and all of which shall survive the execution and delivery
of this Agreement. The representations shall be deemed to apply to the Acquired
Theatres, the Dallas Theatre and the Manville Theatre after giving pro forma
effect to the consummation of the Acquisition, the Dallas Theatre Contribution
and the Manville Contribution as if the Borrower owned such theaters at all
times on and prior to the Closing Date.
3.1 Corporate Existence; Compliance with
Law. Each
Credit Party (a) is a corporation, limited liability company, general
partnership or limited partnership duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation or
organization, which as of the date hereof is set forth in Disclosure Schedule
(3.1); (b) is duly
19
qualified
to conduct business and is in good standing in each other jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification, except where the failure to be so qualified would not result in
exposure to losses or liabilities which, alone or in the aggregate, could
reasonably be expected to have a Material Adverse Effect; (c) has the requisite
power and authority and the legal right to own, pledge, mortgage or otherwise
encumber and operate its properties, to lease the property it operates under
lease and to conduct its business as now conducted or proposed to be conducted;
(d) subject to specific representations regarding Environmental Laws, has all
material licenses, permits, consents or approvals from or by, and has made all
material filings with, and has given all notices to, all Governmental
Authorities having jurisdiction, to the extent required for such ownership,
operation and conduct; (e) is in compliance with its charter and bylaws or
partnership or operating agreement, as applicable; and (f) subject to specific
representations set forth herein regarding ERISA, Environmental Laws, tax and
other laws, is in compliance with all applicable provisions of law and
regulation, except where the failure to comply, alone or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
3.2 Executive Offices,
Collateral Locations, FEIN, Organizational Number. As
of the Closing Date, each Credit Party's name as it appears in official filings
in its state of incorporation or organization, the state of incorporation or
organization, organization type, organization number, if any, issued by its
state incorporation or organization, and the current location of each Credit
Party's chief executive office and the warehouses and premises at which any
Collateral are located are set forth in Disclosure Schedule
(3.2). In addition, Disclosure Schedule
(3.2) lists the federal employer identification number of each Credit
Party.
3.3 Corporate Power,
Authorization, Enforceable Obligations. The
execution, delivery and performance by each Credit Party of the Loan Documents
to which it is a party and the creation of all Liens provided for therein: (a)
are within such Person's power; (b) have been duly authorized by all necessary
corporate, limited liability company or limited partnership action; (c) do not
contravene any provision of such Person's charter, bylaws or partnership or
operating agreement as applicable; (d) do not violate any law or regulation, or
any order or decree of any court or Governmental Authority; (e) do not conflict
with or result in the breach or termination of, constitute a default under or
accelerate or permit the acceleration of any performance required by, any
indenture, mortgage, deed of trust, Theatre Lease or other material lease,
material agreement or other material instrument to which such Person is a party
or by which such Person or any of its property is bound; (f) do not result in
the creation or imposition of any Lien upon any of the property of such Person
other than those in favor of Agent, on behalf of itself and Lenders, pursuant to
the Loan Documents; and (g) do not require the consent or approval of any
Governmental Authority or any other Person, except those referred to in Section 2.1(c), all
of which will have been duly obtained, made or complied with prior to the
Closing Date. Each of the Loan Documents shall be duly executed and
delivered by each Credit Party that is a party thereto and each such Loan
Document shall constitute a legal, valid and binding obligation of such Credit
Party enforceable against it in accordance with its terms.
3.4 Financial Statements and
Projections. Except
for the Projections and the Pro Forma, all Financial Statements concerning
Borrower and its Subsidiaries that are referred to below have been prepared in
accordance with GAAP consistently applied throughout the periods covered (except
as disclosed therein and except, with respect to unaudited Financial Statements,
20
for the
absence of footnotes and normal year-end audit adjustments) and present fairly
in all material respects the financial position of the Persons covered thereby
as at the dates thereof and the results of their operations and cash flows for
the periods then ended.
(a) Financial
Statements. The following Financial Statements attached hereto
as Disclosure Schedule
(3.4(a)) have been delivered on the date hereof:
(i) The
audited consolidated balance sheets at June 28, 2007 and the related statements
of income and cash flows of Sellers with respect to the Acquired Theatres for
the Fiscal Year then ended, certified by KPMG, LLP.
(ii) The
unaudited balance sheet(s) at December 31, 2007 and the related statement(s) of
income and cash flows of Reading with respect to the Manville Theatre and the
Dallas Theatre.
(b) Pro
Forma. The Pro Forma delivered on the date hereof and attached
hereto as Disclosure
Schedule (3.4(b)) was prepared by Borrower giving pro forma effect to
the Related Transactions, was based on the unaudited consolidated balance sheets
of Borrower and its Subsidiaries dated January 1, 2008.
(c) Projections. The
Projections delivered on the date hereof and attached hereto as Disclosure Schedule
(3.4(c)) have been prepared by Borrower in light of the past operations
of the Acquired Theatres, the Dallas Theatre and the Manville Theatre, but
including future payments of known contingent liabilities, and reflect
projections for the five year period beginning on January 1, 2008 on a
month-by-month basis. The Projections are based upon the same
accounting principles as those used in the preparation of the financial
statements described above and the estimates and assumptions stated therein, all
of which Borrower believes to be reasonable and fair in light of current
conditions and current facts known to Borrower and, as of the Closing Date,
reflect Borrower's good faith and reasonable estimates of the future financial
performance of Borrower for the period set forth therein. The
Projections are not a guaranty of future performance, and actual results may
differ from the Projections.
3.5 Material Adverse
Effect. Between
June 30, 2007 and the Closing Date, (a) no Credit Party has incurred any
obligations, contingent or noncontingent liabilities, liabilities for Charges,
long-term leases or unusual forward or long-term commitments that are not
reflected in the Pro Forma and that, alone or in the aggregate, could reasonably
be expected to have a Material Adverse Effect, and (b) no contract, lease or
other agreement or instrument has been entered into by any Credit Party or has
become binding upon any Credit Party's assets and no law or regulation
applicable to any Credit Party has been adopted that has had or could reasonably
be expected to have a Material Adverse Effect. As of the Closing
Date, no Credit Party is in default and to the best of Borrower's knowledge no
third party is in default under any Material Contract, lease or other material
agreement or instrument, that alone or in the aggregate could reasonably be
expected to have a Material Adverse Effect. Since June 30, 2007 no
event has
occurred, that alone or together with other events, could reasonably be expected
to have a Material Adverse Effect.
21
3.6 Ownership of Property;
Liens. As
of the Closing Date, the real estate (“Real Estate”) listed
in Disclosure Schedule
(3.6) constitutes all of the real property owned, leased, subleased, or
used by any Credit Party. Each Credit Party owns good and marketable
fee simple title to all of its owned Real Estate, and valid and marketable
leasehold interests in all of its leased Real Estate, (as of the Closing Date,
all as described on Disclosure Schedule
(3.6)), and copies of all such leases or a summary of terms thereof
reasonably satisfactory to Agent have been delivered to Agent. Disclosure Schedule
(3.6) further describes any Real Estate with respect to which any Credit
Party is a lessor, sublessor or assignor as of the Closing Date. Each
Credit Party also has good and marketable title to, or valid leasehold interests
in, all of its personal property and assets. As of the Closing Date,
none of the properties and assets of any Credit Party are subject to any Liens
other than Liens permitted hereunder, and there are no facts, circumstances or
conditions known to any Credit Party that may result in any Liens
(including Liens arising under Environmental Laws) other than Permitted
Encumbrances. Each Credit Party has received all deeds, assignments,
waivers, consents, nondisturbance and attornment or similar agreements, bills of
sale and other documents, and has duly effected all recordings, filings and
other actions necessary to establish, protect and perfect such Credit Party's
right, title and interest in and to all such Real Estate and other properties
and assets. Disclosure Schedule
(3.6) also describes any purchase options, rights of first refusal or
other similar contractual rights existing as of the Closing Date and pertaining
to any Real Estate. As of the Closing Date, no portion of any Credit
Party's Real Estate has suffered any material damage by fire or other casualty
loss that has not heretofore been repaired and restored in all material respects
to its original condition or otherwise remedied. As of the Closing
Date, all material permits required to have been issued or appropriate to enable
the Real Estate to be lawfully occupied and used for all of the purposes for
which it is currently occupied and used have been lawfully issued and are in
full force and effect.
3.7 Labor
Matters. Except
as set forth on Disclosure Schedule
(3.7), as of the Closing Date: (a) no strikes or other material labor
disputes against any Credit Party are pending or, to any Credit Party's
knowledge, threatened; (b) hours worked by and payment made to employees of each
Credit Party comply with the Fair Labor Standards Act and each other federal,
state, local or foreign law applicable to such matters; (c) all payments due
from any Credit Party for employee health and welfare insurance have been paid
or accrued as a liability on the books of such Credit Party; (d) no Credit Party
is a party to or bound by any collective bargaining agreement, management
agreement, consulting agreement, employment agreement, bonus, restricted stock,
stock option, or stock appreciation plan or agreement or any similar plan,
agreement or arrangement (and true and complete copies of any agreements
described on Disclosure Schedule
(3.7) have been delivered to Agent); (e) there is no organizing activity
involving any Credit Party pending or, to any Credit Party's knowledge,
threatened by any labor union or group of employees; (f) there are no
representation proceedings pending or, to any Credit Party's knowledge,
threatened with the National Labor Relations Board, and no labor organization or
group of employees of any Credit Party has made a pending demand for
recognition; and (g) there are no material complaints or charges against
any Credit Party pending or, to the knowledge of any Credit Party, threatened to
be filed with any Governmental Authority or
arbitrator based on, arising out of, in connection with, or otherwise relating
to the employment or termination of employment by any Credit Party of any
individual.
22
3.8 Ventures, Subsidiaries and
Affiliates; Outstanding Stock and Indebtedness. Except
as set forth in Disclosure Schedule
(3.8), as of the Closing Date, no Credit Party has any Subsidiaries, is
engaged in any joint venture or partnership with any other Person, or is an
Affiliate of any other Person. All of the issued and outstanding
Stock of each Credit Party is owned, as of the Closing Date, by each of the
Stockholders and in the amounts set forth in Disclosure Schedule
(3.8). Except as set forth in Disclosure Schedule
(3.8), as of the Closing Date, there are no outstanding rights to
purchase, options, warrants or similar rights or agreements pursuant to which
any Credit Party may be required to issue, sell, repurchase or redeem any of its
Stock or other equity securities or any Stock or other equity securities of its
Subsidiaries. All outstanding Indebtedness and Guaranteed
Indebtedness of each Credit Party as of the Closing Date (except for the
Obligations) is described in Section 6.3
(including Disclosure
Schedule (6.3)).
3.9 Government
Regulation. No
Credit Party is an “investment company” or an “affiliated person” of, or
“promoter” or “principal underwriter” for, an “investment company,” as such
terms are defined in the Investment Company Act of 1940. No Credit
Party is subject to regulation under any federal or state statute that restricts
or limits its ability to incur Indebtedness or to perform its obligations
hereunder. The making of the Loans by Lenders to Borrower, the incurrence of the
Letter of Credit Obligations on behalf of Borrower, the application of the
proceeds thereof and repayment thereof and the consummation of the Related
Transactions will not violate any provision of any such statute or any rule,
regulation or order issued by the Securities and Exchange
Commission.
3.10 Margin
Regulations. No
Credit Party is engaged, nor will it engage, principally or as one of its
important activities, in the business of extending credit for the purpose of
“purchasing” or “carrying” any “margin stock” as such terms are defined in
Regulation U of the Federal Reserve Board as now and from time to time hereafter
in effect (such securities being referred to herein as “Margin
Stock”). No Credit Party owns any Margin Stock, and none of
the proceeds of the Loans or other extensions of credit under this Agreement
will be used, directly or indirectly, for the purpose of purchasing or carrying
any Margin Stock, for the purpose of reducing or retiring any Indebtedness that
was originally incurred to purchase or carry any Margin Stock or for any other
purpose that might cause any of the Loans or other extensions of credit under
this Agreement to be considered a “purpose credit” within the meaning of
Regulations T, U or X of the Federal Reserve Board. No Credit Party
will take or permit to be taken any action that might cause any Loan Document to
violate any regulation of the Federal Reserve Board.
3.11 Taxes. All
Federal and other material tax returns, reports and statements, including
information returns, required by any Governmental Authority to be filed by any
Credit Party have been filed with the appropriate Governmental Authority, and
all Charges have been paid prior to the date on which any fine, penalty,
interest or late charge may be added thereto for nonpayment thereof, excluding
Charges or other amounts being contested in accordance with Section 5.2(b) and
unless the failure to so file or pay would not reasonably be expected to result
in fines, penalties or interest in excess of $50,000 in the
aggregate. Proper and accurate amounts have been withheld by each
Credit Party from its respective employees for all periods in full and complete
compliance with all applicable federal, state, local and foreign laws and such
withholdings have been timely paid to the respective Governmental
Authorities. Disclosure
23
Schedule (3.11) sets
forth as of the Closing Date those taxable years for which any Credit Party's
tax returns are currently being audited by the IRS or any other applicable
Governmental Authority and any assessments or threatened assessments in
connection with such audit, or otherwise currently
outstanding. Except as described in Disclosure Schedule
(3.11), as of the Closing Date, no Credit Party has executed or filed
with the IRS or any other Governmental Authority any agreement or other document
extending, or having the effect of extending, the period for assessment or
collection of any Charges. Except as set forth on Disclosure Schedule
(3.11), none of the Credit Parties and their respective predecessors are
liable for any Charges: (a) under any agreement (including any tax sharing
agreements) or (b) to each Credit Party's knowledge, as a
transferee. As of the Closing Date, no Credit Party has agreed or
been requested to make any adjustment under IRC Section 481(a), by reason of a
change in accounting method or otherwise, which would reasonably be expected to
have a Material Adverse Effect.
3.12 ERISA.
(a) Disclosure Schedule
(3.12) lists as of the Closing Date, (i) all ERISA Affiliates and (ii)
all Plans and separately identifies all Pension Plans, including Title IV Plans,
Multiemployer Plans, ESOPs and Welfare Plans, including all Retiree Welfare
Plans. Copies of all such listed Plans, together with a copy of the
latest form IRS/DOL 5500-series form for each such Plan have been delivered to
Agent. Except with respect to Multiemployer Plans, each Qualified
Plan has been determined by the IRS to qualify under Section 401 of the IRC, the
trusts created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the IRC, and, nothing has occurred that would cause
the loss of such qualification or tax-exempt status. Each Plan is in
compliance in all material respects with the applicable provisions of ERISA and
the IRC, including the timely filing of all reports required under the IRC or
ERISA, including the statement required by 29 CFR Section
2520.104-23. Neither any Credit Party nor ERISA Affiliate has failed
to make any material contribution or pay any material amount due as required by
either Section 412 of the IRC or Section 302 of ERISA or the terms of any such
Plan. Neither any Credit Party nor ERISA Affiliate has engaged in a
“prohibited transaction,” as defined in Section 406 of ERISA and Section 4975 of
the IRC, in connection with any Plan, that would subject any Credit Party to a
material tax on prohibited transactions imposed by Section 502(i) of ERISA or
Section 4975 of the IRC.
(b) Except
as set forth in Disclosure Schedule
(3.12): (i) no Title IV Plan has any material Unfunded Pension Liability;
(ii) no ERISA Event or event described in Section 4062(e) of ERISA with respect
to any Title IV Plan has occurred or is reasonably expected to occur; (iii)
there are no pending, or to the knowledge of any Credit Party, threatened
material claims (other than claims for benefits in the normal course),
sanctions, actions or lawsuits, asserted or instituted against any Plan or any
Person as fiduciary or sponsor of any Plan; (iv) no Credit Party or ERISA
Affiliate has incurred or reasonably expects to incur any material liability as
a result of a complete or partial withdrawal from a Multiemployer Plan; (v)
within the last five years no Title IV Plan of any Credit Party or ERISA
Affiliate has been terminated, whether or not in a “standard termination” as
that term is used in Section 4041 of ERISA, nor has any Title IV Plan of any
Credit Party or ERISA Affiliate (determined at any time within the past five
years) with material Unfunded Pension Liabilities been transferred outside of
the “controlled group” (within the meaning of Section 4001(a)(14) of ERISA) of
any Credit Party or ERISA Affiliate; (vi) except in the case of any ESOP,
Stock of all Credit Parties and their ERISA
24
Affiliates
makes up, in the aggregate, no more than 10% of fair market value of the assets
of any Plan measured on the basis of fair market value as of the latest
valuation date of any Plan; and (vii) no liability under any Title IV Plan
has been satisfied with the purchase of a contract from an insurance company
that is not rated AAA by the Standard & Poor's Corporation or an equivalent
rating by another nationally recognized rating agency.
3.13 No
Litigation. No
action, claim, lawsuit, demand, investigation or proceeding is now pending or,
to the knowledge of any Credit Party, threatened against any Credit Party,
before any Governmental Authority or before any arbitrator or panel of
arbitrators (collectively, “Litigation”),
(a) that challenges any Credit Party's right or power to enter into or
perform any of its obligations under the Loan Documents to which it is a party,
or the validity or enforceability of any Loan Document or any action taken
thereunder, or (b) that has a reasonable risk of being determined adversely to
any Credit Party and that, if so determined, could reasonably be expected to
have a Material Adverse Effect. Except as set forth on Disclosure Schedule
(3.13), as of the Closing Date there is no Litigation pending or
threatened that seeks damages in excess of $250,000 or injunctive relief
against, or alleges criminal misconduct of, any Credit Party.
3.14 Brokers. Except
as set forth on Disclosure Schedule
(3.14), no broker or finder acting on behalf of any Credit Party or
Affiliate thereof brought about the obtaining, making or closing of the Loans or
the Related Transactions, and no Credit Party or Affiliate thereof has any
obligation to any Person in respect of any finder's or brokerage fees in
connection therewith.
3.15 Intellectual
Property. As
of the Closing Date, each Credit Party owns or has rights to use all material
Intellectual Property necessary to continue to conduct its business as now
conducted by it or presently proposed to be conducted by it, and each registered
Patent, registered Trademark, registered Copyright and License (other than any
License in respect of commercially available software or any License in respect
of the presentation of any motion picture or other License necessary to conduct
the Business in the normal course) is listed, together with application or
registration numbers, as applicable, in Disclosure Schedule
(3.15). Each Credit Party conducts its business and affairs
without infringement of or interference with any Intellectual Property of any
other Person in any material respect. Except as set forth in Disclosure Schedule
(3.15), as of the Closing Date, no Credit Party is aware of any material
infringement claim by any other Person with respect to any Intellectual
Property.
3.16 Full
Disclosure. No
information contained in this Agreement, any of the other Loan Documents,
Financial Statements or Collateral Reports or other written reports from time to
time delivered hereunder or any written statement furnished by or on behalf of
any Credit Party to Agent or any Lender pursuant to the terms of this Agreement
(other than any Projections, pro forma statements or other forward looking
disclosures) contains or will contain, when delivered, any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading in light of the
circumstances under which they were made; provided that (a) with respect to
information relating to Borrower’s industry generally and trade data which
relates to a Person that is not a Credit Party, Borrower represents and warrants
only that such information is believed by it in good faith to be accurate in all
material respects, and (b) with respect to Financial Statements,
25
other
than projected financial information, Borrower only represents that such
Financial Statements present fairly in all material respects the consolidated
financial condition of the applicable Person as of the dates
indicated. Projections from time to time delivered hereunder are or
will be based upon the estimates and assumptions stated therein, all of which
Borrower believed at the time of delivery to be reasonable and fair in light of
current conditions and current facts known to Borrower as of such delivery date,
and reflect Borrower's good faith and reasonable estimates of the future
financial performance of Borrower and of the other information projected therein
for the period set forth therein. Such Projections are not a guaranty
of future performance and actual results may differ from those set forth in such
Projections. The Liens granted to Agent, on behalf of itself and
Lenders, pursuant to the Collateral Documents will at all times, subject to
compliance with, and the exclusions from, the provisions hereof and the
Collateral Documents, be fully perfected first priority Liens in and to the
Collateral described therein, subject, as to priority, only to Liens permitted
hereunder.
3.17 Environmental
Matters.
(a) Except
as set forth in Disclosure Schedule
(3.17), as of the Closing Date: (i) the Real Estate is free of
contamination from any Hazardous Material except for such contamination that
would not materially adversely impact the value or marketability of such Real
Estate and that would not result in Environmental Liabilities that could
reasonably be expected to exceed $500,000; (ii) no Credit Party has caused or
suffered to occur any material Release of Hazardous Materials on, at, in, under,
above, to, from or about any of its Real Estate; (iii) the Credit Parties are
and have been in compliance with all Environmental Laws, except for such
noncompliance that would not result in Environmental Liabilities which could
reasonably be expected to exceed $500,000; (iv) the Credit Parties have
obtained, and are in compliance with, all Environmental Permits required by
Environmental Laws for the operations of their respective businesses as
presently conducted or as proposed to be conducted, except where the failure to
so obtain or comply with such Environmental Permits would not result in
Environmental Liabilities that could reasonably be expected to exceed $500,000,
and all such Environmental Permits are valid, uncontested and in good standing;
(v) no Credit Party is involved in operations or knows of any facts,
circumstances or conditions, including any Releases of Hazardous Materials, that
are likely to result in any Environmental Liabilities of such Credit Party which
could reasonably be expected to exceed $500,000; (vi) there is no Litigation
arising under or related to any Environmental Laws, Environmental Permits or
Hazardous Material that seeks damages, penalties, fines, costs or expenses in
excess of $500,000 or injunctive relief against any Credit Party; (vii) no
notice has been received by any Credit Party identifying it as a “potentially
responsible party” or requesting information under CERCLA or analogous state
statutes, and to the knowledge of the Credit Parties, there are no facts,
circumstances or conditions that may result in any Credit Party being identified
as a “potentially responsible party” under CERCLA or analogous state statutes;
and (viii) the Credit Parties have provided to Agent copies of all existing
environmental reports, reviews and audits and all written information pertaining
to actual or potential Environmental Liabilities, in each case relating to any
Credit Party.
(b) Each
Credit Party hereby acknowledges and agrees that Agent (i) is not now, and has
not ever been, in control of any of the Real Estate or any Credit Party's
affairs, and (ii) does not have the capacity through the provisions of the Loan
Documents or otherwise to
26
influence
any Credit Party's conduct with respect to the ownership, operation or
management of any of its Real Estate or compliance with Environmental Laws or
Environmental Permits.
3.18 Insurance. Disclosure Schedule
(3.18) lists all insurance policies of any nature maintained, as of the
Closing Date, for current occurrences by each Credit Party, as well as a summary
of the terms of each such policy.
3.19 Deposit and Disbursement
Accounts. Disclosure Schedule
(3.19) lists all banks and other financial institutions at which any
Credit Party maintains deposit or other accounts as of the Closing Date, and
such Schedule correctly identifies the name, address and telephone number of
each depository, the name in which the account is held, a description of the
purpose of the account, and the complete account number therefor.
3.20 [Reserved]
3.21 Trade
Relations. As
of the Closing Date, there exists no actual or, to the knowledge of any Credit
Party, threatened termination or cancellation of, or any material adverse
modification or change in the business relationship of any Credit Party with any
supplier essential to its operations.
3.22 Bonding;
Licenses. Except
as set forth on Disclosure Schedule
(3.22), as of the Closing Date, no Credit Party is a party to or bound by
any surety bond agreement or bonding requirement with respect to products or
services sold by it.
3.23 Solvency. Both
before and after giving effect to (a) the Loans and Letter of Credit Obligations
to be made or incurred on the Closing Date or such other date as Loans and
Letter of Credit Obligations requested hereunder are made or incurred, (b) the
disbursement of the proceeds of such Loans pursuant to the instructions of
Borrower, (c) the Acquisition and the consummation of the other Related
Transactions and (d) the payment and accrual of all transaction costs in
connection with the foregoing, each of the Borrower, individually, and the
Credit Parties, taken as a whole, is and will be Solvent.
3.24 Acquisition
Agreement. As
of the Closing Date, Borrower has delivered to Agent a complete and correct copy
of the Acquisition Agreement (including all schedules, exhibits, amendments,
supplements, modifications, assignments and all other documents delivered
pursuant thereto or in connection therewith) and the Reading Note. No
Credit Party and to the knowledge of any Credit Party no other Person party
thereto is in default in the performance or compliance with any provisions
thereof. The Acquisition Agreement complies with, and the Acquisition
has been consummated in accordance with, all applicable laws. The
Acquisition Agreement is in full force and effect as of the Closing Date and has
not been terminated, rescinded or withdrawn. All requisite approvals by
Governmental Authorities having jurisdiction over Seller, any Credit Party and
other Persons referenced therein, with respect to the transactions contemplated
by the Acquisition Agreement, have been obtained, and no such approvals impose
any conditions to the consummation of the transactions contemplated by the
Acquisition Agreement or to the conduct by any Credit Party of its business
thereafter. To each Credit Party's knowledge, none of the Sellers’
representations or warranties in the Acquisition Agreement contain any untrue
statement of a material fact or omit any fact necessary to make the
27
statements
therein not misleading. Each of the representations and warranties
given by each applicable Credit Party in the Acquisition Agreement is true and
correct in all material respects.
3.25 Status of
Holdings. Prior
to the Closing Date, Holdings will not have engaged in any business or incurred
any Indebtedness or any other liabilities (except in connection with its
corporate formation, the Related Transactions Documents and this
Agreement).
3.26 OFAC. No
Credit Party (i) is a person whose property or interest in property is blocked
or subject to blocking pursuant to Section 1 of Executive Order 13224 of
September 23, 2001 Blocking Property and Prohibiting Transactions With Persons
Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079
(2001)), (ii) engages in any dealings or transactions prohibited by Section 2 of
such executive order, or is otherwise associated with any such person in any
manner violative of Section 2, or (iii) is a person on the list of Specially
Designated Nationals and Blocked Persons or subject to the limitations or
prohibitions under any other U.S. Department of Treasury’s Office of Foreign
Assets Control regulation or executive order.
3.27 Patriot
Act. Each
Credit Party is in compliance, in all material respects, with the (i) the
Trading with the Enemy Act, as amended, and each of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) and any other enabling legislation or executive order
relating thereto, and (ii) the Uniting And Strengthening America By Providing
Appropriate Tools Required To Intercept And Obstruct Terrorism (USA Patriot Act
of 2001). No part of the proceeds of the Loans will be used, directly
or indirectly, for any payments to any governmental official or employee,
political party, official of a political party, candidate for political office,
or anyone else acting in an official capacity, in order to obtain, retain or
direct business or obtain any improper advantage, in violation of the United
States Foreign Corrupt Practices Act of 1977, as amended.
4. FINANCIAL
STATEMENTS AND INFORMATION
4.1 Reports and
Notices.
(a) Each
Credit Party executing this Agreement hereby agrees that from and after the
Closing Date and until the Termination Date, it shall deliver to Agent or to
Agent and Lenders, as required, the Financial Statements, notices, Projections
and other information at the times, to the Persons and in the manner set forth
in Annex
E.
(b) Each
Credit Party executing this Agreement hereby agrees that from and after the
Closing Date and until the Termination Date, it shall deliver to Agent or to
Agent and Lenders, as required, the various Collateral Reports at the times, to
the Persons and in the manner set forth in Annex F.
4.2 Communication with Accountants. Each
Credit Party executing this Agreement authorizes (a) Agent and (b) so long as an
Event of Default has occurred and is continuing, each Lender, to communicate
directly with its independent certified public accountants, including Deloitte
& Touche LLP, and authorizes and shall instruct those accountants and
advisors to communicate to Agent and each Lender information relating to any
28
Credit
Party with respect to the business, results of operations and financial
condition of any Credit Party. In connection with the exercise of any
such rights, Agent or such Lender shall provide Borrower with a copy of all
transmittals and requests made to Borrower’s accountants concurrently with the
transmittal thereof to such accountants, and shall give Borrower reasonably
prior opportunity to participate in any conversations or meetings with such
accountants.
5. AFFIRMATIVE
COVENANTS
Each
Credit Party executing this Agreement jointly and severally agrees as to all
Credit Parties that from and after the date hereof and until the Termination
Date:
5.1 Maintenance of Existence and
Conduct of Business. Each
Credit Party shall: do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and its
material rights and franchises, except as permitted by Section 6.1; continue
to conduct its business substantially as now conducted or as otherwise permitted
hereunder; and at all times maintain, preserve and protect all of its assets and
properties used or useful in the conduct of its business, and keep the same in
good repair, working order and condition in all material respects (taking into
consideration ordinary wear and tear) and from time to time make, or cause to be
made, all necessary or appropriate repairs, replacements and improvements
thereto consistent with industry practices. Except as otherwise
permitted hereunder, each Credit Party shall maintain good and marketable fee
simple title to all of its owned Real Estate and a valid leasehold interest in
all of its leased Real Estate.
5.2 Payment of
Charges.
(a) Subject
to Section
5.2(b), each Credit Party shall pay and discharge or cause to be paid and
discharged promptly all (i) material Charges imposed upon it, its income
and profits, or any of its property (real, personal or mixed), all Charges with
respect to tax, social security and unemployment withholding with respect to its
employees and all other material Charges, (ii) lawful claims for labor,
materials, supplies and services or otherwise, and (iii) all storage or
rental charges payable to warehousemen and bailees, in each case, before any
thereof shall become past due, except in the case of clauses (ii) and
(iii) where the failure to pay or discharge such Charges would not result
in aggregate liabilities in excess of $500,000.
(b) Each
Credit Party may in good faith contest, by appropriate proceedings, the validity
or amount of any Charges, Taxes or claims described in Section 5.2(a); provided, that (i)
adequate reserves with respect to such contest are maintained on the books of
such Credit Party, in accordance with GAAP; (ii) no Lien other than a Permitted
Encumbrance shall be imposed to secure payment of such Charges (other than
payments to warehousemen and/or bailees) that is superior to any of the Liens
securing payment of the Obligations and such contest is maintained and
prosecuted continuously and with diligence and operates to suspend collection or
enforcement of such Charges, (iii) none of the Collateral becomes
subject to forfeiture or loss as a
result of such contest, and (iv) such Credit Party shall promptly pay or
discharge such contested Charges, Taxes or claims and all additional charges,
interest, penalties and expenses, if any, and shall deliver to Agent evidence
reasonably acceptable to Agent of such compliance, payment or discharge, if such
contest is terminated or discontinued adversely to such Credit Party or the
conditions set forth in this Section 5.2(b) are no
longer met.
29
5.3 Books and
Records. Each
Credit Party shall keep adequate books and records with respect to its business
activities in which proper entries, reflecting all financial transactions, are
made in accordance with GAAP and on a basis consistent with the Financial
Statements attached as Disclosure Schedule
(3.4(a)).
5.4 Insurance; Damage to or
Destruction of Collateral.
(a) The
Credit Parties shall, at their sole cost and expense, maintain the policies of
insurance described on Disclosure Schedule
(3.18) as in effect on the date hereof or other replacement
policies of insurance covering similar risks and in such amounts as are
maintained by other Persons engaged in a similar Business and issued by insurers
reasonably acceptable to Agent. Such policies of insurance (or the
loss payable and additional insured endorsements delivered to Agent) shall
contain provisions pursuant to which the insurer agrees to provide thirty (30)
days prior written notice to Agent in the event of any non-renewal, cancellation
or amendment of any such insurance policy. If any Credit Party at any
time or times hereafter shall fail to obtain or maintain any of the policies of
insurance required above or to pay all premiums relating thereto, Agent may at
any time or times thereafter obtain and maintain such policies of insurance and
pay such premiums and take any other action with respect thereto that Agent
deems advisable. Agent shall have no obligation to obtain insurance
for any Credit Party or pay any premiums therefor. By doing so, Agent
shall not be deemed to have waived any Default or Event of Default arising from
any Credit Party's failure to maintain such insurance or pay any premiums
therefor. All sums so disbursed, including reasonable attorneys'
fees, court costs and other charges related thereto, shall be payable on demand
by Borrower to Agent and shall be additional Obligations hereunder secured by
the Collateral.
(b) If
reasonably requested by Agent, each Credit Party shall deliver to Agent from
time to time a report of a reputable insurance broker reasonably satisfactory to
Agent, with respect to its insurance policies.
(c) Borrower
and each Credit Party shall deliver to Agent, in form and substance reasonably
satisfactory to Agent, endorsements to (i) all “All Risk” and business
interruption insurance of Borrower and the other Credit Parties naming Agent, on
behalf of itself and Lenders, as loss payee, and (ii) all general liability and
other liability policies of the Credit Parties naming Agent, on behalf of itself
and Lenders, as additional insured. Each Credit Party irrevocably
makes, constitutes and appoints Agent (and all officers, employees or agents
designated by Agent), so long as any Default or Event of Default has occurred
and is continuing , as Borrower’s and each other Credit Party’s true and lawful
agent and attorney-in-fact for the purpose of making, settling and adjusting
claims under such “All Risk” policies of insurance, endorsing the name of each
Credit Party on any check or other item of payment for the proceeds of such “All
Risk” policies of insurance and for making all determinations and decisions with
respect to such “All Risk” policies of insurance. Agent shall have no
duty to exercise any rights or powers granted to it pursuant to the foregoing
power-of-attorney. Borrower shall promptly notify Agent of any loss,
damage, or destruction to the Collateral in the amount of $250,000 or more,
whether or not covered by insurance. After deducting from such
proceeds (i) the expenses incurred by Agent in the collection or handling
thereof, and (ii) amounts required to be paid to creditors (other than Lenders)
having Permitted Encumbrances and amounts required to be paid to landlord under
any leases, Agent may, at its option, apply such proceeds to the reduction of
30
the
Obligations in accordance with Section 1.3(d),
provided that
in the case of insurance proceeds pertaining to any Credit Party other than
Borrower, such insurance proceeds shall be applied to the Loans owing by
Borrower, or permit or require each Credit Party to use such money, or any part
thereof, to replace, repair, restore or rebuild the Collateral in a diligent and
expeditious manner with materials and workmanship of substantially the same
quality as existed before the loss, damage or destruction. Notwithstanding the
foregoing, if the casualty giving rise to such insurance proceeds could not
reasonably be expected to have a Material Adverse Effect, no Default has
occurred and is continuing, and such loss or casualty does not occur at, or
relate to, a theatre which generates more than 5% of Borrower’s revenues, Agent
shall, to the extent Agent is in possession thereof, deliver to the applicable
Credit Party all casualty insurance proceeds so that the applicable Credit Party
can replace, restore, repair or rebuild the property; provided that if such
Credit Party has not completed or entered into binding agreements to complete
such replacement, restoration, repair or rebuilding within 270 days of such
casualty, Agent may apply such insurance proceeds to the Obligations in
accordance with Section 1.3(c); provided further that
in the case of insurance proceeds pertaining to any Credit Party other than
Borrower, such insurance proceeds shall be applied to the Loans owing by
Borrower. All insurance proceeds that are to be made available to
Borrower to replace, repair, restore or rebuild the Collateral shall be applied
by Agent to reduce the outstanding principal balance of the Revolving Loan
(which application shall not result in a permanent reduction of the Revolving
Loan Commitment). All insurance proceeds made available to any Credit
Party that is not a Borrower to replace, repair, restore or rebuild Collateral
shall be deposited in a Blocked Account. Thereafter, such funds shall
be made available to such Credit Party to provide funds to replace, repair,
restore or rebuild the Collateral as follows: (i) Borrower shall request a
Revolving Credit Advance or release from the cash collateral account be made to
such Credit Party in the amount requested to be released; and (ii) so long as
the conditions set forth in Section 2.2 have been
met, Revolving Lenders shall make such Revolving Credit Advance or Agent shall
release funds from such Blocked Account. To the extent not used to
replace, repair, restore or rebuild the Collateral, such insurance proceeds
shall be applied in accordance with Section 1.3(c); provided that in the
case of insurance proceeds pertaining to any Credit Party other than Borrower,
such insurance proceeds shall be applied to the Loans owing by
Borrower.
5.5 Compliance with
Laws. Each
Credit Party shall comply with all federal, state, local and foreign laws and
regulations applicable to it, including ERISA, labor laws, and Environmental
Laws and Environmental Permits, except to the extent that the failure to comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
5.6 Supplemental
Disclosure. From
time to time as may be reasonably requested by Agent (which request will not be
made more frequently than once each year absent the occurrence and continuance
of an Event of Default) or at Credit Parties' election, the Credit Parties shall
supplement each Disclosure Schedule hereto, or any representation herein or in
any other Loan Document, with respect to any matter hereafter arising that, if
existing or occurring at the date of this Agreement, would have been required to
be set forth or described in such Disclosure Schedule or as an exception to such
representation or that is necessary to correct any information in such
Disclosure Schedule or representation which has been rendered inaccurate thereby
(and, in the case of any supplements to any Disclosure Schedule, such Disclosure
Schedule shall be appropriately marked to show the changes made therein); provided that (a) no
31
such
supplement to any such Disclosure Schedule or representation shall amend,
supplement or otherwise modify any Disclosure Schedule or representation, or be
or be deemed a waiver of any Default or Event of Default resulting from the
matters disclosed therein, except as consented to by Agent and Requisite Lenders
in writing, and (b) no supplement shall be required or permitted as to
representations and warranties that relate solely to the Closing
Date.
5.7 Intellectual
Property. Each
Credit Party will conduct its business and affairs without material infringement
of or material interference with any Intellectual Property of any other Person
in any material respect and shall comply in all material respects with the terms
of its Licenses.
5.8 Environmental
Matters. Each
Credit Party shall and shall reasonably attempt to cause each Person within its
control to: (a) conduct its operations and keep and maintain its Real Estate in
compliance with all Environmental Laws and Environmental Permits other than
noncompliance that could not reasonably be expected to have a Material Adverse
Effect; (b) implement any and all investigation, remediation, removal and
response actions that are appropriate or necessary to maintain the value and
marketability of the Real Estate or to otherwise comply with Environmental Laws
and Environmental Permits pertaining to the presence, generation, treatment,
storage, use, disposal, transportation or Release of any Hazardous Material on,
at, in, under, above, to, from or about any of its Real Estate in all material
respects; (c) notify Agent promptly after such Credit Party becomes aware of any
violation of Environmental Laws or Environmental Permits or any Release on, at,
in, under, above, to, from or about any Real Estate that is reasonably likely to
result in Environmental Liabilities in excess of $250,000; and (d) promptly
forward to Agent a copy of any material order, notice, request for information
or any communication or report received by such Credit Party in connection with
any such violation or Release or any other matter relating to any Environmental
Laws or Environmental Permits that could reasonably be expected to result in
Environmental Liabilities in excess of $250,000 in each case whether or not the
Environmental Protection Agency or any Governmental Authority has taken or
threatened any action in connection with any such violation, Release or other
matter. If Agent at any time has a reasonable basis to believe that
there may be a violation of any Environmental Laws or Environmental Permits by
any Credit Party or any Environmental Liability arising thereunder, or a Release
of Hazardous Materials on, at, in, under, above, to, from or about any of its
Real Estate, that, in each case, could reasonably be expected to have a Material
Adverse Effect, then each Credit Party shall, upon Agent’s written request (i)
cause the performance of such environmental audits including subsurface sampling
of soil and groundwater, and preparation of such environmental reports, at
Borrower’s expense, as Agent may from time to time reasonably request, which
shall be conducted by reputable environmental consulting firms reasonably
acceptable to Agent and shall be in form and substance reasonably acceptable to
Agent, and (ii) permit Agent or its representatives to have access to all Real
Estate for the purpose of conducting such environmental audits and testing as
Agent deems appropriate, including subsurface sampling
of soil and groundwater. Borrower shall reimburse Agent for the
reasonable and documented costs of such audits and tests and the same will
constitute a part of the Obligations secured hereunder.
5.9 Access Agreements; Liens on
Real Estate Interests.
32
(a) Fee Owned Real Estate and
Leasehold Interest with respect to Movie Theatres. On or prior to
the Closing Date, Agent shall have received Mortgages covering all Mortgaged
Properties together with all requirements set forth in Annex D with respect
thereto. To the extent permitted hereunder, if any Credit Party
proposes to acquire a fee ownership interest in Real Estate or a leasehold
interest with respect to any movie theatre after the Closing Date, it shall
within 10 Business Days of the consummation of such acquisition provide to Agent
a mortgage or deed of trust granting Agent a first priority Lien on such Real
Estate, together with, if requested by Agent and within such reasonable time
frames as may be requested by Agent, environmental audits, mortgage title
insurance policy, real property survey, local counsel opinion(s), and, if
required by Agent, supplemental casualty insurance and flood insurance, landlord
estoppel agreements, mortgagee waivers, if applicable and such other documents,
instruments or agreements reasonably requested by Agent, in each case, in form
and substance reasonably satisfactory to Agent. If any lease which is
subject to a Mortgage in favor of Agent expires or terminates and is
subsequently renewed, Borrower shall with reasonable promptness provide to Agent
a mortgage or deed of trust granting Agent a first priority Lien on such Real
Estate, together with, if requested by Agent and within such reasonable time
frames as may be requested by Agent, mortgage title insurance policy, local
counsel opinion(s), and, if required by Agent, supplemental casualty insurance
and flood insurance, landlord estoppel agreements, mortgagee waivers, if
applicable and such other documents, instruments or agreements reasonably
requested by Agent, in each case, in form and substance reasonably satisfactory
to Agent.
(b) Other Leased Property. On
or prior to the Closing Date, Agent shall have received, with respect to all
leased property where (1) a Credit Party is the lessee, (2) the leased property
does not contain a movie theatre, (3) all of such leased property has not been
sublet to a third party and (4) the Credit Parties maintain Collateral in excess
of $250,000, a landlord waiver or bailee agreement with respect to such
location, which agreement shall contain a waiver or subordination of all Liens
or claims that such lessor, mortgagee or bailee may assert against the
Collateral at that location, shall grant Agent access to the Collateral at that
location, with respect to all leased property shall contain the consent of the
lessor to a Mortgage on such location in favor of Agent, and shall otherwise be
reasonably satisfactory in form and substance to Agent. After the
Closing Date, no real property or warehouse space which does not contain a movie
theatre and where Collateral with a value in excess of $250,000 is maintained
shall be leased by any Credit Party without the prior written consent of Agent
unless and until a satisfactory agreement with the applicable lessor or bailee
letter, as appropriate, shall first have been obtained with respect to such
location. Each Credit Party shall timely and fully pay and perform
its obligations under all leases and other agreements with respect to each
leased location or public warehouse where any Collateral is or may be
located.
5.10 Interest Rate/Currency
Fluctuations Protection. Within
ninety (90) days after the Closing Date, Borrower shall enter into and maintain
interest rate cap, swap or collar agreements,
or other agreements or arrangements designed to provide protection against
fluctuations in interest rates, which shall be on terms, for a period of at
least 2 years following the Closing Date and with counter parties reasonably
acceptable to Agent, and pursuant to which Borrower is protected against
increases in interest rates from and after the date of such contracts as to a
notional amount of not less than 50% of the Loans outstanding on the Closing
Date.
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5.11 Further
Assurances. Each
Credit Party executing this Agreement agrees that it shall and shall cause each
other Credit Party to, at such Credit Party's expense and upon the reasonable
request of Agent, duly execute and deliver, or cause to be duly executed and
delivered, to Agent such further instruments and do and cause to be done such
further acts as may be necessary or proper in the reasonable opinion of Agent to
carry out more effectively the provisions and purposes of this Agreement and
each Loan Document. Each Credit Party (other than Holdings) executing
this Agreement acknowledges and agrees that it will not issue any Stock to any
other Person after the Closing Date unless (i) no Change of Control would result
therefrom and (ii) such Stock is pledged to Agent, pursuant to documentation and
with such diligence as Agent shall request.
5.12 Future Credit
Parties. In
the event that, subsequent to the Closing Date, any Person becomes a Domestic
Subsidiary, such Person shall within 10 Business Days of becoming a Domestic
Subsidiary become a Credit Party, and concurrently with such Person’s becoming a
Credit Party, the Credit Party that owns the Stock of such Person shall (i)
pledge 100% such Stock and all Intercompany Notes issued by such Person to Agent
pursuant to the Borrower Pledge Agreement or such other pledge agreement in form
and substance reasonably satisfactory to Agent, (ii) shall cause such Person (A)
to become a party to this Agreement, and (B) to provide all relevant
documentation with respect thereto and to take such other actions as such Person
would have been required to provide and take pursuant to Annex D if such
Person had been a Credit Party on the Closing Date; (iii) shall cause such
Person (A) to become a party to the Subsidiary Guaranty, the Security Agreement
and, if such Credit Party owns any Stock, cause such Credit Party to become a
party to a stock pledge agreement in form and substance reasonably satisfactory
to Agent, pursuant to which such Credit Party shall pledge 100% of the Stock of
any of its Domestic Subsidiaries and 66% of the voting Stock and 100% of the
non-voting Stock of its first tier Foreign Subsidiaries and (B) to provide all
relevant documentation with respect thereto and to take such other actions as
such Person would have been required to provide and take pursuant to Annex D if such
Person had been a Credit Party on the Closing Date and (iv) if such Person owns
or leases any Real Estate, to comply with Sections 5.9 with
respect to such Real Estate. Borrower agrees that, following the
delivery of any Collateral Documents required to be executed and delivered by
this Section
5.11 the recordation thereof, if applicable, and the completion of such
other conditions as may be necessary to perfect a security interest in or a lien
upon the assets purportedly the subject of such Collateral Document, Agent shall
have a valid and enforceable, perfected, first priority Lien on the respective
Collateral covered thereby, free and clear of all Liens, other than (i)
Permitted Encumbrances and (ii) perfection of Liens in other assets of the
Credit Parties in an aggregate amount not to exceed $100,000 at any one
time. All actions to be taken pursuant to this Section 5.11 shall be
at the expense of Borrower or the applicable Credit Party, and shall be taken to
the reasonable satisfaction of Agent.
5.13 Post Closing. Each
Credit Party executing this Agreement agrees that it shall and shall cause each
other Credit Party to:
(i) deliver
to the Agent no later than 60 days after the Closing Date, the audited
consolidated balance sheets at June 30, 2005 and 2006 and the related statements
of income and cash flows of Sellers with respect to the Acquired Theatres for
the Fiscal Years then ended, certified by KPMG LLP;
34
(ii) deliver
to the Agent no later than 60 days after the Closing Date (which time period may
be extended in the Agent’s discretion), (1) a landlord estoppel agreement, in
form and substance satisfactory to the Agent, with respect to the leased
location at the Mockingbird Station Shopping Center, Dallas County, Texas and
(2) a leasehold mortgage, in form and substance satisfactory to the Agent, with
respect to the leased location at the Mockingbird Station Shopping Center,
Dallas County, Texas;
(iii) use
commercially reasonable efforts to deliver to the Agent no later than 90 days
after the Closing Date, landlord estoppel agreements, in form and substance
reasonably satisfactory to the Agent, with respect to the following Acquired
Theatres: Koko Marina; Ko’olau; Kaahumanu; and Kukui Mall;
(iv) deliver
to the Agent no later than 180 days after the Closing Date (which time period
may be extended in the Agent’s discretion), either (1) (x) a landlord estoppel
agreement, in form and substance satisfactory to the Agent, with respect to the
leased location at 4211 Waialae Avenue, Honolulu, Hawaii and (y) a leasehold
mortgage, in form and substance satisfactory to the Agent, with respect to the
leased location at 4211 Waialae Avenue, Honolulu, Hawaii or (2) a collateral
assignment duly executed by Borrower and Kahala Center Company, in form and
substance satisfactory to the Agent, with respect to the Kahala Management
Agreement.
(v) deliver
to the Agent not later than 120 days after the Closing Date, with respect to the
Koko Marina 8 leased location, evidence satisfactory to Agent of (1) recordation
of a certified copy of (x) Stipulation for Dismissal With Prejudice of All
Claims in the Complaint and First Amended Counterclaim Except for Claims Brought
by Counterclaimants Against Counterclaim Defendant Funds 4 US, LLC, filed
November 20, 2006, and (y) Release and Discharge of Notice of Pendency of Action
filed on September 27, 2004, filed December 29, 2005, and (2) recordation of a
Release and Discharge of Notice of Pendency of Action that was recorded November
20, 2003 as Document No. 2003-254884.
6. NEGATIVE
COVENANTS
Each
Credit Party executing this Agreement jointly and severally agrees as to all
Credit Parties that from and after the date hereof until the Termination
Date:
6.1 Mergers, Subsidiaries,
Etc.
No
Credit Party shall directly or indirectly, by operation of law or otherwise
without the prior written consent of the Requisite Lenders (other than the
Related Transactions), (a) form or acquire any Foreign Subsidiary or (b) merge
with, consolidate with, acquire all or substantially all of the assets or Stock
of, or otherwise combine with or acquire, any Person; provided that: any
Credit Party may merge, consolidate or liquidate with
another Credit Party; provided that if
Borrower is a party to such merger or consolidation, Borrower shall be the
surviving entity. Notwithstanding the foregoing, Borrower (or
Holdings, so long as contemporaneously therewith, all assets so acquired are
transferred to Borrower), may acquire all or substantially all of the assets or
Stock of, any Person (the “Target”) or
consummate any Theater Acquisition (in each case, a “Permitted
Acquisition”) subject to the satisfaction of each of the following
conditions:
(i) Agent
shall receive at least thirty (30) Business Days' prior
35
written
notice of such proposed Permitted Acquisition, which notice shall include a
reasonably detailed description of such proposed Permitted
Acquisition;
(ii) such
Permitted Acquisition shall only involve assets located in the United States or
Canada, shall be in a competitive free film zone and comprising a business, or
those assets of a business, of the type engaged in by Borrower as of the Closing
Date, and which business would not subject Agent or any Lender to regulatory or
third party approvals in connection with the exercise of its rights and remedies
under this Agreement or any other Loan Documents other than approvals applicable
to the exercise of such rights and remedies with respect to Borrower prior to
such Permitted Acquisition;
(iii) such
Permitted Acquisition shall be consensual and shall have been approved by the
Target's board of directors;
(iv) no
additional Indebtedness, Guaranteed Indebtedness, contingent obligations or
other liabilities shall be incurred, assumed or otherwise be reflected on a
consolidated balance sheet of Borrower and Target after giving effect to such
Permitted Acquisition, except (A) Loans made hereunder, (B) Indebtedness
permitted pursuant to Section 6.7(c) and
(C) ordinary course trade payables, accrued expenses and unsecured Indebtedness
of the Target to the extent no Default or Event of Default has occurred and is
continuing or would result after giving effect to such Permitted
Acquisition;
(v) the
sum of all amounts payable in connection with all Permitted Acquisitions
(including all transaction costs and all Indebtedness, liabilities and
contingent obligations incurred or assumed in connection therewith or otherwise
reflected on a consolidated balance sheet of Borrower and Target) shall not
exceed in the aggregate $15,000,000 in the case of all or any portion of such
Permitted Acquisitions funded with the proceeds of the Loans and $25,000,000 for
all such Permitted Acquisitions;
(vi) the
Target shall not have incurred an operating loss for the trailing twelve-month
period preceding the date of the Permitted Acquisition, as determined based upon
the Target's financial statements for its most recently completed fiscal year
and its most recent interim financial period completed within sixty (60) days
prior to the date of consummation of such Permitted Acquisition and after giving
effect to cost savings, synergies and other savings approved by
Agent;
(vii) the
business and assets acquired in such Permitted Acquisition shall be free and
clear of all Liens (other than Permitted Encumbrances);
(viii) at
or prior to the closing of any Permitted Acquisition, Agent will be granted a
first priority perfected Lien (subject to Permitted Encumbrances) in all assets
acquired pursuant thereto or in the assets and Stock of the Target, and Holdings
and Borrower and the Target shall have executed such documents and taken such
actions as may be required by Agent in connection therewith;
(ix) Concurrently
with delivery of the notice referred to in clause (i) above,
Borrower shall have delivered to Agent, in form and substance reasonably
satisfactory to Agent:
36
(A) a
pro forma consolidated balance sheet, income statement and cash flow statement
of Holdings and its Subsidiaries (the “Acquisition Pro
Forma”), based on recent financial statements, which shall be complete
and shall fairly present in all material respects the assets, liabilities,
financial condition and results of operations of Holdings and its Subsidiaries
in accordance with GAAP consistently applied, but taking into account such
Permitted Acquisition and the funding of all Loans in connection therewith, and
such Acquisition Pro Forma shall reflect that (x) on a pro forma basis, Holdings
and its Subsidiaries would have had a ratio of Funded Debt to EBITDA not in
excess of 2.75 to 1.0 for the four quarter period reflected in the Compliance
Certificate most recently delivered to Agent pursuant to Annex E prior to the
consummation of such Permitted Acquisition (after giving effect to such
Permitted Acquisition and all Loans funded in connection therewith as if made on
the first day of such period), (y) average daily Borrowing Availability for
the 90-day period preceding the consummation of such Permitted Acquisition would
have exceeded $1,000,000 on a pro forma basis (after giving effect to such
Permitted Acquisition and all Loans funded in connection therewith as if made on
the first day of such period) and the Acquisition Projections (as hereinafter
defined) shall reflect that such Borrowing Availability of $1,000,000 shall
continue for at least ninety (90) days after the consummation of such Permitted
Acquisition, and (z) on a pro forma basis, no Event of Default has occurred
and is continuing or would result after giving effect to such Permitted
Acquisition and Borrower would have been in compliance with the financial
covenants set forth in Annex G for the four
quarter period reflected in the Compliance Certificate most recently delivered
to Agent pursuant to Annex E prior to the
consummation of such Permitted Acquisition (after giving effect to such
Permitted Acquisition and all Loans funded in connection therewith as if made on
the first day of such period);
(B) updated
versions of the most recently delivered Projections covering the one (1) year
period commencing on the date of such Permitted Acquisition and otherwise
prepared in accordance with the Projections (the “Acquisition
Projections”) and based upon historical financial data of a recent date
reasonably satisfactory to Agent, taking into account such Permitted
Acquisition; and
(C) a
certificate of the chief financial officer of Holdings and Borrower to the
effect that: (w) Borrower (after taking into consideration all rights of
contribution and indemnity Borrower has against Holdings and each other
Subsidiary of Holdings) will be Solvent upon the consummation of the Permitted
Acquisition; (x) the Acquisition Pro Forma fairly presents the financial
condition of Holdings and Borrower (on a
consolidated basis) as of the date thereof after giving effect to the Permitted
Acquisition; (y) the Acquisition Projections are reasonable estimates of the
future financial performance of Holdings and Borrower subsequent to the date
thereof based upon the historical performance of Holdings, Borrower and the
Target and show that Holdings and Borrower shall continue to be in compliance
with the financial covenants set forth in Annex G for the
1-year period thereafter; and (z) Holdings and Borrower has completed their due
diligence investigation with respect to the Target and such Permitted
Acquisition, which investigation was conducted in a manner similar to that which
would have been conducted by a prudent purchaser of a comparable business and
the results of which investigation were delivered to Agent and
Lenders;
37
(x) on
or prior to the date of such Permitted Acquisition, Agent shall have received,
in form and substance reasonably satisfactory to Agent, copies of the
acquisition agreement and related agreements and instruments, and all opinions,
certificates, lien search results and other documents reasonably requested by
Agent, including those specified in the last sentence of Section 5.9;
and
(xi) at
the time of such Permitted Acquisition and after giving effect thereto, no
Default or Event of Default has occurred and is continuing.
6.2 Investments; Loans and
Advances. Except
as otherwise expressly permitted by this Section 6, no Credit
Party shall make or permit to exist any investment in, or make, accrue or permit
to exist loans or advances of money to, any Person, through the direct or
indirect lending of money, holding of securities or otherwise, except
that: (a) each Credit Party may hold investments comprised of notes
payable, or stock or other securities issued by Account Debtors to such Credit
Party pursuant to negotiated agreements with respect to settlement of such
Account Debtor's Accounts in the ordinary course of business; (b) each Credit
Party may make and hold investments in respect of prepaid expenses, negotiable
instruments held for collection or lease, workers’ compensation, performance and
other similar deposits provided to third parties in the ordinary course of
business; (c) each Credit Party may hold investments constituting non-cash
consideration received by such Credit Party in connection with asset
dispositions permitted hereby; (d) each Credit Party may make Investments in
connection with Permitted Acquisitions; (e) each Credit Party may make
investments in any Guarantor (other than Reading or Holdings) and any Guarantor
may make investments in Borrower or in any other Guarantor (other than Reading
or Holdings), (f) each Credit Party may, with the prior written consent of the
Agent (which consent shall not be unreasonably withheld), make other investments
funded with proceeds of equity issuances or capital contributions not required
to be used repay the Loans; (g) maintain its existing investments in its
Subsidiaries as of the Closing Date; (h) each Credit Party may hold investments
resulting from hedging obligations under swaps, caps and collar arrangements
arranged by GE Capital or any Lender entered into pursuant to Section 5.10 or any
other hedging obligation entered into for non-speculative purposes and (i) so
long as no Default or Event of Default has occurred and is continuing, Borrower
may make investments, subject to Control Letters in favor of Agent for the
benefit of Lenders or otherwise subject to a perfected security interest in
favor of Agent for the benefit of Lenders, in (i) marketable direct
obligations issued or unconditionally guaranteed by the United States of America
or any agency thereof maturing within one year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one year from the date
of creation thereof and currently having the highest rating obtainable
from either Standard & Poor's Ratings Group or Moody's Investors Service,
Inc., (iii) certificates of deposit maturing no more than one year from the date
of creation thereof issued by commercial banks incorporated under the laws of
the United States of America, each having combined capital, surplus and
undivided profits of not less than $300,000,000 and having a senior unsecured
rating of “A” or better by a nationally recognized rating agency (an “A Rated Bank”), (iv)
demand and time deposits maturing no more than thirty (30) days from the date of
creation thereof with A Rated Banks and (v) mutual funds that invest solely in
one or more of the investments described in clauses (i) through
(iv) above, and (j) other investments not exceeding $100,000 in the
aggregate at any time outstanding.
38
6.3 Indebtedness.
(a) No
Credit Party shall create, incur, assume or permit to exist any Indebtedness,
except (without duplication) (i) Indebtedness secured by purchase money security
interests and Capital Leases permitted in Section 6.7(c), (ii)
the Loans and the other Obligations, (iii) unfunded pension fund and other
employee benefit plan obligations and liabilities to the extent they are
permitted to remain unfunded under applicable law, (iv) existing Indebtedness
described in Disclosure Schedule
(6.3) and refinancings thereof or amendments or modifications thereof
that do not have the effect of increasing the principal amount thereof or
changing the amortization thereof (other than to extend the same) and that are
otherwise on terms and conditions no less favorable taken as a whole to any
Credit Party, Agent or any Lender, than the terms of the Indebtedness being
refinanced, amended or modified, (v) hedging obligations under swaps, caps and
collar arrangements arranged by GE Capital or any Lender entered into pursuant
to Section 5.10
or any other hedging obligation entered into for non-speculative purposes, (vi)
Indebtedness specifically permitted under Section 6.1,
(vii) obligations under surety bonds, appeal or similar obligations entered
into in the ordinary course of business, and (viii) Indebtedness consisting of
intercompany loans and advances made by Borrower to any other Credit Party that
is a Guarantor or by any such Guarantor to Borrower; provided, that: (A)
Borrower shall have executed and delivered to each such Guarantor, and each such
Guarantor shall have executed and delivered to Borrower, if so requested by
Agent, a demand note (collectively, the “Intercompany Notes”)
to evidence any such intercompany Indebtedness owing at any time by Borrower to
such Guarantor or by such Guarantor to Borrower, which Intercompany Notes shall
be in form and substance reasonably satisfactory to Agent and shall be pledged
and delivered to Agent pursuant to the applicable Pledge Agreement or Security
Agreement as additional collateral security for the Obligations; (B) Borrower
shall record all intercompany transactions on its books and records in a manner
reasonably satisfactory to Agent; (C) the obligations of Borrower under any such
Intercompany Notes shall be subordinated to the Obligations of Borrower
hereunder in a manner reasonably satisfactory to Agent; (D) at the time any such
intercompany loan or advance is made by Borrower and after giving effect
thereto, Borrower shall be Solvent; and (E) no Default or Event of Default
pursuant to Section
8.1(a), (g) or (h) would occur and
be continuing after giving effect to any such proposed intercompany
loan.
(b) No
Credit Party shall, directly or indirectly, voluntarily purchase, redeem,
defease or prepay any principal of, premium, if any, interest or other amount
payable in respect of any Indebtedness prior to its scheduled maturity, other
than (i) the Obligations; (ii) Indebtedness secured by a Permitted Encumbrance
and Liens permitted under Section
6.7(c) if the asset securing such Indebtedness has been sold
or otherwise disposed of in accordance with Sections 6.8(b) or
(c); (iii) Indebtedness permitted by Section 6.3(a)(iv)
upon any refinancing thereof in accordance with Section 6.3(a)(iv);
(iv) as otherwise permitted in Section 6.14 and (v)
Indebtedness owing to a Credit Party (other than Holdings) permitted
hereunder.
6.4 Employee Loans and Affiliate
Transactions.
(a) Except
(i) as otherwise expressly permitted in this Section 6 with
respect to Affiliates, (ii) as set forth in the Reading Management
Agreement, (iii) reasonable and customary fees paid to, and indemnities issued
for the benefit of, members of the board of directors (or similar governing
body) of Holdings and its Subsidiaries in the ordinary course of
39
business
and so long as no Event of Default has occurred and is continuing and (iv)
compensation arrangements for, and indemnities issued for the benefit of,
officers and other employees of Holdings and its Subsidiaries entered into in
the ordinary course of business and so long as no Event of Default has occurred,
no Credit Party shall enter into or be a party to any transaction with any other
Credit Party or any Affiliate thereof except in the ordinary course of and
pursuant to the reasonable requirements of such Credit Party's business and upon
fair and reasonable terms that are no less favorable to such Credit Party than
would be obtained in a comparable arm's length transaction with a Person not an
Affiliate of such Credit Party. In addition, if any such transaction
or series of related transactions involves payments in excess of $500,000 in the
aggregate, the terms of these transactions must be disclosed in advance to Agent
and Lenders. All such transactions existing as of the date hereof are
described in Disclosure Schedule
(6.4(a)).
(b) No
Credit Party shall enter into any lending or borrowing transaction with any
employees of any Credit Party, except loans to its respective employees on an
arm's-length basis in the ordinary course of business for travel and
entertainment expenses, relocation costs and similar purposes and stock option
financing up to a maximum of $100,000 to any employee and up to a maximum of
$250,000 in the aggregate at any one time outstanding.
6.5 Capital Structure and
Business. If
all or part of a Credit Party's Stock is pledged to Agent, that Credit Party
shall not issue additional Stock. No Credit Party shall amend its
charter or bylaws in a manner that would adversely affect Agent or Lenders or
such Credit Party's duty or ability to repay the Obligations. No
Credit Party shall engage in any business other than the businesses currently
engaged in by it or businesses reasonably related thereto.
6.6 Guaranteed
Indebtedness. No
Credit Party shall create, incur, assume or permit to exist any Guaranteed
Indebtedness except (a) by endorsement of instruments or items of payment for
deposit to the general account of any Credit Party, (b) for Guaranteed
Indebtedness incurred for the benefit of any other Credit Party if the primary
obligation is expressly permitted by this Agreement, (c) for Guaranteed
Indebtedness arising in connection with operating leases entered into by a
Credit Party from time to time and (d) for customary Guaranteed Indebtedness
incurred by such Credit Party in favor of title insurers.
6.7 Liens. No
Credit Party shall create, incur, assume or permit to exist any Lien on or with
respect to the Collateral or any of its other properties or assets (whether now
owned or hereafter acquired) except for (a) Permitted Encumbrances; (b) Liens in
existence on the date hereof and summarized on Disclosure Schedule
(6.7) securing Indebtedness described on Disclosure Schedule
(6.3) and permitted refinancings, extensions and renewals thereof,
including extensions or renewals of any such Liens; provided that the principal
amount of the Indebtedness so secured is not increased and the Lien does not
attach to any other property; (c) Liens created after the date hereof by
conditional sale or other title retention agreements (including Capital Leases)
or in connection with purchase money Indebtedness with respect to Equipment and
Fixtures acquired by any Credit Party in the ordinary course of business,
involving the incurrence of an aggregate amount of purchase money Indebtedness
and Capital Lease Obligations of not more than $1,000,000 outstanding at any one
time for all such Liens (provided that such
Liens attach only to the assets subject to such purchase money Indebtedness and
such Indebtedness is incurred within ninety (90) days following such purchase
and does not
40
exceed
100% of the purchase price of the subject assets); and (d) Liens in the nature
of deposits received by a Credit Party from a sublessor or other account debtor
in the ordinary course of business. In addition, no Credit Party
shall become a party to any agreement, note, indenture or instrument, or take
any other action, that would prohibit the creation of a Lien on any of its
properties or other assets in favor of Agent, on behalf of itself and Lenders,
as additional collateral for the Obligations, except (1) operating leases,
Capital Leases, Equipment and Fixtures that are subject to purchase money
obligations permitted hereby or Licenses which prohibit Liens upon the assets
that are subject thereto, (2) leasehold interests in Real Property (other than
in respect of leaseholds in respect of a movie theater) and (3) customary
provisions restricting assignments, subletting or other transfers contained in
leases, licenses and other agreements entered into in the ordinary course of
business.
6.8 Sale of Stock and
Assets. No
Credit Party shall sell, transfer, convey, assign or otherwise dispose of any of
its properties or other assets, including the Stock of any of its Subsidiaries
(whether in a public or a private offering or otherwise) or any of its Accounts,
other than (a) the sale of Inventory in the ordinary course of business, (b) the
non-exclusive licensing of intellectual property rights in the ordinary course
of business; (c) dispositions of property (including Stock) by any Subsidiary to
Borrower or to another Subsidiary; provided that if the transferor of such
property is a Guarantor, the transferee thereof must either be Borrower or a
Subsidiary that is a Guarantor, (d) dispositions of property by Borrower to any
Subsidiary that is a Guarantor, (e) leases or subleases of interests in real
property entered into in the ordinary course of business (other than leases or
subleases of any material portion of a Theatre Lease which lease or sublease
could reasonably be expected to (i) have a Material Adverse Effect, (ii) impair
such Credit Party’s ability to operate its movie theatre operations conducted
therein or (iii) materially impair the Collateral), (f) the surrender or waiver
of contractual rights or the settlement, release or surrender of contract or
tort claims in the ordinary course of business, (g) dispositions of cash and
cash equivalents in the ordinary course of business except to the extent
otherwise prohibited hereby, (h) the sale or other disposition by a Credit Party
of Equipment and Fixtures that are obsolete or no longer used or useful in such
Credit Party's business and (i) other dispositions of assets having a book
value, not exceeding $250,000 in the aggregate in any Fiscal Year.
6.9 ERISA. No
Credit Party shall, or shall cause or permit any ERISA Affiliate to, cause or
permit to occur (i) an event that could result in the imposition of a Lien under
Section 412 of the IRC or Section 302 or 4068 of ERISA or (ii) an ERISA Event to
the extent such ERISA Event would reasonably be expected to result in taxes,
penalties and other liability in excess of $250,000 in the
aggregate.
6.10 Financial
Covenants. Borrower
shall not breach or fail to comply with any of the Financial
Covenants.
6.11 Hazardous
Materials. No
Credit Party shall cause or permit a Release of any Hazardous Material on, at,
in, under, above, to, from or about any of the Real Estate where such Release
would (a) violate in any respect, or form the basis for any Environmental
Liabilities under, any Environmental Laws or Environmental Permits or (b)
otherwise adversely impact the value or marketability of any of the Real Estate
or any of the Collateral, other than such
41
violations
or Environmental Liabilities or impacts on the value or marketability of any
such Real Estate or Collateral that could not reasonably be expected to have a
Material Adverse Effect.
6.12 Sale-Leasebacks. No
Credit Party shall engage in any sale-leaseback, synthetic lease or similar
transaction involving any of its assets.
6.13 Restricted
Payments. No
Credit Party shall make any Restricted Payment, except (a) intercompany
loans and advances between Borrower and Guarantors to the extent permitted by
Section 6.3,
(b) dividends and distributions by Subsidiaries of Borrower paid to
Borrower, (c) employee loans permitted under Section 6.4(b),
(d) payments of principal and interest of Intercompany Notes issued in
accordance with Section 6.3, (e)
Permitted Tax Distributions, (f) dividends and distributions by the Credit
Parties to the parent company of Holdings in any Fiscal Year in an aggregate
amount not to exceed 25% of Excess Cash Flow from the immediately preceding
Fiscal Year so long as (i) Borrower has made the required prepayment of the
Obligations for such preceding Fiscal Year in accordance with Section 1.3(b)(iv)
(ii) no Default or Event of Default has occurred and is continuing or would
result therefrom and (iii) as of the date of such payment, Borrower’s Leverage
Ratio is less than 2.75:1.0 and (g) payments made pursuant to the Reading
Management Agreement as in effect on the date hereof and pro-rata payments made
with respect to Reading company-wide contracts.
6.14 Change of Corporate Name or
Location; Change of Fiscal Year. No
Credit Party shall (a) change its name as it appears in official filings in the
state of its incorporation or other organization; provided that Borrower may
change its name to Consolidated Entertainment, Inc., so long as Borrower
delivers evidence of such name change to Agent within 15 days after the giving
effect thereto, (b) change its chief executive office, principal place of
business, corporate offices or warehouses or locations at which Collateral is
held or stored, or the location of its records concerning the Collateral, (c)
change the type of entity that it is, (d) change its organization identification
number, if any, issued by its state of incorporation or other organization, or
(e) change its state of incorporation or organization, in each case without at
least thirty (30) days prior written notice to Agent and after Agent's written
acknowledgment that any reasonable action requested by Agent in connection
therewith, including to continue the perfection of any Liens in favor of Agent,
on behalf of Lenders, in any Collateral, has been completed or taken, and provided that any
such new location shall be in the continental United States or
Canada. No Credit Party shall change its Fiscal Year.
6.15 No Impairment of
Intercompany Transfers. No
Credit Party shall directly or indirectly enter into or become bound by any
agreement, instrument, indenture or other obligation (other than this Agreement
and the other Loan Documents) that could directly or indirectly restrict,
prohibit or require the consent of any Person with respect to the payment of
dividends
or distributions or the making or repayment of intercompany loans by a
Subsidiary of Borrower to Borrower.
6.16 Real Estate
Purchases. No
Credit Party shall acquire any fee simple ownership interests or leasehold
interests in Real Estate unless such Credit Party has complied with the
requirements of Section
5.9.
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6.17 Changes
Relating to Material Contracts.
(a) No
Credit Party shall change or amend the terms of the Reading Management Agreement
or the Kahala Management Agreement if the effect of such amendment would have a
material adverse effect on any Credit Party, the Agent or Lenders
(b) No
Credit Party shall change or amend the terms of the Reading Note if such
amendment or change would make (i) the Reading Note a recourse obligation of the
Borrower and (ii) amend or modify the provisions of Section 3 thereof or
otherwise add other similar adjustment provisions to the terms
thereof.
(c) No
Credit Party shall change or amend the terms of any Material Contract if the
effect of such amendment would have a material adverse effect on any Credit
Party, the Agent or Lenders.
(d) No
Credit Party shall agree to modify, terminate, amend, alter or cancel any
Theatre Lease without the prior written consent of the Agent (not to be
unreasonably withheld, delayed or conditioned by Agent) if such modification,
termination, amendment, alteration or cancellation would have a material adverse
effect on any Credit Party, Agent or the Lenders.
6.18 Holdings. Holdings
shall not engage in any trade or business, or own any assets (other than Stock
of its Subsidiaries and cash and cash equivalents) or incur any Indebtedness or
Guaranteed Indebtedness (other than the Obligations and Indebtedness owing to
any Credit Party).
7. TERM
7.1 Termination. The
financing arrangements contemplated hereby shall be in effect until the
Commitment Termination Date, and the Loans and all other Obligations shall be
automatically due and payable in full on such date.
7.2 Survival of Obligations Upon
Termination of Financing Arrangements. Except
as otherwise expressly provided for in the Loan Documents, no termination or
cancellation (regardless of cause or procedure) of any financing arrangement
under this Agreement shall in any way affect or impair the obligations, duties
and liabilities of the Credit Parties or the rights of Agent and Lenders
relating to any unpaid portion of the Loans or any other Obligations, due or not
due, liquidated, contingent or unliquidated or any transaction or event
occurring prior to such termination, or any transaction or event, the
performance of which is required after the Commitment Termination
Date. Except as otherwise expressly provided herein or in any other
Loan Document, all undertakings, agreements, covenants, warranties and representations
of or binding upon the Credit Parties, and all rights of Agent and each Lender,
all as contained in the Loan Documents, shall not terminate or expire, but
rather shall survive any such termination or cancellation and shall continue in
full force and effect until the Termination Date; provided, that the
provisions of Section
11, the payment obligations under Sections 1.15 and
1.16, and the indemnities contained in the Loan Documents
shall survive the Termination Date.
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8. EVENTS
OF DEFAULT; RIGHTS AND REMEDIES
8.1 Events of
Default. The
occurrence of any one or more of the following events (regardless of the reason
therefor) shall constitute an “Event of Default”
hereunder:
(a) Borrower
(i) fails to make any payment of principal of the Loans when due and payable,
(ii) fails to make any payment in respect of interest on, or Fees owing in
respect of, the Loans or any of the other Obligations when due and payable
within three (3) days of the due date thereof, or (iii) fails to pay or
reimburse Agent or Lenders for any expense reimbursable hereunder or under any
other Loan Document within ten (10) days following Agent's demand for such
reimbursement or payment of expenses.
(b) Any
Credit Party fails or neglects to perform, keep or observe any of the provisions
of Sections 1.4, 1.8,
5.4(a), 5.13 or 6, or any of the provisions set forth in Annexes C or G,
respectively.
(c) Borrower
fails or neglects to perform, keep or observe any of the provisions of Section 4.1 or any
provisions set forth in Annexes E or F,
respectively, and the same shall remain unremedied for three (3) Business Days
or more.
(d) Any
Credit Party fails or neglects to perform, keep or observe any other provision
of this Agreement or of any of the other Loan Documents (other than any
provision embodied in or covered by any other clause of this Section 8.1) and the
same shall remain unremedied for thirty (30) days or more following the earlier
to occur of (i) knowledge by Borrower of such failure or neglect and (ii) the
receipt of written notice from Agent of such failure or neglect.
(e) A
default or breach occurs under any other agreement, document or instrument to
which any Credit Party is a party that is not cured within any applicable grace
period therefor, and such default or breach (i) involves the failure to make any
payment when due in respect of any Indebtedness or Guaranteed Indebtedness
(other than the Obligations) of any Credit Party in excess of $500,000 in the
aggregate (including (x) undrawn committed or available amounts and (y) amounts
owing to all creditors under any combined or syndicated credit arrangements), or
(ii) causes, or permits any holder of such Indebtedness or Guaranteed
Indebtedness or a trustee to cause, Indebtedness or Guaranteed Indebtedness or a
portion thereof in excess of $500,000 in the aggregate to become due prior to
its stated maturity or prior to its regularly scheduled dates of payment, or
cash collateral to be demanded in respect thereof, in each case, regardless of
whether such default is waived, or such right is exercised, by such holder or
trustee.
(f) Assets
of any Credit Party with a fair market value of $500,000 or more are attached,
seized, levied upon or subjected to a writ or distress warrant, or come within
the possession of any receiver, trustee, custodian or assignee for the benefit
of creditors of any Credit Party and such condition continues for thirty (30)
days or more.
(g) A
case or proceeding is commenced against any Credit Party seeking a decree or
order in respect of such Credit Party (i) under the Bankruptcy Code or any other
applicable federal, state or foreign bankruptcy or other similar law, (ii)
appointing a custodian,
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receiver,
liquidator, assignee, trustee or sequestrator (or similar official) for such
Credit Party or for any substantial part of any such Credit Party's assets, or
(iii) ordering the winding-up or liquidation of the affairs of such Credit
Party, and such case or proceeding shall remain undismissed or unstayed for
sixty (60) days or more or a decree or order granting the relief sought in such
case or proceeding is granted by a court of competent jurisdiction.
(h) Any
Credit Party (i) files a petition seeking relief under the Bankruptcy Code or
any other applicable federal, state or foreign bankruptcy or other similar law,
(ii) consents to or fails to contest in a timely and appropriate manner to the
institution of proceedings thereunder or to the filing of any such petition or
to the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) for such Credit Party or
for any substantial part of any such Credit Party's assets, (iii) makes an
assignment for the benefit of creditors, or (iv) takes any action in furtherance
of any of the foregoing, or (v) admits in writing its inability to, or is
generally unable to, pay its debts as such debts become due.
(i) A
final judgment or judgments for the payment of money in excess of $500,000 in
the aggregate at any time are outstanding against one or more of the Credit
Parties (which judgments are not covered by insurance policies as to which
liability has been accepted by the insurance carrier), and the same are not,
within thirty (30) days after the entry thereof, discharged or execution thereof
stayed or bonded pending appeal, or such judgments are not discharged prior to
the expiration of any such stay.
(j) except
pursuant to a release or termination expressly permitted under any Loan
Document, any material provision of any Loan Document for any reason ceases to
be valid, binding and enforceable in accordance with its terms (or any Credit
Party shall challenge the enforceability of any Loan Document or shall assert in
writing, or engage in any action or inaction based on any such assertion, that
any provision of any of the Loan Documents has ceased to be or otherwise is not
valid, binding and enforceable in accordance with its terms), or any Lien
created under any Loan Document ceases to be a valid and perfected first
priority Lien (except as otherwise permitted herein or therein) in any of the
Collateral purported to be covered thereby.
(k) Any
Change of Control occurs.
(l) Any
event occurs, whether or not insured or insurable, as a result of which
revenue-producing activities cease or are substantially curtailed at facilities
of Borrower generating more than 25% of Borrower's revenues for the Fiscal Year
preceding such event and such cessation or curtailment continues for more than
sixty (60) days.
(m) Any
Theatre Lease with respect to any movie theater or theaters generating more than
25% of Borrower's revenues for the Fiscal Year preceding is terminated or
otherwise is failed to be renewed.
(n) Any
material default or breach by Borrower occurs and is continuing under any
Material Contract or any Material Contract shall be terminated for any reason
and such Material Contract is not replaced within 90 days of such
termination.
45
(o) Reading
shall fail to pay Borrower’s corporate overhead expenses pursuant to the terms
of the Reading Management Agreement.
(p) Any
representation or warranty herein or in any Loan Document or in any written
statement, report, financial statement or certificate (made or delivered to
Agent or any Lender by any Credit Party is untrue or incorrect in any material
respect as of the date when made or deemed made.
8.2 Remedies.
(a) If
any Event of Default has occurred and is continuing, Agent may (and at the
written request of the Requisite Revolving Lenders shall), without notice,
suspend the Revolving Loan facility with respect to additional Advances and/or
the incurrence of additional Letter of Credit Obligations, whereupon any
additional Advances and additional Letter of Credit Obligations shall be made or
incurred in Agent's sole discretion (or in the sole discretion of the Requisite
Revolving Lenders, if such suspension occurred at their direction) so long as
such Event of Default is continuing. If any Event of Default has
occurred and is continuing, Agent may (and at the written request of Requisite
Lenders shall), without notice except as otherwise expressly provided herein,
increase the rate of interest applicable to the Loans and the Letter of Credit
Fees to the Default Rate.
(b) If
any Event of Default has occurred and is continuing, Agent may (and at the
written request of the Requisite Lenders shall), without notice:
(i) terminate the Revolving Loan facility with respect to further Advances
or the incurrence of further Letter of Credit Obligations; (ii) reduce the
Revolving Loan Commitment from time to time; (iii) declare all or any
portion of the Obligations, including all or any portion of any Loan to be
forthwith due and payable, and require that the Letter of Credit Obligations be
cash collateralized in the manner set forth in Annex B, all without
presentment, demand, protest or further notice of any kind, all of which are
expressly waived by Borrower and each other Credit Party; or (iv) exercise
any rights and remedies provided to Agent under the Loan Documents or at law or
equity, including all remedies provided under the Code; provided, that upon
the occurrence of an Event of Default specified in Sections 8.1(g) or
(h), the Commitments shall be immediately terminated and all of the
Obligations, including the Revolving Loan, shall become immediately due and
payable without declaration, notice or demand by any Person.
8.3 Waivers by Credit
Parties. Except
as otherwise provided for in this Agreement or by applicable law, each Credit
Party waives: (a) presentment, demand and protest and notice of presentment,
dishonor, notice of intent to accelerate, notice of acceleration, protest,
default, nonpayment, maturity, release, compromise, settlement, extension or
renewal of any or all
commercial paper, accounts, contract rights, documents, instruments, chattel
paper and guaranties at any time held by Agent on which any Credit Party may in
any way be liable, and hereby ratifies and confirms whatever Agent may do in
this regard, (b) all rights to notice and a hearing prior to Agent's taking
possession or control of, or to Agent's replevy, attachment or levy upon, the
Collateral or any bond or security that might be required by any court prior to
allowing Agent to exercise any of its remedies, and (c) the benefit of all
valuation, appraisal, marshaling and exemption laws.
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9. ASSIGNMENT
AND PARTICIPATIONS; APPOINTMENT OF AGENT
9.1 Assignment and
Participations.
(a) Binding
Effect. This Agreement shall become effective when it shall
have been executed by Holdings, the Borrowers, the other Credit Parties and
Agent and when Agent shall have been notified by each Lender and L/C Issuer that
such Lender or L/C Issuer has executed it. Thereafter, it shall be
binding upon and inure to the benefit of, but only to the benefit of, Holdings,
the Borrower, the Credit Parties (in each case, except for those provisions of
this Article 9
relating solely to Agent), Agent, each Lender and L/C Issuer and, in each case,
their respective successors and permitted assigns. Except as
expressly provided in any Loan Document (including in Section 9.7), none of
Holdings, the Borrower, the other Credit Parties, any L/C Issuer or Agent shall
have the right to assign any rights or obligations hereunder or any interest
herein.
(b) Right to
Assign. Subject to compliance with clause (c) below, each
Lender may sell, transfer, negotiate or assign all or a portion of its rights
and obligations hereunder (including all or a portion of its Commitments and its
rights and obligations with respect to Loans and Letters of Credit) (each, a
“Sale”) to any
of the following Persons (each an “Eligible Assignee”)
(i) any existing Lender, (ii) any Affiliate or Approved Fund of any existing
Lender or (iii) any other Person acceptable (which acceptance shall not be
unreasonably withheld or delayed) to Agent and, as long as no Event of Default
is continuing, the Borrower; provided, however, that (x)
such Sales do not have to be ratable between the facilities but must be ratable
among the obligations owing to and owed by such Lender with respect to a
facility, and (y) for each facility, the aggregate outstanding principal amount
(determined as of the effective date of the applicable Assignment Agreement) of
the Loans, Commitments and Letter of Credit Obligations subject to any such Sale
shall be in a minimum amount of $1,000,000, unless such Sale is made to an
existing Lender or an Affiliate or Approved Fund of any existing Lender, is of
the assignor’s (together with its Affiliates and Approved Funds) entire interest
in such facility or is made with the prior consent of the Borrower and
Agent.
(c) Procedure. The
parties to each Sale made in reliance on clause (b) above
(other than those described in clause (e) or (f) below) shall
execute and deliver to Agent an Assignment Agreement via an electronic
settlement system designated by Agent (or, if previously agreed with Agent, via
a manual execution and delivery of the Assignment Agreement) evidencing such
Sale, together with any existing Note subject to such Sale (or any affidavit of
loss therefor acceptable to Agent), the applicable tax forms required to be
delivered pursuant to Section 1.15(c) and payment of an
assignment fee in the amount of $3,500; provided, that (1) if
a Sale by a Lender is made to an Affiliate or an Approved Fund of such assigning
Lender, then no assignment fee shall be due in connection with such Sale, and
(2) if a Sale by a Lender is made to an assignee that is not an Affiliate or
Approved Fund of such assignor Lender, and concurrently to one or more
Affiliates or Approved Funds of such assignee, then only one assignment fee of
$3,500 shall be due in connection with such Sale. Upon receipt of all
the foregoing, and conditioned upon such receipt and, if such assignment is made
in accordance with Section 9.1(b)(iii),
upon Agent (and the Borrower, if applicable) consenting to such Assignment
Agreement, from and after the effective date specified in such Assignment
Agreement, Agent
47
shall
record or cause to be recorded in the Register the information contained in such
Assignment Agreement.
(d) Effectiveness. Subject
to the recording of an Assignment Agreement by Agent in the Register pursuant to
Section 9.1(h) (i) the assignee thereunder shall become a party hereto and, to
the extent that rights and obligations under the Loan Documents have been
assigned to such assignee pursuant to such Assignment Agreement, shall have the
rights and obligations of a Lender, (ii) any applicable Note shall be
transferred to such assignee through such entry and (iii) the assignor
thereunder shall, to the extent that rights and obligations under this Agreement
have been assigned by it pursuant to such Assignment Agreement, relinquish its
rights (except for those surviving the termination of the Commitments and the
payment in full of the Obligations) and be released from its obligations under
the Loan Documents, other than those relating to events or circumstances
occurring prior to such assignment (and, in the case of an Assignment Agreement
covering all or the remaining portion of an assigning Lender’s rights and
obligations under the Loan Documents.
(e) Grant of Security
Interests. In addition to the other rights provided in this
Section 9.1,
each Lender may grant a security interest in, or otherwise assign as collateral,
any of its rights under this Agreement, whether now owned or hereafter acquired
(including rights to payments of principal or interest on the Loans), to (A) any
federal reserve bank (pursuant to Regulation A of the Federal Reserve Board),
without notice to Agent or (B) any holder of, or trustee for the benefit of the
holders of, such Lender’s securities or Indebtedness by notice to Agent; provided, however, that no such
holder or trustee, whether because of such grant or assignment or any
foreclosure thereon (unless such foreclosure is made through an assignment in
accordance with clause
(b) above), shall be entitled to any rights of such Lender hereunder and
no such Lender shall be relieved of any of its obligations
hereunder.
(f) Participants and
SPVs. In addition to the other rights provided in this Section 9.1, each
Lender may, (x) with notice to Agent, grant to an SPV the option to make all or
any part of any Loan that such Lender would otherwise be required to make
hereunder (and the exercise of such option by such SPV and the making of Loans
pursuant thereto shall satisfy the obligation of such Lender to make such Loans
hereunder) and such SPV may assign to such Lender the right to receive payment
with respect to any Obligation and (y) without notice to or consent from Agent
or the Borrower, sell participations to one or more Persons in or to all or a
portion of its rights and obligations under the Loan Documents (including all
its rights and obligations with respect to the Term Loan B, Revolving Loans and
Letters of Credit); provided, however, that,
whether as a result of any term of any Loan Document or of such grant or
participation, (i) no such SPV or participant shall have a commitment, or be
deemed to have made an offer to commit, to make Loans hereunder, and, except as
provided in the applicable option agreement, none shall be liable for any
obligation of such Lender hereunder, (ii) such Lender’s rights and obligations,
and the rights and obligations of the Credit Parties and Agent, the other
Lenders and the L/C Issuer towards such Lender, under any Loan Document shall
remain unchanged and each other party hereto shall continue to deal solely with
such Lender, which shall remain the holder of the Obligations in the Register,
except that (A) each such participant and SPV shall be entitled to the benefit
of Sections
1.13(b), 1.15 and 1.16, but only to the
extent such participant or SPV delivers the tax forms such Lender is required to
deliver pursuant to Section 1.15(c) and
then only to the extent of any amount to which such Lender
48
would be
entitled in the absence of any such grant or participation and (B) each such SPV
may receive other payments that would otherwise be made to such Lender with
respect to Loans funded by such SPV to the extent provided in the applicable
option agreement and set forth in a notice provided to Agent by such SPV and
such Lender, provided, however, that in no
case (including pursuant to clause (A) or (B) above) shall an
SPV or participant have the right to enforce any of the terms of any Loan
Document, and (iii) the consent of such SPV or participant shall not be required
(either directly, as a restraint on such Lender’s ability to consent hereunder
or otherwise) for any amendments, waivers or consents with respect to any Loan
Document or to exercise or refrain from exercising any powers or rights such
Lender may have under or in respect of the Loan Documents (including the right
to enforce or direct enforcement of the Obligations), except for those described
in clauses
(ii), (iii) and (iv) of Section 11.2(c) with
respect to amounts, or dates fixed for payment of amounts, to which such
participant or SPV would otherwise be entitled and, in the case of participants,
except for those described in Section
11.1(c)(v). No party hereto shall institute (and each Credit
Party shall cause each other Credit Party not to institute) against any SPV
grantee of an option pursuant to this clause (f) any
bankruptcy, reorganization, insolvency, liquidation or similar proceeding, prior
to the date that is one year and one day after the payment in full of all
outstanding commercial paper of such SPV; provided, however, that each
Lender having designated an SPV as such agrees to indemnify each Indemnified
Person against any Indemnified Liability that may be incurred by, or asserted
against, such Indemnified Person as a result of failing to institute such
proceeding (including a failure to get reimbursed by such SPV for any such
Indemnified Liability). The agreement in the preceding sentence shall
survive the termination of the Commitments and the payment in full of the
Obligations.
(h) Agent,
acting solely for this purpose as a nonfiduciary agent of the Credit Parties,
shall maintain at one of its offices in Alpharetta, Georgia, or such other
location as Agent shall notify Lenders in writing, a copy of each Assignment
Agreement delivered to it and a register for the recordation of the names and
addresses of the Lenders, and the Commitments of, and principal amounts of the
Loans owing to, each Lender pursuant to the terms hereof from time to time (the
“Register”). The
entries in the Register shall be conclusive absent manifest error, and Borrower,
the Agent and the Lenders shall treat each Person whose name is recorded in the
Register pursuant to the terms hereof as a Lender hereunder for all purposes of
this Agreement, notwithstanding notice to the contrary. The Register
shall be available for inspection by Borrower and any Lender, at any reasonable
time and from time to time upon reasonable prior notice; provided, however, each Lender
shall only be entitled to inspect an excerpt of the Register containing
information relating to such Lender and such Lender’s Loans and
Commitments. In the case of any assignment not reflected in the
Register, the assigning Lender agrees that it shall maintain a comparable
register as a non-fiduciary agent of the Credit Parties.
(i) Each
Credit Party executing this Agreement shall assist any Lender permitted to sell
assignments or participations under this Section 9.1 as
reasonably required to enable the assigning or selling Lender to effect any such
assignment or participation, including the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be
requested. Each Credit Party executing this Agreement shall certify
the correctness, completeness and accuracy of all descriptions of the Credit
Parties and their respective affairs contained in any selling materials provided
by them
49
and all
other information provided by them and included in such materials, except that
any Projections delivered by Borrower shall only be certified by Borrower as
having been prepared by Borrower in compliance with the representations
contained in Section
3.4(c).
(j) Any
Lender may furnish any information concerning Credit Parties in the possession
of such Lender from time to time to assignees and participants (including
prospective assignees and participants); provided, that such
Lender shall obtain from assignees or participants confidentiality covenants
substantially equivalent to those contained in Section
11.8.
9.2 Appointment of
Agent. GE
Capital is hereby appointed to act on behalf of all Lenders as Agent under this
Agreement and the other Loan Documents. The provisions of this Section 9.2 are
solely for the benefit of Agent and Lenders and no Credit Party nor any other
Person shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this
Agreement and the other Loan Documents, Agent shall act solely as an agent of
Lenders and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for any Credit
Party or any other Person. Agent shall have no duties or
responsibilities except for those expressly set forth in this Agreement and the
other Loan Documents. The duties of Agent shall be mechanical and
administrative in nature and Agent shall not have, or be deemed to have, by
reason of this Agreement, any other Loan Document or otherwise a fiduciary
relationship in respect of any Lender. Except as expressly set forth
in this Agreement and the other Loan Documents or required by applicable law,
Agent shall not have any duty to disclose, and shall not be liable for failure
to disclose, any information relating to any Credit Party or any of their
respective Subsidiaries or any Account Debtor that is communicated to or
obtained by GE Capital or any of its Affiliates in any
capacity. Neither Agent nor any of its Affiliates nor any of their
respective officers, directors, employees, agents or representatives shall be
liable to any Lender for any action taken or omitted to be taken by it in
accordance with this Agreement or in accordance with any other Loan Document, or
in connection herewith or therewith, except for damages caused by its or their
own gross negligence or willful misconduct as finally determined by a court of
competent jurisdiction.
If Agent
shall request instructions from Requisite Lenders, Requisite Revolving Lenders
or all affected Lenders with respect to any act or action (including failure to
act) in connection with this Agreement or any other Loan Document, then Agent
shall be entitled to refrain from such act or taking such action unless and
until Agent shall have received instructions from Requisite Lenders, Requisite
Revolving Lenders or all affected Lenders, as the case may be, and Agent shall
not incur liability to any Person by reason of so refraining. Agent
shall be fully justified in failing or refusing to take any action hereunder or
under any other Loan Document (a) if such action would, in the opinion of Agent,
be contrary to law or the terms of this Agreement or any other Loan Document,
(b) if such action would, in the opinion of Agent, expose
Agent to Environmental Liabilities or (c) if Agent shall not first be
indemnified to its satisfaction against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such
action. Without limiting the foregoing, no Lender shall have any
right of action whatsoever against Agent as a result of Agent acting or
refraining from acting hereunder or under any other Loan Document in accordance
with the instructions of Requisite Lenders, Requisite Revolving Lenders or all
affected Lenders, as applicable.
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9.3 Agent's Reliance,
Etc. Neither
Agent nor any of its Affiliates nor any of their respective directors, officers,
agents or employees shall be liable for any action taken or omitted to be taken
by it or them under or in connection with this Agreement or the other Loan
Documents, except for damages caused by its or their own gross negligence or
willful misconduct as finally determined by a court of competent
jurisdiction. Without limiting the generality of the foregoing,
Agent: (a) may treat the payee of any Note as the holder
thereof until Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form reasonably satisfactory to Agent; (b)
may consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representation to any
Lender and shall not be responsible to any Lender for any statements, warranties
or representations made in or in connection with this Agreement or the other
Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or the other Loan Documents on the part of any Credit Party or to
inspect the Collateral (including the books and records) of any Credit Party;
(e) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
the other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; and (f) shall incur no liability under or in respect of this
Agreement or the other Loan Documents by acting upon any notice, consent,
certificate or other instrument or writing (which may be by telecopy, telegram,
cable or telex) believed by it to be genuine and signed or sent by the proper
party or parties.
9.4 GE Capital and
Affiliates. With
respect to its Commitments hereunder, GE Capital shall have the same rights
and powers under this Agreement and the other Loan Documents as any other Lender
and may exercise the same as though it were not Agent; and the term “Lender” or
“Lenders” shall, unless otherwise expressly indicated, include GE Capital in its
individual capacity. GE Capital and its Affiliates may lend money to,
invest in, and generally engage in any kind of business with, any Credit Party,
any of their Affiliates and any Person who may do business with or own
securities of any Credit Party or any such Affiliate, all as if GE Capital were
not Agent and without any duty to account therefor to Lenders. GE
Capital and its Affiliates may accept fees and other consideration from any
Credit Party for services in connection with this Agreement or otherwise without
having to account for the same to Lenders.
9.5 Lender Credit
Decision. Each
Lender acknowledges that it has, independently and without reliance upon Agent
or any other Lender and based on the Financial Statements referred to in Section 3.4(a) and
such other documents and information as it has deemed appropriate, made its own
credit and financial analysis of the Credit Parties and its own decision to
enter into this Agreement. Each Lender also acknowledges that it
will, independently and
without reliance upon 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 decisions in taking or not taking action under this
Agreement. Each Lender acknowledges the potential conflict of
interest of each other Lender as a result of Lenders holding disproportionate
interests in the Loans, and expressly consents to, and waives any claim based
upon, such conflict of interest.
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9.6 Indemnification. Lenders
agree to indemnify Agent (to the extent not reimbursed by Credit Parties and
without limiting the obligations of Credit Parties hereunder), ratably according
to their respective Pro Rata Shares, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by, or asserted by any third party or any Credit Party against
Agent in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted to be taken by Agent in connection
therewith, including, without limitation, any and all losses arising in
connection with Electronic Transmissions hereunder or any other Loan Document
with respect hereto or thereto or the use of E-Systems by the parties hereto (as
well as any failures of any Lender’s, any Credit Party’s or any other Person’s
Equipment, software or services in connection with such Electronic Transmissions
and/or E-Systems); provided, that no
Lender shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from Agent’s gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction. Without limiting the
foregoing, each Lender agrees to reimburse Agent promptly upon demand for its
ratable share of any out-of-pocket expenses (including reasonable counsel fees)
incurred by Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement and each other Loan Document,
to the extent that Agent is not reimbursed for such expenses by Credit
Parties.
9.7 Successor
Agent. Agent
may resign at any time by giving not less than thirty (30) days' prior written
notice thereof to Lenders and Borrower. Upon any such resignation,
the Requisite Lenders shall have the right to appoint a successor
Agent. If no successor Agent shall have been so appointed by the
Requisite Lenders and shall have accepted such appointment within thirty (30)
days after the resigning Agent's giving notice of resignation, then the
resigning Agent may, on behalf of Lenders, appoint a successor Agent, which
shall be a Lender, if a Lender is willing to accept such appointment, or
otherwise shall be a commercial bank or financial institution or a subsidiary of
a commercial bank or financial institution if such commercial bank or financial
institution is organized under the laws of the United States of America or of
any State thereof and has a combined capital and surplus of at least
$300,000,000. If no successor Agent has been appointed pursuant to
the foregoing, within thirty (30) days after the date such notice of resignation
was given by the resigning Agent, such resignation shall become effective and
the Requisite Lenders shall thereafter perform all the duties of Agent hereunder
until such time, if any, as the Requisite Lenders appoint a successor Agent as
provided above. Any successor Agent appointed by Requisite Lenders hereunder
shall be subject to the approval of Borrower, such approval not to be
unreasonably withheld or delayed; provided that such
approval shall not be required if a Default or an Event of Default has occurred
and is continuing. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall succeed to and become
vested with all the rights, powers, privileges and duties of the resigning
Agent. Upon the earlier of the acceptance of any appointment as Agent
hereunder by a successor Agent or the effective date of the resigning Agent's
resignation, the resigning Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents, except that any
indemnity rights or other rights in favor of such resigning Agent shall
continue. After any resigning Agent's resignation hereunder, the
52
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 acting as Agent under this Agreement and the other Loan
Documents.
9.8 Setoff and Sharing of
Payments. In
addition to any rights now or hereafter granted under applicable law and not by
way of limitation of any such rights, upon the occurrence and during the
continuance of any Event of Default and subject to Section 9.9(f), each
Lender is hereby authorized at any time or from time to time, without prior
notice to any Credit Party or to any Person other than Agent, any such notice
being hereby expressly waived, to offset and to appropriate and to apply any and
all balances held by it at any of its offices for the account of Borrower or any
Guarantor (regardless of whether such balances are then due to Borrower or any
Guarantor) and any other properties or assets at any time held or owing by that
Lender or that holder to or for the credit or for the account of Borrower or any
Guarantor against and on account of any of the Obligations that are not paid
when due; provided that the Lender exercising such offset rights shall give
notice thereof to the affected Credit Party promptly after exercising such
rights. Any Lender exercising a right of setoff or otherwise
receiving any payment on account of the Obligations in excess of its Pro Rata
Share thereof shall purchase for cash (and the other Lenders or holders shall
sell) such participations in each such other Lender's or holder's Pro Rata Share
of the Obligations as would be necessary to cause such Lender to share the
amount so offset or otherwise received with each other Lender or holder in
accordance with their respective Pro Rata Shares, (other than offset rights
exercised by any Lender with respect to Sections 1.13, 1.15 or
1.16). Borrower and each Guarantor agrees, to the fullest
extent permitted by law, that (a) any Lender may exercise its right to offset
with respect to amounts in excess of its Pro Rata Share of the Obligations and
may sell participations in such amounts so offset to other Lenders and holders
and (b) any Lender so purchasing a participation in the Loans made or other
Obligations held by other Lenders or holders may exercise all rights of offset,
bankers' lien, counterclaim or similar rights with respect to such participation
as fully as if such Lender or holder were a direct holder of the Loans and the
other Obligations in the amount of such
participation. Notwithstanding the foregoing, if all or any portion
of the offset amount or payment otherwise received is thereafter recovered from
the Lender that has exercised the right of offset, the purchase of
participations by that Lender shall be rescinded and the purchase price restored
without interest.
9.9 Advances; Payments;
Non-Funding Lenders; Information; Actions in Concert.
(a) Advances;
Payments.
(i) Each
Revolving Lender shall make the amount of such Lender's Pro Rata Share of such
Revolving Credit Advance available to Agent in same day funds by wire transfer
to Agent's account as set forth in Annex H not later
than 3:00 p.m. (New York time) on the
requested funding date, in the case of an Index Rate Loan and not later than
11:00 a.m. (New York time) on the requested funding date in the case of a LIBOR
Loan. After receipt of such wire transfers (or, in the Agent's sole
discretion, before receipt of such wire transfers), subject to the terms hereof,
Agent shall make the requested Revolving Credit Advance to
Borrower. All payments by each Revolving Lender shall be made without
setoff, counterclaim or deduction of any kind.
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(ii) Not
less than once during each calendar week or more frequently at Agent's election
(each, a “Settlement
Date”), Agent shall advise each Lender by telephone, or telecopy of the
amount of such Lender's Pro Rata Share of principal, interest and Fees paid for
the benefit of Lenders with respect to each applicable Loan. Provided
that each Lender has funded all payments and Advances required to be made by it
and purchased all participations required to be purchased by it under this
Agreement and the other Loan Documents as of such Settlement Date, Agent shall
pay to each Lender such Lender's Pro Rata Share of principal, interest and Fees
paid by Borrower since the previous Settlement Date for the benefit
of such Lender on the Loans held by it. To the extent that any Lender
(a “Non-Funding
Lender”) has failed to fund all such payments and Advances or failed to
fund the purchase of all such participations, Agent shall be entitled to set off
the funding short-fall against that Non-Funding Lender's Pro Rata Share of
all payments received from Borrower. Such payments shall be made by
wire transfer to such Lender's account (as specified by such Lender in Annex H or the
applicable Assignment Agreement) not later than 2:00 p.m. (New York time) on the
next Business Day following each Settlement Date.
(b) Availability of
Lender's Pro
Rata Share. Agent may assume that each Revolving Lender will
make its Pro Rata Share of each Revolving Credit Advance available to Agent on
each funding date. If such Pro Rata Share is not, in fact, paid to
Agent by such Revolving Lender when due, Agent will be entitled to recover such
amount on demand from such Revolving Lender without setoff, counterclaim or
deduction of any kind. If any Revolving Lender fails to pay the
amount of its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly
notify Borrower and Borrower shall immediately repay such amount to
Agent. Nothing in this Section 9.9(b) or
elsewhere in this Agreement or the other Loan Documents shall be deemed to
require Agent to advance funds on behalf of any Revolving Lender or to relieve
any Revolving Lender from its obligation to fulfill its Commitments hereunder or
to prejudice any rights that Borrower may have against any Revolving Lender as a
result of any default by such Revolving Lender hereunder. To the
extent that Agent advances funds to Borrower on behalf of any Revolving Lender
and is not reimbursed therefor on the same Business Day as such Advance is made,
Agent shall be entitled to retain for its account all interest accrued on such
Advance until reimbursed by the applicable Revolving Lender.
(c) Return of
Payments.
(i) If
Agent pays an amount to a Lender under this Agreement in the belief or
expectation that a related payment has been or will be received by Agent from
Borrower and such related payment is not received by Agent, then Agent will be
entitled to recover such amount from such Lender on demand without setoff,
counterclaim or deduction of any kind.
(ii) If
Agent determines at any time that any amount received by Agent under this
Agreement must be returned to Borrower or paid to any other Person pursuant to
any insolvency law or otherwise, then, notwithstanding any other term or
condition of this Agreement or any other Loan Document, Agent will not be
required to distribute any portion thereof to any Lender. In
addition, each Lender will repay to Agent on demand any portion of such amount
that Agent has distributed to such Lender, together with interest at such rate,
if any, as Agent is required to pay to Borrower or such other Person, without
setoff, counterclaim or deduction of any kind.
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(d) Non-Funding
Lenders. The failure of any Non-Funding Lender to make any
Revolving Credit Advance or any payment required by it hereunder shall not
relieve any other Lender (each such other Revolving Lender, an “Other Lender”) of its
obligations to make such Advance or purchase such participation on such date,
but neither any Other Lender nor Agent shall be responsible for the failure of
any Non-Funding Lender to make an Advance, purchase a participation or make any
other payment required hereunder. Notwithstanding anything set forth
herein to the contrary, a Non-Funding Lender shall not have any voting or
consent rights under or with respect to any Loan Document or constitute a
“Lender” or a “Revolving Lender” (or be included in the calculation of
“Requisite Lenders”, or “Requisite Revolving Lenders” hereunder) for any voting
or consent rights under or with respect to any Loan Document. At
Borrower's request, Agent or a Person acceptable to Agent shall have the right
with Agent's consent and in Agent's sole discretion (but shall have no
obligation) to purchase from any Non-Funding Lender, and each Non-Funding Lender
agrees that it shall, at Agent's request, sell and assign to Agent or such
Person, all of the Commitments of that Non-Funding Lender for an amount equal to
the principal balance of all Loans held by such Non-Funding Lender and all
accrued interest and fees with respect thereto through the date of sale, such
purchase and sale to be consummated pursuant to an executed Assignment
Agreement.
(e) Dissemination of
Information. Agent shall use reasonable efforts to provide
Lenders with any notice of Default or Event of Default received by Agent from,
or delivered by Agent to, any Credit Party, with notice of any Event of Default
of which Agent has actually become aware and with notice of any action taken by
Agent following any Event of Default; provided, that Agent shall not be liable
to any Lender for any failure to do so, except to the extent that such failure
is attributable to Agent's gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction. Lenders acknowledge
that Borrower is required to provide Financial Statements and Collateral Reports
to Lenders in accordance with Annexes E and F hereto and agree
that Agent shall have no duty to provide the same to Lenders.
(f) Actions in
Concert. Anything in this Agreement to the contrary
notwithstanding, each Lender hereby agrees with each other Lender that no Lender
shall take any action to protect or enforce its rights arising out of this
Agreement or the Notes (including exercising any rights of setoff) without first
obtaining the prior written consent of Agent and Requisite Lenders, it being the
intent of Lenders that any such action to protect or enforce rights under this
Agreement and the Notes shall be taken in concert and at the direction or with
the consent of Agent or Requisite Lenders.
10. SUCCESSORS
AND ASSIGNS
10.1 Successors and
Assigns. This
Agreement and the other Loan Documents shall be binding on and shall inure to
the benefit of each Credit Party, Agent, Lenders and their respective successors
and assigns (including, in the case of any Credit Party, a debtor-in-possession
on behalf of such Credit Party), except as otherwise provided herein or
therein. No Credit Party may assign, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder or under
any of the other Loan Documents without the prior express written consent of
Agent and Lenders. Any such purported assignment, transfer,
hypothecation or other conveyance by any Credit Party without the prior express
written consent of Agent and Lenders shall be void. The terms and
provisions of this Agreement are for the
55
purpose
of defining the relative rights and obligations of each Credit Party, Agent and
Lenders with respect to the transactions contemplated hereby and no Person shall
be a third party beneficiary of any of the terms and provisions of this
Agreement or any of the other Loan Documents.
11. MISCELLANEOUS
11.1 Complete Agreement;
Modification of Agreement. The
Loan Documents constitute the complete agreement between the parties with
respect to the subject matter thereof and may not be modified, altered or
amended except as set forth in Section
11.2. Any letter of interest, commitment letter, fee letter or
confidentiality agreement, if any, between any Credit Party and Agent or any
Lender or any of their respective Affiliates, predating this Agreement and
relating to a financing of substantially similar form, purpose or effect shall
be superseded by this Agreement. Notwithstanding the foregoing, the
GE Capital Fee Letter and any market flex provisions contained in the final
commitment letter between Agent and Borrower shall survive the execution and
delivery of this Agreement and shall continue to be binding obligations of the
parties.
11.2 Amendments and
Waivers.
(a) Except
for actions expressly permitted to be taken by Agent, no amendment,
modification, termination or waiver of any provision of this Agreement or any
other Loan Document, or any consent to any departure by any Credit Party
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Agent and Borrower (and, in the case of the Reading Guaranty,
Reading), and by Requisite Lenders, Requisite Revolving Lenders or all affected
Lenders, as applicable. Except as set forth in clauses (b) and (c)
below, all such amendments, modifications, terminations or waivers requiring the
consent of any Lenders shall require the written consent of Requisite
Lenders.
(b) No
amendment, modification, termination or waiver of or consent with respect to any
provision of this Agreement that waives compliance with the conditions precedent
set forth in Section
2.2 to the making of any Loan or the incurrence of any Letter of Credit
Obligations shall be effective unless the same shall be in writing and signed by
Agent, Requisite Revolving Lenders and Borrower. Notwithstanding
anything contained in this Agreement to the contrary, no waiver or consent with
respect to any Default or any Event of Default shall be effective for purposes
of the conditions precedent to the making of Loans or the incurrence of Letter of
Credit Obligations set forth in Section 2.2 unless
the same shall be in writing and signed by Agent, Requisite Revolving Lenders
and Borrower.
(c) No
amendment, modification, termination or waiver shall, unless in writing and
signed by Agent and each Lender directly affected thereby: (i)
increase the principal amount of any Lender's Commitment (which action shall be
deemed to directly affect all Lenders); (ii) reduce the principal of, rate of
interest on or Fees payable with respect to any Loan or Letter of Credit
Obligations of any affected Lender; (iii) extend any scheduled payment date
(other than payment dates of mandatory prepayments under Section
1.3(b)(ii)-(v)) or final maturity date of the principal amount of any
Loan of any affected Lender; (iv) waive, forgive, defer, extend or postpone any
payment of interest or Fees as to any affected Lender; (v) release
56
any
Guaranty (unless the Stock of the relevant Credit Party is sold in a transaction
permitted hereby) or, except as otherwise permitted herein or in the other Loan
Documents, release, or permit any Credit Party to sell or otherwise dispose of,
all or substantially all of the Collateral; (vi) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Loans that shall
be required for Lenders or any of them to take any action hereunder; and (vii)
amend or waive this Section 11.2 or the
definitions of the terms “Requisite Lenders”, or “Requisite Revolving Lenders”
insofar as such definitions affect the substance of this Section
11.2. Each amendment, modification, termination or waiver
shall be effective only in the specific instance and for the specific purpose
for which it was given. No amendment, modification or waiver of this Agreement
or any Loan Document altering the ratable treatment of Obligations arising under
Secured Rate Contracts resulting in such Obligations being junior in right of
payment to principal on the Loans or resulting in Obligations owing to any
Secured Swap Provider becoming unsecured (other than release of Liens in
accordance with the terms hereof), in each case in a manner adverse to any
Secured Swap Provider, shall be effective without the written consent of such
Secured Swap Provider (or in the case of a Secured Rate Contract arranged by GE
Capital or an Affiliate of GE Capital, GE Capital). No amendment,
modification, termination or waiver shall be required for Agent to take
additional Collateral pursuant to any Loan Document. No amendment, modification,
termination or waiver of any provision of any Note shall be effective without
the written concurrence of the holder of that Note. No notice to or
demand on any Credit Party in any case shall entitle such Credit Party or any
other Credit Party to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or
consent effected in accordance with this Section 11.2 shall be
binding upon each holder of the Notes at the time outstanding and each future
holder of the Notes. Notwithstanding anything to the contrary contained herein,
the Loans and Commitments may be increased and/or additional tranches of debt
may be added hereunder and may be secured pari passu with the other Obligations
upon the written consent of Borrower, Agent and the Requisite Lenders; provided
that no Lender’s Commitments or Loans may be increased hereunder without such
Lender’s written consent. Notwithstanding the foregoing, this
Agreement and the other Loan Documents may be amended (or amended and restated)
with the written consent of the Requisite Lenders, Agent and Borrower (i) to add
one or more additional credit facilities to this Agreement and to permit the
extensions of credit from time to time outstanding thereunder and the accrued
interest and fees in respect thereof to share ratably in the benefits of this
Agreement and the other Loan Documents with the Term Loan B and Revolving Loans
and the accrued interest and fees in respect thereof and (ii) to include
appropriately the Lenders holding such credit facilities in any determination of
the Requisite Lenders. Any amendments
to effectuate the preceding sentence may be made with Agent’s, Requisite
Lenders’ and Borrower’s consent only.
(d) If,
in connection with any proposed amendment, modification, waiver or termination
(a “Proposed
Change”):
(i) requiring
the consent of all affected Lenders, the consent of Requisite Lenders is
obtained, but the consent of other Lenders whose consent is required is not
obtained (any such Lender whose consent is not obtained as described in this
clause (i) and
in clauses (ii) and
(iii) below being referred to as “Non Consenting
Lender”);
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(ii) requiring
the consent of Requisite Revolving Lenders, the consent of Revolving Lenders
holding 51% or more of the aggregate Revolving Loan Commitments is obtained, but
the consent of Requisite Revolving Lenders is not obtained; or
(iii) requiring
the consent of Requisite Lenders, the consent of Lenders holding 51% or more of
the aggregate Commitments is obtained, but the consent of Requisite Lenders is
not obtained;
then, so
long as Agent is not a Non Consenting Lender, at Borrower’s request Agent, or a
Person reasonably acceptable to Agent, shall have the right with Agent’s consent
and in Agent’s sole discretion (but shall have no obligation) to purchase from
such Non Consenting Lenders, and such Non Consenting Lenders agree that they
shall, upon Agent’s request, sell and assign to Agent or such Person, all of the
Commitments of such Non Consenting Lenders for an amount equal to the principal
balance of all Loans held by the Non Consenting Lenders and all accrued interest
and Fees with respect thereto through the date of sale, such purchase and sale
to be consummated pursuant to an executed Assignment Agreement.
(e) Upon
payment in full in cash and performance of all of the Obligations (other than
indemnification Obligations), termination of the Commitments and a release of
all claims against Agent and Lenders, and so long as no suits, actions
proceedings, or claims are pending or threatened against any Indemnified Person
asserting any damages, losses or liabilities that are Indemnified Liabilities,
Agent shall deliver to Borrower termination statements, mortgage releases and
other documents necessary or appropriate to evidence the termination of the
Liens securing payment of the Obligations.
11.3 Fees and
Expenses. Borrower
shall reimburse (i) Agent for all fees (including the reasonable fees and
expenses of all of its counsel, advisors, consultants and auditors and any fees
incurred for any E-Systems allocated by the Agent in its sole discretion to the
Credit Agreement transactions contemplated hereby), costs and expenses
(including the reasonable fees and expenses of all of its counsel, advisors,
consultants and auditors) and (ii) Agent (and, with respect to clauses (c) and (d)
below, all Lenders) for all fees, costs and expenses, including the reasonable
fees, costs and expenses of counsel or other advisors (including environmental
and management consultants and appraisers) incurred in connection with the
negotiation, preparation and filing and/or recordation of the Loan Documents and
incurred in connection with:
(a) any
amendment, modification or waiver of, or consent with respect to, or termination
of, any of the Loan Documents or Related Transactions Documents or advice in
connection with the syndication and administration of the Loans made pursuant
hereto or its rights hereunder or thereunder; provided that Borrower’s
obligations under this clause (a) shall be limited to reasonable out-of-pocket
fees and expenses;
(b) any
litigation, contest, dispute, suit, proceeding or action (whether instituted by
Agent, any Lender, any Credit Party or any other Person and whether as a party,
witness or otherwise) in any way relating to the Collateral, any of the Loan
Documents or any other agreement to be executed or delivered in connection
herewith or therewith, including any litigation, contest, dispute, suit, case,
proceeding or action, and any appeal or review thereof, in
58
connection
with a case commenced by or against any or all of the Credit Parties or any
other Person that may be obligated to Agent by virtue of the Loan Documents,
including any such litigation, contest, dispute, suit, proceeding or action
arising in connection with any work-out or restructuring of the Loans during the
pendency of one or more Events of Default; provided that in the
case of reimbursement of counsel for Lenders other than Agent, such
reimbursement shall be limited to one counsel for all such Lenders; provided, further,
that no Person shall be entitled to reimbursement under this clause (b) in respect
of any litigation, contest, dispute, suit, proceeding or action to the extent
any of the foregoing results from such Person's gross negligence or willful
misconduct as finally determined by a court of competent
jurisdiction;
(c) any
attempt to enforce any remedies of Agent or any Lender against any or all of the
Credit Parties or any other Person that may be obligated to Agent or any Lender
by virtue of any of the Loan Documents, including any such attempt to enforce
any such remedies in the course of any work-out or restructuring of the Loans
during the pendency of one or more Events of Default; provided, that in the
case of reimbursement of counsel for Lenders other than Agent, such
reimbursement shall be limited to one counsel for all such Lenders;
(d) any
workout or restructuring of the Loans during the pendency of one or more Events
of Default;
(e) the
forwarding to Borrower or any other Person on behalf of Borrower by Agent of the
proceeds of any Loan (including a wire transfer fee of $25 per wire transfer);
and
(f) efforts
to (i) monitor the Loans or any of the other Obligations, (ii) evaluate, observe
or assess any of the Credit Parties or their respective affairs, and (iii)
verify, protect, evaluate, assess, appraise, collect, sell, liquidate or
otherwise dispose of any of the Collateral; provided that Borrower’s obligations
under this clause (f) shall be limited to reasonable out-of-pocket fees and
expenses;
including,
as to each of clauses
(a) through (f) above, all reasonable attorneys' and other professional
and service providers' fees arising from such services and other advice,
assistance or other representation, including those in connection with any
appellate proceedings, and all expenses, costs, charges and other fees incurred
by such counsel and others in connection with or relating to any of the events
or actions described in this Section 11.3, all of
which shall be payable, on demand, by Borrower to Agent. Without
limiting the generality of the foregoing, such expenses, costs, charges and fees
may include: fees, costs and expenses of accountants, environmental
advisors, appraisers, investment bankers, management and other consultants and
paralegals; court costs and expenses; photocopying and duplication expenses;
court reporter fees, costs and expenses; long distance telephone charges; air
express charges; telegram or telecopy charges; secretarial overtime charges; and
expenses for travel, lodging and food paid or incurred in connection with the
performance of such legal or other advisory services.
11.4 No Waiver. Agent's
or any Lender's failure, at any time or times, to require strict performance by
the Credit Parties of any provision of this Agreement or any other Loan Document
shall not waive, affect or diminish any right of Agent or such Lender thereafter
to demand strict compliance and performance herewith or
therewith. Any suspension or waiver of an Event of Default shall not
suspend, waive or affect any other Event of Default whether the
59
same is
prior or subsequent thereto and whether the same or of a different
type. Subject to the provisions of Section 11.2, none of
the undertakings, agreements, warranties, covenants and representations of any
Credit Party contained in this Agreement or any of the other Loan Documents and
no Default or Event of Default by any Credit Party shall be deemed to have been
suspended or waived by Agent or any Lender, unless such waiver or suspension is
by an instrument in writing signed by an officer of or other authorized employee
of Agent and the applicable required Lenders and directed to Borrower specifying
such suspension or waiver.
11.5 Remedies. Agent's
and Lenders' rights and remedies under this Agreement shall be cumulative and
nonexclusive of any other rights and remedies that Agent or any Lender may have
under any other agreement, including the other Loan Documents, by operation of
law or otherwise. Recourse to the Collateral shall not be
required.
11.6 Severability. Wherever
possible, each provision of this Agreement and the other Loan Documents shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement or any other Loan Document shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement or such other Loan Document.
11.7 Conflict of
Terms. Except
as otherwise provided in this Agreement or any of the other Loan Documents by
specific reference to the applicable provisions of this Agreement, if any
provision contained in this Agreement conflicts with any provision in any of the
other Loan Documents, the provision contained in this Agreement shall govern and
control.
11.8 Confidentiality. Each
Lender aggress to use all reasonable efforts to maintain, in accordance with its
customary practices, the confidentiality of information obtained by it pursuant
to any Loan Document and not designated by any Credit Party as public, except
that such information may be disclosed (i) with the Borrower’s consent, (ii) to
Related Persons of such Lender, L/C Issuer or the Agent, as the case may be, or
to any Person that any L/C Issuer causes to issue Letters of Credit hereunder,
that are advised of the confidential nature of such information and are
instructed to keep such information confidential, (iii) to the extent such
information presently is or hereafter becomes available to such Lender, L/C
Issuer or the Agent, as the case may be, on a non-confidential basis from a
source other than any Credit Party, (iv) to the extent disclosure is required by
applicable Requirements of Law or other legal process or requested or demanded
by any Governmental Authority, (v) to the extent necessary or customary for
inclusion in league table measurements or in any tombstone or other advertising
materials (and the Credit Parties consent to the publication of such tombstone
or other advertising materials by the Agent, any Lender, any L/C Issuer or any
of their Related Persons), (vi) to the National Association of Insurance
Commissioners or any similar organization, any examiner or any nationally
recognized rating agency or otherwise to the extent consisting of general
portfolio information that does not identify borrowers, (vii) to current or
prospective assignees, SPVs grantees of any option described in Section 9.1(f)
or participants, direct or contractual counterparties to any Secured Rate
Contract permitted hereunder and to their respective Related Persons, in each
case to the extent such assignees, participants, counterparties or Related
Persons agree to be bound by provisions substantially similar to the provisions
of this Section 11.8 and
(viii) in connection with the exercise of any remedy under any Loan
Document. In the event of
60
any
conflict between the terms of this Section 11.8 and
those of any other Contracts entered into with any Credit Party (whether or not
a Loan Document), the terms of this Section 11.8
shall govern.
11.9 GOVERNING
LAW. EXCEPT
AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THE LOAN
DOCUMENTS AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED
STATES OF AMERICA. EACH CREDIT PARTY HEREBY CONSENTS AND AGREES THAT
THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, CITY OF NEW YORK, NEW
YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN THE CREDIT PARTIES, AGENT AND LENDERS PERTAINING TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT AGENT,
LENDERS AND THE CREDIT PARTIES ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS
MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY AND; PROVIDED, FURTHER THAT NOTHING
IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING
SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT
OR OTHER COURT ORDER IN FAVOR OF AGENT. EACH CREDIT PARTY EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND EACH CREDIT PARTY HEREBY WAIVES ANY OBJECTION
THAT SUCH CREDIT PARTY MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. EACH CREDIT PARTY HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR
SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY
BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH CREDIT PARTY AT THE
ADDRESS SET FORTH IN
ANNEX I OF THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN
THE UNITED STATES MAILS, PROPER POSTAGE PREPAID.
11.10 Notices. Except
as otherwise provided herein, whenever it is provided herein that any notice,
demand, request, consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties by any other parties, or
whenever any of the parties desires to give or serve upon any other parties any
communication with respect to this Agreement, each such notice, demand, request,
consent, approval, declaration or other communication shall be in writing and
shall be deemed to have been validly served, given or
61
delivered
(a) upon the earlier of actual receipt and three (3) Business Days after deposit
in the United States Mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (b) upon transmission, when sent by
telecopy or other similar facsimile transmission during normal business hours on
a Business Day (with such telecopy or facsimile promptly confirmed by delivery
of a copy by personal delivery or United States Mail as otherwise provided in
this Section
11.10); (c) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid, (d) when delivered, if
hand-delivered by messenger, or (e) upon transmission, when sent by Electronic
Transmission or on the date of such posting in the case of posting to a website,
all of which shall be addressed to the party to be notified and sent to the
address or facsimile number indicated in Annex I or to such
other address (or facsimile number) as may be substituted by notice given as
herein provided. The giving of any notice required hereunder may be
waived in writing by the party entitled to receive such
notice. Failure or delay in delivering copies of any notice, demand,
request, consent, approval, declaration or other communication to any Person
(other than Borrower or Agent) designated in Annex I to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other
communication.
Each
party hereto hereby authorizes the Agent to transmit, post or otherwise make or
communicate, in its sole discretion (and the Agent shall not be required to
transmit, post or otherwise make or communicate), Electronic Transmissions in
connection with this Agreement; provided, however, that notices
to any Credit Party shall not be made by any posting to an Internet or
extranet-based site or other equivalent service but may be made by e-mail or
E-fax. Each party hereto hereby acknowledges and agrees that the use
of Electronic Transmissions is not necessarily secure and that there are risks
associated with such use, including, without limitation, risks of interception,
disclosure and abuse and indicates it assumes and accepts such risks by hereby
authorizing the Agent to transmit Electronic Transmissions.
Electronic
Transmissions that are not readily capable of bearing either a signature or a
reproduction of a signature may be signed, and shall be deemed signed, by
attaching to or logically associating with such Electronic Transmission an
E-Signature. Each party may rely upon, and assume the authenticity
of, any E-Signature contained in or associated with an Electronic
Transmission. No Electronic Transmission shall be denied legal effect
merely because it is made electronically. Each Electronic
Transmission shall be deemed sufficient to satisfy any legal requirement for a
“writing” and each e-Signature shall be deemed sufficient to satisfy any legal
requirement for a “signature”, in each case including, without limitation,
pursuant to the Uniform Commercial Code, the Federal Uniform Electronic
Transactions Act, the Electronic
Signatures in Global and National Commerce Act and any substantive or procedural
law governing such subject matter. Each Electronic Transmission
containing a signature, a reproduction of a signature or an E-Signature shall,
for all intents and purposes, have the same effect and weight as a signed paper
original. Each party hereto agrees not to contest the validity or
enforceability of an Electronic Transmission or E-Signature under the provisions
of any applicable law requiring certain documents to be in writing or signed;
provided however, that nothing herein shall limit a party’s right to contest
whether an Electronic Transmission or E-Signature has been altered after
transmission.
Each
Lender and the Borrower acknowledges that all uses of an E-System will be
governed by and subject to, in addition to this clause, separate terms and
conditions posted or
62
referenced
in such E-System or related agreements executed by such Lender or the Borrower
in connection with such use.
The
E-Systems and the Electronic Transmissions are provided “as is” and “as
available”. The Agent does not warrant the accuracy, adequacy or
completeness of the E-Systems and the Electronic Transmissions and disclaims
liability for errors or omissions therein. No Warranty of any kind is
made by the Agent in connection with the E-Systems or the Electronic
Communications, including, without limitation, any warranty of merchantability,
fitness for a particular purpose, non-infringement of third party rights or
freedom from viruses or other code defects. Each Lender and the
Borrower acknowledge that the Agent shall have no responsibility for maintaining
or providing any equipment, software, services and testing required in
connection with all Electronic Transmissions or otherwise required for such
e-System.
11.11 Section
Titles. The
Section titles and Table of Contents contained in this Agreement are and shall
be without substantive meaning or content of any kind whatsoever and are not a
part of the agreement between the parties hereto.
11.12 Counterparts. This
Agreement may be executed in any number of separate counterparts, each of which
shall collectively and separately constitute one agreement.
11.13 WAIVER OF JURY
TRIAL. BECAUSE
DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST
QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE
PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION
RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING
SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF
THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE
ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG AGENT,
LENDERS AND ANY CREDIT PARTY ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
OR THE TRANSACTIONS RELATED THERETO.
11.14 Press Releases and Related
Matters. Each
Credit Party executing this Agreement agrees that neither it nor its Affiliates
will in the future issue any press releases or other public disclosure using the
name of GE Capital or its affiliates or referring to this Agreement, the other
Loan Documents or the Related Transactions Documents without at least two (2)
Business Days' prior notice to GE Capital and without the prior written consent
of GE Capital unless (and only to the extent that) such Credit Party or
Affiliate is required to do so under law and then, in any event, such Credit
Party or Affiliate will consult with GE Capital before issuing such press
release or other public disclosure. Each Credit Party consents to the
publication by Agent or any Lender of advertising material relating to the
financing transactions
63
contemplated
by this Agreement using Borrower’s name, product photographs, logo or
trademark. Agent or such Lender shall provide a draft of any
advertising material to each Credit Party for review and comment prior to the
publication thereof. Agent reserves the right to provide to industry
trade organizations information necessary and customary for inclusion in league
table measurements.
11.15 Reinstatement. This
Agreement shall remain in full force and effect and continue to be effective
should any petition be filed by or against any Credit Party for liquidation or
reorganization, should any Credit Party become insolvent or make an assignment
for the benefit of any creditor or creditors or should a receiver or trustee be
appointed for all or any significant part of any Credit Party's assets, and
shall continue to be effective or to be reinstated, as the case may be, if at
any time payment and performance of the Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Obligations, whether as a “voidable
preference,” “fraudulent conveyance,” or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or
any part thereof, is rescinded, reduced, restored or returned, the Obligations
shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.
11.16 Advice of
Counsel. Each
of the parties represents to each other party hereto that it has discussed this
Agreement and, specifically, the provisions of Sections 11.9 and
11.13, with its counsel.
11.17 No Strict
Construction. The
parties hereto have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties hereto and no presumption or burden of proof shall arise favoring
or disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
64
IN
WITNESS WHEREOF, this Agreement has been duly executed as of the date first
written above.
BORROWER
CONSOLIDATED
AMUSEMENT THEATRES, INC.
By: /s/ Andrzej
Matyczynski
Name: Andrzej
Matyczynski
Title: CFO
65
GENERAL
ELECTRIC CAPITAL
CORPORATION, as Agent and
Lender
By: /s/ General Electric Capital
Corporation
Duly Authorized
Signatory
66
BANK
OF HAWAII
By: /s/ Linda R.
Ho
Name: Linda R. Ho
Title: Vice
President
67
CENTRAL
PACIFIC BANK
By: /s/ Garrett
Grace
Name: Garrett Grace
Title: Vice President
68
AMERICAN
SAVINGS BANK
By: /s/ Danford H.
Oshima
Name: Danford H.
Oshima
Title:
Vice
President
69
The
following Persons are signatories to this Agreement in their capacity as Credit
Parties and not as Borrowers.
CONSOLIDATED
AMUSEMENT HOLDINGS, INC.
By: /s/ Andrzej
Matyczynski
Name:
Andrzej
Matyczynski
Title:
Chief Financial
Officer
READING
CINEMAS NJ, INC.
By: /s/ Andrzej
Matyczynski
Name:
Andrzej
Matyczynski
Title:
Treasurer
70
ANNEX
A (Recitals)
to
CREDIT
AGREEMENT
DEFINITIONS
Capitalized
terms used in the Loan Documents shall have (unless otherwise provided elsewhere
in the Loan Documents) the following respective meanings and all references to
Sections, Exhibits, Schedules or Annexes in the following definitions shall
refer to Sections, Exhibits, Schedules or Annexes of or to the
Agreement:
“Account Debtor” means
any Person who may become obligated to any Credit Party under, with respect to,
or on account of, an Account, Chattel Paper or General Intangibles (including a
payment intangible).
“Accounting Changes”
has the meaning ascribed thereto in Annex G.
“Accounts” means all
“accounts,” as such term is defined in the Code, now owned or hereafter acquired
by any Credit Party, including (a) all accounts receivable, other receivables,
book debts and other forms of obligations (other than forms of obligations
evidenced by Chattel Paper or Instruments), (including any such obligations that
may be characterized as an account or contract right under the Code), (b) all of
each Credit Party's rights in, to and under all purchase orders or receipts for
goods or services, (c) all of each Credit Party's rights to any goods
represented by any of the foregoing (including unpaid sellers' rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods), (d) all rights to payment due to any
Credit Party for property sold, leased, licensed, assigned or otherwise disposed
of, for a policy of insurance issued or to be issued, for a secondary obligation
incurred or to be incurred, for energy provided or to be provided, for the use
or hire of a vessel under a charter or other contract, arising out of the use of
a credit card or charge card, or for services rendered or to be rendered by such
Credit Party or in connection with any other transaction (whether or not yet
earned by performance on the part of such Credit Party), (e) all healthcare
insurance receivables, and (f) all collateral security of any kind, now or
hereafter in existence, given by any Account Debtor or other Person with respect
to any of the foregoing.
“Acquisition” means
the acquisition of the Acquired Theatres and related assets of Sellers pursuant
to the Acquisition Agreement.
“Acquisition
Agreement” means that certain Asset Purchase and Sale Agreement dated as
of October 4, 2007, by and among Sellers, Michael Forman and Christopher Forman,
Borrower and Reading.
“Acquired Theatres”
means, collectively theatres in the following locations (i) Rohnert Park, (ii)
Valley Plaza, (iii) Grossmont, (iv) Town Square, (v) Kaahumanu, (vi) Kukui Mall
(subject to landlord consent to assignment of lease), (vii) Kapolei, (viii) Koko
Marina, (ix) Ko’olau, (x) Mililani, (xi) Pearlridge, (xii) Ward and (xiii)
Kahala.
A-1
“Activation Event” and
“Activation Notice” have the meanings ascribed thereto in Annex C.
“Additional Lender”
has the meaning ascribed to it in Section
1.1(c).
“Advance” means any
Revolving Credit Advance.
“Affiliate” means,
with respect to any Person, (a) each Person that, directly or indirectly, owns
or controls, whether beneficially, or as a trustee, guardian or other fiduciary,
10% or more of the Stock having ordinary voting power in the election of
directors of such Person, (b) each Person that controls, is controlled by or is
under common control with such Person, (c) each of such Person's officers,
directors, joint venturers and partners and (d) in the case of Borrower, the
immediate family members, spouses and lineal descendants of individuals who are
Affiliates of Borrower. For the purposes of this definition, “control” of a Person
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of its management or policies, whether through the ownership
of voting securities, by contract or otherwise; provided, however, that the
term “Affiliate” shall
specifically exclude Agent and each Lender.
“Agent” means GE
Capital in its capacity as Agent for Lenders or its successor appointed pursuant
to Section
9.7.
“Agreement” means the
Credit Agreement by and among Borrower, the other Credit Parties party thereto,
GE Capital, as Agent and Lender and the other Lenders from time to time party
thereto, as the same may be amended, supplemented, restated or otherwise
modified from time to time.
“Appendices” has the
meaning ascribed to it in the recitals to the Agreement.
“Applicable L/C
Margin” means the per annum fee, from time to time in effect, payable
with respect to outstanding Letter of Credit Obligations as determined by
reference to Section
1.5(a).
“Applicable Margins”
means collectively the Applicable Index Margin and the Applicable LIBOR
Margin.
“Applicable Index
Margin” means the per annum interest rate margin from time to time in
effect and payable in addition to the Index Rate applicable to the Loans, as
determined by reference to Section
1.5(a).
“Applicable LIBOR
Margin” means the per annum interest rate from time to time in effect and
payable in addition to the LIBOR Rate applicable to the Loans, as determined by
reference to Section
1.5(a).
“Approved Fund” means,
with respect to any Lender, any Person (other than a natural Person) that (a) is
or will be engaged in making, purchasing, holding or otherwise investing in
commercial loans and similar extensions of credit in the ordinary course of its
business and (b) is advised or managed by (i) such Lender, (ii) any Affiliate of
such Lender or
A-2
(iii) any
Person (other than an individual) or any Affiliate of any Person (other than an
individual) that administers or manages such Lender.
“Assignment Agreement”
means an assignment agreement entered into by a Lender, as assignor, and any
Person, as assignee, pursuant to the terms and provisions of Section 9.1 (with the
consent of any party whose consent is required by Section 9.1),
accepted by Agent, in substantially the form of Exhibit 9.1(a),
or any other form approved by Agent.
“Assumption Agreement”
has the meaning ascribed to it in Section
1.1(c).
“Bankruptcy Code”
means the provisions of Title 11 of the United States Code, 11 U.S.C.
§§ 101 et seq.
“Blocked Accounts” has
the meaning ascribed to it in Annex C.
“Borrower” has the
meaning ascribed thereto in the preamble to the Agreement.
“Borrower Pledge
Agreement” means the Pledge Agreement of even date herewith executed by
Borrower in favor of Agent, on behalf of itself and Lenders, pledging the Stock
of its Subsidiaries described therein, if any, and all Intercompany Notes owing
to or held by it.
“Borrowing
Availability” means as of any date of determination the Maximum Amount
less the
Revolving Loan then outstanding.
“Business” means the
operation by the Credit Parties of full length motion picture cinemas and
associated and ancillary activities in connection therewith.
“Business Day” means
any day that is not a Saturday, a Sunday or a day on which banks are required or
permitted to be closed in the States of Georgia and/or New York and in reference
to LIBOR Loans shall mean any such day that is also a LIBOR Business
Day.
“Capital Expenditures”
means, with respect to any Person, all expenditures (by the expenditure of cash
or the incurrence of Indebtedness) by such Person during any measuring period
for any fixed assets or improvements or for replacements, substitutions or
additions thereto, that have a useful life of more than one year and that are
required to be capitalized under GAAP but excluding expenditures (i) in respect
of the consummation of the Acquisition and Permitted Acquisitions, (ii)
constituting amounts constituting proceeds that are reinvested in the business
of the Credit Parties in accordance with the terms hereof and (iii) any tenant
improvement allowance or landlord contributions to tenancy buildouts (to the
extent paid for or reimbursed by the landlord).
“Capital Lease” means,
with respect to any Person, any lease of any property (whether real, personal or
mixed) by such Person as lessee that, in accordance with GAAP, would be required
to be classified and accounted for as a capital lease on a balance sheet of such
Person.
A-3
“Capital Lease
Obligation” means, with respect to any Capital Lease of any Person, the
amount of the obligation of the lessee thereunder that, in accordance with GAAP,
would appear on a balance sheet of such lessee in respect of such Capital
Lease.
“Cash Collateral
Account” has the meaning ascribed to it Annex B.
“Cash Equivalents” has
the meaning ascribed to it in Annex B.
“Cash Interest
Expense” shall mean for any period, cash Interest Expense paid or accrued
on Total Debt for such period.
“Cash Management
Systems” has the meaning ascribed to it in Section
1.8.
“Change of Control”
means any event, transaction or occurrence as a result of which (a) any person
or group of persons (within the meaning of the Securities Exchange
Act of 1934) other than the Cotter Family shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934) of 20% or more of
the issued and outstanding shares of capital Stock of Reading having the right
to vote for the election of directors of Reading under ordinary circumstances
and the Cotter Family shall cease to beneficially own and control at least 51%
of the issued and outstanding shares of capital Stock of Reading having the
right to vote for the election of directors of Reading under ordinary
circumstances; (b) Reading ceases to own and control all of the economic and
voting rights associated with ownership of at least one hundred percent (100%)
of all classes of the outstanding capital Stock of Holdings on a fully diluted
basis; (c) Holdings ceases to own and control all of the economic and voting
rights associated with all of the outstanding capital Stock of Borrower or (d)
Borrower ceases to own and control all of the economic and voting rights
associated with all of the outstanding capital Stock of its Subsidiaries, except
in connection with a transaction permitted hereby.
“Charges” means all
federal, state, county, city, municipal, local, foreign or other governmental
taxes (including taxes owed to the PBGC at the time due and payable), levies,
assessments, charges, liens, claims or encumbrances upon or relating to (a) the
Collateral, (b) the Obligations, (c) the employees, payroll, income or gross
receipts of any Credit Party, (d) any Credit Party's ownership or use of
any properties or other assets, or (e) any other aspect of any Credit Party's
business.
“Chattel Paper” means
any “chattel paper,” as such term is defined in the Code, including electronic
chattel paper, now owned or hereafter acquired by any Credit Party, wherever
located.
“Closing Date” means
February 21, 2008.
“Closing Equity
Contribution” means the direct or indirect capitalization of Borrower
with at least $22,500,000 of cash equity from Reading on or prior to the Closing
Date.
“Closing Checklist”
means the schedule, including all appendices, exhibits or schedules thereto,
listing certain documents and information to be delivered in connection
with
A-4
the
Agreement, the other Loan Documents and the transactions contemplated
thereunder, substantially in the form attached hereto as Annex D.
“Code” means the
Uniform Commercial Code as the same may, from time to time, be enacted and in
effect in the State of New York; provided, that to the
extent that the Code is used to define any term herein or in any Loan Document
and such term is defined differently in different Articles or Divisions of the
Code, the definition of such term contained in Article or Division 9 shall
govern; provided
further, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection or priority of, or remedies with
respect to, Agent's or any Lender's Lien on any Collateral is governed by the
Uniform Commercial Code as enacted and in effect in a jurisdiction other than
the State of New York, the term “Code” shall mean the
Uniform Commercial Code as enacted and in effect in such other jurisdiction
solely for purposes of the provisions thereof relating to such attachment,
perfection, priority or remedies and for purposes of definitions related to such
provisions.
“Collateral” means the
property covered by the Security Agreement, the Mortgages and the other
Collateral Documents and any other property, real or personal, tangible or
intangible, now existing or hereafter acquired, that may at any time be or
become subject to a security interest or Lien in favor of Agent, on behalf of
itself and Lenders, to secure the Obligations.
“Collateral
Assignments” means each collateral assignment agreement made in favor of
Agent, on behalf of itself and Lenders, by any Credit Party, in form and
substance acceptable to Agent.
“Collateral Documents”
means the Security Agreement, the Pledge Agreements, the Guaranties, the
Mortgages, the Patent Security Agreement, the Trademark Security Agreement, the
Copyright Security Agreement, the Collateral Assignments and all similar
agreements entered into guaranteeing payment of, or granting a Lien upon
property as security for payment of, the Obligations.
“Collateral Reports”
means the reports with respect to the Collateral referred to in Annex F.
“Collection Account”
means that certain account of Agent, account number 502-328-54 in the
name of Agent at DeutscheBank Trust Company Americas in New York, New York ABA
No. 021 001 033, or such other account as may be specified in writing by Agent
as the “Collection Account.”
“Commitment Termination
Date” means the earliest of (a) February 21, 2013, (b) the date of
termination of Lenders' obligations to make Advances and to incur Letter of
Credit Obligations or permit existing Loans to remain outstanding pursuant to
Section 8.2(b),
and (c) the date of prepayment in full by Borrower of the Loans and the
cancellation and return (or stand-by guarantee) of all Letters of Credit or the
cash collateralization of all Letter of Credit Obligations pursuant to Annex B, and the
permanent reduction of the Commitments to zero dollars ($0).
A-5
“Commitments” means
(a) as to any Lender, the aggregate of such Lender's Revolving Loan
Commitment and Term Loan B Commitment as set forth on Annex J to the
Agreement or in the most recent Assignment Agreement executed by such Lender and
(b) as to all Lenders, the aggregate of all Lenders' Revolving Loan Commitments
and Term Loan B Commitments, which aggregate commitment shall be Fifty Five
Million Dollars ($55,000,000) on the Closing Date, as to each of clauses (a) and (b),
as such Commitments may be reduced, amortized or adjusted from time to time in
accordance with the Agreement.
“Compliance
Certificate” has the meaning ascribed to it in Annex E.
“Contracts” means all
“contracts,” as such term is defined in the Code, now owned or hereafter
acquired by any Credit Party, in any event, including all contracts,
undertakings, or agreements (other than rights evidenced by Chattel Paper,
Documents or Instruments) in or under which any Credit Party may now or
hereafter have any right, title or interest, including any agreement relating to
the terms of payment or the terms of performance of any Account.
“Contributed Capital”
means as of any date of determination, the sum of (a) the principal amount of
the Loans as of the Closing Date minus principal
payments paid or payable in respect of the Term Loan as of such date, minus the aggregate
principal amount of all mandatory prepayments as of such date in respect of the
Revolving Loans with respect to which there was a concurrent mandatory Revolving
Loan Commitment reduction in the amount of such prepayment, (b) the original
principal amount of the Reading Note as of the Closing Date minus the amount of
all reductions in the principal amount of the Reading Note as a result of
adjustments made as of such date pursuant to Section 3 of the Reading Note plus
(c) $1,500,000.
“Control Letter” means
a letter agreement between Agent and (i) the issuer of uncertificated securities
with respect to uncertificated securities in the name of any Credit Party, (ii)
a securities intermediary with respect to securities, whether certificated or
uncertificated, securities entitlements and other financial assets held in a
securities account in the name of any Credit Party, (iii) a futures commission
merchant or clearing house, as applicable, with respect to commodity accounts
and commodity contracts held by any Credit Party, whereby, among other things,
the issuer, securities intermediary or futures commission merchant limits any
security interest in the applicable financial assets in a manner reasonably
satisfactory to Agent, acknowledges the Lien of Agent, on behalf of itself and
Lenders, on such financial assets, and agrees to follow the instructions or
entitlement orders of Agent without further consent by the affected Credit
Party.
“Copyright License”
means any and all rights now owned or hereafter acquired by any Credit Party
under any written agreement granting any right to use any Copyright or Copyright
registration.
“Copyright Security
Agreements” means the Copyright Security Agreements made in favor of
Agent, on behalf of itself and Lenders, by each applicable Credit
Party.
“Copyrights” means all
of the following now owned or hereafter adopted or acquired by any Credit Party:
(a) all copyrights and General Intangibles of like nature (whether
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registered
or unregistered), all registrations and recordings thereof, and all applications
in connection therewith, including all registrations, recordings and
applications in the United States Copyright Office or in any similar office or
agency of the United States, any state or territory thereof, or any other
country or any political subdivision thereof, and (b) all reissues, extensions
or renewals thereof.
“Cotter Family” means
Mr. James J. Cotter, Ms. Ellen M. Cotter, Mr. James J. Cotter,
Jr., Ms. Margaret Cotter, their spouses or lineal descendants, the
estates of any of the foregoing Persons and any trusts established for the
benefit of the foregoing Persons and any corporation, limited liability company,
limited partnership or similar entity of which 100% of the Stock of such Person
is owned beneficially and of record by any one or more of the
foregoing.
“Credit Parties” means
Holdings, Borrower, and each of their respective Subsidiaries.
“Current Assets”
means, with respect to any Person, all current assets of such Person as of any
date of determination calculated in accordance with GAAP, but excluding cash,
cash equivalents and debts due from Affiliates.
“Current Liabilities”
means, with respect to any Person, all liabilities of such Person that should,
in accordance with GAAP, be classified as current liabilities, and in any event
shall include all Indebtedness payable on demand or within one year from any
date of determination without any option on the part of the obligor to extend or
renew beyond such year, all accruals for federal or other taxes based on or
measured by income and payable within such year, but excluding the current
portion of long-term debt required to be paid within one year and the aggregate
outstanding principal balance of the Revolving Loan.
“Dallas Theatre
Contribution” means the contribution of the theater located at the
Mockingbird Station Shopping Center, Dallas, Texas, by Reading to Holdings and
thereafter by Holdings to Borrower on the Closing Date pursuant to the Dallas
Theatre Contribution Documents.
“Dallas Theatre Contribution
Documents” means (i) that certain Assignment and Assumption Agreement by
and between Citadel Cinemas, Inc., a Nevada corporation, and Reading
International Services Company, a California corporation, dated on or about the
date hereof, (ii) that certain Assignment and Assumption Agreement by and
between Reading International Services Company, a California corporation, and
Reading Consolidated Holdings Inc., a Nevada corporation, dated on or about the
date hereof, (iii) that certain Assignment and Assumption Agreement by and
between Reading Consolidated Holdings Inc., a Nevada corporation, and
Consolidated Amusement Holdings, Inc., a Nevada corporation, dated on or about
the date hereof, (iv) that certain Assignment and Assumption Agreement by and
between Consolidated Amusement Holdings, Inc., a Nevada corporation, and
Consolidated Amusement Theatres, Inc., a Nevada corporation, dated on or about
the date hereof, (v) that certain Unanimous Written Consent of Directors of
Reading International, Inc., dated on or about the date hereof, (vi) that
certain Joint Unanimous Written Consent of Directors and Sole Shareholder of
Citadel Cinemas, Inc., dated on or about the date hereof, (vii) that certain
Joint Unanimous Written Consent of Directors and Shareholders of Reading
International Services Company,
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dated on
or about the date hereof, (viii) that certain Joint Unanimous Written Consent of
Directors and Sole Shareholder of Reading Consolidated Holdings, Inc., dated on
or about the date hereof, and (ix) that certain Joint Unanimous Written Consent
of Directors and Sole Shareholder of Consolidated Amusement Holdings, Inc.,
dated on or about the date hereof.
“Debt Service” means,
with respect to any Person for any fiscal period, an amount equal to the sum of
(a) Cash Interest Expense for such period and (b) the scheduled
amortization of any outstanding Indebtedness during such period.
“Default” means any
event that, with the passage of time or notice or both, would, unless cured or
waived, become an Event of Default.
“Default Rate” has the
meaning ascribed to it in Section
1.5(d).
“Default Rate Notice”
has the meaning ascribed to it in Section
1.5(d).
“Deposit Accounts”
means all “deposit accounts” as such term is defined in the Code, now or
hereafter held in the name of any Credit Party.
“Disclosure Schedules”
means the Schedules prepared by Borrower and denominated as Disclosure Schedules (1.4)
through (6.7) in the Index to the Agreement.
“Documents” means any
“documents,” as such term is defined in the Code, now owned or hereafter
acquired by any Credit Party, wherever located.
“Dollars” or “$” means lawful
currency of the United States of America.
“Domestic Subsidiary”
means any direct or indirect Subsidiary of Holdings that is not a Foreign
Subsidiary.
“EBITDA” means, with
respect to any Person for any fiscal period, without duplication, an amount
equal to (a) consolidated net income of such Person for such period, determined
in accordance with GAAP, minus (b) the sum of
(i) income tax credits, (ii) interest income, (iii) gain from extraordinary
items for such period, (iv) any aggregate net gain or loss during such period
arising from the sale, exchange or other disposition of capital assets by such
Person (including any fixed assets, whether tangible or intangible, and all
inventory sold in conjunction with the disposition of fixed assets and all
securities), and (v) any other non-cash gains, charges, items and other non-cash
purchase accounting adjustments that have been added in determining consolidated
net income, in each case to the extent included in the calculation of
consolidated net income of such Person for such period in accordance with GAAP,
but without duplication, plus (c) the sum of
(i) any provision for income taxes, (ii) Interest Expense, (iii) loss from
extraordinary items for such period, (iv) depreciation and amortization for such
period, (v) other non-cash charges, items and any non-cash purchase accounting
adjustments (excluding bad debt write-offs and reserves) for such period, (vi)
the amount of any deduction to consolidated net income as the result of any
grant to any members of the management of such Person or any of its Subsidiaries
of any Stock and (vii) transaction expenses associated with the consummation of
the Acquisition and any Permitted Acquisition, in each case to the extent such
expenses are deducted from net income in accordance with GAAP and as approved by
Agent.
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For
purposes of this definition, the following items shall be excluded in
determining consolidated net income of a Person: (1) the income (or deficit) of
any other Person accrued prior to the date it became a Subsidiary of, or was
merged or consolidated into, such Person or any of such Person's Subsidiaries;
(2) the income (or deficit) of any other Person (other than a Subsidiary) in
which such Person has an ownership interest, except to the extent any such
income has actually been received by such Person in the form of cash dividends
or distributions; (3) the undistributed earnings of any Subsidiary of such
Person 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 or requirement of law applicable to such Subsidiary;
(4) [reserved]; (5) any write-up of any asset; (6) any net gain from the
collection of the proceeds of life insurance policies; (7) any net gain arising
from the acquisition of any securities, or the extinguishment, under GAAP, of
any Indebtedness, of such Person; (8) in the case of a successor to such Person
by consolidation or merger or as a transferee of its assets, any earnings of
such successor prior to such consolidation, merger or transfer of assets; and
(9) any deferred credit representing the excess of equity in any Subsidiary of
such Person at the date of acquisition of such Subsidiary over the cost to such
Person of the investment in such Subsidiary.
“EBITDAR” means, with
respect to any Person for any period, without duplication, an amount equal to
(a) EBITDA for such period, plus (b) Lease Expense for such period.
“E-Fax” means any
system used to receive or transmit faxes electronically.
“Electronic
Transmission” means each notice, request, instruction, demand, report,
authorization, agreement, document, file, information and any other
communication transmitted, posted or otherwise made or communicated by e-mail,
E-Fax, Internet or extranet-based site or any other equivalent electronic
service, whether owned, operated or hosted by the Administrative Agent, any
Affiliate of the Agent or any other Person.
“Eligible Assignee”
has the meaning ascribed to it in Section
9.1(b).
“E-Signature” means
the process of attaching to or logically associating with an Electronic
Transmission an electronic symbol, encryption, digital signature or process
(including, without limitation, the name or an abbreviation of the name of the
party transmitting the Electronic Transmission) with the intent to sign,
authenticate or accept the Electronic Transmission.
“E-Systems” means any
electronic system such as an Internet or extranet-based site (including, without
limitation, IntralinksTM),
whether owned, operated or hosted by the Administrative Agent, any Affiliate of
the Agent or any other Person, providing for access to data protected by
passcodes or other security systems.
“Environmental Laws”
means all applicable federal, state, local and foreign laws, statutes,
ordinances, codes, rules, standards and regulations, now or hereafter in effect,
and any applicable judicial or administrative interpretation thereof, including
any applicable judicial or administrative order, consent decree, order or
judgment, imposing liability or standards of conduct for or relating to the
regulation and protection of human health, safety, the environment
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and
natural resources (including ambient air, surface water, groundwater, wetlands,
land surface or subsurface strata, wildlife, aquatic species and
vegetation). Environmental Laws include the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. §§
9601 et seq.)
(“CERCLA”); the
Hazardous Materials Transportation Authorization Act of 1994 (49 U.S.C. §§ 5101
et seq.); the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. §§ 136 et seq.); the Solid
Waste Disposal Act (42 U.S.C. §§ 6901 et seq.); the Toxic
Substance Control Act (15 U.S.C. §§ 2601 et seq.); the Clean
Air Act (42 U.S.C. §§ 7401 et seq.); the Federal
Water Pollution Control Act (33 U.S.C. §§ 1251 et seq.); the
Occupational Safety and Health Act (29 U.S.C. §§ 651 et seq.); and the
Safe Drinking Water Act (42 U.S.C. §§ 300(f) et seq.), and any and
all regulations promulgated thereunder, and all analogous state, local and
foreign counterparts or equivalents and any transfer of ownership notification
or approval statutes.
“Environmental
Liabilities” means, with respect to any Person, all liabilities,
obligations, responsibilities, response, remedial and removal costs,
investigation and feasibility study costs, capital costs, operation and
maintenance costs, losses, damages, punitive damages, property damages, natural
resource damages, consequential damages, treble damages, costs and expenses
(including all reasonable fees, disbursements and expenses of counsel, experts
and consultants), fines, penalties, sanctions and interest incurred as a result
of or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law, including any arising under
or related to any Environmental Laws, Environmental Permits, or in connection
with any Release or threatened Release or presence of a Hazardous Material
whether on, at, in, under, from or about or in the vicinity of any real or
personal property.
“Environmental
Permits” means all permits, licenses, authorizations, certificates,
approvals or registrations required by any Governmental Authority under any
Environmental Laws.
“Equipment” means all
“equipment,” as such term is defined in the Code, now owned or hereafter
acquired by any Credit Party, wherever located and, in any event, including all
such Credit Party's machinery and equipment, including processing equipment,
conveyors, machine tools, data processing and computer equipment, including
embedded software and peripheral equipment and all engineering, processing and
manufacturing equipment, office machinery, furniture, materials handling
equipment, tools, attachments, accessories, automotive equipment, trailers,
trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other
equipment of every kind and nature, trade fixtures and fixtures not forming a
part of real property, together with all additions and accessions thereto,
replacements therefor, all parts therefor, all substitutes for any of the
foregoing, fuel therefor, and all manuals, drawings, instructions, warranties
and rights with respect thereto, and all products and proceeds thereof and
condemnation awards and insurance proceeds with respect thereto.
“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended from time to time,
and any regulations promulgated thereunder.
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“ERISA Affiliate”
means, with respect to any Credit Party, any trade or business (whether or not
incorporated) that, together with such Credit Party, are treated as a single
employer within the meaning of Sections 414(b), (c), (m) or (o) of the
IRC.
“ERISA Event” means,
with respect to any Credit Party or any ERISA Affiliate, (a) any event described
in Section 4043(c) of ERISA with respect to a Title IV Plan; (b) the withdrawal
of any Credit Party or ERISA Affiliate from a Title IV Plan subject to Section
4063 of ERISA during a plan year in which it was a substantial employer, as
defined in Section 4001(a)(2) of ERISA; (c) the complete or partial withdrawal
of any Credit Party or any ERISA Affiliate from any Multiemployer Plan; (d) the
filing of a notice of intent to terminate a Title IV Plan or the treatment of a
plan amendment as a termination under Section 4041 of ERISA; (e) the institution
of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC;
(f) the failure by any Credit Party or ERISA Affiliate to make when due required
contributions to a Multiemployer Plan or Title IV Plan unless such failure is
cured within thirty (30) days; (g) any other event or condition that would
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Title IV Plan
or Multiemployer Plan or for the imposition of liability under Section 4069 or
4212(c) of ERISA; (h) the termination of a Multiemployer Plan under Section
4041A of ERISA or the reorganization or insolvency of a Multiemployer Plan under
Section 4241 or 4245 of ERISA; or (i) the loss of a Qualified Plan's
qualification or tax exempt status; or (j) the termination of a Plan described
in Section 4064 of ERISA.
“ESOP” means a Plan
that is intended to satisfy the requirements of Section 4975(e)(7) of the
IRC.
“Event of Default” has
the meaning ascribed to it in Section
8.1.
“Excess Cash Flow”
means, without duplication, with respect to any Fiscal Year of Borrower and its
Subsidiaries, consolidated EBITDA of Borrower (a) plus decreases or minus
increases (as the case may be) in Working Capital, minus (b) Capital
Expenditures during such Fiscal Year (excluding the financed portion thereof),
minus (c) Interest Expense paid or accrued (excluding any original issue
discount, interest paid in kind or amortized debt discount, to the extent
included in determining Interest Expense), minus (d) scheduled principal
payments paid or payable in respect of borrowed money, minus (e) the aggregate
amount of all optional prepayments in respect of the Loans (provided, in the
case of a prepayment of the Revolving Loans, that there is a concurrent
Revolving Loan Commitment reduction in the amount of such prepayment), plus or
minus (as the case may be), (f) extraordinary gains or losses which are cash
items not included in the calculation of net income plus (g) taxes deducted in
determining consolidated net income to the extent not paid for in cash, minus
(h) Permitted Tax Distributions.
“Fair Labor Standards
Act” means the Fair Labor Standards Act, 29 U.S.C. §201 et
seq.
“Federal Funds Rate”
means, for any day, a floating rate equal to the weighted average of the rates
on overnight federal funds transactions among members of the Federal Reserve
System, as determined by Agent in its sole discretion, which determination shall
be final, binding and conclusive (absent manifest error).
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“Federal Reserve
Board” means the Board of Governors of the Federal Reserve
System.
“Fees” means any and
all fees payable to Agent or any Lender pursuant to the Agreement or any of the
other Loan Documents.
“Financial Covenants”
means the financial covenants set forth in Annex G.
“Financial Statements”
means the consolidated and, if applicable and if requested by Agent,
consolidating income statements, statements of cash flows and balance sheets of
Borrower delivered in accordance with Section 3.4 and Annex E.
“Fiscal Month” means
any of the monthly accounting periods of Borrower.
“Fiscal Quarter” means
any of the quarterly accounting periods of Borrower, ending on March 31, June
30, September 30 and December 31 of each year.
“Fiscal Year” means
any of the annual accounting periods of Borrower ending on December 31 of each
year.
“Fixed Charges” means,
with respect to any Person for any fiscal period, (a) Debt Service for such
period, plus (b) income taxes
paid or payable in cash with respect to such fiscal period (including Permitted
Tax Distributions), plus (c) Capital
Expenditures during such period (excluding the financed portion thereof), plus (d) Lease
Expense for such period.
“Fixed Charge Coverage
Ratio” means, with respect to any Person for any fiscal period, the ratio
of EBITDAR to Fixed Charges.
“Fixtures” means all
“fixtures” as such term is defined in the Code, now owned or hereafter acquired
by any Credit Party.
“Foreign Subsidiary”
means any Subsidiary organized in a jurisdiction other than the United States of
America or any state thereof or the District of Columbia.
“Funded Debt” means,
with respect to any Person, without duplication, all Indebtedness for borrowed
money evidenced by notes, bonds, debentures, or similar evidences of
Indebtedness and that by its terms matures more than one year from, or is
directly or indirectly renewable or extendible at such Person's option under a
revolving credit or similar agreement obligating the lender or lenders to extend
credit over a period of more than one year from the date of creation thereof,
and specifically including Capital Lease Obligations, current maturities of
long-term debt, revolving credit and short-term debt extendible beyond one year
at the option of the debtor, and also including, in the case of Borrower, the
Obligations and, without duplication, Guaranteed Indebtedness consisting of
guaranties of Funded Debt of other Persons.
“GAAP” means generally
accepted accounting principles in the United States of America, consistently
applied, as such term is further defined in Annex G to the
Agreement.
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“GE Capital” means
General Electric Capital Corporation, a Delaware corporation.
“GE Capital Fee
Letter” means that certain letter, dated as of October 4, 2007, between
GE Capital and Borrower with respect to certain Fees to be paid from time to
time by Borrower to GE Capital.
“General Intangibles”
means “general intangibles,” as such term is defined in the Code, now owned or
hereafter acquired by any Credit Party, including all right, title and interest
that such Credit Party may now or hereafter have in or under any Contract, all
payment intangibles, customer lists, Licenses, Copyrights, Trademarks, Patents,
and all applications therefor and reissues, extensions or renewals thereof,
rights in Intellectual Property, interests in partnerships, joint ventures and
other business associations, licenses, permits, copyrights, trade secrets,
proprietary or confidential information, inventions (whether or not patented or
patentable), technical information, procedures, designs, knowledge, know-how,
software, data bases, data, skill, expertise, experience, processes, models,
drawings, materials and records, goodwill (including the goodwill associated
with any Trademark or Trademark License), all rights and claims in or under
insurance policies (including insurance for fire, damage, loss and casualty,
whether covering personal property, real property, tangible rights or intangible
rights, all liability, life, key man and business interruption insurance, and
all unearned premiums), uncertificated securities, chooses in action, deposit,
checking and other bank accounts, rights to receive tax refunds and other
payments, rights to receive dividends, distributions, cash, Instruments and
other property in respect of or in exchange for pledged Stock and Investment
Property, rights of indemnification, all books and records, correspondence,
credit files, invoices and other papers, including without limitation all tapes,
cards, computer runs and other papers and documents in the possession or under
the control of such Credit Party or any computer bureau or service company from
time to time acting for such Credit Party.
“Goods” means any
“goods” as defined in the Code, now owned or hereafter acquired by any Credit
Party, wherever located, including embedded software to the extent included in
“goods” as defined in the Code, manufactured homes, standing timber that is cut
and removed for sale and unborn young of animals.
“Governmental
Authority” means any nation or government, any state or other political
subdivision thereof, and any agency, department or other entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
“Guaranteed
Indebtedness” means, as to any Person, any obligation of such Person
guaranteeing, providing comfort or otherwise supporting any Indebtedness, lease,
dividend, or other obligation (“primary obligation”)
of any other Person (the “primary obligor”) in
any manner, including any obligation or arrangement of such Person to
(a) purchase or repurchase any such primary obligation, (b) advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor
or otherwise to maintain the net worth or solvency or any balance sheet
condition of the primary obligor, (c) 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, (d) protect the beneficiary of such
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arrangement
from loss (other than product warranties given in the ordinary course of
business) or (e) indemnify the owner of such primary obligation against
loss in respect thereof. The amount of any Guaranteed Indebtedness at
any time shall be deemed to be an amount equal to the lesser at such time of (x)
the stated or determinable amount of the primary obligation in respect of which
such Guaranteed Indebtedness is incurred and (y) the maximum amount for which
such Person may be liable pursuant to the terms of the instrument embodying such
Guaranteed Indebtedness, or, if not stated or determinable, the maximum
reasonably anticipated liability (assuming full performance) in respect
thereof.
“Guaranties” means,
collectively, the Holdings Guaranty, the Reading Guaranty, each Subsidiary
Guaranty and any other guaranty executed by any Guarantor in favor of Agent and
Lenders in respect of the Obligations.
“Guarantors” means
Holdings, Reading, each Subsidiary of Borrower, and each other Person, if any,
that executes a guaranty or other similar agreement in favor of Agent, for
itself and the ratable benefit of Lenders, in connection with the transactions
contemplated by the Agreement and the other Loan Documents.
“Hazardous Material”
means any substance, material or waste that is regulated by, or forms the basis
of liability now or hereafter under, any Environmental Laws, including any
material or substance that is (a) defined as a “solid waste,” “hazardous waste,”
“hazardous material,” “hazardous substance,” “extremely hazardous
waste,” “restricted hazardous waste,” “pollutant,” “contaminant,”
“hazardous constituent,” “special waste,” “toxic substance” or other similar
term or phrase under any Environmental Laws, or (b) petroleum or any fraction or
by-product thereof, asbestos, polychlorinated biphenyls (PCB's), or any
radioactive substance.
“Holdings” has the
meaning ascribed thereto in the recitals to the Agreement.
“Holdings Guaranty”
means the guaranty of even date herewith executed by Holdings in favor of Agent
and Lenders.
“Holdings Pledge
Agreement” means the Pledge Agreement of even date herewith executed by
Holdings in favor of Agent, on behalf of itself and Lenders, pledging all Stock
of Borrower and its other Subsidiaries and all Intercompany Notes owing to or
held by it.
“Incremental Term Loan B
Facility” has the meaning ascribed to it in Section
1.1(c).
“Incremental Facility
Effective Date” has the meaning ascribed to it in Section
1.1(c).
“Indebtedness” means,
with respect to any Person, without duplication (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property payment
for which is deferred 6 months or more, but excluding (1) deferred compensation,
(2) film rent payable and (3) obligations to trade creditors incurred in the
ordinary course of business, (b) all reimbursement and other obligations with
respect to letters of credit, bankers' acceptances and surety bonds, whether or
not matured, (c) all obligations evidenced by notes, bonds, debentures or
similar instruments, (d) all indebtedness created or arising under
any
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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 and the present value
(discounted at the Index Rate as in effect on the Closing Date) of future rental
payments under all synthetic leases, (f) all obligations of such Person under
commodity purchase or option agreements or other commodity price hedging
arrangements, in each case whether contingent or matured, (g) all obligations of
such Person under any foreign exchange contract, currency swap agreement,
interest rate swap, cap or collar agreement or other similar agreement or
arrangement designed to alter the risks of that Person arising from fluctuations
in currency values or interest rates, in each case whether contingent or
matured, (h) all Indebtedness referred to above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property or other assets (including accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness, and (i) the
Obligations.
“Indemnified
Liabilities” has the meaning ascribed to it in Section
1.13.
“Indemnified Person”
has the meaning ascribed to it in Section 1.13.
“Index Rate” means,
for any day, a floating rate equal to the higher of (i) the rate publicly quoted
from time to time by The Wall Street Journal
as the “prime rate” (or, if The Wall Street
Journal ceases quoting a prime rate, the highest per annum rate of
interest published by the Federal Reserve Board in Federal Reserve statistical
release H.15 (519) entitled “Selected Interest Rates” as the Bank prime
loan rate or its equivalent), and (ii) the Federal Funds Rate plus 50 basis
points per annum. Each change in any interest rate provided for
in the Agreement based upon the Index Rate shall take effect at the time of such
change in the Index Rate.
“Index Rate Loan”
means a Loan or portion thereof bearing interest by reference to the Index
Rate.
“Instruments” means
all “instruments,” as such term is defined in the Code, now owned or hereafter
acquired by any Credit Party, wherever located, and, in any event, including all
certificated securities, all certificates of deposit, and all promissory notes
and other evidences of indebtedness, other than instruments that constitute, or
are a part of a group of writings that constitute, Chattel Paper.
“Intellectual
Property” means any and all Licenses, Patents, Copyrights, Trademarks,
and the goodwill associated with such Trademarks.
“Intercompany Notes”
has the meaning ascribed to it in Section
6.3.
“Interest Coverage
Ratio” means, with respect to any Person for any period, the ratio of
EBITDA to Cash Interest Expense.
“Interest Expense”
means, with respect to any Person for any fiscal period, interest expense
(whether cash or non-cash) of such Person determined in accordance with GAAP for
the relevant period ended on such date, including interest expense with respect
to any
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Funded
Debt of such Person and interest expense for the relevant period that has been
capitalized on the balance sheet of such Person.
“Interest Payment
Date” means (a) as to any Index Rate Loan, the last Business Day of each
quarter to occur while such Loan is outstanding, and (b) as to any LIBOR Loan,
the last day of the applicable LIBOR Period; provided, that in the
case of any LIBOR Period greater than three months in duration, interest shall
be payable at three month intervals and on the last day of such LIBOR Period;
and provided
further that,
in addition to the foregoing, each of (x) the date upon which all of the
Commitments have been terminated and the Loans have been paid in full and (y)
the Commitment Termination Date shall be deemed to be an “Interest Payment
Date” with respect to any interest that has then accrued under the
Agreement.
“Inventory” means any
“inventory,” as such term is defined in the Code, now owned or hereafter
acquired by any Credit Party, wherever located, and in any event including
inventory, merchandise, goods and other personal property that are held by or on
behalf of any Credit Party for sale or lease or are furnished or are to be
furnished under a contract of service, or that constitute raw materials, work in
process, finished goods, returned goods, supplies or materials of any kind,
nature or description used or consumed or to be used or consumed in such Credit
Party's business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including all supplies and embedded
software.
“Investment Property”
means all “investment property” as such term is defined in the Code now owned or
hereafter acquired by any Credit Party, wherever located, including (i) all
securities, whether certificated or uncertificated, including stocks, bonds,
interests in limited liability companies, partnership interests, treasuries,
certificates of deposit, and mutual fund shares; (ii) all securities
entitlements of any Credit Party, including the rights of such Credit
Party to any securities account and the financial assets held by a securities
intermediary in such securities account and any free credit balance or other
money owing by any securities intermediary with respect to that account; (iii)
all securities accounts of any Credit Party; (iv) all commodity contracts of any
Credit Party; and (v) all commodity accounts held by any Credit
Party.
“IRC” means the
Internal Revenue Code of 1986, as amended, and any successor statute thereto,
and all regulations promulgated thereunder.
“IRS” means the
Internal Revenue Service.
“Kahala Management
Agreement” means that certain Management Agreement, dated as of February
21, 2008, by and between Borrower and Consolidated Amusement Theatres, Inc., a
Hawaii corporation, in form and substance reasonably satisfactory to
Agent.
“L/C Issuer” has the
meaning ascribed to it in Annex B.
“L/C Sublimit” has the
meaning ascribed to it in Annex B.
“Lease Expense” means,
with respect to any Person for any fiscal period, the aggregate rental
obligations of such Person determined in accordance with GAAP which are payable
in respect of such period under leases of real or personal property (net of
income from
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subleases
thereof, but including taxes, insurance, maintenance and similar expenses that
the lessee is obligated to pay under the terms of such leases), whether or not
such obligations are reflected as liabilities or commitments on a consolidated
balance sheet of such Person or in the notes thereto, excluding, however, any
such obligations under Capital Leases.
“Lenders” means
(a) GE Capital, the other Lenders named on the signature pages of the
Agreement, any Additional Lenders, and, if any such Lender shall decide to
assign all or any portion of the Obligations, such term shall include any
assignee of such Lender and (b) solely for the purpose of obtaining the benefit
of the Liens granted to the Agent for the benefit of the Lenders under the
Collateral Documents, a Person to whom any Obligations in respect of a Secured
Rate Contract are owed. For the avoidance of doubt, any Person to
whom any Obligations in respect of a Secured Rate Contract are owed and which
does not hold any Loans or Commitments shall not be entitled to any other rights
as a “Lender” under this Agreement or any other Loan Document.
“Letter of Credit Fee”
has the meaning ascribed to it in Annex B.
“Letter of Credit
Obligations” means all outstanding obligations incurred by Agent and
Lenders at the request of Borrower, whether direct or indirect, contingent or
otherwise, due or not due, in connection with the issuance of Letters of Credit
by Agent or another L/C Issuer or the purchase of a participation as set forth
in Annex B with
respect to any Letter of Credit. The amount of such Letter of Credit
Obligations shall equal the maximum amount that may be payable by Agent or
Lenders thereupon or pursuant thereto.
“Letters of Credit”
means documentary or standby letters of credit issued for the account of
Borrower by any L/C Issuer, and bankers’ acceptances issued by Borrower, for
which Agent and Lenders have incurred Letter of Credit Obligations.
“Letter-of Credit
Rights” means “letter-of-credit rights” as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, including rights to
payment or performance under a letter of credit, whether or not such Credit
Party, as beneficiary, has demanded or is entitled to demand payment or
performance.
“Leverage Ratio”
means, with respect to Borrower, on a consolidated basis, the ratio of (a) Total
Debt as of any date of determination (including the average daily closing
balance of the Revolving Loan for the thirty (30) days preceding and including
any date of determination), to (b) EBITDA.
“LIBOR Business Day”
means a Business Day on which banks in the City of London are generally open for
interbank or foreign exchange transactions.
“LIBOR Loan” means a
Loan or any portion thereof bearing interest by reference to the LIBOR
Rate.
“LIBOR Period” means,
with respect to any LIBOR Loan, each period commencing on a LIBOR Business Day
selected by Borrower pursuant to the Agreement and ending one, two, three or six
months thereafter, as selected by Borrower's irrevocable notice to
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Agent as
set forth in Section
1.5(e); provided, that the
foregoing provision relating to LIBOR Periods is subject to the
following:
(a) if
any LIBOR Period would otherwise end on a day that is not a LIBOR Business Day,
such LIBOR Period shall be extended to the next succeeding LIBOR Business Day
unless the result of such extension would be to carry such LIBOR Period into
another calendar month in which event such LIBOR Period shall end on the
immediately preceding LIBOR Business Day;
(b) [reserved]
(c) any
LIBOR Period that begins on the last LIBOR 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 LIBOR Period) shall end on the last LIBOR Business Day
of a calendar month;
(d) Borrower
shall select LIBOR Periods so as not to require a payment or prepayment of any
LIBOR Loan during a LIBOR Period for such Loan; and
(e) Borrower
shall select LIBOR Periods so that there shall be no more than 6 separate LIBOR
Loans in existence at any one time.
“LIBOR Rate” means for
each LIBOR Period, a rate of interest determined by Agent equal to:
(a) the
offered rate for deposits in United States Dollars for the applicable LIBOR
Period that appears on Reuters Screen LIBOR01 Page as of 11:00 a.m. (London
time), on the second full LIBOR Business Day next preceding the first day of
such LIBOR Period (unless such date is not a LIBOR Business Day, in which event
the next succeeding LIBOR Business Day will be used); divided by
(b) a
number equal to 1.0 minus the aggregate
(but without duplication) of the rates (expressed as a decimal fraction) of
reserve requirements in effect on the day that is two (2) LIBOR Business Days
prior to the beginning of such LIBOR Period (including basic, supplemental,
marginal and emergency reserves under any regulations of the Federal Reserve
Board or other Governmental Authority having jurisdiction with respect thereto,
as now and from time to time in effect) for Eurocurrency funding (currently
referred to as “Eurocurrency Liabilities” in Regulation D of the Federal Reserve
Board that are required to be maintained by a member bank of the Federal Reserve
System.
If such
interest rates shall cease to be available from Reuters, the LIBOR Rate shall be
determined from such financial reporting service or other information as shall
be mutually acceptable to Agent and Borrower.
“License” means any
Copyright License, Patent License, Trademark License or other license of rights
or interests now held or hereafter acquired by any Credit Party.
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“Lien” means any
mortgage, deed of trust, deed to secure debt, pledge, hypothecation, collateral
assignment, deposit arrangement, lien, charge, security interest, easement or
encumbrance, or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any lease or title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any
financing statement perfecting a security interest under the Code or comparable
law of any jurisdiction).
“Litigation” has the
meaning ascribed to it in Section
3.13.
“Loan Account” has the
meaning ascribed to it in Section
1.12.
“Loan Documents” means
the Agreement, the Notes, the Collateral Documents, the Master Standby
Agreement, the GE Fee Capital Letter, and all other agreements, instruments,
documents and certificates identified in the Closing Checklist executed and
delivered to, or in favor of, Agent or any Lenders and including all other
pledges, powers of attorney, consents, assignments, contracts, notices, letter
of credit agreements and all other written matter whether heretofore, now or
hereafter executed by or on behalf of any Credit Party, or any employee of any
Credit Party, and delivered to Agent or any Lender in connection with the
Agreement or the transactions contemplated thereby. Any reference in
the Agreement or any other Loan Document to a Loan Document shall include all
appendices, exhibits or schedules thereto, and all amendments, restatements,
supplements or other modifications thereto, and shall refer to the Agreement or
such Loan Document as the same may be in effect at any and all times such
reference becomes operative.
“Loans” means the
Revolving Loan and the Term Loan B.
“Loan to Contributed Capital
Ratio” means as of any date of determination, the outstanding principal
amount of Loans as of such date divided by the amount of Contributed Capital as
of such date.
“Lock Boxes” has the
meaning ascribed to it in Annex C.
“Manville Theatre
Contribution” means the contribution of the theater located at 180 N.
Main Street, Manville, New Jersey, by Reading to Holdings and thereafter by
Holdings to Borrower on the Closing Date pursuant to the Manville Theatre
Contribution Documents.
“Manville Theatre
Contribution Documents” means (i) that certain Unanimous Written Consent
of Reading International, Inc., dated on or about the date hereof, (ii) that
certain Joint Unanimous Written Consent of Directors and Sole Shareholder of
Citadel Cinemas, Inc., dated on or about the date hereof, (iii) that certain
Joint Unanimous Written Consent of Directors and Sole Shareholder of Reading
International Services Company, dated on or about the date hereof, (iv) that
certain Joint Unanimous Written Consent of Directors and Sole Shareholder of
Reading Consolidated Holdings, Inc., dated on or about the date hereof, and (v)
that certain Joint Unanimous Written Consent of Directors and Sole Shareholder
of Consolidated Amusement Holdings, Inc., dated on or about the date
hereof.
“Margin Stock” has the
meaning ascribed to it in Section
3.10.
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“Master Standby
Agreement” means the Master Agreement for Standby Letters of Credit dated
as of the Closing Date between Borrower, as Applicant, and GE Capital, as
Issuer.
“Material Adverse
Effect” means a material adverse effect on (a) the business, assets,
operations, or financial or other condition of the Credit Parties taken as a
whole, (b) Borrower's ability to pay any of the Loans or any of the other
Obligations in accordance with the terms of the Agreement or the other Loan
Documents, or the ability of the Credit Parties to perform their obligations
under the Loan Documents, (c) the Collateral or Agent's Liens, on behalf of
itself and Lenders, on the Collateral or the priority of such Liens, or (d)
Agent's or any Lender's rights and remedies under the Agreement and the other
Loan Documents. Without limiting the generality of the foregoing, any
event or occurrence adverse to one or more Credit Parties which results or could
reasonably be expected to result in losses, costs, damages, liabilities or
expenditures in excess of $1,500,000 shall constitute a Material Adverse
Effect.
“Material Contracts”
means any agreement or arrangement to which any Credit Party is a party (other
than the Loan Documents) (a) for which breach, termination, nonperformance
or failure to renew could reasonably be expected to have a Material Adverse
Effect; or (b) that relates to Indebtedness in an
aggregate principal amount of $500,000 or more.
“Maximum Amount”
means, as of any date of determination, an amount equal to the Revolving Loan
Commitment of all Lenders as of that date.
“Mortgaged Properties”
has the meaning assigned to it in Annex D.
“Mortgages” means each
of the mortgages, deeds of trust, deed to secure debt, leasehold mortgages,
leasehold deeds of trust, collateral assignments of leases or other real estate
security documents delivered by any Credit Party to Agent on behalf of itself
and Lenders with respect to the Mortgaged Properties, all in form and substance
reasonably satisfactory to Agent.
“Multiemployer Plan”
means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA, and to
which any Credit Party or ERISA Affiliate is making, is obligated to make or has
made or been obligated to make, contributions on behalf of participants who are
or were employed by any of them.
“Non-Funding Lender”
has the meaning ascribed to it in Section
9.9(a)(ii).
“Notes” means,
collectively, the Revolving Notes and the Term B Notes.
“Notice of
Conversion/Continuation” has the meaning ascribed to it in Section
1.5(e).
“Notice of Revolving Credit
Advance” has the meaning ascribed to it in Section
1.1(a).
“Obligations” means
all loans, advances, debts, liabilities and obligations for the performance of
covenants, tasks or duties or for payment of monetary amounts (whether or not
such performance is then required or contingent, or such amounts are liquidated
or determinable)
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owing by
any Credit Party to Agent, any Lender or any Secured Swap Provider, and all
covenants and duties regarding such amounts, of any kind or nature, present or
future, whether or not evidenced by any note, agreement, letter of credit
agreement or other instrument, arising under the Agreement, any of the other
Loan Documents or any Secured Rate Contract. This term includes all
principal, interest (including all interest that accrues after the commencement
of any case or proceeding by or against any Credit Party in bankruptcy, whether
or not allowed in such case or proceeding), Fees, hedging obligations under
swaps, caps and collar arrangements provided by any Lender in accordance with
the terms of the Agreement, expenses, attorneys’ fees and any other sum
chargeable to any Credit Party under the Agreement, any of the other Loan
Documents or any Secured Rate Contract.
“Patent License” means
rights under any written agreement now owned or hereafter acquired by any Credit
Party granting any right with respect to any invention on which a Patent is in
existence.
“Patent Security
Agreements” means the Patent Security Agreements made in favor of Agent,
on behalf of itself and Lenders, by each applicable Credit Party.
“Patents” means all of
the following in which any Credit Party now holds or hereafter acquires any
interest: (a) all letters patent of the United States or any other country, all
registrations and recordings thereof, and all applications for letters patent of
the United States or of any other country, including registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State or any other country,
and (b) all reissues, continuations, continuations-in-part or extensions
thereof.
“PBGC” means the
Pension Benefit Guaranty Corporation.
“Pension Plan” means a
Plan described in Section 3(2) of ERISA.
“Permitted
Encumbrances” means the following encumbrances: (a) Liens for taxes or
assessments or other governmental Charges not yet delinquent or that remain
payable without penalty or which are being contested in accordance with Section 5.2(b); (b)
pledges or deposits of money securing statutory obligations under workmen's
compensation, unemployment insurance, social security or public liability laws
or similar legislation (excluding Liens under ERISA); (c) pledges or deposits of
money securing bids, tenders, contracts (other than contracts for the
payment of money) or leases to which any Credit Party is a party as lessee made
in the ordinary course of business; (d) workers', mechanics' or
similar liens arising in the ordinary course of business, so long as such Liens
attach only to Equipment, Fixtures and/or Real Estate; (e) carriers',
warehousemen's, suppliers' or other similar possessory liens arising in the
ordinary course of business the assets in the possession of the beneficiary of
such liens; (f) deposits securing, or in lieu of, surety, appeal or customs
bonds in proceedings to which any Credit Party is a party; (g) any attachment or
judgment lien not constituting an Event of Default under Section 8.1(i) so
long as any such attachment or judgment lien is subordinate to the Agent’s
Liens; (h) zoning restrictions, easements, licenses, or other restrictions on
the use of any Real Estate or other minor irregularities in title (including
leasehold title) thereto, so long as the same do not materially impair the use,
value, or marketability of such Real Estate; (i) presently existing or hereafter
created Liens in favor of Agent, on behalf of Lenders; (j) Liens expressly
permitted
A-21
under
clauses (b) and
(c) of Section
6.7 of the Agreement; (k) Liens arising under leases, subleases, licenses
and rights to use granted to third parties and not interfering in any material
respect with the ordinary conduct of the business of the Credit Parties; (l) any
(1) interest or title of a lessor or sublessor under any lease not prohibited by
this Agreement, (2) Lien or restriction that the interest or title of such
lessor or sublessor may be subject to, or (3) subordination of the interest of
the lessee or sublessee under such lease to any Lien or restriction referred to
in the preceding clause (2), so long as the holder of such Lien or restriction
agrees to recognize the rights of such lessee or sublessee under such lease; (m)
non-material Liens described on a title report delivered in connection with a
Mortgage required to be delivered hereunder, so long as such Liens do not
secured Funded Debt; and (n) Liens arising solely by virtue of any statutory or
common law provision relating to banker’s liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained with a
creditor depository institution.
“Permitted Tax
Distributions” shall mean, for any period in which Holdings and Borrower
are part of a group filing consolidated or combined federal, state and/or local
income tax returns of which a direct or indirect parent of Holdings is the
common parent, payments, dividends or distributions by Borrower to Holdings and
by Holdings to its parent company to permit the parent of such group to pay the
share of consolidated or combined federal, state or local income taxes
attributable to the income of Holdings, Borrower and/or its Subsidiaries (as the
case may be); provided that such payments are not in excess of the aggregate of
the maximum U.S. federal, state and local income tax liability of Holdings,
Borrower and their Subsidiaries (assuming that each is taxed at the maximum
permissible U.S. federal and applicable state and local rates, computed in
accordance with the Code as though each of Holdings, Borrower and their
Subsidiaries had filed a separate return.
“Person” means any
individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, limited liability
company, institution, public benefit corporation, other entity or government
(whether federal, state, county, city, municipal, local, foreign, or otherwise,
including any instrumentality, division, agency, body or department
thereof).
“Plan” means, at any
time, an “employee benefit plan,” as defined in Section 3(3) of ERISA, that any
Credit Party or ERISA Affiliate maintains, contributes to or has an obligation
to contribute to on behalf of participants who are or were employed by any
Credit Party or ERISA Affiliate.
“Pledge Agreements”
means the Borrower Pledge Agreement, the Holdings Pledge Agreement, and
any other pledge agreement entered into after the Closing Date by any Credit
Party (as required by the Agreement or any other Loan Document).
“Prior Lender” means
Bank of America, N.A.
“Prior Lender
Obligations” means those certain obligations owing to the Prior Lender as
of the date hereof.
“Proceeds” means
“proceeds,” as such term is defined in the Code, including (a) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to any Credit
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Party
from time to time with respect to any of the Collateral, (b) any and all
payments (in any form whatsoever) made or due and payable to any Credit Party
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
Governmental Authority (or any Person acting under color of governmental
authority), (c) any claim of any Credit Party against third parties (i) for
past, present or future infringement of any Patent or Patent License,
or (ii) for past, present or future infringement or dilution of any
Copyright, Copyright License, Trademark or Trademark License, or for injury to
the goodwill associated with any Trademark or Trademark License, (d) any
recoveries by any Credit Party against third parties with respect to any
litigation or dispute concerning any of the Collateral including claims arising
out of the loss or nonconformity of, interference with the use of, defects in,
or infringement of rights in, or damage to, Collateral, (e) all amounts
collected on, or distributed on account of, other Collateral, including
dividends, interest, distributions and Instruments with respect to Investment
Property and pledged Stock, and (f) any and all other amounts, rights to
payment or other property acquired upon the sale, lease, license, exchange or
other disposition of Collateral and all rights arising out of
Collateral.
“Pro Forma” means the
unaudited consolidated balance sheet of Borrower and its Subsidiaries as of
January 1, 2008 after giving pro forma effect to the
Related Transactions.
“Projections” means
Borrower's forecasted consolidated: (a) profit and loss statements;
(b) cash flow statements; and (c) capitalization statements, all prepared on a
Subsidiary by Subsidiary or theatre by theatre basis, if applicable, and
otherwise consistent with the historical Financial Statements of Sellers with
respect to the Acquired Theatres and Reading with respect to the Manville
Theatre and the Dallas Theatre, together with appropriate supporting details and
a statement of underlying assumptions.
“Pro Rata Share” means
with respect to all matters relating to any Lender (a) with respect to the
Revolving Loan, the percentage obtained by dividing (i) the Revolving Loan
Commitment of that Lender by (ii) the aggregate Revolving Loan Commitments of
all Lenders, (b) with respect to the Term Loan B, the percentage obtained by
dividing (i) the Term Loan B Commitment of that Lender by (ii) the aggregate
Term Loan B Commitments of all Lenders, as any such percentages may be adjusted
by assignments permitted pursuant to Section 9.1, (c) with
respect to all Loans, the percentage obtained by dividing (i) the aggregate
Commitments of that Lender by (ii) the aggregate Commitments of all Lenders, and
(d) with respect to all Loans on and after the Commitment Termination Date, the
percentage obtained by dividing (i) the aggregate outstanding principal balance
of the Loans held by that Lender, by (ii) the outstanding principal balance of
the Loans held by all Lenders.
“Qualified Plan” means
a Pension Plan that is intended to be tax-qualified under Section 401(a) of the
IRC.
“Rate Contracts” means
swap agreements (as such term is defined in Section 101 of the Bankruptcy Code)
and any other agreements or arrangements designed to provide protection against
fluctuations in interest or currency exchange rates.
“Reading” means
Reading International, Inc., a Nevada corporation.
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“Reading Guaranty”
means the guaranty of even date herewith executed by Reading in favor of Agent
and Lenders.
“Reading Management
Agreement” means that certain Management Agreement, dated as of May 30,
2007 by and between Borrower and Reading, in form and substance reasonably
satisfactory to Agent.
“Reading Note” means
that certain Promissory Note, dated as of February 22, 2008, in the principal
amount of $21,000,000 made by Reading in favor of Nationwide Theatres Corp., as
be amended from time to time in accordance with the terms hereof.
“Real Estate” has the
meaning ascribed to it in Section
3.6.
“Register” has the
meaning ascribed to it in Section
1.9(h).
“Related Transactions”
means the initial borrowing under the Revolving Loan, if any, and the Term Loan
B on the Closing Date, consummation of the Acquisition, the Closing Date Equity
Contribution, Manville Theatre Contribution, the Dallas Theatre Contribution,
the payment of all fees, costs and expenses associated with all of the foregoing
and the execution and delivery of all of the Related Transactions
Documents.
“Related Transactions
Documents” means the Loan Documents, the Acquisition Agreement, the
Manville Theatre Contribution Documents, the Dallas Theatre Contribution
Documents, the Unanimous Written Consent of the Board of Directors of Reading
Consolidated Holdings, Inc., dated on or about the date hereof, and the
Unanimous Written Consent of the Board of Directors of Consolidated Amusement
Holdings, Inc., dated on or about the date hereof, and all other agreements or
instruments executed in connection with the Related Transactions.
“Release” means any
release, threatened release, spill, emission, leaking, pumping, pouring,
emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Material in the indoor or outdoor
environment, including the movement of Hazardous Material through or in the air,
soil, surface water, ground water or property.
“Requirements of Law”
means, with respect to any Person, collectively, the common law and all federal,
state, local, foreign, multinational or international laws, statutes, codes,
treaties, standards, rules and regulations, guidelines, ordinances, orders,
judgments, writs, injunctions, decrees (including administrative or judicial
precedents or authorities) and the interpretation or administration thereof by,
and other determinations, directives, requirements or requests of, any
Governmental Authority, in each case whether or not having the force of law and
that are applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
“Requisite Lenders”
means Lenders having (a) more than 50% of the Commitments of all Lenders,
or (b) if the Commitments have been terminated, more than 50% of the aggregate
outstanding amount of the Loans.
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“Requisite Revolving
Lenders” means Lenders having (a) more than 50% of the Revolving
Loan Commitments of all Lenders, or (b) if the Revolving Loan Commitments have
been terminated, more than 50% of the aggregate outstanding amount of the
Revolving Loan.
“Responsible Financial
Officer” means the Borrower’s chief financial officer.
“Responsible Officer”
means the Borrower’s chief executive officer, chief operating officer or chief
financial officer.
“Restricted Payment”
means, with respect to any Credit Party (a) the declaration or payment of
any dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets in respect of Stock; (b) any
payment on account of the purchase, redemption, defeasance, sinking fund or
other retirement of such Credit Party's Stock or any other payment or
distribution made in respect thereof, either directly or indirectly; (c) any
payment or prepayment of principal of, premium, if any, or interest, fees or
other charges on or with respect to, and any redemption, purchase, retirement,
defeasance, sinking fund or similar payment and any claim for rescission with
respect to, any subordinated debt; (d) any payment made to redeem, purchase,
repurchase or retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire Stock of such Credit Party now or hereafter
outstanding; (e) any payment of a claim for the rescission of the purchase or
sale of, or for material damages arising from the purchase or sale of, any
shares of such Credit Party's Stock or of a claim for reimbursement,
indemnification or contribution arising out of or related to any such claim for
damages or rescission; (f) any payment, loan, contribution, or other transfer of
funds or other property to any Stockholder of such Credit Party other than
payment of compensation in the ordinary course of business to Stockholders who
are employees of such Credit Party; and (g) any payment of management fees (or
other fees of a similar nature) by such Credit Party to any Stockholder of such
Credit Party or its Affiliates.
“Retiree Welfare Plan”
means, at any time, a Welfare Plan that provides for continuing coverage or
benefits for any participant or any beneficiary of a participant after such
participant's termination of employment, other than continuation coverage
provided pursuant to Section 4980B of the IRC and at the sole expense of the
participant or the beneficiary of the participant.
“Revolving Credit
Advance” has the meaning ascribed to it in Section
1.1(a)(i).
“Revolving Lenders”
means, as of any date of determination, Lenders having a Revolving Loan
Commitment.
“Revolving Loan”
means, at any time, the sum of (i) the aggregate amount of Revolving Credit
Advances outstanding to Borrower plus (ii) the
aggregate Letter of Credit Obligations incurred on behalf of
Borrower. Unless the context otherwise requires, references to the
outstanding principal balance of the Revolving Loan shall include the
outstanding balance of Letter of Credit Obligations.
“Revolving Loan
Commitment” means (a) as to any Revolving Lender, the aggregate
commitment of such Revolving Lender to make Revolving Credit Advances or incur
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Letter of
Credit Obligations as set forth on Annex J to the
Agreement or in the most recent Assignment Agreement executed by such Revolving
Lender and (b) as to all Revolving Lenders, the aggregate commitment of all
Revolving Lenders to make Revolving Credit Advances or incur Letter of Credit
Obligations, which aggregate commitment shall be Five Million Dollars and No/100
($5,000,000) on the Closing Date, as such amount may be adjusted, if at all,
from time to time in accordance with the Agreement.
“Revolving Note” has
the meaning ascribed to it in Section 1.1(a)(ii).
“Sale” has the meaning
ascribed to it in Section
9.1(h).
“Security Agreement”
means the Security Agreement of even date herewith entered into by and among
Agent, on behalf of itself and Lenders, and each Credit Party that is a
signatory thereto.
“Secured Rate
Contract” means any Rate Contract between Borrower and a Secured Swap
Provider.
“Secured Swap
Provider” means (i) a Lender or an Affiliate of a Lender (or a Person who
was a Lender or an Affiliate of a Lender at the time of execution and delivery
of a Rate Contract) who has entered into a Secured Rate Contract with Borrower,
or (ii) a Person with whom Borrower has entered into a Secured Rate Contract
provided or arranged by GE Capital or an Affiliate of GE Capital, and any
assignee thereof.
“Sellers” means
collectively, Pacific Theaters Exhibition Corp., a California corporation, and
Consolidated Amusement Theaters, Inc., a Hawaii corporation.
“Software” means all
“software” as such term is defined in the Code, now owned or hereafter acquired
by any Credit Party, other than software embedded in any category of Goods,
including all computer programs and all supporting information provided in
connection with a transaction related to any program.
“Solvent” means, with
respect to any Person on a particular date, that on such date (a) the fair value
of the property of such Person is greater than the total amount of liabilities,
including contingent liabilities, of such Person; (b) the present fair salable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured; (c) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature; and (d) such Person is not engaged in
a business or transaction, and is not about to engage in a business or
transaction, for which such Person's property would constitute an unreasonably
small capital. The amount of contingent liabilities (such as
litigation, guaranties and pension plan liabilities) at any time shall be
computed as the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can reasonably be expected to
become an actual or matured liability.
“SPV” means any
special purpose-funding vehicle identified as such in a writing by any Lender to
Agent.
A-26
“Stock” means all
shares, options, warrants, general or limited partnership interests, membership
interests or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including common stock, preferred stock or any other
“equity security” (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934).
“Stockholder” means,
with respect to any Person, each holder of Stock of such Person.
“Subsidiary” means,
with respect to any Person, (a) any corporation of which an aggregate of more
than 50% of the outstanding Stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether,
at the time, Stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency) is at
the time, directly or indirectly, owned legally or beneficially by such Person
or one or more Subsidiaries of such Person, or with respect to which any such
Person has the right to vote or designate the vote of 50% or more of such Stock
whether by proxy, agreement, operation of law or otherwise, and (b) any
partnership or limited liability company in which such Person and/or one or more
Subsidiaries of such Person shall have an interest (whether in the form of
voting or participation in profits or capital contribution) of more than 50% or
of which any such Person is a general partner or may exercise the powers of a
general partner. Unless the context otherwise requires, each
reference to a Subsidiary shall be a reference to a Subsidiary of the
Borrower.
“Subsidiary Guaranty”
means the Subsidiary Guaranty of even date herewith executed by each Subsidiary
of Borrower in favor of Agent, on behalf of itself and Lenders.
“Supporting
Obligations” means all “supporting obligations” as such term is defined
in the Code, including letters of credit and guaranties issued in support of
Accounts, Chattel Paper, Documents, General Intangibles, Instruments, or
Investment Property.
"Target" has the
meaning ascribed to it in Section
6.1.
“Taxes” means taxes,
levies, imposts, deductions, Charges or withholdings, and all liabilities with
respect thereto, excluding taxes imposed on or measured by the net income of
Agent or a Lender by the jurisdictions under the laws of which Agent and Lenders
are organized or conduct business or any political subdivision
thereof.
“Termination Date”
means the date on which (a) the Loans have been repaid in full,
(b) all other Obligations under the Agreement and the other Loan Documents
have been completely discharged, (c) all Letter of Credit Obligations have
been cash collateralized, cancelled or backed by standby letters of credit in
accordance with Annex
B, and (d) Borrower shall not have any further right to borrow any
monies under the Agreement.
“Term Lenders” means
those Lenders having Term Loan B Commitments.
“Term Loan B” has the
meaning assigned to it in Section
1.1(b)(i).
A-27
“Term Loan B
Commitment” means (a) as to any Lender with a Term Loan B Commitment, the
commitment of such Lender to make its Pro Rata Share of the Term Loan as set
forth on Annex J to the
Agreement or in the most recent Assignment Agreement executed by such Lender,
and (b) as to all Lenders with a Term Loan B Commitment, the aggregate
commitment of all Lenders to make the Term Loan, which aggregate commitment
shall be Fifty Million Dollars and No/100 ($50,000,000) on the Closing
Date. After advancing the Term Loan B, each reference to a Lender's
Term Loan B Commitment shall refer to that Lender's Pro Rata Share of the
outstanding Term Loan B.
“Term B Note” has the
meaning assigned to it in Section
1.1(b)(i).
“Theater Acquisition”
means, whether in a single transaction or a series of transactions, (a) any
purchase, lease, assumption of lease or other acquisition of, or any payment,
cash outlay, expense, expenditure or Capital Expenditure in respect of the
purchase or other acquisition of, an existing movie theater or cinema; (b) any
purchase, lease, assumption of lease or other acquisition of any Real Property
for the purpose of developing, building, or constructing any movie theater,
complex (whether single or multiple viewing screens) or cinema or (c) the
development, building or construction of any movie theater, complex (whether
single or multiple viewing screens) or cinema at any location where a movie
theater did not exist immediately prior to the commencement of such development,
building or construction.
“Theatre Lease” means,
with respect to any Person, any lease of any property (whether real, personal or
mixed) by such Person for the purpose of operating a movie theater.
“Title IV Plan” means
a Pension Plan (other than a Multiemployer Plan), that is covered by Title IV of
ERISA, and that any Credit Party or ERISA Affiliate maintains, contributes to or
has an obligation to contribute to on behalf of participants who are or were
employed by any of them.
“Total Debt” means,
with respect to any Person, all Indebtedness of such Person as of the date of
determination (excluding therefrom (a) Indebtedness described in clauses (f) and
(g) of the definition of Indebtedness and (b) all operating
leases).
“Trademark Security
Agreements” means the Trademark Security Agreements made in favor of
Agent, on behalf of Lenders, by each applicable Credit Party.
“Trademark License”
means rights under any written agreement now owned or hereafter acquired by any
Credit Party granting any right to use any Trademark.
“Trademarks” means all
of the following now owned or hereafter adopted or acquired by any Credit Party:
(a) all trademarks, trade names, corporate names, business names, trade styles,
service marks, logos, other source or business identifiers, prints and labels on
which any of the foregoing have appeared or appear, designs and general
intangibles of like nature (whether registered or unregistered), all
registrations and recordings thereof, and all applications in connection
therewith, including registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any state or territory thereof, or any other country or any
political subdivision thereof; (b) all reissues,
A-28
extensions
or renewals thereof; and (c) all goodwill associated with or symbolized by any
of the foregoing.
“Unfunded Pension
Liability” means, at any time, the aggregate amount, if any, of the sum
of (a) the amount by which the present value of all accrued benefits under each
Title IV Plan exceeds the fair market value of all assets of such Title IV Plan
allocable to such benefits in accordance with Title IV of ERISA, all determined
as of the most recent valuation date for each such Title IV Plan using the
actuarial assumptions for funding purposes in effect under such Title IV Plan,
and (b) for a period of five (5) years following a transaction which might
reasonably be expected to be covered by Section 4069 of ERISA, the liabilities
(whether or not accrued) that could be avoided by any Credit Party or any ERISA
Affiliate as a result of such transaction.
“Welfare Plan” means a
Plan described in Section 3(i) of ERISA.
“Working Capital”
means the average of Borrower's Current Assets less Current Liabilities for the
first three months of each Fiscal Year compared to the average of Borrower's
Current Assets less Current Liabilities for the last three months of such Fiscal
Year.
Rules of
construction with respect to accounting terms used in the Agreement or the other
Loan Documents shall be as set forth in Annex
G. All other undefined terms contained in any of the Loan
Documents shall, unless the context indicates otherwise, have the meanings
provided for by the Code to the extent the same are used or defined therein; in
the event that any term is defined differently in different Articles or
Divisions of the Code, the definition contained in Article or Division 9 shall
control. Unless otherwise specified, references in the Agreement or
any of the Appendices to a Section, subsection or clause refer to such Section,
subsection or clause as contained in the Agreement. The words
“herein,” “hereof” and “hereunder” and other words of similar import refer to
the Agreement as a whole, including all Annexes, Exhibits and Schedules, as the
same may from time to time be amended, restated, modified or supplemented, and
not to any particular section, subsection or clause contained in the Agreement
or any such Annex, Exhibit or Schedule.
Wherever
from the context it appears appropriate, each term stated in either the singular
or plural shall include the singular and the plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, feminine and
neuter genders. The words “including”, “includes” and “include” shall
be deemed to be followed by the words “without limitation”; the word “or” is not
exclusive; references to Persons include their respective successors and assigns
(to the extent and only to the extent permitted by the Loan Documents) or, in
the case of governmental Persons, Persons succeeding to the relevant functions
of such Persons; and all references to statutes and related regulations shall
include any amendments of the same and any successor statutes and
regulations. Whenever any provision in any Loan Document refers to
the knowledge (or an analogous phrase) of any Credit Party, such words are
intended to signify that such Credit Party has actual knowledge or awareness of
a particular fact or circumstance or that such Credit Party, if it had exercised
reasonable diligence, would have known or been aware of such fact or
circumstance.
A-29
ANNEX
B (Section
1.2)
to
CREDIT
AGREEMENT
LETTERS OF
CREDIT
(a) Issuance. Subject to
the terms and conditions of the Agreement, Agent and Revolving Lenders agree to
incur, from time to time prior to the Commitment Termination Date, upon the
request of Borrower and for Borrower's account, Letter of Credit Obligations by
causing Letters of Credit to be issued by GE Capital or a Subsidiary thereof or
a bank or other legally authorized Person selected by or acceptable to Agent in
its sole discretion (each, an “L/C Issuer”) for
Borrower's account and guaranteed by Agent; provided, that if the
L/C Issuer is a Revolving Lender, then such Letters of Credit shall not be
guaranteed by Agent but rather each Revolving Lender shall, subject to the terms
and conditions hereinafter set forth, purchase (or be deemed to have purchased)
risk participations in all such Letters of Credit issued with the written
consent of Agent, as more fully described in paragraph (b)(ii) below. The
aggregate amount of all such Letter of Credit Obligations shall not at any time
exceed the lesser of (i) One Million Dollars and No/100 ($1,000,000) (the “L/C Sublimit”), and
(ii) the Maximum Amount less the aggregate outstanding principal balance of
the Revolving Credit Advances. No such Letter of Credit shall have an
expiry date that is more than one year following the date of issuance thereof,
unless otherwise determined by Agent in its sole discretion (including with
respect to customary evergreen provisions), and neither Agent nor Revolving
Lenders shall be under any obligation to incur Letter of Credit Obligations in
respect of, or purchase risk participations in, any Letter of Credit having an
expiry date that is later than the Commitment Termination Date.
(b)(i) Advances Automatic;
Participations. In the event that Agent or any Revolving
Lender shall make any payment on or pursuant to any Letter of Credit Obligation,
such payment shall then be deemed automatically to constitute a Revolving Credit
Advance under Section
1.1(a) of the Agreement regardless of whether a Default or Event of
Default has occurred and is continuing and notwithstanding Borrower's failure to
satisfy the conditions precedent set forth in Section 2, and each
Revolving Lender shall be obligated to pay its Pro Rata Share thereof in
accordance with the Agreement. The failure of any Revolving Lender to
make available to Agent for Agent's own account its Pro Rata Share of any such
Revolving Credit Advance or payment by Agent under or in respect of a Letter of
Credit shall not relieve any other Revolving Lender of its obligation hereunder
to make available to Agent its Pro Rata Share thereof, but no Revolving Lender
shall be responsible for the failure of any other Revolving Lender to make
available such other Revolving Lender's Pro Rata Share of any such
payment.
(ii) If
it shall be illegal or unlawful for Borrower to incur Revolving Credit Advances
as contemplated by paragraph (b)(i) above because of an Event of Default
described in Sections
8.1(g) or (h) or otherwise or if it shall be illegal or unlawful for any
Revolving Lender to be deemed to have assumed a ratable share of the
reimbursement obligations owed to an L/C Issuer, or if the L/C Issuer is a
Revolving Lender, then (A) immediately and without further action whatsoever,
each Revolving Lender shall be deemed to have irrevocably and unconditionally
purchased from Agent (or such L/C Issuer, as the case may be) an undivided
interest and participation equal to such Revolving Lender's Pro Rata Share
(based on the Revolving Loan Commitments) of the Letter of Credit Obligations in
respect of all
B-1
Letters
of Credit then outstanding and (B) thereafter, immediately upon issuance of any
Letter of Credit, each Revolving Lender shall be deemed to have irrevocably and
unconditionally purchased from Agent (or such L/C Issuer, as the case may be) an
undivided interest and participation in such Revolving Lender's Pro Rata Share
(based on the Revolving Loan Commitments) of the Letter of Credit Obligations
with respect to such Letter of Credit on the date of such
issuance. Each Revolving Lender shall fund its participation in all
payments or disbursements made under the Letters of Credit in the same manner as
provided in the Agreement with respect to Revolving Credit
Advances.
(c) Cash
Collateral. (i) If Borrower is required to provide cash
collateral for any Letter of Credit Obligations pursuant to the Agreement,
including Section
8.2 of the Agreement, prior to the Commitment Termination Date, Borrower
will pay to Agent for the ratable benefit of itself and Revolving Lenders cash
or cash equivalents acceptable to Agent (“Cash Equivalents”) in
an amount equal to 105% of the maximum amount then available to be drawn under
each applicable Letter of Credit outstanding. Such funds or Cash
Equivalents shall be held by Agent in a cash collateral account (the “Cash Collateral
Account”) maintained at a bank or financial institution acceptable to
Agent. The Cash Collateral Account shall be in the name of Borrower
and shall be pledged to, and subject to the control of, Agent, for the benefit
of Agent and Lenders, in a manner satisfactory to Agent. Borrower
hereby pledges and grants to Agent, on behalf of itself and Lenders, a security
interest in all such funds and Cash Equivalents held in the Cash Collateral
Account from time to time and all proceeds thereof, as security for the payment
of all amounts due in respect of the Letter of Credit Obligations and other
Obligations, whether or not then due. The Agreement, including this
Annex B, shall
constitute a security agreement under applicable law.
(ii) If
any Letter of Credit Obligations, whether or not then due and payable, shall for
any reason be outstanding on the Commitment Termination Date, Borrower shall
either (A) provide cash collateral therefor in the manner described above, or
(B) cause all such Letters of Credit and guaranties thereof, if any, to be
canceled and returned, or (C) deliver a stand-by letter (or letters) of credit
in guarantee of such Letter of Credit Obligations, which stand-by letter (or
letters) of credit shall be of like tenor and duration (plus thirty (30)
additional days) as, and in an amount equal to 105% of the aggregate maximum
amount then available to be drawn under, the Letters of Credit to which such
outstanding Letter of Credit Obligations relate and shall be issued by a Person,
and shall be subject to such terms and conditions, as are satisfactory to Agent
in its sole discretion.
(iii) From
time to time after funds are deposited in the Cash Collateral Account by
Borrower, whether before or after the Commitment Termination Date, Agent may
apply such funds or Cash Equivalents then held in the Cash Collateral Account to
the payment of any amounts, and in such order as Agent may elect, as shall be or
shall become due and payable by Borrower to Agent and Lenders with respect to
such Letter of Credit Obligations of Borrower and, upon the satisfaction in full
of all Letter of Credit Obligations of Borrower, to any other Obligations then
due and payable.
(iv) Neither
Borrower nor any Person claiming on behalf of or through Borrower shall have any
right to withdraw any of the funds or Cash Equivalents held in the Cash
Collateral Account, except that upon the termination of all Letter of Credit
Obligations and the
B-2
payment
of all amounts payable by Borrower to Agent and Lenders in respect thereof, any
funds remaining in the Cash Collateral Account shall be applied to other
Obligations then due and owing and upon payment in full of such Obligations any
remaining amount shall be paid to Borrower or as otherwise required by
law. Interest earned on deposits in the Cash Collateral Account shall
be held as additional collateral.
(d) Fees and
Expenses. Borrower agrees to pay to Agent for the benefit of
Revolving Lenders, as compensation to such Lenders for Letter of Credit
Obligations incurred hereunder, (i) all reasonable costs and expenses incurred
by Agent or any Lender on account of such Letter of Credit Obligations, and (ii)
for each month during which any Letter of Credit Obligation shall remain
outstanding, a fee (the “Letter of Credit
Fee”) in an amount equal to the Applicable LIBOR Margin from time to time
in effect multiplied by the maximum amount available from time to time to be
drawn under the applicable Letter of Credit. Such fee shall be paid
to Agent for the benefit of the Revolving Lenders in arrears, on the last day of
each quarter and on the Commitment Termination Date. In addition,
Borrower shall pay to any L/C Issuer, on demand, such customary fees (including
all per annum fees), charges and expenses of such L/C Issuer in respect of the
issuance, negotiation, acceptance, amendment, transfer and payment of such
Letter of Credit or otherwise payable pursuant to the application and related
documentation under which such Letter of Credit is issued.
(e) Request for Incurrence of
Letter of Credit Obligations. Borrower shall give Agent at
least two (2) Business Days' prior written notice requesting the incurrence of
any Letter of Credit Obligation. The notice shall be accompanied by
the form of the Letter of Credit (which shall be acceptable to the L/C Issuer)
and a completed Application for Standby Letter of Credit in the form Exhibit B-1 attached
hereto. Notwithstanding anything contained herein to the contrary,
Letter of Credit applications by Borrower and approvals by Agent and the L/C
Issuer may be made and transmitted pursuant to electronic codes and security
measures mutually agreed upon and established by and among Borrower, Agent and
the L/C Issuer.
(f) Obligation
Absolute. The obligation of Borrower to reimburse Agent and
Revolving Lenders for payments made with respect to any Letter of Credit
Obligation shall be absolute, unconditional and irrevocable, without necessity
of presentment, demand, protest or other formalities, and the obligations of
each Revolving Lender to make payments to Agent with respect to Letters of
Credit shall be unconditional and irrevocable. Such obligations of
Borrower and Revolving Lenders shall be paid strictly in accordance with the
terms hereof under all circumstances including the following:
(i) any
lack of validity or enforceability of any Letter of Credit or the Agreement or
the other Loan Documents or any other agreement;
(ii) the
existence of any claim, setoff, defense or other right that Borrower or any of
its Affiliates or any Lender may at any time have against a beneficiary or any
transferee of any Letter of Credit (or any Persons or entities for whom any such
transferee may be acting), Agent, any Lender, or any other Person, whether in
connection with the Agreement, the Letter of Credit, the transactions
contemplated herein or therein or any unrelated transaction (including any
underlying transaction between Borrower or any of its Affiliates and the
beneficiary for which the Letter of Credit was procured);
B-3
(iii) any
draft, demand, certificate or any other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect;
(iv) payment
by Agent (except as otherwise expressly provided in paragraph (g)(ii)(C) below)
or any L/C Issuer under any Letter of Credit or guaranty thereof against
presentation of a demand, draft or certificate or other document that does not
comply with the terms of such Letter of Credit or such guaranty;
(v) any
other circumstance or event whatsoever, that is similar to any of the foregoing;
or
(vi) the
fact that a Default or an Event of Default has occurred and is
continuing.
(g) Indemnification; Nature of
Lenders' Duties.
(i) In
addition to amounts payable as elsewhere provided in the Agreement, Borrower
hereby agrees to pay and to protect, indemnify, and save harmless Agent and each
Lender from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable attorneys' fees and
allocated costs of internal counsel) that Agent or any Lender may incur or be
subject to as a consequence, direct or indirect, of (A) the issuance of any
Letter of Credit or guaranty thereof, or (B) the failure of Agent or any
Lender seeking indemnification or of any L/C Issuer to honor a demand for
payment under any Letter of Credit or guaranty thereof as a result of any act or
omission, whether rightful or wrongful, of any present or future de jure or de
facto government or Governmental Authority, in each case other than to the
extent as a result of the gross negligence or willful misconduct of Agent or
such Lender as finally determined by a court of competent
jurisdiction.
(ii) As
between Agent and any Lender and Borrower, Borrower assumes all risks of the
acts and omissions of, or misuse of any Letter of Credit by beneficiaries of any
Letter of Credit. In furtherance and not in limitation of the
foregoing, to the fullest extent permitted by law neither Agent nor any Lender
shall be responsible for: (A) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document issued by any party in
connection with the application for and issuance of any Letter of Credit, even
if it should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (B) the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, that may prove to be invalid or ineffective for any reason;
(C) failure of the beneficiary of any Letter of Credit to comply fully with
conditions required in order to demand payment under such Letter of Credit;
provided, that
in the case of any payment by Agent under any Letter of Credit or guaranty
thereof, Agent shall be liable to the extent such payment was made solely as a
result of its gross negligence or willful misconduct as finally determined by a
court of competent jurisdiction in determining that the demand for payment under
such Letter of Credit or guaranty thereof complies on its face with any
applicable requirements for a demand for payment under such Letter of Credit or
guaranty thereof; (D) errors, omissions, interruptions or delays in transmission
or delivery of any messages, by mail, cable, telegraph, telex or otherwise,
whether or not they
B-4
may be in
cipher; (E) errors in interpretation of technical terms; (F) any loss or delay
in the transmission or otherwise of any document required in order to make a
payment under any Letter of Credit or guaranty thereof or of the proceeds
thereof; (G) the credit of the proceeds of any drawing under any Letter of
Credit or guaranty thereof; and (H) any consequences arising from causes beyond
the control of Agent or any Lender. None of the above shall affect, impair, or
prevent the vesting of any of Agent's or any Lender's rights or powers hereunder
or under the Agreement.
(iii) Nothing
contained herein shall be deemed to limit or to expand any waivers, covenants or
indemnities made by Borrower in favor of any L/C Issuer in any letter of credit
application, reimbursement agreement or similar document, instrument or
agreement between Borrower and such L/C Issuer, including an Application and
Agreement for Documentary Letter of Credit or a Master Documentary Agreement and
a Master Standby Agreement entered into with Agent.
B-5
ANNEX
C (Section
1.8)
to
CREDIT
AGREEMENT
CASH MANAGEMENT
SYSTEM
Each
Credit Party shall, and shall cause its Subsidiaries to, establish and maintain
the bank account arrangements described below:
(a) On
or before the Closing Date and until the Termination Date, Borrower and each
other Credit Party shall grant and maintain at all times a perfected Lien in all
of its bank accounts, other than its payroll, benefits, trust, petty cash, or
other local collection accounts (so long as the proceeds in such local
collection accounts are wire transferred at least weekly to a Blocked Account
over which Agent has a perfected Lien) or any other deposit account, when taken
together with all such other deposit accounts that are not otherwise the subject
of perfected Lien in favor of the Agent, where the aggregate credit balances in
all such other deposit accounts does not exceed $250,000 at any one time
outstanding (all such non-excluded accounts, the “Blocked Accounts”;
and, such excluded accounts, the “Excluded Accounts”),
to the Agent for the benefit of the Lenders. All Blocked Accounts,
and the banks at which such Blocked Accounts are maintained (each, a “Relationship Bank”)
as of the Closing Date are set forth on Disclosure Schedule
(3.19). Borrower shall, and shall cause each other Credit
Party to, deposit or cause to be deposited promptly, and in any event no later
than the fifth Business Day after the date of receipt thereof, all cash, checks,
drafts or other similar items of payment into one or more Blocked Accounts or
Excluded Accounts.
(b) On
the Closing Date (or such later date as Agent shall consent to in writing), all
Relationship Banks shall have entered into tri-party blocked account agreements
with Agent, for the benefit of itself and Lenders, and Borrower and the other
Credit Parties, as applicable, in form and substance reasonably acceptable to
Agent, which shall become operative on the Closing Date. Each such
blocked account agreement shall provide, among other things, that (i) the
Relationship Bank will honor the instructions of the Agent with respect to all
Blocked Accounts and the funds therein, and not the instructions of the Credit
Parties, except that until the Activation Notice described below is delivered,
Credit Parties shall have access to the funds in the Blocked Accounts, and (ii)
the Relationship Bank executing such agreement has no rights of setoff or
recoupment or any other claim against such account, as the case may be, other
than as expressly set forth in such agreement. If an Event of Default
has occurred and is continuing (any of the foregoing being referred to herein as
an “Activation
Event”), the Agent shall have the right to notify one or more
Relationship Banks that such Relationship Bank should no longer permit the
Credit Parties to have access to the funds in the Blocked Accounts (each such
notice, an “Activation
Notice”), and such notice may authorize the Relationship Banks to
immediately forward all amounts received in the Blocked Account to an account in
the name of Agent or any Lender specified in the Activation Notice or a
subsequent notice from Agent. From and after the date Agent has
delivered an Activation Notice to any bank with respect to any Blocked
Account(s), Borrower shall not, and shall not cause or permit any other Credit
Party to,
C-1
accumulate
or maintain cash in any payroll accounts or other accounts in which the Agent
does not have a perfected Lien as of any date of determination, other than
amounts maintained in the Excluded Accounts.
(d) So
long as no Event of Default has occurred and is continuing, Borrower may amend
Disclosure Schedule
(3.19) to add or replace a Relationship Bank or Blocked Account; provided, that (i)
Agent shall have consented in writing in advance to the opening of such account
with the relevant bank and (ii) prior to the time of the opening of such
account, Borrower or its Subsidiaries, as applicable, and such bank shall have
executed and delivered to Agent a tri-party blocked account agreement, in form
and substance reasonably satisfactory to Agent.
(e) The
Blocked Accounts shall be cash collateral accounts, with all cash, checks and
other similar items of payment in such accounts securing payment of the Loans
and all other Obligations, and in which Borrower and each Subsidiary thereof
shall have granted a Lien to Agent, on behalf of itself and Lenders, pursuant to
the Security Agreement.
(f) All
amounts deposited in the Collection Account shall be deemed received by Agent in
accordance with Section 1.10 and
shall be applied (and allocated) by Agent in accordance with Section
1.11. In no event shall any amount be so applied unless and
until such amount shall have been credited in immediately available funds to the
Collection Account.
(g) Borrower
shall and shall cause its Subsidiaries, officers, employees, agents, directors
or other Persons acting for or in concert with Borrower (each a “Related Person”) to
(i) hold in trust for Agent, for the benefit of itself and Lenders, all checks,
cash and other items of payment received by Borrower or any such Related Person
in any case that constitute Collateral, and (ii) within five (5) Business Days
after receipt by Borrower or any such Related Person of any checks, cash or
other items of payment, deposit the same into a Blocked
Account. Borrower on behalf of itself and each Related Person
acknowledges and agrees that all cash, checks or other items of payment
constituting proceeds of Collateral are part of the Collateral. All
proceeds of the sale or other disposition of any Collateral shall be deposited
directly into Blocked Accounts.
C-2
ANNEX
D (Section
2.1(a))
to
CREDIT
AGREEMENT
CLOSING
CHECKLIST
In
addition to, and not in limitation of, the conditions described in Section 2.1 of the
Agreement, pursuant to Section 2.1(a), the
following items must be received by Agent in form and substance satisfactory to
Agent on or prior to the Closing Date (each capitalized term used but not
otherwise defined herein shall have the meaning ascribed thereto in Annex A to the
Agreement):
A. Appendices. All
Appendices to the Agreement, in form and substance satisfactory to
Agent.
B. Revolving Notes and Term
Notes. Duly executed originals of the Revolving Notes and Term
Notes for each applicable Lender, dated the Closing Date.
C. Security
Agreement. Duly executed originals of the Security Agreement,
dated the Closing Date, and all instruments, documents and agreements executed
pursuant thereto, including without limitation, a power of attorney executed by
each Credit Party.
D. Security Interests and Code
Filings. (a) Evidence satisfactory to Agent that Agent (for
the benefit of itself and Lenders) has a valid and perfected first priority
security interest in the Collateral, including (i) such documents duly executed
by each Credit Party (including financing statements under the Code and other
applicable documents under the laws of any jurisdiction with respect to the
perfection of Liens) as Agent may request in order to perfect its security
interests in the Collateral, (ii) copies of Code search reports listing all
effective financing statements that name any Credit Party as debtor, together
with copies of such financing statements (and those relating to the Prior Lender
Obligations which shall be terminated on the Closing Date) and Permitted
Encumbrances and (iii) a perfection certificate, duly executed on behalf of each
Person who is a Credit Party.
(b) Evidence
reasonably satisfactory to Agent, including copies, of all UCC-1 and other
financing statements filed in favor of Borrower or any other Credit Party with
respect to each location, if any, at which Inventory may be
consigned.
(c) Control
Letters from (i) all issuers of uncertificated securities and financial assets
held by Borrower, (ii) all securities intermediaries with respect to all
securities accounts and securities entitlements of Borrower, and (iii) all
futures commission agents and clearing houses with respect to all commodities
contracts and commodities accounts held by Borrower.
F. Intellectual Property
Security Agreements. Duly executed originals of Trademark
Security Agreements, Copyright Security Agreements and Patent Security
D-1
Agreements,
each dated the Closing Date and signed by each Credit Party which owns
Trademarks, Copyrights and/or Patents, as applicable, all in form and substance
reasonably satisfactory to Agent, together with all instruments, documents and
agreements executed pursuant thereto.
H. Holdings
Guaranty. Duly executed originals of the Holdings Guaranty,
dated as of the Closing Date, and all documents, instruments and agreements
executed pursuant thereto.
I. Subsidiary
Guaranties. Guaranties executed by and each direct and
indirect Subsidiary of Borrower in favor of Agent, for the benefit of
Lenders.
J. Initial Notice of Revolving
Credit Advance. Duly executed originals of a Notice of
Revolving Credit Advance, dated the Closing Date, with respect to the initial
Revolving Credit Advance to be requested by Borrower on the Closing
Date.
K. Letter of
Direction. Duly executed originals of a letter of direction
from Borrower addressed to Agent, on behalf of itself and Lenders, with respect
to the disbursement on the Closing Date of the proceeds of the Term Loan B and
the initial Revolving Credit Advance.
L. Cash Management System;
Control Account Agreements. Evidence satisfactory to Agent
that, as of the Closing Date, Cash Management Systems complying with Annex C to the
Agreement have been established and are currently being maintained in the manner
set forth in such Annex C, together
with copies of duly executed tri-party control account agreements, reasonably
satisfactory to Agent, with the banks as required by Annex C.
M. Charter and Good
Standing. For each Credit Party, such Person's (a) charter and
all amendments thereto, (b) good standing certificates (including verification
of tax status) in its state of incorporation or organization and (c) good
standing certificates (including verification of tax status) and certificates of
qualification to conduct business in each jurisdiction where its ownership or
lease of property or the conduct of its business requires such qualification,
each dated a recent date prior to the Closing Date and certified by the
applicable Secretary of State or other authorized Governmental
Authority.
N. Bylaws and
Resolutions. For each Credit Party, (a) such Person's bylaws,
partnership agreement or operating agreement, as the case may be, together with
all amendments thereto and (b) resolutions of such Person's Board of Directors,
approving and authorizing the execution, delivery and performance of the Loan
Documents to which such Person is a party and the transactions to be consummated
in connection therewith, each certified as of the Closing Date by such Person's
corporate secretary or an assistant secretary as being in full force and effect
without any modification or amendment.
O. Incumbency
Certificates. For each Credit Party, signature and incumbency
certificates of the officers of each such Person executing any of the Loan
Documents, certified as of the Closing Date by such Person's corporate secretary
or an assistant secretary as being true, accurate, correct and
complete.
D-2
P. Opinions of
Counsel. Duly executed originals of opinions of (i) Gibson,
Dunn & Crutcher LLP, counsel for the Credit Parties, (ii) Kummer Kaempfer
Bonner Renshaw & Ferrario, special Nevada counsel for the Credit Parties,
(iii) Starn, O’Toole, Marcus & Fisher, special Hawaiian counsel for the
Credit Parties, and (iv) Gibson, Dunn & Crutcher LLP, special Texas counsel
to the Credit Parties, each in form and substance reasonably satisfactory to
Agent and its counsel, dated the Closing Date, which opinions shall include an
express statement to the effect that Agent and Lenders are authorized to rely on
such opinion.
Q. Payoff Letter; Termination
Statements. Copies of a duly executed release documentation,
in form and substance reasonably satisfactory to Agent, evidencing that the
assets to be acquired upon the consummation of the Acquisition have been
acquired free and clear of all Liens.
R. Insurance. Satisfactory
evidence that the insurance policies required by Section
5.4 are in full force and effect, together with appropriate
evidence showing loss payable and/or additional insured clauses or endorsements,
as reasonably requested by Agent, in favor of Agent, on behalf of
Lenders.
S. Pledge
Agreements. Duly executed originals of each of the Pledge
Agreements accompanied by (as applicable) (a) share certificates representing
all of the outstanding Stock being pledged pursuant to such Pledge Agreement and
stock powers for such share certificates executed in blank and (b) the original
Intercompany Notes and other instruments evidencing Indebtedness being pledged
pursuant to such Pledge Agreement, duly endorsed in blank.
T. Accountants'
Letter. A letter from the Credit Parties to their independent
auditors authorizing the independent certified public accountants of the Credit
Parties to communicate with Agent and Lenders in accordance with Section
4.2.
U. Appointment of Agent for
Service. An appointment of CT Corporation as each Credit
Party's agent for service of process.
V. Fee
Letter. Duly executed originals of the GE Capital Fee
Letter.
W. Officer's
Certificate. Agent shall have received duly executed originals
of a certificate of the Chief Executive Officer and Chief Financial Officer of
Borrower, dated the Closing Date, stating that, since June 30, 2007 (a) no event
or condition has occurred or is existing which could reasonably be expected to
have a Material Adverse Effect; (b) there has been no material adverse change in
the industry in which Borrower operates; (c) no Litigation has been commenced
which, if successful, would have a Material Adverse Effect or could challenge
any of the transactions contemplated by the Agreement and the other Loan
Documents; (d) there have been no Restricted Payments made by any Credit Party;
and (e) before and after giving effect to the transactions contemplated by the
Credit Agreement, each of the Borrower individually, and the Credit Parties
taken as a whole, will be Solvent, and (f) there has been no material increase
in liabilities, liquidated or contingent, and no material decrease in assets of
Borrower or any of its Subsidiaries.
D-3
X. Waivers. Agent,
on behalf of Lenders, shall have received landlord waivers and consents
(including consents to leasehold mortgages), bailee letters and mortgagee
agreements in form and substance satisfactory to Agent, in each case as required
pursuant to Section
5.9.
Y. Mortgages. Mortgages
covering all of the Real Estate (the “Mortgaged
Properties”) together with: (a) title insurance policies, landlord
estoppel letters, if applicable, and certificates of occupancy, in each case
reasonably satisfactory in form and substance to Agent, in its sole discretion;
(b) evidence that counterparts of the Mortgages have been recorded in all places
to the extent necessary or desirable, in the judgment of Agent, to create a
valid and enforceable first priority lien (subject to Permitted Encumbrances) on
each Mortgaged Property in favor of Agent for the benefit of itself and Lenders
(or in favor of such other trustee as may be required or desired under local
law); and (c) an opinion of counsel in each state in which any Mortgaged
Property is located in form and substance and from counsel reasonably
satisfactory to Agent.
Z.
Reading Management
Agreement. Agent and Lenders shall have received a true and
complete copy of the Reading Management Agreement.
AA. Reading Guaranty.
Duly executed originals of the Reading Guaranty, dated as of the Closing Date,
and all documents, instruments and agreements executed pursuant
thereto.
BB. Audited Financials;
Financial Condition. Agent shall have received the Financial
Statements, Projections and other materials set forth in Section 3.4,
certified by a Responsible Financial Officer, in each case in form and substance
satisfactory to Agent, and Agent shall be satisfied, in its sole discretion,
with all of the foregoing. Agent shall have further received a
certificate of a Responsible Financial Officer of Borrower, based on such Pro
Forma and Projections, to the effect that (a) Borrower will be Solvent upon the
consummation of the transactions contemplated herein; (b) the Pro Forma fairly
presents the financial condition of Borrower as of the date thereof after giving
effect to the transactions contemplated by the Loan Documents; (c) the
Projections are based upon estimates and assumptions stated therein, all of
which Borrower believes to be reasonable and fair in light of current conditions
and current facts known to Borrower and, as of the Closing Date, reflect
Borrower's good faith and reasonable estimates of its future financial
performance and of the other information projected therein for the period set
forth therein; and (s) containing such other statements with respect to the
solvency of Borrower and matters related thereto as Agent shall
request.
CC. Assignment of
Representations, Warranties, Covenants, Indemnities and Rights. Agent
shall have received a duly executed copy of an Assignment of Representations,
Warranties, Covenants, Indemnities and Rights in respect of Borrower's and
Reading’s rights under the Acquisition Agreement, which assignment shall be
expressly permitted under the Acquisition Agreement or shall have been consented
to by the Sellers and other parties to the Acquisition Agreement in
writing.
DD. Master Standby
Agreement. A Master Agreement for Standby Letters of Credit
between Borrower and GE Capital.
D-4
EE. Kahala Management
Agreement. Agent and Lenders shall have received a true and
complete copy of the Kahala Management Agreement.
FF. Material
Contracts. Agent and Lenders shall have received a true and
complete copy of each Material Contract.
GG. Collateral
Assignments. Agent and Lenders shall have received duly
executed Collateral Assignments for each of the Kahala Management Agreement and
the Reading Management Agreement.
HH. Other
Documents. Such other certificates, documents and agreements
respecting any Credit Party as Agent may reasonably request.
D-5
ANNEX
E (Section
4.1(a))
to
CREDIT
AGREEMENT
FINANCIAL STATEMENTS AND
PROJECTIONS -- REPORTING
Borrower
shall deliver or cause to be delivered to Agent, and upon the request of Agent,
to each Lender, the following:
(a) Monthly
Financials. To Agent and each Lender, if requested by Agent,
within thirty (30) days after the end of each Fiscal Month (other than a Fiscal
Month that is also the end of a Fiscal Quarter), financial information regarding
Borrower and its Subsidiaries, certified by a Responsible Financial Officer of
Borrower, consisting of consolidated and, if applicable and if requested by
Agent, consolidating (i) unaudited balance sheets as of the close of such Fiscal
Month and the related statements of income and a summary of Capital Expenditures
in each case for that portion of the Fiscal Year ending as of the close of such
Fiscal Month; (ii) unaudited statements of income and cash flows for such Fiscal
Month for each site, setting forth in comparative form the figures for the
corresponding period in the prior year and the figures contained in the
operating plan (as defined in Annex E, subsection (c)) for
such Fiscal Year, all prepared in accordance with GAAP (subject to normal
year-end adjustments); and (iii) a summary of the outstanding balance of all
Intercompany Notes as of the last day of that Fiscal Month. Such
financial information shall be accompanied by the certification of a Responsible
Financial Officer of Borrower that (i) such financial information presents
fairly in accordance with GAAP (subject to normal year-end adjustments) the
financial position and results of operations of Borrower and its Subsidiaries,
on a consolidated and, if applicable and if requested by Agent, consolidating
basis, in each case as at the end of such Fiscal Month and for that portion of
the Fiscal Year then ended and (ii) any other information presented is true,
correct and complete in all material respects and that there was no Default or
Event of Default in existence as of such time or, if a Default or Event of
Default shall have occurred and be continuing, describing the nature thereof and
all efforts undertaken to cure such Default or Event of Default.
(b) Quarterly
Financials. To Agent and each Lender, if requested by Agent,
within forty-five (45) days after the end of each Fiscal Quarter, consolidated
and, if applicable and if requested by Agent, consolidating financial
information regarding Borrower and its Subsidiaries, certified by the Chief
Financial Officer of Borrower, including (i) unaudited balance sheets as of the
close of such Fiscal Quarter and the related statements of income and cash flow
for that portion of the Fiscal Year ending as of the close of such Fiscal
Quarter and (ii) unaudited statements of income and cash flows for such Fiscal
Quarter, in each case setting forth in comparative form the figures for the
corresponding period in the prior year and the figures contained in the
operating plan (as defined in Annex E, subsection (c)) for
such Fiscal Year, all prepared in accordance with GAAP (subject to normal
year-end adjustments). Such financial information shall be
accompanied by (A) a statement in reasonable detail (each, a “Compliance
Certificate”) showing the calculations used in determining compliance
with each of the Financial Covenants that is tested on a quarterly basis and the
Loan to Contributed Capital Ratio and (B) the certification of the Chief
Financial Officer of Borrower that (i) such financial information presents
fairly in accordance with GAAP (subject to normal year-end adjustments) the
financial position, results of operations and statements of cash flows of
Borrower and its Subsidiaries, on a
E-1
consolidated
and, if applicable and if requested by Agent, consolidating basis, as at the end
of such Fiscal Quarter and for that portion of the Fiscal Year then ended, (ii)
any other information presented is true, correct and complete in all material
respects and that there was no Default or Event of Default in existence as of
such time or, if a Default or Event of Default has occurred and is continuing,
describing the nature thereof and all efforts undertaken to cure such Default or
Event of Default. In addition, Borrower shall deliver to Agent and
Lenders, within forty-five (45) days after the end of each Fiscal Quarter, a
management discussion and analysis that includes a comparison to budget for that
Fiscal Quarter and a comparison of performance for that Fiscal Quarter to the
corresponding period in the prior year.
(c) Operating
Plan. To Agent and each Lender, if requested by Agent, as soon
as available, but not later than forty-five (45) days after the end of each
Fiscal Year, an annual operating plan for Borrower, approved by the Board of
Directors of Borrower, for the following Fiscal Year, which (i) includes a
statement of all of the material assumptions on which such plan is based, (ii)
includes monthly balance sheets and a monthly budget for the following year and
(iii) integrates sales, gross profits, operating expenses, operating
profit, cash flow projections and Borrowing Availability projections, all
prepared on a theater by theater basis and on the same basis and in similar
detail as that on which operating results are reported (and in the case of cash
flow projections, representing management's good faith estimates of future
financial performance based on historical performance), and including plans for
personnel, Capital Expenditures and facilities.
(d) Annual Audited
Financials. To Agent and each Lender, if requested by Agent, within
ninety (90) days after the end of each Fiscal Year, audited Financial Statements
for Borrower and its Subsidiaries on a consolidated and, if applicable and if
requested by Agent, (unaudited) consolidating basis, consisting of balance
sheets and statements of income and retained earnings and cash flows, setting
forth in comparative form in each case the figures for the previous Fiscal Year,
which Financial Statements shall be prepared in accordance with GAAP and
certified without qualification, by an independent certified public accounting
firm of national standing or otherwise acceptable to Agent. Such
Financial Statements shall be accompanied by (i) a statement prepared in
reasonable detail showing the calculations used in determining compliance with
each of the Financial Covenants, (ii) a report from such accounting firm to the
effect that, in connection with their audit examination, nothing has come to
their attention to cause them to believe that a Default or Event of Default has
occurred with respect to the Financial Covenants (or specifying those Defaults
and Events of Default that they became aware of), it being understood that such
audit examination extended only to accounting matters and that no special
investigation was made with respect to the existence of Defaults or Events of
Default, (iii) the annual letters to such accountants in connection with their
audit examination detailing contingent liabilities and material litigation
matters, and (iv) the certification of the Chief Executive Officer or Chief
Financial Officer of Borrower that all such Financial Statements present fairly
in accordance with GAAP the financial position, results of operations and
statements of cash flows of Borrower and its Subsidiaries on a consolidated and,
if applicable and if requested by Agent, consolidating basis, as at the end of
such Fiscal Year and for the period then ended, and that there was no Default or
Event of Default in existence as of such time or, if a Default or Event of
Default has occurred and is continuing, describing the nature thereof and all
efforts undertaken to cure such Default or Event of Default.
E-2
(e) Management
Letters. To Agent and each Lender, if requested by
Agent, within five (5) Business Days after receipt thereof by any
Credit Party, copies of all management letters, exception reports or similar
letters or reports received by such Credit Party from its independent certified
public accountants.
(f) Default
Notices. To Agent and each Lender, if requested by Agent, as
soon as practicable, and in any event within five (5) Business Days after an
executive officer of Borrower has actual knowledge of the existence of any
Default, Event of Default or other event that has had a Material Adverse Effect,
telephonic or telecopied notice specifying the nature of such Default or Event
of Default or other event, including the anticipated effect thereof, which
notice, if given telephonically, shall be promptly confirmed in writing on the
next Business Day.
(g) SEC Filings and Press
Releases. To Agent and each Lender, if requested by Agent,
promptly upon their becoming available, copies of: (i) all Financial
Statements, reports, notices and proxy statements made publicly available by any
Credit Party to its security holders; (ii) all regular and periodic reports and
all registration statements and prospectuses, if any, filed by any Credit Party
with any securities exchange or with the Securities and Exchange Commission or
any governmental or private regulatory authority; and (iii) all press releases
and other statements made available by any Credit Party to the public concerning
material changes or developments in the business of any such
Person.
(h) Equity
Notices. To Agent, as soon as practicable, copies of all
material written notices given or received by any Credit Party with respect to
any Stock of such Person.
(i) Supplemental
Schedules. To Agent, supplemental disclosures, if any,
required by Section
5.6.
(j) Litigation. To
Agent in writing, promptly upon the Chief Financial Officer, Chief Operating
Officer or General Counsel of Borrower learning thereof, notice of any
Litigation commenced or threatened against any Credit Party that (i) seeks
damages in excess of $500,000 over the amount of any applicable insurance
coverage, (ii) seeks injunctive relief, (iii) is asserted or instituted against
any Plan, its fiduciaries or its assets or against any Credit Party or ERISA
Affiliate in connection with any Plan, (iv) alleges criminal misconduct by any
Credit Party, (v) alleges the violation of any law regarding, or seeks remedies
in connection with, any Environmental Liabilities that, in any such case, would
reasonably be expected to result in liability in excess of $500,000 over any
applicable insurance coverage; or (vi) involves any product recall.
(k) Insurance
Notices. To Agent, disclosure of losses or casualties required
by Section
5.4.
(l) Lease Default
Notices. To Agent, (i) within two (2) Business Days after
receipt thereof, copies of any and all default or termination notices received
under or with respect to any Theatre Lease, (ii) monthly within three (3)
Business Days after payment thereof, evidence of payment of lease or rental
payments as to each Theatre Lease which a landlord or bailee waiver has not been
obtained, (iii) notice of termination of any Theatre Lease within 30
E-3
days
prior to the termination of such lease in accordance with its terms and (iv)
such other notices or documents as Agent may reasonably request.
(m) Lease
Amendments. To Agent, within two (2) Business Days after
receipt thereof, copies of all material amendments to any Theatre
Lease.
(n) Hedging
Agreements. To Agent within two (2) Business Days after
entering into such agreement or amendment, copies of all interest rate,
commodity or currency hedging agreements or amendments thereto.
(o) Commercial Tort
Claims. To Agent, promptly and in any event within two (2)
Business Days after the same is acquired by it, notice of any commercial tort
claim (as defined in the Code) in excess of $100,000 acquired by it and unless
otherwise consented to by Agent, a supplement to this Security Agreement,
granting to Agent a Lien in such commercial tort claim.
(p) Good Standing
Certificates. Upon Agent’s request, after an Event of Default
has occurred and is continuing, a good standing certificate from the
jurisdiction of incorporation or organization of each Credit Party dated as of a
recent date, certifying that such Credit Party is in good standing or in
existence, as applicable.
(r) Other
Documents. To Agent and Lenders, such other financial and
other information respecting any Credit Party's business or financial condition
as Agent or any Lender shall, from time to time, reasonably
request.
E-4
ANNEX
F (Section
4.1(b))
to
CREDIT
AGREEMENT
COLLATERAL
REPORTS
Borrower
shall deliver or cause to be delivered the following:
(a) To
Agent, at the time of delivery of each of the annual Financial Statements
delivered pursuant to Annex E, a list of
any applications for the registration of any Patent, Trademark or Copyright
filed by any Credit Party with the United States Patent and Trademark Office,
the United States Copyright Office or any similar office or agency in the prior
Fiscal Quarter;
(b) [Reserved];
(c) Borrower,
at its own expense, shall deliver to Agent such appraisals of its
assets as Agent may request at any time after the occurrence and during the
continuance of a Default or an Event of Default, such appraisals to be conducted
by an appraiser, and in form and substance reasonably satisfactory to Agent;
and
(d) Such
other reports, statements and reconciliations with respect to the Collateral or
Obligations of any or all Credit Parties as Agent shall from time to time
request in its reasonable discretion.
ANNEX
G (Section
6.10)
to
CREDIT
AGREEMENT
FINANCIAL
COVENANTS
Borrower
shall not breach or fail to comply with any of the following financial
covenants, each of which shall be calculated in accordance with GAAP
consistently applied:
(a) Maximum
Capital Expenditures. Borrower and its
Subsidiaries on a consolidated basis shall not make Capital Expenditures during
any Fiscal Year that exceed $1,000,000 in the aggregate, provided, however, that
(i) to the extent that actual Capital Expenditures for any such Fiscal Year
shall be less than the maximum amount set forth above for such Fiscal Year, the
unused amounts from such prior Fiscal Year shall be available for Capital
Expenditures in the immediately succeeding Fiscal Year, and (ii) Borrower and
its Subsidiaries on a consolidated basis may make Capital Expenditures with
respect to the Kapolei facility for purposes of upgrading to stadium seating in
an amount not to exceed (x) $1,125,000 in the Fiscal Year ending December 31,
2008, (y) $1,500,000 the Fiscal Year ending December 31, 2009 and (z) $375,000
the Fiscal Year ending December 31, 2010.
(b) Minimum Fixed Charge
Coverage Ratio. Borrower and its Subsidiaries shall have on a
consolidated basis at the end of each Fiscal Quarter, a Fixed Charge Coverage
Ratio for the 12-month period then ended of not less than 1.2:1.0.
Notwithstanding
anything contained herein to the contrary, for purposes of calculating the Fixed
Charge Coverage Ratio, Fixed Charges (other than Capital Expenditures) shall
equal (i) for the first full Fiscal Quarter completed after the Closing Date,
that Fiscal Quarter’s Fixed Charges (other than Capital Expenditures) times four
(4), (ii) for the second Fiscal Quarter completed after the Closing Date, the
sum of the most recent two Fiscal Quarters’ Fixed Charges (other than Capital
Expenditures) times two (2) and (iii) for the third Fiscal Quarter completed
after the Closing Date, the sum of the most recent three Fiscal Quarters’ Fixed
Charges (other than Capital Expenditures) divided by three (3) and the result
multiplied by four (4).
(c) Maximum Leverage
Ratio. Borrower and its Subsidiaries on a consolidated basis
shall have, at the end of each Fiscal Quarter set forth below, a Leverage Ratio
as of the last day of such Fiscal Quarter and for the 12-month period then ended
of not more than the following
|
Fiscal Quarter
|
Leverage Ratio
|
|
March
31, 2008, June 30, 2008
|
4.00:1.0
|
|
September
30, 2008, December 31, 2008, March 31, 2009 and June 30,
2009
|
3.75:1.0
|
|
September
30, 2009, December 31, 2009, March 31, 2010 and June 30,
2010
|
3.50:1.0
|
|
September
30, 2010 and each Fiscal Quarter thereafter
|
3.25:1.0
|
(e) Minimum Interest Coverage
Ratio. Borrower and its Subsidiaries on a consolidated basis
shall have, at the end of each Fiscal Quarter set forth below, an Interest
Coverage Ratio as of the last day of such Fiscal Quarter and for the 12-month
period then ended of not less than:
|
Fiscal Quarter
|
Interest Coverage Ratio
|
|
March
31, 2008 and June 30, 2008,
|
2.00:1.0
|
|
September
30, 2008, December 31, 2008, March 31, 2009 and June 30,
2009
|
2.25:1.0
|
|
September
30, 2009, December 31, 2009, March 31, 2010 and June 30,
2010
|
2.50:1.0
|
|
September
30, 2010 and each Fiscal Quarter thereafter
|
3.0:1.0
|
Notwithstanding
anything contained herein to the contrary, for purposes of calculating the
Interest Coverage Ratio, Interest Expense shall equal (i) for the first full
Fiscal Quarter completed after the Closing Date, that Fiscal Quarter’s Interest
Expense times four (4), (ii) for the second Fiscal Quarter completed after the
Closing Date, the sum of the most recent two Fiscal Quarters’ Interest Expense
times two (2) and (iii) for the third Fiscal Quarter completed after the Closing
Date, the sum of the most recent three Fiscal Quarters’ Interest Expense divided
by three (3) and the result multiplied by four (4).
Unless
otherwise specifically provided herein, any accounting term used in the
Agreement shall have the meaning customarily given such term in accordance with
GAAP, and all financial computations hereunder shall be computed in accordance
with GAAP consistently applied. That certain items or computations
are explicitly modified by the phrase “in accordance with GAAP” shall in no way
be construed to limit the foregoing. If any “Accounting Changes” (as
defined below) occur and such changes result in a change in the calculation of
the financial
G-1
covenants,
standards or terms used in the Agreement or any other Loan Document, then
Borrower, Agent and Lenders agree to enter into negotiations in order to amend
such provisions of the Agreement so as to equitably reflect such Accounting
Changes with the desired result that the criteria for evaluating Borrower's and
its Subsidiaries' financial condition shall be the same after such Accounting
Changes as if such Accounting Changes had not been made; provided, however,
that the agreement of Requisite Lenders to any required amendments of such
provisions shall be sufficient to bind all Lenders. “Accounting Changes”
means (i) changes in accounting principles required by the promulgation of any
rule, regulation, pronouncement or opinion by the Financial Accounting Standards
Board of the American Institute of Certified Public Accountants (or successor
thereto or any agency with similar functions), (ii) changes in accounting
principles concurred in by Borrower's certified public accountants; (iii)
purchase accounting adjustments under A.P.B. 16 or 17 and EITF 88-16, and the
application of the accounting principles set forth in FASB 109, including the
establishment of reserves pursuant thereto and any subsequent reversal (in whole
or in part) of such reserves; and (iv) the reversal of any reserves
established as a result of purchase accounting adjustments. If Agent,
Borrower and Requisite Lenders agree upon the required amendments, then after
appropriate amendments have been executed and the underlying Accounting Change
with respect thereto has been implemented, any reference to GAAP contained in
the Agreement or in any other Loan Document shall, only to the extent of such
Accounting Change, refer to GAAP, consistently applied after giving effect to
the implementation of such Accounting Change. If Agent, Borrower and
Requisite Lenders cannot agree upon the required amendments within thirty (30)
days following the date of implementation of any Accounting Change, then all
Financial Statements delivered and all calculations of financial covenants and
other standards and terms in accordance with the Agreement and the other Loan
Documents shall be prepared, delivered and made without regard to the underlying
Accounting Change. For purposes of Section 8.1, a breach
of a Financial Covenant contained in this Annex G shall be
deemed to have occurred as of any date of determination by Agent or as of the
last day of any specified measurement period, regardless of when the Financial
Statements reflecting such breach are delivered to Agent.
G-2
ANNEX
H (Section 1.1(d))
to
CREDIT
AGREEMENT
LENDERS'
WIRE TRANSFER INFORMATION
ANNEX
I (Section 11.10)
to
CREDIT
AGREEMENT
NOTICE
ADDRESSES
ANNEX
J (from Annex A - Commitments definition)
to
CREDIT
AGREEMENT
|
Lender(s)
|
Revolving
Loan Commitment
|
Term
Loan B Commitment
|
||||||
|
General
Electric Capital Corporation
|
$ | 1,636,363.64 | $ | 16,363,636.36 | ||||
|
Bank
of Hawaii
|
$ | 1,227,272.73 | $ | 12,272,727.27 | ||||
|
Central
Pacific Bank
|
$ | 1,227,272.73 | $ | 12,272,727.27 | ||||
|
American
Savings Bank
|
$ | 909,090.90 | $ | 9,090,909.10 | ||||
READING
GUARANTY AGREEMENT
This
READING GUARANTY AGREEMENT (this “Guaranty”), dated as
of February 21, 2008, by and between READING INTERNATIONAL, INC., a Nevada
corporation (“Guarantor”), and
GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, individually
and as agent (in such capacity, “Agent”) for itself
and the lenders from time to time signatory to the Credit Agreement, as
hereinafter defined (“Lenders”).
W
I T N E S S E T H:
WHEREAS,
pursuant to that certain Credit Agreement dated as of the date hereof by and
among CONSOLIDATED AMUSEMENT THEATRES, INC., a Nevada corporation (“Borrower”), the
Persons named therein as Credit Parties, Agent and the Persons signatory thereto
from time to time as Lenders (as from time to time amended, restated,
supplemented or otherwise modified, the “Credit Agreement”)
Lenders have agreed to make Loans to, and incur Letter of Credit Obligations for
the benefit of, Borrower.
WHEREAS,
Guarantor indirectly owns 100% of the outstanding Stock of Borrower and as such
will derive direct and indirect economic benefits from the making of the Loans
and other financial accommodations provided to Borrower pursuant to the Credit
Agreement; and
WHEREAS,
in order to induce Agent and Lenders to enter into the Credit Agreement and
other Loan Documents and to induce Lenders to make the Loans and to incur Letter
of Credit Obligations as provided for in the Credit Agreement, Guarantor has
agreed to guarantee payment of the Obligations;
NOW,
THEREFORE, in consideration of the premises and the covenants hereinafter
contained, and to induce Lenders to provide the Loans and other financial
accommodations under the Credit Agreement, it is agreed as follows:
1. DEFINITIONS.
Capitalized
terms used herein shall have the meanings assigned to them in the Credit
Agreement, unless otherwise defined herein.
References
to this “Guaranty” shall mean this Guaranty, including all amendments,
modifications and supplements and any annexes, exhibits and schedules to any of
the foregoing, and shall refer to this Guaranty as the same may be in effect at
the time such reference becomes operative.
2. THE
GUARANTY.
2.1 Guaranty of Guaranteed
Obligations of Borrower. Guarantor hereby unconditionally
guarantees to Agent and Lenders, and their respective successors, endorsees,
transferees and assigns, to but not including the Release Date (as defined
below), the prompt payment (whether at stated maturity, by acceleration or
otherwise) and performance of the
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Obligations
of Borrower (hereinafter the “Guaranteed
Obligations”). Guarantor agrees that this Guaranty is a
guaranty of payment and performance and not of collection, and that its
obligations under this Guaranty shall be primary, absolute and unconditional,
irrespective of, and unaffected by:
(a) the
genuineness, validity, regularity, enforceability or any future amendment of, or
change in this Guaranty, any other Loan Document or any other agreement,
document or instrument to which any Credit Party and/or Guarantor is or may
become a party;
(b) the
absence of any action to enforce this Guaranty or any other Loan Document or the
waiver or consent by Agent and/or Lenders with respect to any of the provisions
thereof;
(c) the
existence, value or condition of, or failure to perfect Agent’s Lien against,
any Collateral for the Guaranteed Obligations or any action, or the absence of
any action, by Agent in respect thereof (including, without limitation, the
release of any such security); or
(d) the
insolvency of any Credit Party; or
(e) any
other action or circumstances which might otherwise constitute a legal or
equitable discharge or defense of a surety or guarantor,
it being
agreed by Guarantor that its obligations under this Guaranty shall not be
discharged until the earlier of Termination Date and the Release
Date. Guarantor shall be regarded, and shall be in the same position,
as principal debtor with respect to the Guaranteed
Obligations. Guarantor agrees that any notice or directive given at
any time to Agent which is inconsistent with the waiver in the immediately
preceding sentence shall be null and void and may be ignored by Agent and
Lenders, and, in addition, may not be pleaded or introduced as evidence in any
litigation relating to this Guaranty for the reason that such pleading or
introduction would be at variance with the written terms of this Guaranty,
unless Agent and Lenders have specifically agreed otherwise in
writing. It is agreed among Guarantor, Agent and Lenders that the
foregoing waivers are of the essence of the transaction contemplated by the Loan
Documents and that, but for this Guaranty and such waivers, Agent and Lenders
would decline to enter into the Credit Agreement.
2.2 Demand by Agent or
Lenders. In addition to the terms of the Guaranty set forth in
Section 2.1
hereof, and in no manner imposing any limitation on such terms, it is expressly
understood and agreed that, if, at any time prior to the Release Date, the
outstanding principal amount of the Guaranteed Obligations under the Credit
Agreement (including all accrued interest thereon) is declared to be immediately
due and payable, then Guarantor shall, without demand, pay to the holders of the
Guaranteed Obligations the entire outstanding Guaranteed Obligations due and
owing to such holders. Payment by Guarantor shall be made to Agent in
immediately available funds to an account, designated by Agent or at the address
set forth herein for the giving of notice to Agent or at any other address that
may be specified in writing from time to time by Agent, and shall be credited
and applied to the Guaranteed Obligations.
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2.3 Enforcement of
Guaranty. In no event shall Agent have any obligation
(although it is entitled, at its option) to proceed against Borrower or any
other Credit Party or any Collateral pledged to secure Guaranteed Obligations
before seeking satisfaction from the Guarantor, and Agent may proceed, prior or
subsequent to, or simultaneously with, the enforcement of Agent’s rights
hereunder, to exercise any right or remedy which it may have against any
Collateral, as a result of any Lien it may have as security for all or any
portion of the Guaranteed Obligations.
2.4 Waiver. In
addition to the waivers contained in Section 2.1 hereof,
Guarantor waives and agrees that it shall not at any time insist upon, plead or
in any manner whatever claim or take the benefit or advantage of, any appraisal,
valuation, stay, extension, marshaling of assets or redemption laws, or
exemption, whether now or at any time hereafter in force, which may delay,
prevent or otherwise affect the performance by Guarantor of its Guaranteed
Obligations under, or the enforcement by Agent or Lenders of, this Guaranty.
Guarantor hereby waives diligence, presentment and demand (whether for
non-payment or protest or of acceptance, maturity, extension of time, change in
nature or form of the Guaranteed Obligations, acceptance of further security,
release of further security, composition or agreement arrived at as to the
amount of, or the terms of, the Guaranteed Obligations, notice of adverse change
in Borrower’s financial condition or any other fact which might increase the
risk to Guarantor) with respect to any of the Guaranteed Obligations or all
other demands whatsoever and waives the benefit of all provisions of law which
are or might be in conflict with the terms of this
Guaranty. Guarantor represents, warrants and agrees that, as of the
date of this Guaranty, its obligations under this Guaranty are not subject to
any offsets or defenses against Agent or Lenders or any Credit Party of any
kind. Guarantor further agrees that its obligations under this Guaranty shall
not be subject to any counterclaims, offsets or defenses against Agent or any
Lender or against any Credit Party of any kind which may arise in the
future.
2.5 Benefit of
Guaranty. The provisions of this Guaranty are for the benefit
of Agent and Lenders and their respective successors, transferees, endorsees and
assigns, and nothing herein contained shall impair, as between any Credit Party
and Agent or Lenders, the obligations of any Credit Party under the Loan
Documents. In the event all or any part of the Guaranteed Obligations
are transferred, indorsed or assigned by Agent or any Lender to any Person or
Persons, any reference to “Agent” or “Lender” herein shall be deemed to refer
equally to such Person or Persons.
2.6 Modification of Guaranteed
Obligations, Etc. Guarantor hereby acknowledges and agrees
that Agent and Lenders may at any time or from time to time, with or without the
consent of, or notice to, Guarantor:
(a) change
or extend the manner, place or terms of payment of, or renew or alter all or any
portion of, the Guaranteed Obligations;
(b) take
any action under or in respect of the Loan Documents in the exercise of any
remedy, power or privilege contained therein or available to it at law, equity
or otherwise, or waive or refrain from exercising any such remedies, powers or
privileges;
(c) amend
or modify, in any manner whatsoever, the Loan Documents;
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(d) extend
or waive the time for any Credit Party’s performance of, or compliance with, any
term, covenant or agreement on its part to be performed or observed under the
Loan Documents, or waive such performance or compliance or consent to a failure
of, or departure from, such performance or compliance;
(e) take
and hold Collateral for the payment of the Guaranteed Obligations guaranteed
hereby or sell, exchange, release, dispose of, or otherwise deal with, any
property pledged, mortgaged or conveyed, or in which Agent or Lenders have been
granted a Lien, to secure any Obligations;
(f) release
anyone who may be liable in any manner for the payment of any amounts owed by
Guarantor or any Credit Party to Agent or any Lender;
(g) modify
or terminate the terms of any intercreditor or subordination agreement pursuant
to which claims of other creditors of Guarantor or any Credit Party are
subordinated to the claims of Agent and Lenders; and/or
(h) apply
any sums by whomever paid or however realized to any amounts owing by Guarantor
or any Credit Party to Agent or any Lender in such manner as Agent or any Lender
shall determine in its discretion;
and Agent
and Lenders shall not incur any liability to Guarantor as a result thereof, and
no such action shall impair or release the Guaranteed Obligations of Guarantor
under this Guaranty.
2.7 Reinstatement. This
Guaranty shall remain in full force and effect and continue to be effective
should any petition be filed by or against any Credit Party or Guarantor for
liquidation or reorganization prior to the Release Date, should any Credit Party
or Guarantor become insolvent or make an assignment for the benefit of creditors
or should a receiver or trustee be appointed for all or any significant part of
such Credit Party’s or Guarantor’s assets, in each case prior to the Release
Date. Notwithstanding anything contained herein to the contrary, this
Guaranty shall be reinstated if at any time payment and performance of the
Guaranteed Obligations, or any part thereof, in each case which payment or
performance arose or occurred prior to the Release Date, is, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by Agent or any Lender, whether as a “voidable preference,” “fraudulent
conveyance,” or otherwise, all as though such payment or performance had not
been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Guaranteed Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
2.8 Waiver of Subrogation,
Etc. Notwithstanding anything to the contrary in this
Guaranty, or in any other Loan Document, Guarantor
hereby:
(a) expressly
and irrevocably waives (until the earlier of the Termination Date and the
Release Date) the exercise of, on behalf of itself and its successors and
assigns (including any surety), any and all rights at law or in equity to
subrogation, to reimbursement, to exoneration, to contribution, to
indemnification, to set off or to any other rights that could accrue to a surety
against a principal, to a guarantor against a
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principal,
to a guarantor against a maker or obligor, to an accommodation party against the
party accommodated, to a holder or transferee against a maker, or to the holder
of any claim against any Person, and which Guarantor may have or hereafter
acquire against any Credit Party in connection with or as a result of
Guarantor’s execution, delivery and/or performance of this Guaranty, or any
other documents to which Guarantor is a party or otherwise;
and
(b) acknowledges
and agrees (i) that this waiver is intended to benefit Agent and Lenders and
shall not limit or otherwise effect Guarantor’s liability hereunder or the
enforceability of this Guaranty, and (ii) that Agent, Lenders and their
respective successors and assigns are intended third party beneficiaries of the
waivers and agreements set forth in this Section 2.8 and their
rights under this Section 2.8 shall
survive payment in full of the Guaranteed Obligations.
2.9 Election of
Remedies. If Agent may, under applicable law, proceed to
realize benefits under any of the Loan Documents giving Agent and Lenders a Lien
upon any Collateral owned by any Credit Party, either by judicial foreclosure or
by non-judicial sale or enforcement, Agent may, at its sole option, determine
which of such remedies or rights it may pursue without affecting any of such
rights and remedies under this Guaranty. If, in the exercise of any
of its rights and remedies, Agent shall forfeit any of its rights or remedies,
including its right to enter a deficiency judgment against any Credit Party,
whether because of any applicable laws pertaining to “election of remedies” or
the like, Guarantor hereby consents to such action by Agent and waives any claim
based upon such action, even if such action by Agent shall result in a full or
partial loss of any rights of subrogation which Guarantor might otherwise have
had but for such action by Agent. Any election of remedies which
results in the denial or impairment of the right of Agent to seek a deficiency
judgment against any Credit Party shall not impair Guarantor’s obligation to pay
the full amount of the Guaranteed Obligations. In the event Agent
shall bid at any foreclosure or trustee’s sale or at any private sale permitted
by law or the Loan Documents, Agent may bid all or less than the amount of the
Guaranteed Obligations and the amount of such bid need not be paid by Agent but
shall be credited against the Guaranteed Obligations. Except as
prohibited by applicable law, the amount of the successful bid at any such sale
shall be conclusively deemed to be the fair market value of the collateral and
the difference between such bid amount and the remaining balance of the
Guaranteed Obligations shall be conclusively deemed to be the amount of the
Guaranteed Obligations guaranteed under this Guaranty, notwithstanding that any
present or future law or court decision or ruling may have the effect of
reducing the amount of any deficiency claim to which Agent and Lenders might
otherwise be entitled but for such bidding at any such sale.
2.10 Funds
Transfers. If Guarantor shall engage in any transaction as a
result of which Borrower is required to make a mandatory prepayment with respect
to the Guaranteed Obligations under the terms of Section 1.3(b)(v) the Credit
Agreement, Guarantor shall distribute to, or make a contribution to the capital
of, the Borrower an amount equal to the mandatory prepayment required under the
terms of the Credit Agreement.
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3. DELIVERIES.
In a form
satisfactory to Agent, Guarantor shall deliver to Agent, reasonably concurrently
with the execution of this Guaranty, the Loan Documents and other instruments,
certificates and documents as are required to be delivered by Guarantor to Agent
under the Credit Agreement.
4. REPRESENTATIONS AND
WARRANTIES.
To induce
Lenders to make the Loans and incur Letter of Credit Obligations under the
Credit Agreement, Guarantor makes the following representations and warranties
to Agent and each Lender, each of which is made as of the Closing Date, and each
and all of which shall survive the execution and delivery of this
Guaranty:
4.1 Corporate Existence;
Compliance with Law. Guarantor (i) is a corporation, limited
liability company, general partnership or limited partnership, as the case may
be, duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization; (ii) is duly qualified to conduct
business and is in good standing in each other jurisdiction where its ownership
or lease of property or the conduct of its business requires such qualification,
except where the failure to be so qualified would not result in exposure to
losses or liabilities which, alone or in the aggregate, could reasonably be
expected to have a Material Adverse Effect; (iii) has the requisite power and
authority and the legal right to own, pledge, mortgage or otherwise encumber and
operate its properties, to lease the property it operates under lease and to
conduct its business as now conducted or proposed to be conducted; (iv) has all
material licenses, permits, consents or approvals from or by, and has made all
material filings with, and has given all notices to, all Governmental
Authorities having jurisdiction, to the extent required for such ownership,
operation and conduct; (v) is in compliance with its charter and bylaws or
partnership or operating agreement, as applicable; and (vi) is in compliance
with all applicable provisions of law and regulation, except where the failure
to comply, alone or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
4.2 Intentionally
omitted.
4.3 Corporate Power;
Authorization; Enforceable Guaranteed
Obligations. The execution, delivery and performance of this
Guaranty and all instruments and documents to be delivered by Guarantor
hereunder and under the Credit Agreement (i) are within Guarantor’s power; (ii)
have been duly authorized by all necessary corporate, limited liability company,
general partnership or limited partnership action; (iii) do not contravene any
provision of Guarantor’s charter, by-laws, or partnership or operating agreement
as applicable; (iv) do not violate any law or regulation, or any order or decree
of any court or Governmental Authority; (v) do not conflict with or result in
the breach or termination of, constitute a default under or accelerate or permit
the acceleration of any performance required by, any indenture, mortgage, deed
of trust, Theatre Lease or other material lease, material agreement or other
material instrument to which Guarantor is a party or by which Guarantor or any
of its property is bound; (vi) do not result in the creation or imposition of
any Lien upon any of the property of Guarantor; and (vii) do not require the
consent or approval of any Governmental Authority or any other
6
Person,
except those referred to in Section 2.1(c) of the
Credit Agreement, all of which have been duly obtained, made or complied with
prior to the Closing Date. On or prior to the Closing Date, this
Guaranty shall have been duly executed and delivered, and each shall then
constitute a legal, valid and binding obligation of Guarantor, enforceable
against Guarantor in accordance with its terms, except as enforceability may be
limited by (i) bankruptcy, insolvency, fraudulent conveyances, reorganization or
similar laws relating to or affecting the enforcement of creditors’ rights
generally, and (ii) general equitable principles (whether considered in a
proceeding in equity or at law).
5. FURTHER
ASSURANCES.
Guarantor
agrees, upon the written request of Agent, to execute and deliver to Agent or
such Lender, from time to time, any additional instruments or documents
reasonably considered necessary by Agent to cause this Guaranty to be, become or
remain valid and effective in accordance with its terms.
6. PAYMENTS FREE AND CLEAR OF
TAXES.
All
payments required to be made by Guarantor hereunder shall be made to Agent and
Lenders free and clear of, and without deduction for, any and all present and
future Taxes. If Guarantor shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder, (a) the sum payable shall
be increased as much as shall be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 6)
Agent or Lenders, as applicable, receive an amount equal to the sum they would
have received had no such deductions been made, (b) Guarantor shall make such
deductions, and (c) Guarantor shall pay the full amount deducted to the relevant
taxing or other authority in accordance with applicable law. Within
thirty (30) days after the date of any payment of Taxes, Guarantor shall furnish
to Agent the original or a certified copy of a receipt evidencing payment
thereof. Guarantor shall indemnify and, within ten (10) days of
demand therefor, pay Agent and each Lender for the full amount of Taxes
(including any Taxes imposed by any jurisdiction on amounts payable under this
Section 6) paid
by Agent or such Lender, as appropriate, and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether or not
such Taxes were correctly or legally asserted.
7. OTHER
TERMS.
7.1 Entire
Agreement. This Guaranty constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements relating to a guaranty of the loans and advances under the Loan
Documents and/or the Guaranteed Obligations.
7.2 Headings. The
headings in this Guaranty are for convenience of reference only and are not part
of the substance of this Guaranty.
7.3 Severability. Whenever
possible, each provision of this Guaranty shall be interpreted in such a manner
to be effective and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under applicable law, such provision
shall be
7
ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this
Guaranty.
7.4 Notices. Whenever
it is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other party, or whenever any of the parties desires to
give or serve upon another any such communication with respect to this Guaranty,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be addressed to the party to be
notified as follows:
(a) If
to Agent, at:
General
Electric Capital Corporation
2325
Lakeview Parkway, Suite 700
Alpharetta,
GA 30004
Attention:
Consolidated Amusement Theatres, Inc. Account Manager
Electronic
Transmission Address:
Telecopier
No: 678-624-7903
Telephone
No.: 678-624-7900
with
copies to:
King
& Spalding LLP
1185
Avenue of the Americas
New York,
New York 10036
Attention: Angela
L. Batterson, Esq.
Telecopier
No.: 212-556-2106
Telephone
No.: 212-556-2222
and
General
Electric Capital Corporation
2325
Lakeview Parkway, Suite 700
Alpharetta,
GA 30004
Attention: Corporate
Counsel-Media, Communications and Entertainment
Telecopier
No.: (678) 624-7902
Telephone
No.: (678) 624-7947
(b) If
to any Lender, at the address of such Lender specified in the Credit Agreement
or any Assignment Agreement.
(c) If
to Guarantor, at the address of such Guarantor specified on Schedule I
hereto.
or at
such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived
in writing by the party entitled to receive such notice. Every
notice, demand, request, consent, approval, declaration or other communication
hereunder shall be deemed to have been validly served, given or delivered (i)
upon the earlier of
8
actual
receipt and five (5) Business Days after the same shall have been deposited with
the United States mail, registered or certified mail, return receipt requested,
with proper postage prepaid, (ii) upon transmission, when sent by telecopy or
other similar facsimile transmission (with such telecopy or facsimile promptly
confirmed by delivery of a copy by personal delivery or United States mail as
otherwise provided in this Section 7.4), (iii)
one (1) Business Day after deposit with a reputable overnight carrier with all
charges prepaid, or (iv) when delivered, if hand-delivered by
messenger.
7.5 Successors and
Assigns. This Guaranty and all obligations of Guarantor
hereunder shall be binding upon the successors and assigns of Guarantor
(including a debtor-in-possession on behalf of Guarantor) and shall, together
with the rights and remedies of Agent, for itself and for the benefit of
Lenders, hereunder, inure to the benefit of Agent and Lenders, all future
holders of any instrument evidencing any of the Obligations and their respective
successors and assigns. No sales of participations, other sales,
assignments, transfers or other dispositions of any agreement governing or
instrument evidencing the Obligations or any portion thereof or interest therein
shall in any manner affect the rights of Agent and Lenders
hereunder. Guarantor may not assign, sell, hypothecate or otherwise
transfer any interest in or obligation under this Guaranty.
7.6 No Waiver; Cumulative
Remedies; Amendments. Neither Agent nor any Lender shall by
any act, delay, omission or otherwise be deemed to have waived any of its rights
or remedies hereunder, and no waiver shall be valid unless in writing, signed by
Agent and then only to the extent therein set forth. A waiver by
Agent, for itself and the ratable benefit of Lenders, of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which Agent would otherwise have had on any future
occasion. No failure to exercise nor any delay in exercising on the
part of Agent or any Lender, any right, power or privilege hereunder, shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or future exercise
thereof or the exercise of any other right, power or privilege. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law. None of the terms or provisions of this Guaranty may
be waived, altered, modified, supplemented or amended except by an instrument in
writing, duly executed by Agent and Guarantor.
7.7 Termination. This
Guaranty is a continuing guaranty and shall remain in full force and effect
until the earlier of (a) the Termination Date, or (b) the date upon which
Borrower and its Subsidiaries on a consolidated basis shall have a Leverage
Ratio on the last day of any Fiscal Quarter and for the 12-month period then
ended of less than or equal to 2.75:1.00 (the “Release
Date”). Upon payment and performance in full of the Guaranteed
Obligations, or the occurrence of the Release Date or the Termination Date,
Agent shall deliver to Guarantor such documents as Guarantor may reasonably
request to evidence such termination.
7.8 Counterparts. This
Guaranty may be executed in any number of counterparts, each of which shall
collectively and separately constitute one and the same agreement.
[signature page
follows]
9
IN
WITNESS WHEREOF, the parties hereto have executed and delivered this Guaranty as
of the date first above written.
READING
INTERNATIONAL, INC.
By: /s/ Andrzej
Matyczynski
Name: Andrzej
Matyczynski
Title: CFO
GENERAL
ELECTRIC CAPITAL
CORPORATION, as
Agent
By: /s/ General Electric Capital
Corporation
Its Duly Authorized
Signatory
10
PLEDGE
AND SECURITY AGREEMENT
THIS
PLEDGE AND SECURITY AGREEMENT (this “Agreement”) dated as
of February 22, 2008, is made by READING CONSOLIDATED HOLDINGS, INC., a
Nevada corporation (“Pledgor”), in favor
of NATIONWIDE THEATRES CORP., a California corporation (“Pledgee”).
W I T N E
S S E T H:
WHEREAS,
reference is made to that certain Asset Purchase and Sale Agreement, dated as of
October 8, 2007, by and among Pacific Theatres Exhibition Corp., a California
corporation, Consolidated Amusement Theatres, Inc., a Hawaii corporation,
Michael Forman and Christopher Forman, on the one hand, and Consolidated
Amusement Theatres, Inc., a Nevada corporation (“Buyer”), and Reading
International, Inc., a Nevada corporation, on the other hand, as amended by
Amendment No. 1 thereto entered into as of February 8, 2008 and Amendment
No. 2 thereto entered into on February 14, 2008 (as so amended, the “Purchase
Agreement”);
WHEREAS,
concurrent with the consummation of the transactions contemplated by the
Purchase Agreement and the execution of this Agreement, Pledgee is making a loan
to Pledgor evidenced by a promissory note in favor of Pledgee dated the date
hereof in the principal amount of $21,000,000 (the “Note”);
and
WHEREAS,
Pledgee agrees to make further loans to Pledgor as provided in and to be
evidenced by the Note; and
WHEREAS,
in order to secure all of Pledgor’s obligations to Pledgee under the Note,
Pledgor has agreed to pledge to Pledgee all of the issued and outstanding
capital stock (the “Pledged Shares”) of
Consolidated Amusement Holdings, Inc., a Nevada corporation (“CAH, Inc”), in
accordance with the terms of this Agreement.
NOW,
THEREFORE, in consideration of the premises and the agreements herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. Definition. All
terms used in this Agreement which are defined in Article 9 of the Uniform
Commercial Code (the “Code”) as currently
in effect in the State of California and which are not otherwise defined herein
shall have the same meanings herein as set forth in the Code. The
term “Default”
shall mean the occurrence of a “Default” under the Note or any material breach
of any of Pledgor's representations, warranties or covenants in this
Agreement.
2. Pledge and Grant of Security
Interest and Substituting and Release of Collateral.
(a) As
collateral security for all of the Obligations (as defined in Section 3 hereof),
Pledgor hereby pledges and assigns to Pledgee, and grants to Pledgee a
continuing security interest in, the following (collectively, the “Pledged
Collateral”):
1
(i) the
Pledged Shares, the certificates now or hereafter representing or evidencing the
Pledged Shares and all options and other rights, contractual or otherwise, in
respect thereof; and
(ii) all
proceeds of any and all of the foregoing, including all dividends,
distributions, redemption payments or liquidation payments with respect to the
foregoing;
in each
case, as Pledgor’s interest therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
3. Security for
Obligations. The security interest created hereby in the
Pledged Collateral constitutes continuing collateral security for the following
(collectively, the “Obligations”):
(a) the
prompt payment and satisfaction by Pledgor of all of its liabilities and
obligations under the Note; and
(b) the
performance by Pledgor of all of his obligations arising under, or contemplated
by, this Agreement.
4. Delivery of the Pledged
Collateral. All certificates currently representing the
Pledged Shares shall be delivered to Pledgee concurrently with the execution and
delivery of this Agreement, to be held by it hereunder. All other
certificates and other instruments constituting Pledged Collateral from time to
time shall be delivered to Pledgee promptly upon the receipt thereof by or on
behalf of the Pledgor. All such certificates and instruments shall be
held by Pledgee pursuant hereto and shall be delivered in suitable form for
transfer by delivery or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to
Pledgee.
5. Representations and
Warranties. Pledgor represents and warrants to Pledgee as
follows:
(a) Pledgor
is and will be at all times the record and beneficial owner of the Pledged
Collateral, free and clear of any lien, security interest, option or other
charge or encumbrance, except for the security interest created by this
Agreement.
(b) This
Agreement creates a valid security interest in favor of Pledgee in the Pledged
Collateral, as security for the Obligations. Such security interest
is, or in the case of Pledged Collateral in which Pledgor obtains rights after
the date hereof, will be, a perfected, first priority security
interest.
(c) Pledgor
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada. Pledgor has all requisite power to own, lease and
license its properties and assets and to carry on its business in the manner and
in the places where such properties and assets are owned, leased, licensed or
operated or such business is conducted.
2
(d) Pledgor
has full right, power and authority to enter into this Agreement and to perform
its obligations hereunder. The entry into and performance of this Agreement has
been duly authorized by all necessary action on the part of Pledgor in
accordance with its governing documents and applicable law, and this Agreement
constitutes, and each other document, instrument and agreement to be entered
into by Pledgor pursuant to the terms of this Agreement will constitute, a valid
agreement binding upon and enforceable against Pledgor in accordance with its
terms (except as limited by bankruptcy or similar laws or the availability of
equitable remedies).
(e) The
execution, delivery and performance by Pledgor of this Agreement, and all other
agreements, instruments and documents referred to or contemplated herein or
therein do not require the consent, waiver, approval, license or authorization
of any Person or public authority which has not been obtained and do not and
will not contravene or violate (with or without the giving of notice or the
passage of time or both) the governing documents of Pledgor or any judgment,
injunction, order, law, rule or regulation applicable to
Pledgor. Pledgor is not a party to, or subject to or bound by, any
judgment, injunction or decree of any court or governmental authority or any
lease, agreement, instrument or document which may restrict or interfere with
the performance by Pledgor of this Agreement, or such other leases, agreements,
instruments and documents.
(f) Each
of Pledgor and CAH, Inc. is a newly-formed entity, created for the purpose of
effectuating the transactions contemplated by this Agreement, the Note and the
Purchase Agreement. Neither Pledgor nor CAH, Inc. has conducted any business,
incurred any liabilities nor engaged in any transactions other than in
connection with (i) the organization and formation of Pledgor and CAH, Inc. and
(ii) the negotiation and execution of this Agreement, the Note and the Purchase
Agreement, the documents and instruments contemplated by the Purchase Agreement,
and the consummation of the transactions contemplated hereby and
thereby.
(g) No
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of Pledgor, threatened by
or against Pledgor or CAH, Inc. or against any of their respective properties
including, without limitation, the Pledged Collateral.
(h) Reading
International Services Company, a California corporation and wholly owned
subsidiary of RDI (as defined in the Purchase Agreement), owns, beneficially and
of record, 100% of the outstanding capital stock of Pledgor (determined on a
fully-diluted and as-converted basis). Pledgor owns, beneficially and
of record, 100% of the outstanding capital stock of CAH, Inc. (determined on a
fully-diluted and as-converted basis). CAH, Inc. owns, beneficially
and of record, 100% of the outstanding capital stock of Buyer (determined on a
fully-diluted and as-converted basis). There are not outstanding any
options, warrants or rights to subscribe for or to purchase the capital stock or
any securities convertible into or exchangeable for the capital stock of any of
Pledgor, CAH, Inc. or Buyer. All of the outstanding shares of the
capital stock of each of Pledgor, CAH, Inc. and Buyer are validly issued, fully
paid and nonassessable, and no such shares of capital stock are subject to, or
have been issued in violation of, preemptive rights.
3
All
warranties and representations made herein shall survive the execution and
delivery of this Agreement and the enforcement of some or all of the rights
granted to Pledgee hereunder or pursuant to the Note.
6. Covenants.
(a) So
long as any of the Obligations shall remain outstanding, Pledgor shall, unless
Pledgee shall otherwise consent in writing:
(i)
keep adequate records concerning the Pledged Collateral and permit Pledgee and
its attorneys and other representatives at any reasonable time and from time to
time to examine and make copies of and abstracts from such records;
(ii)
at its expense, promptly deliver to Pledgee a copy of each notice or other
communication received by it in respect of the Pledged Collateral;
(iii) at
its expense, defend the Pledgor’s right, title and interest in and to the
Pledged Collateral and Pledgee’s security interest therein against the claims of
any person;
(iv) not
sell, assign (by operation of law or otherwise), exchange or otherwise dispose
of, or grant any option or warrant with respect to, any Pledged Collateral or
any interest therein;
(v)
not create or suffer to exist any lien, security interest or other charge or
encumbrance upon or with respect to any Pledged Collateral except for the
security interest created hereby;
(vi) not
make or consent to any amendment or other modification or waiver with respect to
any Pledged Collateral or enter into any agreement or permit to exist any
restriction with respect to any Pledged Collateral other than pursuant
hereto;
(vii) not
enter into any transaction which would result in a “Change of Control” of
Pledgor within the meaning of the Note;
(viii) not
cause or permit CAH, Inc. or Buyer to enter into any merger or consolidation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution);
(ix) not
cause or permit CAH, Inc. to dispose of all or any material part of its property
or business; and
(x)
not cause or permit CAH, Inc. or Buyer to issue or agree to issue, or grant any
option or warrant with respect to, any other shares of its capital stock, other
than any such issuances or grants to Pledgor which, when made, shall be
delivered to Pledgee and shall constitute Pledged Collateral
hereunder
(b) In
addition, Pledgor shall not do any of the following:
4
(i)
cause or permit CAH, Inc. to engage in any business or commercial operations
other than holding the capital stock and securities and guaranteeing the
obligations of Buyer;
(ii) cause
or permit CAH, Inc. to incur any indebtedness, except that CAH, Inc. may incur
trade payables in the ordinary course of its business described in
Section 6(b)(i) and indebtedness in connection with CAH, Inc.’s guarantees
of obligations of Buyer; or
(iii) cause
or permit Buyer to make any payments or reimbursements to RDI or any of its
affiliates other than as provided in the Management Agreement attached as an
Exhibit to the Note (provided that it is understood that the obligation of the
Manager under the Management Agreement may be assigned to any affiliate of
RDI)
7. Voting Rights, Dividends,
Etc. in Respect of the Pledged Collateral.
(a) So
long as no Default shall have occurred and be continuing:
(i) Pledgor
may exercise any and all voting and other consensual rights pertaining to any
Pledged Collateral for any purpose not inconsistent with the terms of this
Agreement;
(ii) Pledgor
may receive and retain any and all dividends paid in cash with respect of the
Pledged Collateral; and
(iii) Pledgee
will execute and deliver (or cause to be executed and delivered) to Pledgor all
such proxies and other instruments as Pledgor may reasonably request for the
purpose of enabling Pledgor to exercise the voting and other rights which it is
entitled to exercise pursuant to Section 7(a)(i) hereof, and to receive the
dividends which it is authorized to receive and retain pursuant to Section
7(a)(ii) of this Agreement.
(b) Upon
the occurrence and during the continuance of a Default;
(i) all
rights of Pledgor to exercise the voting and other consensual rights which it
would otherwise be entitled to exercise pursuant to Section 7(a)(i) of this
Agreement, and to receive the dividends which it would otherwise be authorized
to receive and retain pursuant to Section 7(a)(i) of this Agreement, shall
cease, and all such rights shall thereupon become vested in Pledgee, who shall
thereupon have the sole right to exercise such voting and other consensual
rights and to receive and hold as Pledged Collateral such
dividends;
(ii) without
limiting the generality of the foregoing, Pledgee may, at its option, exercise
any and all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to any of the Pledged Collateral as if it were
the absolute owner thereof, including, without limitation, the right to
exchange, in its discretion, any and all of the Pledged Collateral upon the
merger, consolidation, reorganization, recapitalization or other adjustment of
Pledgee, or upon the exercise by Pledgee of any right, privilege or option
pertaining to any Pledged Collateral, and, in connection therewith, to deposit
and deliver any and
5
all of
the Pledged Collateral with any committee, depository, transfer agent, registrar
or other designated agent upon such terms and conditions as it may determine;
and
(iii) all
dividends which are received by the Pledgor contrary to the provisions of
Section 7(b)(i) hereof shall be received in trust for the benefit of Pledgee,
shall be segregated from other funds of Pledgor, and shall be forthwith paid
over to Pledgee as Pledged Collateral in the exact form received with any
necessary endorsement and/or appropriate stock powers duly executed in blank, to
be held by Pledgee as Pledged Collateral and as further collateral security for
the Obligations.
8. Additional Provisions
Concerning the Pledged Collateral.
(a) Upon
the occurrence and during the continuance of a Default, Pledgor hereby
irrevocably appoints Pledgee as Pledgor's attorney-in-fact and proxy, with full
authority in the place and stead of the Pledgor and in name of Pledgor or
otherwise, from time to time in Pledgee’s discretion, to take any action and to
execute any instrument which Pledgee may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation, to
receive, indorse and collect all instruments made payable to the Pledgor
representing any dividend or other distribution in respect of any Pledged
Collateral and to give full discharge for the same.
(b) If
Pledgor fails to perform any agreement or obligation contained herein, Pledgee
itself may perform, or cause performance of, such agreement or obligation, and
the expenses of Pledgee incurred in connection therewith shall be payable by
Pledgor.
9. Remedies Upon Default;
Application of Funds.
(a) Pledgee
may exercise all rights and remedies in respect of the Pledged Collateral
available to a secured party under the Code, by law or otherwise.
(b) Pledgee
may exercise any and all rights and remedies of Pledgor under or in respect of
the Pledged Collateral (including, but not limited to, any and all rights of
Pledgor to demand or otherwise require payment of any amount under, or
performance of any provision of, the Pledged Collateral).
(c) Pledgee
may take possession of the Pledged Collateral.
(d) Pledgee
may, without notice to Pledgor, sell all or any part of the Pledged Collateral
in one or more parcels at public or private sale, at any of Pledgee’s offices,
or elsewhere, for cash, on credit or for future delivery, and upon such other
terms as Pledgee may deem commercially reasonable
(e) Any
cash held by Pledgee as Pledged Collateral and all cash proceeds received by
Pledgee in respect of any sale of, collection from, or other realization upon,
all or any part of the Pledged Collateral shall be applied as
follows:
(i) first,
to the payment of the reasonable costs and expenses, including reasonable
attorneys' fees and legal expenses, incurred by Pledgee in connection with
6
(A) the
administration of this Agreement, (B) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any
Pledged Collateral, (C) the exercise or enforcement of any of the rights of
Pledgee hereunder or (D) the failure of Pledgor to perform or observe any of the
provisions hereof;
(ii) second,
at the option of Pledgee, to the payment or other satisfaction of any liens and
other encumbrances upon any of the Pledged Collateral;
(iii) third,
to the payment of the Obligations;
(iv) fourth,
to the payment of any other amounts required by applicable law; and
(v) fifth,
the surplus proceeds, if any, to Pledgor or to whomsoever shall be lawfully
entitled to receive the same or as a court of competent jurisdiction shall
direct.
10. Expenses. Subject
to Section 8(e) above, each party to this Agreement shall pay all of its own
expenses incurred in connection with this Agreement.
11. Notices,
Etc. All notices and other communications provided for
hereunder shall be in writing and shall be given as provided in the Purchase
Agreement.
12. Miscellaneous.
(a) No
amendment of any provision of this Agreement shall be effective unless it is in
writing and signed by the parties hereto, and no waiver of any provision of this
Agreement, and no consent to any departure by Pledgor therefrom, shall be
effective unless it is in writing and signed by Pledgee, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
(b) No
failure on the part of the Pledgee to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The rights and remedies
of Pledgee provided herein are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law.
(c) Any
provision of this Agreement, which 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 portions
hereof or thereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
(d) Upon
the satisfaction in full of the Obligations, (i) this Agreement and the security
interest created hereby shall terminate and all rights to the Pledged Collateral
shall revert to Pledgor, and (ii) the Pledgee will, upon Pledgor's request, (A)
return to Pledgor such of the Pledged Collateral as shall not have been sold or
otherwise disposed of or applied pursuant to the terms
hereof, and (B) execute and deliver to Pledgor such documents as Pledgor
shall reasonably request to evidence such termination.
7
(e) This
Agreement shall be governed by and construed in accordance with the laws of the
State of California.
(f) Pledgor
agrees that, at any time and from time to time, at Pledgor’s expense, Pledgor
will promptly execute, deliver and file or record all further financing
statements instruments and documents, and will take all further actions, that
may be reasonably necessary or desirable, or that Pledgee may reasonably
request, in order to perfect and protect any pledge or security interest granted
hereby or to enable Pledgee to exercise and enforce its rights and remedies
hereunder with respect to any Pledged Collateral.
(g) If
Pledgor shall fail to do any act or thing which Pledgor has covenanted to do
hereunder or any representation or warranty of Pledgor shall be breached and not
cured or remedied as provided herein, Pledgee may (but shall not be obligated
to) do the same or cause it to be done or remedy any such breach and there shall
be added to the Obligations the cost or expense incurred by Pledgee in so doing,
and any and all amounts expended by Pledgee in taking any such action shall be
repayable to it upon its demand therefor and shall bear interest at the maximum
rate permitted by applicable law from the date advanced to the date of
repayment.
(h) Any
dispute of any nature or character whatsoever between the parties and arising
under or with respect to this Agreement, or the subject matter hereof or
thereof, shall be resolved by a proceeding in accordance with the provisions of
California Code of Civil Procedure Section 638 et seq., for a determination to
be made which shall be binding upon the parties as if tried before a court or
jury. The parties agree specifically as to the
following:
(i) Within
five (5) Business Days after service of a demand by a party hereto, the parties
shall agree upon a single referee who shall then try all issues, whether of fact
or law, and then report a finding or judgment thereon. If the parties
are unable to agree upon a referee either party may seek to have one appointed,
pursuant to California Code of Civil Procedure Section 640, by the presiding
judge of the Los Angeles County Superior Court;
(ii) The
compensation of the referee shall be such charge as is customarily charged by
the referee for like services. The cost of such proceedings shall
initially be borne equally by the parties. However, the prevailing
party in such proceedings shall be entitled, in addition to all other costs, to
recover its contribution for the cost of the reference as an item of damages
and/or recoverable costs;
(iii) If
a reporter is requested by either party, then a reporter shall be present at all
proceedings, and the fees of such reporter shall be borne by the party
requesting such reporter. Such fees shall be an item of recoverable
costs. Only a party shall be authorized to request a
reporter;
(iv) The
referee shall apply all California Rules of Procedure and Evidence and shall
apply the substantive law of California in deciding the issues to be
heard. Notice of any motions before the referee shall be given, and
all matters shall be set at the convenience of the referee;
8
(v) The
referee’s decision under California Code of Civil Procedure Section 644, shall
stand as the judgment of the court, subject to appellate review as provided by
the laws of the State of California; and
(vi) The
parties agree that they shall in good faith endeavor to cause any such dispute
to be decided within four (4) months. The date of hearing for any
proceeding shall be determined by agreement of the parties and the referee, or
if the parties cannot agree, then by the referee. The referee shall have the
power to award damages and all other relief.
(vii) For
purposes of this Agreement, the term “Business Day” means
Monday through Friday, excluding any day of the year on which banks are required
or authorized to close in California.
[Signature page
follows]
9
IN
WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the
date first above written.
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PLEDGOR:
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READING
CONSOLIDATED HOLDINGS, INC.
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By: /s/ Andrzej
Matyczynski
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Name: Andrzej Matyczynski
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Title: Chief Financial Officer
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PLEDGEE:
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NATIONWIDE
THEATRES CORP.
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By: /s/ Ira
Levin
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Name: Ira Levin
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Title: Vice President
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10
PROMISSORY
NOTE
$21,000,000 Los
Angeles, California
February
22, 2008
FOR VALUE RECEIVED, READING
CONSOLIDATED HOLDINGS, INC., a Nevada corporation having an office at 500
Citadel Drive, Suite 300, Commerce, California 90040 (“Maker”), promises to
pay to NATIONWIDE THEATRES CORP., a California corporation ("Holder"), or order,
at 120 N. Robertson Boulevard, Los Angeles, California 90048, or at such other
address as Holder may designate from time to time, without presentation,
the principal amount of Twenty One Million Dollars
($21,000,000). Unless payable earlier as provided below in this
Promissory Note (this “Note”), the entire
principal balance of this Note, together with interest on such principal balance
as provided herein, shall be due and payable on February 21, 2013 (the “Maturity
Date”). Interest shall accrue on the unpaid principal balance
of this Note at interest rates per annum (calculated for the actual number of
days elapsed on the basis of a 365-day year) as follows: (1) with respect to
Eight Million Dollars ($8,000,000) of the principal amount hereof (the “$8,000,000 Portion”),
at annual rates equal to (i) 7.50%, for the period from the date hereof through
and including February 21, 2010, and (ii) 8.50%, for the period from February
22, 2010 through the Maturity Date, and (2) with respect to Thirteen Million
Dollars ($13,000,000) of the principal amount hereof (the “$13,000,000
Portion”), at annual rates equal to (i) 6.50%, for the period from the
date hereof through and including July 31, 2009, and (ii) 8.50%, for the period
from August 1, 2009 through the Maturity Date. All accrued interest
under this Note (including all interest accrued on the borrowings made pursuant
to Section 4 below) shall be due and payable on February 21, 2011; thereafter,
accrued interest under this Note (including all interest accrued on the
borrowings made pursuant to Section 4 below) shall be due and payable, in
arrears, on the last day of each calendar quarter, commencing on June 30,
2011. Any
reduction, adjustment or prepayment of interest or principal of this Note shall
be applied first against the $8,000,000 Portion, and next against the
$13,000,000 Portion.
1. Mandatory
Prepayments. Notwithstanding the above, Maker shall pay to
Holder, as a mandatory prepayment hereunder, an amount equal to 50% of the
cumulative sum of any dividends or other distributions paid to Maker prior to
the Maturity Date by Consolidated Amusement Holdings, Inc., a Nevada
corporation, in excess of the sum of (i) $1,000,000 per year (the
“Excluded
Dividends”), plus (ii) any interest paid on this Note other than pursuant
to this sentence. Notwithstanding the foregoing, no sale or other
transfer by “Buyer” (as defined below) or any affiliate of Buyer of any interest
in the Dallas Angelika theater located at Mockingbird Center in Dallas, Texas to
Maker or any affiliate of Maker shall require Maker to make any mandatory
prepayments pursuant to this Section 1; provided, however, that from and after
the date of such transfer, the maximum annual amount of Excluded Dividends shall
be reduced from $1,000,000 to $750,000. Maker shall afford Holder
with reasonable
1
access to
the books and records of Maker and all applicable affiliates of Maker necessary
to confirm the accuracy of the payments, if any, to which Holder is entitled
pursuant to the immediately preceding sentence. Any payments made under the
second immediately preceding sentence shall be applied first against accrued
interest and then against principal. Maker may, in the alternative,
elect at any time to substitute for this mandatory pre-payment obligation the
guarantee of Reading International, Inc., a Nevada corporation (“RDI”), of all
of Maker’s obligations under this Note in a form reasonably acceptable to
Holder, in which case any obligation to make the mandatory pre-payments provided
for under the terms of this paragraph shall cease upon the delivery of such
guarantee.
2. Acceleration. Notwithstanding
the foregoing, all accrued interest and the entire unpaid principal balance of
this Note shall become immediately due and payable upon written notice from
Holder to Maker in the event that either Maker, Buyer or RDI, fails to perform
in any material respect their respective indemnification obligations under (i)
the Asset Purchase and Sale Agreement dated as of October 8, 2007 by and among
Pacific Theatres Exhibition Corp., a California corporation, Consolidated
Amusement Theatres, Inc., a Hawaii corporation, Consolidated Amusement Theatres,
Inc., a Nevada corporation (“Buyer”), and the
other parties thereto (as amended from time to time, the “APSA”) or (ii) any
other document, instrument or agreement entered into among Buyer, Maker, RDI and
any affiliate of Holder in connection with or with respect to the properties
affected by the APSA, in each case within the time period required by the APSA
or such other document, instrument or agreement (or, if any such document,
instrument or agreement does not contain such a time period, within thirty (30)
days after receipt by Maker, Buyer or RDI, as applicable, of notice of the
claim, action, lawsuit, proceeding, investigation or demand giving rise to such
indemnification obligation).
3. Reductions in Principal
Amount. The principal amount of and interest on this Note are
subject to reduction as provided in Section 2.5 of the APSA. In
addition, the principal amount and interest on this Note are subject to
reduction as follows:
(a) The Competitive Project
Adjustment:
(i) In
the event that a Competitive Cinema Project (as defined below) first opens for
business to the public on a full-time basis on or before the fifth anniversary
of the date of this Note, then the principal amount of this Note will be reduced
by the difference between (a) $14,700,000 and (b) the Bakersfield Cinema
Purchase Price. The “Bakersfield Cinema Purchase
Price” will be equal to the sum of (i) the Bakersfield Adjusted Cash Flow
Multiple Amount and (ii) the Bakersfield Excess Cash Flow Amount. The
“Bakersfield Adjusted
Cash Flow Multiple Amount” means: (1) if the positive Theater
Level Cash Flow (as defined in the APSA) generated by Bakersfield Cinema (as
defined below) during the twelve-month period beginning as of the first day of
the first calendar month after the first such Competitive Cinema Project is
first fully open for business on a full-time basis (the
2
“Bakersfield Adjusted Cash
Flow” and the “Bakersfield Measurement
Period,” respectively) is greater than $1,000,000, then the Bakersfield
Adjusted Cash Flow Multiple Amount shall equal the Bakersfield Adjusted Cash
Flow multiplied by seven; (2) if the Bakersfield Adjusted Cash Flow is
$1,000,000 or less, but greater than $500,000, then the Bakersfield Adjusted
Cash Flow Multiple Amount shall equal the Bakersfield Adjusted Cash Flow
multiplied by six; and (3) if the Bakersfield Adjusted Cash Flow is $500,000 or
less, then the Bakersfield Adjusted Cash Flow Multiple Amount shall be
zero. The “Bakersfield Excess Cash Flow
Amount” means the difference between (x) the aggregate positive Theater
Level Cash Flow generated by the Bakersfield Cinema during the period commencing
with the Closing (as defined in the APSA) and ending on the last day of the
month in which the first such Competitive Cinema Project fully opens for
business to the public on a full-time basis (the “Pre-Opening Period”)
and (y) the Bakersfield Adjusted Cash Flow multiplied by a fraction, the
numerator of which is the number of days in the Pre-Opening Period and the
denominator of which is 365. For purposes of this Note, the
term “Bakersfield
Cinema” means that certain cinema described on Exhibit A-1 of the
APSA as the Valley Plaza 16; and the term “Competitive Cinema
Project” means a new multiplex cinema showing predominantly first run,
mainstream films, located either (i) in the area bounded by California Avenue,
Chester Avenue, Truxtun Avenue and S Street in downtown Bakersfield, California
or (ii) at the East Hills Mall, located at 3000 Mall View Road, Bakersfield, CA
93306 (which shall include, for this purpose, any such cinema located within the
current boundaries of the East Hills Mall, any such cinema located on any
property adjacent to or contiguous with the current boundaries of the East Hills
Mall, or any such cinema included in any expansion of the East Hills
Mall).
(ii) Maker
will each year cause to be prepared and delivered to Holder stand alone
operating statements for the Bakersfield Cinema in substantially the form of
Exhibit A
attached hereto, prepared in accordance with generally accepted accounting
principles (“GAAP”) (but without
footnotes), and certified by RDI’s Chief Financial Officer (each, a “Bakersfield Cinema Operating
Statement”). The first Bakersfield Cinema Operating Statement
will be for the period commencing as of the date hereof and continuing until
December 31, 2008 and shall be due not later than March 31,
2009. Thereafter, Maker shall cause a Bakersfield Cinema Operating
Statement for each succeeding calendar year (or, with respect to the calendar
year during which the Competitive Cinema Project fully opens for business to the
public on a full-time basis, the partial calendar year ending on the last day of
the Pre
3
Opening
Period) to be prepared and delivered to Holder within ninety (90) days following
the end of such calendar year (or partial calendar
year) Additionally, within sixty (60) days after the end of the
Bakersfield Measurement Period, Maker will cause to be prepared and delivered to
Holder (i) a Bakersfield Cinema Operating Statement for the Bakersfield
Measurement Period, and (ii) a written statement setting forth in reasonable
detail Maker’s calculation of the Bakersfield Cinema Purchase Price, including
Maker’s calculation of the Bakersfield Adjusted Cash Flow Multiple Amount and
the Bakersfield Excess Cash Flow Amount (the “Bakersfield Adjusted Cash
Flow Statement”).
(iii) Maker
shall keep at Maker’s principal executive offices located in California accurate
and complete books and records that reflect the results of operations of
the Bakersfield Cinema for all periods covered by the Bakersfield Cinema
Operating Statements. Such books and records shall be retained by
Maker for at least two (2) years after the expiration of the calendar year to
which they relate. Holder shall have the right, once during each
calendar year and once within ninety (90) days after receipt of the Bakersfield
Adjusted Cash Flow Statement, upon not less than ten (10) days advance notice to
Maker, to audit or cause to be audited such books and records at such
offices. Such audit will be conducted by Deloitte & Touche, or
such other firm of independent accountants as may be selected by Maker and
Holder (each acting reasonably). Costs of any such audit shall be paid by Holder
unless the audit shows that Maker has understated the positive Theater Level
Cash Flow of the Bakersfield Cinema in any Bakersfield Cinema Operating
Statement by more than three percent (3%), in which case Maker shall pay the
entire reasonable cost of said audit. Holder shall keep any
information gained from such audit confidential other than in litigation or
arbitration between the parties.
(iv) If
Holder disputes Maker’s determination of the Bakersfield Cinema Purchase Price,
it shall deliver to Maker a statement notifying Maker of such dispute within
thirty (30) days after its receipt of the Bakersfield Adjusted Cash Flow
Statement. If Holder notifies Maker of its acceptance of the
Bakersfield Adjusted Cash Flow Statement, or if Holder fails to deliver its
statement within the thirty (30) day period specified in the preceding sentence,
Maker’s determination of the Bakersfield Cinema Purchase Price as set forth in
the Bakersfield Adjusted Cash Flow Statement shall be conclusive and binding on
the parties as of the date of notification of such acceptance or the last day of
the thirty (30) day period. Holder and Maker shall use good faith
efforts to resolve any dispute involving the determination of
4
the
Bakersfield Cinema Purchase Price. If the parties are unable to
resolve the dispute within sixty (60) days after Maker delivers the Bakersfield
Adjusted Cash Flow Statement to Holder, the dispute shall be resolved by the
Designated Arbitrator or the Replacement Arbitrator (each as defined in the
APSA) pursuant to the mechanism set forth in Section 2.2.3.4 of the
APSA.
(v) If
Buyer temporarily closes the Bakersfield Cinema for business at any time during
the Bakersfield Measurement Period for a period of more than two days (or for a
period of more than five days in any given period of thirty days), including due
to the occurrence of a casualty or event of force majeure or for renovation, the
actual Theater Level Cash Flow applicable to the Bakersfield Cinema for purposes
of Section 3(a)(i) for the period in which the Bakersfield Cinema is closed
shall be adjusted with the intentions of normalizing the Theatre Level Cash Flow
for the Pre-Opening Period and the Bakersfield Measurement Period in order to
fairly adjust for such closure. Any dispute in this regard shall be
resolved by arbitration as provided in Section 2.2.3.4 of the APSA.
(vi)
Notwithstanding the foregoing, there shall be no reduction in the principal
amount of this Note pursuant to this Section 3(a) if Buyer sells the Bakersfield
Cinema to a third party or permanently closes the Bakersfield Cinema for
business to the public at any time during the Pre-Opening Period or the
Bakersfield Measurement Period; provided, however, that if Buyer sells the
Bakersfield Cinema to a third party and such third party (or its successor) (the
“Bakersfield
Assignee”) continues to keep open for business the Bakersfield Cinema
during such periods, then Maker shall be entitled to reduction in the principal
amount of this Note to the extent permitted by this Section 3(a) so long as the
then current Bakersfield Assignee assumes in writing for the benefit of Holder,
and at all relevant times complies with, Maker’s reporting obligations and
obligations to allow Holder to conduct audits, each as set forth in this Section
3(a).
(vii) Set
forth below are certain examples of how the adjustment described above in this
Section 3(a) would operate with respect to the Bakersfield Cinema.
Example
#1. If the Competitive Theater Project opens on the second anniversary of the
Closing Date, the Theater Level Cash Flow for the Bakersfield Cinema remains
constant at $2,100,000 per year during the entire Pre-Opening Period, and that
following the opening of the Competitive Theater Project, the Bakersfield
Adjusted Cash Flow drops to $1,100,000 for the
5
Bakersfield
Measurement Period, the outstanding principal amount of this Note will be
reduced by $5,000,000 (i.e., $14,700,000 less the sum of (i) seven times
$1,100,000 (or $7,700,000) plus (ii) two years of the difference between
$2,100,000 and $1,100,000 (or $2,000,000)).
Example
#2. Same as Example #1 but the Bakersfield Adjusted Cash Flow drops to
$100,000 during the Bakersfield Measurement Period. In this case, the
outstanding principal amount of this Note will be reduced by $10,700,000 (i.e.,
$14,700,000 less the sum of (i) zero times $100,000 (or $0.00) plus (ii) two
years of the difference between $2,100,000 and $100,000 (or
$4,000,000)).
Example
#3: Same as Example #1 but the Bakersfield Adjusted Cash Flow drops to
$700,000 during the Bakersfield Measurement Period. In this case, the
outstanding principal amount of this Note would be reduced by $7,700,000 (i.e.,
$14,700,000 less the sum of (i) six times $700,000 (or $4,200,000) plus (ii) two
years of the difference between $2,100,000 and $700,000 (or
$2,800,000).
(viii) For
illustrative purposes, the parties acknowledge and agree that the Theater Level
Cash Flow of the Bakersfield Cinema for the 12 month period ended June 28, 2007
was $2,001,477.
(b) The Kapolei
Adjustment:
(i) In
the event that Buyer (or its successors or assigns) has within 30 months of the
Closing Date either expended at least $3,000,000, or entered into binding
contracts providing for the expenditure of at least $3,000,000 (provided that if
$3,000,000 is not expended within the first 30 months, contracts are in place
providing for the expenditure of funds which, when added to the funds previously
expended, aggregate to at least $3,000,000 and an aggregate of at least
$3,000,000 is expended within 33 months of the date hereof), in the improvement
or refurbishment (including without limitation demolition and waste removal
costs in connection with such improvement or refurbishment) of the property
subject to the Kapolei 16 Lease (as defined in Exhibit A-1 to the
APSA) (the “Kapolei Property”),
then the principal amount of this Note will be reduced by the amount of
$5,700,000. Maker agrees to cause Buyer to keep an maintain for at
least four years following the date hereof copies of underlying invoices and
records supporting such expenditures, and to allow Holder (and
6
Holder’s
representatives) reasonable access to such underlying invoices and records for
audit purposes.
(ii) In
the event that Buyer (or its successors or assigns) does not expend the amounts
specified above within the time frames set forth above, then and in the event
that a first run multiplex cinema first opens for business to the public at the
“McNaughton Project” (also called the “Kapolei Commons” project) (the “Competitive Kapolei
Cinema”), which project is to be located on Kalaeloa Boulevard, between
the H1 Freeway and Kapolei Parkway, in Oahu, Hawaii, on or before the fifth
anniversary of the date hereof, the principal amount of this Note will be
reduced by the difference between (a) $5,700,000 and (b) the Kapolei Cinema
Purchase Price. The “Kapolei Cinema Purchase
Price” will be equal to the positive Theater Level Cash Flow generated by
Kapolei Cinema (as defined below) during the twelve-month period beginning as of
the first day of the first calendar month after the Competitive Kapolei Cinema
fully opens for business to the public on a full-time basis (the “Kapolei Adjusted Cash
Flow” and the “Kapolei Measurement
Period,” respectively) multiplied by five; provided that if the Kapolei
Adjusted Cash Flow is zero or less, then the reduction shall be
$5,700,000. For purposes of this Note, the term “Kapolei Cinema” means
the cinema improvements comprising a portion of the improvements subject to the
Kapolei 16 Lease.
(iii) If
Buyer temporarily closes the Kapolei Cinema for business at any time during the
Kapolei Measurement Period for a period of more than two days (or for a period
of more than five days in any given period of thirty days), including due to the
occurrence of a casualty or an event of force majeure, or for renovation, the
actual Theater Level Cash Flow applicable to the Kapolei Cinema for purposes of
clause 3(b)(ii) for the period in which the Kapolei Cinema is closed shall be
adjusted with the intentions of normalizing the Theatre Level Cash Flow for the
Kapolei Measurement Period in order to fairly adjust for such
closure. Any dispute in this regard shall be resolved by arbitration
as provided in Section 2.2.3.4 of the APSA.
(iv) If
the provisions of clause 3(b)(ii) rather than the provisions of clause 3(b)(i)
are then applicable (in other words, if Maker has not expended or committed to
expend and then expended the $3,000,000 amount referenced in clause 3(b)(i) as
provided in clause 3(b)(i)), and if Buyer sells the Kapolei Cinema to a third
party or permanently closes the Kapolei Cinema for business to the public at any
time during the Kapolei Measurement Period, then the principal amount of this
Note shall not be reduced
7
pursuant
to this Section 3(b); provided, however, that if Buyer sells the Kapolei Cinema
to a third party and such third party (or its successor) (the “Kapolei Assignee”) continues
to keep open for business the Kapolei Cinema during such periods, then Maker
shall be entitled to reduction in the principal amount of this Note to the
extent permitted by this Section 3(b) so long as the then current Kapolei
Assignee assumes in writing for the benefit of Holder, and at all relevant times
complies with, Maker’s reporting obligations and obligations to allow Holder to
conduct audits, each as set forth in this Section 3(b).
(v) Maker
will cause to be prepared and delivered to Holder stand alone operating
statements for the Kapolei Cinema in substantially the form of Exhibit A attached
hereto, prepared in accordance with GAAP (but without footnotes), and certified
by RDI’s Chief Financial Officer for the period of the Kapolei Measurement
Period, such statements to be delivered within sixty (60) days after the end of
the Kapolei Measurement Period together with a written statement setting forth
in reasonable detail Maker’s calculation of the Kapolei Cinema Purchase Price
(the “Kapolei Adjusted
Cash Flow Statement”).
(vi) Maker
shall keep at Maker’s principal executive offices located in California accurate
and complete books and records that reflect the results of operations of
the Kapolei Cinema for all periods covered by the Kapolei Cinema Adjusted Cash
Flow Statement. Such books and records shall be retained by Maker for
at least two (2) years after the expiration of the calendar year to which they
relate. Holder shall have the right within ninety (90) days after
receipt of the Kapolei Adjusted Cash Flow Statement, upon not less than ten (10)
days advance notice to Maker, to audit or cause to be audited such books and
records at such offices. Such audit will be conducted by Deloitte
& Touche, or such other firm of independent accountants as may be selected
by Maker and Holder (each acting reasonably). Costs of any such audit shall be
paid by Holder unless the audit shows that Maker has understated the positive
Theater Level Cash Flow of the Kapolei Cinema by more than three percent (3%),
in which case Maker shall pay the entire reasonable cost of said
audit. Holder shall keep any information gained from such audit
confidential other than in litigation or arbitration between the
parties.
(vii) If
Holder disputes Maker’s determination of the Kapolei Cinema Purchase Price, it
shall deliver to Maker a statement notifying Maker of such dispute within thirty
(30) days after its receipt of the Kapolei Adjusted Cash Flow
Statement. If Holder notifies Maker of its acceptance of the Kapolei
Adjusted
8
Cash Flow
Statement, or if Holder fails to deliver its statement within the thirty (30)
day period specified in the preceding sentence, Maker’s determination of the
Kapolei Cinema Purchase Price as set forth in the Kapolei Adjusted Cash Flow
Statement shall be conclusive and binding on the parties as of the date of
notification of such acceptance or the last day of the thirty (30) day
period. Holder and Maker shall use good faith efforts to resolve any
dispute involving the determination of the Kapolei Cinema Purchase
Price. If the parties are unable to resolve the dispute within sixty
(60) days after Maker delivers the Kapolei Adjusted Cash Flow Statement to
Holder, the dispute shall be resolved by the Designated Arbitrator or the
Replacement Arbitrator pursuant to the mechanism set forth in Section 2.2.3.4 of
the APSA.
(viii) For
illustrative purposes, the parties acknowledge and agree that the Theater Level
Cash Flow of the Kapolei Cinema for the 12 month period ended June 28, 2007 was
$1,139,390.
(c) 2007 TLCF
Adjustment.
(i) If
the Theater Level Cash Flow (as defined in the APSA) of the Theaters (as defined
in the APSA) for the 12 month period ended December 27, 2007 (the “2007 TLCF”) is less
than the aggregate amount of Eleven Million Two Hundred Thousand Dollars
($11,200,000) (the “TLCF Threshold”),
then the principal amount of this Note shall be reduced by (a) the amount by
which the 2007 TLCF is less than the TLCF Threshold, multiplied by (b) seven;
provided, however, that the amount by which the principal amount of this Note
may be reduced pursuant to this Section 3(c) shall not exceed the sum of Six
Million Two Hundred Fifty Thousand Dollars ($6,250,000).
(ii) Not
later than February 28, 2008, Holder shall deliver to Maker a Theater Level Cash
Flow Report for the Theaters showing Holder’s calculation of the 2007 TLCF (the
“2007
Report”). The 2007 Report shall be prepared in
accordance with GAAP (other than the exclusion of certain financial statements
and the lack of footnote disclosures that are require by GAAP) and otherwise
shall be in substantially in the form of the “Theater P&Ls” (as defined in
the APSA).
(iii) Holder
shall keep at Holder’s principal executive offices located in California
accurate and complete books and records that reflect the results of operations
of the Theaters for the period covered by the 2007 Report. Maker
shall have the right within thirty (30) days after receipt of the 2007 Report,
upon not less than ten (10) days advance notice to Holder, to audit or cause
9
to be
audited such books and records at such offices. Such audit will be
conducted by Deloitte & Touche, or such other firm of independent
accountants as may be selected by Maker and Holder (each acting reasonably). All
of the costs of any such audit shall be paid by Maker, unless the audit shows
that Holder has overstated the positive 2007 TLCF by more than three percent
(3%), in which case Holder shall pay the entire reasonable cost of said
audit. Maker shall keep any information gained from such audit
confidential other than in litigation or arbitration between the
parties.
(iv) If
Maker disputes Holder’s determination of the 2007 TLCF, it shall deliver to
Holder a statement notifying Holder of such dispute within ninety (90) days
after its receipt of the 2007 Report. If Maker notifies Holder of its
acceptance of the 2007 Report, or if Maker fails to deliver its statement within
the ninety (90) day period specified in the preceding sentence, Holder’s
determination of the 2007 TLCF as set forth in the 2007 Report shall be
conclusive and binding on the parties as of the date of notification of such
acceptance or the last day of the ninety (90) day period. Holder and
Maker shall use good faith efforts to resolve any dispute involving the
determination of the 2007 TLCF. If the parties are unable to resolve
the dispute within one hundred twenty (120) days after Holder delivers the 2007
Report to Maker, the dispute shall be resolved by the Designated Arbitrator or
the Replacement Arbitrator (each as defined in the APSA) pursuant to the
mechanism set forth in Section 2.2.3.4 of the APSA.
(d) Outstanding Principal
Balance Adjustment. On each anniversary date of the Closing
Date (as defined in the APSA) occurring prior to the Maturity Date, commencing
February 22, 2009, the principal amount of this Note shall be reduced by an
amount equal to 0.5% of the average outstanding principal balance under Buyer’s
credit facilities with General Electric Capital Corporation and certain other
lenders to be entered into at the Closing (as defined in the APSA) (the “GECC Facility”) for
the immediately preceding 12 month period; provided, however, that for purposes
of this provision, the average outstanding principal balance of the GECC
Facility will be calculated without taking into account (a) any principal amount
outstanding on the GECC Facility in excess of $50,000,000 or (b) any increase in
the principal amount outstanding on the GECC Facility in any 12 month period
from the average outstanding principal balance of the GECC Facility for the
immediately preceding 12 month period. For example, if the
average outstanding principal balance of the GECC Facility in any such 12 month
period is $40,000,000, the
10
principal
balance of this Note shall be reduced by $200,000 in respect of such 12 month
period. Any reduction in the principal balance of this Note
pursuant to this paragraph in respect of any such 12 month period shall be
conditioned upon Maker’s delivery to Holder of a certificate of RDI’s Chief
Financial Officer certifying as to the average outstanding principal balance of
the GECC Facility for such 12 month period. Notwithstanding the
foregoing, Maker shall be entitled to reductions of the principal balance of
this Note only for so long as the GECC Facility is outstanding, and shall not be
entitled to any further reductions in the principal balance of this Note from or
after the repayment or refinancing of the GECC Facility or in respect of any
other loan or credit facilities from any party. Maker represents and
warrants to Holder that (i) RDI is, subject to certain limitations disclosed in
writing to Holder on or prior to the date hereof, guaranteeing Buyer’s
obligations under the GECC Facility, and (ii) the interest rate spread payable
under the GECC Facility has increased by 100 basis points from the interest rate
spread initially committed, and Maker acknowledges and agrees that such
representations and warranties are material inducements to Holder to agree to
the provisions of this paragraph and of Section 4 of this Note.
(e) In
the event of any adjustment in the principal amount of this Note as provided in
Section 2.5 of the APSA or as set forth above, interest will be adjusted
proportionally, as though such adjusted principal amount had been the initial
principal amount of this Note. In the event that (i)
a Competitive Cinema Project opens after the fourth anniversary of
the date hereof or (ii) the Competitive Kapolei Cinema Project opens after the
fourth anniversary of the date hereof and the Note is subject to adjustment
under clause 3(b)(ii), above, then the Maturity Date will be extended for one
year, in order to allow time for calculation of any adjustment to the principal
amount of this Note and the accrued interest on such adjusted principal
amount.
(f) In
the event that payments of interest and principal on this Note shall have
reduced the principal amount of, and the then accrued and unpaid interest on,
this Note to an amount below the adjusted interest and principal, then Seller
will repay such overpayment to Maker within 10 days after the determination
thereof, together with interest thereon at the rate of 8.5% per annum,
compounded quarterly in arrears. Any payments of interest made which
are in excess of the amounts which should have been paid, had the principal
amount of this Note been initially as so adjusted will be deemed to have been
pre-payments of principal. Any repayment or payment obligation
on the part of
11
Holder
not timely made will bear interest at the Default Rate (as such term is defined
below) until paid in full.
4. Covenant Support
Loan. If, any time prior to the Maturity Date, Buyer is in
breach or anticipates that it will likely be in breach of its financial
covenants under the GECC Facility, but the additional infusion of equity capital
into Buyer would cure or prevent such breach (a “Potential Covenant
Breach”), Maker shall be permitted to borrow from Holder, and Holder
commits to loan to Maker, the amount of Three Million Dollars ($3,000,000) (the
“Covenant Support
Loan”). Holder shall not be obligated to make more than one
Covenant Support Loan. The full amount of the Covenant Support Loan
shall be added to the outstanding principal balance of this Note and shall be
deemed part of the $8,000,000 Portion. Holder’s obligation to
make the Covenant Support Loan shall be subject to the following conditions: (i)
Maker shall deliver to Holder a written request for the Covenant Support Loan,
which request shall be accompanied by reasonable evidence of the Potential
Covenant Breach certified by RDI’s Chief Financial Officer and shall be
delivered to Holder not less than 45 days before the draw down date specified in
such written request, and (ii) all of the proceeds of the Covenant Support Loan
shall be used to pay down the GECC Facility within five business days after
Maker’s receipt of the Covenant Support Loan and Maker shall deliver reasonable
evidence of the same to Holder within three business days after such payments
are made on the GECC Facility. Notwithstanding the foregoing,
Holder shall be obligated to make the Covenant Support Loan only for so long as
RDI’s guaranty of the GECC Facility is outstanding, and shall not be obligated
to make the Covenant Support Loan from or after the earlier of the date on which
such guaranty is terminated or released or the date on which the GECC Facility
is repaid or refinanced.
5. Pledge
Agreement. This Note is secured by a pledge and security
agreement dated of even date herewith (the “Pledge
Agreement”).
6. Optional
Prepayment. Maker may prepay this Note in full or in part,
without premium or penalty, upon not less than ten (10) days’ prior written
notice to Holder. All payments received hereunder shall be applied
first to any accrued but unpaid interest and the remainder to the unpaid
principal balance. No prepayment permitted
hereunder
shall affect the obligation of Maker to pay as provided hereunder.
7. Reimbursement of
Costs. Maker shall pay to Holder upon demand or reimburse
Holder for all costs and expenses (including reasonable attorneys’ fees)
incurred by or on behalf of Holder following any “Defaults” (as defined below)
in connection with the enforcement of the rights of Holder under this
Note.
8. Default
Interest. In the event of any failure to pay any installment
of principal or interest under this Note when due, or after the occurrence of
any other Default, and for so long as such Default continues regardless of
whether or not there has been an acceleration of this Note, or if the
outstanding principal balance hereof and all accrued interest are not paid in
full on the Maturity Date (as the same may be accelerated pursuant to the terms
of this Note), Maker shall thereafter pay interest on the principal balance of
this Note from the date such installment of principal or interest was due, the
12
date of
such Default or the Maturity Date, as the case may be, until the date on which
any such installment is paid or such Default is cured, at a rate per annum
(calculated for the actual number of days elapsed on the basis of a 365-day
year), equal to the then current interest rate payable under this Note, plus
five percent (5%) (the "Default Rate"), and all such accrued interest shall be
paid in full as a condition precedent to the curing of such Default or the
repayment of this Note in full; provided, however, that such interest rate shall
in no event exceed the maximum interest rate which Maker may pay pursuant to
applicable law.
9. Defaults Each
of the following shall constitute defaults or breaches (“Defaults”) under this
Note by Maker:
(a) Failure
to make any payment of principal or interest when due under this Note, or any
breach by Maker of any other covenant contained in this Note, which failure or
breach is not cured within five (5) calendar days after written notice thereof
from Holder to Maker;
(b) Any
breach of any representation or warranty of Maker contained in this Note,
including, without limitation, any of the representations and warranties
contained in Section 14 of this Note;
(c) The
bankruptcy or insolvency of Maker or the making by Maker of an assignment for
the benefit of creditors or the admission by Maker in writing of its inability
to pay its debts generally as they become due, or the taking of action by Maker
in furtherance of any such action, provided, however, that in the case of an
involuntary bankruptcy petition filed against Maker, the same is not dismissed
within sixty (60) calendar days; or the appointment of a receiver with respect
to all or any part of Maker's property, where possession is not restored to
Maker within sixty (60) calendar days;
(d) The
occurrence of a “Change of Control” involving Maker. For purposes
hereof, a “Change of
Control” means any transaction or series of related transactions as a
result of which: (i) any individual, entity or group (as the term “group” is
defined in Section 13(d) of Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder) other than James J. Cotter and his heirs or
any one or more of his or their respective affiliates (collectively, “Cotter”) acquires
direct or indirect beneficial ownership of securities of Maker representing more
than fifty percent (50%) of the combined voting power of the then-outstanding
securities of Maker; or (ii) Maker consummates a merger, reorganization or
consolidation or sells all or substantially all of its assets (each such
transaction being referred to as a “Transaction”), unless
Cotter beneficially owns, directly or indirectly, immediately after the
consummation of the Transaction, in the aggregate, at least fifty percent (50%)
of the combined voting power of the then-outstanding securities of the entity
surviving or resulting from such Transaction (such Transaction, an “Excepted
Transaction”); or (iii) the dissolution or liquidation of Maker (each
such occurrence being referred to as a “Dissolution Event”),
unless Cotter beneficially owns, directly or indirectly, immediately after the
occurrence of the Dissolution Event. In the aggregate, at least fifty percent
(50%) of the combined voting power of the then-outstanding securities of the
entity or entities to which the assets
13
and
properties of Maker are distributed pursuant to such Dissolution
Event. Notwithstanding the foregoing, no Transaction involving Maker
and any Affiliate of Maker shall be deemed a Change of Control so long as Cotter
beneficially owns, directly or indirectly, immediately after the consummation of
the Transaction, in the aggregate, at least fifty percent (50%) of the combined
voting power of the then-outstanding securities of the entity surviving or
resulting from such Transaction; and
(e)
So long as Holder is in compliance with its obligations under the Note,
including its obligations under Section 4, above, the breach or default by Buyer
of any of its material obligations under the GECC Facility, where such breach or
default is not cured prior to the expiration of all applicable notice and cure
periods;
(f) The
occurrence of a “Default” (as such term is defined in the Pledge Agreement)
under the Pledge Agreement;
Provided,
however, that any Default under any one or more of clauses (b) through (f) above
may be cured by a guarantee by RDI of Maker’s obligations under this Note, in a
form reasonably acceptable to Holder.
10. Remedies upon a
Default. Upon the occurrence of any Default, and in addition
to any other rights or remedies available to Holder under applicable law or
otherwise, the entire principal balance and all accrued interest shall, at the
option of Holder, become due and payable upon demand. Maker shall
also pay all reasonable costs of collection in connection with the enforcement
of this Note, including, without limitation, reasonable attorneys' fees
incurred or paid by Holder on account of such collection, whether or not suit is
filed. Failure by Holder to enforce any remedy granted to it
hereunder shall not excuse any Default under this Note and no offset for claims
for such noncompliance may be made against any payment due hereunder. Any
pre-payment of this Note and any acceleration of this Note solely arising from a
Default under Section 9(e) above shall not impact the adjustment provisions set
forth in Section 3 above, which adjustment provisions shall survive any such
pre-payment or acceleration.
11. Waivers. Except
as otherwise provided in this Note, Maker waives all redemption rights of any
nature, valuation and appraisement, presentment, protest and demand, notice of
protest, demand and dishonor, and non-payment of this Note, and all other
notices or demands in connection with the delivery, acceptance, performance
or enforcement of this Note, in each case to the maximum extent permitted by
law.
12. Non-Cumulative
Remedies. The remedies of Holder under or by virtue of this
Note shall be cumulative and non-exclusive, and may be exercised concurrently or
consecutively at the option of Holder. No single or partial exercise
of any power granted to Holder under this Note shall preclude any other or
further exercise thereof or the exercise of any other power. No delay
or omission on the part of Holder in exercising any right under this Note shall
operate as a waiver of such right or of any other right.
14
13. Maximum Interest
Rate. No provision of this Note shall be deemed to establish
or require the payment of interest at a rate in excess of the maximum rate
permitted by applicable law. In the event that the rate of interest
required to be paid under this Note exceeds the maximum rate permitted by
applicable law, any amounts paid in excess of such maximum shall be applied to
reduce the unpaid principal balance hereunder and the rate of interest required
hereunder shall be automatically reduced to the maximum rate permitted by
applicable law.
14. Maker’s Representations and
Warranties. Maker hereby represents and warrants to Holder as
follows, which representations and warranties shall survive the execution and
delivery of this Note:
(a) Maker
is a corporation duly formed and validly existing under the laws of the State of
Nevada and qualified to do business in the State of California, and Maker has
the requisite power to own its properties and assets and to enter into and
perform its obligations under this Note;
(b) This
Note has been duly authorized by all necessary action on the part of
Maker;
(c) This
Note constitutes the legally valid and binding obligation of Maker, enforceable
against Maker in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, arrangement or similar laws affecting
the enforcement of creditor’s rights generally and general principles of equity,
regardless of whether enforceability is considered in a proceeding in equity or
law;
(d) The
execution and delivery by Maker of this Note, the consummation of the
transactions contemplated hereby, and the performance of the terms and
conditions hereof by Maker, do not conflict with, result in a breach of or
constitute a default under, any of the terms, conditions or provisions of (i)
the organizational documents of Maker; (ii) any order, writ, judgment or decree
by which Maker is bound or to which it is a party; (iii) any law, rule,
regulation or restriction of any governmental authority or agency applicable to
Maker; or (iv) any contract, commitment, indenture, instrument or other
agreement by which Maker is bound or to which Maker is a party; and
(e) No
consent or authorization of, filing with or other act by or in respect of any
governmental authority, bureau or agency is required to be obtained or made by
Maker in connection with the execution, delivery and performance of this
Note.
15. Miscellaneous.
(a) Governing
Law. This Note shall be governed by and construed and enforced
in accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law of
such state.
15
(b) Drafting. This
Note has been jointly negotiated and drafted, and shall be construed as a whole
according to its fair meaning and not strictly for or against any
party.
(c) Further
Assurances. Maker hereby agrees that it will, forthwith upon
any reasonable request by Holder, cooperate fully in the preparation, execution,
acknowledgement, delivery and recording of any agreements, instruments,
memoranda or documents reflecting or in furtherance of any of the transactions
contemplated by this Note.
(d) Section
Headings. Section headings are provided herein for convenience
only and shall not serve as a basis for interpretation or construction of this
Note, nor as evidence of the intention of the parties hereto.
(e) Severability. If
any provision of this Note as applied to either party or to any circumstance
shall be adjudged by a court to be void or unenforceable, the same shall in no
way affect any other provision of this Note, the application of any such
provision in any other circumstances or the validity or enforceability of this
Note as a whole.
(f) Reference. Except
as otherwise expressly provided in this Note, any dispute of any nature or
character whatsoever between the parties and arising under or with respect to
this Note, or the subject matter hereof or thereof, shall be resolved by a
proceeding in accordance with the provisions of California Code of Civil
Procedure Section 638 et seq., for a determination to be made which shall be
binding upon the parties as if tried before a court or jury. The
parties agree specifically as to the following:
(i) Within
five (5) Business Days after service of a demand by a party hereto, the parties
shall agree upon a single referee who shall then try all issues, whether of fact
or law, and then report a finding or judgment thereon. If the parties
are unable to agree upon a referee either party may seek to have one appointed,
pursuant to California Code of Civil Procedure Section 640, by the presiding
judge of the Los Angeles County Superior Court;
(ii) The
compensation of the referee shall be such charge as is customarily charged by
the referee for like services. The cost of such proceedings shall
initially be borne equally by the parties. However, the prevailing
party in such proceedings shall be entitled, in addition to all other costs, to
recover its contribution for the cost of the reference as an item of damages
and/or recoverable costs;
(iii) If
a reporter is requested by either party, then a reporter shall be present at all
proceedings, and the fees of such reporter shall be borne by the party
requesting such reporter. Such fees shall be an item of recoverable
costs. Only a party shall be authorized to request a
reporter;
(iv) The
referee shall apply all California Rules of Procedure and Evidence and shall
apply the substantive law of California in deciding the issues to
16
be heard. Notice of any motions before the referee shall be given, and all matters shall be set at the convenience of the referee;
(v) The
referee’s decision under California Code of Civil Procedure Section 644, shall
stand as the judgment of the court, subject to appellate review as provided by
the laws of the State of California; and
(vi) The
parties agree that they shall in good faith endeavor to cause any such dispute
to be decided within four (4) months. The date of hearing for any
proceeding shall be determined by agreement of the parties and the referee, or
if the parties cannot agree, then by the referee. The referee shall have the
power to award damages and all other relief.
For
purposes of this Note, the term “Business Day” means
Monday through Friday, excluding any day of the year on which banks are required
or authorized to close in California.
(g) Time of the
Essence. Time is hereby declared to be of the essence of this
Note and every part hereof.
(h) Amendment. This
Note may not be modified or changed except by written instruments signed by
Holder and Maker.
(i) No
Offset. All amounts due under this Note shall be payable to
Holder, in lawful money of the United States of America, in currently available
funds at the address for Holder set forth above (or to such other person or at
such other place as Holder may from time to time designate in writing), without
notice, demand, offset, deduction or setoff, other than with respect to any
amounts which may be owed (i) by Seller to Maker under the APSA.
16. Assignment. This
Note and the terms hereof shall bind Maker and its successors, but not shall not
be assignable, in whole or in part, voluntarily or involuntarily, by
Maker. Maker acknowledges that Holder shall have the right, in
Holder’s sole and absolute discretion, without or without notice, to sell and
assign this Note or participation interests in this Note in such manner and on
such terms and conditions as Note shall deem to be appropriate. Maker
shall cooperate, and shall cause each indemnitor and other person or party
associated or connected with this Note to cooperate in all respects with Holder
in connection with any sale, assignment or participation, and shall, in
connection therewith, execute and deliver such estoppel certificates,
instruments and documents as may be reasonably requested by Holder.
(Signature
contained on next page)
17
IN WITNESS WHEREOF, Maker has caused
this Note to be executed and delivered as of the date first above
written.
READING CONSOLIDATED HOLDINGS,
INC,
a Nevada corporation
By: /s/ Andrzej
Matyczynski
Its: Chief Financial
Officer
18
EXHIBIT
21
READING
INTERNATIONAL, INC. – LISTING OF SUBSIDIARIES
AHGP,
Inc.
AHLP,
Inc.
Angelika
Film Centers (Dallas), Inc.
Angelika
Film Centers LLC
Angelika
Film Centers (Plano), LP
Australia
Country Cinemas Pty Ltd
Australian
Equipment Supply Pty Ltd
Bayou
Cinemas LP
Big 4
Farming LLC
Bogart
Holdings Ltd
Burwood
Developments Pty Ltd
Carmel
Theatres, LLC
Citadel
57th
Street, LLC
Citadel
Agriculture, Inc.
Citadel
Cinemas, Inc.
Citadel
Realty, Inc.
Consolidated
Amusement Holdings, Inc.
Consolidated
Entertainment, Inc.
Copenhagen
Courtenay Central Ltd
Courtenay
Car Park Ltd
Craig
Corporation
Darnelle
Enterprises Ltd
Dimension
Specialty, Inc.
Epping
Cinemas Pty Ltd
Gaslamp
Theatres, LLC
Hope
Street Hospitality, LLC
Hotel
Newmarket Pty Ltd
Landplan
Property Partners New Zealand Ltd
Landplan
Property Partners Pty Ltd
Liberty
Live, LLC
Liberty
Theaters, LLC
Liberty
Theatricals, LLC
Minetta
Live, LLC
Movieland
Cinemas (NZ) Ltd
Newmarket
Properties Pty Ltd
Newmarket
Properties No. 2 Pty Ltd
Orpheum
Live, LLC
Port
Reading Railroad Company
Queenstown
Land Holdings Ltd
Reading
Arthouse Distribution Ltd
Reading
Arthouse Ltd
Reading
Auburn Pty Ltd
Reading
Belmont Pty Ltd
Reading
Bundaberg Pty Ltd
Reading
Capital Corporation
Reading
Center Development Corporation
Reading
Charlestown Pty Ltd
Reading
Cinemas Courtenay Central Ltd
Reading
Cinemas Management Pty Ltd
Reading
Cinemas NJ, Inc.
Reading
Cinemas of Puerto Rico, Inc.
Reading
Cinemas Pty Ltd
Reading
Cinemas Puerto Rico LLC
Reading
Cinemas USA LLC
Reading
Colac Pty Ltd
Reading
Company
Reading
Consolidated Holdings, Inc.
Reading
Courtenay Central Ltd
Reading
Elizabeth Pty Ltd
Reading
Entertainment Australia Pty Ltd
Reading
Exhibition Pty Ltd
Reading
Holdings, Inc.
Reading
International Cinemas LLC
Reading
Licenses Pty Ltd
Reading
Malulani Pty Ltd
Reading
Malulani, LLC
Reading
Malulani Properties, LLC
Reading
Melton Pty Ltd
Reading
Moonee Ponds Pty Ltd
Reading
New Zealand Ltd
Reading
Pacific LLC
Reading
Properties Pty Ltd
Reading
Property Holdings Pty Ltd
Reading
Queenstown Ltd
Reading
Real Estate Company
Reading
Rouse Hill Pty Ltd
Reading
Royal George, LLC
Reading
Sunbury Pty Ltd
Reading
Theaters, Inc.
Reading
Wellington Properties Ltd
Rhodes
Peninsula Cinema Pty Ltd
Rialto
Brands Ltd
Rialto
Cinemas Ltd
Rialto
Distribution Ltd
Rialto
Entertainment Ltd
Ronwood
Investments Ltd
Rydal
Equipment Co.
Sutton
Hill Properties, LLC
Tobrooke
Holdings Ltd
Trans-Pacific
Finance Fund I, LLC
Trenton-Princeton
Traction Company
Twin
Cities Cinemas, Inc.
US
Development, LLC
US
International Property Finance Pty Ltd
Washington
and Franklin Railway Company
Westlakes
Cinema Pty Ltd
The
Wilmington and Northern Railroad Company
CONSENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
We consent to
the incorporation by reference in Registration Statement No. 333-36277 on Form
S-8 of our reports relating to the consolidated financial statements and
financial statement schedule of Reading International, Inc. (which report
expresses an unqualified opinion and includes an explanatory paragraph regarding
the Company's adoption of Financial Accounting Standards Board Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109)
and on the effectiveness of internal control over financial reporting dated
March 28, 2008, appearing in the Annual Report on Form 10-K of Reading
International, Inc. for the year ended December 31, 2007.
/s/
DELOITTE & TOUCHE LLP
Los
Angeles, California
March 28,
2008
CONSENT
OF INDEPENDENT ACCOUNTANTS
We hereby consent to
the incorporation by reference in the Registration Statement on Form S-8 (No.
333-36277) of Reading International, Inc. of our report dated February 11, 2008
relating to the financial statements of 205-209 East 57th Street Associates,
L.L.C., which appears in this Form 10-K.
/s/
PricewaterhouseCoopers LLP
New York, New York
March 28, 2008
Consent of Independent
Auditors
The
Management Committee and Joint Venturers
Mt.
Gravatt Cinemas Joint Venture:
We
consent to the incorporation by reference in the registration statement No.
333-36277 on Form S-8 of Reading International, Inc., of our report dated March
13, 2008, with respect to the balance sheet of Mt. Gravatt Cinemas Joint Venture
as of December 31, 2007, and the related income statement, statement of changes in
members’ equity, and statement of cash flows for the year ended December
31, 2007, which report appears in the December 31, 2007, annual report on Form
10-K of Reading International, Inc.
KPMG
Sydney,
Australia
March 27,
2008
EXHIBIT
31.1
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James
J. Cotter, certify that:
|
1)
|
I
have reviewed this Form 10-K of Reading International,
Inc.;
|
|
2)
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
3)
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
4)
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
a)
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
b)
|
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
c)
|
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
d)
|
disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
|
5)
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of registrant’s Board of
Directors (or persons performing the equivalent
functions):
|
|
a)
|
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
b)
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
/s/ James J.
Cotter
James J.
Cotter
Chief
Executive Officer
March 28,
2008
EXHIBIT
31.2
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Andrzej Matyczynski, certify that:
|
1)
|
I
have reviewed this Form 10-K of Reading International,
Inc.;
|
|
2)
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
3)
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
4)
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
a)
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|
b)
|
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
c)
|
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
d)
|
disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
|
5)
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of registrant’s Board of
Directors (or persons performing the equivalent
functions):
|
|
a)
|
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
b)
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
/s/ Andrzej
Matyczynski
Andrzej
Matyczynski
Chief
Financial Officer
March 28,
2008
EXHIBIT
32.1
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18
U.S.C. SECTION 1350)
In
connection with the accompanying Annual Report of Reading International, Inc.
(the “Company”) on Form 10-K for the fiscal year ended December 31, 2007 (the
“Report”), I, James J. Cotter, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley
Act of 2002, that:
|
1.
|
The
Report fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934;
and
|
|
2.
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
/s/ James J.
Cotter
James J.
Cotter
Chief
Executive Officer
March 28,
2008
EXHIBIT
32.2
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18
U.S.C. SECTION 1350)
In
connection with the accompanying Annual Report of Reading International, Inc.
(the “Company”) on Form 10-K for the fiscal year ended December 31, 2007 (the
“Report”), I, Andrzej Matyczynski, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the
Sarbanes-Oxley Act of 2002, that:
|
1.
|
The
Report fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934;
and
|
|
2.
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
/s/ Andrzej
Matyczynski
Andrzej
Matyczynski
Chief
Financial Officer
March 28,
2008