-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WL7UnY6pacwintqoT+gg0eXoYsGMhxA7JFnsVfswDeKGj1UHtepC5GvMz0dqVfE7 ENeL4JdN5MTe3HcoHry/UQ== /in/edgar/work/0000898430-00-003605/0000898430-00-003605.txt : 20001122 0000898430-00-003605.hdr.sgml : 20001122 ACCESSION NUMBER: 0000898430-00-003605 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRAIG CORP CENTRAL INDEX KEY: 0000110985 STANDARD INDUSTRIAL CLASSIFICATION: [8742 ] IRS NUMBER: 951620188 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06123 FILM NUMBER: 773999 BUSINESS ADDRESS: STREET 1: 550 S HOPE STREET STREET 2: SUITE 1825 CITY: LOS ANGELES STATE: CA ZIP: 90071-2633 BUSINESS PHONE: 2132390555 MAIL ADDRESS: STREET 1: 550 S HOPE STREET STREET 2: SUITE 1825 CITY: LOS ANGELES STATE: CA ZIP: 90071-2633 FORMER COMPANY: FORMER CONFORMED NAME: MAGNASYNC CRAIG CORP DATE OF NAME CHANGE: 19691130 10-Q 1 0001.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________ FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2000 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to ___________________ Commission file number 1-6123 CRAIG CORPORATION (Exact name of Registrant as specified in its charter) NEVADA 95-1620188 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 550 South Hope Street, Suite 1825 90071 Los Angeles CA (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (213) 239-0555 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of November 15, 2000, there were 3,436,808 shares of Common Stock, $0.25 par value per share, and 7,058,408 shares of Class A Common Preference Stock, $0.01 par value per share. ================================================================================ CRAIG CORPORATION AND SUBSIDIARIES INDEX -----
Page ---- PART I. Financial Information - ------ Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999 (Unaudited).................................................. 1 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2000 and 1999 (Unaudited)................................... 3 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 (Unaudited)............................................. 4 Notes to Consolidated Financial Statements.............................................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................................. 21 PART II. Other Information - ------- Item 1. Legal Proceedings....................................................................................... 28 Item 2. Changes in Securities................................................................................... 28 Item 3. Defaults Upon Senior Securities......................................................................... 28 Item 4. Submission of Matters to a Vote of Security Holders..................................................... 28 Item 5. Other Information....................................................................................... 28 Item 6. Exhibits and Reports on Form 8-K........................................................................ 28 Signatures.............................................................................................. 29
PART I - Financial Information ------------------------------ Item 1 - Financial Statements - ----------------------------- Craig Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited) (dollars in thousands)
September 30, December 31, 2000 1999 - ------------------------------------------------------------------------------------------------------------ ASSETS Cash and cash equivalents $ 3,564 $ 15,077 Amounts receivable 883 695 Restricted cash 1,047 948 Inventories 216 316 Prepayments and other current assets 2,077 1,389 Due from affiliate (Note 10) -- 1,000 - ------------------------------------------------------------------------------------------------------------ Total current assets 7,787 19,425 Equity investment in unconsolidated subs (Note 2) 26,450 19,386 Assets held for sale (Note 5) -- 5,740 Property held for development 26,168 31,623 Property and equipment, net (Note 3) 61,860 58,501 Note receivable from joint venture partners 391 1,549 Other assets 2,246 1,807 Cost in excess of assets acquired - net 101 9,975 - ------------------------------------------------------------------------------------------------------------ Total assets $ 125,003 $ 148,006 - ------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. -1- Craig Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited) (dollars in thousands)
September 30, December 31, 2000 1999 - -------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable and accrued expenses $ 5,448 $ 7,695 Accrued taxes 1,062 708 Film rental payable 1,570 1,718 Borrowings 14,984 8,618 Notes payable to affiliate (Note 2) 1,998 1,998 Other liabilities 798 1,549 - ----------------------------------------------------------------------------------------------------------- Total current liabilities 25,860 22,286 Note payable 597 1,035 Other liabilities 6,326 5,917 Deferred tax liabilities 8,368 8,368 - ----------------------------------------------------------------------------------------------------------- Total liabilities 41,151 37,606 - ----------------------------------------------------------------------------------------------------------- Minority interests in equity of subsidiaries 18,775 22,797 Redeemable preferred stock of Reading 7,000 7,000 Commitments and Contingencies (Note 8) Stockholders' Equity Preferred stock, par value $0.25, 1,000,000 shares authorized, none -- -- issued Class A common preference stock, par value $0.01, 10,000,000 shares 87 87 authorized, 8,734,065 issued and 7,058,408 outstanding Class B common stock, par value $0.01, 20,000,000 shares authorized, none issued -- -- Common stock, par value $0.25, 7,500,000 shares authorized, 5,444,065 1,361 1,361 shares issued and 3,436,808 and 3,512,308 outstanding at June 30, 2000 and December, 31, 1999, respectively Additional paid-in capital 28,805 31,111 Retained earnings 67,339 73,449 Accumulated other comprehensive loss (Note 7) (17,768) (4,052) Cost of treasury shares, 3,682,906 and 3,607,406 shares at (21,747) (21,353) September 30, 2000 and December 31, 1999, respectively - ----------------------------------------------------------------------------------------------------------- Total stockholders' equity 58,077 80,603 - ----------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 125,003 $ 148,006 - -----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. -2- Craig Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited) (dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------------------- Revenues Theater Admissions $ 7,494 $ 8,156 $ 23,038 $ 20,401 Concessions 2,557 2,476 7,579 6,188 Advertising and other 638 506 1,866 1,212 Real estate 159 265 547 395 - ---------------------------------------------------------------------------------------------------------------- 10,848 11,403 33,030 28,196 - ---------------------------------------------------------------------------------------------------------------- Expenses Theater costs (8,644) (8,160) (26,783) (21,197) Theater concession costs (529) (582) (1,596) (1,384) Depreciation and amortization (638) (913) (2,163) (2,432) General and administrative expenses (3,603) (3,594) (9,499) (9,749) - ---------------------------------------------------------------------------------------------------------------- Asset impairment charges (1,508) (335) (3,233) (335) (14,922) (13,584) (43,274) (35,097) - ---------------------------------------------------------------------------------------------------------------- Loss from operations (4,074) (2,181) (10,244) (6,901) Other revenues (expenses) Gain on sale of assets 1,221 -- 4,776 -- Interest and dividend income 58 419 367 1,858 Equity in (losses) earnings of unconsolidated affiliates (Note 2) (1,415) 46 (2,505) 4,015 Interest expense (219) (309) (718) (428) Other income, net 541 595 1,116 594 Loss before minority interests and income taxes (3,888) (1,430) (7,208) (862) Minority interests 1,021 491 1,888 748 - ---------------------------------------------------------------------------------------------------------------- Loss before income taxes (2,867) (939) (5,320) (114) Income taxes (Note 4) 22 (409) (449) (897) - ---------------------------------------------------------------------------------------------------------------- Net loss (2,845) (1,348) (5,769) (1,011) Less: Preferred stock dividends (113) (113) (341) 341) - ---------------------------------------------------------------------------------------------------------------- Net loss applicable to common shareholders $ (2,958) $ (1,461) $ (6,110) $ (1,352) - ---------------------------------------------------------------------------------------------------------------- Basic and diluted loss per share (Note 1) $(0.28) $(0.14) $(0.58) $ (0.13) - ----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. -3- Craig Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands)
Nine Months Ended September 30, ------------- 2000 1999 - ------------------------------------------------------------------------------------------------------------ Operating Activities Net loss $(5,769) $(1,011) Adjustments to reconcile net loss to net cash used in operating activities: Asset impairment loss 3,233 335 Depreciation and amortization 2,163 2,432 Equity in loss (earnings) of affiliates 2,505 (4,015) Minority interests (1,888) (748) Other 162 291 Gain on disposal of assets, net (4,746) 607 Changes in current assets and liabilities: (Increase) decrease in receivables (188) 34 Increase in other assets (1,807) (382) Decrease in payables 690 829 Increase in accrued film rental 236 631 (Decrease) increase in other liabilities (1,238) 545 - ------------------------------------------------------------------------------------------------------------ Net cash used in operating activities (6,647) (452) - ------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. -4- Craig Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) (dollars in thousand)
Nine Months Ended September 30, --------------- 2000 1999 - ---------------------------------------------------------------------------------------------------------- Investing activities Proceeds from sale of assets $ 5,658 $ -- Proceeds from (to) New Zealand joint venture 948 (124) Purchase of Citadel stock (31) -- Purchase of property held for development (158) (1,779) Decrease in cash due to Angelika deconsolidation (636) -- (Increase) decrease in restricted cash (679) 45 Purchase of property and equipment, net (17,378) (27,180) Payments on property purchase commitments -- (3,627) Purchase of G&L common stock and property -- (1,961) Investment in New Zealand joint venture -- (1,221) Purchase of Royal George Theatre -- (3,000) - ---------------------------------------------------------------------------------------------------------- Net cash used in investing activities (12,276) (38,847) - ---------------------------------------------------------------------------------------------------------- Financing activities Proceeds from borrowings 14,603 2,808 Capital contributions from minority interests 28 45 Minority interest distributions (43) (371) Payment of preferred stock dividends (228) (341) Treasury stock repurchases (394) (551) Note receivable from NZ joint venture (486) -- Payment on borrowings (5,245) (704) - ---------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 8,235 886 - ---------------------------------------------------------------------------------------------------------- Effect of foreign exchange rate changes on cash (825) (252) - ---------------------------------------------------------------------------------------------------------- Decrease in cash and cash equivalents (11,513) (38,665) Cash and cash equivalents at beginning of the period 15,077 63,314 - ---------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 3,564 $ 24,649 - ---------------------------------------------------------------------------------------------------------- Supplemental Disclosures Interest paid $ 478 $ 432 Income taxes paid $ 125 $ 96 Non-Cash Transaction Exchange of 50% interest in Angelika for equity investment in National Auto Credit, Inc. (Note 3) Debt extinguished as a part of the Royal George Theatre sale (Note 10).
See accompanying notes to consolidated financial statements. -5- Craig Corporation and Subsidiaries Notes to the Consolidated Financial Statements (Unaudited) September 30, 2000 - -------------------------------------------------------------------------------- Note 1 - Basis of Presentation Basis of Consolidation The consolidated financial statements include the accounts of Craig Corporation ("Craig") and its wholly owned subsidiaries (collectively, the "Company") and its majority owned subsidiaries (collectively, the "Consolidated Company"). The Company's principal holdings at September 30, 2000 consisted of (1) common and preferred stock representing approximately 78% of the voting power of Reading Entertainment, Inc. ("REI" and collectively with its consolidated subsidiaries "Reading"); (2) common shares representing approximately 11.0% and 11.6% of the outstanding Class A and Class B common shares of Citadel Holding Corporation ("CHC" and collectively with its consolidated subsidiaries "Citadel"), respectively; and (3) 16.4% of the outstanding common stock of Big 4 Ranch, Inc., a company owning a 40% interest in certain agricultural properties located in Kern County, California. The Consolidated Company holds a 33% interest in Citadel and a 49% interest in Big 4 Ranch, Inc. Reading, its majority owned subsidiary, is in the business of developing and operating multi-plex cinemas in Australia and New Zealand. Reading also operates cinemas in Puerto Rico and the United States. Reading's cinemas are owned through various subsidiaries under the Angelika Film Centers and Reading Cinemas names in the United States ("Domestic Cinemas"); through Reading Cinemas of Puerto Rico, Inc., under the CineVista name in Puerto Rico ("CineVista" or the "Puerto Rico Circuit"); through Reading Entertainment Australia Pty Limited (collectively with its subsidiaries referred to herein as "Reading Australia") under the Reading Cinemas name in Australia ("Australia Circuit"); and through Reading New Zealand Limited's (collectively with its subsidiaries referred to herein as "Reading New Zealand") participation in a theater joint venture operating under the Berkeley Theaters name in New Zealand. The carrying value of Reading Australia's and Reading New Zealand's assets will fluctuate due to changes in the exchange rate between the U.S. dollar and the Australian dollar ($0.5415 and $0.6543 were the respective exchange rates of U.S. dollar per Australian dollar at September 30, 2000 and December 31, 1999) and the U.S. dollar and the New Zealand dollar ($0.4075 and $0.5215 were the respective exchange rates of U.S. dollar per New Zealand dollar at September 30, 2000 and December 31, 1999). In the accompanying financial statements, balance sheet accounts are translated into U.S. dollars at the exchange rates in effect on the reporting date, and operating results are translated into U.S. dollars at the average of the exchange rates in effect during each period reported. Investments in which the Consolidated Company holds a 20 to 50 percent interest are accounted for using the equity method. All significant intercompany transactions and accounts have been eliminated in consolidation. Minority interest in equity of subsidiaries reflects the minority stockholders' proportionate share of REI and the Consolidated Company's various joint ventures. Investments in other companies are carried at cost. -6- The financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim information and in accordance with the rules of the Securities and Exchange Commission and therefore, do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. The financial information provided herein, including the information under the heading, "Management's Discussion and Analysis of Financial Condition and Results of Operations," is written with the presumption that the users of the interim financial statements have read, or have access to, the most recent Annual Report on Form 10-K which contains the latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 1999 and for the year then ended. In the opinion of management, all adjustments of a recurring nature considered necessary for a fair presentation of the results for the interim periods presented have been included. Operating results for the three and nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. Certain amounts in previously issued financial statements have been reclassified to conform to current period presentation. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The Company is required to adopt SAB 101 in the fourth quarter of 2000. Management believes that the Company is in compliance with the requirements of SAB 101, and therefore does not expect the adoption of SAB 101 will have a material effect on the Company's results of operations or on its financial position. Basic and Diluted Loss Per Share Basic loss per share is calculated by dividing net loss applicable to common shareholders by the weighted average shares outstanding during the period. The weighted average number of shares outstanding for the three and nine months ended September 30, 2000 were 10,494,327 and 10,510,654, respectively. The weighted average number of shares outstanding for the three and nine months ended September 30, 1999 were 10,632,769 and 10,639,487, respectively. Basic and diluted loss per share for the three and nine months ended September 30, 2000 and 1999 were calculated based on net loss available to common stock shareholders, which includes a reduction for dividends declared on the redeemable preferred stock in REI held by Citadel amounting to approximately $114,000 per quarter. Diluted loss per share is calculated by dividing net loss applicable to common shareholders by the weighted average common shares outstanding, plus the dilutive effect of stock options. At September 30, 2000 and 1999, stock options to purchase 664,940 and 659,940 shares of the Company's common stock and 65,000 and 60,000 shares of the Company's Class A Common Preference Stock were outstanding, respectively. The average exercise prices of the common stock and Class A common preference stock were $6.04 and $6.65 at September 30, 2000, respectively, and $6.20 and $7.20 per share at September 30, 1999, respectively. The Company reported a net loss for the three and nine months period ended September 30, 2000, and thus the options were anti-dilutive. -7- Note 2 - Investment in Unconsolidated Affiliates The tables below set forth the carrying values of the Consolidated Company's equity investments in unconsolidated affiliates, and the Consolidated Company's share of their earnings or losses, for the periods presented.
September 30, December 31, 2000 1999 --------------------------------------------------------------------- (dollars in thousands) Citadel $ 13,144 $ 17,246 NAC 8,837 -- AFC 3,409 -- NZ JV 1,060 2,140 BRI -- -- --------------------------------------------------------------------- $ 26,450 $ 19,386 ----------------------------------------------------------------------
Three Months Ended Nine months Ended September 30, September 30, ------------- ------------- 2000 1999 2000 1999 --------------------------------------------------------------------- (dollars in thousands) Citadel $(1,131) $ 292 $(1,449) $ 4,211 NAC (214) -- (883) -- AFC 37 -- 127 -- NZ JV 24 (70) 105 3 WPG (Note 5) (131) (67) (405) (90) Love Janis -- (109) -- (109) --------------------------------------------------------------------- $(1,415) $ 46 $(2,505) $4,015 ---------------------------------------------------------------------
Citadel Holding Corporation and Subsidiaries ("Citadel") Prior to September 2000, the Consolidated Company owned 48.3% of the common stock of Citadel, comprised of 2,567,823 shares of Class A Common Stock and 653,254 shares of Class B Common Stock. In September 2000, Citadel issued its common stock to acquire Off Broadway Theatres, Inc. ("OBI"), diluting the Consolidated Company's ownership interest in Citadel to approximately 32.4%. In accordance with the Securities Exchange Commission's Staff Accounting Bulletin No. 51, the Consolidated Company decreased its additional paid-in capital by approximately $2,306,000, to reflect the dilution in the Company's ownership of Citadel's common stock and decreased minority liability by $347,000 to reflect the Reading minority shareholders' portion of such dilution. The Consolidated Company accounts for its investment in Citadel using the equity method. Citadel's assets and liabilities totaled $61,553,000 and $21,576,000, respectively, at September 30, 2000, and the carrying value of the Consolidated Company's investment in Citadel ($13,144,000) approximated the Consolidated Company's underlying equity in Citadel's net assets, adjusted for the Consolidated Company's percentage interest in the $1,998,000 loan receivable from the Company, which is deducted from Citadel's shareholders equity for financial reporting purposes. The closing prices of Citadel's Class A Common Stock and Class B Common Stock on the American Stock Exchange at September 30, 2000 were $3.000 and $3.125 per share, respectively. -8- National Auto Credit, Inc. ("NAC") & Angelika Film Center LLC ("AFC") On April 5, 2000, Reading sold a 50% interest in AFC to NAC in exchange for 8,999,900 shares of NAC common stock and 100 shares of NAC preferred stock. Completion of this transaction (1) gave the Consolidated Company a 25.9% ownership interest in NAC, (2) resulted in a gain of $4,797,000 attributable to the 50% of AFC sold to NAC, approximately $1,242,000 of which was deferred, representing the amount of the gain attributable to the Consolidated Company's ownership percentage of NAC common stock, and (3) required that the accounts of AFC be de-consolidated from those of the Consolidated Company, with the Consolidated Company's remaining 33.3% interest in AFC accounted for by the equity method (Note 9). On November 3, 2000, Reading sold 5,277,879 shares of NAC common stock and its 100 shares of NAC preferred stock to NAC, in exchange for a cash payment of $8,469,000. Concurrently, NAC purchased 15,863,360 shares of NAC common stock from Sam Frankino, the controlling shareholder and former Chairman and Chief Executive Officer of NAC and certain of his affiliates, in exchange for cash payments totaling $35,521,000 (which amount includes reimbursement of certain expenses and sundry amounts). Following completion of these concurrent transactions, the Consolidated Company owns 27.3% of the outstanding common stock of NAC. Together with Citadel, which owns 7.75% of NAC common stock at September 30, 2000, the Consolidated Company owned 35.1% of the outstanding common stock of NAC at September 30, 2000. AFC's assets and liabilities totaled $11,097,000 and $1,194,000, respectively, at September 30, 2000. The carrying value of the Company's investment in AFC at September 30, 2000 ($3,409,000) approximates the Company's underlying equity in the net assets of AFC. New Zealand Joint Ventures ("NZ JV") Reading New Zealand owns a 50% interest in a joint venture, which in turn owns two theaters and leases a third theater. Big 4 Ranch, Inc. ("BRI") The Consolidated Company owns 3,322,279 shares of the common stock of BRI, representing an ownership interest of approximately 49%. The Consolidated Company accounts for its investment in BRI using the equity method. BRI's net loss for the nine months ended September 30, 2000 totaled approximately ($883,000). The Consolidated Company did not record its share of BRI's loss because the carrying value of its investment in BRI had previously been reduced to zero and the Consolidated Company has no obligation to fund BRI's operating losses. -9- Note 3 - Property and Equipment The table below sets forth the Consolidated Company's investment in property and equipment as of the dates indicated:
September 30, December 31, 2000 1999 - --------------------------------------------------------------------------------------------------- (dollars in thousands) Land $ 2,474 $ 3,015 Buildings 14,189 13,258 Leasehold improvements 27,119 28,138 Equipment 25,776 24,717 Construction-in-progress 15,944 11,137 - --------------------------------------------------------------------------------------------------- 85,502 80,265 Accumulated depreciation (8,126) (7,108) Provision for asset impairment (15,516) (14,656) - --------------------------------------------------------------------------------------------------- $ 61,860 $ 58,501 - ---------------------------------------------------------------------------------------------------
The carrying amount of land includes land associated with operating theater properties, and excludes land which has yet to be developed, which amounts are included in "Property held for development" in the Condensed Consolidated Balance Sheets. During the three months ended September 30, 2000, management determined that Reading was unlikely to proceed with one of its developments located in Australia, because the estimated cost of doing so would be uneconomical. Accordingly, the Consolidated Company reduced its carrying value in this asset to zero at September 30, 2000, recording an impairment charge of $860,000. Note 4 - Income Taxes Craig and Reading file separate consolidated federal and state tax returns. Accordingly, one company's tax benefits from net operating loss and capital loss carryforwards cannot be used to offset the other company's tax liabilities. Income tax expense for the nine months ended September 30, 2000 and September 30, 1999 includes $449,000 and $897,000, respectively, in current provision for federal, state, and foreign income taxes. Included in these amounts are $615,000 and $607,000, respectively, in foreign withholding tax expense which will be paid if certain intercompany loans are repaid. Note 5 - Assets Held for Sale Reading Australia owns a 50% interest in the Whitehorse Property Group and in the unit trust, of which Whitehorse Property Group is the sole trustee (collectively, "WPG"). The ownership is structured as a joint venture with Burstone Victoria Pty Limited ("Burstone") which owns the remaining 50% interest in WPG. WPG owns a shopping center located near Melbourne, Australia. -10- Reading Australia paid $1,400,000 for its interest in WPG. In addition, Reading Australia guaranteed a 50% interest in an existing loan in the amount of $6,120,000, incurred by WPG in connection with its purchase of the shopping center ("WPG Loan"), and loaned to the principals of Burstone approximately $1,400,000 to enable these individuals to buy out certain minority interests in Burstone ("Burstone Loan"). The Burstone Loan was due and payable on September 28, 2000 and is guaranteed by Burstone and is secured by the borrower's interest in Burstone and by Burstone's interest in WPG. Reading Australia has also guaranteed certain obligations of WPG to the City of Whitehorse, the owner of the land underlying the shopping center, currently estimated at approximately $621,000 ("WPG City Claims"). In early 2000, WPG determined to sell its shopping center and commenced marketing the property for sale during the second quarter of 2000. Based upon then estimates of the potential proceeds which could be expected from a sale of the shopping center, and WPG's investment in the property, the Consolidated Company wrote down its investment in WPG by approximately $1,725,000 during the three months ended June 30, 2000. WPG has not yet been successful in selling the shopping center, in part due to the refusal of Burstone to agree to sell at the price currently being offered by a prospective qualified purchaser, and on September 28, 2000 was unable to repay the WPG Loan when the same became due. In light of the position taken by Burstone, the Consolidated Company has (1) commenced an action to recover the Burstone Loan; (2) entered into direct negotiations with WPG's bank lender concerning the payment and/or purchase of the WPG Loan, and (3) entered into negotiations to sell the shopping center to a potential purchaser (subject to the satisfactory completion of due diligence by that potential purchaser, and the procurement by Reading Australia of its right to sell the shopping center over any ongoing objections by Burstone). Based upon the contracted sales price for the shopping center, and taking into account the obligations of WPG under the WPG Loan and the WPG City Claims, management determined that the Consolidated Company's remaining investment in WPG would not be recoverable. Accordingly, the Consolidated Company reduced its investment in WPG to zero as of September 30, 2000, recording a charge of $343,000 during the three months ended September 30, 2000. WPG's net losses for the three and nine months ended September 30, 2000 totaled approximately ($131,000) and ($405,000), respectively. Reading recognized 100% of such losses because it effectively holds 100% of WPG due to its security interest in the WPG interest owned by Burstone and in the shares of Burstone owned by the borrowers under the Burstone Loan. These losses have been included in the Consolidated Statements of Operations for the three and nine months ended September 30, 2000 as "Equity in (losses) earnings of affiliates". WPG's assets and liabilities totaled approximately $16,909,000 and $13,144,000, respectively, at September 30, 2000. Note 6 - Commitments and Contingencies Property Development and Operations At September 30, 2000, the Consolidated Company's more significant firm commitments and contractual obligations included (1) funding commitments over the next 12 months, totaling $7,635,000, in connection with the development of various cinema-based properties in Australia; (2) three separate bank loans that, by their current terms, are due and payable in full within 12 months of September 30, 2000 (the Consolidated Company currently maintains separate bank facilities for each of Australia, New Zealand, and Puerto Rico); (3) potential liability under its guarantee of the WPG loan and under the guarantee of the WPG City Claims (see also Note 5); (4) the potential redemption during a ninety-day -11- period commencing October 15, 2001, of Reading's Series A Voting Preferred Stock, which has a stated value of $7,000,000, is held by Citadel and was one dividend payment in arrears at September 30, 2000; and (5) accumulated dividends of $6,256,000, covering a period of seven calendar quarters through September 30, 2000, with respect to Reading's Series B Voting Preferred Stock held by the Company. On November 3, 2000, NAC repurchased a portion of Reading's investment in NAC common stock for cash of $8,469,000, which substantially increased the Consolidated Company's cash and equivalents (see also Notes 2 and 11). The Consolidated Company intends to satisfy its near term commitments and obligations by (1) commencing negotiations with two of its bank lenders for extensions of the maturity dates in connection with existing borrowings, with unpaid principal totaling $10,476,000 at September 30, 2000, though no assurances can be given that such negotiations will prove successful; (2) repaying from its available cash resources the remainder of the outstanding balance of its other bank loan, with unpaid principal of $1,200,000 at September 30, 2000; and (3) obtaining from an existing credit facility the funds necessary to complete Reading's largest development in Australia (which amount is included in the aggregate funding commitments described above). With respect to Reading's Series A Voting Preferred Stock held by Citadel, the Consolidated Company intends to commence discussion over the coming months with Citadel to explore its options with respect to Citadel's repurchase option, though no assurance can be given that such discussion will result in an extension or deferral of Citadel's repurchase option. In addition, the Consolidated Company may determine to permit quarterly dividend payments on its Reading Series A Voting Preferred Stock to accumulate for some period of time in order to preserve cash. With respect to the Series B Voting Preferred Stock held by the Company, the Consolidated Company generally intends to allow dividends thereon to accumulate indefinitely. In addition to the foregoing, the Consolidated Company owns several undeveloped land parcels located in Australia. As part of its normal planning process, management will assess whether such properties can be economically developed, or whether one or more of these properties should be marketed for sale to third parties. At present, the Consolidated Company has no plan to market for sale any of these properties. The year ending December 31, 2001 will be the first full year in which the Consolidated Company's cinema business will reach substantially stabilized operations. Exclusive of the costs associated with holding undeveloped land or potentially developing one or more currently undeveloped properties, management currently believes that its cinema operations will become cash flow positive by the end of 2001. Angelika Dallas Reading sold its lease and development rights to the Angelika Dallas project to Citadel in September 2000 for $356,000, which approximates the costs incurred by Reading to that date. The Consolidated Company has agreed that, in the event the Angelika Dallas' EBITDA during the last twelve of the first twenty-four months following the opening of the theater is less than that amount producing a 20% theater level return on Citadel's investment in the theater, then the Consolidated Company will reimburse to Citadel that amount of Citadel's investment necessary to produce such a 20% return for the twelve-month period; provided that, subject to certain exceptions, Citadel's investment in the theater -12- does not exceed $2,300,000 (see also Note 10). Legal Claims The City of Philadelphia (the "City") has asserted that the Reading's North Viaduct property requires environmental decontamination and that Reading's share of any such remediation cost would aggregate approximately $3,500,000. The Consolidated Company is in discussions with the City involving a possible conveyance of the property and believes that recorded reserves related to the North Viaduct will be sufficient to cover the Consolidated Company's share of the final remediation costs. On November 3, 2000, the Consolidated Company settled, without liability, all claims against it alleged in a certain lawsuit entitled Sam J. Frankino V. ------------------ David L. Huber, et al. C.A. No. 17984 brought by Sam J. Frankino in the Court of - ------------------------------------- Chancery of the State of Delaware. Incident to the settlement, the Consolidated Company entered into a Stock Purchase and Standstill Agreement with Citadel and NAC, pursuant to which, among other things, NAC repurchased 5,277,879 shares of NAC common stock and 100 shares of NAC preferred stock from the Consolidated Company for an aggregate purchase price of $8,469,000. The remaining provisions of the Stock Purchase and Standstill Agreement are discussed in greater detail in Note 11. Tax Audit Reading's 1996 tax return is under review by the Internal Revenue Service (the "Service"). While Reading believes its reporting position in such period to be reasonable and the Service has not alleged any deficiencies, no assurances can be made that Reading's tax reporting position will be upheld. Note 7 - Other Comprehensive Loss The table below sets forth the Consolidated Company's comprehensive (loss) income (the Consolidated Company's net loss plus the effect of the foreign currency translation adjustments) for the periods shown.
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------- (dollars in thousands) Net loss $(2,909) $(1,347) $ (5,833) $(1,011) Other comprehensive (loss) income (6,587) (1,287) (13,716) 1,749 - ------------------------------------------------------------------------------------------------------------- Comprehensive (loss) income $(9,496) $(2,634) $(19,549) $ 738 - -------------------------------------------------------------------------------------------------------------
-13- Note 8 - Parent Company Condensed Financial Statements As described in Note 1, the accompanying consolidated financial statements include the accounts of Craig and its majority owned subsidiaries. Craig and Reading are separate public companies and each entity's capital resources and liquidity is legally independent of the other and any intercompany loans or receivables would require approval of each separate company's Board of Directors. The tables below set forth condensed financial information for Craig and its wholly owned subsidiaries for the periods indicated (dollars in thousands).
September 30, December 31, Condensed Balance Sheets 2000 1999 - ------------------------------------------------------------------------------------------------------- ASSETS - ------------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 36 $ 1,801 Other current assets 944 743 - ------------------------------------------------------------------------------------------------------- Total current assets 980 2,544 Investment in Common Stock of Reading 34,254 49,040 Investment in Preferred Stock of Reading 55,000 55,000 Investment in Citadel 4,221 6,288 Property and equipment, net 657 689 Other assets 63 117 Excess of cost over net assets acquired 1,033 1,065 - ------------------------------------------------------------------------------------------------------- Total assets $ 96,208 $114,743 - ------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses $ 275 $ 493 Note payable to Citadel, current 1,998 1,998 Deferred tax liabilities 30,410 30,410 Stockholders' equity 63,525 81,842 - ------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 96,208 $114,743 - ------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- Condensed Statements of Operations 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------- (dollars in thousands) Revenues Loss from Reading investment $(2,256) $ (891) $(4,425) $(1,231) (Loss) earnings from Citadel investment (531) 105 (644) 1,460 Interest income 1 29 27 107 - --------------------------------------------------------------------------------------------------------- (2,786) (757) (5,042) 336 - --------------------------------------------------------------------------------------------------------- Expenses General and administrative expense (493) (364) (1,165) (1,185) Depreciation and amortization (48) (40) (138) (126) Interest expense (49) (76) (182) (154) - --------------------------------------------------------------------------------------------------------- (590) (480) (1,485) (1,465) - --------------------------------------------------------------------------------------------------------- Loss before income taxes (3,376) (1,237) (6,527) (1,129) Income taxes 418 (224) 418 (224) - --------------------------------------------------------------------------------------------------------- Net loss $(2,958) $(1,461) $(6,109) $(1,353) - ---------------------------------------------------------------------------------------------------------
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Nine Months Ended September 30, ------------- Condensed Statements of Cash Flows 2000 1999 - ------------------------------------------------------------------------------------------------- (dollars in thousands) Operating Activities Net loss $(6,109) $(1,353) Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 138 -- Equity loss in affiliates 5,069 -- Undistributed borrowings of equity affiliates -- (229) Increase in affiliate receivables (188) -- Other (208) 281 - ------------------------------------------------------------------------------------------------- Net cash provided by used in operating activities (1,298) (1,301) - ------------------------------------------------------------------------------------------------- Investing Activities Acquisition of Citadel stock (31) - Acquisition of G&L Common Stock -- (361) Acquisition of property from G&L -- (1,600) Purchase of equipment (42) (63) - ------------------------------------------------------------------------------------------------- Net cash used in investing activities (73) (2,024) - ------------------------------------------------------------------------------------------------- Financing Activities Repurchase of common stock (394) (551) Net cash used in financing activities (394) (551) Decrease in cash and cash equivalents (1,765) (3,876) Cash and cash equivalents at beginning of period 1,801 4,721 - ------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 36 $ 845 - -------------------------------------------------------------------------------------------------
Note 9 - Sale of Angelika Interest On April 5, 2000, the Consolidated Company sold a 50% interest in AFC to NAC, which resulted in the reduction of its ownership interest in AFC to 33.3%. AFC is the owner of the Angelika Film Center & Cafe, located in the Soho district of Manhattan. The 50% membership interest ("Angelika Interest") in AFC was conveyed in exchange for 8,999,900 shares of the common stock of NAC, representing approximately 25.9% of the outstanding common stock of NAC (calculated after the issuance of such shares), and 100 shares of the Series A Preferred Stock of NAC, representing 100% of such class ("Angelika Transaction"). The Series A Preferred Stock has a liquidation preference of $1.50 per share, is convertible into the common stock of NAC on a share for shares basis, is entitled to a dividend preference equal to any dividends declared on the NAC common stock (determined on a per share basis), and enjoys certain special voting rights. As a consequence of that transfer, (1) AFC is now owned 50% by NAC, 33.3% by Reading and 16.7% by Citadel, and (2) Reading and its affiliates own approximately 29% of the outstanding common stock of NAC. NAC Common Stock closed on September 30, 2000 at $0.75 per share. Reading had a financial statement basis of approximately $4,923,000 in the Angelika Interest. The sales price was determined to be approximately $9,720,000 for financial reporting purposes, which was calculated using $1.08 per common stock share, the average per share price of NAC common stock for the ten trading days prior to April 5, 2000, and the $1.50 per preferred stock share as specified in the -15- sales agreement. In the contract setting forth the terms and conditions of the Angelika Transaction, however, the parties valued the Angelika Interest and the shares issued in the transaction at $13.5 million (or $1.50 per share), and this valuation has been adopted by the parties for tax purposes. The sale of the Angelika Interest to NAC resulted in an accounting gain of approximately $4,797,000, of which approximately $1,242,000, or 25.9%, was deferred to represent the Consolidated Company's 25.9% equity interest in NAC. The deferred gain is included in the Consolidated Balance Sheet at September 30, 2000 in other long-term liabilities. On November 3, 2000, the Consolidated Company sold to NAC 5,277,879 shares of the NAC common stock and all 100 shares of the NAC preferred stock issued to it in the Angelika Transaction for $8,469,000 (or $1.50 per share plus a time value of money factor of 12% per annum calculated from April 5, 2000). As a result of this repurchase, and certain other repurchases closed simultaneously with the repurchase described above, the Consolidated Company now owns approximately 27% of the outstanding NAC common stock. As a result of its sale of the Angelika Interest, the Consolidated Company's ownership of AFC was reduced to 33.3%, which required that the Consolidated Company's remaining investment in AFC be accounted for by the equity method of accounting from the date of disposition. Prior to the disposition date, the Consolidated Company consolidated AFC. The deconsolidation of AFC in April 2000 resulted in a decrease to the Consolidated Balance Sheet captions as follows (dollars in thousands): Cash $ (636) Other assets (192) Property, plant and equipment (695) Cost in excess of net assets acquired (9,840) Liabilities (1,240) Minority liability (1,670) The Consolidated Statements of Operations include the consolidated results of AFC prior to the Consolidated Company's sale of the Angelika Interest, as follows:
Three months ended Nine months ended September 30, September 30, 2000 1999 2000 1999 - ----------------------------------------------------------------------------------------------------------------- (dollars in thousands) Theater revenues $ -- $ 2,365 $ 1,506 $ 5,850 Theater costs -- (1,419) (1,068) (3,691) Depreciation/amortization -- (172) (183) (515) General and administrative -- (149) (41) (314) - ----------------------------------------------------------------------------------------------------------------- Income from operations -- 625 214 1,330 Minority interest and tax -- (126) (52) (268) - ----------------------------------------------------------------------------------------------------------------- Net earnings $ -- $ 499 $ 162 $ 1,062 - -----------------------------------------------------------------------------------------------------------------
NAC is a publicly traded company whose shares are traded in the over-the- counter market. Historically, NAC has been in the business of originating, purchasing and servicing sub-prime loans secured by second hand automobiles. However, in recent periods, NAC has sold substantially all of its inventory of loans, substantially reduced its work force and, in essence, reduced its assets to cash and its interest in AFC. The Consolidated Company is advised by NAC that it is considering investments in -16- several industries, one of them being domestic theater exhibition, and that the acquisition of the AFC interest constituted a possible first step in what may be a substantially larger commitment to that industry. During the six months ended June 30, 2000, the Consolidated Company received $500,000 from NAC for an option that has since expired unexercised. Accordingly, for the nine months ended September 30, 2000, the Consolidated Company recorded the $500,000 as other income. Note 10 - Sale of Theater and Live Theater Assets Consistent with the Consolidated Company's decision to limit its activities domestically, and to focus instead on the development of its opportunities in Australia and New Zealand, the Consolidated Company consummated a number of transactions during the nine months ended September 30, 2000, as described below. Sutton Hill Transaction In December 1998, Reading entered into an ----------------------- agreement in principal ("Reading Agreement in Principal") with James J. Cotter and Michael R. Forman providing for a series of transactions which contemplated Reading's leasing or acquiring various cinemas and live theatre properties held by entities owned by Messrs. Cotter and Forman. In connection with the execution and delivery of the Reading Agreement in Principal, Reading made a $1,000,000 deposit. In May 2000, Reading, Citadel, and Messrs. Cotter and Forman entered into an agreement ("Citadel Agreement"), in which Reading assigned its rights and Citadel assumed Reading's obligations under the Reading Agreement in Principal, subject to certain modifications agreed to by Messrs. Cotter and Forman. Under that assignment, Citadel reimbursed Reading for the $1,000,000 deposit. The transactions contemplated by the Reading Agreement in Principal, as modified pursuant to negotiations between Citadel and Messrs. Cotter and Forman, was closed on September 1, 2000, and Reading has no further obligations or liabilities under the Reading Agreement in Principal. The Royal George Theatre Complex Transaction In February 1999, Reading -------------------------------------------- acquired the Royal George Theatre Complex, located in Chicago, for $3,000,000. On September 22, 2000, Reading transferred to Citadel its interest in Royal George Theatre LLC ("RGT"), the limited liability company formed by Reading to acquire and operate the Royal George Theatre complex, for $3,000,000, less an amount equal to the sum of (1) the long-term liabilities of RGT and (2) the difference between the short-term assets and liabilities of RGT. Reading realized net proceeds of $1,708,000 from the sale of its interest in RGT. The Angelika Film Center & Cafe Dallas Transaction In 1999, Reading -------------------------------------------------- entered into a lease of a to-be-constructed theatre in Dallas, known as the Angelika Film Center and Cafe Dallas ("Angelika-Dallas"). On September 22, 2000, Reading assigned that lease to Citadel. In consideration of the assignment of the lease, Citadel paid to Reading approximately $356,000 in reimbursement of its costs incurred to date in acquiring the leasehold and fitting out the theater, and assumed Reading's obligations under the lease and under various agreements relating to the fitting out of the theater. Reading has agreed that, in the event the theater's EBITDA during the last twelve of the first twenty-four months following the opening of the theater is less than that amount producing a 20% theater level return on Citadel's investment in the theater, then Reading will reimburse to Citadel that amount of Citadel's investment necessary to produce such a 20% -17- return for the twelve-months period; provided that, subject to certain exceptions, Citadel's investment in the theater does not exceed $2,300,000. Note 11 - Subsequent Event On November 3, 2000 the Consolidated Company, together with Citadel, entered into a stock purchase and standstill agreement (the "Standstill Agreement") with NAC. NAC is a public company, whose shares are traded in the OTC market under the symbol NAKD. The Standstill Agreement grows out of the settlement of a lawsuit brought by NAC against Mr. Sam Frankino ("Frankino") the former Chairman, Chief Executive Officer and controlling stockholder of NAC, and certain cross claims brought by Frankino against Reading, certain directors of NAC, and the financial advisor to NAC ("Frankino Litigation"). Prior to the closing of the transactions contemplated by the Standstill Agreement, the Consolidated Company owned 8,999,900 shares of NAC common stock, par value $0.05, and 100 shares representing the entire convertible preferred stock issued, par value $0.05, of NAC ("NAC Preferred Stock"). Citadel owned 1,055,100 shares of the NAC common stock and Frankino and certain of his affiliates (collectively, the "Frankino Parties") owned 15,863,360 shares of the NAC common stock. These holdings represented approximately 26%, 3%, and 46%, respectively, of the equity of NAC. The NAC common stock and NAC Preferred Stock held by the Consolidated Company was acquired directly from NAC in consideration of the transfer from the Company to NAC of the Angelika Interest. As a consequence of the closing of the transactions provided for or contemplated by the Standstill Agreement, . NAC repurchased all of the NAC common stock held by the Frankino Parties ("Frankino Shares") for $35,520,522, and 5,277,879 of the shares of NAC common stock and all 100 shares of the NAC Preferred Stock held by the Company for $8,468,770. . The Frankino Litigation was dismissed with prejudice, and . The Consolidated Company and Citadel (collectively referred to in the Standstill Agreement as the "Stockholders"), have agreed to certain limitations and restrictions on their rights as stockholders of NAC, in consideration of contractual assurances that (1) the Stockholders will, at their election, have representation upon the NAC Board of Directors, (2) that related party transactions will be subject to approval by the disinterested members of the NAC Board of Directors and (3) that certain material transactions will be subject to the approval of the stockholders generally of NAC. The Standstill Agreement, subject to earlier termination under certain circumstances, continues through and including August 31, 2003, and provides for the following: . Representation on the NAC Board of Directors The Stockholders will be -------------------------------------------- entitled to two nominees on the NAC Board of Directors ("Stockholder Nominees"). . Election of Directors In connection with the election of directors, the --------------------- Stockholders will vote their shares in the same manner and in the same proportion as the shares by all stockholders of -18- the Company other than the Stockholders are voted in connection with such election. The Stockholders will not solicit proxies with respect to any such election, and will not seek to change the composition of the Board of Directors. . Restrictions on Acquisition and Transfer The Stockholders will not increase ---------------------------------------- their holdings in NAC Common Stock beyond 33%, calculated on a fully diluted basis, other than pursuant to a tender offer for all of the outstanding NAC common stock, made on an any and all basis. Also, the Stockholders will not transfer their NAC common stock except as specified in the Standstill Agreement. These transfer provisions were specified by NAC, generally speaking, to prevent a transfer which would cause a change of control of NAC, except in case of a transfer in response to a tender offer. . Restrictions on Solicitation of Proxies Through and including August 31, --------------------------------------- 2001, the Stockholders will not solicit proxies with respect to any proposal brought before the stockholders of NAC. . Certain NAC Covenants (1) that until such time as the NAC Board of --------------------- Directors has prepared, adopted and publicly disclosed a five-year business plan, NAC will not make any material acquisition or issue any material amount of securities; (2) NAC will comply with the stockholder approval requirements imposed upon companies listed on the NASDAQ/NMS with respect to transactions involving the issuance of securities, and will, in addition, put to a vote of the stockholders of NAC any transaction pursuant to which any person is to acquire more than 33% of the NAC's assets; and (3) all related party transactions will be subject to the review and approval of the disinterested directors. . Termination The Standstill Agreement can be terminated by (1) mutual ----------- written agreement, or (2) by either party (i) in the event of permanent injunction prohibiting the transactions contemplated by the Standstill Agreement, (ii) by vote of a majority of the outstanding shares (calculated without reference to any shares held by the Stockholders), (iii) by vote of a majority of the independent directors of the Board of Directors of NAC to terminate the Standstill Agreement, (iv) in the event of a third party tender offer for more than 15% of the NAC Common Stock, or (v) in the event the NAC Board of Directors propose a Change of Control Transaction (as defined in the Standstill Agreement), or (vi) by the Stockholders, in the event NAC fails to appoint or to continue the Stockholder Nominees as directors of NAC. In the event of termination under clauses (b)(iii) or (b)(v), above, the NAC Covenants discussed immediately above, will survive such termination until immediately following the first annual meeting of stockholders held more than 120 days after such termination, and in the event of termination under clause (b)(v) above, NAC covenants described in subclauses (2) and (3) above and the provision for proportional voting with respect to the election of directors will likewise continue until immediately following such annual meeting of stockholders. The Standstill Agreement automatically terminates in the event that the ownership interests of the Stockholders in NAC should fall below 10% or exceed 90% of the outstanding NAC Common Stock. The parties have agreed in the Standstill Agreement, however, that the limitations set out in the second and fourth bullets above, are not to be construed to prevent any of the Stockholders from communicating with any other holder or holders of NAC common stock, including, without limitation, the expression of the opinion of the Stockholders with respect to any third party solicitation of proxies, provided that such Stockholder does not (1) provide to any holder of NAC common stock a proxy or other authorization permitting the Stockholder or its designee to vote any NAC common stock on such holder's behalf or (2) accept from any holder of NAC common stock, a proxy or other authorization permitting the Stockholder or its designee to vote any NAC common stock on such holder's behalf. -19- The Standstill Agreement is attached as Exhibit 10.30 to the Consolidated Company's Report on Form 10Q for the period ended September 30, 2000. The above description is necessarily summary in nature, and is qualified by reference to the Standstill Agreement as set forth in that exhibit. -20- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Craig Corporation (Craig and collectively with its wholly owned subsidiaries, the "Company") is in the business of identifying, acquiring, owning and strategically managing controlling interests in other operating companies. At September 30, 2000, the Company held (1) common stock of Reading Entertainment, Inc. ("REI" and collectively with its consolidated subsidiaries, "Reading") and REI Series B Preferred Stock representing approximately 78% of the voting power of that company; (2) 876,885 and 230,521 shares of Class A Non- voting Common Stock and Class B Voting Common Stock representing approximately 11.0% and 11.6% of such classes of common stock of Citadel Holding Corporation ("CHC" and collectively with its wholly-owned subsidiaries, "Citadel"), respectively; and (3) 1,107,406, representing approximately 16.4% of the common stock of Big 4 Ranch, Inc. ("BRI"). As used herein, the term the "Consolidated Company" is used to describe, for accounting purposes, the Company reporting, on a consolidated basis, its ownership interest in Reading. The Consolidated Company currently owns approximately 33% of the common stock of Citadel, approximately 50% of the common stock of BRI, and approximately 35% of the common stock of National Auto Credit, Inc. ("NAC"). During the past several years, the Consolidated Company has been actively engaged in the construction of state-of-the art multiplexes, principally located in Australia. Certain of the Consolidated Company's properties also include a non-cinema retail component. Though certain Australia-based cinemas commenced operation prior to 1999, a substantial majority of the Company's current Australia-based cinemas have been in operation for less than two years. The table below summarizes the number of cinema screens in operation as of each of the dates indicated.
Australia/ New Zealand Puerto Rico Domestic Total - ----------------------------------------------------------------------------------------- December 31, 1998 30 44 22 96 September 30, 1999 31 44 42 117 December 31, 1999 76 56 42 174 September 30, 2000 81 56 34 171
In the preceding table, (1) the increase in the number of cinema screens in Australia and New Zealand is wholly comprised of newly-constructed multiplexes; (2) the increase in the number of cinema screens in Puerto Rico is represented by a newly-constructed, 12-screen multiplex that opened in December 1999; (3) the increase in the number of domestic screens during 1999 resulted from a newly-constructed, 12-screen multiplex and an existing 8-screen cinema; and (4) the decrease in the number of domestic screens during 2000 resulted from closure of the 8-screen cinema acquired during 1999. AFC, with 6 screens, is included for all periods. In addition to the growth in the number of screens in operation, Reading sold the Royal George Theater to Citadel in September 2000. The Royal George Theatre was originally acquired by Reading in February 1999. Further, Reading sold the Angelika Interest to NAC in April 2000, requiring that the results of AFC be subsequently de-consolidated from Reading's accounts. For these reasons, comparison of the Consolidated Company's results between periods may prove difficult. -21- Results of Operations The tables and narrative which follow set forth and discuss the results of operations for the three and nine months ended September 30, 2000 and 1999. In the tables below, (1) theater revenues consist of admissions, concessions, and advertising; (2) theater expenses consist of the costs directly attributable to the operation of each complex (including employee-related, occupancy and operating costs, and depreciation); and (3) general and administrative expenses include all other costs attendant to the operation and management of the Consolidated Company's affairs. The revenues and expenses generated by the Consolidated Company's Australian and New Zealand operations have been translated at the average exchange rates for each period presented (dollars in thousands)
AUS/NZ CineVista Domestic Theaters Theaters Theaters Corporate Total ---------------------------------------------------------------------- Three Months Ended September 30 - ----------------------------------- 2000 ===================================================================================================================== Revenues $ 3,979 $ 4,520 $ 2,190 $ 159 $10,848 Expenses (3,549) (3,966) (2,288) (8) (9,811) General & administrative expenses (1,493) (341) (53) (1,716) (3,603) Loss from operations before asset (1,063) 213 (151) (1,565) (2,566) impairment charge Asset impairment charge (1,508) -- -- -- (1,508) - --------------------------------------------------------------------------------------------------------------------- Loss from operations $(2,571) $ 213 $ (151) $(1,565) $(4,074) - --------------------------------------------------------------------------------------------------------------------- 1999 ===================================================================================================================== Revenues $ 2,277 $ 3,828 $ 5,033 $ 265 $11,403 Expenses (2,147) (3,277) (4,199) (32) (9,655) General & administrative expenses (1,195) (255) (204) (1,940) (3,594) - --------------------------------------------------------------------------------------------------------------------- (Loss) income from operations before (1,065) 296 630 (1,707) (1,846) asset impairment charge Asset impairment charge -- (335) -- -- (335) - --------------------------------------------------------------------------------------------------------------------- (Loss) income from operations $(1,065) $ (39) $ 630 $(1,707) $(2,181) - ---------------------------------------------------------------------------------------------------------------------
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Nine Months Ended September 30 - -------------------------------------- 2000 ===================================================================================================================== Revenues $ 13,145 $ 11,640 $ 7,698 $ 547 $ 33,030 Expenses (11,827) (10,748) (7,851) (116) (30,542) General & administrative expenses (3,657) (719) (187) (4,936) (9,499) - --------------------------------------------------------------------------------------------------------------------- Loss from operations before asset (2,339) 173 (340) (4,505) (7,011) impairment charge Asset impairment charge (3,233) -- -- -- (3,233) - --------------------------------------------------------------------------------------------------------------------- Loss from operations $ (5,572) $ 173 $ (340) $(4,505) $(10,244) - --------------------------------------------------------------------------------------------------------------------- 1999 ===================================================================================================================== Revenues $ 6,211 $ 9,874 $ 11,716 $ 395 $ 28,196 Expenses (5,584) (9,245) (10,085) (99) (25,013) General & administrative expenses (3,017) (678) (444) (5,610) (9,749) - --------------------------------------------------------------------------------------------------------------------- (Loss) income from operations before (2,390) (49) 1,187 (5,314) (6,566) asset impairment charge Asset impairment charge -- (335) -- -- (335) - --------------------------------------------------------------------------------------------------------------------- (Loss) income from operations $ (2,390) $ (384) $ 1,187 $(5,314) $ (6,901) - ---------------------------------------------------------------------------------------------------------------------
Industry Overview The cinema exhibition business as a whole has experienced a noticeable decline in admissions and gross revenues during 2000 as compared with 1999, the first such decline in many years. The decline in admissions has been generally attributed by exhibitors and by distributors to the inconsistent quality of wide-release films and the absence of highly successful independent films. As a result, an unusually high percentage of films have experienced truncated theatrical runs, which has adversely impacted the margins available to exhibitors. Further, the number of cinema screens in operation in the United States and in Australia continued to increase during 2000, as they have during each of the past several years, reducing per screen revenues for exhibitors. These dual influences have resulted in an increase in the percentage of revenues absorbed by film rentals due distributors (since film rentals are generally higher, as a percentage of box office revenues, during the initial period of theatrical release) and a narrowing of the coverage afforded exhibitors' fixed costs. Theater Revenues and Expenses The growth in theater revenues and expenses generated from the CineVista and Australia/New Zealand operations generally resulted from an increase in the number of screens in operation during the 2000 periods as compared with the same periods during 1999. The decline in theater revenues and expenses generated from the Consolidated Company's domestic theaters resulted from the de- consolidation of AFC after April 5, 2000 and the closure of one location with 8 screens in June 2000. -23- General and Administrative Expenses The items below represent the more significant contributors to changes in general and administrative expenses between the 2000 and 1999 periods: . The opening of 50 additional screens in Australia/New Zealand since September 30, 1999 has increased the needed level of infrastructure support and its cost. . During the three months ended September 30, 2000, the Consolidated Company commenced litigation in Puerto Rico against its principal competitor and against other parties, the costs of which caused legal expenses to rise during the 2000 periods as compared with the 1999 periods. . During the first nine months of 2000, the Consolidated Company closed its Philadelphia office, and established Los Angeles as the Company's new corporate headquarters. Cost savings resulting from the closure began to appear during the three months ended September 30, 2000. . During each period presented, the Consolidated Company incurred substantial costs in connection with various potential and realized transactions. The dollar amounts of such costs in 1999 was higher than such costs incurred during the 2000 periods, primarily due to unconsummated transactions involving one or more of the Consolidated Company's affiliates. Asset Impairment Charges During the third and fourth quarters of 1999, the Consolidated Company determined that its investment in the CineVista Theaters had been permanently impaired. Accordingly, cumulative write-downs of $17,319,000 were recorded, with $335,000 of such amount recorded during the three months ended September 30, 1999. The Consolidated Company did not write down the full impairment charge of $14,022,000 recorded by Reading in the three months ended September 30, 1999, because it had previously written down this investment as part of transactions recorded in 1996. During 2000, the Consolidated Company determined that its equity investment in WPG, an Australian joint venture, and its related note receivable from its joint venture partner, were not recoverable from the proceeds which could reasonably be expected from the intended disposition of the property by the joint venture. Accordingly, the Consolidated Company reduced the carrying value of its aggregate investment by $342,000 and $2,067,000, respectively, during the three and nine months ended September 30, 2000. At September 30, 2000, the carrying value of the Consolidated Company's investment had been reduced to zero. During the three months ended September 30, 2000, the Consolidated Company determined that it would not proceed with development of one project in Australia. Based upon this decision, management determined that the Consolidated Company's investment in this project was not recoverable and, accordingly, wrote off the Consolidated Company's investment of $1,142,000, reducing the Consolidated Company's investment to zero. -24- Non-recurring and Other Items During the three months ended September 30, 2000, the Consolidated Company sold a land parcel located in the Philadelphia area in an all-cash transaction, recording a gain of $1,221,000. During the three months ended June 30, 2000, the Consolidated Company sold the Angelika Interest to NAC, recording a net gain of $3,555,000. An additional gain arising from this transaction of $1,242,000 was deferred. Interest and dividend income declined substantially in each of the 2000 periods as compared with the same periods during 1999, primarily due a significant decline in the Consolidated Company's liquidity. The Consolidated Company's share of the results of its unconsolidated affiliates produced sizable losses for each of the 2000 periods, as compared with far superior results recorded during the same periods in 1999. The adverse change resulted primarily from (1) losses at Citadel during each of the 2000 periods, which reflected (a) write downs in connection with Citadel's investment in various agricultural partnerships, and (b) a negative margin produced by Citadel's theater operations; (2) losses at NAC, which the Consolidated Company began accounting for under the equity method in April 2000; and (3) losses in connection with WPG, an Australian joint venture, and with respect to which the Consolidated Company wrote down its entire remaining investment during the three months ended September 30, 2000 (see above). Other income includes insurance settlement proceeds of approximately $949,000 received by CineVista in the third quarter of 2000, and a fee of $500,000 previously paid by NAC to the Consolidated Company for a now-expired option. Business Plan, Capital Resources and Liquidity Since December 31, 1998, the Consolidated Company's cash and cash equivalents have decreased from approximately $63,000,000, to approximately $15,000,000 at December 31, 1999, and to approximately $3,500,000 at September 30, 2000. During this period the Consolidated Company has utilized its available liquidity to (1) acquire land in Australia and New Zealand for the purpose of constructing state-of-the-art cinemas, or entertainment centers, thereon; (2) fit out newly-constructed cinema space in Australia, with respect to which the Consolidated Company is a tenant under long-term leases; and (3) construct state-of-the-art cinemas on leased land in the United States (one location) and in Puerto Rico (one location). As a result of these investments, since 1998 the Consolidated Company has added 50 theater screens in Australia and New Zealand (5 locations), 12 theater screens in Puerto Rico (one location), and 12 theater screens in the United States (one location). Each of the complexes completed and opened since 1998 has been financed solely with the Consolidated Company's liquidity, except for one project located in Australia and one in Puerto Rico, with respect to which the costs of construction were financed with bank borrowings. In addition to its investments in now-operating cinemas, at September 30, 2000, the Consolidated Company had a recorded investment of $26,200,000 (at current exchange rates) in various land parcels, located in Australia and New Zealand, each of which is intended for future development. Each of these investments in undeveloped land has been financed with Consolidated Company's liquidity. As further described in Note 6, the Consolidated Company has various commitments which, in the aggregate, exceed its current liquidity, or its current liquidity adjusted for operating cash flows -25- expected to be generated during the next 12 months. However, in November 2000, the Consolidated Company received $8,469,000 in cash from its sale of a portion of its investment in NAC common stock to NAC. In addition to this cash infusion, management is actively negotiating with its Australian bank lender for an extension of that loan's maturity date, which currently is due during the fourth quarter of 2000. Though no assurances can be given that management will be successful in obtaining the requested extension of the loan's maturity date, management has received preliminary indications from its bank lender that an extension is likely to be granted. With respect to the Series A Voting Preferred Stock held by Citadel, the Consolidated Company intends to commence discussions over the coming months with Citadel, to explore its options with respect to Citadel's repurchase option, though no assurance can be given that these discussions will result in an extension or deferral of Citadel's repurchase option. With respect to the Series B Voting Preferred Stock held by the Company, the Consolidated Company intends generally to allow dividends thereon to accumulate indefinitely. In addition to the foregoing, the Consolidated Company owns several land parcels located in Australia which have yet to be developed. As part of its annual planning process, management intends to assess whether these properties can be economically developed, either independently or through joint ventures, or whether one or more of these properties should be marketed for sale, though at present, the Consolidated Company has no intentions of marketing any of these properties. At September 30, 2000, Craig had cash and cash equivalents of $36,000. Reading is majority owned by Craig, and accordingly, is included in the consolidated financial statements. However, Craig and Reading are separate public companies and each entity's capital resources and liquidity is legally independent of the other and any intercompany loans or receivables would require approval of each separate company's Board of Directors. Accordingly, the liquidity of Craig is principally dependent on Reading's ability to pay dividends on the Series B Voting Preferred Stock held by Craig amounting to approximately $3,575,000 annually. Reading has reported losses for the periods ended September 30, 2000 and 1999 and has entered into significant purchase commitments to develop certain of its Australian assets, as further described in Note 6. As discussed above, the Consolidated Company intends to allow dividends with respect to the Series B Voting Preferred Stock held by Craig to accumulate indefinitely. At September 30, 2000, the accrued amount was $6,256,000. Therefore, Craig's source of future funds is the intercompany payments made from Reading and Citadel for management services provided by Craig. While not anticipated, further liquidity could be achieved by Craig through the sale of shares of Citadel and/or Reading. Forward-Looking Statements From time to time, the Company or its representatives have made or may make forward-looking statements, orally or in writing, including those contained herein. Such forward-looking statements may be included in, without limitation, reports to stockholders, press releases, oral statements made with the approval of an authorized executive officer of the Company and filings with the Securities and Exchange Commission. The words or phrases "anticipates," "expects," "will continue," "estimates," "projects," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The results contemplated by the Company's forward-looking statements are subject to certain risks, trends, and uncertainties that could cause actual results to vary materially from anticipated results, -26- including without limitation, delays in obtaining leases and permits for new multiplex locations, construction risks and delays, the lack of strong film product, the impact of competition, market and other risks associated with the Company's investment activities and other factors described herein. -27- PART II - Other Information - --------------------------- Item 1 - Legal Proceedings For a description of legal proceedings, please refer to Item 3 entitled "Legal Proceedings" contained in the Company's Form 10-K for the fiscal year ended December 31, 1999. Item 2 - Change in Securities Not applicable. Item 3 - Defaults Upon Senior Securities Not applicable. Item 4 - Submission of Matters to a Vote of Security Holders. At the Company's 2000 Annual Meeting of Shareholders held on September 12, 2000, the shareholders elected the Company's directors and approved the adoption of the Company's 1999 Stock Option Plan. The results of the votes were as follows: (1)Election of Directors For Withheld ------------------------ --- -------- James J. Cotter 51,278,812 8,061,080 Margaret Cotter 51,278,812 8,061,080 William D. Gould 51,285,012 8,054,880 Gerald P Laheney 51,285,012 8,054,880 S. Craig Tompkins 51,278,812 8,061,080 Robert M. Loeffler 51,285,012 8,054,880 (2) Proposal to adopt For Against Abstain/No-Vote --------------------- --- ------- --------------- the 1999 Stock -------------- Option Plan 54,541,774 4,624,720 173,398 / 0 ----------- Item 5 - Other Information Not applicable. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 10.30 Stock Purchase and Standstill Agreement 27 Financial Data Schedule (filed herewith) (b) Reports on Form 8-K None -28- 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. CRAIG CORPORATION REGISTRANT ---------------------------- Date: November 20, 2000 By: /s/ Scott Braly ------------------ Scott Braly Chief Executive Officer Date: November 20, 2000 By: /s/ Andrzej J. Matyczynski -------------------------- Andrzej J. Matyczynski Chief Financial Officer -29- EX-10.30 2 0002.txt STANDSTILL AGREEMENT Exhibit 10.30 Standstill Agreement STOCK PURCHASE AND STANDSTILL AGREEMENT This STOCK PURCHASE AND STANDSTILL AGREEMENT, dated as of November 3, 2000 (this "Agreement"), is made and entered into by and among READING ENTERTAINMENT, INC., a Nevada corporation ("Reading"), FA, INC., a Nevada corporation and a wholly owned subsidiary of Reading ("FA"), CITADEL HOLDING CORPORATION, a Nevada corporation ("Citadel"), and CRAIG CORPORATION, a Nevada corporation ("Craig" and, collectively with Reading, FA and Citadel, the "Stockholders"), on the one hand, and NATIONAL AUTO CREDIT, INC., a Delaware corporation ("NAC" or the "Company"), on the other hand. WHEREAS, certain disputes and differences have arisen between the Company and Sam J. Frankino, a former executive officer and current director and stockholder of the Company ("Frankino"), and certain of his affiliates (collectively, the "Frankino Parties"), which disputes have resulted in litigation styled National Auto Credit, Inc. v. Sam J. Frankino, C.A. No. 17973 and Sam J. Frankino v. David L. Huber, et al., C.A. No. 17984, both pending in the Court of Chancery of the State of Delaware (collectively referred to herein as the "Actions"); and WHEREAS, the Frankino Parties and the Company wish to enter into a settlement agreement in the form attached as Attachment A to this Agreement (the ------------ "Settlement Agreement") pursuant to which, among other things, (i) all disputes between the Company and the Frankino Parties, including the Actions, will be settled without the admission of fault by any of them and (ii) the Company will repurchase all of the shares of common stock, par value $.05 per share, of the Company ("Company Common Stock") beneficially owned by the Frankino Parties; and WHEREAS, the Stockholders own an aggregate of 10,055,000 shares of Company Common Stock (the "Common Shares") and 100 shares of Series A Convertible Preferred Stock, par value $.05 per share, of the Company (the "Preferred Shares" and, together with the Common Shares, the "Shares") and, absent the repurchase by the Company of certain of the Shares, as contemplated hereby, the consummation of the transactions contemplated by the Settlement Agreement would have the effect of vesting ownership of shares representing a majority of the voting power of the Company in the Stockholders; and WHEREAS, the Stockholders support the execution of the Settlement Agreement by the Company and the consummation by the Company of the transactions contemplated thereby and desire to assist the Company in its efforts to resolve the disputes between it and the Frankino Parties, including the Actions; and WHEREAS, in furtherance of the foregoing, the Company desires to acquire from FA and FA is willing to sell to the Company Five Million Two Hundred Seventy-Seven Thousand Eight Hundred Seventy-Nine (5,277,879) of the Common Shares and all 100 of the Preferred Shares (collectively, the "Subject Shares"), upon the terms and subject to the conditions hereinafter set forth, such that at the time of the purchase of the Subject Shares, and after 1 giving effect to the transactions contemplated by the Settlement Agreement, the Stockholders shall own an aggregate of 33% of the issued and outstanding shares of Company Common Stock, on a fully diluted basis (based on the number of shares of Company Common Stock issued and outstanding on the date hereof, assuming the prior exercise, conversion or exchange, as the case may be, of any options, warrants, rights to acquire and securities convertible into or exchangeable for such Company Common Stock issued and outstanding on the date hereof, and after taking into account the repurchase by the Company of the Common Shares owned by the Frankino Parties, which repurchase is occurring simultaneously with the execution and delivery of this Agreement); and WHEREAS, the Stockholders are willing to agree to certain restrictions regarding the shares of the Company Common Stock they will continue to own following the consummation of the transactions contemplated hereby. NOW THEREFORE, in consideration of the above premises and the promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Stockholders and the Company hereby agree as follows: 1. Repurchase of Subject Shares. ---------------------------- (a) Upon the terms and subject to the conditions of this Agreement, at the closing of the transactions contemplated hereby (the "Closing"), which Closing is taking place contemporaneously with the execution and delivery of the Agreement by the parties hereto, FA shall sell, transfer and convey to the Company, and the Company shall acquire from FA, the Subject Shares at a purchase price equal to the sum of (a) Seven Million Nine Hundred Sixteen Thousand Nine Hundred Sixty-Eight Dollars and Fifty Cents ($7,916,968.50) ($1.50 per Subject Share) and (b) an interest factor accruing from April 5, 2000 to the date of the Closing at the simple annual rate of 12% (collectively, the "Purchase Price"). (b) At the Closing (A) the Company shall deliver to FA (i) the Purchase Price, in immediately available United States Dollars, by wire transfer to a bank account designated by FA, and (ii) an irrevocable instruction to its transfer agent to issue a certificate representing 1,484,368 Common Shares, representing the Common Shares in excess of the Subject Shares represented by the Certificate (defined hereinbelow), duly executed by the Company in contemplation of delivery of the same to FA at Closing hereunder (the "Excess Shares"); and (B) FA shall deliver to the Company (i) a certificate (the "Certificate") representing 6,762,247 Common Shares, duly endorsed or accompanied by stock powers duly executed in blank and otherwise in form reasonably satisfactory to the Company for transfer on the books of the Company and (ii) such other instruments and documents as may be reasonably requested by the Company to evidence its purchase of the Subject Shares. At the Closing, subject to the delivery of the Purchase Price in accordance with this Paragraph, FA shall simultaneously sell, convey, assign, transfer and deliver to the Company, and the Company shall purchase, acquire and accept from FA, good and valid title to the Subject Shares, free and clear of all liens, claims, charges or other encumbrances (collectively, "Liens"). 2. Representations and Warranties of the Company. --------------------------------------------- The Company hereby represents and warrants to the Stockholders as follows: 2 (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and corporate authority to enter into this Agreement, and to consummate the transactions contemplated hereby. (b) The execution, delivery and performance by the Company of this Agreement, and the consummation by the Company of the transactions contemplated hereby, have been authorized by all necessary corporate action. This Agreement has been duly executed and delivered by the Company and, assuming that this Agreement constitutes a valid and binding obligation of each of the Stockholders, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. (c) The execution and delivery by the Company of this Agreement do not, and the consummation by the Company of the transactions contemplated hereby and compliance by the Company with the terms hereof will not, conflict with, or result in any violation of or default under (i) any provision of the Company's Restated Certificate of Incorporation, as amended, the Company's Amended and Restated By-Laws or any other similar organizational documents of the Company, (ii) any judgment, order, injunction or decree (an "Order"), or statute, law, ordinance, rule or regulation ("Applicable Law"), applicable to the Company or the property or assets of the Company or (iii) any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation ("Contracts") to which the Company is party or by which the Company or any of the Company's assets may be bound. No consent, approval, order or authorization of, notice to, or registration, declaration or filing with ("Governmental Approval") any court, administrative agency or commission or other governmental entity, authority or instrumentality, domestic or foreign ("Governmental Authority"), is required to be obtained or made by or with respect to the Company in connection with the execution and delivery of this Agreement or the consummation by the Company of the transactions contemplated hereby. (d) Set forth on Attachment B are true, correct and complete schedules ------------ setting forth the following: (i) The total number of shares of Company Common Stock currently issued and outstanding; (ii) The total number of shares of Company Common Stock being simultaneously repurchased from the Frankino Parties; (iii) The total number of shares of Company Common Stock subject to issuance upon the exercise of currently outstanding stock options, calculated without reference to whether or not such options are currently vested or exercisable; (iv) The total number of shares of Company Common Stock subject to issuance upon the exercise of conversion or exchange rights under securities convertible into or exchangeable for Company Common Stock or the exercise of any other rights to acquire Company Common 3 Stock, calculated without reference to whether or not such conversion, exchange or other rights are currently vested or exercisable; (v) All outstanding equity securities of the Company, other than Company Common Stock; and (vi) All outstanding commitments to issue, grant or otherwise transfer to any person any equity securities of the Company or any of its subsidiaries, or any other securities convertible into or exchangeable for or any other right to acquire equity securities of the Company or any of its subsidiaries, calculated without reference to whether such conversion, exchange or other rights are currently vested or exercisable. (e) The Settlement Agreement, attached hereto as Attachment A, is a ------------ true, correct and complete copy of the settlement agreement with Frankino encompassing and including all agreements between the Company, its officers, directors, affiliates and associates, on the one hand, and Frankino, his affiliates, associates, relatives and related parties, on the other hand, and is being simultaneously entered into by the parties thereto. (f) Immediately following the Closing, the Board of Directors of the Company will be comprised of the individuals set forth an Attachment C, all of ------------ whom have agreed to continue as directors of the Company for the remainders of their respective terms, as such terms are likewise set forth on Attachment C. ------------ (g) Attached hereto as Attachment D is a true and correct copy of the ------------ Amended and Restated By-Laws of the Company, as presently in force. (h) Attached hereto as Attachment E is a schedule of all Affiliate ------------ Agreements (as such term is defined in Paragraph 9, below) to which the Company is a party as of the date hereof, together with a summary of the principal business terms of each such Affiliate Agreement. 3. Representations and Warranties of the Stockholders. -------------------------------------------------- The Stockholders represent and warrant to the Company as set forth below. The representations and warranties set forth in clauses (a) through (c) are made on an individual basis, and each Stockholder makes the representations and warranties set forth therein only with respect to itself. The representations set forth in clause (d) below are made by the Stockholders on a joint and several basis. (a) Each of the Stockholders is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, and each has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. (b) The execution, delivery and performance by each of the Stockholders of this Agreement, and the consummation by each of the Stockholders of the transactions contemplated hereby, have been authorized by all necessary action, corporate or otherwise. 4 This Agreement has been duly executed and delivered by each of the Stockholders, and, assuming that this Agreement constitutes a valid and binding obligation of the Company, constitutes a valid and binding obligation of each such Stockholder, enforceable against each such Stockholder in accordance with its terms. (c) The execution and delivery by each Stockholder of this Agreement do not, and the consummation by each Stockholder of the transactions contemplated hereby and compliance by each Stockholder with the terms hereof will not, conflict with, or result in any violation of or default under, (i) any provision of the certificate of incorporation, by-laws or any other similar organizational documents of such Stockholder, (ii) any Order, or Applicable Law, applicable to any of the Stockholders or the property or assets of any such Stockholder or (iii) any Contracts to which any Stockholder is a party or by which any Stockholder or any Stockholder's assets may be bound. No Governmental Approval of any Governmental Authority is required to be obtained or made by or with respect to any Stockholder in connection with the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated hereby. (d) The Stockholders own an aggregate of 10,055,000 shares of Company Common Stock and 100 shares of Series A Convertible Preferred Stock, par value $.05 per share, of the Company ( "Company Preferred Stock"), in each case, including the Subject Shares, and have good and valid title to such Shares, free and clear of all Liens, and such Shares are the only securities of the Company that the Stockholders or any of their Affiliates (as defined below) own beneficially or of record as of the date hereof. As used herein, the term "Affiliate" shall mean (i) any entity in which any one or more of the Stockholders owns, directly or indirectly, a greater than 15% beneficial interest, (ii) any partnership in which any of the Stockholders is a general partner or managing member and (iii) any entity in which James J. Cotter ("Cotter") or any of his children owns, directly or indirectly, a greater than 10% beneficial interest (other than through their ownership interest in any of the Stockholders) or in which Cotter or any of his children serves as an officer, director, general partner or managing member. Notwithstanding the foregoing, no entity shall be deemed to be an Affiliate for purposes of this Agreement if, and to the extent that, such entity acquires, or continues to hold, shares of Company Common Stock or other equity securities of the Company (i) over the opposition of any of the Stockholders or Cotter, which opposition shall be expressed in writing with a copy delivered to the Company in accordance with the notice provisions set forth in Paragraph 11 hereof, and (ii) with the intention or for the purpose of causing a breach of the obligations of any of the Stockholders to the Company pursuant to this Agreement. The term "Affiliate" shall not include the Company or any of its subsidiaries or Gish Biomedical, Inc. ("Gish"), so long as, in the case of Gish, the combined ownership, direct or indirect, of the Stockholders in such company represents less than 20% of the voting power of such company. To the best knowledge and belief of each of the Stockholders, Gish does not beneficially own any of the Company's equity securities. 4. Standstill Agreement. -------------------- (a) Each of the Stockholders hereby covenants and agrees that, from and after the date hereof and at all times through and including August 31, 2003, unless this Agreement shall be earlier terminated in accordance with the provisions of Paragraph 10 hereof, they, and each of them, will not, nor will they permit their respective Affiliates to, 5 directly or indirectly, in any manner acquire, or agree to acquire, any beneficial interest in any equity securities of the Company, to the extent that the acquisition of such equity securities would increase the beneficial ownership of the Stockholders and their Affiliates to more than 33% of the aggregate voting power of the Company's equity securities then outstanding, calculated on a fully diluted basis. (b) Each of the Stockholders hereby covenants and agrees that, from and after the date hereof and at all times through and including August 31, 2003, unless this Agreement shall be earlier terminated in accordance with the provisions of Paragraph 10 hereof, they, and each of them, will not, nor will they permit their respective Affiliates, to make or in any way participate in any "solicitation" of "proxies" (as such terms are used in the proxy rules of the United States Securities and Exchange Commission) to vote any voting securities of the Company ("Company Voting Stock") in connection with the election of the directors of the Company (other than proxies to vote Company securities beneficially owned by any one or more of the Stockholders and/or their respective Affiliates, which proxies shall be voted in accordance with Paragraph 6, hereof), or otherwise seek to alter the composition of the Company's Board of Directors. (c) Each of the Stockholders hereby covenants and agrees that, from and after the date hereof and at all times through and including August 31, 2001, unless this Agreement shall be earlier terminated in accordance with the provisions of Paragraph 10 hereof, they, and each of them, will not, nor will they permit their Affiliates to make or in any way participate in any way in any "solicitation" of "proxies" (as such terms are used in the proxy rules of the United States Securities and Exchange Commission) to vote Company Voting Stock, with respect to any matter, other than the election of directors of the Company, which is governed by Paragraph 4(b) hereof (a "Non-Election Issue"), which may be submitted to a vote of the stockholders of the Company, other than proxies to vote Company Voting Stock beneficially owned by any one or more of the Stockholders and/or their respective Affiliates with respect to any such Non- Election Issue. (d) Notwithstanding anything to the contrary contained in Paragraphs 4(a) through 4(c) hereof, nothing contained in this Agreement shall be construed to prevent any of the Stockholders or any of their respective Affiliates from: (i) making a tender offer for all of the outstanding Company Common Stock so long as such tender offer is made on an any and all basis; or (ii) communicating with any other holder or holders of the Company's outstanding securities, including, without limitation, the expression of the opinion of the Stockholders with respect to any third-party solicitation of proxies, provided that such Stockholder does not (A) provide to any security holder of the Company a form of proxy or other authorization permitting the Stockholder (or its designee) to vote any equity security of the Company on such security holder's behalf or (B) accept from any security holder of the Company a proxy or other authorization permitting the Stockholder (or its designee) to vote any equity security of the Company on such security holder's behalf, provided that clauses (A) and (B), above, shall not be deemed to prevent the solicitation of proxies to vote Company securities beneficially owned by such Stockholders, as contemplated by Paragraphs 4(b) and 4(c) above. 6 5. Restrictions on Sales of Shares ------------------------------- (a) From and after the date hereof and at all times prior to the termination of this Agreement in accordance with the provisions of Paragraph 10 hereof, no Stockholder shall, directly or indirectly, sell, pledge, assign, dispose of or otherwise transfer (other than in connection with a pledge to secure indebtedness owed to any one or more institutional lender(s)) (collectively, "Transfer") any of the shares owned by such Stockholder, and no Stockholder shall permit any Affiliate of such Stockholder to Transfer any of the shares owned by such Affiliate, in each case, other than to a Permitted Transferee (as defined below). (b) As used in this Agreement, the term "Permitted Transferee" means: (i) the Company and its affiliates (as used in this Agreement, the term "affiliates" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and regulations promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")); (ii) any Affiliate of any Stockholder who agrees in writing to be bound by the provisions of Paragraph 4 hereof; (iii) any Transferee who is a party to any tender offer, merger, reorganization or transfer of all or substantially all of the assets of the Company approved by the Board of Directors of the Company; (iv) any Transferee that agrees in writing to be bound by the provisions of Paragraph 4 hereof; (v) any Transferee who, after giving effect to the proposed Transfer, will own, directly or indirectly, beneficially or of record, not more than 15% of the issued and outstanding Company Voting Stock (including, for purposes of this calculation, any shares of Company Voting Stock held by affiliates of such Transferee); (vi) any person or entity to whom a Stockholder Transfers Shares in reliance on the provisions of Rule 144 promulgated under the Securities Act of 1933, as amended (other than the provisions of Rule 144(k) thereunder or any successor provision thereto), and in compliance with the restrictions on volume, manner of sale and any other applicable restrictions imposed thereby; (vii) any Transferee who acquires Shares pursuant to a tender offer for the securities of the Company or (viii) any successor by merger of any Stockholder or (ix) any Transferee who acquires shares pursuant to the exercise of FA's piggyback registration rights or in a registered secondary offering of Shares, provided that such shares are offered for sale in an underwritten public offering or otherwise sold in a broadly distributed public offering. Notwithstanding anything to the contrary contained herein, a Permitted Transferee that agrees to be bound by the provisions of Paragraph 4 hereof shall not be entitled to any other rights or benefits under this Agreement; provided that such limitations will not apply to the transfer under clause (viii) above. (c) In the case of any Transfer to a Permitted Transferee under clauses (ii) or (iv) of Paragraph 5(b) above, or, to the extent that the sale involves a sale of greater than 10% of issued and outstanding Company Voting Stock, under clause (v) of Paragraph 5(b) above, the Transferring Stockholder shall deliver to the Company (A) at least seven (7) Business Days prior to such Transfer, a written notice stating its intention to Transfer the Shares to be Transferred, the name of the Transferee, whether such Transferee is an Affiliate, the number of Shares to be Transferred, and the price and other material terms and conditions of the Transfer, and (B) in the case of any Transfer to a Permitted Transferee under clauses (ii), (iv) or (viii) of Paragraph 5(b) above, on or prior to the effective date of such Transfer and in a form reasonably acceptable to the Company in consultation with its legal counsel, the Transferee's written acknowledgment of and agreement to be bound by the provisions of Paragraph 4 hereof. In the case of a Transfer to a Permitted Transferee made solely under the 7 authority of clause (v) of Paragraph 5(b) above and involving a sale of greater than 10% of the Company's issued and outstanding Voting Stock, the Company will have the right, upon notice to the Stockholders, to terminate the obligations imposed upon the Company pursuant to Paragraph 8(a) hereof. (d) At, or promptly following the Closing, (i) Each certificate representing the Shares, other than the Subject Shares, shall be stamped or otherwise imprinted with the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER CONTAINED IN THE STOCK PURCHASE AND STANDSTILL AGREEMENT, DATED AS OF NOVEMBER __, 2000, BY AND AMONG READING ENTERTAINMENT, INC., FA, INC., CITADEL HOLDING CORPORATION, CRAIG CORPORATION AND NATIONAL AUTO CREDIT, INC. (THE "COMPANY") AND MAY NOT BE TRANSFERRED EXCEPT AS PERMITTED BY THE TERMS THEREOF. (ii) Each certificate representing Shares that were acquired from the Company by FA on April 5, 2000, shall be stamped or otherwise imprinted with the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, DISPOSED OF OR OTHERWISE TRANSFERRED ("TRANSFERRED"), AND THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH SECURITIES, EXCEPT (A) PURSUANT TO RULE 144 UNDER THE ACT OR (B) UPON RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT. With respect to Shares (A) that are Transferred to a Permitted Transferee pursuant to clauses (iii), (v) or (vii) of Paragraph 5(b) hereof, and (B) as to which the Transfer restrictions imposed by this Agreement have as a result of such Transfer terminated, upon request of the Transferring Stockholder, the Company shall cause to be issued certificates representing such Shares without the restrictive legend set forth above in clause (i) stamped or otherwise imprinted thereon. With respect to any Shares (X) that are Transferred to a Permitted Transferee pursuant to clauses (vi) or (ix) of Paragraph 5(b) hereof, and (Y) as to which all Transfer restrictions have terminated (including any Transfer restrictions imposed by this Agreement and any Transfer restrictions imposed by federal or state securities laws), upon request of the Transferring Stockholder, the Company shall cause to be issued certificates representing such Shares without any portion of the restrictive legends set forth above in clauses (i) and (ii) stamped or otherwise imprinted thereon. Upon the termination of this Agreement, the Company, upon the request of any holder of Shares, shall cause to be issued certificates representing such Shares without the legend set forth above in clause (i) stamped or otherwise imprinted thereon. 8 6. Voting Agreement. ---------------- In connection with each election of directors of the Company occurring after the date hereof and prior to the termination of this Agreement in accordance with the provisions of Paragraph 10 hereof, whether at an annual or special meeting of the Company's stockholders or otherwise, each Stockholder shall vote, or shall cause to be voted, all shares of the Company's outstanding equity securities as to which such Stockholder exercises voting control in the same manner and in the same proportion as the shares held by all stockholders of the Company other than the Stockholders are voted in connection with such election. Notwithstanding the foregoing, each Stockholder shall be free to cast all of the votes which such Stockholder is entitled to cast in favor of the election of the Stockholder Nominees. 7. Board Representation. -------------------- (a) Upon written notice from the Stockholders designating their nominees, the Company shall promptly cause two (2) designees of the Stockholders (including any successors to such designees, the "Stockholder Nominees") to be appointed to the Company's Board of Directors. So long as the nominees specified in such notice are directors and/or executive officers of any one or more of the Stockholders, such nominees shall be appointed to the Board of Directors of the Company before any other action is taken by the Board of Directors of the Company (other than ministerial actions such as the calling of a meeting of the Board of Directors of the Company to take action upon such nominees). The Stockholder Nominees shall initially be James J. Cotter and Scott A. Braly and shall be appointed to fill vacancies on the Company's Board of Directors created by the resignation therefrom, as contemplated by the Settlement Agreement, of Frankino and/or certain other individuals appointed by or affiliated with Frankino having terms of office expiring at the 2002 annual meetings of the Company's stockholders. Until the termination of this Agreement in accordance with the provisions of Paragraph 10 hereof, the Company shall cause the Stockholder Nominees to be included in the slate of nominees nominated by the Company's Board of Directors for election as directors of the Company with respect to each annual or special meeting of the Company's stockholders held for the purpose of electing directors of the Company (or with respect to any election of directors of the Company to be effectuated through action by written consent), and shall solicit proxies from the holders of the outstanding Company Voting Stock in favor of the election of the Stockholder Nominees on the same basis and to the same extent that proxies are solicited in favor of the election of all other nominees for director of the Company nominated by the Board of Directors of the Company. Any vacancy on the Company's Board of Directors created by the resignation or removal of a Stockholder Nominee shall be filled by the appointment of another Stockholder Nominee. The Stockholders will cause each Stockholder Nominee to deliver to the Company along with such Stockholder Nominee's notice of nomination a completed directors and officers questionnaire in the form then in use by the Company. (b) The Stockholders acknowledge and agree that the Stockholder Nominees will be required to recuse themselves from any deliberations of the Company's Board of Directors regarding whether or not the Company should or will amend or terminate this Agreement and the Stockholder Nominees shall not vote on any resolution or other proposed action of the Company's Board of Directors regarding such amendment or termination. 9 (c) Until such time as the Stockholder Nominees have been appointed to the Company's Board of Directors, or in the event that thereafter any Stockholder Nominee for any reason is not able to attend any meeting of the Board of Directors or any committee of the Board of Directors on which such Stockholder Nominee serves, the Stockholders shall be entitled to send an observer to such meeting in the stead of such absent Stockholder Nominee; provided that any such observer shall not be entitled to vote on any matter before the Company's Board of Directors, and the presence or absence of such observer shall not be considered for purposes of determining the existence of a quorum. The costs and expenses of the attendance of such observer at any such meeting will be treated the same as if such cost or expense had been incurred by a director of the Company. (d) The Company shall give to the Stockholder Nominees (and prior to the appointment of such Stockholder Nominees, to the Stockholders) not less than three (3) full business days notice of any meeting of the Board of Directors of the Company or any meeting of any committee of the Board of Directors of the Company upon which any Stockholder Nominee serves. In other words, and by way of example, notice of any meeting to be held on a Friday must be received by not later than the close of business on the preceding Monday, assuming that there are no legal holidays during such period. This notice must be accompanied by an agenda for the meeting, and copies of any and all materials provided to any one or more of the other directors of the Company with respect to that meeting. In the event that materials are distributed to any one or more directors of the Company following the giving of such notice, copies of such materials will be provided to the Stockholder Nominees (and prior to the appointment of such Stockholder Nominees, to the Stockholders) on the same day as they are provided to such directors. The purpose of this provision is to ensure that the Stockholder Nominees (or prior to the appointment of such Stockholder Nominees, the Stockholders) are provided the same access to information as any other director of the Company. 8. Company Covenants. ----------------- (a) At all times from and after the date hereof until the earliest to occur of (i) the preparation, adoption and public disclosure by the Board of Directors of the Company of a five-year business plan for the Company and its subsidiaries on a consolidated basis (the Company and its subsidiaries being collectively referred to herein on a consolidated basis as "NAC") and (ii) the termination of this Agreement in accordance with the provisions of Paragraph 10 hereof, the Company shall not, directly or indirectly through one or more affiliates (A) acquire any assets, in any transaction or in any series of related transactions, by merging or consolidating or otherwise combining with any one or more corporations, partnerships or/or other entities, or by purchase (whether for cash, debt and/or securities) in a transaction which would be material to NAC or (B) issue, in any transaction or in any series of related transactions, a material amount of the securities of NAC. (b) At all times from and after the date hereof until the termination of this Agreement in accordance with the provisions of Paragraph 10 hereof, the Company, consistent with the stockholder approval policy of The Nasdaq Stock Market, as set forth in Section 4310(G) of the National Association of Securities Dealers, Inc. Manual or any successor provision thereto, shall obtain the approval of its stockholders for any plan or arrangement: (i) in connection with the acquisition of the stock or assets of another company (A) if any 10 director, officer or substantial stockholder of the Company has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the company or assets to be acquired or in the consideration to be paid in the transaction or series of related transactions and the present or potential issuance of Company Voting Stock, or securities convertible into or exercisable or exchangeable for Company Voting Stock, could result in an increase in outstanding shares of Company Voting Stock or voting power of 5% or more; or (B) where, due to the present or potential issuance of Company Voting Stock, or securities convertible into or exercisable or exchangeable for Company Voting Stock, other than pursuant to a public offering for cash, (1) the Company Voting Stock (or securities convertible into or exercisable or exchangeable for Company Voting Stock) to be issued has or will have upon issuance voting power equal to or in excess of 20% of the voting power outstanding before the issuance of such Company Voting Stock or such securities convertible into or exercisable or exchangeable for Company Voting Stock; or (2) the number of shares of Company Voting Stock (or securities convertible into or exercisable or exchangeable for Company Voting Stock) to be issued is or will be equal to or in excess of 20% of the number of shares of Company Voting Stock outstanding before the issuance of the stock or securities; (ii) in connection with a transaction other than a public offering involving (A) the sale or issuance by the Company of Company Voting Stock (or securities convertible into or exercisable or exchangeable for Company Voting Stock) at a price less than the greater of book or market value, which sale or issuance, together with sales by officers, directors or substantial stockholders of the Company, equals 20% or more of the Company Voting Stock or 20% or more of the voting power outstanding before the issuance; or (B) the sale or issuance by the Company of Company Voting Stock (or securities convertible into or exercisable or exchangeable for Company Voting Stock) equal to 20% or more of the Company Voting Stock or 20% or more of the voting power outstanding before the issuance; or (iii) pursuant to which any person shall acquire more than 33% of the Company's total assets (calculated on a consolidated basis in accordance with United States generally accepted accounting principles, consistently applied). Notwithstanding the foregoing, the Company and the Stockholders shall amend this Paragraph 8(b) if, and to the extent that, any such amendment is necessary to attain compliance with the listing criteria of any recognized securities exchange or automated inter-dealer quotation system upon which listing of the Company's securities is sought or obtained. The Company represents that it is not currently aware of any such listing criteria which would require such amendment. (c) The Company shall give prompt notice to the Stockholders of any proposed changes to the Settlement Agreement. 9. Related Party Transactions. -------------------------- From and after the date hereof, until the termination of this Agreement in accordance with the provisions of Paragraph 10 hereof, the Board of Directors of the Company shall periodically conduct a review of all Related Party Transactions, defined below and shall utilize the Audit Committee or a comparable committee of the Company's Board of Directors, in either event, consisting entirely of disinterested directors, for review of potential conflict of interest situations. Moreover, until the termination of this Agreement in accordance with the provisions of Paragraph 10 hereof, NAC shall not make any payments, loans, advances or other distributions to, or enter into any transaction, agreement or arrangement (each, a "Related Party Transaction") with, any of its affiliates, officers, directors or stockholders or any 11 associates or family members of any of the foregoing (collectively, the "Company Affiliates"), or make any changes in or modify any agreements, Contracts, arrangements, payables, obligations or understandings between NAC and any such Company Affiliate (the "Affiliate Agreements"), other than in the ordinary course of business consistent with past practice or as required by the Affiliate Agreements, unless such Related Party Transaction or Affiliate Agreement amendment shall have previously been approved by the Company's Board of Directors (including by a majority of the disinterested directors) or by a committee of the Company's Board of Directors consisting solely of disinterested directors. 10. Termination. ----------- (a) This Agreement may be terminated at any time: (i) by mutual written agreement of the Company and the Stockholders; (ii) by either the Company or the Stockholders, effective upon notice to the other party or parties of such termination, if any Governmental Authority shall have issued an order, decree or ruling or taken any other action (which order, decree or ruling the parties shall use their reasonable best efforts to lift), in each case permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order, decree, ruling or other action shall have become final and nonappealable; (iii) by either the Company or the Stockholders, effective upon notice to the other party or parties of such termination, if a proposal to sooner terminate the Agreement is approved by either (A) the holders of a majority of the combined voting power of the Company's outstanding capital stock entitled to vote thereon (calculated without reference to any equity securities of the Company held by the Stockholders or their respective Affiliates) or (B) a majority of the independent Directors of the Company (provided that, in the case of a termination under clause (B) above, the provisions of Paragraphs 8 and 9 hereof will survive any such termination until immediately following the next annual meeting of the Company's stockholders occurring not less than 120 days following receipt of notice of such termination); (iv) by either the Company or the Stockholders, effective upon notice to the other party or parties of such termination, in the event that any person or entity not affiliated with, or acting at the request or direction of, the Company or any of the Stockholders, directly or indirectly, shall in any manner acquire, agree to acquire or initiate a fully financed and unconditional (other than usual and customary conditions to closing) tender offer or exchange offer seeking to acquire, directly or indirectly, a beneficial interest in securities of the Company representing in excess of 15% of the then issued and outstanding Company Voting Stock; (v) by either the Company or the Stockholders, effective upon notice to the other party or parties of such termination, in the event that the Board of 12 Directors of the Company shall propose any Change in Control Transaction (as defined below); provided that in the case of a termination under this Paragraph 10(a)(v), the provisions of Paragraphs 6, 8(b) and 9 will survive any such termination until immediately following the next annual meeting of the Company's stockholders occurring not less than 120 days following receipt of notice of such termination. As used in this Agreement, the term "Change in Control Transaction" means (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) or all or substantially all of the assets of the Company; (ii) any sale, lease exchange or other transfer (in one transaction or a series of related transactions) of shares of capital stock of the Company such that any person or group (other than the holders generally of the Company's capital stock immediately prior to such transaction or series of transactions) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than twenty percent (20%) of the aggregate ordinary voting power represented by the issued and outstanding Company Voting Stock ; or (iii) any merger, consolidation, recapitalization, acquisition or similar transaction (other than any such transaction involving only the Company and/or one or more wholly owned subsidiaries of the Company) in which the outstanding Company Voting Stock is converted into or exchanged for cash, securities or other property, such that immediately after such transaction any person or group (other than the holders generally of such capital stock immediately prior to such transaction or series of transactions) shall become the owner, directly or indirectly , beneficially or of record, of shares representing more than twenty percent (20%) of the aggregate ordinary voting power represented by the issued and outstanding Company Voting Stock; or (vi) by the Stockholders, effective upon notice to the Company of such termination, in the event that any Stockholder Nominee, in favor of whose election to the Company's Board of Directors each of the Stockholders has voted its Shares, is (A) not elected to the Company's Board of Directors as a result of any action or inaction by the Company or (B) removed from the Company's Board of Directors and not replaced by another Stockholder Nominee; provided, however, that the -------- ------- resignation of a Stockholder Nominee or the refusal of a Stockholder Nominee to stand for election shall not result in a termination of this Agreement pursuant to this Paragraph 10(a)(vi) so long as any vacancy resulting from such resignation or refusal is filled by a Stockholder Nominee promptly following the receipt by the Company of written notification from the Stockholders as to the identity of such replacement Stockholder Nominee and a completed directors and officers questionnaire in the form used by the Company in connection with its most recent annual meeting of stockholders. (b) This Agreement shall terminate automatically, and without any action on the part of any party hereto: 13 (i) in the event that the Stockholders collectively own, directly or indirectly, beneficially or of record, together with all Affiliates of such Stockholders, Shares representing, in the aggregate, less than 10% or 90% or more of the Company's then issued and outstanding Company Voting Stock; or (ii) on August 31, 2003. 11. Notices. ------- All notices and other communications hereunder shall be in writing and shall be deemed given on the day when delivered personally or by facsimile transmission (with confirmation), on the next Business Day when delivered to a nationally recognized overnight courier or five (5) Business Days after deposited as registered or certified mail (return receipt requested), in each case, postage prepaid, addressed to the recipient party at its address set forth below (or at such other address or facsimile number for a party as shall be specified by like notice; provided, however, that any notice of a change of address or facsimile number shall be effective only upon receipt thereof): (a) If to the Company, to: National Auto Credit, Inc. 30000 Aurora Road Solon, Ohio 44139 Attention: David L. Huber, Chief Executive Officer Facsimile: (440) 349-3141 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attention: Jonathan J. Lerner, Esquire Facsimile: (212) 735-2000 and De Martino Finkelstein Rosen & Virga 1818 N. Street, N.W., Suite 400 Washington, D.C. 20036 Attention: Ralph V. DeMartino, Esq. Facsimile: (202) 659-1290 14 (b) if to the Stockholders, to: In the case of Reading Entertainment, Inc., to: Reading Entertainment, Inc. 550 S. Hope Street, Suite 1800 Los Angeles, California 90071 Attention: S. Craig Tompkins, Vice Chairman Facsimile: (213) 239-0548 In the case of FA, Inc., to: c/o Reading Entertainment, Inc. 550 S. Hope Street, Suite 1800 Los Angeles California 90071 Attention: S. Craig Tompkins, Vice Chairman Facsimile: (213) 239-0548 In the case of Citadel Holding Corporation, to: c/o Reading Entertainment, Inc. 550 S. Hope Street, Suite 1825 Los Angeles, California 90071 Attention: S. Craig Tompkins, Vice Chairman Facsimile: (213) 239-0549 In the case of Craig Corporation, to: c/o Reading Entertainment, Inc. 550 S. Hope Street, Suite 1825 Los Angeles, California 90071 Attention: S. Craig Tompkins, President Facsimile: (213) 239-0549 12. Miscellaneous. -------------- (a) This Agreement may not be amended except pursuant to a writing signed by all parties hereto. Notwithstanding anything to the contrary contained herein, the Stockholders shall not be entitled to amend the provisions of Paragraph 4 hereof unless: (i) the holders of a majority of the combined voting power of the Company's outstanding capital stock entitled to vote thereon (calculated without reference to any equity securities of the Company held by the Stockholders or their respective Affiliates) shall approve a proposal submitted by the Board of Directors of the Company authorizing such amendment or (ii) a majority of the independent members of the Company's Board of Directors shall approve a resolution authorizing such amendment. 15 (b) Unless specifically provided herein, this Agreement is not intended to create, and shall not create, any rights in any person or entity that is not a party to this Agreement. (c) This Agreement has been prepared, and negotiations in connection with it have been carried on, by the efforts of each of the parties hereto, and this Agreement is to be construed fairly and in accordance with its plain meaning, and not strictly against any particular party, and no party hereto shall be deemed to be the draftsperson hereof. (d) This Agreement constitutes the entire understanding of the parties concerning its subject matter and may not be modified, altered, or discharged except by a writing signed by all of the parties. No representations or promises except those set forth herein have been made to induce any party to enter into this Agreement. (e) This Agreement shall be binding on each of the parties hereto and on their respective successors and assigns. (f) The representations and warranties set forth in Paragraphs 2 and 3 hereof shall survive indefinitely following the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. (g) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, excluding its choice of law or conflicts of law or other provisions which might result in the selection of the substantive law of another jurisdiction. Each party hereto agrees that any claim relating to this Agreement shall be brought solely in the State or Federal Court for such jurisdiction, and each party hereto consents to the jurisdiction of such Court for purposes hereof. (h) This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (i) If any provision in this Agreement shall be found or be held to be invalid or unenforceable, then the meaning of such provision shall be construed, to the extent feasible, so as to render the provision enforceable, and if no feasible interpretation would save such provision, it shall be severed from the remainder of this Agreement which shall remain in full force and effect unless the severed provision is essential and material to the rights or benefits received by any party hereto. In such event, the parties to this Agreement shall use best efforts to negotiate, in good faith, a substitute, valid and enforceable provision or agreement which most nearly effects the parties' intent in entering into this Agreement. [SIGNATURE PAGE FOLLOWS] 16 IN WITNESS WHEREOF, the undersigned parties have executed this Stock Purchase and Standstill Agreement as of the date first above written. NATIONAL AUTO CREDIT, INC. By: /s/ David L. Huber ---------------------------- Name: David L. Huber --------------------- Title: President and CEO -------------------- READING ENTERTAINMENT, INC. By: /s/ S. Craig Tompkins ---------------------------- Name: S. Craig Tompkins --------------------- Title: Vice Chairman -------------------- FA, INC. By: /s/ S. Craig Tompkins ---------------------------- Name: S. Craig Tompkins --------------------- Title: Vice Chairman -------------------- CITADEL HOLDING CORPORATION By: /s/ S. Craig Tompkins ---------------------------- Name: S. Craig Tompkins --------------------- Title: Vice Chairman -------------------- CRAIG CORPORATION By: /s/ S. Craig Tompkins ---------------------------- Name: S. Craig Tompkins --------------------- Title: President -------------------- 17 ATTACHMENT A SETTLEMENT AGREEMENT AND RELEASE (INCLUDING AGREEMENT FOR SALE OF SHARES) SETTLEMENT AGREEMENT AND RELEASE (INCLUDING AGREEMENT FOR SALE OF SHARES) ---------------------------------------- This Agreement, effective November ____, 2000, is made and entered into among by and among Samuel J. Frankino, individually and as trustee and president of the Foundation (as defined below), trustee of the Trust (as defined below) and managing partner of the Partnership (as defined below) ("Frankino"), the Samuel J. Frankino and Connie M. Frankino Charitable Foundation (the "Foundation"), the Corrine L. Dodero Trust for the Arts and Sciences (the "Trust") and Frankino and Frankino Investment Company, a Nevada general partnership (the "Partnership" and, collectively with Frankino in all capacities listed above, the Foundation and the Trust, the "Frankino Parties" or "Sellers"), on the one hand, and National Auto Credit, Inc., a Delaware corporation (the "Company"), on the other hand. WHEREAS, the Frankino Parties own an aggregate of 15,743,012 shares (the "Shares") of common stock, par value $.05 per share, of the Company ("Company Common Stock"); and WHEREAS, certain disputes and differences have arisen between Frankino and the Company, which disputes have resulted in litigation styled National Auto Credit, Inc. v. Sam J. Frankino, C.A. No. 17973 and Sam J. Frankino v. David L. Huber, et al., C.A. No. 17984, both pending in the Court of Chancery of the State of Delaware (collectively referred to herein as the "Actions"); and WHEREAS, Frankino and the Company wish to settle all disputes between them without the admission of fault by any of them; and WHEREAS, the Frankino Parties and the Company wish to waive, as permitted by Paragraph 4 thereof, the restrictions imposed by the Order Maintaining Status Quo, dated as of April 13, 2000, entered in connection with the Actions (the "Status Quo Order") to the extent necessary to consummate the transactions contemplated hereby; and WHEREAS, the Company believes that the settlement and the other transactions provided for herein are fair to, and in the best interests of, the Company and its stockholders; NOW THEREFORE, in consideration of the above premises and the promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Frankino Parties and the Company hereby agrees as follows: 1. Upon the terms and subject to the conditions of this Agreement, at the closing of the transactions contemplated hereby (the "Closing"), which Closing is taking place contemporaneously with the execution and delivery of this Agreement by the parties hereto, Sellers shall sell, convey, assign, transfer and deliver to the Company, and the Company shall purchase, acquire and accept from Sellers, good and valid title to all of the Shares, free and clear of all liens, claims, charges or other encumbrances (collectively, "Liens"). In consideration of the aforesaid sale, conveyance, assignment, transfer and delivery of the Shares, at the Closing, the Company shall pay and convey to Sellers a total of Thirty-Five Million Three Hundred Forty Thousand Dollars ($35,340,000), or $2.245 per Share, in -1- immediately available United States Dollars, by wire transfer to bank accounts designated by Sellers, as follows: (a) Frankino: Eighty-Seven Thousand Five Hundred Forty-Seven Dollars and Forty-One Cents ($87,547.41); (b) Foundation: Twenty-Eight Million Five Hundred Sixty-Eight Thousand Four Hundred Nine Dollars and Forty-Five Cents ($28,568,409.45); (c) Trust: Four Million Four Hundred Eighty-Nine Thousand Six Hundred Eleven Dollars and Seven Cents ($4,489,611.07); and (d) Partnership: Two Million One Hundred Ninety-Four Thousand Four Hundred Thirty-Two Dollars and Seven Cents ($2,194,432.07). 2. Upon the terms and subject to the conditions of this Agreement, at the closing of each of the transactions contemplated by this Paragraph 2 (the "Subsequent Closings"), which Subsequent Closings shall take place as soon as is reasonably practicable following the receipt by the Company of certificates representing the Additional Sellers' Shares (as defined below) held by each Additional Seller (as defined below), each of William Maund; Lorraine Dodero; William Dodero and Lorraine Dodero, as joint tenants; and Lorraine Dodero, as trustee of a grantor trust for the benefit of Corrine Dodero (collectively, the "Additional Sellers") shall sell, convey, assign, transfer and deliver to the Company, and the Company shall purchase, acquire and accept from each such Additional Seller, good and valid title to all of the shares of Company Common Stock held by such Additional Seller, as set forth on Exhibit I attached hereto ------- (the "Additional Sellers' Shares"), free and clear of all Liens. In consideration of the aforesaid sale, conveyance, assignment, transfer and delivery of the Additional Sellers' Shares, at the Subsequent Closings, the Company shall pay and convey to each Additional Seller a purchase price equal to the product of (a) One Dollar and Fifty Cents ($1.50) multiplied by (b) the number of Additional Sellers' Shares set forth opposite such Additional Seller's name on Exhibit I attached hereto, in immediately available United States ------- Dollars, payable to each such Additional Seller by bank cashier's check, certified check or wire transfer at the applicable Subsequent Closing. 3. The Company shall reimburse to Frankino legal expenses in the amount of Two Million Eleven Thousand Six Hundred Dollars ($2,011,600.00), which shall be paid at the Closing by wire transfer of immediately available United States Dollars to a bank account designated by Frankino. 4. The Company and Frankino agree to use their best, good faith efforts to consummate the settlement of the action captioned In Re: National Auto Credit, Inc. Securities Litigation, Case No. 1:98CV0264, which is currently pending in the United States District Court for the Northern District of Ohio. 5. The Company makes the following representations with respect to the transactions set forth in Paragraphs 1 and 2 above: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and corporate authority to enter into this Agreement, and to consummate the transactions contemplated hereby. (b) The execution, delivery and performance by the Company of this Agreement, and the consummation of the transactions contemplated hereby have been authorized by all necessary corporate action. This Agreement has been duly executed and delivered by the Company and, assuming that this Agreement constitutes a valid and binding obligation of Sellers, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. (c) Given that, pursuant to Paragraph 8 hereof, the parties hereto have waived the restrictions imposed by the Status Quo Order to the extent necessary to consummate the transactions contemplated hereby, the execution and delivery by the Company of this Agreement do not, and the consummation of the transactions contemplated -2- hereby and compliance with the terms hereof will not, conflict with, or result in any violation of or default under, (i) any provision of the Company's Restated Certificate of Incorporation, as amended, the Company's Amended and Restated By-Laws or any other similar organizational documents of the Company, (ii) any judgment, order, injunction or decree (an "Order"), or statute, law, ordinance, rule or regulation ("Applicable Law"), applicable to the Company or the property or assets of the Company or (iii) any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation ("Contracts") to which the Company is a party or by which the Company or any of the Company's assets may be bound. Other than any consent, approval, order or authorization of, notice to, or registration, declaration or filing ("Governmental Approval") that may be required under the terms of the Status Quo Order, if any, no Governmental Approval of any court, administrative agency or commission or other governmental entity, authority or instrumentality, domestic or foreign ("Governmental Authority"), is required to be obtained or made by or with respect to the Company in connection with the execution and delivery of this Agreement or the consummation by the Company of the transactions contemplated hereby. 6. The Sellers, jointly and severally, make the following representations with respect to the transactions set forth in Paragraph 1 above and, on behalf of the Additional Sellers, the Sellers, jointly and severally, make the following representations with respect to the transactions set forth in Paragraph 2 above: (a) The Trust is a duly constituted charitable trust duly organized and validly existing under the laws of the State of Florida, the Foundation is a not-for-profit corporation duly organized, validly existing and in good standing under the laws of the State of Ohio, and the Partnership is a general partnership duly organized, validly existing and in good standing under the laws of the State of Nevada, and each has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. (b) The execution, delivery and performance by the Sellers of this Agreement, and the consummation of the transactions contemplated hereby, have been authorized by all necessary action, corporate or otherwise. This Agreement has been duly executed and delivered by the Sellers, and, assuming that this Agreement constitutes a valid and binding obligation of the Company, constitutes a valid and binding obligation of each of the Sellers, enforceable against each of the Sellers in accordance with its terms. (c) Given that, pursuant to Paragraph 8 hereof, the parties hereto have waived the restrictions imposed by the Status Quo Order to the extent necessary to consummate the transactions contemplated hereby, the execution and delivery by Sellers of this Agreement do not, and the consummation of the transactions contemplated hereby and compliance with the terms hereof will not, conflict with, or result in any violation of or default under, (i) any provision of the organizational documents of the Sellers that are not natural persons, (ii) any Order, or Applicable Law, applicable to any of the Sellers or the property or assets of the Sellers or (iii) any Contracts to which any Seller is a party or by which any Seller or any Seller's assets may be bound. Other than any Governmental Approval that may be required under the terms of the Status Quo Order, if any, no Governmental Approval of any Governmental Authority is required to be obtained or made by or with respect to any Seller in connection with the execution and delivery of this Agreement or the consummation by any Seller of the transactions contemplated hereby. (d) The Sellers own an aggregate of Fifteen Million Seven Hundred Forty-Three Thousand Twelve (15,743,012) shares of Company Common Stock and have good and valid title to such Shares, free and clear of all Liens, and the Shares are the only securities of the Company that the Sellers or, except as set forth on Exhibit I attached hereto, any of their affiliates or associates own --------- beneficially or of record as of the date hereof (as each such term is -3- used under the regulations promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). The Additional Sellers own an aggregate of One Hundred Twenty Thousand Three Hundred Forty-Eight (120,348) shares of Company Common Stock and have good and valid title to such Additional Sellers' Shares, free and clear of all Liens, and the Additional Sellers' Shares are the only securities of the Company that the Additional Sellers own beneficially or of record as of the date hereof (as each such term is used under the regulations promulgated under the Exchange Act). 7. The Frankino Parties agree that from and after the date hereof, they, and each of them, will not, nor will they permit their affiliates or cause or assist in any way their associates or other representatives to, directly or indirectly, alone or in concert or in conjunction with any other "Person" or "Group" (as such terms are used in Section 13(d)(3) of the Exchange Act) (a) in any manner acquire, agree to acquire or to make any proposal (or request permission to make any proposal) to acquire, directly or indirectly, any beneficial interest in any securities of, equity interest in or any property or assets (other than property or assets transferred in the ordinary course of the Company's business) of the Company or any of its subsidiaries, (b) except with the prior written consent of the Company, propose to the Company or any of its stockholders to enter into any merger or business combination involving the Company or any of its subsidiaries or to purchase a material portion of the assets of the Company or any of its subsidiaries, (c) make or in any way participate in any "solicitation" of "proxies" (as such terms are used in the proxy rules of the U.S. Securities and Exchange Commission) to vote, or seek to advise or influence any Person with respect to the voting of, any voting securities of the Company or any of its subsidiaries, (d) form, join or in any way participate in a Group with respect to any voting securities of the Company or any of its subsidiaries, (e) seek, alone or in concert with others, to control, change or influence the management, Board of Directors or policies of the Company or its affiliates or propose any matter to be voted upon by the stockholders of the Company, (f) disclose any intention, plan or arrangement inconsistent with the foregoing, (g) assist, advise or encourage any other Person in doing any of the foregoing, or (h) make any request or proposal to amend, waive or terminate any provisions of this Paragraph 7. 8. By executing this Agreement, each of the parties hereto hereby waives, as permitted by Paragraph 4 thereof, the restrictions imposed by the Status Quo Order to the extent necessary to consummate the transactions contemplated hereby. Upon the exchange of fully executed copies of this Agreement, the Frankino Parties and the Company shall each, through their respective counsel, (i) effect dismissals with prejudice of the Actions, which dismissals shall become effective upon the execution and filing of comparable dismissals from Reading Entertainment, Inc., a Nevada corporation ("Reading"), FA, Inc., a Nevada corporation and a wholly owned subsidiary of Reading ("FA"), and Slusser Associates, Inc., a Delaware corporation ("Slusser"), if such comparable dismissals are required to effect a full dismissal of the Actions, and (ii) jointly take such action as shall be necessary to vacate, dissolve or otherwise terminate the operation of the Status Quo Order. Each of the parties shall bear its own fees and expenses in connection with the Actions and the dismissal thereof pursuant to this Paragraph 8. 9. The Frankino Parties, for themselves, their heirs, administrators, executors, representatives, beneficiaries and assigns, hereby release and discharge the Company, Reading, FA and Slusser, and each of their respective past, present and future officers, directors, stockholders, parent and/or subsidiary companies, affiliated entities, successors-in-interest, representatives, agents, employees, attorneys and assigns, and the individuals' heirs, administrators, executors, representatives, attorneys and assigns (collectively, the "NAC Group"), from any and all claims, demands, causes of action, actions, judgments, liens, -4- indebtedness, costs, damages, obligations, attorneys' fees, losses and liability of whatever kind and character, whether known or unknown, foreseen or unforeseen, arising from the beginning of time to the date hereof that each of them has against the members of the NAC Group, including, without limiting the generality of the foregoing, those related in any way to the Actions; provided, -------- that nothing contained herein shall be deemed to release (a) any member of the NAC Group from any of its obligations under this Agreement or the Exhibits hereto or (b) the Company from any challenge by Frankino related to amounts reported by the Company to the Internal Revenue Service as income attributable to Frankino. The Frankino Parties covenant and agree not to sue any member of the NAC Group with respect to any claim (a) related in any way to the Actions and/or (b) otherwise released herein. 10. The Company, for itself and its affiliated entities, successors-in- interest, representatives, agents and assigns, and the individuals' heirs, administrators, executors, representatives, attorneys and assigns, hereby release and discharge the Frankino Parties, together with their heirs, administrators, executors, representatives, beneficiaries, attorneys and assigns (the "Frankino Group"), from any and all claims, demands, causes of action, actions, judgments, liens, indebtedness, costs, damages, obligations, attorneys' fees, losses and liability of whatever kind and character, whether known or unknown, foreseen or unforeseen, arising from the beginning of time to the date hereof that each of them has against the members of the Frankino Group, including, without limiting the generality of the foregoing, those related in any way to the Actions; provided, that nothing contained herein shall release -------- any member of the Frankino Group from any of its obligations under this Agreement or the Exhibits hereto. The Company covenants and agrees not to sue the Frankino Parties with respect to any claim (a) related in any way to the Actions and/or (b) otherwise released herein. 11. (a) The Company shall cause each of the following individuals and entities to deliver to the Frankino Parties on the date hereof, a release on the terms set forth in Exhibit II attached hereto: David L. Huber, Donald Jasensky, ------- James J. McNamara, Phillip A. Sauder, Henry Y.L. Toh, Peter Zackaroff, John A. Gleason, William S. Marshall, National Cinemas, Inc., Reading, FA and Slusser. (b) The Company shall [use its reasonable best effort to] cause Reading, FA and Slusser to execute and file dismissals with prejudice of the Actions, if such dismissals are necessary to effect a full dismissal of the Actions. (c) The Frankino Parties shall cause each of the following individuals to deliver to the Company on the date hereof an agreement on the terms set forth in Exhibit III hereto: Lorraine Dodero, William Dodero, William Maund and ----------- Robert Upton. (d) Frankino shall deliver to the Company on the date hereof a letter in the form of Exhibit IV hereto. ---------- 12. Except as set forth below, the rights of any Frankino Party to indemnification by the Company, including advancement of fees, costs and/or expenses or other damages, under the Company's Restated Certificate of Incorporation, as amended, the Company's Amended and Restated By-laws, applicable law or otherwise shall be unaffected by the provisions of this Agreement, and the following provisions shall not abrogate any rights of any of the Frankino Parties or any of the persons referenced in Paragraph 11(c) hereof under directors and officers insurance policies issued to the Company. The parties to this Agreement hereby acknowledge and agree that any rights to indemnification by the Company to which any of the Frankino Parties is or would be entitled pursuant to the Company's Restated Certificate of Incorporation, as amended, the Company's Amended and Restated By-laws, applicable law or otherwise shall be limited as follows: (i) none of the Frankino Parties shall be entitled to, and each of them hereby waives and forever forgives any rights to, any such indemnification for fees, costs and/or expenses or other damages incurred by any such person or entity on or prior to the date -5- of this Agreement in connection with the Actions or any other action or proceeding arising from or based upon the same facts and circumstances that form the basis of the Actions; provided, that the Company shall not be entitled to, -------- and hereby waives and forever forgives any rights to, reimbursement from any of the Frankino Parties for amounts previously paid by the Company to any of the Frankino Parties or their counsel; and (ii) none of the Frankino Parties shall be entitled to, and each of them hereby waives and forever forgives any rights to, advancement of, or reimbursement for, fees, costs and/or expenses or other damages incurred by any such person or entity after the date of this Agreement in connection with any threatened or pending action, suit or proceeding (whether civil, criminal, administrative or investigative) known to the Company and/or such individual or entity as of the date hereof (a "Known Proceeding"), except as follows: At the conclusion or termination of each such known proceeding, the Company shall indemnify the Frankino Parties in accordance with, and as permitted by, the Company's Restated Certificate of Incorporation, as amended, the Company's Amended and Restated By-laws, and applicable law, to the extent of Fifty Percent (50%) of the aggregate amount of fees, costs, and/or expenses or other damages which each such individual or entity incurs in connection with each such Known Proceeding. 13. The Frankino Parties shall cooperate with the Company as fully as reasonably possible in connection with the prosecution or defense of any claim by the Company against any person not a party to this Agreement or against the Company by any person not a party to this Agreement. The Company shall, and shall cause each of its directors, officers, employees, advisors, consultants, affiliates and subsidiaries, to cooperate with the Frankino Parties, and each of them, as fully as reasonably possible in connection with the defense of any claim or known proceeding related in any way to Frankino's relationship with the Company. 14. By entering into this Agreement, neither the Frankino Parties nor the Company intends to make, nor shall they be deemed to have made, any admission of any kind. 15. Unless specifically provided herein, this Agreement is not intended to create, and shall not create, any rights in any person or entity that is not a party to this Agreement. 16. This Agreement has been prepared, and negotiations in connection with it have been carried on, by the efforts of each of the parties hereto, and this Agreement is to be construed fairly and in accordance with its plain meaning, and not strictly against any particular party, and no party hereto shall be deemed to be the draftsperson hereof. 17. This Agreement constitutes the entire understanding of the parties concerning its subject matter and may not be modified, altered, or discharged except by a writing signed by all of the parties. No representations or promises except those set forth herein have been made to induce any party to enter into this Agreement. 18. This Agreement shall be binding on each of the parties hereto and on their respective successors and assigns. 19. The representations and warranties set forth in Paragraphs 5 and 6 hereof shall survive indefinitely following the execution of this Agreement and the consummation of the transactions contemplated hereby. 20. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, excluding its choice of law or conflicts of law or other provisions which might result in the selection of the substantive law of another jurisdiction. Each party hereto agrees that any claim relating to this Agreement shall be brought solely in the Court of Chancery of the State of Delaware in and for New Castle County, unless the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, in which case any such claim shall be brought in the Superior Court of the State of Delaware in and for New Castle County, and each party hereto consents to the jurisdiction of such Court for purposes hereof. -6- 21. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] -7- IN WITNESS WHEREOF, the parties have executed this Settlement Agreement and Release on the date(s) set forth below. Date: ------------------ ---------------------------------- SAMUEL J. FRANKINO SAMUEL J. FRANKINO AND CONNIE M. FRANKINO CHARITABLE FOUNDATION Date: By: ------------------ ------------------------------- Its: ------------------------------ CORRINE L. DODERO TRUST FOR THE ARTS AND SCIENCES Date: By: ------------------ ------------------------------- Its: ------------------------------ FRANKINO AND FRANKINO INVESTMENT COMPANY Date: By: ------------------ ------------------------------- Its: ------------------------------ NATIONAL AUTO CREDIT, INC. Date: By: ------------------ ------------------------------- Its: ------------------------------ -8- EXHIBIT I --------- OWNERSHIP OF NATIONAL AUTO CREDIT, INC. COMMON STOCK BY AFFILIATES AND ASSOCIATES OF THE FRANKINO PARTIES ----------------------------------------------------
Affiliate/Associate Shares Owned ------------------- ------------ William Maund............................................. 4,000 Lorraine Dodero........................................... 279 William Dodero and Lorraine Dodero, as joint tenants with rights of survivorship.................... 88,619 Lorraine Dodero, as trustee of a grantor trust for the benefit of her daughter, Corrine Dodero 27,450 Total................................................. 120,348 =======
-1- EXHIBIT II ---------- RELEASE OF CLAIMS AND WAIVER/1/ ---------------------------- This Release of Claims and Waiver (this "Release and Waiver") is executed as of the 30th day of November, 2000 by [[_____], an individual resident of the State of [_____]/2/ [[_____], a [_____] corporation]/3/ (the "Releasing Party"). In consideration of the covenants and agreements set forth in the Settlement Agreement and Release (Including Agreement for Sale of Shares), dated as of the date hereof (the "Settlement Agreement"), by and among Samuel J. Frankino, individually and as trustee and president of the Foundation (as defined below), trustee of the Trust (as defined below) and managing partner of the Partnership (as defined below) ("Frankino"), the Samuel J. Frankino and Connie M. Frankino Charitable Foundation (the "Foundation"), the Corrine L. Dodero Trust for the Arts and Sciences (the "Trust") and Frankino and Frankino Investment Company, a Nevada general partnership (the "Partnership" and, collectively with Frankino in all capacities listed above, the Foundation and the Trust, the "Frankino Parties"), on the one hand, and National Auto Credit, Inc., a Delaware corporation, on the other hand, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Releasing Party, for itself and its [affiliated entities, successors-in- interest, representatives, agents and assigns,]/4/ [heirs, administrators, executors, representatives, beneficiaries and assigns,]/5/ hereby releases and discharges each of the Frankino Parties, Lorraine Dodero, William Dodero, William Maund and Robert Upton, together with their respective heirs, administrators, executors, representatives, beneficiaries, attorneys and assigns (collectively, the "Frankino Group"), from any and all claims, demands, causes of action, actions, judgments, liens, indebtedness, costs, damages, obligations, attorneys' fees, losses and liability of whatever kind and character, whether known or unknown, foreseen or unforeseen, arising from the beginning of time to the date hereof that the Releasing Party has against the members of the Frankino Group, including, without limiting the generality of the foregoing, those related in any way to the cases pending before the Court of Chancery of the State of Delaware captioned National Auto Credit, Inc. v. Sam J. Frankino, C.A. No. 17973 and Sam J. Frankino v. David L. Huber, et al., C.A. No. 17984 (such cases being collectively referred to herein as the - -------------- /1/ To be executed by David L. Huber, Donald Jasensky, James J. McNamara, Phillip A. Sauder, Henry Y.L. Toh, Peter Zackaroff, John A. Gleason, William S. Marshall, National Cinemas, Inc., Reading, FA and Slusser. /2/ To be inserted if Releasing Party is an individual. /3/ To be inserted if Releasing Party is a corporation. /4/ To be inserted if Releasing Party is a corporation. /5/ To be inserted if Releasing Party is an individual. -1- "Actions"); provided, that nothing contained herein shall release any member of the Frankino Group from any of its obligations under the Settlement Agreement or the Exhibits thereto. The Releasing Party covenants and agrees not to sue any of the Frankino Parties with respect to any claim (a) related in any way to the Actions and/or (b) otherwise released herein. So that the transactions contemplated by the Settlement Agreement may proceed, the Releasing Party hereby waives, as permitted by paragraph 4 thereof, the restrictions imposed by the Order Maintaining Status Quo, dated as of April 13, 2000, entered in connection with the Actions. This Release and Waiver shall be governed by and construed in accordance with the laws of the State of Delaware, excluding its choice of law or conflicts of law or other provisions which might result in the selection of the substantive law of another jurisdiction. The Releasing Party hereby agrees that any claim relating to this Release and Waiver shall be brought solely in the Court of Chancery of the State of Delaware in and for New Castle County, unless the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, in which case any such claim shall be brought in the Superior Court of the State of Delaware in and for New Castle County, and the Releasing Party hereby consents to the jurisdiction of such Court for purposes hereof. IN WITNESS WHEREOF, the undersigned Releasing Party has executed this Release and Waiver as of the date first above written. RELEASING PARTY By: ------------------------- Name: Title: -2- EXHIBIT III RELEASE OF CLAIMS, RESIGNATION AND STANDSTILL AGREEMENT/1/ ------------------------ This Release of Claims, Resignation and Standstill Agreement (this "Release") is executed as of the 30th day of November, 2000 by [_____], an individual resident of the State of [_____] (the "Releasing Party"). In consideration of the covenants and agreements set forth in the Settlement Agreement and Release (Including Agreement for Sale of Shares), dated as of the date hereof (the "Settlement Agreement"), by and among Samuel J. Frankino, individually and as trustee and president of the Foundation (as defined below), trustee of the Trust (as defined below) and managing partner of the Partnership (as defined below) ("Frankino"), the Samuel J. Frankino and Connie M. Frankino Charitable Foundation (the "Foundation"), the Corrine L. Dodero Trust for the Arts and Sciences (the "Trust") and Frankino and Frankino Investment Company, a Nevada general partnership (the "Partnership" and, collectively with Frankino in all capacities listed above, the Foundation and the Trust, the "Frankino Parties"), on the one hand, and National Auto Credit, Inc., a Delaware corporation (the "Company"), on the other hand, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Releasing Party, for itself, its heirs, administrators, executors, representatives, beneficiaries and assigns, hereby releases and discharges each of the Company, Reading Entertainment, Inc., a Nevada corporation ("Reading"), FA, Inc., a Nevada corporation and a wholly owned subsidiary of Reading ("FA"), Slusser Associates, Inc., a Delaware corporation ("Slusser"), David L. Huber, Donald Jasensky, James J. McNamara, Phillip A. Sauder, Henry Y.L. Toh, Peter Zackaroff, John A. Gleason and William S. Marshall, and each of their respective past, present and future officers, directors, stockholders, parent and/or subsidiary companies, affiliated entities, successors-in-interest, representatives, agents, employees, attorneys and assigns, and the heirs, administrators, executors, representatives, attorneys and assigns of any individual included within the foregoing (collectively, the "NAC Group"), from any and all claims, demands, causes of action, actions, judgments, liens, indebtedness, costs, damages, obligations, attorneys' fees, losses and liability of whatever kind and character, whether known or unknown, foreseen or unforeseen, arising from the beginning of time to the date hereof that the Releasing Party has against the members of the NAC Group, including, without limiting the generality of the foregoing, those related in any way to the cases pending before the Court of Chancery of the State of Delaware captioned National Auto Credit, Inc. v. Sam J. Frankino, C.A. No. 17973 and Sam J. Frankino v. David L. Huber, et al., C.A. No. 17984 (such cases being collectively referred to herein as the "Actions"); provided, that nothing contained herein shall be deemed to release any member of the NAC Group from any of its obligations under the Settlement Agreement or the Exhibits thereto. The Releasing Party hereby covenants and agrees not to sue any member of the NAC Group with respect to any claim (a) related in any way to the Actions and/or (b) otherwise released herein. ______________________ /1/ To be executed by Lorraine Dodero, William Dodero, William Maund and Robert Upton. -1- The Releasing Party hereby resigns, effective as of the date hereof, from any and all positions with the Company, including any position as a director, executive officer and/or employee of the Company. The Releasing Party agrees that from and after the date hereof, the Releasing Party will not, nor will it permit its affiliates or cause or assist in any way its associates or other representatives to, directly or indirectly, alone or in concert or in conjunction with any other "Person" or "Group" (as such terms are used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) (a) in any manner acquire, agree to acquire or to make any proposal (or request permission to make any proposal) to acquire, directly or indirectly, any beneficial interest in any securities of, equity interest in or any property or assets (other than property or assets transferred in the ordinary course of the Company's business) of the Company or any of its subsidiaries, (b) except with the prior written consent of the Company, propose to the Company or any of its stockholders to enter into any merger or business combination involving the Company or any of its subsidiaries or to purchase a material portion of the assets of the Company or any of its subsidiaries, (c) make or in any way participate in any "solicitation" of "proxies" (as such terms are used in the proxy rules of the U.S. Securities and Exchange Commission) to vote, or seek to advise or influence any Person with respect to the voting of, any voting securities of the Company or any of its subsidiaries, (d) form, join or in any way participate in a Group with respect to any voting securities of the Company or any of its subsidiaries, (e) seek, alone or in concert with others, to control, change or influence the management, Board of Directors or policies of the Company or its affiliates or propose any matter to be voted upon by the stockholders of the Company, (f) disclose any intention, plan or arrangement inconsistent with the foregoing, (g) assist, advise or encourage any other Person in doing any of the foregoing, or (h) make any request or proposal to amend, waive or terminate any provisions of this Release. This Release shall be governed by and construed in accordance with the laws of the State of Delaware, excluding its choice of law or conflicts of law or other provisions which might result in the selection of the substantive law of another jurisdiction. The Releasing Party hereby agrees that any claim relating to this Release shall be brought solely in the Court of Chancery of the State of Delaware in and for New Castle County, unless the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, in which case any such claim shall be brought in the Superior Court of the State of Delaware in and for New Castle County, and the Releasing Party hereby consents to the jurisdiction of such Court for purposes hereof. IN WITNESS WHEREOF, the undersigned Releasing Party has executed this Release of Claims, Resignation and Standstill Agreement as of the date first above written. RELEASING PARTY By: ----------------------------- Name: --------------------------- Title: --------------------- -2- EXHIBIT IV ---------- TO THE BOARD OF DIRECTORS, NATIONAL AUTO CREDIT, INC.: I, Samuel J. Frankino, hereby resign from all positions with National Auto Credit, Inc., including my directorship, effective immediately. Dated: ----------------- ------------------------- Samuel J. Frankino -1- ATTACHMENT B NATIONAL AUTO CREDIT, INC. COMMON STOCK OUTSTANDING AS OF NOVEMBER 3, 2000
NATIONAL AUTO CREDIT, INC. COMMON STOCK OUTSTANDING AS OF 11/03/00 Company Treasury Shares Shares of Common of Company Company Stock Common Common Stock Issued Stock Outstanding -------- -------------- ------------ Number of shares at 11/03/00 36,710,907 (1,957,945) 34,752,962 Purchase of shares of Company Common Stock held by the Frankino Parties and certain related parties: 15,921,865 (15,921,865) (15,921,865) Purchase of shares of Company Common Stock held by Citadel and FA, Inc.: Total shares of Company Common Stock held by Citadel and FA, Inc. 10,055,000 Shares of Company Common Stock purchased by NAC (5,277,879) (5,277,879) (5,277,879) ----------- Remaining shares of Company Common Stock held by Citadel and FA, Inc. 4,777,121 ---------- ------------------------------------------------ Total shares outstanding 36,710,907 (23,100,876) 13,610,031 ------------------------------------------------ Shares of Company Common Stock subject to issuance upon exercise of options outstanding: 1993 Equity Plan 855,000 855,000 1983 Stock Option Plan 4,400 4,400 Total shares of Company Common Stock ------------------------------------------------ outstanding on a fully diluted basis 37,570,307 (22,922,023) 14,648,284 ================================================ Ownership of Citadel and FA on shares outstanding 35.1% Ownership of Citadel and FA on a fully diluted basis 33.0%
-1- ATTACHMENT C POST-CLOSING COMPOSITION OF NATIONAL AUTO CREDIT, INC. BOARD OF DIRECTORS POST-CLOSING COMPOSITION OF NATIONAL AUTO CREDIT, INC. BOARD OF DIRECTORS:
NAME TERM EXPIRES AT ANNUAL MEETING - ---- ------------------------------ James J. McNamara Through 2000 Phillip A. Sauder Through 2000 Peter Zackaroff Through 1999/1/ Donald Jasensky Through 2001 Henry Y. L. Toh Through 2001 John A. Gleason Through 2000 William S. Marshall Through 2001 Scott Braly Through 2002 James J. Cotter Through 2002 David L. Huber Through 1999/1/
- ----------------- /1/ Peter Zackaroff and David L. Huber stand for re-election at the next Annual Meeting of National Auto Credit, Inc.'s shareholders with their terms to expire in 2002. -1- ATTACHMENT D AMENDED AND RESTATED BY-LAWS OF NATIONAL AUTO CREDIT, INC. AMENDED AND RESTATED BY-LAWS OF NATIONAL AUTO CREDIT, INC. Incorporated Under the Laws of the State of Delaware ARTICLE I. OFFICES Section 1. Registered Office. The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II. FISCAL YEAR - STOCKHOLDERS Section 1. Fiscal Year. The first fiscal year of the corporation shall end January 31,1996 and thereafter commence on the first day of February each year and end on the last day of January unless changed from time to time by action of the board of directors. Section 2. Annual Meeting. The annual meeting of the stockholders for the election of directors and for the transaction of any other proper business shall be held at such date and time during the first eight months of each calendar year as shall be determined by the board of directors. If no earlier date is determined by the board of directors, the annual meeting shall be held on the fourth Tuesday in August of each year, if not a legal holiday under the laws of the State where such meeting is to be held and if a legal holiday under the laws of such State, then on the next succeeding business day not a legal holiday under the laws of such State. Section 3. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise provided by statute or by the Certificate of Incorporation, may be called at any time by the chairman of the board, or the president, or any vice president, or secretary, and shall be called by the president or secretary at the request in writing of a majority of the directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Any such request shall state the purpose or purposes of the proposed meeting. Section 4. Place of Meetings. All meetings of the stockholders for the election of directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of such meeting. Section 5. Notice of Meetings and Adjourned Meetings. Written notice of the annual meeting or a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than fifty (50) days before the date of the meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 6. Stockholders' List. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 7. Quorum and Adjournments. At such meeting of the stockholders, except as otherwise provided by statute or by the Certificate of Incorporation, the holders of a majority of the issued and outstanding shares of each class of stock entitled to vote thereat, present in person or represented by proxy, shall be necessary and sufficient to constitute a quorum for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. Section 8. Voting. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the shares of stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation or of these By-Laws a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 9. Proxies. At each meeting of the stockholders, each stockholder shall, unless otherwise provided by the Certificate of Incorporation, be entitled to one vote in person or by proxy for each share of stock held which has voting power upon the matter in question, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Section 10. Procedures For Action By Written Consent. 10.1 Request for Record Date. (a) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting shall be as fixed by the board or as otherwise established under this Section 10.1 Any person seeking to have the stockholders authorize or take corporate action by written consent without a meeting shall, by written notice addressed to the Secretary and delivered to the Corporation and signed by a stockholder of record, request that a record date be fixed for such purpose. The written notice shall contain at a minimum the information set forth 1. Section 10.1(b). Following receipt of the notice, the board shall have five (5) business days to determine the validity of the request. Following the determination of the validity of the requested, the board may fix a record date for such purpose which shall be no more then five (5) business days after the date upon which the resolution fixing the record date is adopted by the board and shall not precede the date such resolution is adopted. If the board fails within ten (10) business days after the Corporation receives such notice to fix a record date for such purpose, the record date shall be the day on which the first written consent is delivered to the Corporation in the manner described in Section 10.3 below unless prior action by the board is required under the General Corporation Law of Delaware, in which event the record date shall be at the close of business on the day on which the board adopts the resolution taking such prior action. (b) Any stockholder's notice required by this Section 10.1 shall describe the action that the stockholder proposes to take by consent. For each such proposal, the notice shall set forth (i) the text of the proposal (including the text of any resolutions to be effected by consent and the language of any proposed amendment to the bylaws of the Corporation), (ii) the reasons for soliciting consents for the proposal, (iii) any material interest in the proposal held by the stockholder and the beneficial owner, if any, on whose behalf the action is to be taken, and (iv) any other information relating to the stockholder, the beneficial owner, or the proposal that would be required to be disclosed in filings in connection with the solicitation of proxies or consents pursuant to Section 14 of the Securities Exchange Act of 1934, as amended ("Exchange Act") and the rules and regulations promulgated thereunder. To the extent the proposed action by consent involves the election of directors, the notice shall set forth as to each person whom the stockholder proposes to elect as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation and employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person, and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies or consents for the election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. In addition to the foregoing, the notice shall set forth as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the notice is given (i) the name and address of such stockholder and of such beneficial owner, as they appear on the Corporation's books, (ii) the class and number of shares of capital stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner, as to the stockholder giving the notice, (iii) a description of all arrangements or understandings between such stockholder and any other person or persons regarding the proposed action by consent, (iv) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends to (1) deliver a proxy statement and/or consent solicitation statement to holders of at least the percentage of the Corporation's outstanding capital stock required to effect the action by consent either to solicit consents or to solicit proxies to execute consents, and/or (2) otherwise solicit proxies or consents from stockholders in support of the action to be taken by consent, and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies or consents relating to the proposed action by consent pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. The Corporation may require the stockholder of record and/or beneficial owner requesting a record date for proposed stockholder action by consent to furnish such other information as it may reasonably require to determine the validity of the request for a record date. 10.2 Form of Consent. Every written consent purporting to take or authorize the taking of corporate action and/or related revocations (each such written consent and related revocation is referred to in this Section 10 as a "Consent") shall bear the date of signature of each stockholder who signs the Consent, and no Consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated Consent delivered in the manner required by this Section 10.2, Consents signed by a sufficient number of stockholder to take such action are so delivered to the Corporation. 10.3 Delivery of Consent. A Consent shall be delivered to the Corporation by delivery to its registered office in the State of Delaware or its principal place of business. Delivery shall be made by hand or by certified or registered mail, return receipt requested. In the event of the delivery to the Corporation of a Consent, the Secretary of the Corporation shall provide for the safe- keeping of such Consent and shall promptly conduct such ministerial review of the sufficiency of the Consents and of the validity of the action to be taken by shareholder consent as the Secretary deems necessary or appropriate, including, without limitation, whether the holders of a number of shares having the requisite voting power to authorize or take the action specified in the Consent have given consent; provided, however, that if the corporate action to which the Consent relates is the removal or replacement of one or more members of the board, the Secretary of the Corporation shall promptly designate two persons, who shall not be members of the board, to serve as Inspectors with respect to such Consent and such Inspectors shall discharge the functions of the Secretary of the Corporation under this Section 10.3. If after such investigation the Secretary or the Inspectors (as the case may be) shall determine that the Consent is valid and that the action therein specified has been validly authorized, that fact shall forthwith be certified on the records of the Corporation kept for the purpose of recording the proceedings of meetings of stockholders, and the Consent shall be filed in such records, at which time the Consent shall become effective as stockholder action. In conducting the investigation required by this Section 10.3, the Secretary or the Inspectors (as the case may be) may, at the expense of the Corporation, retain special legal counsel and any other necessary or appropriate professional advisors, and such other personnel as they may deem necessary or appropriate to assist them, and shall be fully protected in relying in good faith upon the opinion of such counsel or advisors. 10.4 Effectiveness of Consent. No action by written consent without a meeting shall be effective until such date as the Secretary or the Inspectors, as applicable, certify to the Corporation that the consents delivered to the Corporation in accordance with Section 10.3represent at least the minimum number of votes that would be necessary to take the corporate action. 10.5 Challenge to Validity of Consent. Nothing contained in this Section 10 shall in any way be construed to suggest or imply that the board or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certificate by the Secretary or the Inspectors, as applicable, or to take any other action (including, without limitation, the commencement, prosecution, or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation). ARTICLE III. BOARD OF DIRECTORS Section 1. Number of Directors. The number of directors constituting the whole board shall be thirteen (13), and no vacancy shall be deemed to exist in the board unless the number of directors in office falls below that number. No decrease in the number of directors shall shorten the term of any incumbent director. Directors may, but need not, be stockholders. Section 2. Election of Directors. The directors shall be elected at the annual meeting of stockholders, or if not so elected, at a special meeting of stockholders called for that purpose. Directors shall hold office for a term of three years and shall be divided into three classes so that approximately one- third of the board shall stand for election at each annual meeting of stockholders. At the annual meeting of stockholders in 1996, and at each annual meeting thereafter, approximately one-third of the membership of the board shall be elected for three year terms. If the number of directors is changed, any increase or decrease in directors shall be apportioned among the classes so as to maintain all classes as nearly equal in number as possible and any individual director elected to any class shall hold office for a term which shall coincide with the term of such class. At any meeting of stockholders at which directors are to be elected, only persons nominated as candidates shall be eligible for election, and the candidates receiving the greatest number of votes shall be elected. Nominations for the election of directors may be made by the board of directors. Nominations for election of directors may also be made by any stockholder entitled to vote for the election of directors, by notice in writing, delivered or mailed, postage prepaid, to the secretary of the corporation not less than fourteen nor more than fifty days prior to any meeting of the stockholders called for the election of directors. Each such notice shall set forth the name, age, business address, residence address and principal occupation or employment of each nominee proposed in such notice, and the number of shares of stock of the corporation which are beneficially owned by such nominee. The chairman of the meeting at which directors are to be elected may, if the facts warrant, determine that a nomination was not made in accordance with the foregoing procedure and, if the chairman should so determine, the defective nomination shall be disregarded. Section 3. Vacancies. A resignation from the board of directors shall be deemed to take effect immediately or at such other time as the director may specify. When one or more directors shall resign from the board, effective at a future date, a majority of the directors then in office, including those who have resigned, although less than a quorum, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the board for any reason may be filled by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director, at any meeting of the board. A director elected to fill a vacancy shall be elected to hold office until the expiration of the term of the class to which he or she has been elected and until a successor shall be duly elected or qualified or until his or her earlier death, resignation or removal. Section 4. Annual Meeting. After each annual election of directors, on the same day the board of directors may meet for the purpose of organization, the election of officers and the transaction of other business at the place where the annual meeting of the stockholders for the election of directors is held. Notice of such meeting need not be given. Such meeting may be held at any other time or place which shall be specified in a notice given as hereinafter provided for special meetings of the board of directors or in a consent and waiver of notice thereof signed by all the directors. Section 5. Regular Meetings. Regular meetings of the board of directors may be held at such places (within or without the State of Delaware) and at such times as the board shall by resolution determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at such place at the same hour and on the next succeeding business day not a legal holiday. Notice of regular meetings need not be given. Section 6. Special Meetings. Special meetings of the board of directors shall be held whenever called by the president, or by any vice president, or by any two of the directors. Notice of each such meeting shall be mailed to each director, addressed to such director at his or her residence or usual place of business, at least three (3) days before the day on which the meeting is to be held, or shall be sent to such director by telegraph, cable or wireless so addressed, or shall be delivered personally or by telephone, at least 24 hours before the time the meeting is to be held. Each such notice shall state the time and place (within or without the State of Delaware) of the meeting but need not state the purposes thereof, except as otherwise provided by statute or by these By-Laws. Notice of any meeting of the board need not be given to any director who shall be present at such meeting; and any meeting of the board shall be a legal meeting without any notice thereof having been given, if all of the directors then in office shall be present thereat. Section 7. Quorum. Except as otherwise provided by statute or by these By- Laws, a majority of the total number of directors (or the closest whole number thereto) shall be required to constitute a quorum for the transaction of business at any meeting, and the affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be necessary for the adoption of any resolution or the taking of any other action. In the absence of a quorum, the director or directors present may adjourn any meeting from time to time until a quorum be had. Notice of any adjourned meeting need not be given. Section 8. Telephone Communications. Members of the board of directors or any committee thereof may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at such meeting. Section 9. Action of Directors Without a Meeting. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if all members of the board or of such committee, as the case may be, consent thereto in writing and such written consent is filed with the minutes or proceedings of the board or such committee. Section 10. Compensation. Directors, as such, shall not receive any stated salary for their services, but by resolution of the board of directors a fixed sum and expenses of attendance, if any, may be allowed for attendance at such regular and special meeting of the board or of any committee thereof. Nothing herein contained shall be construed so as to preclude any director from serving the corporation in any other capacity, or from serving any of its stockholders, subsidiaries or affiliated corporations in any capacity, and receiving compensation therefore. Section 11. Committees. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of two or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. Section 12. Indemnification. The corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the corporation or served any other enterprise at the request of the corporation, against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred in connection with such action, suit or proceeding, in any circumstances, and to the full extent, permitted by Section 145 of the Delaware Corporation Law, any amendment thereto, or any law of similar import. ARTICLE IV. NOTICES Section 1. Notices. Whenever under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, notice is required to be given to any director or stockholder, it shall not be necessary that personal notice be given, and such notice may be given in writing, by mail, addressed to such director or stockholder, at such director or stockholder's address as it appears on the records of the corporation or at his or her residence or usual place of business, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegraph, cable or wireless, and such notice shall be deemed to be given when the same shall be filed, or in person or by telephone, and such notice shall be deemed to be given when the same shall be delivered. Section 2. Waiver of Notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V. OFFICERS Section 1. Officers. The officers of the corporation shall be a chairman of the board, a president, one or more vice presidents, a secretary, and a treasurer. Any two or more offices may be held by the same person. Section 2. Election of Officers. The officers shall be elected by the board of directors and each shall hold office at the pleasure of the board of directors until a successor shall have been duly elected and qualified, or until such officer's death, or until such officer resigns or has been removed in the manner hereinafter provided. Section 3. Other Officers. In addition to the officers named in Section 1 of this Article, the corporation may have such other officers and agents as may be deemed necessary by the board of directors. Such other officers and agents shall be appointed in such manner, have such duties and hold their offices for such terms, as may be determined by resolution of the board of directors. Section 4. Resignation. Any officer may resign at any time by giving written notice of resignation to the board of directors, to the president or to the secretary of the corporation. Any such resignation shall take effect at the time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. Removal. Any officer may be removed, either with or without cause, by action of the directors. Section 6. Vacancy. A vacancy in any office because of death, resignation, removal or any other cause shall be filled by the board of directors. Section 7. Chairman of the Board. The chairman of the board shall be the chief executive officer of the corporation, shall preside at all meetings of stockholders and of the board of directors, shall have general control and management of the business affairs and policies of the corporation, and shall see that all orders and resolutions of the board of directors are carried into effect. Except where by law the signature of the president is required, the chairman of the board shall possess the same power as the president to sign all certificates, contracts, and other instruments of the corporation. During the absence or disability of the president, the chairman of the board shall exercise all the powers and discharge all of the duties of the president. The chairman shall have such other powers and perform such other duties as from time to time may be conferred or imposed upon the chairman by the board of directors. Section 8. President. The president of the corporation shall be the chief operating officer of the corporation. During the absence or disability of the chairman of the board, the president shall exercise all of the powers and discharge all of the duties of the chairman of the board. The president shall possess power to sign all certificates, contracts and other instruments of the corporation. The president shall, in the absence of the chairman of the board, preside at all meetings of the stockholders and of the board of directors. The president shall perform all such other duties as are incident to the office of president or are properly required by the board of directors. Section 9. Vice President. In the event of the absence or disability of the chairman of the board and the president, the vice president, or, in case there shall be more than one vice president, the vice president designated by the board of directors, shall perform all the duties of the president, and when so acting, shall have all the powers of, and be subject to all the restrictions upon, the president. Except where by law the signature of the president is required, each of the vice presidents shall possess the same power as the president to sign all certificates, contracts, obligations and other instruments of the corporation. Any vice president shall perform such other duties and may exercise such other powers as from time to time may be assigned by these By-Laws or by the board of directors or by the president. Section 10. Secretary. The secretary shall, if present, act as secretary of, and keep the minutes of, all the proceedings of the meetings of the stockholders and of the board of directors and of any committee of the board of directors in one or more books to be kept for that purpose; shall perform such other duties as shall be assigned by the president or the board of directors; and, in general, shall perform all duties incident to the office of secretary. Section 11. Treasurer. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of the duties of the treasurer, in such sum and with such surety or sureties as the board of directors shall determine. The treasurer shall keep or cause to be kept full and accurate records of all receipts and disbursements in the books of the corporation and shall have the care and custody of all funds and securities of the corporation. The treasurer shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all transactions performed as treasurer and shall perform such other duties as may be assigned by the chairman of the board or the board of directors; and, in general, shall perform all duties incident to the office of treasurer. Section 12. Controller. The controller, if such office is created by the board, shall be the chief financial officer of the corporation. The controller shall keep or cause to be kept all books of account and accounting records of the corporation and shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the corporation. The controller shall prepare or cause to be prepared appropriate financial statements for the corporation and shall perform such other duties as may be assigned by the chairman of the board or the board of directors; and, in general, shall perform all duties incident to the office of controller. Section 13. Salaries. The salaries of the officers shall be fixed from time to time by the board of directors or by the chairman of the board. Any such decision by the chairman of the board shall be final unless expressly overruled or modified by action of the board of directors, in which event such action of the board of directors shall be conclusive of the matter. Nothing contained herein shall preclude any officer from serving the corporation in any other capacity, including that of director, or from serving any of its stockholders, subsidiaries or affiliated corporations in any capacity and receiving a proper compensation therefore. ARTICLE VI. LOANS, CHECKS, DEPOSITS, ETC. Section 1. General. All checks, drafts, bill of exchange or other orders for the payment of money, issued in the name of the corporation, shall be signed by such person or persons and in such manner as may from time to time be designated by the board of directors, which designation may be general or confined to specific instances. Section 2. Loans and Evidences of Indebtedness. No loan shall be contracted on behalf of the corporation, and no evidence of indebtedness shall be issued in its name, unless authorized by the board of directors. Such authorization may be general or confined to specific instances. Loans so authorized by the board of directors may be effected at any time for the corporation from any bank, trust company or other institution, or from any firm, corporation or individual. All bonds, debentures, notes and other obligations or evidences of indebtedness of the corporation issued for such loans shall be made, executed and delivered as the board of directors shall authorize. When so authorized by the board of directors any part of or all the properties, including contract rights, assets, business or good will of the corporation, whether then owned or thereafter acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in trust as security for the payment of such bonds, debentures, notes and other obligations or evidences of indebtedness of the corporation, and of the interest thereon, by instruments executed and delivered in the name of the corporation. Section 3. Banking. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the board of directors may authorize. The board of directors may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these By-Laws, as it may deem expedient. For the purpose of deposit and for the purpose of collection for the account of the corporation, checks, drafts and other orders for the payment of money which are payable to the order of the corporation shall be endorsed, assigned and delivered by such person or persons and in such manner as may from time to time be authorized by the board of directors. Section 4. Securities Held By The Corporation. Unless otherwise provided by resolution adopted by the board of directors, the chairman of the board, the president or any vice president may from time to time appoint an attorney or attorneys, or an agent or agents, to exercise in the name and on behalf of the corporation the powers and rights which the corporation may have as the holder of stock or other securities in any other corporation to vote or to consent in respect of such stock or other securities; and the chairman of the board, the president, or any vice president may instruct the person or persons so appointed as to the manner of exercising such powers and rights, and the chairman of the board, the president, or any vice president may execute or cause to be executed in the name and on behalf of the corporation and under its corporate seal, or otherwise, all such written proxies, powers of attorney or other written instruments as the chairman of the board, the president, or any vice-president may deem necessary in order that the corporation may exercise such powers and rights. ARTICLE VII. SHARES AND THEIR TRANSFER Section 1. Share Certificates. Every stockholder shall be entitled to have a certificate certifying the number of shares of stock of the corporation owned by him, signed by, or in the name of the corporation by the chairman of the board or the president or a vice president and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation (except that when any such certificate is countersigned by a transfer agent other than the corporation or its employee of by a registrar other than the corporation or its employee the signatures of any such officers may be facsimiles). If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except in the case of restrictions on transfers of securities which are required to be noted on the certificate, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Lost. Stolen or Destroyed Certificates. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require and/or give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 3. Transfers. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Record Dates. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to such meeting or to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 5. Protection of Corporation. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VIII. CORPORATE SEAL The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE IX. MISCELLANEOUS Except as otherwise provided herein, these By-Laws may be altered, added to, amended or repealed as follows: (a) at any meeting of the stockholders by affirmative vote of 80% of the outstanding shares of each class of stock outstanding and entitled to vote thereat, provided notice of the proposed alteration, addition, amendment or repeal shall have been given in the notice of such meeting; or (b) by the board of directors, except with respect to any provision of which By-Laws, the Certificate of Incorporation or By-Laws requires action by the stockholders. Any By-Law adopted by the board of directors may be amended or repealed by the stockholders, as provided in this Section. Dated as of: April 05, 2000 ATTACHMENT E AFFILIATE AGREEMENTS None EX-27 3 0003.txt FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-2000 JUL-01-2000 DEC-31-2000 3,564 0 883 0 216 7,787 85,502 8,126 125,003 25,860 597 7,000 87 1,361 56,629 125,003 32,483 33,030 28,379 40,041 (4,206) 0 718 (5,320) 449 (5,769) 0 0 0 (5,769) (0.58) (0.58)
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