-----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, QX24va/ug2/FbvswcnD86oypsmTROro6nNx8HpI/1pan3hKfPCb19ZtTotAuQZSN ZXxV2KRYHLviKd5QjY8WIw== 0000897069-02-000301.txt : 20020416 0000897069-02-000301.hdr.sgml : 20020416 ACCESSION NUMBER: 0000897069-02-000301 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020228 FILED AS OF DATE: 20020412 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARCUS CORP CENTRAL INDEX KEY: 0000062234 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 391139844 STATE OF INCORPORATION: WI FISCAL YEAR END: 0527 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12604 FILM NUMBER: 02609782 BUSINESS ADDRESS: STREET 1: 250 EAST WISCONSIN AVE STREET 2: SUITE 1700 CITY: MILWAUKEE STATE: WI ZIP: 53202-4220 BUSINESS PHONE: 4142726020 MAIL ADDRESS: STREET 1: 250 EAST WISCONSIN AVENUE STREET 2: STE 1700 CITY: MILWAUKEE STATE: WI ZIP: 53202-4220 10-Q 1 slp270.txt FORM 10-Q UNITED STATES 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 February 28, 2002 [ ] 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 1-12604 THE MARCUS CORPORATION ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Wisconsin 39-1139844 - ------------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No. 250 East Wisconsin Avenue, Suite 1700 Milwaukee, Wisconsin 53202 - -------------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (414) 905-1000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes X No _____ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. COMMON STOCK OUTSTANDING AT APRIL 8, 2002 - 19,690,905 CLASS B COMMON STOCK OUTSTANDING AT APRIL 8, 2002 - 9,619,129 THE MARCUS CORPORATION INDEX PART I - FINANCIAL INFORMATION Page ---- Item 1. Consolidated Financial Statements: Balance Sheets (February 28, 2002 and May 31, 2001)........................... 3 Statements of Earnings (Thirteen and thirty-nine weeks ended February 28, 2002 and February 22, 2001)............................................ 5 Statements of Cash Flows (Thirty-nine weeks ended February 28, 2002 and February 22, 2001)......................................................... 6 Condensed Notes to Financial Statements....................... 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition............................ 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 19 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.............................. 19 Signatures.................................................... S-1 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements THE MARCUS CORPORATION Consolidated Balance Sheets
(Unaudited) (Audited) February 28, May 31, 2002 2001 ------------ ----------- (in thousands) ASSETS Current Assets: Cash and cash equivalents $ 7,137 $ 1,499 Accounts and notes receivable 14,366 14,207 Receivables from joint ventures 4,851 2,747 Refundable income taxes -- 121 Real estate and development costs 3,204 4,999 Other current assets 4,447 4,692 -------- -------- Total current assets 34,005 28,265 Property and equipment: Land and improvements 92,562 94,156 Buildings and improvements 610,782 586,056 Leasehold improvements 7,631 7,583 Furniture, fixtures and equipment 261,204 245,500 Construction in progress 13,974 15,384 -------- -------- Total property and equipment 986,153 948,679 Less accumulated depreciation and amortization 300,080 268,333 -------- -------- Net property and equipment 686,073 680,346 Other assets: Investments in joint ventures 3,219 2,358 Other 49,407 47,690 -------- -------- Total other assets 52,626 50,048 -------- -------- TOTAL ASSETS $772,704 $758,659 ======== ========
See accompanying notes to consolidated financial statements. 3 THE MARCUS CORPORATION Consolidated Balance Sheets
(Unaudited) (Audited) February 28, May 31, 2002 2001 ------------ ------------ (in thousands) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 7,210 $ 4,222 Accounts payable 11,165 17,123 Income taxes 4,765 -- Taxes other than income taxes 11,568 13,230 Accrued compensation 4,133 5,569 Other accrued liabilities 16,263 12,273 Current maturities of long-term debt 18,598 18,133 --------- --------- Total current liabilities 73,702 70,550 Long-term debt 305,332 310,239 Deferred income taxes 31,175 30,759 Deferred compensation and other 12,903 9,410 Shareholders' equity: Preferred Stock, $1 par; authorized 1,000,000 shares; none issued Common Stock, $1 par; authorized 50,000,000 shares; issued 21,569,934 shares at February 28, 2002 and 19,617,564 shares at May 31, 2001 21,570 19,618 Class B Common Stock, $1 par; authorized 33,000,000 shares; issued and outstanding 9,619,579 at February 28, 2002 and 11,571,949 at May 31, 2001 9,620 11,572 Capital in excess of par 41,255 41,062 Retained earnings 297,896 284,402 Accumulated other comprehensive loss (2,766) (201) --------- --------- 367,575 356,453 Less cost of Common Stock in treasury (1,924,873 shares at February 28, 2002 and 2,007,591 shares at May 31, 2001) (17,983) (18,752) --------- --------- Total shareholders' equity 349,592 337,701 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 772,704 $ 758,659 ========= =========
See accompanying notes to consolidated financial statements. 4 THE MARCUS CORPORATION Consolidated Statements of Earnings (Unaudited)
(in thousands, except per share data) February 28, 2002 February 22, 2001 -------------------------- -------------------------- 13 Weeks 39 Weeks 13 Weeks 39 Weeks -------- -------- -------- -------- Revenues: Rooms and telephone $ 34,228 $ 128,479 $ 35,145 $ 133,474 Theatre admissions 25,329 71,616 25,133 65,417 Theatre concessions 11,891 33,269 11,306 29,178 Food and beverage 7,707 23,445 6,257 22,524 Other income 9,457 33,527 9,035 32,253 --------- --------- --------- --------- Total revenues 88,612 290,336 86,876 282,846 Costs and expenses: Rooms and telephone 17,193 57,967 20,630 58,637 Theatre operations 18,575 53,577 19,485 50,896 Theatre concessions 2,675 7,773 2,657 7,043 Food and beverage 6,441 19,042 5,355 16,764 Advertising and marketing 7,048 21,770 7,197 22,355 Administrative 8,973 28,821 8,398 29,173 Depreciation and amortization 11,274 33,396 10,896 32,384 Rent 720 2,154 837 2,485 Property taxes 4,406 12,424 3,621 10,940 Pre-opening expenses 29 1,092 480 1,168 Other operating expenses 4,804 15,526 4,211 14,596 --------- --------- --------- --------- Total costs and expenses 82,138 253,542 83,767 246,441 --------- --------- --------- --------- Operating income 6,474 36,794 3,109 36,405 Other income (expense): Investment income 432 1,548 613 1,902 Interest expense (4,295) (13,969) (5,551) (16,733) Gain on insurance contracts -- -- 1,518 1,518 Gain (loss) on disposition of property, equipment and investments in joint ventures (66) 1,965 (625) 926 --------- --------- --------- --------- (3,929) (10,456) (4,045) (12,387) Earnings (loss) from continuing operations before income taxes 2,545 26,338 (936) 24,018 Income tax provision (benefit) 1,028 8,170 (990) 9,113 --------- --------- --------- --------- Earnings from continuing operations 1,517 18,168 54 14,905 Discontinued operations (Note 2): Income from discontinued operations, net of applicable income taxes -- -- 287 981 --------- --------- --------- --------- Net earnings $ 1,517 $ 18,168 $ 341 $ 15,886 ========= ========= ========= ========= Earnings per share - basic and diluted: Continuing operations $ 0.05 $ 0.62 $ 0.00 $ 0.51 Discontinued operations -- -- 0.01 0.03 --------- --------- --------- --------- Net earnings per share $ 0.05 $ 0.62 $ 0.01 $ 0.54 ========= ========= ========= ========= Weighted average shares outstanding: Basic 29,248 29,224 29,135 29,192 Diluted 29,505 29,414 29,356 29,316
See accompanying notes to consolidated financial statements. 5 THE MARCUS CORPORATION Consolidated Statements of Cash Flows (Unaudited)
39 Weeks Ended February 28, February 22, 2002 2001 ------------ ------------ (in thousands) OPERATING ACTIVITIES: Net earnings $ 18,168 $ 15,886 Adjustments to reconcile net earnings to net cash provided by operating activities: Losses on investments in joint ventures, net of distributions 684 282 Gain on disposition of property and equipment (1,965) (926) Depreciation and amortization 33,396 33,138 Deferred income taxes 416 773 Deferred compensation and other 902 245 Changes in assets and liabilities: Accounts and notes receivable (159) (9,886) Real estate and development costs 1,795 (1,326) Other current assets 245 (295) Accounts payable (5,958) (8,512) Income taxes 4,886 196 Taxes other than income taxes (1,662) 617 Accrued compensation (1,436) 961 Other accrued liabilities 3,990 4,937 -------- -------- Total adjustments 35,134 20,204 -------- -------- Net cash provided by operating activities 53,302 36,090 INVESTING ACTIVITIES: Capital expenditures, including business acquisitions (40,109) (60,263) Net proceeds from disposals of property, equipment and other assets 1,406 3,987 Increase in other assets (1,691) (2,670) Cash advanced to joint ventures (2,104) (2,877) -------- -------- Net cash used in investing activities (42,498) (61,823) FINANCING ACTIVITIES: Debt transactions: Net proceeds from issuance of notes payable and long-term debt 15,142 48,399 Principal payments on notes payable and long-term debt (16,596) (13,570) Equity transactions: Treasury stock transactions, except for stock options 5 (3,947) Exercise of stock options 957 77 Dividends paid (4,674) (4,636) -------- -------- Net cash provided by (used in) financing activities (5,166) 26,323 -------- -------- Net increase in cash and cash equivalents 5,638 590 Cash and cash equivalents at beginning of year 1,499 2,935 -------- -------- Cash and cash equivalents at end of period $ 7,137 $ 3,525 ======== ========
See accompanying notes to consolidated financial statements. 6 THE MARCUS CORPORATION CONDENSED NOTES TO FINANCIAL STATEMENTS FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED FEBRUARY 28, 2002 (Unaudited) 1. General Accounting Policies - Refer to the Company's audited financial statements (including footnotes) for the fiscal year ended May 31, 2001, contained in the Company's Form 10-K Annual Report for such year, for a description of the Company's accounting policies. Basis of Presentation - The consolidated financial statements for the thirteen and thirty-nine weeks ended February 28, 2002 and February 22, 2001 have been prepared by the Company without audit. In the opinion of management, all adjustments, consisting only of normal recurring accruals necessary to present fairly the unaudited interim financial information at February 28, 2002, and for all periods presented, have been made. The results of operations during the interim periods are not necessarily indicative of the results of operations for the entire year. Comprehensive Income - Accumulated other comprehensive loss consists of the change in fair value of hedging transactions and the accumulated net unrealized losses on available for sale securities, net of tax. Accumulated other comprehensive loss is $2,766,000 and $201,000 as of February 28, 2002 and May 31, 2001, respectively. Total comprehensive income for the thirteen and thirty-nine weeks ended February 28, 2002 was $1,646,000 and $15,603,000, respectively. Total comprehensive income for the thirteen and thirty-nine weeks ended February 22, 2001 was $327,000 and $15,921,000, respectively. 2. Discontinued Operations The Restaurant business segment was sold on May 24, 2001 and is presented as discontinued operations in the accompanying consolidated financial statements. KFC revenues for the thirteen and thirty-nine weeks ended February 22, 2001 were $5,600,000 and $17,763,000, respectively. 3. Derivatives and Hedging Activities On June 1, 2001, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, which requires the Company to recognize its derivatives as either assets or liabilities on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. Derivatives that are not hedges must be adjusted to fair value through earnings. 7 The Company utilizes derivatives principally to manage market risks and reduce its exposure resulting from fluctuations in interest rates. The Company has formally documented all relationships between hedging instruments and hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions. The Company has an interest rate swap agreement that is considered effective and qualifies as a cash flow hedge. For derivatives that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of the derivatives' change in fair value is immediately recognized in earnings. The Company's swap agreement effectively converts $25 million of the Company's borrowings under revolving credit agreements from floating-rate debt to a fixed-rate basis. The agreement expires November 14, 2005. The Company also assesses on an on-going basis whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The adoption of Statement No. 133 on June 1, 2001 resulted in a charge for the cumulative effect of an accounting change of $1,830,000 in other comprehensive loss. During the nine months ended February 28, 2002, the Company recorded the $761,000 decrease in fair value related to the cash flow hedge to other comprehensive loss. The Company expects to reclassify approximately $1,324,000 of loss into earnings within the next 12 months due to the payment of variable interest associated with the floating rate debt, based upon rates in effect at February 28, 2002. 4. Intangible Assets The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, effective June 1, 2001. Under SFAS No. 142, goodwill is no longer amortized but reviewed for impairment annually, or more frequently if certain indicators arise. The Company is required to complete the initial step of a transitional impairment test within six months of adoption of SFAS No. 142 and to complete the final step of the transitional impairment test by the end of the fiscal year. The Company completed this transitional impairment test and deemed that no impairment loss was necessary. Any subsequent impairment losses will be reflected in operating income in the income statement. With the adoption of SFAS No. 142, the Company ceased amortization of goodwill with a book value of $11,780,000 as of June 1, 2001. The adoption did not have a material effect on comparable financial results for the third quarter and first three quarters of fiscal 2001. Had amortization of goodwill not been recorded in fiscal 2001, net income would have increased by approximately $564,000, net of taxes, and diluted earnings per share would have increased by $0.02. 5. Business Segment Information The Company's primary operations are reported in the following three business segments: Limited-Service Lodging, Theatres and Hotels/Resorts. Corporate items 8 include amounts not allocable to the business segments and consist principally of rental revenue and general corporate expenses. Following is a summary of business segment information for the thirteen and thirty-nine weeks ended February 28, 2002 and February 22, 2001 (in thousands):
13 Weeks Ended Limited-Service Corporate February 28, 2002 Lodging Theatres Hotels/Resorts Items Total ----------------- --------------- -------- -------------- --------- ----- Revenues $25,842 $38,346 $23,957 $ 467 $88,612 Operating income (loss) (316) 9,981 (1,548) (1,643) 6,474 13 Weeks Ended Limited-Service Corporate February 22, 2001 Lodging Theatres Hotels/Resorts Items Total ----------------- --------------- -------- -------------- --------- ----- Revenues $27,810 $37,461 $21,236 $ 369 $86,876 Operating income (loss) (2,239) 8,100 (1,240) (1,512) 3,109 39 Weeks Ended Limited-Service Corporate February 28, 2002 Lodging Theatres Hotels/Resorts Items Total ----------------- --------------- -------- -------------- --------- ----- Revenues $95,968 $108,248 $84,761 $ 1,359 $290,336 Operating income (loss) 11,506 25,498 4,958 (5,168) 36,794 39 Weeks Ended Limited-Service Corporate February 22, 2001 Lodging Theatres Hotels/Resorts Items Total ----------------- --------------- -------- -------------- --------- ----- Revenues $102,970 $97,628 $81,094 $ 1,154 $282,846 Operating income (loss) 13,611 18,268 9,699 (5,173) 36,405
9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Special Note Regarding Forward-Looking Statements Certain matters discussed in this Management's Discussion and Analysis of Results of Operations and Financial Condition are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may generally be identified as such because the context of such statements will include words such as the Company "believes," "anticipates," "expects" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause results to differ materially from those expected, including, but not limited to, the following: (i) the Company's ability to successfully define and build the Baymont brand within the "limited-service, mid-price without food and beverage" segment of the lodging industry; (ii) the availability, in terms of both quantity and audience appeal, of motion pictures for the Company's theatre division; (iii) the effects of increasing depreciation expenses and pre-opening and start-up costs due to the capital intensive nature of the Company's businesses; (iv) the effects of adverse economic conditions in the Company's markets, particularly with respect to the Company's limited-service lodging and hotels and resorts divisions; (v) the effects of adverse weather conditions, particularly during the winter in the Midwest and in the Company's other markets; (vi) the effects on the Company's occupancy and room rates from the relative industry supply of available rooms at comparable lodging facilities in the Company's markets; (vii) the effects of competitive conditions in the markets served by the Company; (viii) the Company's ability to identify properties to acquire, develop and/or manage and continuing availability of funds for such development; and (ix) the adverse impact on business and consumer spending on travel, leisure and entertainment resulting from the September 11, 2001 terrorist attacks in the United States, the United States' responses thereto and subsequent related hostilities. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this Form 10-Q and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. RESULTS OF OPERATIONS General The Marcus Corporation reports consolidated and individual segment results of operations on a 52-or-53-week fiscal year ending on the last Thursday in May. Fiscal 2002 is a 52-week year for the Company. Fiscal 2001 was a 53-week year for the Company and its reported results for fiscal 2001 increased proportionately by the additional week of operations. The Company divides its fiscal year into three 13-week quarters and a final quarter consisting of 13 or 14 weeks. The Company's primary operations are reported in the following three business segments: limited-service lodging, theatres and hotels/resorts. As a result of the Company's sale 10 of its KFC restaurants during fiscal 2001, the restaurant business segment's fiscal 2001 results have been presented as discontinued operations in the accompanying financial statements. The following table sets forth revenues, operating income, earnings from continuing operations, net earnings and earnings per share for the comparable third quarter and first three quarters for fiscal 2002 and 2001 (in millions, except for per share and variance percentage data):
Third Quarter First Three Quarters ------------------------------------- ------------------------------------ Variance Variance -------- -------- F2002 F2001 Amt. Pct. F2002 F2001 Amt. Pct. ----- ----- ---- ---- ----- ----- ---- ---- Revenues $88.6 $86.9 $1.7 2.0% $290.3 $282.8 $7.5 2.6% Operating income 6.5 3.1 3.4 108.2% 36.8 36.4 0.4 1.1% Earnings from continuing operations 1.5 0.1 1.4 2709.3% 18.2 14.9 3.3 21.9% Net earnings $1.5 $0.3 $1.2 344.9% $18.2 $15.9 $2.3 14.4% Earnings per share - Diluted: Continuing operations $.05 $.00 $.05 N/A $.62 $.51 $.11 21.6% Net earnings per share $.05 $.01 $.04 400.0% $.62 $.54 $.08 14.8%
An increase in theatre division revenues during the third quarter and first three quarters of fiscal 2002 was partially offset by revenue decreases from the Company's limited-service lodging division during the same periods and from the hotels/resorts division during the second quarter of fiscal 2002. A significant operating income (earnings before other income/expense and income taxes) increase from the Company's theatre and limited-service lodging divisions during the third quarter of fiscal 2002 contributed to the Company's increased overall operating income. Significantly reduced utility costs and snow removal costs during the fiscal 2002 third quarter compared to the same period last year favorably impacted each of the Company's divisions by a total of $1.0 million and $500,000, respectively. During the first three quarters, a significant increase in operating income from the theatre division was partially offset by decreases in operating income at the Company's two lodging divisions. Year to date operating income decreases from the Company's two lodging divisions (and the hotel industry in general) can be attributed to the overall recessionary economic environment, accelerated by the impact of the tragic events of September 11, 2001. Reduced interest expense and decreased losses on the disposition of property, equipment and investments in joint ventures favorably impacted earnings from continuing operations and net earnings during the fiscal 2002 third quarter. Reduced interest expense, increased gains on the disposition of property, equipment and investments in joint ventures and a reduced effective income tax rate contributed to the Company's increased earnings from continuing operations and net earnings during the fiscal 2002 first three quarters. Comparisons of fiscal 2002 third quarter and first three quarters earnings from continuing operations and net earnings to prior year results were negatively impacted by a non-taxable gain of $1.5 million recognized during the third quarter of fiscal 2001 from insurance contracts on the life of the Company's founder, Ben Marcus. 11 The Company's interest expense, net of investment income, totaled $3.9 million and $12.4 million for the third quarter and first three quarters of fiscal 2002, respectively, compared to $4.9 million and $14.8 million during the same periods last year. These decreases were primarily the result of lower short-term interest rates, in addition to decreased long-term debt levels due to the receipt of proceeds from the sale of the Company's KFC restaurants in May 2001 and reduced capital expenditures during fiscal 2002. The Company recognized gains (losses) on disposition of property and equipment totaling ($66,000) and $2.0 million for the third quarter and first three quarters of fiscal 2002, respectively, compared to ($625,000) and $900,000 during the prior year same periods. The majority of the first three quarters fiscal 2002 gain was the result of a sale of a joint venture Baymont Inn & Suites property during the first quarter. The timing of periodic sales of Company property and equipment may vary from quarter to quarter, resulting in variations in the Company's gains or losses on disposition of property and equipment. The Company's lower effective income tax rate during the first three quarters of fiscal 2002, compared to last year's same period, was the result of the favorable impact of federal and state historic tax credits related to the renovation of the Hotel Phillips in Kansas City, Missouri. The Company anticipates a similar reduced effective income tax rate for the fourth quarter of fiscal 2002, after which the Company expects its effective tax rate to return to a level more consistent with prior years. Limited-Service Lodging The following table sets forth revenues, operating income and operating margin for the limited-service division for the third quarter and first three quarters of fiscal 2002 and 2001 (in millions, except for variance percentage and operating margin):
Third Quarter First Three Quarters ------------------------------------- ------------------------------------- Variance Variance -------- -------- F2002 F2001 Amt. Pct. F2002 F2001 Amt. Pct. ----- ----- ---- ---- ----- ----- ---- ---- Revenues $25.8 $27.8 ($2.0) -7.1% $96.0 $103.0 ($7.0) -6.8% Operating income (loss) (0.3) (2.2) 1.9 85.9% 11.5 13.6 (2.1) -15.5% Operating margin -1.2% -8.1% 12.0% 13.2% (% of revenues)
Compared to the end of the third quarter of fiscal 2001, 13 additional franchised Baymont Inns & Suites were in operation at the end of the fiscal 2002 third quarter, including six new locations that were opened during fiscal 2002 and one Company-operated joint venture location that was sold to a new franchisee in August 2001. Increased revenues from franchising partially offset the decline in revenues from the Company's owned Inns during the third quarter and first three quarters of fiscal 2002. Comparable Company-owned or operated Baymont Inns & Suites experienced a 1.5 point decline in occupancy percentage and a 3.5% decrease in average daily rate during the third quarter of fiscal 2002, compared to the same quarter last year. During the first three quarters of fiscal 2002, comparable Company-owned or operated Baymont Inns & Suites experienced a 2.0 point decline in occupancy percentage and a 3.2% decrease in average daily rate, compared to the first three quarters of fiscal 2001. The primary factor contributing to the declines in occupancy and average daily rate was reduced business travel, as companies reacted to the slowing economic environment. This trend dramatically accelerated as a result of the 12 events of September 11. The result of the average daily rate decreases and occupancy decline was a 6.7% decrease in the division's revenue per available room, or RevPAR, for comparable Company-owned or operated Baymont Inns during the fiscal 2002 third quarter and first three quarters, compared to the same periods last year. The Company owned and operated seven Woodfield Suites all-suite hotels during both the third quarters of fiscal 2002 and fiscal 2001. Revenues and operating income from Woodfield Suites decreased during the third quarter and first three quarters of fiscal 2002 compared to the same periods of fiscal 2001 due primarily to reduced occupancy and resulting RevPAR decreases of 11.8% and 11.9%, respectively, compared to the same periods last year. The performance of the Company's limited-service, mid-priced Baymont Inns & Suites during the third quarter of fiscal 2002 continues to be similar to the results of the majority of the properties in this lodging industry segment. Industry wide occupancy rates were generally declining prior to September 11 as a result of the then slowing economy. In the first full week after September 11, industry wide occupancy rates for the mid-scale without food and beverage segment declined by approximately 17% compared to the same period last year. Industry occupancy rates have improved considerably in the subsequent months to approximately 7% to 9% down compared to the prior year by mid-November and further improving to approximately 2% to 4% down during the month of February 2002. The Company's Baymont Inns & Suites recorded flat occupancy and a RevPAR decline of only 1.5% during February 2002 compared to February 2001 as a result of these improving conditions and the fact that the first signs of the slowing economy appeared during last year's comparable period. An overall reduction in business travel as a result of the economic environment continues to be the primary reason for the reduced occupancies. In general, the Company believes that limited-service lodging properties have performed better than their full-service counterparts as a result of travelers "trading down" from higher priced hotels. The Company believes that Baymont, in particular, may benefit from the fact that it derives a large portion of its occupancies from the over-the-road traveler and the majority of its inns are not in urban and destination resort locations, which have been most severely impacted by the aftermath of September 11. The limited-service lodging division's operating loss during the fiscal 2002 third quarter improved significantly compared to the same period last year due to the reduction in overall costs and expenses. The division responded to the current environment by reducing operational payroll and corporate overhead and restructuring its operational management and supervisory teams. In addition to the reduced utility costs described earlier, the division's operating results during the third quarter of fiscal 2002 compared to the prior year's same period were favorably impacted by the fact that the Company incurred approximately $1.0 million in one-time costs during the fiscal 2001 third quarter related to the introduction of the Company's new Guest Ovations frequent stay reward program and other brand initiatives. The majority of the division's decrease in operating income during the first three quarters of fiscal 2002 occurred during September and October, when occupancy declines were greatest and cost control measures were in the early stages of implementation. The division's current strategies focus on increasing occupancy and brand awareness at its Baymont Inns & Suites. The division outsourced its reservation center during the third quarter of fiscal 2002, which the Company believes should result in reduced costs and 13 increased reservation system contributions to occupancy in the future. Reservations from the central reservation center increased over 20% during the third quarter of fiscal 2002, compared to the same period last year. At the beginning of the fiscal 2002 fourth quarter, the Company introduced and began marketing its new Ovations Rooms, which feature additional amenities not normally found in the limited-service lodging sector, including pillow-top mattresses, Down Lite(TM) pillows, an enhanced lobby breakfast and complimentary in-room bottled water, an industry first. Despite the improvement seen during February, the Company believes that its limited-service lodging RevPAR will continue to fluctuate during the fourth quarter of fiscal 2002 and may continue to be down by as much as 3 to 6% compared to last year, but with potential improvement expected heading into fiscal 2003. The Company is encouraged by recent predictions of a fairly rapid economic recovery in the months ahead, but will continue to operate this division conservatively. Although comparisons to the fiscal 2001 fourth quarter will be negatively impacted by the extra week of operations during fiscal 2001 and a small increase in costs related to the amenities added in conjunction with the new Ovations Rooms, the Company also believes that comparisons should continue to be favorably impacted by anticipated reduced energy costs, continued reduced operating costs and the division's expensing of an additional $700,000 of primarily one-time costs during the fourth quarter of fiscal 2001 related to the introduction of the division's new frequent stay program and other new brand initiatives. At the end of the fiscal 2002 third quarter, the Company owned or operated 95 Baymont Inns & Suites and franchised an additional 95 Inns, bringing the total number of Baymont Inns & Suites in operation to 190. In addition, there are currently 14 approved franchised locations in development, including two under construction. The Company's first urban location in downtown Chicago, Illinois, is in the early stages of development. The Company continues to believe that as a result of the current economic environment, financing for new hotel development will remain constrained in the short-term, which may limit the number of new franchised locations approved in the upcoming months. Conversely, the Company also believes that the significantly reduced supply growth throughout the industry should favorably impact operating results of existing hotels as an economic recovery occurs. Theatres The following table sets forth revenues, operating income and operating margin for the theatre division for the third quarter and first three quarters of fiscal 2002 and 2001 (in millions, except for variance percentage and operating margin):
Third Quarter First Three Quarters -------------------------------------- -------------------------------------- Variance Variance -------- -------- F2002 F2001 Amt. Pct. F2002 F2001 Amt. Pct. ----- ----- ---- ---- ----- ----- ---- ---- Revenues $38.3 $37.5 $0.8 2.4% $108.2 $97.6 $10.6 10.9% Operating income 10.0 8.1 1.9 23.2% 25.5 18.3 7.2 39.6% Operating margin 26.0% 21.6% 23.6% 18.7% (% of revenues)
Consistent with the seasonal nature of the motion picture exhibition industry, the first and third quarters of the Company's fiscal year are typically the strongest periods for its 14 theatre division. Comparisons to the division's fiscal 2001 third quarter results were negatively impacted by the inclusion of the traditionally strong Thanksgiving Day weekend during the fiscal 2002 second quarter, as opposed to inclusion in last year's third quarter. Contributing to the increased division fiscal 2002 third quarter operating margin were increased concession revenues, reduced utility and snow removal costs, and reduced film and advertising costs. The following table further breaks down revenues for the theatre division for the third quarter and first three quarters of fiscal 2002 and 2001 (in millions):
Third Quarter First Three Quarters -------------------------------------- -------------------------------------- Variance Variance -------- -------- F2002 F2001 Amt. Pct. F2002 F2001 Amt. Pct. ----- ----- ---- ---- ----- ----- ---- ---- Box office receipts $25.3 $25.1 $0.2 0.8% $71.6 $65.4 $6.2 9.5% Concession revenues 11.9 11.3 0.6 5.2% 33.3 29.2 4.1 14.0% Other revenues 1.1 1.1 - - 3.3 3.0 0.3 10.9% ------ ------ ------ ----- ------- ------- ------- ---- Total revenues $38.3 $37.5 $0.8 2.4% $108.2 $97.6 $10.6 10.9%
The small increase in box office receipts for the third quarter of fiscal 2002 compared to the same period last year was due entirely to an increase in the average ticket price during the quarter. The increase in box office receipts for the first three quarters of fiscal 2002 compared to the same period during the prior year was primarily the result of increased attendance. The division's average ticket price increased 4.7% and 3.4%, respectively, during the third quarter and first three quarters of fiscal 2002 and the Company ended the first three quarters of fiscal 2002 with four less theatres and 18 fewer screens compared to the prior year. The Company's average concession sales per person increased 9.3% and 7.6%, respectively, during the fiscal 2002 third quarter and first three quarters compared to last year's same periods. Total theatre attendance for the third quarter decreased 3.7% during the third quarter and increased 5.9% during the first three quarters of fiscal 2002, compared to total attendance during the same periods last year. The decrease in third quarter attendance was the result of the Thanksgiving Day weekend being included in the fiscal 2002 second quarter results, compared to inclusion in the third quarter last year. Total theatre attendance at the Company's comparable locations increased 6.9% during the first three quarters of fiscal 2002, compared to last year's same period. The increase in total attendance and the resulting increases in box office receipts and concession revenues during the third quarter and first three quarters of fiscal 2002 were primarily the result of more quality films compared to the same periods of fiscal 2001. The third quarter of fiscal 2002 included several blockbuster films, including Lord of the Rings, Ocean's Eleven, A Beautiful Mind, Harry Potter and the Sorcerer's Stone and Black Hawk Down. Many of the top films for the quarter were excellent family fare, which traditionally produce better than average concession sales. During the first three quarters of fiscal 2002, 15 films generated box office receipts in excess of $1.2 million for the division, compared to only 9 films with box office receipts in excess of $1.2 million during the first three quarters of fiscal 2001. Film product for the fourth quarter of fiscal 2002 appears to be promising, with films such as Ice Age, Blade 2 and Panic Room opening strong in March and the much anticipated releases of Spiderman and the next installment of Star Wars scheduled for May 3 and May 16, respectively. As a result, the division believes total fiscal 2002 fourth quarter revenues 15 may exceed last year's same quarter, despite the inclusion of an extra 53rd week during fiscal 2001. The Company is also encouraged by the extended outlook for film product for the fiscal 2003 first quarter and beyond, with several major new films and sequels scheduled to be released. Revenues for the theatre business and the motion picture industry in general are heavily dependent upon the general audience appeal of available films, together with studio marketing, advertising and support campaigns, all factors over which the Company has no control. The Company ended the third quarter with a total of 464 total screens in 45 theatres compared to 482 screens in 49 theatres at the end of the same period last year. The Company closed three theatres with a total of 13 screens during the second quarter of fiscal 2002 and closed another five-screen theatre at the end of the third quarter. The Company does not anticipate opening additional screens during the remainder of fiscal 2002, but from time to time continues to review potential management, development and acquisition opportunities. Hotels and Resorts The following table sets forth revenues, operating income and operating margin for the hotels and resorts division for the third quarter and first three quarters of fiscal 2002 and 2001 (in millions, except for variance percentage and operating margin):
Third Quarter First Three Quarters --------------------------------------- --------------------------------------- Variance Variance -------- -------- F2002 F2001 Amt. Pct. F2002 F2001 Amt. Pct. ----- ----- ---- ---- ----- ----- ---- ---- Revenues $24.0 $21.2 $2.8 12.8% $84.8 $81.1 $3.7 4.5% Operating income (loss) (1.5) (1.2) (0.3) -24.8% 5.0 9.7 (4.7) -48.9% Operating margin -6.5% -5.8% 5.8% 12.0% (% of revenues)
Total division revenues for the third quarter and first three quarters of fiscal 2002 increased over fiscal 2001 comparable period revenues due to the added revenues from the Company's newly opened hotels, the Hotel Phillips and Hilton Madison at Monona Terrace, in addition to revenues from the Company's management of the Timber Ridge Lodge. The division's overall decrease in operating income during the fiscal 2002 third quarter and first three quarters compared to the same periods last year was primarily the result of the challenging economic environment and resulting reduced business travel. The division's fiscal 2002 first three quarters operating results were further negatively impacted by $1.1 million of pre-opening expenses related to the Hotel Phillips, Timber Ridge Lodge and Milwaukee Hilton, in addition to significant start-up operating losses associated with opening the Hotel Phillips during a very difficult time for upscale lodging immediately after September 11. The events of September 11 and the ensuing further economic downturn had a significant negative impact on the operating results of the hotels and resorts division during the second quarter of fiscal 2002. The fiscal 2002 third quarter results, although not impacted as severely, were also impacted by this difficult environment. Historically, higher priced upscale hotels have always experienced more challenges during difficult economic environments than lower priced limited service properties. The negative impact on this division was most severe during September and October, when a significant number of group cancellations occurred. During the first full week after September 11, industry wide occupancy rates for upper upscale 16 hotels dropped approximately 53% and RevPAR declined over 70% compared to the same period during the prior year. Like limited-service lodging, results in this industry segment have since improved, but are still not approaching pre-September 11 levels. Industry wide RevPAR declines for the upper upscale segment leveled off at 18-24% during November, December and January, before improving to declines of approximately 11-14% during February 2002. The Company's hotels and resorts have outperformed the industry during this time period, likely due at least partially to the Company's property mix. The Company's properties are generally located in mid-size cities and resort areas within driving distance from major Midwest population centers, which have not been affected as significantly by the downturn as major East and West Coast destinations. Excluding the Hotel Phillips, which reopened after an extensive renovation on September 13, 2001, and the Hilton Madison at Monona Terrace, which opened during the fourth quarter of fiscal 2001, the division's total RevPAR for comparable Company-owned properties decreased 10.4% during fiscal 2002's third quarter compared to the same quarter last year. This represents a significant improvement from the 27.1% decline in RevPAR reported during the fiscal 2002 second quarter. For the first three quarters of fiscal 2002, the division's total RevPAR for comparable Company-owned properties decreased 10.7% compared to the same period last year. The Company has responded to the current circumstances by focusing on controlling costs and, if not for start-up operating losses incurred at the Hotel Phillips, would have reported reduced operating losses during the fiscal 2002 third quarter compared to the same period last year. The division has historically reported operating losses during the third quarter due to the seasonal nature of its predominantly Midwestern properties. The division continues to maintain its properties consistent with its traditional high standards, including taking advantage of the seasonal lower occupancies during winter and spring to undertake previously planned major room renovations at two of its premier properties, the Pfister and the Grand Geneva. As noted in the limited-service lodging discussion, the Company, while encouraged by signs of an improving economy, still anticipates some residual negative impact on the revenues of its hotels and resorts division during the fourth quarter of fiscal 2002. In particular, properties such as the Pfister and Hotel Phillips, which rely more heavily on the individual business traveler, will continue to be affected until this business segment returns to previous levels. Group and leisure business, on the other hand, has stabilized since the initial cancellations after September 11. Occupancy rates at properties that cater to group and leisure guests, such as the Grand Geneva Resort and Spa and Timber Ridge Lodge, have improved considerably, with both properties contributing positively to year-over-year comparisons during the fiscal 2002 third quarter. As a result of these factors, and the fact that the lodging industry began to feel the impact of the worsening economy at this time last year, the Company anticipates improvement in its hotels and resorts' operating income during the fiscal 2002 fourth quarter compared to the same period last year. FINANCIAL CONDITION The Company's lodging, movie theatre and restaurant businesses each generate significant and consistent daily amounts of cash because each segment's revenue is derived predominantly from consumer cash purchases. The Company believes that these consistent and predictable cash sources, together with the availability of $31 million of unused credit lines as of 17 the end of the third quarter, should be adequate to support the ongoing operational liquidity needs of the Company's businesses. Early in the third quarter of fiscal 2002, the Company replaced its expiring 364-day revolving credit agreement with a new $40 million, 364-day revolving credit agreement with several banks. Any borrowings under the new line will bear interest at LIBOR plus a margin which adjusts based on the Company's borrowing levels. In addition, on April 2, 2002, the Company issued $75 million in senior unsecured long-term notes privately placed with six institutional lenders. The notes, which bear interest at an average rate of 7.74%, were issued under a previously announced private placement program and mature in 2009 and 2012. Proceeds from the senior notes will be used to pay off existing short-term debt and fund the Company's capital expenditure program. If the senior notes had been in place at the end of the third quarter, the Company would have had $106 million of unused credit lines available for its use. Based upon debt levels and interest rates in effect at the end of the fiscal 2002 third quarter, the Company's annual interest expense would be expected to increase by approximately $3.9 million as a result of the issuance of these senior notes in lieu of existing short-term borrowings. The Company believes that its long-term interests are best served by having a significant portion of its outstanding debt with longer maturities, due to the significant real estate component of its total assets. Net cash provided by operating activities increased by $17.2 million during the first three quarters of fiscal 2002 to $53.3 million, compared to $36.1 million during the prior year's first three quarters, due primarily to increased earnings and timing differences in payments of accounts payable and increases in accounts and notes receivable. Net cash used in investing activities during the fiscal 2002 first three quarters totaled $42.5 million, compared to $61.8 million during the fiscal 2001 first three quarters. The decrease in net cash used in investing activities was primarily the result of decreased capital expenditures. Capital expenditures totaled $40.1 million during the first three quarters of fiscal 2002 compared to $60.3 million during the prior year's first three quarters. Fiscal 2002 first three quarters capital expenditures included approximately $29.5 million incurred in the hotels and resorts division to fund the renovation of the Hotel Phillips, the division's investment in the common areas of the Timber Ridge Lodge and construction of a new parking garage at the Hilton Milwaukee City Center. In addition, capital expenditures of approximately $8.5 million were incurred in the limited-service lodging division and approximately $1.5 million were incurred by the theatre division to fund ongoing maintenance capital projects. The Company has not altered its maintenance capital expenditure plans as a result of the current economic environment, but did delay the start of some non-critical capital projects, many of which are now scheduled for completion during calendar 2002. The Company currently expects total capital expenditures during fiscal 2002 to be approximately $50-55 million, depending upon the timing of several projects. Net cash used by financing activities during the first three quarters of fiscal 2002 totaled $5.2 million compared to net cash provided by financing activities of $26.3 million during the first three quarters of fiscal 2001. As a result of the receipt of the proceeds from the sale of the Company's KFC restaurants at the end of the fiscal 2001 fourth quarter, increased cash provided by operating activities and reduced capital expenditures compared to the same period last year, the Company's net proceeds from issuance of notes payable and long-term debt 18 totaled only $15.1 million during the first three quarters of fiscal 2002 compared to $48.4 million during the same period last year. The Company's principal payments on notes payable and long-term debt totaled $16.6 million during the first three quarters of fiscal 2002 compared to $13.6 million during the same period last year. Additionally, during the first three quarters of fiscal 2001, the Company repurchased 370,000 of its common shares pursuant to its stock repurchase program at a total cost of $4.2 million, compared to only a small number of shares repurchased during the first three quarters of fiscal 2002. At the end of the first three quarters of fiscal 2002, an additional 1.96 million shares may be repurchased under the existing Board of Directors' stock repurchase authorization. Any such repurchases would be expected to be executed on the open market or in privately negotiated transactions depending upon a number of factors, including prevailing market conditions. Based upon the Company's expectation for reduced fiscal 2002 capital expenditure levels, the Company currently believes that its long-term debt at the end of fiscal 2002 will be at or below debt levels in place at the end of fiscal 2001. The Company's debt-capitalization ratio was 0.48 at February 28, 2002, compared to 0.49 at the prior fiscal year end. The actual timing and extent of the implementation of the Company's current expansion plans will depend in large part on industry and general economic conditions, the Company's financial performance and available capital, the competitive environment, evolving customer needs and trends and the availability of attractive opportunities. It is likely that the Company's plans will continue to evolve and change in response to these and other factors. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company has not experienced any material changes in its market risk exposures since May 31, 2001. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit 4.6 Third Supplement to Note Purchase Agreements dated April 1, 2002. b. Reports on Form 8-K No Form 8-K was filed by the Company during the quarter to which this Form 10-Q relates. 19 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. THE MARCUS CORPORATION (Registrant) DATE: April 12, 2002 By: /s/ Stephen H. Marcus ------------------------------------------ Stephen H. Marcus, Chairman of the Board, President and Chief Executive Officer DATE: April 12, 2002 By: /s/ Douglas A. Neis ------------------------------------------ Douglas A. Neis Chief Financial Officer and Treasurer S-1 EX-4.6 3 slp270a.txt THIRD SUPPLEMENT TO NOTE PURCHASE AGREEMENT ================================================================================ THE MARCUS CORPORATION THIRD SUPPLEMENT TO NOTE PURCHASE AGREEMENTS Dated as of April 1, 2002 Re: $54,000,000 7.66% Series D Senior Notes, Tranche A, due April 1, 2009 and $21,000,000 7.93% Series D Senior Notes, Tranche B, due April 1, 2012 ================================================================================ THIRD SUPPLEMENT TO NOTE PURCHASE AGREEMENTS Dated as of April 1, 2002 To the Purchasers named in Schedule A hereto Ladies and Gentlemen: This Third Supplement to Note Purchase Agreements (the "Third Supplement") is between The Marcus Corporation, a Wisconsin corporation (the "Company"), whose address is 250 East Wisconsin Avenue, Suite 1700, Milwaukee, Wisconsin 53202, and the institutional investors named on Schedule A attached hereto (the "Purchasers"). Reference is hereby made to those certain Note Purchase Agreements dated as of October 25, 1996 (the "Note Agreements") between the Company and the purchasers listed on Schedule A thereto. All capitalized terms not otherwise defined herein shall have the same meaning as specified in the Note Agreements. Reference is further made to Section 4.11 thereof which requires that, prior to the delivery of any Additional Notes, the Company and each Additional Purchaser shall execute and deliver a Supplement. The Company hereby agrees with you as follows: 1. The Company has authorized the issue and sale of $54,000,000 aggregate principal amount of its 7.66% Series D Senior Notes, Tranche A due April 1, 2009 (the "Tranche A Notes") and $21,000,000 aggregate principal amount of its 7.93% Series D Senior Notes, Tranche B due April 1, 2012 (the "Tranche B Notes" and together with the Tranche A Notes, the "Series D Notes"). The Series D Notes, together with the Series A Notes initially issued pursuant to the Note Agreements and each Series of Additional Notes, including the Series B Notes issued under the First Supplement to Note Purchase Agreements dated as of May 15, 1998 and the Series C Notes issued under the Second Supplement to Note Purchase Agreements dated as of May 1, 1999, which may from time to time be issued pursuant to the provisions of Section 2.2 of the Note Agreements, are collectively referred to as the "Notes" (such term shall also include any such notes issued in substitution therefor pursuant to Section 13 of the Note Agreements). The Tranche A Notes and the Tranche B Notes shall be substantially in the forms set out in Exhibit 1 and Exhibit 2 hereto, respectively, with such changes therefrom, if any, as may be approved by you and the Company. 2. Subject to the terms and conditions hereof and as set forth in the Note Agreements and on the basis of the representations and warranties hereinafter set forth, the Company agrees to issue and sell to you, and you agree to purchase from the Company, Series D Notes in the principal amount set forth opposite your name on Schedule A hereto at a price of 100% of the principal amount thereof on the closing date hereafter mentioned. 3. Delivery of the $75,000,000 in aggregate principal amount of the Series D Notes will be made at the offices of Chapman and Cutler, 111 West Monroe, Chicago, Illinois 60603, against payment therefor in Federal Reserve or other funds current and immediately available at the principal office of Bank One Milwaukee, N.A., 111 East Wisconsin Avenue, Milwaukee, Wisconsin 53202 (ABA Number 075-0000-19) for credit to the First American Finance Corporation Account, Account Number 550-2510-15 with telephonic confirmation to Ms. Debbie Luedke at (414) 905-1160 in the amount of the purchase price at 11:00 A.M., Milwaukee, Wisconsin time, on April 2, 2002 or such later date (not later than April 4, 2002) as shall mutually be agreed upon by the Company and the Purchasers of the Series D Notes (the "Closing"). 4. (a) Required Prepayments. (i) Tranche A Notes. On April 1, 2005 and on each April 1 thereafter to and including April 1, 2008, the Company will prepay $10,800,000 principal amount (or such lesser principal amount as shall then be outstanding) of the Tranche A Notes at par and without payment of the Make-Whole Amount or any premium. The entire remaining principal amount of the Tranche A Notes shall become due and payable on April 1, 2009. For purposes of this Section 4(a)(i), any prepayment of less than all of the outstanding Tranche A Notes pursuant to Section 4(c) shall be deemed to be applied first to the amount of principal scheduled to be repaid on April 1, 2009, and then to the remaining scheduled principal payments, if any, in inverse chronological order. (ii) Tranche B Notes. On April 1, 2006 and on each April 1 thereafter to and including April 1, 2011, the Company will prepay $3,000,000 principal amount (or such lesser principal amount as shall then be outstanding) of the Tranche B Notes at par and without payment of the Make-Whole Amount or any premium. The entire remaining principal amount of the Tranche B Notes shall become due and payable on April 1, 2012. For purposes of this Section 4(a)(ii), any prepayment of less than all of the outstanding Tranche B Notes pursuant to Section 4(c) shall be deemed to be applied first to the amount of principal scheduled to be repaid on April 1, 2012, and then to the remaining scheduled principal payments, if any, in inverse chronological order. (b) Application of Prepayments. In the event of a purchase of the Series D Notes pursuant to Section 8.5 of the Note Agreements or a Partial Redemption of the Series D Notes all required prepayments on the Series D Notes shall be adjusted as provided in Section 8.1(c) of the Note Agreements. (c) Optional Prepayments. The Series D Notes are subject to prepayment at the option of the Company in the manner and with the effect set forth in Section 8.2 of the Note Agreements. (d) Allocation of Partial Prepayments. In the case of each partial prepayment of the Series D Notes pursuant to the provisions of Section 8.2 of the Note Agreements, -2- the principal amount of the Series D Notes to be prepaid shall be allocated among all of the Notes of such Series at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof. In the case of each required prepayment of the Series D Notes pursuant to Section 4(a), the principal amount of the Tranche to be prepaid shall be allocated among all of the Notes of such Tranche at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof. (e) Make-Whole Amount for Series D Notes. The term "Make-Whole Amount" means, with respect to any Series D Note of any Tranche, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Series D Note of such Tranche over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: "Called Principal" means, with respect to any Series D Note of any Tranche, the principal of such Series D Note of such Tranche that is to be prepaid pursuant to Section 8.2 of the Note Agreements or has become or is declared to be immediately due and payable pursuant to Section 12.1 of the Note Agreements, as the context requires. "Discounted Value" means, with respect to the Called Principal of any Series D Note of any Tranche, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Series D Note of such Tranche is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" means, with respect to the Called Principal of any Series D Note of any Tranche, 0.50% over the yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "PX-1" on the Bloomberg Financial Markets Services Screen (or such other display as may replace PX-1 of the Bloomberg Financial Markets Services Screen) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H. 15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the actively traded U.S. Treasury security with the maturity closest to and greater than the Remaining -3- Average Life and (2) the actively traded U.S. Treasury security with the maturity closest to and less than the Remaining Average Life. "Remaining Average Life" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payments" means, with respect to the Called Principal of any Series D Note of any Tranche, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Series D Note of such Tranche, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 of the Note Agreements or 12.1 of the Note Agreements. "Settlement Date" means, with respect to the Called Principal of any Series D Note of any Tranche, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 of the Note Agreements or has become or is declared to be immediately due and payable pursuant to Section 12.1 of the Note Agreements, as the context requires. 5. The obligation of each Purchaser to purchase and pay for the Series D Notes to be sold to such Purchaser at the Closing is subject to the fulfillment to such Purchaser's satisfaction, prior to the Closing, of the conditions set forth in Section 4 of the Note Agreements, and to the following additional conditions: (a) Except as supplemented by the representations and warranties set forth in Exhibit A hereto, each of the representations and warranties of the Company set forth in Section 5 of the Note Agreements shall be correct as of the date of Closing and the Company shall have delivered to each Purchaser an Officer's Certificate, dated the date of the Closing certifying that such condition has been fulfilled. (b) Contemporaneously with the Closing, the Company shall sell to each Purchaser, and each Purchaser shall purchase, the Notes to be purchased by such Purchaser at the Closing as specified in Schedule A. (c) Private Placement Numbers shall have been obtained for each Tranche of the Series D Notes. 6. The Company hereby covenants and agrees that so long as the Series D Notes shall remain outstanding, the definition of "Debt" set forth in the Note Agreements shall read as -4- follows for purposes of any determination under the Note Agreements (including Section 10.2, 10.3 and 10.4 of the Note Agreements): "'Debt' means, with respect to any Person, without duplication, (a) its liabilities for borrowed money; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including, without limitation, all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) its Capital Lease Obligations; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); and (e) any Guaranty of such Person with respect to liabilities of a type described in any of clause (a) through (d) hereof. Debt of any Person shall include all obligations of such Person of the character described in clauses (a) through (e) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP." 7. Each Purchaser represents and warrants that the representations and warranties set forth in Section 6 of the Note Agreements are true and correct on the date hereof with respect to the Series D Notes purchased by such Purchaser. 8. The Company and each Purchaser agrees to be bound by and comply with the terms and provisions of the Note Agreements for the benefit of the holders of the Series D Notes as fully and as completely as if each Purchaser were an original signatory to the Note Agreements. 9. The Company agrees that, in addition to the payment by the Company of certain costs and expenses set forth in Section 15.1 of the Note Agreements, the Company will reimburse one Purchaser from each tranche of the Series D Notes for the initial and annual fees (as in effect on the date of Closing) imposed by the National Association of Insurance Commissioners in connection with obtaining and maintaining a rating for the Series D Notes. -5- The execution hereof shall constitute a contract between us for the uses and purposes hereinabove set forth, and this agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement. THE MARCUS CORPORATION By ------------------------------------ Its:________________________________ Printed Name:_______________________ -6- Accepted as of the date first written above [VARIATION] By ------------------------------------ Its:________________________________ Printed Name:_______________________ -7- INFORMATION RELATING TO PURCHASERS PRINCIPAL AMOUNT OF TRANCHE SERIES D SENIOR NAME OF PURCHASERS NOTES TO BE PURCHASED ING LIFE INSURANCE AND ANNUITY COMPANY A $15,000,000 c/o ING Investment Management LLC 100 Washington Avenue South, Suite 1635 Minneapolis, Minnesota 55401-2121 Attention: Allen Stoltman Phone: (612) 342-7250 Fax: (612) 372-5368 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "The Marcus Corporation, Series D Senior Notes, Tranche A, due April 1, 2009, PPN 56633# AG 8, principal, premium or interest") to: The Bank of New York ABA #021000018 BFN: IOC566 Attn: P&I Department Ref: ING Life Insurance & Annuity Company Account #216101 and PPN 56633# AG 8 Notices All notices and communications with respect to payments and written confirmation of each such payment to be addressed: ING Investment Management LLC 5780 Powers Ferry Road, NW, Suite 300 Atlanta, Georgia 30327-4349 Attention: Securities Accounting Fax: (770) 690-4899 All other notices and communications to be addressed as first provided above with a copy of all such notices and communications to be addressed: ING Investment Management LLC 5780 Powers Ferry Road, NW, Suite 300 Atlanta, Georgia 30327-4349 Attn: Private Placements Phone: (770) 690-4857 Fax: (770) 690-4889 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 71-0294708 SCHEDULE A (to Note Purchase Agreement) PRINCIPAL AMOUNT OF TRANCHE SERIES D SENIOR NAME OF PURCHASERS NOTES TO BE PURCHASED NORTHERN LIFE INSURANCE COMPANY A $10,000,000 c/o ING Investment Management LLC 100 Washington Avenue South, Suite 1635 Minneapolis, Minnesota 55401-2121 Attention: Allen Stoltman Phone: (612) 342-7250 Fax: (612) 372-5368 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "The Marcus Corporation, Series D Senior Notes, Tranche A, due April 1, 2009, PPN 56633# AG 8, principal, premium or interest") to: BK of NYC IOC 566 - INT'L CUSTODY ABA #021000018 Ref: Northern Life Insurance Company Account #187036 and PPN 56633# AG 8 Notices All notices and communications with respect to payments and written confirmation of each such payment to be addressed: ING Investment Management LLC 5780 Powers Ferry Road, NW, Suite 300 Atlanta, Georgia 30327-4349 Attention: Securities Accounting Fax: (770) 690-4899 All other notices and communications to be addressed as first provided above with a copy of all such notices and communications to be addressed: ING Investment Management LLC 5780 Powers Ferry Road, NW, Suite 300 Atlanta, Georgia 30327-4349 Attn: Private Placements Phone: (770) 690-4857 Fax: (770) 690-4889 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 41-1295933 A-2 PRINCIPAL AMOUNT OF TRANCHE SERIES D SENIOR NAME OF PURCHASERS NOTES TO BE PURCHASED NATIONWIDE LIFE INSURANCE COMPANY A $4,500,000 One Nationwide Plaza (1-33-07) Columbus, Ohio 43215-2220 Attention: Corporate Fixed-Income Securities Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "The Marcus Corporation, Series D Senior Notes, Tranche A, due April 1, 2009, PPN 56633# AG 8, principal, premium or interest") to: The Bank of New York ABA #021-000-018 BNF: IOC566 F/A/O Nationwide Life Insurance Company Attention: P&I Department PPN 56633# AG 8 Security Description: The Marcus Corporation, Series D Senior Notes, Tranche A, due April 1, 2009 Notices All notices of payment on or in respect of the Notes and written confirmation of each such payment to: Nationwide Life Insurance Company c/o The Bank of New York P. O. Box 19266 Attn: P&I Department Newark, New Jersey 07195 With a copy to: Nationwide Life Insurance Company One Nationwide Plaza (1-32-05) Attn: Investment Accounting Columbus, Ohio 43215-2220 All notices and communications other than those in respect to payments to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 31-4156830 A-3 PRINCIPAL AMOUNT OF TRANCHE SERIES D SENIOR NAME OF PURCHASERS NOTES TO BE PURCHASED NATIONWIDE LIFE AND ANNUITY INSURANCE A $4,500,000 COMPANY One Nationwide Plaza (1-33-07) Columbus, Ohio 43215-2220 Attention: Corporate Fixed-Income Securities Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "The Marcus Corporation, Series D Senior Notes, Tranche A, due April 1, 2009, PPN 56633# AG 8, principal, premium or interest") to: The Bank of New York ABA #021-000-018 BNF: IOC566 F/A/O Nationwide Life and Annuity Insurance Company Attention: P&I Department PPN 56633# AG 8 Security Description: The Marcus Corporation, Series D Senior Notes, Tranche A, due April 1, 2009 Notices All notices of payment on or in respect of the Notes and written confirmation of each such payment to: Nationwide Life and Annuity Insurance Company c/o The Bank of New York P. O. Box 19266 Attn: P&I Department Newark, New Jersey 07195 With a copy to: Nationwide Life and Annuity Insurance Company Attn: Investment Accounting One Nationwide Plaza (1-32-05) Columbus, Ohio 43215-2220 Attn: Investment Accounting All notices and communications other than those in respect to payments to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 31-1000740 A-4 PRINCIPAL AMOUNT OF TRANCHE SERIES D SENIOR NAME OF PURCHASERS NOTES TO BE PURCHASED SCOTTSDALE INSURANCE COMPANY A $1,000,000 One Nationwide Plaza (1-33-07) Columbus, Ohio 43215-2220 Attention: Corporate Fixed-Income Securities Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "The Marcus Corporation, Series D Senior Notes, Tranche A, due April 1, 2009, PPN 56633# AG 8, principal, premium or interest") to: The Bank of New York ABA #021-000-018 BNF: IOC566 F/A/O Scottsdale Insurance Company Attention: P&I Department PPN 56633# AG 8 Security Description: The Marcus Corporation, Series D Senior Notes, Tranche A, due April 1, 2009 Notices All notices of payment on or in respect of the Notes and written confirmation of each such payment to: Scottsdale Insurance Company c/o The Bank of New York P. O. Box 19266 Attn: P&I Department Newark, New Jersey 07195 With a copy to: Scottsdale Insurance Company Attn: Investment Accounting One Nationwide Plaza (1-32-05) Columbus, Ohio 43215-2220 All notices and communications other than those in respect to payments to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 31-1024978 A-5 PRINCIPAL AMOUNT OF TRANCHE SERIES D SENIOR NAME OF PURCHASERS NOTES TO BE PURCHASED PRINCIPAL LIFE INSURANCE COMPANY A $7,000,000 c/o Principal Capital Management, LLC $1,000,000 801 Grand Avenue $1,000,000 Des Moines, Iowa 50392-0800 $ 500,000 $ 500,000 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds, by 12:00 p.m., New York City time (identifying each payment as "The Marcus Corporation, Series D Senior Notes, Tranche A, due April 1, 2009, PPN 56633# AG 8, principal, premium or interest") to: ABA #073000228 Wells Fargo Bank Iowa, N.A. 7th and Walnut Streets Des Moines, Iowa 50309 For credit to Principal Life Insurance Company Account No. 0000014752 OBI PFGSE (S) B0064801() All notices with respect to payments to: Principal Capital Management, LLC 801 Grand Avenue Des Moines, Iowa 50392-0960 Attention: Investment Accounting - Securities Telefacsimile: (515) 248-2643 Confirmation: (515) 235-9730 All other notices and communications to: Principal Capital Management, LLC 801 Grand Avenue Des Moines, Iowa 50392-0800 Attention: Investment Department - Securities Telefacsimile: (515) 248-2490 Confirmation: (515) 248-3495 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 42-0127290 A-6 PRINCIPAL AMOUNT OF TRANCHE SERIES D SENIOR NAME OF PURCHASERS NOTES TO BE PURCHASED AMERICAN FAMILY LIFE INSURANCE COMPANY A $3,000,000 6000 American Parkway Madison, Wisconsin 53783-0001 Attention: Investment Division - Private Placements Telefacsimile Number: (608) 243-6537 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "The Marcus Corporation, Series D Senior Notes, Tranche A, due April 1, 2009, PPN 56633# AG 8, principal, premium or interest") to: Firstar Bank Milwaukee, N.A. Account of Firstar Trust Company ABA #075000022 For Credit to Account #112-950-027 Trust Account #000018012500 for AFLIC-Traditional Portfolio Attention: Donna Glidden (414) 765-6709 Credit for PPN 56633# AG 8 Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment as well as quarterly and annual financial statements, to be addressed as first provided above. Name of Nominee in which Notes are to be issued: BAND & Co. Taxpayer I.D. Number: 39-6040365 A-7 PRINCIPAL AMOUNT OF TRANCHE SERIES D SENIOR NAME OF PURCHASERS NOTES TO BE PURCHASED AMERICAN FAMILY LIFE INSURANCE COMPANY A $2,000,000 6000 American Parkway Madison, Wisconsin 53783-0001 Attention: Investment Division - Private Placements Telefacsimile Number: (608) 243-6537 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "The Marcus Corporation, Series D Senior Notes, Tranche A, due April 1, 2009, PPN 56633# AG 8, principal, premium or interest") to: Firstar Bank Milwaukee, N.A. Account of Firstar Trust Company ABA #075000022 For Credit to Account #112-950-027 Trust Account #000018012510 for Universal Life Portfolio Attention: Donna Glidden (414) 765-6709 Credit for PPN 56633# AG 8 Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment as well as quarterly and annual financial statements, to be addressed as first provided above. Name of Nominee in which Notes are to be issued: BAND & Co. Taxpayer I.D. Number: 39-6040365 A-8 PRINCIPAL AMOUNT OF TRANCHE SERIES D SENIOR NAME OF PURCHASERS NOTES TO BE PURCHASED AMERICAN FAMILY LIFE INSURANCE COMPANY A $1,000,000 6000 American Parkway Madison, Wisconsin 53783-0001 Attention: Investment Division - Private Placements Telefacsimile Number: (608) 243-6537 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "The Marcus Corporation, Series D Senior Notes, Tranche A, due April 1, 2009, PPN 56633# AG 8, principal, premium or interest") to: Firstar Bank Milwaukee, N.A. Account of Firstar Trust Company ABA #075000022 For Credit to Account #112-950-027 Trust Account #000018012800 for Annuities Portfolio Attention: Donna Glidden (414) 765-6709 Credit for PPN 56633# AG 8 Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment as well as quarterly and annual financial statements, to be addressed as first provided above. Name of Nominee in which Notes are to be issued: BAND & Co. Taxpayer I.D. Number: 39-6040365 A-9 PRINCIPAL AMOUNT OF TRANCHE SERIES D SENIOR NAME OF PURCHASERS NOTES TO BE PURCHASED WEST AMERICAN INSURANCE COMPANY A $3,000,000 9450 Seward Road Fairfield, Ohio 45014 Attention: Investment Department, Private Placements Facsimile: (513) 682-5227 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "The Marcus Corporation, Series D Senior Notes, Tranche A, due April 1, 2009, PPN 56633# AG 8, principal, premium or interest") to: Chase NYC/CUST ABA #021 000 021 A/C# 900-9-000200 Attention: Income Collection FAO: A/C# G 06426 A/C Name: West American Insurance Company CUSIP 56633# AG 8 Notices All notices and communications to be addressed as first provided above, except notices with respect to payments and written confirmation of each such payment, to be addressed as follows: Ohio Casualty Group Jane A. Schriever, Asset Administration 9450 Seward Road Fairfield, Ohio 45014-5456 Telephone: (513) 603-2457 Facsimile: (513) 682-5227 and also to: Chase Manhattan Bank Jeanne Shapiro, Asst. Treasurer Specialty Markets 4 New York Plaza, 4th Floor New York, New York 10041 Telephone: (212) 623-3401 Facsimile: (212) 623-8656 Name of Nominee in which Notes are to be issued: Cudd & Co. Taxpayer I.D. Number: 31-0624491 Taxpayer I.D. Number of Cudd & Co.: 13-6022143 A-10 PRINCIPAL AMOUNT OF TRANCHE SERIES D SENIOR NAME OF PURCHASERS NOTES TO BE PURCHASED STATE OF WISCONSIN INVESTMENT BOARD B $21,000,000 121 East Wilson Street Madison, Wisconsin 53702 Attention: Manager, Private Placements Core-WI Portfolio Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds, on or before 11:00 a.m. local time on each payment date (identifying each payment as "The Marcus Corporation, Series D Senior Notes, Tranche B, due April 1, 2012, PPN 56633# AH 6, principal, premium or interest") to: ABA #011-00-1234 Mellon/Boston Safe Deposit For credit to the State of Wisconsin Investment Board Account #064300 With notice of payment, including a message as to the source (identifying the security by name and CUSIP number) and application of funds, copy of notice of payment to: Ms. Linda Nelson Accounting Supervisor - Alternative Investments Investment Operations State of Wisconsin Investment Board 121 East Wilson Street P. O. Box 7842 Madison, Wisconsin 53707-7842 Phone: (608) 267-7463 Fax: (608) 266-2436 Address for notices other than confirmation of payment is: Postal Address State of Wisconsin Investment Board 121 East Wilson Street P. O. Box 7842 Madison, Wisconsin 53707-7842 Attention: Monica A. Jaehnig, Manager, Wisconsin Private Debt Portfolio Street Address State of Wisconsin Investment Board 121 East Wilson Street Madison, Wisconsin 53702 Attention: Monica A. Jaehnig, Manager, Wisconsin Private Debt Portfolio Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 39-6006423 A-11 SUPPLEMENTAL REPRESENTATIONS The Company represents and warrants to each Purchaser that except as hereinafter set forth in this Exhibit A, each of the representations and warranties set forth in Section 5 of the Note Agreements is true and correct as of the date hereof with respect to the Series D Notes with the same force and effect as if each reference to "Series A Notes" set forth therein was modified to refer to the "Series D Notes" and each reference to "this Agreement" therein was modified to refer to the Note Agreement as supplemented by the First Supplement, the Second Supplement and the Third Supplement. The Section references hereinafter set forth correspond to the similar sections of the Note Agreements which are supplemented hereby: Section 5.3. Disclosure. The Company, through its agent, Banc America Securities LLC, has delivered to each Purchaser a copy of a Private Placement Memorandum, dated February, 2002 (the "Memorandum"), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Restricted Subsidiaries. The Note Agreements, the Memorandum, the documents, certificates or other writings delivered to each Purchaser by or on behalf of the Company in connection with the transactions contemplated by the Note Agreements and the Third Supplement and the financial statements listed in Schedule 5.5 to the Third Supplement, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Since May 31, 2001, there has been no change in the financial condition, operations, business, properties or prospects of the Company or any Restricted Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth in the Note Agreements or the Third Supplement or in the Memorandum or in the other documents, certificates and other writings delivered to each Purchaser by or on behalf of the Company specifically for use in connection with the transactions contemplated by the Third Supplement. Section 5.4. Organization and Ownership of Shares of Restricted Subsidiaries; Affiliates and Investments. (a) Schedule 5.4 to the Third Supplement contains (except as noted therein) complete and correct lists (i) of the Company's Restricted and Unrestricted Subsidiaries, and showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary, (ii) of the Company's Affiliates, other than Unrestricted Subsidiaries, (iii) of the Company's directors and senior officers and (iv) the Investments existing at the Closing, other than Investments in Subsidiaries and Affiliates. EXHIBIT A (to Third Supplement) Section 5.13. Private Offering by the Company. Neither the Company nor anyone acting on its behalf has offered the Series D Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than the Purchasers and not more than 52 other Institutional Investors, each of which has been offered the Series D Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Series D Notes to the registration requirements of Section 5 of the Securities Act. Section 5.14. Use of Proceeds; Margin Regulations. The Company will apply the proceeds of the sale of the Series D Notes to repay outstanding indebtedness and for general corporate purposes. No part of the proceeds from the sale of the Series D Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 222), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). As used in this Section, the terms "margin stock" and "purpose of buying or carrying" shall have the meanings assigned to them in said Regulation U. Section 5.15. Existing Debt; Future Liens. (a) Except as described therein, Schedule 5.15 to the Third Supplement sets forth a complete and correct list of all outstanding Debt of the Company and its Restricted Subsidiaries as of February 28, 2002, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Debt of the Company or its Restricted Subsidiaries. Neither the Company nor any Restricted Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Debt of the Company or such Restricted Subsidiary and no event or condition exists with respect to any Debt of the Company or any Restricted Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment. A-2 SUBSIDIARIES, AFFILIATES, DIRECTORS AND SENIOR OFFICERS, AND INVESTMENTS 1. RESTRICTED SUBSIDIARIES The Marcus Corporation owns 100% of the stock of the following corporations: NAME STATE OF INCORPORATION B & G Realty, Inc. Wisconsin Baymont Inns, Inc. Wisconsin First American Finance Corporation Wisconsin Marcus Hotels, Inc. Wisconsin Marcus Restaurants, Inc. Wisconsin Marcus Theatres Corporation Wisconsin Woodfield Suites, Inc. Wisconsin B&G Realty, Inc. is the sole member of the following limited liability company: NAME STATE OF ORGANIZATION Rush Ontario, LLC Delaware Baymont Inns, Inc. owns 100% of the stock of the following corporations: NAME STATE OF INCORPORATION Baymont Franchises International, Inc. Wisconsin Baymont Inns Hospitality Corporation Wisconsin Baymont Partners, Inc. Wisconsin Marcus Hotels, Inc. owns 100% of the stock or outstanding equity interests of the following corporations and limited liability companies: NAME STATE OF INCORPORATION/ ORGANIZATION Grand Geneva, LLC Wisconsin Marcus Hotel Partners, Inc. Wisconsin Marcus Hotels Associates, Inc. Wisconsin Marcus Hotels Hospitality, LLC Wisconsin Marcus Northstar, Inc. Minnesota Milwaukee City Center, LLC Wisconsin Pfister, LLC Wisconsin Resort California, LLC California Resort Missouri, LLC Delaware SCHEDULE 5.4 (to Third Supplement) Marcus Restaurants, Inc. owns 100% of the stock of the following corporations: NAME STATE OF INCORPORATION Cafe Refreshments, Inc. Wisconsin Captains-Kenosha, Inc. Wisconsin Colony Inns Restaurant Corporation Wisconsin Marc's Carryout Corporation Wisconsin Marcus Theatres Corporation owns 100% of the stock or outstanding equity interests of the following corporation and limited liability companies: NAME STATE OF INCORPORATION/ ORGANIZATION Family Entertainment, LLC Wisconsin Marcus Cinemas of Minnesota and Illinois, Inc. Illinois Marcus Cinemas of Ohio, LLC Wisconsin Marcus Theatres Corporation and Marcus Cinemas of Minnesota and Illinois, Inc. own 100% of the outstanding equity interests in the following limited liability company: NAME STATE OF ORGANIZATION Marcus Cinemas of Wisconsin, LLC Wisconsin Woodfield Suites, Inc. owns 100% of the stock of the following corporations: NAME STATE OF INCORPORATION Woodfield Suites Franchises International, Inc. Wisconsin Woodfield Suites Hospitality Corporation Wisconsin Woodfield Suites Hospitality Corporation owns 100% of the stock of the following corporations: NAME STATE OF INCORPORATION Woodfield Refreshments, Inc. Wisconsin Woodfield Refreshments of Colorado, Inc. Colorado Woodfield Refreshments of Ohio, Inc. Ohio Woodfield Refreshments, Inc. owns 100% of the stock of the following corporation: NAME STATE OF INCORPORATION Woodfield Refreshments of Texas, Inc. Texas 5.4-2 2. UNRESTRICTED SUBSIDIARIES NONE 3. AFFILIATES OF THE COMPANY ENTITY NAME PROPERTY LOCATION Marc's/Forest City Partnership Mayfield Heights, OH LMC Associates - Rockside Partnership Independence, OH Willowbrook Motel Limited Partnership Willowbrook, IL BN/MC Associates - Cook Partnership Glenview, IL Hoffman Northwest Limited Partnership Hoffman Estates, IL Marc/Antell Partnership Roseville, MI Marcus-Anderson-Guastello Partnership Warren, MI Beck/Marcus Associates-Miami Airport Partnership Miami Springs, FL Cutler Ridge Associates Partnership Cutler Ridge, FL Baymont-Erlanger, LLC Louisville, KY 5.4-3 4. DIRECTORS AND SENIOR OFFICERS OF THE COMPANY DIRECTORS Daniel F. McKeithan, Jr. President, Tamarack Petroleum Company, Inc. Diane Marcus Gershowitz Real estate management and investments Timothy E. Hoeksema President, Midwest Express Airlines, Inc. Allen H. (Bud) Selig President and Chief Executive Officer, Milwaukee Brewers Baseball Club Stephen H. Marcus Chairman of the Board, President and Chief Executive Officer of the Company Bruce J. Olson Group Vice President of the Company Philip J. Millstein President and Chief Executive Officer of Emigrant Savings Bank Bronson Haase President and Chief Executive Officer of Wisconsin Gas Company James D. Ericson Retired Chairman, President and CEO of The Northwestern Mutual Life Insurance Company SENIOR OFFICERS Stephen H. Marcus Chairman of the Board, President and Chief Executive Officer of the Company Bruce J. Olson Group Vice President of the Company William J. Otto President, Marcus Hotels and Resorts H. Fred Delmenhorst Vice President-Human Resources James R. Abrahamson President, Baymont Inn & Suites Thomas F. Kissinger General Counsel and Secretary Douglas A. Neis Chief Financial Officer and Treasurer 5.4-4 5. INVESTMENTS As of February 28, 2002 # OF SHARES OR UNITS OF INVESTMENT AMOUNT Grand Avenue Corporation 150 $150,000.00 North Milwaukee State Bank Capital Debentures 1,000 10,000.00 Venture Capital Fund 28,618.00 Legacy Bankcorp 25,000.00 Milwaukee Innovation 150 15,000.00 Wisconsin Community Capital 30 15,000.00 Sholodge 78,000 448,525.00 Library Hill Bonds 12,500.00 Miscellaneous Stocks (1 share each) 133 957.00 ------------- Total $705,600.00 5.4-5 FINANCIAL STATEMENTS The audited consolidated balance sheets of the Company and its Subsidiaries as of the fiscal years ended in May in each of the years 1997 to 2001, both inclusive, and the consolidated statements of income and shareholders' equity and cash flows for the fiscal years ended on said dates and the Securities and Exchange Commission Form 10-Q for the fiscal quarter ended November 29, 2001 and Securities and Exchange Commission Form 10-K for the fiscal year ended May 31, 2001. SCHEDULE 5.5 (to Third Supplement) EXISTING DEBT AS OF FEBRUARY 28, 2002 BANK BALANCE INTEREST RATE B&G REALTY MORTGAGES: PNC BANK $ 748,180 8.7700% FIRSTAR BANK (IRB) 1,105,000 6.4700% US BANK 656,103 LIBOR + 1.75 3.6240% PROKSCH 226,365 6.5000% --------- TOTAL B&G REALTY DEBT 2,735,648 --------- MARCUS CORPORATION SENIOR NOTES, SERIES A, TRANCHE A: 7.4100% MASS MUTUAL 9,722,223 NATIONWIDE 7,777,777 CIGNA 7,840,000 LINCOLN NATIONAL LIFE 3,826,668 RELIASTAR 7,777,777 AAL 7,777,777 CLARICA LIFE 1,944,446 --------- 46,666,668 SENIOR NOTES, SERIES A, TRANCHE B: 7.5100% MASS MUTUAL 11,363,640 NATIONWIDE 9,090,910 CLARICA LIFE 2,272,723 ---------- 22,727,273 SENIOR NOTES, SERIES B, TRANCHE A: CIGNA 5,000,000 6.6600% SENIOR NOTES, SERIES B, TRANCHE B: NML 25,000,000 6.7000% SENIOR NOTES, SERIES C, TRANCHE A: CIGNA 15,000,000 6.7500% SENIOR NOTES, SERIES C, TRANCHE B: LINCOLN NATIONAL LIFE 25,000,000 6.8200% SENIOR NOTES: NML 11,981,291 10.2200% UNSECURED TERM NOTES: BANK ONE 20,000,000 LIBOR + 1.0 3.5800% SUN TRUST 6,250,000 LIBOR + 0.75 2.6200% WPL 240,562 2.0000% ---------- 26,490,562 REVOLVING CREDIT AGREEMENTS: BANK OF AMERICA ($125 MILLION) 71,500,000 OFFSHORE + 0.75 2.4250% BANK OF AMERICA ($5 MILLION) 4,000,000 PRIME 4.7500% BANK ONE ($40 MILLION) - OFFSHORE + 1.0 ---------- 75,500,000 SCHEDULE 5.15 (to Third Supplement) BANK BALANCE INTEREST RATE COMMERCIAL PAPER - UNRATED 63,544,153 2.3900% TOTAL MARCUS CORP DEBT 316,909,947 THEATRE DIVISION: US BANK 86,909 PRIME 4.7500% ALLEN ENTERPRISES 81,307 6.0000% ---------- TOTAL THEATRE DIVISION DEBT 268,216 BAYMONT DIVISION: US BANK 3,118,168 7.6800% CORRUS BANK 898,425 0.923 X PRIME 4.3843% ---------- TOTAL BAYMONT DIVISION DEBT 4,016,593 TOTAL EXISTING DEBT $323,930,404 ============ 5.15-2 LIENS ON EXISTING PROPERTY AS OF FEBRUARY 28, 2002 BALANCE PROPERTY B&G Realty: PNC Bank $ 748,180 Baymont Inn, Savannah, GA Firstar Bank (IRB) 1,105,000 Westpoint Annies/Baymont, Brookfield, WI US Bank 656,103 Westpoint Theatre/KFC, Brookfield, WI Proksch 226,365 LaCrosse Theatres, LaCrosse, WI Theatre Division - Marcus Corporation: US Bank 86,909 Skyway Theatre, Milwaukee, WI Allen Enterprises 181,307 Elgin Cinema, Elgin, IL Baymont Division - Marcus Corporation: US Bank 3,118,167 Baymont Inn, Warren, MI Corrus Bank 898,425 Baymont Inn, Roseville, MI --------- TOTAL DEBT SECURED BY LIENS $7,020,456 Note: The debt listed above is secured by all real and personal property situated at the location set forth opposite such debt. 5.15-3 [FORM OF SERIES D NOTE, TRANCHE A] THE MARCUS CORPORATION 7.66% SERIES D SENIOR NOTE, TRANCHE A DUE APRIL 1, 2009 No. DA-[___] [Date] $[____________] PPN 56633# AG 8 FOR VALUE RECEIVED, the undersigned, THE MARCUS CORPORATION (herein called the "Company"), a corporation organized and existing under the laws of the State of Wisconsin, hereby promises to pay to [________________], or registered assigns, the principal sum of [________________] DOLLARS on April 1, 2009, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 7.66% per annum from the date hereof, payable semiannually, on the first day of April and October in each year, commencing on the first of such dates after the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 9.66% or (ii) 2% over the rate of interest publicly announced by Bank of America, N.A., from time to time in Chicago, Illinois as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at Bank of America, N.A., in Chicago, Illinois, or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreements referred to below. This Note is one of a series of 7.66% Series D Senior Notes, Tranche A (the "Tranche A Notes") issued pursuant to a supplement to the separate Note Purchase Agreements dated as of October 25, 1996 (as from time to time amended and supplemented, including a First Supplement dated as of May 15, 1998, a Second Supplement dated as of May 1, 1999, and a Third Supplement dated as of April 1, 2002, the "Note Purchase Agreements"), between the Company and the respective Purchasers named therein. This Note and the holder hereof are entitled equally and ratably with the holders of all other Notes of all Series from time to time outstanding under the Note Purchase Agreements to all the benefits provided for thereby or referred to therein. Each holder of this Note will be deemed, by its acceptance hereof, to have made the representation set forth in Section 6.2 of the Note Purchase Agreements, provided that such holder may (in reliance upon information provided by the Company, which shall not be unreasonably withheld) make a representation to the effect that the purchase by such holder of any Note will not constitute a non-exempt prohibited transaction under Section 406(a) of ERISA. EXHIBIT 1 (to Third Supplement) This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Tranche A Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreements. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. -2- This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. THE MARCUS CORPORATION By Its:____________________________________ Printed Name:___________________________ -3- [FORM OF SERIES D NOTE, TRANCHE B] THE MARCUS CORPORATION 7.93% SERIES D SENIOR NOTE, TRANCHE B DUE APRIL 1, 2012 No. DB-[___] [Date] $[____________] PPN 56633# AH 6 FOR VALUE RECEIVED, the undersigned, THE MARCUS CORPORATION (herein called the "Company"), a corporation organized and existing under the laws of the State of Wisconsin, hereby promises to pay to [________________], or registered assigns, the principal sum of [________________] DOLLARS on April 1, 2012, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 7.93% per annum from the date hereof, payable semiannually, on the first day of April and October in each year, commencing on the first of such dates after the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 9.93% or (ii) 2% over the rate of interest publicly announced by Bank of America, N.A., from time to time in Chicago, Illinois as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at Bank of America, N.A., in Chicago, Illinois, or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreements referred to below. This Note is one of a series of 7.93% Series D Senior Notes, Tranche B (the "Tranche B Notes") issued pursuant to a supplement to the separate Note Purchase Agreements dated as of October 25, 1996 (as from time to time amended and supplemented, including a First Supplement dated as of May 15, 1998, a Second Supplement dated as of May 1, 1999, and a Third Supplement dated as of April 1, 2002, the "Note Purchase Agreements"), between the Company and the respective Purchasers named therein. This Note and the holder hereof are entitled equally and ratably with the holders of all other Notes of all Series from time to time outstanding under the Note Purchase Agreements to all the benefits provided for thereby or referred to therein. Each holder of this Note will be deemed, by its acceptance hereof, to have made the representation set forth in Section 6.2 of the Note Purchase Agreements, provided that such holder may (in reliance upon information provided by the Company, which shall not be unreasonably withheld) make a representation to the effect that the purchase by such holder of any Note will not constitute a non-exempt prohibited transaction under Section 406(a) of ERISA. EXHIBIT 2 (to Third Supplement) This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Tranche B Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreements. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. -2- This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. THE MARCUS CORPORATION By Its:____________________________________ Printed Name:___________________________ -3- -----END PRIVACY-ENHANCED MESSAGE-----