CARMIKE CINEMAS, INC.

-----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, J8cirVW+ym3hVRFxyRwZ3yILFm9UZkPxq+G5hkj3lhFBgERQ3o8TqMAadUaWZhsY 3zn/MeVsH5dZHeXmrHGLzg== 0000950144-05-008474.txt : 20050809 0000950144-05-008474.hdr.sgml : 20050809 20050809160423 ACCESSION NUMBER: 0000950144-05-008474 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050809 DATE AS OF CHANGE: 20050809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARMIKE CINEMAS INC CENTRAL INDEX KEY: 0000799088 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE THEATERS [7830] IRS NUMBER: 581469127 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14993 FILM NUMBER: 051009944 BUSINESS ADDRESS: STREET 1: 1301 FIRST AVE CITY: COLUMBUS STATE: GA ZIP: 31901 BUSINESS PHONE: 7065763400 MAIL ADDRESS: STREET 1: P O BOX 391 CITY: COLUMBUS STATE: GA ZIP: 31994 10-Q 1 g96783e10vq.htm CARMIKE CINEMAS, INC. CARMIKE CINEMAS, INC.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005


o		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 000-14993

CARMIKE CINEMAS, INC.

(Exact Name of Registrant as Specified in Its Charter)


DELAWARE (State or Other Jurisdiction of Incorporation or Organization)		58-1469127 (I.R.S. Employer Identification No.)

1301 First Avenue, Columbus, Georgia (Address of Principal Executive Offices)		31901-2109 (Zip Code)

(706) 576-3400
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No £

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes R No £

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes R No £

Indicate the number of shares outstanding of the issuer’s common stock, as of the latest practicable date.

Common Stock, par value $0.03 per share —12,309,002 shares outstanding as of June 30, 2005

TABLE OF CONTENTS


	Page
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED)		3
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)		4
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)		5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		28
ITEM 4. CONTROLS AND PROCEDURES		28
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		30
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		30
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		30
ITEM 5. OTHER INFORMATION		30
ITEM 6. EXHIBITS		31
SIGNATURES		33
EXHIBIT INDEX		34
EX-2.3 STOCK PURCHASE AGREEMENT DATED APRIL 19,2005
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32.1 SECTION 906 CERTIFICATION OF CEO
EX-32.2 SECTION 906 CERTIFICATION OF CFO

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

CARMIKE CINEMAS, INC. and SUBSIDIARIES
(in thousands, except for share data)


	June 30,			December 31,
	2005			2004
Assets
Current assets:
Cash and cash equivalents	$	1,589		$	56,944
Restricted cash		1,000			—
Accounts and notes receivable		1,885			1,464
Inventories		2,179			1,459
Prepaid expenses		6,891			6,252

Total current assets		13,544			66,119
Other assets:
Restricted cash		2,200			—
Investment in and advances to partnerships		3,745			2,718
Deferred income tax asset		49,445			54,414
Assets held for sale		5,147			6,534
Other		26,725			21,027

Total other assets		87,262			84,693
Property and equipment, net of accumulated depreciation		555,564			469,502
Goodwill and other intangibles, net of accumulated amortization		41,665			23,354

Total assets	$	698,035		$	643,668


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	14,557		$	22,710
Accrued expenses		39,033			35,582
Dividends payable		2,154			2,128
Current maturities of long-term debt, capital lease obligations and long-term financing obligations		3,406			2,872

Total current liabilities		59,150			63,292
Long-term liabilities:
Long-term debt, less current maturities		318,300			248,000
Capital lease obligations and long-term financing obligations, less current maturities		71,724			72,530

		390,024			320,530
Other		2,200			—

Liabilities subject to compromise		—			1,348
Stockholders’ Equity
Preferred Stock, $1.00 par value, authorized 1,000,000 shares, none outstanding as of June 30, 2005 and December 31, 2004, respectively		—			—
Common Stock, $0.03 par value, authorized 20,000,000 shares, 12,455,622 shares issued and 12,309,002 shares outstanding as of June 30, 2005 and 12,162,622 shares issued and outstanding as of December 31, 2004		374			365
Paid-in capital		310,349			308,990
Treasury stock, 146,620 shares at cost		(5,210	)		—
Retained deficit		(58,852	)		(50,857	)

		246,661			258,498

Total liabilities and stockholders’ equity	$	698,035		$	643,668

See accompanying notes

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

CARMIKE CINEMAS, INC. and SUBSIDIARIES
(in thousands, except per share data)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Revenues
Admissions	$	78,780		$	88,353		$	146,349		$	167,902
Concessions and other		40,989			44,743			75,103			82,122

		119,769			133,096			221,452			250,024
Costs and Expenses
Film exhibition costs		46,920			49,103			82,302			85,425
Concession costs		4,447			4,943			8,043			9,069
Other theatre operating costs		47,744			45,984			92,178			90,554
General and administrative expenses		5,607			5,116			10,675			8,881
Depreciation expenses		9,733			8,628			17,997			17,246
Gain on sales of property and equipment		(424	)		(272	)		(426	)		(577	)

		114,027			113,502			210,769			210,598
Operating income		5,742			19,594			10,683			39,426
Other expenses
Interest expense		6,788			5,933			13,358			14,027
Loss on extinguishment of debt		5,795			—			5,795			9,579

Income (loss) before reorganization costs and income taxes		(6,841	)		13,661			(8,470	)		15,820
Reorganization expense (benefit)		3			(3,205	)		(2,388	)		(3,881	)

Income (loss) before income taxes		(6,844	)		16,866			(6,082	)		19,701
Income tax expense (benefit)		(2,723	)		6,325			(2,395	)		7,388

Net income (loss) available for common stockholders	$	(4,121	)	$	10,541		$	(3,687	)	$	12,313

Weighted average shares outstanding:
Basic		12,212			11,991			12,175			11,414
Diluted		12,701			12,830			12,672			12,179
Net income (loss) per common share:
Basic	$	(0.34	)	$	0.88		$	(0.30	)	$	1.08
Diluted	$	(0.34	)	$	0.82		$	(0.30	)	$	1.01
Dividend declared per common share	$	0.175		$	—		$	0.35		$	—

See accompanying notes

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

CARMIKE CINEMAS, INC. and SUBSIDIARIES
(in thousands)


	Six Months Ended
	June 30,
	2005			2004
Operating Activities
Net income (loss)	$	(3,687	)	$	12,313
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		17,997			17,246
Deferred income taxes		(2,343	)		6,993
Non-cash compensation		1,828			3,018
Reorganization items		(2,391	)		(3,413	)
Loss on extinguishment of debt		5,795			1,792
Gain on real estate sales		(426	)		(577	)
Changes in operating assets and liabilities:
Accounts and notes receivable and inventories		(98	)		629
Prepaid expenses		(135	)		(9,613	)
Accounts payable		(6,443	)		(10,121	)
Accrued expenses and other liabilities		(16,932	)		(3,107	)

Net cash provided by (used in) operating activities		(6,835	)		15,160
Investing Activities
Purchases of property and equipment		(49,089	)		(12,945	)
Acquisition of GKC Theatres’ stock, net of cash acquired		(58,883	)		—
Funding of GKC acquisition escrow account		(3,200	)		1,125
Proceeds from sales of property and equipment		1,706			—

Net cash used in investing activities		(109,466	)		(11,820	)
Financing Activities
Debt:
Additional borrowings		170,000			250,000
Repayments of long-term debt		(99,184	)		(324,500	)
Repayments of liabilities subject to compromise		(958	)		(9,115	)
Repayments of capital leases and long-term financing obligations		(788	)		(581	)
Issuance of common stock, net		1,368			89,893
Purchase of treasury stock		(5,210	)		—
Dividends paid		(4,282	)		—

Net cash provided by (used in) financing activities		60,946			5,697

Increase (decrease) in cash and cash equivalents		(55,355	)		9,037
Cash and cash equivalents at beginning of period		56,944			41,236

Cash and cash equivalents at end of period	$	1,589		$	50,273

See accompanying notes

Significant Non-Cash Transactions:
In connection with the acquisition of GKC Theatres, the Company assumed liabilities of $4.2 million, a deferred tax liability of $7.8 million and established a restricted cash escrow account of $3.2 million for certain deferred payments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CARMIKE CINEMAS, INC. and SUBSIDIARIES
For the Three and Six Months Ended June 30, 2005 and 2004

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

On August 8, 2000, Carmike Cinemas, Inc. (“Carmike”) and its subsidiaries, Eastwynn Theatres, Inc., Wooden Nickel Pub, Inc. and Military Services, Inc. (collectively “the Company”) filed voluntary petitions for relief under Chapter 11 (the “Chapter 11 Cases”) of the United States Bankruptcy Code. In connection with the Chapter 11 Cases, the Company was required to report in accordance with Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code, (“SOP 90-7”). SOP 90-7 requires, among other things, (1) pre-petition liabilities that are subject to compromise be segregated in the Company’s consolidated balance sheet as liabilities subject to compromise and (2) the identification of all transactions and events that are directly associated with the reorganization of the Company in the Consolidated Statements of Operations. The Company emerged from the Chapter 11 Cases pursuant to its plan of reorganization effective on January 31, 2002. On February 11, 2005, the Company filed a motion seeking an order entering a final decree closing the bankruptcy cases. On March 15, 2005, the United States Bankruptcy Court of the District of Delaware entered a final decree closing the bankruptcy cases.

Further, the Company’s accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and bankruptcy related items) considered necessary for a fair statement have been included. Operating results for the three month period ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the consolidated financial statements and footnotes included in Carmike’s Annual Report on Form 10-K for the year ended December 31, 2004.

The Company has identified several significant accounting policies which can be reviewed in detail in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”). Reflected in the Consolidated Statements of Operations for the three months ended June 30, 2005 and 2004 is $.8 million and $1.6 million, respectively, of stock-based employee compensation cost related to stock grants ($0.8 million from fixed accounting for the three months ended June 30, 2005 and 2004 and $.8 million from variable accounting for the three months ended June 30, 2004.) Additionally, reflected in the Consolidated Statements of Operations for the six months ended June 30, 2005 and 2004 is $1.8 million and $3.0 million, respectively, of stock-based employee compensation costs related to stock grants ($1.6 million from fixed accounting for the six months ended June 30, 2005 and 2004 and $.2 million and $1.4 million, respectively, from variable accounting for the six months ended June 30, 2005 and 2004). See Note 13 to “Notes To Consolidated Financial Statements” for a discussion of Statement of Financial Accounting Standards No. 123(R), Share Based Payment (“SFAS 123(R)”).

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The Company has adopted SFAS No. 148, Accounting for Stock Based Compensation-Transition and Disclosure (“SFAS No. 148”). For SFAS No. 148 purposes, the fair value of each option grant and stock based award has been estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:


	2005			2004
Expected life (years)		9.0			9.0
Risk-free interest rate		4.40	%		4.34	%
Dividend yield		1.90	%		0.00	%
Expected volatility		0.40			0.40

Had compensation cost been determined consistent with SFAS No. 123 Accounting for Stock Based Compensation (“SFAS No. 123”), utilizing the assumptions detailed above, the Company’s pro forma net income (loss) and pro forma basic and diluted earnings (loss) per share would have decreased to the following amounts (in thousands, except share data):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Net income (loss) available for common stock:
As reported	$	(4,121	)	$	10,541		$	(3,687	)	$	12,313
Plus: expense recorded on deferred stock compensation, net of related tax effects		470			1,018			1,089			1,886
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(820	)		(978	)		(1,639	)		(1,902	)

Pro forma — for SFAS No. 123	$	(4,471	)	$	10,581		$	(4,237	)	$	12,297

Basic net earnings per common share:
As reported	$	(0.34	)	$	0.88		$	(0.30	)	$	1.08
Pro forma — for SFAS No. 123	$	(0.37	)	$	0.88		$	(0.35	)	$	1.08
Diluted net earnings per common share:
As reported	$	(0.34	)	$	0.82		$	(0.30	)	$	1.01
Pro forma — for SFAS No. 123	$	(0.35	)	$	0.82		$	(0.33	)	$	1.01

The Company’s Board of Directors declared a quarterly dividend of $0.175 per share on May 19, 2005. The dividend was paid on August 1, 2005 to stockholders of record as of July 5, 2005. The aggregate amount of this dividend is approximately $2.2 million.

NOTE 2 — ASSETS HELD FOR SALE

The Company has $5.1 million in surplus long-term real estate assets held for sale as of June 30, 2005. The carrying values of these assets are reviewed periodically as to relative market conditions and are adjusted in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. No impairment was deemed necessary on the assets in the second quarter of 2005. Disposition of these assets is contingent on current market conditions and we cannot be assured that they will be sold at a value equal to or greater than the current carrying value.

NOTE 3 — OTHER ASSETS

Other assets are as follows (in thousands):


	June 30,		December 31,
	2005		2004
Loan/lease origination fees	$	21,133	$	17,298
Deposits and binders		5,550		3,689
Notes receivable less short-term maturity and other assets		42		40

	$	26,725	$	21,027

NOTE 4 — ACQUISITION OF GKC THEATRES

On May 19, 2005, the Company acquired 100% of the stock of George G. Kerasotes Corporation (“GKC Theatres”) for a net purchase price of $62.1 million, adjusted for working capital of $3.9 million. The GKC Theatres acquisition upholds our traditional focus by taking advantage of opportunistic small market acquisitions. The purchase price was negotiated using the historical average cash flows for the previous five year period ending December 31, 2004 and adjusted for other assets acquired and liabilities assumed. The consolidated financial statements for and as of the six month period ended June 30, 2005 include the assets and liabilities and the operating results for the period from acquisition date through June 30, 2005. Pursuant to SFAS 141, Business Combinations (“SFAS 141”), the Company applied purchase accounting to the transaction, resulting in recognition of additional property and equipment of $53.8 million. A draft valuation of certain tangible and intangible assets acquired was issued by KPMG, LLP in July 2005. A final valuation report is expected to be received during the third quarter of 2005. The Company recognized additional goodwill and other intangibles of approximately $18.0 million from the transaction. None of the goodwill recognized is deductible for tax purposes. GKC Theatres operated 30 theatres with 263 screens in Illinois, Indiana, Michigan and Wisconsin.

Actual cash paid at closing was $58.9 million of the net purchase price of $62.1 million, adjusted for working capital of $3.9 million. As stipulated, in the purchase agreement, the remainder of the purchase price, $3.2 million, was set aside in an escrow

account. The $3.2 million has been classified as restricted cash in the Company’s consolidated balance sheet. The Company has recorded a liability of $1.0 million in current accrued expenses and $2.2 million in other liabilities in the Company’s consolidated balance sheet, representing deferred payments. The current escrow amount of $1.0 million is to be settled within 120 days of the date of acquisition while the long-term escrow amount of $2.2 million is to be settled within 18 months of the date of acquisition.

The following is a summary of the preliminary allocations of the aggregate cash purchase price to the estimated fair values of the assets acquired and liabilities assumed at the respective date of acquisition (in thousands):


Current assets	$	1,547
Land		14,809
Buildings, leasehold improvements and equipment, net		38,952
Goodwill		14,897
Other intangible assets		3,414
Other non-current assets		519
Current liabilities		(4,224	)
Other non-current liabilities		(7,831	)

Total purchase price	$	62,083

Pro Forma Results of Operations

The following pro forma results of operations for the three and six months ended June 30, 2005 and the three and six months ended June 30, 2004 assumes the acquisition occurred at the beginning of the fiscal year January 1, 2004 and reflects the full results of operations for the three month and six month periods presented. The pro forma results have been prepared for comparative purposes only and do not purport to indicate the results of operations which would actually have occurred had the combinations been in effect on the dates indicated, or which may occur in the future.

(in thousands except per share amounts):

Three Months Ended

Six Months Ended

June 30,

2005

2004

2005

2004

Revenues

124,776

147,743

238,528

277,767

Income from operations

4,474

21,538

9,440

42,794

Net Income (loss)

(4,952

)

11,550

(4,662

)

14,014

Earnings per share

Basic:

(0.41

)

0.96

(0.38

)

1.23

Diluted:

(0.41

)

0.90

(0.38

)

1.15

NOTE 5 — DEBT

Debt consisted of the following (in thousands):


	June 30,			December 31,
	2005			2004
Former revolving credit facility	$	—		$	—
New revolving credit facility		—			—
Former term loan		—			99,000
New term loan		170,000			—
New delayed draw term loan		—			—
7.500% senior subordinated notes		150,000			150,000
Industrial revenue bonds; payable in equal installments through May 2006, with interest rates ranging from 5.75% to 7%		113			315

		320,113			249,315
Current maturities		(1,813	)		(1,315	)

	$	318,300		$	248,000

New Financing Transactions

On May 19, 2005, the Company entered into a new credit agreement with Bear, Stearns & Co. Inc., as sole lead arranger and sole book runner, Wells Fargo Foothill, Inc., as documentation agent, and Bear Stearns Corporate Lending Inc., as administrative agent. The new credit agreement provides for new senior secured credit facilities in the aggregate principal amount of $405.0 million.

The new senior secured credit facilities consist of:

• a $170.0 million seven year term loan facility used to finance the transactions described below;

• a $185.0 million seven year delayed-draw term loan facility, with a twenty-four month commitment available to finance permitted acquisitions and related fees and expenses; and

• a $50.0 million five year revolving credit facility available for general corporate purposes.

In addition, the new credit agreement provides for future increases (subject to certain conditions and requirements) to the revolving credit and term loan facilities in an aggregate principal amount of up to $125.0 million.

The Company used the $170.0 million new term loan, in addition to approximately $4.6 million of available cash, to (1) fund the $62.1 million net purchase price of the previously announced acquisition of George G. Kerasotes Corporation, (2) repay borrowings of approximately $101.2 million (including principal, interest and fees) under the Company’s former term loan facility, (3) repay approximately $5.1 million of outstanding borrowings (including accrued interest and fees) under the Company’s former revolving credit facility, and (4) pay related fees and expenses. The Company did not draw upon the new revolving credit facility in connection with these transactions.

In connection with the transactions described above, the Company terminated its former $50 million revolving credit facility and repaid approximately $5.1 million, which included $5.0 million in unpaid outstanding principal and $0.1 million in accrued interest and fees. Also, the Company terminated its former $100 million term loan, and repaid approximately $98.8 million in principal, $.4 million of accrued interest and paid $2.0 million in prepayment fees. The Company recognized a $5.8 million loss on its extinguishment of debt which consisted of $3.8 million of loan fees related to its February 4, 2004 credit facilities and a $2.0 million prepayment premium on the retirement of its term loan.

The interest rate for borrowings under the new term loan is set from time to time at the Company’s option (subject to certain conditions set forth in the new credit agreement) at either: (1) a specified base rate (equal to the greater of the Prime Rate and the Federal Funds Effective Rate in effect on such day plus 0.50%) plus 1.50% or (2) the Eurodollar Base Rate (as defined in the new credit agreement) divided by the difference between one and the Eurocurrency Reserve Requirements (as defined in the new credit agreement) plus 2.50%. The final maturity date of the new term loan is May 19, 2012.

The interest rate for borrowings under the new revolving credit facility for the initial six-month period is set from time to time at the Company’s option (subject to certain conditions set forth in the new credit agreement) at either: (1) a specified base rate plus 1.25% or (2) the Eurodollar Base Rate divided by the difference between one and the Eurocurrency Reserve Requirements plus 2.25%. Thereafter, the applicable rates of interest under the new revolving credit facility are based on the Company’s consolidated leverage ratio, with the margins applicable to base rate loans ranging from 0.50% to 1.25%, and the margins applicable to Eurodollar Loans (as defined in the new credit agreement) ranging from 1.50% to 2.25%. The final maturity date of the new revolving credit facility is May 19, 2010.

The new credit agreement requires that mandatory prepayments be made with respect to the new senior secured credit facilities from (1) 100% of the net cash proceeds from certain asset sales and dispositions and issuances of certain debt, (2) various percentages (ranging from 75% to 0% depending on the Company’s consolidated leverage ratio) of excess cash flow tested annually as defined in the new credit agreement, and (3) 50% of the net cash proceeds from the issuance of certain equity and capital contributions.

The new senior secured credit facilities contain covenants which, among other things, restrict the Company’s ability, and that of its restricted subsidiaries, to:

•

pay dividends or make any other restricted payments;

	•		incur additional indebtedness;

	•		create liens on its assets;

	•		make certain investments or acquisitions;

	•		sell or otherwise dispose of assets;

	•		consolidate, merge or otherwise transfer all or any substantial part of its assets;

	•		enter into transactions with its affiliates; and

	•		engage in any sale-leaseback, synthetic lease or similar transaction involving any of its assets.

The new senior secured credit facilities also contain financial covenants that require the Company to maintain quarterly specified ratios of funded debt to adjusted EBITDA and adjusted EBITDA to interest expense. The terms governing each of these ratios are defined in the new credit agreement.

Generally, the new senior secured credit facilities do not place restrictions on the Company’s ability to make capital expenditures. However, the Company may not make any capital expenditure if any default or event of default under the new credit agreement has occurred and is continuing or would result, or if such default or event of default would occur as a result of a breach of certain financial covenants contained in the new credit agreement on a pro forma basis after giving effect to the capital expenditure.

The Company’s failure to comply with any of these covenants, including compliance with the financial ratios, is an event of default under the new senior secured credit facilities, in which case, the administrative agent may, and if requested by the lenders holding a certain minimum percentage of the commitments shall, terminate the revolving credit facility and the delayed draw term loan commitments with respect to additional advances and may declare all or any portion of the obligations under the new revolving credit facility and the new term loan facilities due and payable. As of June 30, 2005, the Company was in compliance with all of the financial covenants. Other events of default under the new senior secured credit facilities include:

• the Company’s failure to pay principal on the loans when due and payable, or its failure to pay interest on the loans or to pay certain fees and expenses (subject to applicable grace periods);

• the occurrence of a change of control (as defined in the new credit agreement); or

• a breach or default by the Company or its subsidiaries on the payment of principal of any Indebtedness (as defined in the new credit agreement) in an aggregate amount greater than $5.0 million.

The new senior secured credit facilities are guaranteed by each of the Company’s significant subsidiaries and collateralized by a perfected first priority security interest in substantially all of the Company’s present and future assets.

The Company may voluntarily pre-pay the term loans, in whole or in part, without premium or penalty.

NOTE 6 — PROCEEDINGS UNDER CHAPTER 11

On January 31, 2002, the Company emerged from bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. On February 11, 2005, the Company filed a motion seeking an order entering a final decree closing the bankruptcy cases. On March 15, 2005, the United States Bankruptcy Court of the District of Delaware entered a final decree closing the bankruptcy cases. In conjunction with the closure of the bankruptcy cases, the Company settled the three remaining outstanding disputed landlord claims and reversed all accrued bankruptcy-related professional fees.

A description of the proceedings under the Chapter 11 Cases is contained in Note 2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

Reorganization expense (benefit) for the three and six month periods ended June 30, 2005 and 2004 are as follows (in thousands):


	Three months ended					Six months ended
	June 30,					June 30,
	2005		2004			2005			2004
Change in estimate for general Unsecured claims	$	—	$	(2,908	)	$	(391	)	$	(4,070	)
Professional fees and other		3		(297	)		(1,997	)		189

	$	3	$	(3,205	)	$	(2,388	)	$	(3,881	)

NOTE 7 — LIABILITIES SUBJECT TO COMPROMISE

At December 31, 2004, the Company had approximately $1.3 million in disputed unsecured claims outstanding. During the three months ended March 31, 2005, all of the outstanding claims were resolved resulting in a change in estimate of $0.4 million and settlements of $0.9 million.

NOTE 8 — INCOME TAXES

At June 30, 2005, the Company had deferred tax assets of approximately $49.4 million remaining. The income tax benefit of $2.7 million for the three months ended June 30, 2005, reflects a combined federal and state tax rate of 40.4%.

The sale of shares in the offering of August, 2004, caused the Company to undergo an “ownership change” within the meaning of section 382 (g) of the Internal Revenue Code of 1986, as amended. The ownership change will subject our net operating loss carry forwards to an annual limitation on their use, which will restrict our ability to use them to offset our taxable income in periods following the ownership change.

The Company’s federal and state net operating loss increased from $84.2 million at March 31, 2005, to $91.3 million at June 30, 2005. The difference reflects an increase of $7.1 million for the three months ended June 30, 2005.

NOTE 9 — STOCK PLANS

Upon emergence from Chapter 11, the Company’s Board of Directors approved a new management incentive plan, the Carmike Cinemas, Inc. 2002 Stock Plan (the “2002 Stock Plan”). The Board of Directors approved the grant of 780,000 shares under the 2002 Stock Plan to Michael W. Patrick, the Company’s Chief Executive Officer. Pursuant to the terms of Mr. Patrick’s employment agreement dated January 31, 2002 these shares are delivered in three equal installments on January 31, 2005, 2006 and 2007 unless, prior to the delivery of any such installment, Mr. Patrick’s employment is terminated for Cause (as defined in his employment agreement) or he has violated certain covenants set forth in such employment agreement. In May 2002, the Company’s Stock Option Committee (which administered the 2002 Stock Plan prior to August 2002) approved grants of the remaining 220,000 shares to a group of seven other members of senior management. These shares were earned over a three year period, commencing with the year ended December 31, 2002, with the shares being earned as the executive achieved specific performance goals set for the executive during each of these years. In some instances the executive earned partial amounts of his or her stock grant based on graded levels of performance. Shares earned each year vest and are receivable approximately two years after the calendar year in which they were earned, provided, with certain exceptions, the executive remains an employee of the Company.

Of the 220,000 shares granted to members of senior management, 204,360 shares were earned as of June 30, 2005, subject only to vesting requirements and 15,640 shares have been forfeited. The Company has included in stockholders’ equity $7.4 million and $15.4 million at June 30, 2005 and December 31, 2004, respectively, related to the unvested shares within the 2002 Stock Plan.

On May 31, 2002, the Board of Directors adopted the Carmike Cinemas, Inc. Non-Employee Directors Long-Term Stock Incentive Plan (the “Directors Incentive Plan”), which was approved by the stockholders on August 14, 2002. There were a total of 75,000 shares reserved under the Directors Incentive Plan. The Board of Directors approved a grant of 5,000 shares each to two independent directors on August 14, 2002. Additionally, the Board of Directors approved stock option grants of 5,000 shares in September 2003 and 5,000 shares in April 2004 for new directors. The option grant price was based on the fair market value of the stock on the date of the grant.

On July 19, 2002, the Board of Directors adopted the Carmike Cinemas, Inc. Employee and Consultant Long-Term Stock Incentive Plan (the “Employee Incentive Plan”), which was approved by the stockholders on August 14, 2002. There were a total of 500,000 shares reserved under the Employee Incentive Plan. The Company granted an aggregate of 150,000 options pursuant to this plan on March 7, 2003 to three members of senior management. The exercise price for the 150,000 stock options is $21.79 per share, and 75,000 options vest on December 31, 2005 and 75,000 options vest on December 31, 2006. On December 18, 2003, the Company granted an aggregate of 180,000 options to six members of management. The exercise price for the 180,000 options is $35.63 and they vest ratably over three years beginning December 31, 2005 through December 31, 2007.

On March 31, 2004, the Board of Directors adopted the Carmike Cinemas, Inc. 2004 Incentive Stock Plan, which was approved by the stockholders on May 21, 2004. The Compensation and Nominating Committee may grant stock options, stock grants, stock units, and stock appreciation rights under the 2004 Incentive Stock Plan to certain eligible employees and to outside directors. There are 830,000 shares of Common Stock reserved for issuance pursuant to grants made under the 2004 Incentive Stock Plan in addition to the 225,000 unissued shares that were previously authorized for issuance under the Employee Incentive Plan and the Directors Incentive Plan which may be forfeited after the effective date of the 2004 Incentive Stock Plan. No further grants may be made under the Employee Incentive Plan or Directors Incentive Plan.

On May 19, 2005, the Compensation and Nominating Committee approved a restricted stock grant, pursuant to the 2004 Incentive Stock Plan, of 250 shares for each non-employee director of the Company which is to be issued annually as a component of their non-employee director compensation. These annual grants began on May 19, 2005 with a total of 1,500 restricted shares being issued. This restricted stock grant will be made annually to each of the non-employee directors of the Company serving at the time of the Board of Directors annual meeting. All shares are forfeitable any time prior to the vesting date, which is one year from the date of grant, if such director ceases to serve as a director of the Company other than upon death or disability.

The Company delivered 367,250 shares to management on January 31, 2005 in conjunction with the 2002 Stock Plan. In order to satisfy the federal and state withholding requirements on these shares, the Company retained 146,620 of these shares in the treasury and remitted the corresponding tax withholding in cash on behalf of the stock recipients.

NOTE 10 — EARNINGS PER SHARE

Earnings per share calculations contain dilutive adjustments for shares under the various stock plans discussed in Note 9. The following table reflects the effects of those plans on the earnings per share (in thousands, except for share data).


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Outstanding shares		12,308			12,152			12,272			11,575
Less restricted stock issued		(97	)		(161	)		(97	)		(161	)

Basic shares outstanding		12,211			11,991			12,175			11,414
Dilutive shares:
Restricted stock		85			101			86			98
Stock grants		368			560			369			553
Stock options		37			178			42			114

		12,701			12,830			12,672			12,179

Earnings per share:
Basic	$	(0.34	)	$	0.88		$	(0.30	)	$	1.08
Diluted	$	(0.34	)	$	0.82		$	(0.30	)	$	1.01

NOTE 11 — CONDENSED FINANCIAL DATA

The Company and its wholly owned subsidiaries have fully, unconditionally, and jointly and severally guaranteed the Company’s obligations under the Company’s 7.500% senior subordinated notes. The Company has several unconsolidated affiliates that are not guarantors of the 7.500% senior subordinated notes.

Condensed consolidating financial data for the guarantor subsidiaries is as follows (in thousands):

Condensed Consolidating Balance Sheets
As of June 30, 2005
(in thousands)


	Carmike			Guarantor		Non-guarantor
	Cinemas, Inc.			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	(949	)	$	2,462	$	76		$	—			1,589
Restricted cash		1,000			—		—			—			1,000
Accounts and notes receivable		1,608			278		(1	)		—			1,885
Inventories		483			1,684		12			—			2,179
Prepaid expenses		2,711			4,127		53			—			6,891

Total current assets		4,853			8,551		140			—			13,544
Other assets:
Restricted cash		2,200			—		—			—			2,200
Investment in and advances to partnerships		507			3,238		—			—			3,745
Investment in subsidiaries		183,902			—		—			(183,902	)		—
Deferred income tax asset		28,413			21,032		—			—			49,445
Assets held for sale		402			4,745		—			—			5,147
Other		20,990			5,735		—			—			26,725
Intercompany asset		236,142			2,225		3,069			(241,436	)		—
Property and equipment, net of accumulated depreciation		127,232			422,575		5,757			—			555,564
Goodwill and other intangibles, net of accumulated amortization		5,914			35,751		—			—			41,665

Total assets	$	610,555		$	503,852	$	8,966		$	(425,338	)	$	698,035

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	8,266		$	6,152	$	139		$	—		$	14,557
Accrued expenses		19,445			19,312		276			—			39,033
Dividends payable		2,154			—		—			—			2,154
Current maturities of long-term indebtedness, capital lease and long-term financing obligations		2,044			1,362		—			—			3,406

Total current liabilities		31,909			26,826		415			—			59,150
Long-term debt, less current maturities		318,300			—		—			—			318,300
Capital lease and long-term financing obligations less current maturities		11,486			60,238		—			—			71,724
Other		2,200			—		—			—			2,200
Intercompany liability		—			241,252		184			(241,436	)		—
Stockholders’ equity		246,660			175,536		8,367			(183,902	)		246,661

Total liabilities and stockholders’ equity	$	610,555		$	503,852	$	8,966		$	(425,338	)	$	698,035

Condensed Consolidating Statements of Operations
For Three Months Ended June 30, 2005
(in thousands)


	Carmike			Guarantor			Non-guarantor
	Cinemas, Inc.			Subsidiaries			Subsidiaries		Eliminations			Consolidated
Revenues
Admissions	$	14,557		$	63,197		$	1,026	$	—		$	78,780
Concessions and other		12,159			32,841			478		(4,489	)		40,989

		26,716			96,038			1,504		(4,489	)		119,769
Costs and expenses
Film exhibition costs		8,732			37,580			608		—			46,920
Concession costs		768			3,638			41		—			4,447
Other theatre operating costs		10,250			41,493			490		(4,489	)		47,744
General and administrative expenses		5,453			86			68		—			5,607
Depreciation expenses		2,226			7,412			95		—			9,733
(Gain) loss on disposal of property and equipment		(424	)		—			—		—			(424	)

		27,005			90,209			1,302		(4,489	)		114,027

Operating income (loss)		(289	)		5,829			202		—			5,742
Interest expense		102			6,686			—		—			6,788
Loss on extinguishment of debt		5,795			—			—		—			5,795

Net income (loss) before reorganization costs and income taxes		(6,186	)		(857	)		202		—			(6,841	)
Reorganization expense		3			—			—		—			3

Net income (loss) before income taxes and equity in earnings of subsidiaries		(6,189	)		(857	)		202		—			(6,844	)
Income tax expense (benefit)		(2,461	)		(343	)		81		—			(2,723	)

		(3,728	)		(514	)		121		—			(4,121	)
Equity in earnings of subsidiaries		(393	)		—			—		393			—

Net income (loss) available for common stockholders	$	(4,121	)	$	(514	)	$	121	$	393		$	(4,121	)

Condensed Consolidating Statements of Operations
For Six Months Ended June 30, 2005
(in thousands)


	Carmike			Guarantor			Non-guarantor
	Cinemas, Inc.			Subsidiaries			Subsidiaries		Eliminations			Consolidated
Revenues
Admissions	$	27,922		$	116,588		$	1,839	$	—		$	146,349
Concessions and other		23,972			59,525			836		(9,230	)		75,103

		51,894			176,113			2,675		(9,230	)		221,452
Costs and expenses
Film exhibition costs		15,483			65,781			1,038		—			82,302
Concession costs		1,470			6,501			72		—			8,043
Other theatre operating costs		20,435			79,965			950		(9,172	)		92,178
General and administrative expenses		10,523			84			126		(58	)		10,675
Depreciation expenses		4,124			13,672			201		—			17,997
(Gain) loss on disposal of property and equipment		(427	)		1			—		—			(426	)

		51,608			166,004			2,387		(9,230	)		210,769

Operating income (loss)		286			10,109			288		—			10,683
Interest expense		162			13,196			—		—			13,358
Loss on extinguishment of debt		5,795			—			—		—			5,795

Net income (loss) before reorganization costs and income taxes		(5,671	)		(3,087	)		288		—			(8,470	)
Reorganization benefit		(2,388	)		—			—		—			(2,388	)

Net income (loss) before income taxes and equity in earnings of subsidiaries		(3,283	)		(3,087	)		288		—			(6,082	)
Income tax expense (benefit)		(1,212	)		(1,301	)		118		—			(2,395	)

		(2,071	)		(1,786	)		170		—			(3,687	)
Equity in earnings of subsidiaries		(1,616	)		—			—		1,616			—

Net income (loss) available for common stockholders	$	(3,687	)	$	(1,786	)	$	170	$	1,616		$	(3,687	)

Condensed Consolidating Statements of Cash Flows
For Six Months Ended June 30, 2005
(in thousands)


	Carmike			Guarantor			Non-guarantor
	Cinemas, Inc.			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating activities
Net income (loss)	$	(3,687	)	$	(1,786	)	$	170		$	1,616		$	(3,687	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		4,124			13,672			201			—			17,997
Deferred income taxes		(1,042	)		(1,301	)		—			—			(2,343	)
Non-cash deferred compensation		1,828			—			—			—			1,828
Non-cash reorganization items		(2,391	)		—			—			—			(2,391	)
Loss on extinguishment of debt		5,795			—			—			—			5,795
Gain on sales of property and equipment		(427	)		1			—			—			(426	)
Changes in operating assets and liabilities		(102,594	)		85,064			(4,462	)		(1,616	)		(23,608	)

Net cash used in operating activities		(98,394	)		95,650			(4,091	)		—			(6,835	)
Investing activities
Purchases of property and equipment		(9,570	)		(38,804	)		(715	)		—			(49,089	)
Acquisition of GKC Theatres’ stock		—			(58,883	)		—			—			(58,883	)
Funding of GKC acquisition escrow account, net of cash acquired		(3,200	)		—			—			—			(3,200	)
Proceeds from sale of property and equipment		1,707			(1	)		—			—			1,706

Net cash used in investing activities		(11,063	)		(97,688	)		(715	)		—			(109,466	)
Financing activities
Additional borrowing, net of debt issuance costs		170,000			—			—			—			170,000
Repayments of long-term debt		(100,595	)		(335	)		—			—			(100,930	)
Issuance of common stock, net		1,368			—			—			—			1,368
Purchase of treasury stock		(5,210	)		—			—			—			(5,210	)
Dividends paid		(4,282	)		—			—			—			(4,282	)

Net cash provided by (used in) financing activities		61,281			(335	)		—			—			60,946

Decrease in cash and cash equivalents		(48,176	)		(2,373	)		(4,806	)		—			(55,355	)
Cash and cash equivalents at beginning of period		47,227			4,835			4,882			—			56,944

Cash and cash equivalents at end of period	$	(949	)	$	2,462		$	76		$	—		$	1,589

Condensed Consolidating Balance Sheets
As of December 31, 2004
(in thousands)


	Carmike		Guarantor		Non-guarantor
	Cinemas, Inc.		Subsidiaries		Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	47,227	$	4,835	$	4,882	$	—		$	56,944
Accounts and notes receivable		1,322		142		—		—			1,464
Inventories		385		1,062		12		—			1,459
Prepaid expenses		2,329		3,870		53		—			6,252

Total current assets		51,263		9,909		4,947		—			66,119
Other assets:
Investment in and advances to partnerships		9,331		2,718		—		(9,331	)		2,718
Investment in subsidiaries		114,031		—		—		(114,031	)		—
Deferred income tax asset		27,320		27,094		—		—			54,414
Assets held for sale		1,781		4,753		—		—			6,534
Other		15,899		5,127		1		—			21,027
Intercompany asset		221,032		2,220		—		(223,252	)		—
Property and equipment, net		113,538		351,122		4,841		1			469,502
Goodwill		5,914		17,440		—		—			23,354

Total assets	$	560,109	$	420,383	$	9,789	$	(346,613	)	$	643,668

Liabilities and stockholders’ equity
Current liabilities:
Account payable	$	17,710	$	4,920	$	80	$	—		$	22,710
Accrued expenses		19,293		15,910		379		—			35,582
Dividends payable		2,128		—		—		—			2,128
Current maturities of long-term indebtedness, capital lease and long-term financings obligations		1,532		1,340		—		—			2,872

Total current liabilities		40,663		22,170		459		—			63,292
Long-term debt less current maturities		248,000		—		—		—			248,000
Capital lease and long-term financing obligations less current maturities		11,600		60,930		—		—			72,530
Intercompany liabilities		—		222,118		1,134		(223,252	)		—
Liabilities subject to compromise		1,348		—		—		—			1,348
Stockholders’ equity		258,498		115,165		8,196		(123,361	)		258,498

Total liabilities and stockholders’ equity	$	560,109	$	420,383	$	9,789	$	(346,613	)	$	643,668

Condensed Consolidating Statements of Operations
For Three Months Ended June 30, 2004
(in thousands)


	Carmike			Guarantor		Non-guarantor
	Cinemas, Inc.			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Revenues
Admissions	$	17,665		$	69,436	$	1,252		$	—		$	88,353
Concessions and other		15,030			35,398		561			(6,246	)		44,743

		32,695			104,834		1,813			(6,246	)		133,096
Costs and expenses
Film exhibition costs		8,978			39,522		603						49,103
Concession costs		904			3,984		55						4,943
Other theatre operating costs		10,144			41,365		721			(6,246	)		45,984
General and administrative expenses		5,116			—		—						5,116
Depreciation expenses		1,929			6,579		120						8,628
(Gain)/loss on sales of property and equipment		1			233		(506	)					(272	)

		27,072			91,683		993			(6,246	)		113,502

Operating income		5,623			13,151		820			—			19,594
Interest expense (income)		(511	)		6,444		—						5,933

Net income before reorganization costs and income taxes		6,134			6,707		820			—			13,661
Reorganization benefit		(3,205	)		—		—			—			(3,205	)

Income before income taxes and equity in earnings of subsidiaries		9,339			6,707		820			—			16,866
Income tax expense		3,502			2,823		—			—			6,325

		5,837			3,884		820			—			10,541
Equity in earnings of subsidiaries		4,704			—		—			(4,704	)		—

Net income for common stockholders	$	10,541		$	3,884	$	820		$	(4,704	)	$	10,541

Condensed Consolidating Statements of Operations
For Six Months Ended June 30, 2004
(in thousands)


	Carmike			Guarantor			Non-guarantor
	Cinemas, Inc.			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenues
Admissions	$	33,076		$	132,269		$	2,557		$	—		$	167,902
Concessions and other		28,275			64,604			1,096			(11,853	)		82,122

		61,351			196,873			3,653			(11,853	)		250,024
Costs and expenses
Film exhibition costs		16,046			68,116			1,263						85,425
Concession costs		1,671			7,294			104						9,069
Other theatre operating costs		20,266			80,911			1,230			(11,853	)		90,554
General and administrative expenses		8,887			(182	)		176						8,881
Depreciation expenses		3,849			13,157			240						17,246
Gain on sales of property and equipment		(9	)		(62	)		(506	)					(577	)

		50,710			169,234			2,507			(11,853	)		210,598

Operating income		10,641			27,639			1,146			—			39,426
Interest expense		712			13,315			—						14,027
Loss on extinguishment of debt		9,579			—			—						9,579

Income before reorganization costs and income taxes		350			14,324			1,146			—			15,820
Reorganization expense		(3,881	)		—			—						(3,881	)

Income before income taxes and equity in earnings of subsidiaries		4,231			14,324			1,146			—			19,701
Income tax expense		1,587			5,801			—						7,388

		2,644			8,523			1,146			—			12,313
Equity in earnings of subsidiaries		9,669			—			—			(9,669	)		—

Net income for common stockholders	$	12,313		$	8,523		$	1,146		$	(9,669	)	$	12,313

Condensed Consolidating Statements of Cash Flows
For Six Months Ended June 30, 2004
(in thousands)


	Carmike			Guarantor			Non-guarantor
	Cinemas, Inc.			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating activities
Net income	$	12,313		$	8,523		$	1,146		$	(9,669	)	$	12,313
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		3,849			13,157			240			—			17,246
Deferred income taxes		1,523			5,470			—			—			6,993
Non-cash deferred compensation		3,018			—			—			—			3,018
Non-cash reorganization items		(3,413	)		—			—			—			(3,413	)
Loss on extinguishment of debt		1,792			—			—			—			1,792
Gain on sales of property and equipment		(9	)		(62	)		(506	)		—			(577	)
Changes in operating assets and liabilities		(2,629	)		(31,325	)		2,073			9,669			(22,212	)

Net cash used in operating activities		16,444			(4,237	)		2,953			—			15,160
Investing activities
Purchases of property and equipment		(9,394	)		(1,602	)		(1,949	)		—			(12,945	)
Proceeds from sale of property and equipment		17			1,108			—			—			1,125

Net cash used in investing activities		(9,377	)		(494	)		(1,949	)		—			(11,820	)
Financing activities
Additional borrowing, net of debt issuance costs		250,000			—			—			—			250,000
Repayments of debt		(333,656	)		(540	)		—			—			(334,196	)
Issuance of common stock, net		89,893			—			—			—			89,893

Net cash provided by (used in) financing activities		6,237			(540	)		—			—			5,697

Increase (decrease) in cash and cash equivalents		13,304			(5,271	)		1,004			—			9,037
Cash and cash equivalents at beginning of period		24,982			13,788			2,466			—			41,236

Cash and cash equivalents at end of period	$	38,286		$	8,517		$	3,470		$	—		$	50,273

NOTE 12 — LEGAL PROCEEDINGS

From time to time, we are involved in routine litigation and legal proceedings in the ordinary course of our business, such as personal injury claims, employment matters, contractual disputes and claims alleging ADA violations. Currently, we do not have any pending litigation or proceedings that we believe will have a material adverse effect, either individually or in the aggregate, upon us.

On September 16, 2004, the Equal Employment Opportunity Commission (“EEOC”) filed a lawsuit against Carmike in the U.S. District Court, E.D., North Carolina, alleging that seven named claimants and “other similarly situated male employees” were sexually harassed by a male supervisor who worked at the Carmike 15 Theater in Raleigh, North Carolina from February 2003 until his termination in mid-October 2003. Carmike learned, only after this alleged harasser had stopped working for Carmike that he had a criminal record relating to indecent liberties with a minor. In its lawsuit, the EEOC sought injunctive and monetary relief, including compensatory and punitive damages and costs. Carmike filed its answer and defenses to the EEOC’s complaint on November 15, 2004. On November 4, 2004, a motion to intervene was filed on behalf of five claimants and family members/guardians of five other claimants. The proposed complaint submitted with the motion to intervene included claims under state and federal law, including claims of negligent hiring, promotion, and retention, negligent training and supervision, assault, intentional and negligent infliction of emotional distress, sexual harassment, and retaliation/constructive discharge. In the proposed complaint, the intervenors sought injunctive and monetary relief, including compensatory and punitive damages, attorneys’ fees, and costs. The motion to intervene was granted on November 23, 2004 and the intervenors served their complaint on December 9, 2004. Carmike timely answered the intervenors’ complaint on January 14, 2005. Thereafter, an eleventh claimant moved to intervene. His motion to intervene was granted on March 28, 2005 and he served a complaint (very similar to the other intervenors’ complaints) on April 19, 2005. The parties resolved the case following mediation on July 29, 2005, and agreed to a settlement of $765 thousand. The final settlement is subject to preparation and review of a final settlement agreement and related documents.

NOTE 13 — IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123(R), Share Based Payment (“SFAS 123(R)”). SFAS 123(R) revises FASB Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation and requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. In addition, FAS 123(R) supersedes Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and amends FASB Statement of Financial Accounting Standards No. 95, Statement of Cash Flows (“SFAS 95”).

SFAS 123(R) requires companies to use fair value to measure stock-based compensation awards and cease using the “intrinsic value” method of accounting, which APB No. 25 allowed, and resulted in no expense for many awards of stock options where the exercise price of the option equaled the price of the underlying stock at grant date. The fair value of the award is not remeasured after its initial estimation on the grant date (except under specific circumstances).

SFAS 123(R) must be adopted no later than the beginning of the Company’s 2006 fiscal year. Based on our valuation under the Black-Scholes option valuation model, presently used by the Company and still appropriate under SFAS 123(R), the Company estimates additional compensation expense from adoption to be approximately $1.0 million for the years ended December 31, 2005 and 2006. The Company will evaluate other valuation methods, prior to implementation, to determine the most appropriate for the Company. See Note 1 to “Notes To Consolidated Financial Statements” for the calculation of the Company’s stock-based compensation plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”).

NOTE 14 — RECLASSIFICATIONS

Certain amounts in the accompanying consolidated financial statements have been reclassified to conform to the current period’s presentation.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

EMERGENCE FROM CHAPTER 11

On January 4, 2002, the United States Bankruptcy Court for the District of Delaware entered an order confirming our Amended

Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code, dated as of November 14, 2001 (the “Plan”). The Plan became effective on January 31, 2002. A description of the Plan is disclosed in our Annual Report on Form 10-K for the year ended December 31, 2004 under the caption “Our Reorganization.” On February 11, 2005, the Company filed a motion seeking an order entering a final decree closing the bankruptcy cases. On March 15, 2005, the United States Bankruptcy Court of the District of Delaware entered a final decree closing the bankruptcy cases.

GKC THEATRES ACQUISITION

On May 19, 2005, the Company acquired 100% of the stock of George G. Kerasotes Corporation (“GKC Theatres”) for a net purchase price of $62.1 million, adjusted for working capital of $3.9 million. The Company’s consolidated financial statements for and as of the three and six month periods ended June 30, 2005, include the assets and liabilities and the operating results of GKC Theatres beginning with the acquisition date. With the GKC Theatres acquisition, we added 30 theatres with 263 screens in Illinois, Indiana, Michigan and Wisconsin.

RESULTS OF OPERATIONS

Comparison of Three and Six Months Ended June 30, 2005 and 2004

Revenues.

The Company collects substantially all of its revenues from the sales of admission tickets and concessions. The table below provides a comparative summary of the operating data for this revenue generation.


	For the three months ended				For the six months ended
	June 30, 2005		June 30, 2004		June 30, 2005		June 30, 2004
Average theatres		302		291		292		291
Average screens		2,385		2,220		2,281		2,229
Average attendance per screen		6,208		7,698		12,083		14,622
Average admission price	$	5.32	$	5.16	$	5.31	$	5.15
Average concession sales per patron	$	2.77	$	2.61	$	2.72	$	2.52
Total attendance (in thousands)		14,807		17,090		27,561		32,592
Total revenues (in thousands)	$	119,769	$	133,096	$	221,452	$	250,024

Total revenues for the three months ended June 30, 2005 compared to the three months ended June 30, 2004 decreased 10.0%. This decrease is due to a 13.4% decrease in total attendance partially offset by increases in average admission and concession prices. Total revenues for the six months ended June 30, 2005 decreased 11.4%. This decrease is due to a 15.4% decrease in total attendance partially offset by increases in average admission and concession prices. The decrease in attendance was driven by the poor box office performance of many films during the three and six months ended June 30, 2005. We operated 311 theatres with 2,471 screens as of June 30, 2005 compared to 291 theatres with 2,229 screens as of June 30, 2004.

The table below shows the activity of theatre openings, closures and acquisitions for the three months ended June 30, 2005.


							Average
							Screens/
	Theatres			Screens			Theatre
Total at March 31, 2005		281			2,187			7.8
GKC Theatre acquisition		30			263
Opens/reopens		4			43
Closures		(4	)		(22	)

Total at June 30, 2005		311			2,471			8.0

The closures shown above were the result of normal lease expirations. The Company incurred no additional liability due to these closures.

The following table sets forth the percentage of total revenues represented by certain items reflected in our consolidated statement of operations for the periods indicated:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Revenues:
Admissions		65.8	%		66.4	%		66.1	%		67.2	%
Concession & Other		34.2			33.6			33.9			32.8

Total Revenue		100.0			100.0			100.0			100.0
Cost and expenses:
Film exhibition costs (1)(2)		59.6	%		55.6	%		56.2	%		50.9	%
Concession costs (2)		10.8			11.0			10.7			11.0
Other theatre operating costs		39.9			34.5			41.6			36.2
General and administrative		4.7			3.8			4.8			3.6
Depreciation expenses		8.1			6.6			8.1			6.9
Gain on sales of property and equipment		(0.4	)		(0.2	)		(0.2	)		(0.2	)

Total costs and expenses		95.2			85.4			95.2			84.2

Operating income		4.8			14.6			4.8			15.8
Interest expense		5.7			4.3			6.1			5.6
Loss on extinguishment of debt		4.8			0.0			2.6			3.8

Income (loss) before reorganization costs and income taxes		(5.7	)		10.3			(3.8	)		6.3
Reorganization expense (benefit)		0.0			(2.4	)		(1.1	)		(1.6	)

Net income (loss) before income taxes		(5.7	)		12.7			(2.7	)		7.9
Income tax expense (benefit)		(2.3	)		4.8			(1.0	)		3.0

Net income (loss) available for common stockholders		(3.4	)%		7.9	%		(1.7	)%		4.9	%


(1)		Film exhibition costs include advertising expenses net of co-op reimbursements.

(2)		All costs are expressed as a percentage of total revenues, except film exhibition costs, which are expressed as a percentage of admission revenues, and concession costs, which are expressed as a percentage of concession and other revenues.

The table below summarizes operating expense data for the periods presented.


	For the three months ended									For the six months ended
							% variance									% variance
	June 30,			June 30,			favorable/			June 30,			June 30,			favorable/
(in thousands)	2005			2004			(unfavorable)			2005			2004			(unfavorable)
Film exhibition costs	$	46,920		$	49,103			(4.4	)%	$	82,302		$	85,425			(3.7	)%
Concession costs	$	4,447		$	4,943			(10.0	)%	$	8,043		$	9,069			(11.3	)%
Other theatre operating costs	$	47,744		$	45,984			3.8	%	$	92,178		$	90,554			1.8	%
General and administrative expenses	$	5,607		$	5,116			9.6	%	$	10,675		$	8,881			20.2	%
Depreciation expenses	$	9,733		$	8,628			12.8	%	$	17,997		$	17,246			4.4	%
(Gain)/loss on sales of property and equipment	$	(424	)	$	(272	)		55.9	%	$	(426	)	$	(577	)		(26.2	)%

Film Exhibition Costs. Film exhibition costs generally fluctuate in direct relation to the increases and decreases in admissions revenue. The increase in film exhibition costs on a percentage basis for the three months ended June 30, 2005, was due to an increase in per-film rental rates. As a percentage of admissions revenue, film exhibition costs were 59.6% for the three months ended June 30, 2005 as compared to 55.6% for the three months ended June 30, 2004. GKC Theatres’ film exhibition costs were 57.2% from the period of acquisition date through June 30, 2005. This increase is largely the result of more expensive high grossing films as a percentage of the total box office for the quarter. The top five films during the second quarter were Star Wars 3: Revenge of the Sith, Madagascar, The Longest Yard, Mr. and Mrs. Smith and Batman Begins. These films represent 42.3% of the total box office for the quarter and had an average film exhibition cost of 61.2 %. The top five films for the second quarter 2004 represented 40.9% of the total box office and had an average film exhibition cost of 58.7%.

Film exhibition costs for the six months ended June 30, 2005 decreased 3.7% to $82.3 million from $85.4 million for the six months ended June 30, 2004 due to the decrease in admission revenues of $21.5 million, offset somewhat by higher film rent

percentages on the products played during the six month period ended 2005 as compared to 2004. Included in the six month period ending 2004 was “The Passion of the Christ”, an unusually high grossing and lower film rent movie.

Concession Costs. Concession costs fluctuate with the changes in concessions revenue. As a percentage of concessions and other revenues, concession costs decreased to 10.8% of concession and other revenue for the three months ended June 30, 2005, as compared to 11.0% of concession and other revenue for the three months ended June 30, 2004. Concession costs, as a percentage of concessions and other revenues for the six months ended June 30, 2005, were 10.7% as compared to 11% for the six months ended June 30, 2004. We continue to focus on limited, high margin product offerings such as popcorn and soft drinks to keep our concession costs low.

Other Theatre Operating Costs. Other theatre operating costs for the three months ended June 30, 2005 increased 3.8% compared to the three months ended June 30, 2004. The increase for the three and six month periods ending June 30, 2005 was a result of increased travel, training, point of sales conversion costs and supplies relating to the GKC Theatres acquisition. Other theatre operating costs for the six months ended June 30, 2005 increased 1.8% compared to the six months ended June 30, 2004. The increase was a result of the items noted above as well as increases in professional fees, rents related to new theatre openings, repairs and replacements.

General and Administrative Expenses. General and administrative expenses for the three months ended June 30, 2005 increased 9.6% compared to the three months ended June 30, 2004. The increase was due to a rise in professional fees, costs associated with Sarbanes-Oxley compliance, salaries related to an increase in corporate staff, and travel and conversion expenses related to the GKC acquisition. General and administrative expenses for the six months ended June 30, 2005 increased 20.2% compared to the six months ended June 30, 2004. The increase was the result of the items mentioned above as well as general increases in insurance and expenses relating to the implementation of the Company’s record retention program and offsite backup data facility.

Depreciation Expense. Depreciation expenses for the three months ended June 30, 2005 increased 12.8% compared to the three months ended June 30, 2004. This increase reflects the purchases and construction of fixed assets during 2005 and depreciation on the fixed assets acquired with the GKC Theatres acquisition for the period May 19, 2005 to June 30, 2005. Depreciation expenses for the six months ended June 30, 2005 increased 4.4% compared to the six months ended June 30, 2004. This reflects an increase in assets placed in service due to completed construction projects and depreciation on the fixed assets of GKC Theatres.

Gain on Sales of Property and Equipment. The gain on sales of property and equipment for the three months ended June 30, 2005 amounted to $424,000 compared to a gain of $272,000 for the three months ended June 30, 2004. This increase reflects the sale of real property in the three months ended June 30, 2005, compared to the sale of depreciated property for the three months ended June 30, 2004. Gain on sales of property and equipment for the six months ended June 30, 2005 amounted to $426,000 compared to $577,000 for the six months ended June 30, 2004.

Operating Income. Operating income for the three months ended June 30, 2005 decreased 70.7% to $5.7 million compared to $19.6 million for the three months ended June 30, 2004. GKC Theatres contributed $1.5 million to operating income from the period of acquisition date through June 30, 2005. As a percentage of revenues, operating income for the three months ended June 30, 2005 was 4.8% compared to 14.6% for the three months ended June 30, 2004. Operating income, as a percentage of revenues, for the six months ended June 30, 2005 was 4.8% compared to 15.8% for the six months ended June 30, 2004.

Interest expense. Interest expense for the three months ended June 30, 2005 increased 14.4% to $6.8 million from $5.9 million for the three months ended June 30, 2004. The increase is related to higher indebtedness related to the GKC Theatres acquisition obtained through a refinancing of the Company’s credit facility that closed on May 19, 2005, which is described under “Liquidity and Capital Resources-New Credit Facilities”. Interest expense for the six months ended June 30, 2005 decreased 4.8% compared to the six months ended June 30, 2004 due to lower interest rates obtained through the Company’s debt refinancing in 2004.

Loss on extinguishment of debt. The refinancing of the Company’s credit facilities resulted in the write-off of $3.8 million of loan fees related to its February 4, 2004 credit facilities. The $5.8 million loss on extinguishment of debt also included a $2.0 million pre-payment premium on the retirement of its $100.0 million term loan for the three months ended June 30, 2005.

Reorganization expense (benefit). Insignificant activity occurred for the three months ended June 30, 2005, compared to a reorganization benefit of $3.2 million for the three months ended June 30, 2004. We recognized a reorganization benefit of $2.4 million for the six months ended June 30, 2005, compared to a reorganization benefit of $3.9 million for the six months ended June 30, 2004. On March 15, 2005, the United States Bankruptcy Court of the District of Delaware entered a final decree closing the bankruptcy cases.

Income tax expense. The Company recognized an income tax benefit of $2.7 million for the three months ended June 30, 2005, representing a combined federal and state tax rate of 40.4%, compared to income tax expense of $6.3 million for the three months ended June 30, 2004, representing a combined federal and state tax rate of 37.5%. The income tax benefit for the six months ended June 30, 2005 was $2.4 million compared to income tax expense of $7.4 million for the six months ended June 20, 2004.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s revenues are collected in cash and credit card payments. Because we receive our revenue in cash prior to the payment of related expenses, we have an operating “float” which partially finances our operations. Our current liabilities exceeded our current assets by $45.6 million as of June 30, 2005, as compared to December 31, 2004 when our current assets exceeded our current liabilities by $2.8 million. The working capital deficit is related to lower revenues during the first six months of 2005, increased uses of cash for construction related activity and the GKC Theatres acquisition. The deficit will be funded through cash on hand, anticipated operating cash flows and the ability to draw from our new revolving credit agreement. At June 30, 2005, we had available borrowing capacity of $50 million under our new revolving credit facility.

During the three months and six months ended June 30, 2005, we made capital expenditures of approximately $23.6 million and $49.1 million, respectively. Our total budgeted capital expenditures for 2005 are $60.0 million, which we anticipate will be funded by using operating cash flows, available cash from our new revolving credit facility and landlord-funded new construction and theatre remodeling, when available. We expect that substantially all of these capital expenditures will continue to consist of new theatre construction and theatre remodeling. Our capital expenditures for any new theatre generally precede the opening of the new theatre by several months. In addition, when we rebuild or remodel an existing theatre, the theatre must be closed, which results in lost revenue until the theatre is reopened. Therefore, capital expenditures for new theatre construction, rebuilds and remodeling in a given quarter may not result in revenues from the new theatre or theatres for several quarters.

Net cash used in operating activities was $6.8 million for the six months ended June 30, 2005 compared to net cash provided by operating activities of $15.2 million for the six months ended June 30, 2004. This change is principally due to lower after tax income and a reduction in cash used for working capital items.

Net cash used in investing activities was $109.5 million for the six months ended June 30, 2005 compared to $11.8 million for the six months ended June 30, 2004. This increased use of cash is related to our increased capital expenditures program and the acquisition of GKC Theatres for a net purchase price of $62.1 million, adjusted for working capital of $3.9 million. The Company has under construction projects that will result in 17 additional screens at existing locations, 34 screens at 4 new theatres and 30 screens that are being remodeled.

For the six months ended June 30, 2005, net cash provided by financing activities was $60.9 million compared to net cash provided by financing activities of $5.7 million for the six months ended June 30, 2004. The increase in cash for the three months ended June 30, 2005 is due to the refinancing of our credit facilities on May 19, 2005 (as described below) offset by the payment of cash dividends of approximately $4.3 million.

Our liquidity needs are funded by operating cash flow, sales of surplus assets, availability under our new credit agreements and short term float. The exhibition industry is very seasonal with the studios normally releasing their premiere film product during the holiday season and summer months. This seasonal positioning of film product makes our needs for cash vary significantly from period to period. Additionally, the ultimate performance of the film product at any time during the calendar year will have the most dramatic impact on our cash needs.

Our ability to service our indebtedness will require a significant amount of cash. Our ability to generate this cash will depend largely on future operations. Based upon our current level of operations, we believe that cash flow from operations, available cash, sales of surplus assets and borrowings under our new credit agreements will be adequate to meet our liquidity needs. However, the possibility exists that, if our liquidity needs are not met and we are unable to service our indebtedness, we could come into technical default under any of our debt instruments, causing the agents or trustees for those instruments to declare all payments due immediately or, in the case of our senior debt, to issue a payment blockage to the more junior debt.

We cannot make assurances that our business will continue to generate significant cash flow to fund our liquidity needs. We are dependent to a large degree on the public’s acceptance of the films released by the studios. We are also subject to a high degree of competition and low barriers of entry into our industry. In the future, we may need to refinance all or a portion of our indebtedness on or before maturity. We cannot make assurances that we will be able to refinance any of our indebtedness or raise additional capital through other means, on commercially reasonable terms or at all.

As of June 30, 2005, we were in compliance with all of the financial covenants as defined in our debt agreements.

As of June 30, 2005, we did not have any off-balance sheet financing transactions.

NEW CREDIT FACILITIES

The new senior secured credit facilities consist of:

• a $170.0 million seven year term loan facility used to finance the transactions described below;

• a $185.0 million seven year delayed-draw term loan facility, with a twenty- four month commitment available to finance permitted acquisitions and related fees and expenses; and

• a $50.0 million five year revolving credit facility available for general corporate purposes.

The Company used the $170.0 million new term loan, in addition to approximately $4.6 million of available cash, to (1) fund the $62.1 million net purchase price of the GKC Theatres acquisition, (2) repay borrowings of approximately $101.2 million (including principal, interest and fees) under the Company’s former term loan facility, (3) repay approximately $5.1 million of outstanding borrowings (including accrued interest and fees) under the Company’s former revolving credit facility, and (4) pay related fees and expenses. The Company did not draw upon the new revolving credit facility in connection with these transactions.

The interest rate for borrowings under the new term loan is set from time to time at the Company’s option (subject to certain conditions set forth in the new credit agreement) at either: (1) a specified base rate plus 1.50% or (2) the Eurodollar Base Rate (as defined in the new credit agreement) divided by the difference between one and the Eurocurrency Reserve Requirements (as defined in the new credit agreement) plus 2.50%. The final maturity date of the new term loan is May 19, 2012.

The new credit agreement requires that mandatory prepayments be made with respect to the new senior secured credit facilities from (1) 100% of the net cash proceeds from certain asset sales and dispositions and issuances of certain debt, (2) various percentages (ranging from 75% to 0% depending on the Company’s consolidated leverage ratio) of excess cash flow as defined in the new credit agreement, and (3) 50% of the net cash proceeds from the issuance of certain equity and capital contributions.

The new senior secured credit facilities contain covenants which, among other things, restrict the Company’s ability, and that of its restricted subsidiaries, to:

•

pay dividends or make any other restricted payments;

	•		incur additional indebtedness;

	•		create liens on its assets;

	•		make certain investments;

	•		sell or otherwise dispose of assets;

	•		consolidate, merge or otherwise transfer all or any substantial part of its assets;

	•		enter into transactions with its affiliates; and

	•		engage in any sale-leaseback, synthetic lease or similar transaction involving any of its assets.

The new senior secured credit facilities also contain financial covenants that require the Company to maintain specified ratios of funded debt to adjusted EBITDA and adjusted EBITDA to interest expense. The terms governing each of these ratios are defined in the new credit agreement.

• the Company’s failure to pay principal on the loans when due and payable, or its failure to pay interest on the loans or to pay certain fees and expenses (subject to applicable grace periods);

• the occurrence of a change of control (as defined in the new credit agreement); or

• a breach or default by the Company or its subsidiaries on the payment of principal of any Indebtedness (as defined in the new credit agreement) in an aggregate amount greater than $5.0 million.

The new senior secured credit facilities are guaranteed by each of the Company’s subsidiaries and secured by a perfected first priority security interest in substantially all of the Company’s present and future assets.

The Company may voluntarily pre-pay the term loans, in whole or in part, without premium or penalty.

SEASONALITY

Typically, movie studios release films with the highest expected revenues during the summer and the holiday period between Thanksgiving and Christmas, causing seasonal fluctuations in revenues. However, movie studios are increasingly introducing more popular film titles throughout the year. In addition, in years where Christmas falls on a weekend day, our revenues are typically lower because our patrons generally have shorter holiday periods away from work or school.

INFORMATION ABOUT FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements within the meaning of the federal securities laws. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the SEC or in connection with oral statements made to the press, potential investors or others. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words, “believes,” “expects,” “anticipates,” “plans,” “estimates,” “intends,” “projects,” “should,” “will,” or similar expressions. These statements include, among others, statements regarding our strategies, sources of liquidity, the availability of film product and the opening or closing of theatres during 2005 and 2006.

Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on beliefs and assumptions of our management, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding expected pricing levels, competitive conditions and general economic conditions. These assumptions could prove inaccurate. The forward-looking statements also involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:

• the availability of suitable motion pictures for exhibition in our markets;

• competition in our markets;

• competition with other forms of entertainment;

• identified weaknesses in internal controls and procedures under Section 404 of the Sarbanes-Oxley Act of 2002;

• the effect of our leverage on our financial condition; and

• other factors, including the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2004 under the caption “Risk Factors.”

We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to various market risks. We have floating rate debt instruments and, therefore, are subject to the market risk related to changes in interest rates. Interest paid on our debt is largely subject to changes in interest rates in the market. Our new revolving credit facility and our new seven-year term loan credit facility are based on a structure that is priced over an index or LIBOR rate option. An increase of 1% in interest rates would increase the interest expense on our $170 million term loan credit agreement by $1.7 million on an annual basis. If our $50 million revolving credit agreement was fully drawn a 1% increase in interest rates would increase interest expense by $500,000 on an annual basis. The interest rate on our 7.500% senior subordinated notes is fixed and changes in interest rates will have no effect on annual interest expense.

The Company has 32 theatre leases that have increases contingent on changes in the Consumer Price Index (“CPI”). A 1.0% change in the CPI would increase rent expense by $3.2 million over the remaining lives of these leases, which management does not believe would have a material impact on the Company’s consolidated financial statements.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

As required by Securities and Exchange Commission rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that, in light of the material weaknesses described below, as of June 30, 2005, the Company’s disclosure controls and procedures were not effective at the reasonable assurance level.

As a result of these control deficiencies, management performed additional procedures to ensure that the Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles. Accordingly, the Company believes that the financial statements included in the Company’s quarterly report on Form 10-Q fairly state in all material respects the Company’s financial condition, results of operations and cash flows for the periods in accordance with generally accepted accounting principles.

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, include controls and procedures designed to ensure that information required to be disclosed by the company in the reports we file or submit under the Exchange Act is accumulated and communicated to our Company’s management,

including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.

Changes in Internal Control Over Financial Reporting

In its Form 10-K/A filed on May 2, 2005, the Company reported certain material weaknesses to its internal control over financial reporting. One of the material weaknesses related to the Company’s failure to have the appropriate level of expertise to properly calculate and review its accounting for income taxes. Specifically, the Company did not maintain effective controls over the accounting for income taxes and the determination of income taxes payable, deferred income tax assets and liabilities and the related income tax provision. In order to remediate this material weakness, we made the following changes during the quarter ended June 30, 2005 in our internal control over financial reporting:

	•		Engaged an outside consultant to assist management in preparation of the Company’s tax provision for inclusion in the financial statements;

	•		Formalized processes, procedures and documentation standards relating to the income tax provision; and

	•		Enhanced the levels of review in and accelerated the timing of the preparation of the quarterly and annual income tax provision.

We believe we have taken the steps necessary to remediate this material weakness. However, we have not completed our documentation and testing of the corrective processes and procedures relating to the income tax provision, and certain of the corrective processes, procedures and controls relate to annual controls that cannot be tested until the preparation of our 2005 annual income tax provision. Accordingly, we will continue to monitor the effectiveness of our internal controls over financial reporting relating to the review of our accounting for income taxes.

As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — GKC Theatres Acquisition,” on May 19, 2005, the Company acquired 100% of the stock of George G. Kerasotes Corporation (“GKC Theatres”). The Company is currently in the process of converting GKC Theatres’ 30 theatres to the Company’s financial reporting systems. However, during the quarter ended June 30, 2005, the results of operations for the substantial majority of the theatres in the GKC Theatres circuit were reported through GKC Theatres’ financial reporting systems. The Company has not tested these systems or GKC Theatres’ internal controls related to these systems.

Other than the changes discussed above, there were no changes to our internal control over financial reporting during the second quarter ended June 30, 2005 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Material Weakness in Internal Control Over Financial Reporting

In addition to the material weakness discussed above, as of December 31, 2004, the Company reported the following material weaknesses in its internal control over financial reporting, which continued to exist as of June 30, 2005. As of December 31, 2004, the Company did not maintain effective controls over the accounting for and reporting of non-routine and non-systematic transactions because it did not have adequate personnel who possessed sufficient depth and experience to correctly account for such transactions in accordance with generally accepted accounting principles. As a result, the Company did not properly account for its fourth quarter acquisition of the remaining 50% interest in a limited liability company, which operates two theatres, in which the Company previously had a 50% equity investment in accordance with generally accepted accounting principles. This control deficiency resulted in immaterial misstatements to the Company’s consolidated financial statements for the year ended December 31, 2004. In addition, the Company’s lack of adequate personnel who possessed sufficient depth and experience contributed to the restatement of the Company’s Form 10-K for the year ended December 31, 2003 and its Form 10-Qs for the quarters ended March 31 and June 30, 2004 to correct errors related to lease accounting primarily affecting property, plant and equipment, financing obligations, rent expense, interest expense and depreciation expense. Additionally, this control deficiency could result in a material misstatement to the Company’s annual or interim consolidated financial statements that would not be prevented or detected.

Remediation Measures for Identified Material Weaknesses

The Company’s planned remediation measures in connection with the material weaknesses described above include the following:

	1.		The Company will require continuing education during 2005 for the accounting and finance staff to ensure compliance with current and emerging financial reporting and compliance practices and for the tax manager to ensure compliance with current and emerging tax reporting and compliance practices.

	2.		The Company will utilize outside consultants, other than the Company’s independent registered public accounting firm, to assist management in its analysis of complex accounting transactions and related reporting.

	3.		The Company will assess staffing levels and expertise in its accounting and finance areas and take the steps necessary to appropriately staff the accounting and finance departments. The company has recently added staff to its finance department and intends to hire a new Controller prior to the end of the year.

The Company and the Audit Committee, as necessary, will consider additional items, or will alter the planned steps identified above, in order to further remediate the material weaknesses described above.

As of the end of the period covered by this quarterly report, the Company had not implemented the remediation described above. Accordingly, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were not effective at the end of the second quarter of 2005.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

On September 16, 2004, the Equal Employment Opportunity Commission (“EEOC”) filed a lawsuit against Carmike in the U.S. District Court, E.D., North Carolina, alleging that seven named claimants and “other similarly situated male employees” were sexually harassed by a male supervisor who worked at the Carmike 15 Theater in Raleigh, North Carolina from February 2003 until his termination in mid-October 2003. Carmike learned, only after this alleged harasser had stopped working for Carmike that he had a criminal record relating to indecent liberties with a minor. In its lawsuit, the EEOC sought injunctive and monetary relief, including compensatory and punitive damages and costs. Carmike filed its answer and defenses to the EEOC’s complaint on November 15, 2004. On November 4, 2004, a motion to intervene was filed on behalf of five claimants and family members/guardians of five other claimants. The proposed complaint submitted with the motion to intervene included claims under state and federal law, including claims of negligent hiring, promotion, and retention, negligent training and supervision, assault, intentional and negligent infliction of emotional distress, sexual harassment, and retaliation/constructive discharge. In the proposed complaint, the intervenors sought injunctive and monetary relief, including compensatory and punitive damages, attorneys’ fees, and costs. The motion to intervene was granted on November 23, 2004 and the intervenors served their complaint on December 9, 2004. Carmike timely answered the intervenors’ complaint on January 14, 2005. Thereafter, an eleventh claimant moved to intervene. His motion to intervene was granted on March 28, 2005 and he served a complaint (very similar to the other intervenors’ complaints) on April 19, 2005. The parties resolved the case following mediation on July 29, 2005, and agreed to a settlement within the litigation reserve established for the case. The final settlement is subject to preparation and review of a final settlement agreement and related documents.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Our annual meeting of stockholders was held on May 19, 2005. At the meeting, the stockholders voted on the election of eight directors.

Proposal One: The results of the voting for eight directors were as follows:


Director	For		Vote Withheld
Michael W. Patrick		9,650,031		1,966,817
Alan J. Hirschfield		11,294,068		322,780
S. David Passman III		11,357,360		259,488
Carl L. Patrick, Jr.		9,606,721		2,010,127
Kenneth A. Pontarelli		9,600,825		2,016,023
Roland C. Smith		11,471,312		145,536
Fred W. Van Noy		10,204,955		1,411,893
Patricia A. Wilson		11,384,058		232,790

ITEM 5. OTHER INFORMATION.

In a Current Report on Form 8-K filed on June 28, 2005, we announced that on June 7, 2005 we entered into an amendment to our new credit agreement to document additional procedures and provisions applicable to the issuance of letters of credit and to make typographical or conforming changes to certain definitions, representations and covenants in the Credit Agreement.

ITEM 6. EXHIBITS.

Listing of Exhibits


Exhibit
Number		Description

2.1		Debtors’ Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated November 14, 2001 (filed as Exhibit 99 to Carmike’s Current Report on Form 8-K filed November 19, 2001 and incorporated herein by reference).

2.2		Debtors’ Amended Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code, dated November 14, 2001 (filed as Exhibit T-3E1 to Carmike’s Form T-3 filed December 11, 2001 and incorporated herein by reference).

2.3		Stock Purchase Agreement, dated as of April 19, 2005, by and among Carmike and each of Beth Kerasotes (individually and as executor and trustee under the will of George G. Kerasotes) and Marjorie Kerasotes, the shareholders of George G. Kerasotes Corporation, a Delaware corporation.

3.1		Amended and Restated Certificate of Incorporation of Carmike Cinemas, Inc. (filed as Exhibit 3.1 to Carmike’s Amendment to Form 8-A filed January 31, 2002 and incorporated herein by reference).

3.2		Amended and Restated By-Laws of Carmike Cinemas, Inc. (filed as Exhibit 3.2 to Carmike’s Amendment to Form 8-A filed January 31, 2002 and incorporated herein by reference).

3.3		Amendment No. 1 to the Amended and Restated By-Laws of Carmike Cinemas, Inc. (filed as Exhibit 3.2 to Carmike’s Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference).

4.1		Indenture, dated as of February 4, 2004, among Carmike Cinemas, Inc., each of the Guarantors named therein and Wells Fargo Bank Minnesota, National Association, as Trustee (filed as Exhibit 4.2 to Carmike’s Current Report on Form 8-K filed February 20, 2004 and incorporated herein by reference).

4.2		Supplemental Indenture, dated as of May 19, 2005, among Carmike Cinemas, Inc., the Guaranteeing Subsidiaries named therein, and Wells Fargo Bank, National Association (successor by merger with Wells Fargo Bank Minnesota, National Association), as Trustee (filed as Exhibit 4.1 to Carmike’s Current Report on Form 8-K filed May 25, 2005 and incorporated herein by reference).

4.3		Exchange and Registration Rights Agreement, dated as of February 4, 2004, among Carmike Cinemas, Inc., each of the Guarantors named therein and Goldman, Sachs & Co. (filed as Exhibit 4.3 to Carmike’s Current Report on Form 8-K filed February 20, 2004 and incorporated herein by reference).

4.4		Registration Rights Agreement, dated as of January 31, 2002, by and among Carmike Cinemas, Inc. and certain stockholders (filed as Exhibit 99.3 to Amendment No. 1 to Schedule 13D of Goldman Sachs & Co., et. al., filed February 8, 2002 and incorporated herein by reference).

10.1		Credit Agreement, dated as of May 19, 2005, by and among Carmike Cinemas, Inc., as Borrower, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement, Bear, Stearns & Co. Inc., as Sole Lead Arranger and Sole Bookrunner, Wells Fargo Foothill, Inc., as Documentation Agent, and Bear Stearns Corporate Lending Inc., as Administrative Agent (filed as Exhibit 10.1 to Carmike’s Current Report on Form 8-K filed May 25, 2005 and incorporated herein by reference).

10.2		2005 Cash Bonus Targets for Carmike’s Named Executive Officers (filed as Exhibit 10.2 to Carmike’s Current Report on Form 8-K filed May 25, 2005 and incorporated herein by reference).


Exhibit
Number		Description

10.3		Form of Restricted Stock Grant Agreement for Carmike’s Directors pursuant to the Carmike Cinemas, Inc. 2004 Incentive Stock Plan (filed as Exhibit 10.3 to Carmike’s Current Report on Form 8-K filed May 25, 2005 and incorporated herein by reference).

10.4		First Amendment, dated as of June 7, 2005, to the Credit Agreement, dated as of May 19, 2005, by and among Carmike Cinemas, Inc., as Borrower, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement, Bear, Stearns & Co. Inc., as Sole Lead Arranger and Sole Bookrunner, Wells Fargo Foothill, Inc., as Documentation Agent, and Bear Stearns Corporate Lending Inc., as Administrative Agent (filed as Exhibit 10.1 to Carmike’s Current Report on Form 8-K filed June 28, 2005 and incorporated herein by reference)

11		Computation of per share earnings (provided in Note 10 to the Notes to Consolidated Financial Statements included in this report under the caption “Earnings Per Share”).

31.1		Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.


			CARMIKE CINEMAS, INC.
Date: August 9, 2005	By:	/s/ Michael W. Patrick
		Michael W. Patrick
		President, Chief Executive Officer and Chairman of the Board of Directors (Duly Authorized Officer)


Date: August 9, 2005	By:	/s/ Martin A. Durant
		Martin A. Durant
		Senior Vice President — Finance, Treasurer and Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer)

Listing of Exhibits


Exhibit
Number		Description

2.1		Debtors’ Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated November 14, 2001 (filed as Exhibit 99 to Carmike’s Current Report on Form 8-K filed November 19, 2001 and incorporated herein by reference).

2.2		Debtors’ Amended Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code, dated November 14, 2001 (filed as Exhibit T-3E1 to Carmike’s Form T-3 filed December 11, 2001 and incorporated herein by reference).

2.3		Stock Purchase Agreement, dated as of April 19, 2005, by and among Carmike and each of Beth Kerasotes (individually and as executor and trustee under the will of George G. Kerasotes) and Marjorie Kerasotes, the shareholders of George G. Kerasotes Corporation, a Delaware corporation.

3.1		Amended and Restated Certificate of Incorporation of Carmike Cinemas, Inc. (filed as Exhibit 3.1 to Carmike’s Amendment to Form 8-A filed January 31, 2002 and incorporated herein by reference).

3.2		Amended and Restated By-Laws of Carmike Cinemas, Inc. (filed as Exhibit 3.2 to Carmike’s Amendment to Form 8-A filed January 31, 2002 and incorporated herein by reference).

3.3		Amendment No. 1 to the Amended and Restated By-Laws of Carmike Cinemas, Inc. (filed as Exhibit 3.2 to Carmike’s Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference).

4.1		Indenture, dated as of February 4, 2004, among Carmike Cinemas, Inc., each of the Guarantors named therein and Wells Fargo Bank Minnesota, National Association, as Trustee (filed as Exhibit 4.2 to Carmike’s Current Report on Form 8-K filed February 20, 2004 and incorporated herein by reference).

4.2		Supplemental Indenture, dated as of May 19, 2005, among Carmike Cinemas, Inc., the Guaranteeing Subsidiaries named therein, and Wells Fargo Bank, National Association (successor by merger with Wells Fargo Bank Minnesota, National Association), as Trustee (filed as Exhibit 4.1 to Carmike’s Current Report on Form 8-K filed May 25, 2005 and incorporated herein by reference).

4.3		Exchange and Registration Rights Agreement, dated as of February 4, 2004, among Carmike Cinemas, Inc., each of the Guarantors named therein and Goldman, Sachs & Co. (filed as Exhibit 4.3 to Carmike’s Current Report on Form 8-K filed February 20, 2004 and incorporated herein by reference).

4.4		Registration Rights Agreement, dated as of January 31, 2002, by and among Carmike Cinemas, Inc. and certain stockholders (filed as Exhibit 99.3 to Amendment No. 1 to Schedule 13D of Goldman Sachs & Co., et. al., filed February 8, 2002 and incorporated herein by reference).

10.1		Credit Agreement, dated as of May 19, 2005, by and among Carmike Cinemas, Inc., as Borrower, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement, Bear, Stearns & Co. Inc., as Sole Lead Arranger and Sole Bookrunner, Wells Fargo Foothill, Inc., as Documentation Agent, and Bear Stearns Corporate Lending Inc., as Administrative Agent (filed as Exhibit 10.1 to Carmike’s Current Report on Form 8-K filed May 25, 2005 and incorporated herein by reference).

10.2		2005 Cash Bonus Targets for Carmike’s Named Executive Officers (filed as Exhibit 10.2 to Carmike’s Current Report on Form 8-K filed May 25, 2005 and incorporated herein by reference).

10.3		Form of Restricted Stock Grant Agreement for Carmike’s Directors pursuant to the Carmike Cinemas, Inc. 2004 Incentive Stock Plan (filed as Exhibit 10.3 to Carmike’s Current Report on Form 8-K filed May 25, 2005 and incorporated herein by reference).


Exhibit
Number		Description

10.4		First Amendment, dated as of June 7, 2005, to the Credit Agreement, dated as of May 19, 2005, by and among Carmike Cinemas, Inc., as Borrower, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement, Bear, Stearns & Co. Inc., as Sole Lead Arranger and Sole Bookrunner, Wells Fargo Foothill, Inc., as Documentation Agent, and Bear Stearns Corporate Lending Inc., as Administrative Agent (filed as Exhibit 10.1 to Carmike’s Current Report on Form 8-K filed June 28, 2005 and incorporated herein by reference)

11		Computation of per share earnings (provided in Note 10 to the Notes to Consolidated Financial Statements included in this report under the caption “Earnings Per Share”).

31.1		Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-2.3 2 g96783exv2w3.txt EX-2.3 STOCK PURCHASE AGREEMENT DATED APRIL 19,2005 EXHIBIT 2.3 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT ("Agreement") dated April 19, 2005, by and among, CARMIKE CINEMAS, INC., a Delaware corporation and/or any one or more designated affiliates thereof as provided in Section 15.1.(a) below ("Buyer"), and each of the shareholders of Company as set forth as signatories to this Agreement (individually "Shareholder" and together, "Shareholders"). RECITALS A. George G. Kerasotes Corporation, a Delaware corporation, ("Company") is an owner/lessee and operator of multi-screen motion picture theatres in Illinois, Indiana, Michigan and Wisconsin (the "Business"). B. Company owns all the issued and outstanding shares of capital stock of GKC MICHIGAN THEATRES, INC., a Delaware corporation, GKC THEATRES, INC. a Delaware corporation and GKC INDIANA THEATRES, INC, an Indiana corporation ( each individually a "Subsidiary" and collectively the "Subsidiaries"). C. Company's facilities include seventeen (17) owned and thirteen (13) leased multi-screen motion picture theatres, and certain undeveloped real estate (each a "Property" and together "Properties"). D. Shareholders own all of the issued and outstanding shares ("Shares") of capital stock of Company, including all rights thereto and interests therein. E. Buyer, an owner/operator of motion picture theatres, desires to purchase the Shares from Shareholders and Shareholders desire to sell the Shares to Buyer, upon the terms and conditions herein set forth. F. On March 16, 2005, Buyer and Shareholders entered into a non-binding letter of intent ("Letter of Intent") that set forth, on a preliminary, non-binding basis, the major terms and conditions of the transactions contemplated by this Agreement. The terms and conditions hereof shall govern any conflict between the Letter of Intent and this Agreement. NOW THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants, and agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows. 1. PURCHASE AND SALE OF SHARES Subject to the terms and conditions of this Agreement, on the Closing Date, in consideration of the "Purchase Price," Shareholders shall sell, convey, transfer, assign and deliver to Buyer and Buyer shall purchase, accept and acquire from Shareholders, all right, title and interest whatsoever in and to all of the Shares, which constitute all of the equity interests in Company, other than "Treasury Stock," free and clear of all Liens. 2. PURCHASE PRICE 2.1 Purchase Price. The purchase price ("Purchase Price") payable for the Shares shall be Sixty-Six Million Dollars ($66,000,000.00): 2.1.(a) minus the amount of the Company's Debt Obligations as of "Closing;" 2.1.(b) plus/minus the Final Closing Adjustment determined in accordance with Section 2.3.(c). 2.2 Payment of Purchase Price. The Purchase Price shall be paid by Buyer as follows: 2.2.(a) Earnest Money Deposit. (i) Deposit and Investment of Earnest Money Deposit. On the date hereof, Buyer shall pay to the Escrowee (as hereinafter defined) an earnest money deposit equal to Two Hundred Fifty Thousand Dollars ($250,000.00)(including interest, the "Earnest Money Deposit") to be held pursuant and subject to the terms and conditions of this Agreement and the Earnest Money Escrow Agreement(as hereinafter defined). The Earnest Money Deposit shall be invested in an interest bearing money market account (or such other investments as Buyer and Shareholders may choose in their discretion), with interest earned thereon accruing to the benefit of Buyer. 2 (ii) Payment of Earnest Money Deposit to Shareholders at Closing. At the Closing, as part of the Purchase Price (and not in addition thereto), the Earnest Money Deposit shall be delivered to Shareholders and credited against the Purchase Price. In the event of a termination of this Agreement, the Earnest Money Deposit will either be returned to Buyer or delivered to Shareholders as provided for in Section 11 and pursuant and subject to the Earnest Money Escrow Agreement. 2.2.(b) At the Closing, Buyer shall deliver to the Escrowee of the Closing Escrow Agreement in cash the following sums: (i) Cash to Fund A of Closing Escrow Agreement. One Million Dollars ($1,000,000.00) as Fund A to be held for 120 days from the Closing Date, subject to, and disbursed as provided in this Agreement and the closing escrow agreement a copy of which is attached hereto as Exhibit A and made a part hereof (the "Closing Escrow Agreement"). Any funds remaining in Fund A 120 days following Closing Date, (as hereinafter defined) that are not being contested by Buyer shall be paid immediately over to Shareholders, together with all accrued interest thereon. (ii) Cash to Fund B of Closing Escrow Agreement. Two Million TWO HUNDRED THOUSAND Dollars ($2,200,000.00) as Fund B to be held for eighteen (18) months from the Closing Date, subject to, and disbursed as provided in this Agreement and the Closing Escrow Agreement. Any funds remaining in Fund B at the expiration of eighteen (18) months from the Closing Date that are not being contested by Buyer, shall be paid immediately over to Shareholders, together with all accrued interest thereon. 2.2.(c) Cash to Shareholders. At the Closing, Buyer shall deliver to Shareholders in cash ("Closing Cash Payment") Sixty-Two Million FIVE Hundred Fifty Thousand Dollars ($62,550,000.00): (1) minus the amount of the Company's Debt Obligations as of Closing; (ii) plus/minus the Estimated Closing Adjustment determined in accordance with Section 2.3.(b). 3 2.2.(d) Post-Closing Adjustment. Within three (3) Business Days following determination of the Final Closing Adjustment pursuant to Section 2.3.(c), either the Shareholders shall pay to Buyer or Buyer shall pay to Shareholders, as appropriate, an amount equal to the difference between the Final Closing Adjustment and the Estimated Closing Adjustment, the payment of which on Shareholders' part is secured by Fund A of said Closing Escrow Agreement. 2.2.(e) Method of Payment. All cash payments under this Section 2.2 shall be made by wire transfer of immediately available funds to an account designated by the recipient. All payments of the Purchase Price, including any adjustments thereto, are to be made for pro rata distribution among Shareholders in accordance with their respective shareholdings in Company as shown on distribution and wiring instructions delivered to Buyer prior to Closing. 2.3 Determination of Closing Adjustment. 2.3.(a) Definition of Closing Adjustment. The term "Closing Adjustment" for the purpose of Section 2.1.(b) and 2.2.(c)(ii) shall mean as of the Effective Time, as shown on the Company's Consolidated Balance Statement :(i) the sum of all of the Company's cash, cash equivalents, prepaid expenses, concession inventory, supply inventory, and accounts receivable (together called "Total Current Assets") plus "Other Assets" which consist of Deferred Tax Assets, minus (ii) the sum of all of the Company's Current Liabilities and Deferred Liabilities which consist of Deferred Tax Liabilities (including all normally prorated items relating to the period prior to the Closing, including, without limitation, all Taxes and assessments, rents, and utilities and all fees associated with Licenses and Permits and registrations), all as determined in accordance with generally accepted accounting principles for the movie theater industry as consistently applied by the Company in its financial statements. The remainder amount to the extent Section 2.3.(a)(i) exceeds Section 2.3.(a)(ii) shall be a plus for the purposes of Section 2.1.(b) and 2.2.(c)(ii). If Section 2.3.(a)(ii) exceeds Section 2.3.(a)(i), then the difference is a minus for the purposes of Section 2.1.(b) and 2.2.(c)(ii). 2.3.(b) Estimated Closing Adjustment. For purposes of determining the Closing Cash Payment payable by Buyer at the Closing, prior to the Closing Date, Shareholders shall, in consultation with Company and based on the Company's financial statements, prepare and deliver to Buyer the Estimated Closing Statement, which shall include an estimated calculation of the Closing Adjustment as of the Effective Time (the "Estimated Closing Adjustment"). In the event Buyer shall object to any of the information set forth on the Estimated Closing Statement including the Estimated Closing Adjustment the parties shall negotiate in good faith and agree on 4 appropriate adjustments so that such Estimated Closing Statement and the Estimated Closing Adjustment shall reflect a reasonable, good faith estimate of the Final Closing Statement and Final Closing Adjustment. The Closing Adjustment, as finally determined by the parties pursuant to this subsection 2.3.(b) is herein referred to as the "Estimated Closing Adjustment." 2.3.(c) Final Closing Adjustment. On or before Ninety (90) days after the Closing Date, Buyer shall prepare and deliver to Shareholders the Final Closing Adjustment Statement and Balance Sheet together with its calculation ("Buyer's Calculation") of the Final Closing Adjustment based thereon as of the Effective Time. Shareholders may dispute Buyer's Calculation; provided, however, that Shareholders shall notify Buyer in writing of the disputed amount, and the basis of such dispute, within fifteen (15) Business Days of Shareholders' receipt of the Final Closing Adjustment Statement and Balance Sheet. In the event of a dispute with respect to any part of Buyer's Calculation, Buyer and Shareholders shall attempt to mutually, and in good faith, reconcile their differences. If Buyer and Shareholders are unable to reach a resolution of such differences within thirty (30) days of receipt of Shareholders' written notice of dispute to Buyer, Shareholders and Buyer shall submit the amounts remaining in dispute for determination and resolution to the Independent Accounting Firm, who shall, acting as experts and not as arbitrators, be instructed to determine and report to the parties, within thirty (30) days after such submission, upon such remaining disputed amounts, and such report shall be final, binding and conclusive on the parties hereto with respect thereto. Any part of Buyer's Calculation (i) that is not disputed, or (ii) that was initially disputed by Shareholders and that is subsequently mutually agreed to in writing by Shareholders and Buyer, or (iii) that is finally determined by the Independent Accounting Firm; shall be deemed undisputed with regard to the "Final Closing Adjustment." The fees and disbursements of the Independent Accounting Firm shall be allocated equally between Buyer and Shareholders. 3. DUE DILIGENCE 3.1 Delivery of Due Diligence Materials. Upon the date of execution and delivery of this Agreement, Company and Shareholders shall make available to Buyer at Company's corporate offices all of the items listed on Exhibit B ("Due Diligence Materials"). During the "Due Diligence Period"( as hereinafter defined) and thereafter through and including Closing, Shareholders shall cause Company to provide to Buyer, its counsel, accountants and other representatives (i) full access to all of the Due Diligence Materials, Properties, books, records, contracts 5 and documents of Company for the purpose of such inspection, investigation and testing as Buyer deems appropriate (and Company shall furnish or cause to be furnished to Buyer and its representatives all information with respect to the Business and affairs of Company as Buyer may reasonably request); (ii) access to all employees, agents and representatives for the purposes of such meetings and communications as Buyer reasonably desires; and (iii) access to all vendors, customers and others having business dealings with Company; Buyer agreeing that such access and Due Diligence Materials are proprietary information of Company and must not be disclosed by Buyer unless and until the transaction contemplated by this Agreement is closed. In the interim, Buyer will use its best efforts to keep strictly confidential the nature and progress of negotiations and discussions between the parties. Buyer shall complete its due diligence investigation of the Exhibit B items within thirty (30) days following the date hereof ("Due Diligence Period"). 3.2 Buyer's Due Diligence 3.2.(a) Due Diligence. Upon execution and delivery hereof, Buyer shall conduct its due diligence investigation with respect to the Company including, but not limited to, the Business, financial, legal, operational, customer, worker's compensation, employee and real estate due diligence, with results satisfactory to Buyer, in its sole discretion. Notwithstanding anything in this Agreement to the contrary, the obligations of Buyer to consummate any and all transactions contemplated by this Agreement are subject to and conditioned upon the satisfaction of the conditions set forth in this Subsection 3.2, such conditions being conditions precedent to Closing, on or prior to the date that is thirty (30) days following the execution of this Agreement; however, the foregoing limitations shall not apply to any matters that should have been disclosed to Buyer by Shareholders prior to the expiration of such thirty (30) day period, which arise after the expiration of such thirty (30) day period, or with respect to which Shareholders first receive notice of or otherwise become aware of after the expiration of such thirty (30) day period. 3.2.(b) Notice. In the event Buyer desires to terminate this Agreement, Buyer shall give written notice to Shareholders within the thirty (30) day Due Diligence Period that Buyer elects to terminate this Agreement and the Earnest Money Deposit shall be transferred to Shareholders pursuant to Section 11.2 (a) 6 4. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS Shareholders, jointly and severally, make the following representations and warranties to Buyer, for themselves, each of which is true and correct on the date hereof and shall remain true and correct to and including the Closing Date, 4.1 Corporate. 4.1.(a) Organization. Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 4.1.(b) Corporate Power. Company has all requisite corporate power and authority to own, operate, use and lease its Properties and assets and to carry on the Business as and where such is now being conducted. 4.1.(c) Qualification. Company is duly licensed or qualified to do business as a foreign corporation, and is in good standing, in each jurisdiction wherein the situs of the Properties owned or leased by it, or the nature of the Business, makes such licensing or qualification necessary including, without limitation, the states of Wisconsin, Michigan, Indiana and Illinois. 4.1.(d) Subsidiaries. Schedule 4.1(d) sets forth the name, jurisdiction of incorporation, capitalization, ownership and officers and directors of each corporation in which Company has a direct or indirect equity interest (each, a "Subsidiary") and the jurisdictions in which each Subsidiary is qualified or licensed to do business as a foreign corporation. Except as listed in Schedule 4.1.(d), Company does not own, directly or indirectly, any capital stock or other equity securities or interests of any corporation or have any direct or indirect equity or other ownership interest in any other entity or business. All of the outstanding shares of capital stock or other equity securities or interests of each Subsidiary owned by Company are free and clear of any Lien and are validly issued, fully paid and nonassessable, except as listed on Schedule 4.1.(d). Each Subsidiary (x) is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, (y) has full corporate power and authority to carry on its business as it is now being conducted and to own and lease the properties and assets it now owns and leases, and (z) is in good standing and is duly qualified or licensed to do business as a foreign corporation in each of the jurisdictions listed opposite the name of such Subsidiary in Schedule 4.1.(d), which are the only jurisdictions in which such Subsidiary is required to be so qualified or licensed. The copies of the "Certificate of Incorporation and By-Laws" of each Subsidiary, including 7 any amendments thereto, all of which have been heretofore delivered by Shareholders to Buyer, are true, correct and complete copies of such instruments as presently in effect. The corporate minute book and stock records of each Subsidiary all of which have been heretofore furnished to Buyer for inspection, are true, correct and complete and accurately reflect all material corporate action taken by such Subsidiary. 4.1.(e) Corporate Documents, etc. The copies of the Certificate of Incorporation and By-Laws of Company, including any amendments thereto, all of which have been heretofore delivered by Shareholders to Buyer, are true, correct and complete copies of such instruments as presently in effect. The corporate minute book and stock records of Company which will be furnished to Buyer for inspection, are true, correct and complete and accurately reflect all material corporate action taken by Company. 4.1.(f)Capitalization of Company and Subsidiaries. The authorized capital stock of Company consists entirely of 50,000 shares of voting common stock and 54,000 shares of non-voting common stock, no par value. All issued and outstanding capital stock, being 23,451 Shares, is now and will be on the Closing Date all owned of record and beneficially by Shareholders in the respective numbers set forth in Schedule 4.1.(f). All such Shares are validly issued, fully paid and nonassessable. Additionally, there is issued common stock held by the Company as "Treasury Stock," consisting of 200 shares of voting common stock and 2,949 shares of nonvoting common stock. There are no outstanding warrants, options or convertible securities. 4.2 Shareholders. 4.2.(a) Power. Each Shareholder has full power, legal right and authority to enter into, execute and deliver this Agreement and the other agreements, instruments and documents contemplated hereby to be executed by a Shareholder ("Ancillary Instrument(s)"), and to carry out the transactions contemplated hereby and thereby. 4.2.(b) Validity. This Agreement has been duly and validly executed and delivered by each Shareholder and is, and when executed and delivered each Ancillary Instrument will be, the legal, valid and binding obligation of such Shareholder, enforceable in accordance with its terms, except as such may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors' rights generally, and by general equitable principles. 4.2.(c) Title. Each Shareholder has, and at Closing Buyer will receive, good and marketable title to the Shares to be sold by such Shareholder hereunder, free and 8 clear of all Liens including, without limitation, voting trusts or agreements, proxies, marital or community property interests. 4.3 No Violation. The execution and delivery of this Agreement or the Ancillary Instruments and the consummation by Company and Shareholders of the transactions contemplated hereby and thereby (a) will not violate any Law or any Order of any Government Entities, (b) except for applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"), will not require any authorization, consent, approval, exemption or other action by or notice to any Government Entity (including, without limitation, under any "plant-closing" or similar law), or (c) subject to obtaining the consents referred to in Section 6.6, will not violate or conflict with, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, nor will it result in the termination of, or accelerate the performance required by, or result in the creation of any Lien upon any of the assets of Company (or the Shares) under, any term or provision of the Certificate of Incorporation or By-Laws of Company or of any contract, commitment, understanding, arrangement, agreement or restriction of any kind or character to which Company or any Shareholder is a party or by which Company or any Shareholder or any of its or their assets or Properties may be bound or affected. 4.4 Financial Statements. Included as Schedule 4.4 are true and complete copies of the financial statements( the "Financial Statements") of Company consisting of (i) audited balance sheets of Company as of December 31, 2004, 2003, 2002, 2001 and 2000, and the related audited statements of income and cash flows for the calendar years then ended (including the notes contained therein or annexed thereto), which audited financial statements have been reported on, and are accompanied by, the signed, unqualified audit opinions of the independent auditors for Company for such years, and (ii) an unaudited balance sheet of Company as of December 31, 2004 ("Recent Balance Sheet"), and the related unaudited statements of income and cash flows for the calendar year then ended and for the corresponding period of the prior year. The financial statements of Company as of December 31, 2004 will be audited and attached to Schedule 4.4 by the Closing. All of such financial statements (including all notes and schedules contained therein or annexed thereto) are true, complete and accurate, have been prepared in accordance with "GAAP" applied on a consistent basis, have been prepared in accordance with the books and records of Company, and fairly present, in accordance with GAAP for the movie theatre industry as consistently applied by the Company in its financial statements, the assets, liabilities and financial 9 position, the results of operations and cash flows of Company as of the dates and for the years and periods indicated. 4.5 Tax Matters. 4.5.(a) Provision For Taxes. As of the date of the Recent Balance Sheet, the unpaid Taxes of Company and the Subsidiaries did not exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the Recent Balance Sheet. The unpaid Taxes of Company and the Subsidiaries do not exceed such reserve for Tax liability as adjusted for the passage of time through the end of the day prior to the Closing Date in accordance with the past custom and practice of the Company and the Subsidiaries in filing its Tax returns. Since the date of the Recent Balance Sheet, neither Company nor any Subsidiary has incurred any liability for Taxes arising from any extraordinary gains or losses outside the ordinary course of business consistent with past custom and practice of Company. Company pays estimated tax payments on a quarterly basis based on prior years taxable income. For purposes of the Balance Sheet and Income Statement, Company on a monthly basis records an estimated tax expense for the current year which may differ from the actual tax expense for income tax purposes. At the end of the year, Company makes an adjustment to reconcile the income tax expense and reflect the appropriate tax liability. Company will continue to make estimated tax payments on a quarterly basis and the tax liability will be adjusted to reflect the proper amount of tax due upon final closing. 4.5.(b) Tax Returns Filed. All Tax returns required to be filed on or before the Closing Date, including the 2004 consolidated return, which is on extension and will be filed by the Closing Date, by or on behalf of Company and the Subsidiaries have been timely filed. All such Tax returns were, when filed, true, complete and accurate in all respects, and the Taxes shown as due thereon were paid or adequately accrued. Company has heretofore delivered to Buyer true, complete and accurate copies of all Tax returns filed by each Company for Tax periods ending on or after January 1, 2000. Company has duly withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, shareholder, independent contractor or other third-party. There are no Liens for Taxes (other than for current Taxes not yet due and payable) upon any Property or other asset of Company. 4.5.(c) Tax Audits. Schedule 4.5.(c) indicates those Tax returns of Company for Tax periods ending on or after January 1, 2000 that have been audited by the Internal Revenue Service or by any other Tax authority. Except as set forth in Schedule 4.5.(c) and specifically disclosed or fully reflected in the Recent Balance Sheet or in the 10 Estimated Closing Adjustment Statement there are no :(i) outstanding notices of underpayment of taxes or other deficiencies, or notice of proposed adjustments; (ii) requests for information relating to taxes; or (iii) notices indicating an intent to commence an audit. Company has delivered to Buyer true, complete and accurate copies of all examination reports. No claim has been made by a Tax authority in a jurisdiction where Company has not filed Tax returns that Company is or may be subject to taxation by that jurisdiction. Except as set forth in Schedule 4.5.(c), Company has not waived any statute of limitations. 4.5.(d) No Requirement to Withhold under Section 1445. Neither Company nor any Shareholder is a "foreign person," "foreign corporation," "foreign partnership," "foreign trust" or "foreign estate" within the meaning of Section 1445 of the Code. 4.5.(e) Certain Pre-Closing Date Transactions. Neither Company nor any Subsidiary will be required to include any item of income in, or exclude any item of deduction from, taxable income for any Tax period (or portion thereof) ending after the Closing Date as a result of any: (i) change in method of accounting for a Tax period ending on or prior to the Closing Date under Section 481(c) of the Code (or any corresponding or similar provision of state, local or foreign Tax law); (ii) "closing agreement" as described in Section 7121 of the Code (or any correspondence or similar provision of state, local, or foreign Tax law) executed on or prior to the Closing date; (iii) installment sale or "open transaction" disposition made on or prior to the Closing Date; or (iv) prepaid amount received on or prior to the Closing Date. 4.5.(f)Other. Since January 1, 2000, Neither Company nor any Subsidiary has (i) filed any consent or agreement under Section 341(f) of the Code, (ii) applied for any Tax ruling, (iii) entered into a closing agreement or advance pricing agreement with any Tax authority, (iv) filed an election under Section 338(g) or Section 338(h)(10) of the Code (or has taken any action that would result in any income Tax liability to Company. Neither Company nor any Subsidiary has as a result of a deemed election within the meaning of Section 338(e) of the Code), (v) made any payments, or been a party to an agreement (including this Agreement) that under any circumstances could obligate it to make payments, that are not deductible because of Section 280G or Section 162(m) of the Code (or any corresponding or similar provision of state, local, or foreign Tax law), (vi) entered into any Tax allocation, indemnity, or sharing agreement, (vii) entered into any gain recognition agreement under Section 367 of the Code, (viii) been the "distributing corporation" (within the meaning of Section 355(c)(2) of the Code) with respect to a transaction described in Section 355 of the Code within the 3-year period ending as of the date of this Agreement, or (ix) made or revoked any election under Treas. Reg. Section 301.7701-3 regarding classification as a corporation, as a partnership, or as a disregarded entity. 11 4.6 Accounts Receivable. All accounts receivable of Company reflected on the Recent Balance Sheet, have been incurred in the normal course of business, are collectible (net of the reserve shown on the Recent Balance Sheet for doubtful accounts) in the ordinary course of business within one hundred ten (110) days of the Closing Date thereof without the necessity of commencing legal proceedings; are subject to no counterclaim or setoff; and are not in dispute. Schedule 4.6 contains the aged schedule of accounts receivable included in the Recent Balance Sheet. All accounts receivable of Company reflected on the Estimated Closing Adjustment Statement and the Final Closing Adjustment Statement will represent arm's length sales actually made in the ordinary course of business and will be collected (net of the reserve shown on the Estimated Closing Adjustment Statement and the Final Closing Adjustment Statement for doubtful accounts) in the ordinary course of business within one hundred ten (110) days of the Closing Date without the necessity of commencing legal proceedings and will be subject to no counterclaim or set-off and will not be in dispute. To the extent a receivable remains uncollected after said one hundred ten (110) day period, it (less the amount attributable thereto as "Reserve") will be satisfied out of Fund A of the Closing Escrow Agreement and the Company shall assign the receivable to Shareholder's together with rights to collect. 4.7 Absence of Undisclosed Liabilities. Except as set forth in Schedule 4.7 neither Company nor any Subsidiary has any undisclosed liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for liabilities or obligations reflected or reserved against in the Financial Statements or the Recent Balance Sheet and current liabilities incurred in the Ordinary Course of Business since the respective dates thereof. 4.8 No Litigation. Except as set forth in Schedule 4.8 , (i) there is no action, suit, arbitration, proceeding, investigation or inquiry, whether civil, criminal or administrative (collectively, "Litigation") pending or threatened against Shareholders (in such capacity) or Company, its directors (in such capacity), its Business or any of its Properties or other assets, nor does Company or any Shareholder know, or have grounds to know, of any basis for any Litigation and (ii) neither Company nor its Business or assets is subject to any Order of any Government Entity. Schedule 4.8 also identifies and summarizes all Litigation to which Shareholders (in such capacity) or Company or any of its directors (in such capacity) have been parties since January 1, 2000, not including defense of litigation handled and terminated, by the Company's insurance carriers. 12 4.9 Compliance With Legal Requirements and Orders. 4.9.(a) Compliance. Except as set forth in Schedule 4.9.(a) or specifically disclosed in the Recent Balance Sheet or in the Adjustment Statements, (A) Company (including each and all of its Subsidiaries, operations, practices, Properties (or any of them) and assets) is in compliance with all applicable Legal Requirements and Orders and (B) neither Shareholders nor Company has received notice of any violation or alleged violation of, and neither Shareholders nor Company is subject to any Liability for past or continuing violation of, any Legal Requirement. All reports and returns required to be filed by Company with any Governmental Entity have been filed, and were accurate and complete when filed. Without limiting the generality of the foregoing and to the best of the Shareholders' knowledge: (i) The operation of the Business as it is now conducted does not, nor does any condition existing at any of the Properties, in any manner constitute a nuisance or other tortious interference with the rights of any person or persons in such a manner as to give rise to or constitute the grounds for a suit, action, claim or demand by any such person or persons seeking compensation or damages or seeking to restrain, enjoin or otherwise prohibit any aspect of the conduct of the Business or the manner in which it is now conducted. (ii) Company and the Subsidiaries have made all required payments to its unemployment compensation reserve accounts with the appropriate Governmental Entity of the states where it is required to maintain such accounts, and each of such accounts has a positive balance. (iii) Company and the Subsidiaries are believed to be exempt from reporting under the federal Occupational Safety and Health Act of 1970, as amended. 4.9.(b) Licenses and Permits. Company and the Subsidiaries have all Licenses and Permits required for the conduct of the Business and operation of the Properties and is and has been in compliance with all such Licenses and Permits. 4.9.(c) Environmental Matters. Except as set forth in Schedule 4.9 (c): (i) Company and the Subsidiaries are , and at all times have been, in full compliance with, and have not been and are not in violation of or liable under, any Environmental Law. Shareholders have no basis to expect, nor has any 13 of them received, any actual or Threatened order, notice, or other communication from (i) any Governmental Entity or private citizen acting in the public interest, or (ii) the current or prior owner or operator of any actual or potential violation or failure to comply with any Environmental Law, or of any actual or Threatened obligation to undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect to any of the Properties or any other properties or assets (whether real, personal, or mixed) in which Company has had an interest, or with respect to any Facility at or to which Hazardous Materials were generated, manufactured, refined, transferred, imported, used, or processed by Company or the Subsidiaries , or from which Hazardous Materials have been transported, treated, stored, handled, transferred, disposed, recycled, or received. (ii) There are no pending or, to the Knowledge of Shareholders Threatened claims, Encumbrances, or other restrictions of any nature, resulting from any Environmental, Health, and Safety Liabilities or arising under or pursuant to any Environmental Law, with respect to or affecting any of the Properties or any other properties and assets (whether real, personal, or mixed) in which Company or the Subsidiaries has or had an interest. (iii) Shareholders have no Knowledge of, any basis to expect, nor has any of them received, any citation, directive, inquiry, notice, Order, summons, warning, or other communication that relates to Hazardous Activity, Hazardous Materials, or any alleged, actual, or potential violation or failure to comply with any Environmental Law, or of any alleged, actual, or potential obligation to undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect to any of the Properties or any other properties or assets (whether real, personal, or mixed) in which Company or the Subsidiaries had an interest, or with respect to any or facility to which Hazardous Materials generated, manufactured, refined, transferred, imported, used, or processed by Company, or the Subsidiaries have been transported, treated, stored, handled, transferred, disposed, recycled, or received. (iv) To the best of Shareholders' knowledge there are no Hazardous Materials present on or in the Environment at the Properties, including any Hazardous Materials contained in barrels, above or underground storage tanks, landfills, land deposits, dumps, equipment (whether moveable or fixed) or other containers, either temporary or permanent, and deposited or located in land, water, sumps, or any other part of the Properties or incorporated into any structure therein or thereon. Shareholders have not permitted or conducted, or are aware of, any Hazardous Activity conducted with respect to the Properties or any other properties 14 or assets (whether real, personal, or mixed) in which Company or the Subsidiaries has or had an interest except in full compliance with all applicable Environmental Legal Requirements. (v) There has been no Release or, to the Knowledge of Shareholders, Threat of Release, of any Hazardous Materials at or from the Properties where any Hazardous Materials were generated, manufactured, refined, transferred, produced, imported, used, or processed from or by the Properties, or from or by any other properties and assets (whether real, personal, or mixed) in which Company or the Subsidiaries has or had an interest. (vi) Shareholders have delivered to Buyer true and complete copies and results of any reports, studies, analyses, tests, or monitoring possessed or initiated by Shareholders or Company or the Subsidiaries pertaining to Hazardous Materials or Hazardous Activities in, on, or under the Properties, or concerning compliance by, Company, the Subsidiaries or any other Person for whose conduct they are or may be held responsible, with Environmental Legal Requirements. 4.10 Title to and Condition of Properties. 4.10.(a) Marketable Title. Company or the Subsidiaries have good and marketable title to all of Company's assets, Business and Properties, including, without limitation, all such assets and Properties reflected in the Recent Balance Sheet and in the Adjustment Statements, free and clear of all Liens, except those described in Schedule 4.10 (a), and, in the case of any Property, Liens for Taxes or special assessments not yet due or which are being contested in good faith by appropriate proceedings, municipal and zoning ordinances, building or use restrictions, and easements for public roads and public utilities, exceptions or reservations of coal, minerals, and mining rights, none of which interfere with the use and enjoyment of any Property as currently utilized. None of Company's or the Subsidiaries assets, Business or Properties are subject to any restrictions with respect to the transferability thereof; and Company's title thereto will not be affected in any way by the transactions contemplated hereby. 4.10.(b) Insurance. Set forth in Schedule 4.10.(b) is a complete list and description of all policies of fire, liability, product liability, workers compensation, health and other forms of insurance presently in effect with respect to the Business and 15 Properties of Company and the Subsidiaries, true and correct copies of which have heretofore been delivered to Buyer. All such policies are valid, outstanding and enforceable policies; and no such policy (not any previous policy) provides for or is subject to any currently enforceable retroactive rate or premium adjustment or loss sharing arrangement, except for worker's compensation insurance (payroll variable) and general liability insurance (attendance variable). No notice of cancellation or termination has been received with respect to any such policy, and neither Company nor any Shareholder has knowledge of any act or omission of Company or the Subsidiaries which could result in cancellation of any such policy prior to its scheduled expiration date. Company has not been refused any insurance with respect to any Property or an aspect of the operations of the Business nor has its coverage been limited by any insurance carrier to which it has applied for insurance or with which it has carried insurance during the last three years. Company has duly and timely made all claims it has been entitled to make under each policy of insurance. Since January 1, 2000 all general liability policies maintained by or for the benefit of Company have been "occurrence" policies and not "claims made" policies. There is no claim by Company pending under any such policies as to which coverage has been questioned, denied or disputed by the underwriters of such policies, and neither Company nor any of Shareholders knows of any basis for denial of any claim under any such policy. 4.10.(c) The buildings, plants, structures, and equipment of the Company and the Subsidiaries are structurally sound, are in good operating condition and repair,(considering the Improvements age, location and type) and are adequate for the uses to which they are being put, and none of such buildings, plants, structures, or equipment is in need of maintenance or repairs except for ordinary wear and tear, and routine maintenance and repairs that are not material in nature or cost. The buildings, plants, structures, and equipment of the Company are sufficient for the continued conduct of the Company's businesses after the Closing in substantially the same manner as conducted prior to the Closing. 4.11 Contracts and Commitments. 4.11.(a) Personal Property Leases. Except as set forth in Schedule 4.11.(a), neither Company nor the Subsidiaries have any leases of personal property. 4.11.(b) Contracts With Affiliates and Certain Others. Except as set forth in Schedule 4.11.(b), neither Company nor the Subsidiaries have any agreement, understanding, contract or commitment (written or oral) with any Affiliate or any employee, agent, consultant, distributor, dealer, vendor or franchisee that is not cancelable by Company on notice of not longer than ninety (90) days without material liability, penalty or premium of any nature or kind whatsoever. 16 4.1l.(c) Powers of Attorney. Neither Company nor the Subsidiaries have given a power of attorney, which is currently in effect, to any person, firm or corporation for any purpose whatsoever. 4.11.(d) Collective Bargaining Agreements. Neither Company nor the Subsidiaries is a party to any collective bargaining agreements with any unions, guilds, shop committees or other collective bargaining groups. 4.11.(e) Debt Obligations. Except as set forth in Schedule 4.11.(e) and specifically disclosed in the Recent Balance Sheet and in the Estimated Closing Statement, neither Company nor the Subsidiaries has any Debt Obligations Upon payment of all Debt Obligations at Closing, the Properties and all other assets of the Company and the Subsidiaries will be free and clear of all Liens, except the liens of real estate taxes, special assessments and personal property taxes, not yet due or payable 4.11.(f) Guarantees. Except as disclosed on Schedule 4.11.(f), neither Company nor the Subsidiaries has guaranteed the payment or performance of any person, firm or corporation, agreed to indemnify any person or act as a surety, or otherwise agreed to be contingently or secondarily liable for the obligations of any person, including theatre leases, Debt Obligations and capitalized equipment leases. 4.ll.(g) Contracts Subject to Renegotiation. Neither Company nor the Subsidiaries is a party to any contract which is subject to renegotiation. 4.ll.(h) Burdensome or Restrictive Agreements. Except as disclosed on Schedule 4.11.(h) addressing the Clinton, Iowa property, neither Company nor the Subsidiaries is a party to nor is it bound by any agreement requiring either to assign any interest in any trade secret or proprietary information, or prohibiting or restricting Company or any Subsidiary from competing in any business or geographical area or soliciting customers or otherwise restricting it from carrying on its Business anywhere in the world. 4.11.(i) No Default. Neither Company nor the Subsidiaries is in default under any lease, contract or commitment, nor has any event or omission occurred prior to the closing which through the passage of time or the giving of notice, or both, would constitute a default thereunder or cause the acceleration of any of Company's or any Subsidiaries' obligations or result in the creation of any Lien on any Property or other assets owned, leased, used or occupied by Company or any Subsidiary. No third party is in default under any lease, contract or commitment to which Company or any Subsidiary is a party, nor has any event or omission occurred which, through the passage of time or the giving of notice, or both, would constitute a 17 default thereunder or give rise to an automatic termination, or the right of discretionary termination, thereof. 4.11(j) Schedule 4.11(j) contains a complete and accurate list, and Shareholders have delivered to Buyer true and complete copies, of: (i) each contract that involves performance of services or delivery of goods or materials by Company or any Subsidiary; (ii) each Contract that involves performance of services or delivery of goods or materials to Company or any Subsidiary; (iii) each contract that was not entered into in the Ordinary Course of Business; (iv) each lease, rental or occupancy agreement, license, installment and conditional sale agreement, and other contract affecting the ownership of, leasing of, title to, use of, or any leasehold or other interest in, any real property; (v) each licensing agreement or other contract with respect to patents, trademarks, copyrights, or other intellectual, including agreements with current or former employees, consultants, or contractors regarding the appropriation or the non-disclosure of any of the Intellectual Assets; (vi) each joint venture, partnership, and other contract (however named) involving a sharing of profits, losses, costs, or liabilities by Company or any Subsidiary with any other Person; (vii) each Contract providing for payments to or by any Person based on sales, purchases, or profits, other than direct payments for goods; (viii) each contract for capital expenditures in excess of $50,000.00; (ix) each amendment, supplement, and modification (whether oral or written) in respect of any of the foregoing. 18 4.12 Labor Matters and Employees 4.12(i) To the best of Shareholders' knowledge, within the last five years neither Company nor the Subsidiaries has experienced any labor disputes, union organization attempts or any work stoppage due to labor disagreements in connection with its Business. Except to the extent set forth in Schedule 4.12 and specifically disclosed and fully reflected in the Recent Balance Sheet or in the Adjustment Statements, (a) the Company and Subsidiaries are in compliance with all applicable Legal Requirements respecting employment and employment practices, terms and conditions of employment and wages and hours, and is not engaged in any unfair labor practice; (b) there is no unfair labor practice charge or complaint against Company or the Subsidiaries pending or threatened; (c) there is no labor strike, dispute, request for representation, slowdown or stoppage actually pending or threatened against or affecting Company or the Subsidiaries nor any secondary boycott with respect to products of Company or the Subsidiaries; (d) no question concerning representation has been raised or is threatened respecting the employees of Company or the Subsidiaries; (e) no grievance which might have a material adverse effect on Company, the Subsidiaries or any Property (individually or in the aggregate), is pending and no such claim therefor exists; and (f) there are no administrative charges, court complaints or other Litigation against Company or the Subsidiaries concerning alleged employment discrimination or other employment related matters pending or threatened before the U.S. Equal Employment Opportunity Commission or any Government Entity. Set forth on Schedule 4.12 attached hereto and by this reference made a part hereof, is an accurate list showing all officers, directors and manager level and above employees of the Company and the Subsidiaries, listing all employment agreements with such officers, directors and employees and the annual rate of compensation (and the portions thereof attributable to salary, commissions (and commission rates), bonus and other compensation, respectively) of each of such persons as of the date hereof. Attached to Schedule 4.12 are true, complete and correct copies of any employment agreements (or other agreements to which the Company or the Subsidiaries are bound or have liability with respect to such person) for persons listed on Schedule 4.12. Since January 1, 2005, there 19 have been no increases in the compensation or benefits payable to or to become payable to, or any special bonuses to, any full time officer, director, key employee or other employee, except ordinary salary increases implemented on a basis and in amounts consistent with past practices and amounts. (ii) To the best of the Shareholders' knowledge, after due inquiry, except as set forth on Schedule 4.12 neither the Company nor any Subsidiary is in violation of, and has not violated, any applicable equal employment opportunity laws, regulations or orders, wage and hour laws, regulations or orders, occupational safety and health laws, regulations or orders, federal labor laws, regulations or orders or any other laws, regulations or orders relating to employment. (iii) With respect to all current employees (as defined in Section 274a.1(g) of Title 8, Code of Federal Regulations) of the Company and the Subsidiaries, true and complete copies of all Forms I-9 (Employment Eligibility Verification Forms) completed pursuant to the Immigration Reform and Control Act of 1986, as amended, and all regulations promulgated thereunder ("IRCA"), and any and all copies of documentation, records or other papers retained with Forms I-9, have been delivered to or made available to Buyer. To the best of the Shareholders' knowledge, after due inquiry, the Company and the Subsidiaries have complied with IRCA with respect to the completion of Forms I-9 for all employees and the reverification of the employment status of any and all employees whose employment authorization documents indicated a limited period of employment authorization. (iv) To the best of the Shareholders' knowledge, after due inquiry, with respect to all former employees who left the Company's or any Subsidiaries' employment within three (3) years prior to Closing, the Company and the Subsidiaries have complied with IRCA with respect to the maintenance of Forms I-9 for at least three (3) years or for one (1) year beyond the date of termination, whichever is later. Shareholders will use their best efforts to deliver or make available to Buyer true and complete list of all terminated employees manager level and above hired by the Company and the Subsidiaries less than three (3) years prior to Closing or terminated less than one (1) year prior to Closing, true and complete copies of all Forms I-9 maintained for terminated employees pursuant to IRCA, and 20 any and all copies of documentation, records or other papers retained with Forms I-9, have been or will be delivered or made available to Buyer. (v) Schedule 4.12 contains a true and complete list of all employees of the Company and the Subsidiaries working under INS authorization in E, F, H, J, L, M, O, P or TN Visa Status together with a listing of each such employee's visa status and visa expiration date. To the best of the Shareholders' knowledge, after due inquiry, the Company and the Subsidiaries maintain current files containing all Labor Condition Application (LCA) related public and non-public access documentation which it must present upon request by the U.S. Department of Labor or the general public, including, but not limited to, all documentation noted in 20 CFR Section 655.760. (vi) To the best of the Shareholders' knowledge, after due inquiry, neither the Company nor any Subsidiary has had immigration violations, nor has it employed individuals not authorized to work in the United States. Neither the Company nor any Subsidiary has ever received notice of, nor, to the best of the Shareholders' knowledge, after due inquiry, has the Company or any Subsidiary ever been the subject of any inspection or investigation by any Governmental Authority relating to its compliance with or violation of IRCA, nor has it been warned, fined or otherwise penalized by any Governmental Authority by reason of any failure to comply with IRCA, nor is such a proceeding pending or threatened. (viii) To the best of the Shareholders' knowledge, after due inquiry, the consummation the transactions contemplated by this Agreement will not give rise to any liability of the Company or any Subsidiary for its failure to properly complete, maintain and update Forms I-9 prior to the Closing, or give rise to any liability of the Company or any Subsidiary for the employment prior to the Closing of individuals not authorized to work in the United States, or cause any current employee to become unauthorized to work in the United States. 21 4.13 Employee Benefit Plans. 4.13.(a) Disclosure. Schedule 4.0 sets forth all Employee Plans/Agreements, true and correct copies of which, including all amendments thereto, have heretofore been provided to Buyer. 4.13.(b) Future Commitments. Neither the Company nor any Subsidiary has any announced plan or commitment to create any additional Employee Plans/Agreements or to amend or modify any existing Employee Plan/Agreement, except for retention agreements which shall be fully satisfied by the Shareholders prior to Closing and for which there shall be no liability whatsoever on and following the Closing Date. 4.14 Trade Rights. Neither the Company nor any Subsidiary owns, controls, uses or holds any Trade Rights. 4.15 Bank Accounts. Schedule 4.15 sets forth the names and locations of all banks, trust companies, savings and loan associations and other financial institutions at which Company or any Subsidiary maintains a safe deposit box, lock box or checking, savings, custodial or other account of any nature, the type and number of each such account and the signatories therefore, a description of any compensating balance arrangements, and the names of all persons authorized to draw thereon, make withdrawals therefrom or have access thereto. 4.16 Assets Necessary to Business. Company and the Subsidiaries presently have and at the Closing will have good, valid and marketable title to all owned Properties and its other assets, tangible and intangible. 4.17 No Brokers or Finders. Neither Company, any Subsidiary nor any of its directors, officers, employees, Shareholders or agents have retained, employed or used any broker or finder in connection with the transaction provided for herein or in connection with the negotiation thereof. Section 4.18 Intellectual. (a) Intellectual Assets -- The term "Intellectual Assets" includes: 22 (i) Company's and all Subsidiaries' names, all fictional business names, trading names, registered and unregistered trademarks, service marks, and applications (collectively, "Marks"); (ii) all patents, patent applications, and inventions and discoveries that may be patentable (collectively, "Patents"); (iii) all copyrights in both published works and unpublished works (collectively, "Copyrights");and (iv) all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, and blue prints (collectively, "Trade Secrets"); owned, used, or licensed by Company or any Subsidiary as licensee or licensor. (b) Schedule 4.18 contains a complete and accurate list and summary description, including any royalties paid or received by the Companies or any Subsidiary , of all Contracts relating to the Intellectual Assets to which Company or any Subsidiary is a party or by which Company or any Subsidiary is bound, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available software programs with a value of less than $10,000.00 under which Company or any Subsidiary is the licensee. There are no outstanding and, to Shareholders' Knowledge, no Threatened disputes or disagreements with respect to any such agreement. (c) Know-How Necessary for the Business (i) Except as set forth on Schedule 4.18 the Intellectual Assets are all those necessary for the operation of the Company's or any Subsidiaries' businesses as they are currently conducted, Company or the Subsidiaries are the owner of all right, title, and interest in and to each of the Intellectual Assets, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims, and has the right to use without payment to a third party all of the Intellectual Assets. 4.19 Absence of Certain Changes and Events. Except as set forth in Schedule 4.19 since the date of the Consolidated Balance Sheet, the Company and the Subsidiaries have conducted their businesses only in the Ordinary Course of Business and there has not been any: 23 (a) change in Company's or any Subsidiaries' authorized or issued capital stock; grant of any stock option or right to purchase shares of capital stock of Company or any Subsidiary; issuance of any security convertible into such capital stock; grant of any registration rights; purchase, redemption, retirement, or other acquisition by Company or any Subsidiary of any shares of any such capital stock; or declaration or payment of any dividend or other distribution or payment in respect of shares of capital stock; (b) amendment to the Organizational Documents of Company or any Subsidiary; (c) payment or increase by Company or any Subsidiary of any bonuses, salaries, or other compensation to any stockholder, director, officer, or (except in the Ordinary Course of Business) employee or entry into any employment, severance, or similar Contract with any director, officer, or employee; (d) adoption of, or increase in the payments to or benefits under, any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any employees of Company or any Subsidiary; (e) damage to or destruction or loss of any asset or of Company or any Subsidiary, whether or not covered by insurance, materially and adversely affecting the properties, assets, business, financial condition, or prospects of the Company or any Subsidiary, taken as a whole; (f) entry into, termination of, or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, joint venture, credit, or similar agreement, or (ii) any Contract or transaction involving a total remaining commitment by or to Company or any Subsidiary of at least $10,000.00; (g) sale (other than sales of inventory in the Ordinary Course of Business), lease, or other disposition of any asset or of Company or any Subsidiary or mortgage, pledge, or imposition of any lien or other encumbrance on any material asset or of any Company or any Subsidiary, including the sale, lease, or other disposition of any of the Intellectual Assets; (h) cancellation or waiver of any claims or rights with a value to Company or any Subsidiary in excess of $10,000.00; 24 (i) material change in the accounting methods used by Company or any Subsidiary; or (j) agreement, whether oral or written, by Company or any Subsidiary to do any of the foregoing. 5. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer makes the following representations and warranties to Shareholders, each of which is true and correct on the date hereof, shall remain true and correct to and including the Closing Date, shall be unaffected by any investigation heretofore or hereafter made by Shareholders or any notice to Shareholders, and shall survive the Closing of the transactions provided for herein. 5.1 Corporate. 5.1.(a) Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. 5.l.(b) Corporate Power. Buyer has all requisite corporate power to enter into this Agreement and the other documents and instruments to be executed and delivered by Buyer and to carry out the transactions contemplated hereby and thereby. 5.2 Authority. This Agreement is authorized by the Executive Committee of Buyer's "Board of Directors" and subject to the terms hereof does constitute, and when executed and delivered, the other Ancillary Instruments to be executed and delivered by Buyer pursuant hereto will constitute, valid and binding agreements of Buyer, enforceable in accordance with their respective terms, except as such may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors' rights generally. 5.3 No Brokers or Finders. Neither Buyer nor any of its directors, officers, employees or agents have retained, employed or used any broker or finder in connection with the transaction provided for herein or in connection with the negotiation thereof. 5.4 Investment Intent. The Shares are being acquired by Buyer for investment only and not with the view to resale or other distribution. Buyer operates and is active in the same business and industry in which Company or any Subsidiary is involved, namely the ownership and operation of multi-screen motion picture or movie theatres and complexes. 25 6. COVENANTS 6.1 Title Insurance. Shareholders shall order (prior to the deadline set forth in Section 3.1) and deliver to Buyer, at Shareholders' expense, updated title insurance searches of its existing title insurance policies on each of its owned Properties by such company or companies that issued such policies (in such capacity, "Title Insurance Company"), confirming the fee simple title thereto in Company. Buyer acknowledges that Company's owned properties are already insured and that copies of such policies will be delivered to Buyer to inspect. The foregoing title search and confirmation of title is to show no adverse liens or claims not specifically disclosed by the Company's Financial Statements. Shareholders agree to deliver to Buyer at Closing all documents necessary to clear record title of all liens and encumbrances constituting mortgages, deeds to secure debt, security deeds, Uniform Commercial Code filings and any and all other evidence of recorded debt on Company Property. 6.2 Environmental Reports. Shareholders shall deliver to Buyer upon execution and delivery hereof all "Phase I" environmental reports for each Property currently in Company's or any Subsidiaries' possession. No updated "Phase I" environmental reports are required of Shareholders for the Properties. If there is no Phase I environmental report for a Property, then one shall be ordered by Shareholders at the mutual cost of Shareholders and Buyer. 6.3 HSR Act Filings. If required by law, Buyer at its cost agrees to file as soon as reasonably practicable, a "Notification and Report Form" under the HSR Act with the FTC and the Antitrust Division. Notwithstanding the foregoing, in no event shall any party be required to sell, divest or otherwise dispose of any assets, businesses or lines of business in order to comply with the foregoing, nor shall any party be required to agree to or observe any restrictions or limitations on its ability to conduct or engage in any line of business in order to comply with the foregoing. 6.4 Conduct of Business Pending the Closing. From the date hereof until the Closing, except as otherwise approved in writing by Buyer, Shareholders covenant that the Company and the Subsidiaries shall, and Shareholders shall cause, each of the following to occur: 6.4.(a) No Changes. Company and the Subsidiaries have and will carry on their Business diligently and in the same manner as prior to the entry into the discussion that led to the execution of the Letter of Intent and will not make or institute, and has 26 not made or instituted, any changes in its methods of purchase, sale, management, accounting or operation compared to previous periods. 6.4.(b) Maintain Organization. Company and the Subsidiaries will take such action as may be necessary to maintain, preserve, renew and keep in favor and effect the existence, rights and franchises of Company and the Subsidiaries and will preserve the Business, Properties and organization of Company and the Subsidiaries intact, to keep available to Company and the Subsidiaries the present officers and employees, and to preserve for Company and the Subsidiaries its present relationships with film companies and other suppliers and customers and others having business relationships with Company and the Subsidiaries, all at no additional cost to Company, any Subsidiary or Shareholders other than in the ordinary course of business. 6.4.(c) No Breach. Company, the Subsidiaries and Shareholders will not do or omit any act, or permit any omission to act, which may cause a Breach of any contract, commitment or obligation that is material, either to Company any Subsidiaries or any Property (individually or in the aggregate). 6.4.(d) No Material Contracts. No contract or commitment will be entered into, and no purchase of materials or supplies and no sale of goods or services (real, personal, or mixed, tangible or intangible) will be made, by or on behalf of Company or the Subsidiaries, except contracts, commitments, purchases or sales which are in the ordinary course of business and consistent with past practice. 6.4.(e) No Corporate Changes. Neither Company nor any Subsidiary shall amend its "Certificate of Incorporation" or By-Laws or make any changes in authorized or issued capital stock. 6.4.(f) Maintenance of Insurance. Company and the Subsidiaries shall maintain all of the insurance in effect as of the date hereof. 6.4.(g) Maintenance of Property. Company and the Subsidiaries shall use, operate, maintain and repair each Property and all other assets of Company and the Subsidiaries in a normal business manner, consistent with Company's and the Subsidiaries' historical practices. 6.5 No Solicitation or Negotiations With Other Parties. Other than with respect to Buyer and its Affiliates, Company and Shareholders represent and warrant that they, their Affiliates and their representatives have terminated any other parties' (other than Buyer and its representatives) access to any nonpublic information about the Company and the Properties. From and after the date hereof, Company and Shareholders shall not, nor shall they permit any of their Affiliates 27 to, nor shall they authorize or permit any of Company's officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative retained or utilized by it or any of its Affiliates to, directly or indirectly, solicit, initiate or encourage (including by way of furnishing information which has not been previously publicly disseminated), or take any other action designed to facilitate, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any Proposal or any sale, transfer, assignment or other disposition of any Property. 6.6 Consents. Prior to Closing, Company and Shareholders shall obtain all written consents necessary for the consummation of the transactions contemplated hereby, including, without limitation, consents from Landlords of Leases requiring said Landlord's consent to the Transaction or transfer of the Lease. 6.7 Estoppel Certificates. On or before the Closing Date, Company will use its Best Efforts to obtain an Estoppel Certificate or status letters from the landlord under each lease of a Property, which estoppel certificate or status letter will certify (i) the lease is valid and in full force and effect; (ii) the amounts payable by Company under the lease and the date to which the same have been paid; and (iii) whether there are, to the knowledge of said landlord, any defaults thereunder, and, if so, specifying the nature thereof. 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS Each and every obligation of Buyer to be performed on the Closing Date shall be subject to the satisfaction prior to or at the Closing of each of the following conditions: 7.1 Representations and Warranties True of the Closing Date. Each of the representations and warranties made by Shareholders in this Agreement, Schedules and Exhibits, shall be true and correct when made and shall be true and correct at and as of the Closing Date as though such representations and warranties were made or given on and as of the Closing Date. 7.2 Compliance With Agreement. Shareholders shall have performed and complied with all of their agreements and obligations under this Agreement which are to be performed or complied with by them prior to or on the Closing Date, including the delivery of the closing documents specified in Section 10.1. 28 7.3 Satisfaction of Buyer's Due Diligence: The Due Diligence Period has expired without notice being given pursuant to 3.2(b), or Buyer has waived same. 7.4 Absence of Litigation. No Litigation shall have been commenced or threatened, and no investigation by any Governmental Entity shall have been commenced, against Buyer, Company, any Subsidiary, Shareholders or any of the Affiliates, officers or directors of any of them, the Business or any of the Properties, with respect to the transactions contemplated hereby, including a Hart-Scott-Rodino proceeding. 8. CONDITIONS PRECEDENT TO SHAREHOLDERS' OBLIGATIONS Each and every obligation of Shareholders to be performed on the Closing Date shall be subject to the satisfaction prior to or at the Closing of the following conditions: 8.1 Representations and Warranties True on the Closing Date. Each of the representations and warranties made by Buyer in this Agreement shall be true and correct when made and shall be true and correct at and as of the Closing Date as though such representations and warranties were made or given on and as of the Closing Date. 8.2 Compliance With Agreement. Buyer shall have performed and complied with all of Buyer's agreements and obligations under this Agreement which are to be performed or complied with by Buyer prior to or on the Closing Date, including the delivery of the closing documents and the Purchase Price specified in Section 10.2. 8.3 Absence of Litigation. No Litigation shall have been commenced or threatened, and no investigation by any Government Entity shall have been commenced, against Buyer, Company, any Subsidiary, Shareholders or any of the Affiliates, officers or directors of any of them, the Business or any of the Properties, with respect to the transactions contemplated hereby. 9. SURVIVAL; INDEMNIFICATION 9.1 Survival. All of the representations warranties and covenants of and the resulting indemnity of Shareholders contained in this Agreement shall survive the Closing for a period of Eighteen (18) months from the Closing, during which time they shall remain in full force and effect, excepting: 29 a. intentional material misrepresentations adverse to the Buyer, which shall continue in effect forever a. the representations, warranties and covenants made and agreed pertaining to liability for or with respect to Taxes of the Company and Subsidiaries, which shall continue in effect for nine (9) months after the expiration of any statute of limitation, including any extensions thereof, applicable to any of the Taxes referred to herein or any Returns with respect to any such Taxes b. the representations, warranties and covenants made and agreed to by the Shareholders, as to the ownership of the Shares and as to the capitalization of the Company and the Subsidiaries set forth in Schedule 4.1 (f) which shall survive forever; d. the representations, warranties and covenants made and agreed to by Shareholders, with respect to compliance with Environmental Laws as set forth in Section 4.9(c) above, which shall survive for a period of Five (5) years after the Closing Date. 9.2 By Shareholders. Except as provided in Section 9.1, the representations, warranties, covenants, and agreements given by the Shareholders that are contained in this Agreement shall survive the Closing Date for a period of eighteen months, and pursuant to any investigation or inquiry made by or on behalf of Buyer, the Shareholders, jointly and severally agree to indemnify Buyer against any loss, cost, liability, or expense arising during the periods set forth in Section 9.1 above after the Closing Date (including, without limitation, costs and expenses of litigation and reasonable attorney's fees) incurred by reason of the incorrectness or breach of any of their respective representations, warranties, covenants, and agreements contained in this Agreement or given on the Closing Date. Notwithstanding the foregoing, the aggregate liability of Shareholders for 30 indemnity under this Agreement or otherwise shall not exceed the Two Million TWO HUNDRED THOUSAND Dollar ($2,200,000.00) Fund B amount held pursuant to the Closing Escrow Agreement. 9.3 By Buyer. Subject to the terms and conditions of this Section 9, Buyer hereby agrees to indemnify, defend and hold harmless each Shareholder from and against all Claims asserted against, resulting to, imposed upon or incurred by any such person, directly or indirectly, by reason of or resulting from (a) the inaccuracy or breach of any representation or warranty of Buyer contained in or made pursuant to this Agreement; and (b) Claims for any post-Closing events, facts or circumstances. 9.4 Indemnification of Third-Party Claims. The obligations and liabilities of any party to indemnify any other under this Section 9 with respect to Claims relating to third parties shall be subject to the following terms and conditions: 9.4.(a) Notice and Defense. The party or parties to be indemnified (whether one or more, "Indemnified Party") will give the party from whom indemnification is sought ("Indemnifying Party") prompt written notice of any such Claim, and the Indemnifying Party will undertake the defense thereof by representatives chosen by it as reasonably approved by the Indemnified Party. Failure to give such notice shall not affect the Indemnifying Party's duty or obligations under this Section 9, except to the extent the Indemnifying Party is prejudiced thereby. So long as the Indemnifying Party is defending any such Claim actively and in good faith, the Indemnified Party shall not settle such Claim. The Indemnified Party shall make available to the Indemnifying Party or its representatives all records and other materials required by them and in the possession or under the control of the Indemnified Party, for the use of the Indemnifying Party and its representatives in defending any such Claim, and shall in other respects give reasonable cooperation in such defense. 9.4.(b) Failure to Defend. If the Indemnifying Party, within a reasonable time after notice of any such Claim, fails to defend such Claim actively and in good faith, the indemnified Party will (upon further notice) have the light, at the Indemnifying Party's cost, to undertake the defense, compromise or settlement of such Claim or consent to the entry of a judgment with respect to such Claim, on behalf of and for the account and risk of the Indemnifying Party, and the Indemnifying Party shall thereafter have no right to challenge the Indemnified Party's defense, compromise, settlement or consent to judgment therein. 9.4.(c) Indemnified Party's Rights. Anything in this Section 9.4 to the contrary notwithstanding, the Indemnifying Party shall not, without the written consent 31 of the indemnified Party, settle or compromise any Claim or consent to the entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party of a release from all Liability in respect of such Claim. 9.4.(d) Right to Participate. Notwithstanding a party's responsibility for the defense of a claim, the other party shall have the right to participate, at its own expense and with its own counsel, in the defense of a claim and the party having responsibility for defense of the claim ("Defending Party") shall consult with the other party from time to time on all material matters relating to the defense of such claim. The Defending Party shall provide the other party with copies of all pleadings and material correspondence relating to such claim. 9.5 Claims Procedure. The following exclusive procedure shall govern any and all indemnification claims against an Indemnifying Party which may be brought pursuant to the provisions of this Agreement: 9.5.(a) Notice. The Indemnified Party shall give written notice to the Indemnifying Party of all claims, whether between the parties or raised by a third party, that could constitute a claim for indemnification under this Section 9. Failure to give such notice shall not affect the Indemnifying Party's duty or obligations under this Section 9, except to the extent the Indemnifying Party is prejudiced thereby. The written notice shall specify to the extent known by the Indemnified Party (i) the factual basis for such claim and the alleged violation of this Agreement; (ii) the dollar amount of the claim and the basis therefor; and (iii) copies of all underlying correspondence or communication from a third party or otherwise with respect to the foundation of such claim. 9.5.(b) Determination Procedure. With respect to indemnification claims between the parties, following receipt of notice from the Indemnified Party of a claim, the Indemnifying Party shall have thirty (30) days to make such investigation of the claim as the Indemnifying Party deems necessary or desirable. With respect to indemnification claims relating to the claims of third parties, the Indemnifying Party shall have a reasonable period, given the nature of the third party claim and any response time required by such third party, to make such investigation of the claim as the Indemnifying Party deems necessary or desirable. For purposes of such investigation, the Indemnified Party agrees to make available to the Indemnifying Party and/or its authorized representatives the information relied upon by the Indemnified Party to substantiate the claim, as well as any other information bearing thereon reasonably requested by the Indemnifying Party. If the Indemnified Party and the 32 Indemnifying Party agree at or prior to the expiration of such investigation period (or any mutually agreed upon extension thereof) to the validity and amount of such claim, then the Indemnifying Party shall immediately pay to the Indemnified Party the full amount of the claim; provided, however, that if the Indemnifying Party is a Shareholder, then such payment must be made by reducing the amount held in Fund B pursuant to the Closing Escrow Agreement. If Fund B is reduced to a zero balance or has terminated by passage of time, then the Shareholders have no further liability under this Section 9 or this Agreement. If the Indemnified Party and the Indemnifying Party do not agree within thirty (30) days from the date of a claim hereunder (or any mutually agreed upon extension thereof, including subsequent to the final determination of a third-party indemnification claim), then the Indemnified Party and the Indemnifying Party shall appoint a panel of three neutral arbitrators (one selected by the Indemnified Party, one by the Indemnifying Party and one by the first two arbitrators) and the arbitrators thus appointed shall settle the dispute. If the Indemnified Party and the Indemnifying Party, or any one of them, are unwilling or unable to appoint an arbitrator, or if a duly appointed arbitrator refuses to act or is incapable of acting and the Indemnified Party and the Indemnifying Party, or any of them, are unwilling or unable to concur in or agree upon the appointment of a new arbitrator to fill the vacancy, or any appointment is not made within fifteen (15) Business Days after service of a written notice to concur in or agree upon the appointment of an arbitrator or a new arbitrator, as the case may be, application may be made by either party to a court of competent jurisdiction for the appointment of an arbitrator or a new arbitrator, as the case may be. The arbitration shall be conducted in Illinois pursuant to the "Commercial Arbitration Rules of the American Arbitration Association of Illinois," The decision of the arbitrators shall be final, conclusive and binding upon the parties. Any expenses of such arbitration including, without limitation, the fees of the arbitrators and, if determined appropriate by the arbitrators, the reasonable costs of the non-prevailing party, as the case may be, shall be paid by either the Indemnifying Party or Indemnified Party as determined appropriate by the arbitrators. 9.6 Payment. The Indemnifying Party shall promptly pay the Indemnified Party any amount due under this Section 9, which payment may be accomplished in whole or in part, at the option of the Indemnified Party, by the Indemnified Party setting off any amount owed to the Indemnifying Party by the Indemnified Party, and provided that, if the Indemnifying Party is a Shareholder, then such payment shall be made by reducing the amount held in escrow Fund B pursuant to the Closing Escrow Agreement, without further recourse against Shareholders as a result of being an Indemnifying Party if the amount held in escrow Fund B is reduced to zero or the Closing Escrow Agreement has otherwise terminated by passage of time. 33 9.7 No Waiver. The closing of the transactions contemplated by this Agreement shall not constitute a waiver by any party of its rights to indemnification hereunder. 10. CLOSING The closing of this transaction ("Closing") shall take place at the offices of Barber, Segatto, Hoffee & Hines, 831 East Monroe, Springfield, Illinois 62701, at 12:01 A.M. on Thursday, May 19, 2005 or at such other time prior thereto and place as the parties hereto shall agree upon. Such date is referred to in this Agreement as the "Closing Date." A pre-Closing shall be conducted on the day prior to the Closing Date at which all documents and other items to be delivered at Closing will be inspected, preapproved and executed by all of the parties. The Closing shall be deemed to be effective for all business, accounting, financial, Tax, legal and other purposes as of 12:01 A.M. on the Closing Date. 10.1 Documents to be Delivered by Company and Shareholders. At the Closing, Shareholders shall deliver or cause to be delivered to Buyer the following documents, in each case duly executed or otherwise in proper form: 10.1.(a) Stock Certificate(s). A stock certificate or certificates representing the Shares, duly endorsed for transfer or with duly executed stock powers attached. 10.1.(b) Compliance Certificate. A certificate signed by each Shareholder that each of the representations and warranties made by Shareholders in this Agreement is true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of the Closing Date (except for any changes permitted by the terms of this Agreement or consented to in writing by Buyer). 10.1.(c) Closing Escrow Agreement. The Closing Escrow Agreement duly executed by Shareholders and the Escrow Company in the form of Exhibit A hereto. 10.1.(d) Good Standing and Foreign Qualification Certificates. A certificate from the Secretary of State of the State of Delaware evidencing that Company and the Subsidiafvries as the case may be is in good standing as of recent dates prior to the Closing and certificates evidencing Company's qualification to do business in states identified by Buyer including, without limitation, the states of Wisconsin, Michigan, Indiana and Illinois. 34 10.1.(e) Incumbency Certificate. Incumbency certificates relating to each person executing (as a corporate officer or otherwise on behalf of another person) any document executed and delivered to Buyer pursuant to the terms hereof. 10.1.(f) Estimated Closing Adjustment Statement. The Estimated Closing Adjustment Statement, executed by Shareholders and Buyer. 10.1.(g) Resignations. The resignations of Beth Kerasotes, Marjorie Kerasotes, Jeff Cole, Jim Zehr, and Jeffrey Groen as executive officers and Employees, and Beth Kerasotes and Marjorie Kerasotes as directors of Company and the Subsidiaries, effective as of the Closing Date. 10.1.(h) Consents and Approvals. All approvals, consents and waivers that are required to effect the transactions contemplated hereby. 10.1.(i) Estoppel Certificates. The estoppel certificates required by Section 6.7. 10.1.(j) Schedules. The Schedules, and Exhibits. 10.1.(k) Affidavit. An affidavit, in form satisfactory to Buyer, to the effect that Company is not a "foreign person," "foreign corporation," "foreign partnership," "foreign trust," or "foreign estate" under Section 1445 of the Code, and containing all such other information as is required to comply with the requirements of such Section. 10.1.(l) Pay-off Letter. Pay-off letters from each counterparty to a Debt Obligation including the Equipment Lease Obligations 10.1.(m) Opinion of Counsel An opinion of Barber Segatto Hoffee & Hines , dated the Closing Date, in the form of Exhibit 10.1.(n) Release of Company by Shareholders Shareholders shall release Company and the Subsidiaries from any and all liabilities in form and substance as agreed upon by the parties. 10.1.(o) Other Documents. All other documents, instruments or writings required to be delivered to Buyer at or prior to the Closing pursuant to this Agreement and such other certificates of authority and documents as Buyer may reasonably request. 35 10.2 Documents to be Delivered by Buyer. At the Closing, Buyer shall deliver the following documents, in each case duly executed or otherwise in proper form: 10.2.(a) Closing Cash Payment. To Shareholders, the Closing Cash Payment as required by Section 2.2 (c), and the Earnest Money Deposit as required by Section 2.2 (a). 10.2.(b) Closing Escrow Amount. To Escrow Agent, the "Closing Escrow Amounts" as required by Section 2.2 (b). 10.2.(c) Compliance Certificate. To Shareholders, a certificate signed by an officer of Buyer that the representations and warranties made by Buyer in this Agreement are true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of the Closing Date (except for any changes permitted by the terms of this Agreement or consented to in writing by Shareholders). 10.2.(d) Certified Resolutions. To Shareholders, a certified copy of the resolutions of the Board of Directors of Buyer authorizing and approving this Agreement and the consummation of the transactions contemplated by this Agreement. 10.2.(e) Closing Escrow Agreement. To Shareholders, the Closing Escrow Agreement duly executed by Buyer and the Escrow Company in substantially the form of Exhibit A hereto. 10.2.(f) Opinion of Counsel. An opinion of Page, Scrantom, Sprouse, Tucker & Ford, P.C. , dated the Closing Date, in the form of Exhibit attached hereto. 10.2.(g) Other Documents. To Shareholders, all other documents, instruments or writings required to be delivered to Shareholders at or prior to the Closing pursuant to this Agreement and such other certificates of authority and documents as Shareholders may reasonably request. 10.3 Allocation of the Purchase Price. The Shareholders and Buyer acknowledge and agree that the payment of the Purchase Price contemplated hereunder is for the acquisition of all the outstanding Shares of the Company and personal goodwill. Shareholders and Buyer agree to allocation of the Purchase Price among said items as agreed between the Parties upon receipt of an independent valuation report applicable thereto. 36 11. TERMINATION 11.1 Termination by Mutual Agreement. This Agreement may be terminated without further liability of any party at any time prior to the Closing by a mutual written agreement of Buyer and Shareholders. 11.2 Termination by Buyer. 11.2.(a) Due Diligence Termination. At any time prior to the expiration of the Due Diligence Period, Buyer may, by written notice to Shareholders, terminate this Agreement based on the results of Buyer's due diligence investigation with the effect set forth in Section 11.4, that is the Escrow Money Deposit shall be paid to Shareholders to compensate for the Shares having been taken off the market. 11.2.(b) Termination by Shareholder Breach. If there has been a material violation or breach of any Shareholder of any of the agreements, representations or warranties contained in this Agreement which has not been waived in writing by Buyer or cured by Shareholders, or there has been a material failure of satisfaction of a condition to the obligations of Buyer which has not been so waived, then Buyer may, by written notice to Shareholders at any time prior to the Closing that such violation, breach, or failure is continuing and not cured by Shareholders, terminate this Agreement with the effect set forth in Section 11.4. 11.3 Termination by Shareholders. If the Due Diligence Period has expired without termination of this Agreement by Buyer and if the Closing has not timely occurred, or if there is a breach or violation by Buyer under Section 5 or Section 8, then Shareholders may terminate this Agreement with the effect set forth in Section 11.4. 11.4 Effect of Termination. If this Agreement is terminated by Buyer pursuant to Section 11.2.(b) or by mutual agreement of the parties pursuant to Section 11.1, then the Escrowee shall immediately return the Earnest Money Deposit (including all interest earned thereon) to Buyer by wire transfer of immediately available funds to an account designated by Buyer in writing in advance. If this Agreement is terminated by Buyer pursuant to Section 11.2.(a), then the Escrow Company shall immediately pay to Shareholders the Earnest Money Deposit by wire transfer of immediately available funds to an account designated by Shareholders in writing in advance. If this Agreement is terminated by Shareholders pursuant to Section 11.3, then the Escrow Company shall 37 immediately deliver the Earnest Money Deposit (including all interest earned thereon) to Shareholders by wire transfer of immediately available funds to an account designated by Shareholders in writing in advance, which Earnest Money Deposit shall be Shareholders sole and exclusive remedy for termination of this Agreement. If this Agreement is terminated, regardless of by whom or why, the Diligence Materials in Buyer's, or its affiliates', or agents', or employees' possession shall be returned to Shareholders or Company without any public disclosure of same. The parties hereto hereby acknowledge and agree that the damages to Shareholders due to failure of the Buyer to close hereunder are difficult if not impossible to ascertain and amount of the Earnest Money Deposit represents a reasonable pre-estimate of said damages, and is intended to be liquidated damages and not a penalty. 11.5 Allocation of Expense of Termination. If the transactions contemplated by this Agreement are not consummated, the parties will each pay their own expenses and fees incident to the negotiation, preparation, and execution of this Agreement and any other transactions relating to the consummation thereof, including, without limitation, fees of counsel, accountants, and other experts. 11.6 Diligence Materials. If this Agreement is terminated, regardless of by whom or why, the Diligence Materials in Buyer's, or its affiliates', or agents', or employees' possession shall be returned to Shareholders or Company without any public disclosure of same. 12. POST-CLOSING COVENANTS 12.1 Noncompetition; Confidentiality. 12.1.(a) Shareholders. Subject to the Closing, and as an inducement to Buyer to execute this Agreement and complete the transactions contemplated hereby, and in order to preserve the goodwill associated with the Business being acquired pursuant to this Agreement, each Shareholder hereby covenants and agrees as follows: (i) Covenant Not to Compete. Subject to geographical limits hereinafter specifically set forth, for a period of three (3) years from the Closing Date, no Shareholder will directly or indirectly: (A) engage in, continue in or cany on any business which competes with the Business or is substantially similar thereto, including owning or controlling any financial interest in any 38 corporation, partnership, firm or other form of business organization which is so engaged; (B) consult with, advise or assist in any way, whether or not for consideration, any Person, corporation, partnership, firm or other business organization which is now or becomes a competitor of Company, any Subsidiary or Buyer or any of their Affiliates in any aspect with respect to their theatre businesses, including, but not limited to, advertising or otherwise endorsing the products of any such competitor; soliciting customers or otherwise serving as an intermediary for any such competitor; loaning money or rendering any other form of financial assistance to or engaging in any form of business transaction on other than an arm's length basis with any such competitor; or (C) engage in any practice the purpose of which is to evade the provisions of this covenant not to compete or to commit any act which adversely affects the Business; provided, however, that the foregoing shall not prohibit the ownership of securities of corporations which are listed on a national securities exchange or traded in the national over-the-counter market in an amount which shall not exceed 5% of the outstanding shares of any such corporation. The parties agree that the geographic scope of this covenant not to compete shall extend to a radius of five (5) miles from each of the Properties currently operated by Company or any Subsidiary. The parties agree that Buyer may sell, assign or otherwise transfer this covenant not to compete, in whole or in part, to any person, corporation, firm or entity that purchases all or part of the Business of the Company or any Subsidiary. In the event a court of competent jurisdiction determines that the provisions of this covenant not to compete are excessively broad as to duration, geographical scope or activity, it is expressly agreed that this covenant not to compete shall be construed so that the remaining provisions shall not be affected, but shall remain in full force and effect, and any such over broad provisions shall be deemed, without further action on the part of any person, to be modified, amended and/or limited, but only to the extent necessary to render the same valid and enforceable in such jurisdiction. (ii) Covenant of Confidentiality. No Shareholder shall at any time subsequent to the Closing, except as explicitly requested by Buyer, (a) use for any purpose, or (b) disclose to any person documents, tapes, discs or programs containing, any confidential 39 information concerning any Company. For purposes hereof, "confidential information" shall mean and include, without limitation, all Trade Rights in which Company has an interest, all customer lists and customer information, and all other information concerning any of the Companies' and Subsidiaries' Business not previously disclosed to the public directly by Company or any Subsidiary. (iii) Equitable Relief for Violations. Each Shareholder agrees that the provisions and restrictions contained in this Section 12.1 are necessary to protect the legitimate continuing interests of Buyer in acquiring the Company, and that any violation or breach of these provisions will result in irreparable injury to Buyer for which a remedy at law would be inadequate and that, in addition to any relief at law which may be available to Buyer for such violation or breach and regardless of any other provision contained in this Agreement, Buyer shall be entitled to injunctive and other equitable relief as a court may grant after considering the intent of this Section 12.1. 12.2 Use of Names. Except as allowed by agreements between Shareholders and Buyer entered into at or after Closing, following the Closing, neither Shareholders nor any of their Affiliates shall, without the prior written consent of Buyer, make any commercial use of any Trade Rights, including, without limitation, the "GKC" trade name and related marks owned or used by the Company on the date hereof or previously or any other name or mark confusingly similar thereto. 13. RESOLUTION OF DISPUTES 13.1 Arbitration. After the Closing, except as otherwise provided herein, any dispute, controversy or claim arising out of or relating to this Agreement or any Ancillary Agreement shall be settled by binding arbitration held in Illinois in accordance with the Commercial Arbitration Rules of the American Arbitration Association of Illinois then in effect, except as specifically otherwise provided in this Section 13. 13.2 Arbitrators. The panel to be appointed shall consist of three neutral arbitrators (one to be chosen by Buyer, one to be chosen by Shareholders, and one to be chosen by the first two chosen arbitrators). 13.3 Procedures; No Appeal. The arbitrators shall allow such discovery as the arbitrators determine appropriate under the circumstances and shall resolve the dispute as expeditiously as practicable, and if reasonably 40 practicable, within one hundred twenty (120) days after the selection of the arbitrators. The arbitrators shall give the parties written notice of the decision, with the reasons therefor set out, and shall have thirty (30) days thereafter to reconsider and modify such decision if any party so requests within ten (10) days after the decision. Thereafter, the decision of the arbitrators shall be final, binding, and nonappealable with respect to all persons, including (without limitation) persons who have failed or refused to participate in the arbitration process. 13.4 Authority. The arbitrators shall have authority to award relief under legal or equitable principles, including interim or preliminary relief, and to allocate responsibility for the costs of the arbitration and to award recovery of attorneys fees and expenses in such manner as is determined to be appropriate by the arbitrators. 13.5 Entry of Judgment. Judgment upon the award rendered by the arbitrators may be entered in any court having in personam and subject matter jurisdiction. Shareholders and Buyer hereby submit to the in personam jurisdiction of the Federal and State courts in Illinois, for the purpose of confirming any such award and entering judgment thereon. 13.6 Confidentiality. All proceedings under this Section 13, and all evidence given or discovered pursuant hereto, shall be maintained in confidence by all parties and by the arbitrators. 13.7 Continued Performance. The fact that the dispute resolution procedures specified in this Section 13 shall have been or may be invoked shall not excuse any party from performing its obligations under this Agreement and during the pendency of any such procedure all parties shall continue to perform their respective obligations in good faith, subject to any rights to terminate this Agreement that may be available to any party. 13.8 Tolling. All applicable statutes of limitation shall be tolled while the procedures specified in this Section 13 are pending. The parties will take such action, if any, required to effectuate such tolling. 14. DEFINITIONS All defined terms used herein shall have the meaning set forth in this Section 14 or elsewhere defined in this Agreement as follows: 41 "Affiliate" shall mean, with respect to the person in question, (i) any shareholders, directors or officers of such person; (ii) any spouse, children or family members of such person; or (iii) any other person that, directly or indirectly, (a) owns or controls fifty percent (50%) or more of the outstanding voting and/or equity interests of such person, or (b) controls, is controlled by or is under common control with, the person in question. For the purposes of this definition, the term "control" and its derivations means having the power, directly or indirectly, to direct the management, policies or general conduct of business of the Person in question, whether by the ownership of voting securities, contract or otherwise. As to the Company, "Affiliate" shall include the Subsidiaries. "Antitrust Division" shall mean the Antitrust Division of the United States Department of Justice. "Best Efforts" The efforts that a prudent Person desirous of achieving a result would use in similar circumstances to ensure that such result is achieved as expeditiously as possible [; provided, however, that an obligation to use Best Efforts under this Agreement does not require the Person subject to that obligation to take actions that would result in a materially adverse change in the benefits to such Person of this Agreement and the Contemplated Transactions]. "Breach" A "Breach" of a representation, warranty, covenant, obligation, or other provision of this Agreement or any instrument delivered pursuant to this Agreement will be deemed to have occurred if there is or has been (a) any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation, or other provision, or (b) any claim (by any Person) or other occurrence or circumstance that is or was inconsistent with such representation, warranty, covenant, obligation, or other provision, and the term "Breach" means any such inaccuracy, breach, failure, claim, occurrence, or circumstance. "Business Day" shall mean any day other then Saturday, Sunday and any day which is a day on which banking institutions in the State of Illinois are authorized or required by law or other government action to close. "Buyer" As defined in the first paragraph of this Agreement. "CERCLA" shall mean the Comprehensive Environmental Response Compensation Liability Act, as amended. "Claim" shall include (i) all Liabilities, costs and expenses (including, without limitation, interest (including prejudgment interest in any litigated matter), court costs and attorneys fees and expenses; (iii) all claims, suits, actions, costs of investigation, causes of action, proceedings and assessments, whether or not ultimately determined to be valid; and (iii) all cost and expenses associated with the enforcement of this Agreement or any of the Ancillary Agreements. "Closing" As defined in Section 10. 42 "Code" shall mean the Internal Revenue Code of 1986, as amended. "Company" As defined in the Recitals of this Agreement. "Consent" Any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization). "Contract" Any Contract (a) under which Company or any Subsidiary has or may acquire any rights, (b) under which any Company or any Subsidiary has or may become subject to any obligation or liability, or (c) by which any Company, any Subsidiary or any of the assets owned or used by it is or may become bound. "Debt Obligations" shall mean outstanding principal, interest and prepayment amounts, under Operating Lines of Credit, Construction Lines of Credit, Permanent Debt Financing, Equipment Lease Obligations and Related Party Obligations shown on the Company's consolidated balance statement. "Effective Time" shall mean the close of business on the Business Day immediately prior to the Closing Date. "Encumbrance" Any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership. "Environment" Soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins, and wetlands), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource. "Environmental, Health, and Safety Liabilities" Any cost, damages, expense, liability, obligation, or other responsibility arising from or under Environmental Law or Occupational Safety and Health Law and consisting of or relating to: (a) any environmental, health, or safety matters or conditions (including on-site or off-site contamination, occupational safety and health, and regulation of chemical substances or products); (b) fines, penalties, judgments, awards, settlements, legal or administrative proceedings, damages, losses, claims, demands and response, investigative, remedial, or inspection costs and expenses arising under Environmental Law or Occupational Safety and Health Law; (c) financial responsibility under Environmental Law or Occupational Safety and Health Law for cleanup costs or corrective action, including any investigation, cleanup, removal, containment, or other remediation or response actions ("Cleanup") required by applicable Environmental Law or Occupational Safety and Health Law (whether or not such 43 Cleanup has been required or requested by any Governmental Body or any other Person) and for any natural resource damages; or (d) any other compliance, corrective, investigative, or remedial measures required under Environmental Law or Occupational Safety and Health Law. The terms "removal," "remedial," and "response action," include the types of activities covered by the United States Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA"). "Environmental Law" Any Legal Requirement that requires or relates to: (a) advising appropriate authorities, employees, and the public of intended or actual releases of pollutants or hazardous substances or materials, violations of discharge limits, or other prohibitions and of the commencements of activities, such as resource extraction or construction, that could have significant impact on the Environment; (b) preventing or reducing to acceptable levels the release of pollutants or hazardous substances or materials into the Environment; (c) reducing the quantities, preventing the release, or minimizing the hazardous characteristics of wastes that are generated; (d) assuring that products are designed, formulated, packaged, and used so that they do not present unreasonable risks to human health or the Environment when used or disposed of; (e) protecting resources, species, or ecological amenities; (f) reducing to acceptable levels the risks inherent in the transportation of hazardous substances, pollutants, oil, or other potentially harmful substances; (g) cleaning up pollutants that have been released, preventing the threat of release, or paying the costs of such clean up or prevention; or (h) making responsible parties pay private parties, or groups of them, for damages done to their health or the Environment, or permitting self-appointed representatives of the public interest to recover for injuries done to public assets. "ERISA" The Employee Retirement income Security Act of 1974 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. 44 "Estimated Closing Adjustment Statement" shall mean a projected balance sheet of Company which shall represent a reasonable estimate of the Final Closing Adjustment Statement; such balance sheet to be prepared in accordance with GAAP applied on a consistent basis and as otherwise required by this Agreement and accompanied by schedules setting forth in reasonable detail all assets and liabilities included therein. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Facilities" Any real property, leaseholds, or other interests currently or formerly owned or operated by and any buildings, plants, structures, or equipment (including motor vehicles, tank cars, and rolling stock) currently or formerly owned or operated by Company. "Final Closing Adjustment Statement" shall mean a balance sheet of Company as of the Effective Time, such balance sheet to be prepared in accordance with GAAP applied on a consistent basis and as otherwise required by this Agreement and accompanied by schedules setting forth in reasonable detail all assets and liabilities at the Effective Time.? "FTC" shall mean the United States Federal Trade Commission. "GAAP" Generally accepted United States accounting principles, applied on a basis consistent with the basis on which the Balance Sheet and the other financial statements were prepared. "Governmental Authorization" Any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement. "Governmental Body" Any: (a) nation, state, county, city, town, village, district, or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign, or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); (d) multi-national organization or body; or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature. "Hazardous Activity" The distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, Release, storage, transfer, transportation, treatment, or use (including any withdrawal or other use of groundwater) of Hazardous Materials in, on, under, about, or from the Facilities or any part thereof into the Environment, and any other act, business, operation, or thing that increases the danger, or risk of 45 danger, or poses an unreasonable risk of harm to persons or property on or off the Facilities, or that may affect the value of the Facilities or the Acquired Companies. "Hazardous Materials" Any waste or other substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law, including any admixture or solution thereof, and specifically including petroleum and all derivatives thereof or synthetic substitutes therefor and asbestos or asbestos-containing materials. "HSR Act" The Hart-Scott-Rodino Antitrust Improvements Act of 1976 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "Improvements" shall mean all buildings, improvements and structures now or on the Closing Date located on any, including, without limitation, landscaping, parking lots and structures, roads, drainage and all above ground and underground utility structures, systems and other so-called "infrastructure" improvements. "Independent Accounting Firm" shall mean an independent accounting firm of national or regional reputation mutually appointed by Shareholders and Buyer. "Knowledge" An individual will be deemed to have "Knowledge" of a particular fact or other matter if: (a) such individual is actually aware of such fact or other matter; or (b) a prudent individual could be expected to discover or otherwise become aware of such fact or other matter in the course of conducting a reasonably comprehensive investigation concerning the existence of such fact or other matter. A Person (other than an individual) will be deemed to have "Knowledge" of a particular fact or other matter if any individual who is serving, or who has at any time served, as a director, officer, partner, executor, or trustee of such Person (or in any similar capacity) has, or at any time had, Knowledge of such fact or other matter. Knowledge of the following individuals shall be attributed to and considered Knowledge of the Shareholders for purposes of this Agreement: Shareholders, Jeff Cole, Jim Zehr and Jeffrey Groen. "Law" shall mean any constitution, statute, law, ordinance, rule, authorization or regulation promulgated or issued by a Government Entity, including, without limitation, the Americans with Disabilities Act. "Legal Requirement" Any federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty. 46 "Liability" or "Liabilities" shall mean and include any direct or indirect indebtedness, guaranty, endorsement, claim, loss, debt, demand, judgment, fine, penalty, settlement, damage, deficiency, cost, expense, obligation or responsibility of any nature or kind, fixed or unfixed, accrued, absolute or contingent, known or unknown, asserted or unasserted, liquidated or unliquidated, matured or unmatured, secured or unsecured, including all costs and expenses (legal, accounting or otherwise) relating thereto, reduced in all cases by insurance reimbursements or other recoveries of monies on such account. "Licenses and Permits" shall mean all licenses, permits, consents, approvals, authorizations, registrations and certifications of all Government Entities and all certification organizations. "Liens" shall mean and include all mortgages, liens, (statutory or otherwise) security interests, claims, pledges, licenses, equities, options, conditional sales contracts, assessments, levies, charges or encumbrances of any nature whatsoever. "Noncompetition Agreements" As defined in Section. "Occupational Safety and Health Law" Any Legal Requirement designed to provide safe and healthful working conditions and to reduce occupational safety and health hazards, and any program, whether governmental or private (including those promulgated or sponsored by industry associations and insurance companies), designed to provide safe and healthful working conditions. "Operating and Service Agreements" shall mean all management, service and operating agreements and contracts entered into by Company with respect to the Properties or the Business of Company, including, but not limited to, agreements and contracts relating to maintenance and repair of the Properties, refuse service agreements, pest control service agreements, landscaping agreements, parking lot maintenance agreements and snow removal contracts. "Operating Lines of Credit" shall mean Bank One Credit Agreement amended and restated, dated September 30, 2004. "Order" Any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator. "Ordinary Course of Business" An action taken by a Person will be deemed to have been taken in the "Ordinary Course of Business" only if: (a) such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; 47 (b) such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority) [and is not required to be specifically authorized by the parent company (if any) of such Person]; and (c) such action is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person. "Person" Any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body. "Plan" As defined in Section. "Proceeding" Any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. "Property" shall have the meaning set forth in the Recitals to this Agreement. "Proposal" means any inquiry, proposal or offer from any person (other than Buyer and its Affiliates and representatives) relating to any direct or indirect (i) merger, consolidation or similar transaction involving the Company, (ii) sale, lease or other disposition, directly or indirectly, by merger, consolidation, share exchange or otherwise, of any of the assets of the Company other than sales within the ordinary course of business consistent with past practice, (iii) recapitalization, restructuring, liquidation, dissolution, or other similar type of transaction with respect to or involving the Company or (iv) transaction that is similar in form, substance or purpose to any of the foregoing transactions. "Release" Any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping, or other releasing into the Environment, whether intentional or unintentional. Representative" With respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors. "Securities Act" The Securities Act of 1933 or any successor law, and regulations and rules issued pursuant to that Act or any successor law. "Shareholders" As defined in the first paragraph of this Agreement. "Shareholders' Releases" As defined in Section. "Shares" As defined in the Recitals of this Agreement. 48 "Subsidiary" With respect to any Person (the "Owner"), any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation's or other Person's board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred) are held by the Owner or one or more of its Subsidiaries; when used without reference to a particular Person, "Subsidiary" means a Subsidiary of the Company. "Tax" Any tax (including any income tax, capital gains tax, value-added tax, sales tax, property tax, gift tax, or estate tax), levy, assessment, tariff, duty (including any customs duty), deficiency, or other fee, and any related charge or amount (including any fine, penalty, interest, or addition to tax), imposed, assessed, or collected by or under the authority of any Governmental Body or payable pursuant to any tax-sharing agreement or any other Contract relating to the sharing or payment of any such tax, levy, assessment, tariff, duty, deficiency, or fee. "Tax Return" Any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be Filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. "Threat of Release" A substantial likelihood of a Release that may require action in order to prevent or mitigate damage to the Environment that may result from such Release. "Threatened" A claim, Proceeding, dispute, action, or other matter will be deemed to have been "Threatened" if any demand or statement has been made (orally or in writing) or any notice has been given (orally or in writing), or if any other event has occurred or any other circumstances exist, that would lead a prudent Person to conclude that such a claim, Proceeding, dispute, action, or other matter is likely to be asserted, commenced, taken, or otherwise pursued in the future. Where any group or category of items or matters is defined collectively in the plural number, any item or matter within such definition may be referred to using such defined term in the singular number. 49 15. MISCELLANEOUS 15 1 Assignment; Parties in Interest. 15.1 (a) Assignment. Except as expressly provided herein, the rights and obligations of a party hereunder may not be assigned, transferred or encumbered without the prior written consent of the other parties. Buyer may assign its rights and interest in and to this Agreement to one or more of its Affiliates upon advance written notice to Shareholders; provided, however, notwithstanding such assignment, Buyer shall remain directly and primarily liable to Shareholders for its obligations hereunder. 15.1.(b) Parties in Interest; No Third Party Beneficiaries. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by the respective successors and permitted assigns of the parties hereto. Nothing contained herein shall be deemed to confer upon any other Person other than the parties hereto any right or remedy under or by reason of this Agreement. 15.2 Recordings. Neither this Agreement nor any notice or memorandum thereof shall be recorded in any real property records for any jurisdiction. Any such recordation shall constitute a default under this Agreement by the recording party. 15.3 Law Governing Agreement. This Agreement shall be construed and interpreted according to the internal Laws of the State of Illinois, excluding any 50 choice of Law rules that may direct the application of the Laws of another jurisdiction. 15.4 Amendment and Modification. The parties hereto may amend, modify and supplement this Agreement in such manner as may be agreed upon by them in writing. 15.5 Notice. All notices, requests, demands and other communications hereunder shall be given in writing and shall be: (a) personally delivered; or (b) sent to the parties at their respective addresses indicated herein by registered or certified U.S. mail, return receipt requested and postage prepaid, or by private overnight mail courier service. The respective addresses to be used for all such notices, demands or requests are as follows: IF TO BUYER, TO: Martin A. Durant Carmike Cinemas, Inc. 1301 1st Ave. Columbus, GA 31901 Facsimile: (706) 323-4070 (with a copy, which shall not constitute notice, to: Lee Champion Page, Scrantom, Sprouse, Tucker & Ford, P.C. 1111 Bay Ave. 3rd Floor Columbus, GA 31901 Facsimile: (706) 323-7519 or to such other person or address as Buyer shall furnish to Shareholders in writing. IF TO SHAREHOLDERS, TO: 51 Beth Kerasotes George Kerasotes Corporation 755 Apple Orchard Street Springfield, IL 62703 Facsimile: (217) 528-6490 (with a copy, which shall not constitute notice, to) Barry O. Hines Barber, Segatto, Hoffee & Hines 831 East Monroe Springfield, IL 62701 Facsimile: (217) 544-5225 or to such other person or address as Shareholders shall furnish to Buyer in writing. If personally delivered, such communication shall be deemed delivered upon actual receipt; if sent by overnight courier pursuant to this paragraph, such communication shall be deemed delivered upon receipt; and if sent by U.S. mail pursuant to this paragraph, such communication shall be deemed delivered as of the date of delivery indicated on the receipt issued by the relevant postal service, or, if the addressee fails or refuses to accept delivery, as of the date of such failure or refusal. Any party to this Agreement may change its address for the purposes of this Agreement by giving notice thereof in accordance with this Section 15.5. 15.6 Expenses. Regardless of whether or not the transactions contemplated hereby are consummated, and except as specifically set forth in this Agreement to the contrary, all fees and expenses incurred by Shareholders in connection with this Agreement will be borne by Shareholders and all fees and expenses incurred by Buyer in connection with this Agreement will be borne by Buyer, including all filing fees associated with any filings under the HSR Act, 15.7 Publicity. The parties agree that, except in the performance of the obligations under this Agreement, no party shall, with respect to this Agreement and the transactions contemplated hereby, make any public announcements, issue press releases or otherwise furnish information regarding this Agreement or the transactions contemplated to any third party without the consent of the other parties, which consent shall not be unreasonably withheld, delayed or conditioned, except as required by Law, the rules and regulations of the 52 "SEC" or the "NASDAQ Exchange" or unless such action is taken based on advice of counsel given in good faith. 15.8 Entire Agreement. This Agreement embodies the entire agreement between the parties hereto with respect to the transactions contemplated herein, and there have been and are no agreements, representations or warranties between the parties other than those set forth or provided for herein. 15.9 Counterparts; Facsimile Signatures. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures of the parties transmitted by facsimile shall be deemed to be their original signatures for all purposes 15.10 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. 15.11 Headings. The headings in this Agreement are inserted for convenience only and shall not constitute a part hereof. 15.12 Construction. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or Law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. 15.13 Incorporation of Schedules and Exhibits. The Schedules and Exhibits are incorporated herein by reference and made a part hereof. Information set forth in a disclosure Schedule shall be deemed to have been disclosed with respect to any other section of this Agreement, without the necessity for specific cross-referencing. A Schedule can be amended prior to the Closing upon prior notice to and approval by Buyer. 53 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. BUYER: CARMIKE CINEMAS INC. By: /s/ Michael W. Patrick ----------------------------------- Michael W. Patrick, President, pursuant to authority of its Board of Directors SHAREHOLDERS: /s/ Beth Kerasotes -------------------------------------- Beth Kerasotes, individually as a Shareholder /s/ Beth Kerasotes --------------------------------------- Beth Kerasotes, as Executor of and Trustee under the Will of George G. Kerasotes /s/ Marjorie Kerasotes --------------------------------------- Marjorie Kerasotes, individually as a Shareholder 54 EX-31.1 3 g96783exv31w1.htm EX-31.1 SECTION 302 CERTIFICATION OF CEO EX-31.1 SECTION 302 CERTIFICATION OF CEO

Exhibit 31.1

Certifications

I, Michael W. Patrick, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Carmike Cinemas, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 9, 2005

/s/ Michael W. Patrick

Michael W. Patrick

President, Chief Executive Officer and

Chairman of the Board of Directors

(Principal Executive Officer)

EX-31.2 4 g96783exv31w2.htm EX-31.2 SECTION 302 CERTIFICATION OF CFO EX-31.2 SECTION 302 CERTIFICATION OF CFO

Exhibit 31.2

Certifications

I, Martin A. Durant, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Carmike Cinemas, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 9, 2005

/s/ Martin A. Durant

Martin A. Durant

Senior Vice President — Finance,

Treasurer and Chief Financial Officer

(Principal Financial Officer)

EX-32.1 5 g96783exv32w1.htm EX-32.1 SECTION 906 CERTIFICATION OF CEO EX-32.1 SECTION 906 CERTIFICATION OF CEO

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Quarterly Report on Form 10-Q of Carmike Cinemas, Inc. (the “Corporation”) for the period ended June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the President, Chief Executive Officer and Chairman of the Board of Directors of the Corporation, certifies that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ Michael W. Patrick

Michael W. Patrick

President, Chief Executive Officer and

Chairman of the Board of Directors

(Principal Executive Officer)

August 9, 2005

EX-32.2 6 g96783exv32w2.htm EX-32.2 SECTION 906 CERTIFICATION OF CFO EX-32.2 SECTION 906 CERTIFICATION OF CFO

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Quarterly Report on Form 10-Q of Carmike Cinemas, Inc. (the “Corporation”) for the period ended June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Senior Vice President — Finance, Treasurer and Chief Financial Officer of the Corporation, certifies that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ Martin A. Durant

Martin A. Durant

Senior Vice President — Finance,

Treasurer and Chief Financial Officer

(Principal Financial Officer)

August 9, 2005

-----END PRIVACY-ENHANCED MESSAGE-----

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