-----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, HeDRADrjfHei3TqoeNH4g//3KLe/U6O5d0s8VWuKI1eKB5mZxprB3NBuhgIeJX6S D6lwy2KcrJZgxVsFdVAXxA== /in/edgar/work/0000950148-00-002421/0000950148-00-002421.txt : 20001121 0000950148-00-002421.hdr.sgml : 20001121 ACCESSION NUMBER: 0000950148-00-002421 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINEMASTAR LUXURY THEATERS INC CENTRAL INDEX KEY: 0000931085 STANDARD INDUSTRIAL CLASSIFICATION: [7830 ] IRS NUMBER: 330451054 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-25252 FILM NUMBER: 773718 BUSINESS ADDRESS: STREET 1: 12230 EL CAMINO REAL STREET 2: SUITE 320 CITY: SAN DIEGO STATE: CA ZIP: 92130 BUSINESS PHONE: 6195092777 MAIL ADDRESS: STREET 1: 12230 EL CAMINO REAL STREET 2: SUITE 320 CITY: SAN DIEGO STATE: CA ZIP: 92130 FORMER COMPANY: FORMER CONFORMED NAME: NICKELODEON THEATER CO INC DATE OF NAME CHANGE: 19941128 10QSB 1 v67377e10qsb.txt FORM 10-QSB (09/30/2000) 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from __________ to __________ Commission File Number 0-25252 CINEMASTAR LUXURY THEATERS, INC. (Exact Name of Registrant as specified in its charter) DELAWARE 33-0451054 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 12230 EL CAMINO REAL, SUITE 320, SAN DIEGO, CA 92130 (Address of principal executive offices) (Zip Code) (858) 509-2777 (Registrant's telephone number, including area code) Check whether the issuer (1) has filed all reports required to be filed by section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Common stock, $0.01 par value: 6,289,196 shares outstanding as of November 20, 2000. Transitional Small Business Disclosure Format. (check one): YES [ ] NO [X] 2 CINEMASTAR LUXURY THEATERS, INC. TABLE OF CONTENTS
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheet as of September 30, 2000 (Unaudited) 3 Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2000 and 1999 (Unaudited) 4 Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2000 and 1999 (Unaudited) 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities 16 Item 3. Defaults in Senior Securities 16 Item 4. Submission of Matters to a Vote of Securities Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 16
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CINEMASTAR LUXURY THEATERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 2000 ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 373,891 Prepaid expenses 418,075 Other current assets 288,047 ------------ TOTAL CURRENT ASSETS 1,080,013 Property and equipment, net 12,653,231 Deposits and other assets 533,757 ------------ TOTAL ASSETS $ 14,267,001 ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit $ 2,000,000 Current portion of long-term debt and capital lease obligations 1,720,883 Accounts payable 1,008,333 Accrued liabilities 621,368 Deferred revenue 462,923 ------------ TOTAL CURRENT LIABILITIES 5,813,507 Long-term debt and capital lease obligations, net of current portion - Deferred rent liability 4,952,698 ------------ TOTAL LIABILITIES 10,766,205 ------------ STOCKHOLDERS' EQUITY: Common stock, $0.01 par value; authorized shares 20,000,000; issued and outstanding shares 6,289,196 62,892 Additional paid-in capital 29,659,892 Accumulated deficit (26,221,988) ------------ TOTAL STOCKHOLDERS' EQUITY 3,500,796 ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,267,001 ============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 4 CINEMASTAR LUXURY THEATERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended September 30, Six Months Ended September 30, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ REVENUES: Admissions $ 5,636,944 $ 5,679,172 $ 10,462,312 $ 10,734,193 Concessions 2,402,869 2,312,865 4,487,175 4,406,299 Other operating revenues 207,676 183,281 418,153 340,197 ------------ ------------ ------------ ------------ TOTAL REVENUES 8,247,489 8,175,318 15,367,640 15,480,689 ------------ ------------ ------------ ------------ COSTS AND EXPENSES: Film rental and booking costs 2,907,042 3,041,058 5,352,291 5,943,280 Cost of concession supplies 423,127 445,377 792,764 821,188 Theater operating expenses 3,973,662 3,172,738 7,480,439 6,218,782 Selling, general and administrative expenses 735,160 836,741 1,439,832 1,569,525 Depreciation and amortization 821,241 599,758 1,618,731 1,196,885 ------------ ------------ ------------ ------------ TOTAL COSTS AND EXPENSES 8,860,232 8,095,672 16,684,057 15,749,660 ------------ ------------ ------------ ------------ OPERATING INCOME (LOSS) (612,743) 79,646 (1,316,417) (268,971) OTHER INCOME (EXPENSE): Interest expense (178,028) (115,927) (329,989) (208,942) Interest income 20,309 27,657 28,950 40,260 ------------ ------------ ------------ ------------ TOTAL OTHER (EXPENSE) (157,719) (88,270) (301,039) (168,682) ------------ ------------ ------------ ------------ LOSS BEFORE PROVISION FOR INCOME TAXES (770,462) (8,624) (1,617,456) (437,653) PROVISION FOR INCOME TAXES 122,023 - 123,623 - ------------ ------------ ------------ ------------ NET LOSS $ (892,485) $ (8,624) $ (1,749,079) $ (437,653) ============ ============ ============ ============ BASIC AND DILUTED NET LOSS PER SHARE $ (0.14) $ (0.00) $ (0.28) $ (0.11) ============ ============ ============ ============ WEIGHTED AVERAGE SHARES 6,289,196 3,864,986 6,289,196 3,864,986 ============ ============ ============ ============
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 5 CINEMASTAR LUXURY THEATERS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended September 30, ------------------------------ 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(1,741,079) $ (437,653) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 1,618,731 1,196,885 Deferred rent expense 386,116 310,522 Changes in operating assets and liabilities: Prepaid expenses and other current assets (168,909) (21,847) Deposits and other assets 25,711 (2,258) Accounts payable (2,166,944) 76,210 Accrued and other liabilities (105,327) (159,322) ----------- ----------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (2,151,701) 962,537 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (62,418) (2,946,396) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (62,418) (2,946,396) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt - 2,000,000 Principal payments on long-term debt and capital lease obligations (26,927) (111,615) Common stock issuance costs (32,038) - ----------- ----------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (58,965) 1,888,385 ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (2,273,084) (95,474) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,646,975 2,220,396 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 373,891 $ 2,124,922 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 259,798 $ 184,656 =========== =========== Income taxes $ 83,623 $ - =========== ===========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 5 6 CINEMASTAR LUXURY THEATERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (UNAUDITED) NOTE 1 The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. For further information, refer to the audited consolidated financial statements for the fiscal year ended March 31, 2000 and footnotes thereto, included in the Company's Annual Report on Form 10-KSB which was filed with the Securities and Exchange Commission. Operating results for the three and six month periods ended September 30, 2000 are not necessarily indicative of the results of operations that may be expected for the year ending March 31, 2001. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities at the date of the financial statements and during the reporting periods. Actual amounts could differ from those estimates. The Company has generated significant net losses in each fiscal year of its operations, including a net loss of $5,231,252 in the fiscal year ended March 31, 2000 and a net loss of $1,749,079 in the six months ended September 30, 2000. As of September 30, 2000, the Company has an accumulated deficit of approximately $26,220,000, and a working capital deficiency of approximately $4,733,000. As of September 30, 2000, the Company is in default on two of its debt agreements (see Note 5). The Company defaulted on four facility lease agreements on October 1, 2000, and defaulted on one additional facility lease agreement on November 1, 2000 (see Note 5). The Company's operations are also subject to risk and uncertainties inherent in the movie exhibition industry such as dependence on motion picture production and competition from larger competitors with greater financial resources. There can be no assurances that the Company will be able to achieve and to sustain profitability in the future. The ongoing significant operating losses, working capital deficiency and other adverse conditions indicate the Company may be unable to continue as a going concern. In response to these conditions, the Company is attempting to restructure its current financing and lease agreements and secure new or additional financing. The Company is also considering various other alternatives including a comprehensive reorganization of the Company's assets and capital structure. The Company's management can give no assurances that it will be able to restructure its current financing and lease agreements or secure new or additional financing on terms favorable to the Company, if at all. See "Results of Operations" for further discussion. The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts, or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The auditors' report on the Company's financial statements as of March 31, 2000 contained a modification regarding the Company's ability to continue as a going concern. If the Company is unsuccessful in resolving the issues described above, it is likely the auditors' report on the Company's March 31, 2001 financial statements will contain a going concern modification. Conversely, if the Company is successful in resolving the issues described above, the auditors' report on the Company's March 31, 2001 financial statements may not contain a going concern modification. However, given the uncertainties facing the Company, it is not possible for management to predict the financial condition of the Company at March 31, 2001, or predict whether the auditors' report on the Company's March 31, 2001 financial statements will or will not contain a modification. 6 7 NOTE 2 The Securities and Exchange Commission has issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101") which, together with certain amendments, provides guidance on the application of generally accepted accounting principles related to revenue recognition in financial statements. Management believes its presentation of revenues in the Company's consolidated financial statements is consistent with the revenue recognition criteria and other principles mandated by SAB 101, and that its adoption will not have a material financial effect on the Company's consolidated financial statements. The Company will be required to adopt SAB 101 by the fourth quarter of fiscal 2001. NOTE 3 Basic and diluted net loss per share are computed by dividing net loss by the weighted average number of common shares outstanding during the years. Potentially dilutive securities consist of outstanding stock options and warrants, and are not included in the computation as their inclusion would be anti-dilutive. NOTE 4 On September 23, 1997, the Company entered into an agreement (the "CAP Agreement") with CinemaStar Acquisition Partners, LLC ("CAP") and Reel Partners LLP ("Reel") whereby Reel provided $3,000,000 of interim debt financing and CAP acquired a majority equity interest in the Company through a $15 million purchase of newly issued shares of the Company's Common Stock (the "Equity Financing"). Following stockholder approval, the Equity Financing transaction was completed on December 15, 1997. Pursuant to the CAP Agreement, CAP purchased 2,526,352 shares of Common Stock for a purchase price of $5.94 per share. CAP also received, at closing, warrants to purchase 232,947 shares of Common Stock at an exercise price of $5.94 per share. Concurrent with the execution of the CAP Agreement, the Company also issued to CAP a warrant to purchase 142,857 shares of common stock at an exercise price of $5.94 (the "Signing Warrants"). Pursuant to the terms of the CAP Agreement, the Company has and continues to be obligated to issue Adjustment Shares to CAP. The number of Adjustment Shares to be issued is based upon: (i) the recognition of any liabilities not disclosed as of August 31, 1997, (ii) certain expenses incurred and paid by the Company in connection with the contemplated transactions, (iii) any negative cash flow incurred by the Company during the period commencing August 31, 1997 and ending December 15, 1997, and (iv) operating losses experienced by, or the costs of closing, the Company's Plaza Americana 10 facility in Tijuana (now in full operation and achieving operating profits) and San Bernardino Facility (opened December 1999). The measurement of the operating losses and/or closing costs for the two facilities is cumulative, calculated in the aggregate and will take place on the earlier to occur of the closing of each such facility or December 15, 2000. The Company issued 193,037 Adjustment Shares to CAP pursuant to the terms of the CAP Agreement, in September 1998. To the extent there are (a) operating losses at the Company's Tijuana and San Bernardino facilities, calculated in the aggregate, for the three-year period ended December 15, 2000, and (b) expenditures in connection with the discovery of liabilities, or defense and/or settlement of claims, in either case relating to periods prior to August 31, 1997, the Company will be obligated to issue additional Adjustment Shares. On March 28, 2000, the Company sold 2,424,158 shares of the Company's common stock to the Company's principal shareholder, SCP Private Equity Partners, LP ("SCP"). The purchase price was $1.44 per share for an aggregate purchase price of $3,500,000. Pursuant to the terms of the Stock Purchase Agreement, under certain circumstances the Company has the option to sell SCP an additional 692,617 shares of common stock at $1.44 per share for an aggregate purchase price of $1,000,000 at any time until March 28, 2002, so long as there have been no material adverse changes in the Company, or in the Company's business subsequent to March 28, 2000. Under the terms of the Stock Purchase Agreement, the Company granted SCP warrants to purchase an additional 779,194 shares of the Company's common stock at a price of $1.44 per share. The warrants issued in conjunction with the Stock Purchase Agreement expire on March 28, 2005. In as much as the warrants were issued at fair value, no value has been assigned to these warrants. NOTE 5 In October 1998, the Company signed a seven year, $15 million Revolving Credit Agreement with a senior, secured lender. The Revolving Credit Agreement contains various positive and negative covenants, such as consolidated 7 8 leverage ratio, consolidated fixed charge ratio, maximum fixed asset expenditures, consolidated interest coverage ratio and minimum EBITDA. Borrowings under the Revolving Credit Agreement are collateralized by the Company's tangible and intangible assets, and the stock of the Company's wholly owned subsidiaries, Cinemas, Inc. and CinemaStar International. The Company may elect to borrow under the Revolving Credit Agreement at either (i) the higher of the lender's reference rate or the federal funds rate plus 0.50% or (ii) the LIBOR rate, in each case plus the applicable margin. The Company was required to reduce the amount of borrowings outstanding under the facility beginning in March 2000. On April 4, 2000, the Company amended its Revolving Credit Agreement. Under the terms of the amendment, the total available borrowing was reduced from $15,000,000 to $5,000,000, and the termination date of credit facility was changed from August 31, 2005 to December 31, 2000. The amendment required the Company to complete the $3,500,000 sale of stock to its principal shareholder and to use $1,000,000 of the proceeds from the sale of the common stock to reduce the Company's outstanding borrowings on its credit facility from $3,000,000 to $2,000,000. The amendment waived certain covenant violations and adjusted certain positive and negative covenants to make them more consistent with the Company's expected future financial performance. The Company is unable at draw against the facility as of September 30, 2000, as the Company's leverage and interest coverage ratios exceed the maximums established by the April 4, 2000 amendment to the Revolving Credit Agreement. The Company will be able to draw down on the credit facility if its leverage and interest coverage ratios are under the maximum specified by the amendment, however, the amount of borrowings the Company anticipates becoming available is not expected to be significant, if any, as the borrowings will continue to be limited by the leverage and interest coverage ratio covenants. As of September 30, 2000, the Company had outstanding borrowings of $2,000,000 under the facility. The Company signed a $1,600,000 mortgage note in January 1996 with Southern Pacific Thrift & Loan (the "Mortgage Note"). The Mortgage Note is secured by a Deed of Trust on the Company's six screen theater property on Third Avenue in Chula Vista. The Company ceased operations at this theater effective June 30, 2000, and has elected to stop making debt service payments on the Mortgage Note effective September 1, 2000. Non-payment of the monthly interest and principal payment has put the Company in default of the Mortgage Note agreement. Midland Loan Services, who services this loan, has filed a complaint with the Superior Court of California asserting its rights under the Mortgage Note agreement, and is seeking to foreclose on the property. The Company is continuing its efforts to sell the property. As of September 30, 2000, the outstanding balance on the mortgage loan is approximately $1,558,000. The Company is in arrears on the September debt service payment of $16,648 and has incurred late fees of approximately $1,000. As a result of the default, all amounts due under the Mortgage Note have become immediately due and payable, and as such the unpaid principal balance, interest and late fees have been reflected as short term liabilities on the Company's balance sheet. During the fourth quarter of fiscal 2000, the Company recorded an asset impairment charge of $1,800,000 to write down the carrying value of this theater to an amount below the mortgage balance. The Company's management believes the property has a market value equal to or in excess of the outstanding balance of the mortgage, and therefore does not believe further impairment write downs are required. On October 12, 2000, the Company signed a $2,000,0000 loan agreement with SCP Private Equity Partners, L.P., its primary shareholder (the "SCP Loan"). The loan is secured by a security interest in the assets of the Company that is junior to the security interest held by the Company's senior lender, Union Bank of California. The purpose of the SCP Loan is to provide the Company with interim working capital financing over the next few months as the Company's management attempts to implement strategies to improve the Company's financial performance and address its liquidity concerns. Loans will be made at the discretion of SCP. The loan bears interest at a rate of 10%, and matures on January 31, 2001. As of November 20, 2000, the Company has borrowed $350,000 under this agreement. The Company did not make lease payments on four of its theater facility leases due October 1, 2000, and did not make lease payments on five of its theater facility leases due November 1, 2000. The Company is therefore in default on these five lease agreements. The Company's management is currently in negotiations with several of its landlords in an attempt to reduce the rent payments related to their respective properties. The Company's management can give no assurances that it will be able to renegotiate its facility lease agreements on terms favorable to the Company, if at all. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-QSB. Except for the historical information contained herein, the discussion in this Form 10-QSB contains certain forward looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-QSB should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-QSB. Where possible, the Company uses words like "believes", "anticipates", "expects", "plans" and similar expressions to identify such forward looking statements. The Company's actual results could differ materially from those discussed here. Factors, risks and uncertainties that could cause or contribute to such differences include the availability of marketable motion pictures, the increase of revenues to meet long-term lease obligations and rent increases, risks inherent in the construction of new theaters, the ability to secure new locations on favorable terms, intense competition in the industry, dependence on concession sales and suppliers, earthquakes and other natural disasters and costs associated with potential changes in management and disputes related thereto. The Company began the first quarter of fiscal 2001 with nine theaters with a total of 99 screens. On April 1, 2000, the Company added four stadium-style auditoriums to its Mission Grove complex in Riverside, California. The addition raised the total screen count at the Mission Grove location from 14 to 18, and raised the circuit-wide screen count to 103. On June 30, 2000, the Company closed its six screen theater in Chula Vista, California, reducing the Company's theater and screen count to eight and 97, respectively, as of September 30, 2000. For the entire first six months of fiscal 2000, the Company operated eight theaters with a total of 79 screens. The Company operates one business segment. Such segment has operations in two geographic regions, California and Northern Mexico. For the three months ended September 30, 2000, total revenues were $6,736,009 in California and $1,511,480 in Northern Mexico, compared to $6,824,407 and $1,350,911 for California and Northern Mexico, respectively in the three months ended September 30, 1999. For the six months ended September 30, 2000, total revenues were $12,686,778 in California and $2,680,862 in Northern Mexico, compared to $12,928,643 and $2,552,046 for California and Northern Mexico, respectively in the six months ended September 30, 1999. Total assets for the California and Northern Mexico regions as at September 30, 2000 were $13,652,896 and $716,342, respectively, as compared to total assets of $16,817,361 and $432,644, for the California and Northern Mexico regions respectively, as of September 30, 1999. The Company has generated significant net losses in each fiscal year of its operations, including a net loss of $5,231,252 in the fiscal year ended March 31, 2000 and a net loss of $892,485 and $1,749,079 in the three and six month periods ended September 30, 2000, respectively. As of September 30, 2000, the Company has an accumulated deficit of approximately $26,222,000, and a working capital deficiency of approximately $4,733,000. As of September 30, 2000, the Company held cash and cash equivalents in the amount of $373,891. The Company is obligated to pay down the $2,000,000 of borrowings against its credit facility, which terminates on December 31, 2000. Management can make no assurances as to the Company's ability to pay down its credit facility debt and fund its working capital requirements over the next twelve months. On October 12, 2000, the Company's primary shareholder, SCP, signed a $2,000,000 loan agreement in order to provide the Company with interim working capital to continue operating. Loans under the loan agreement are at the discretion of SCP and mature on January 31, 2001. Through November 20, 2000, the Company has borrowed $350,000 under the agreement. Management plans to improve the Company's liquidity through securing a new debt facility, either a revolving credit facility or a term loan, from a new senior lender. The Company's ability to secure a new debt facility will be enhanced if it is able to complete the sale of one of its theaters and pay off the related mortgage loan on the property. Management can give no assurances that it will be able to secure a new debt facility on terms favorable to the 9 10 Company, if at all. Further, management can give no assurances that it will be able to sell the theater property. Management is also in the process of implementing strategies to increase theater revenues, reduce theater operating expenses, and reduce general and administrative expenses. To the extent management can increase the Company's Earnings Before Interest, Depreciation, and Amortization (EBITDA), the Company will have an increased capacity for borrowing. Management can give no assurances that its strategies to increase revenues and reduce expenses will be successful, or that it will be able to significantly improve the Company's EBITDA. The ability of the Company to operate depends on the availability of marketable motion pictures. The Company currently obtains the motion pictures for its theaters from approximately 10 to 12 distributors. Poor relationships with distributors or a disruption in the production of motion pictures could limit the Company's ability to obtain films for its theaters. Further, the motion picture exhibition industry is highly competitive, particularly with respect to film licensing, the terms of which can depend on seating capacity, location and configuration of the exhibitor's theaters, the quality of projection and sound equipment, the comfort and quality of theaters and ticket prices. Many of the Company's competitors have been in existence significantly longer than the Company and are better established in the markets where the Company's theaters are or may be located and are better capitalized than the Company. These and other factors, including the poor commercial success of motion pictures or the Company's inability to attract and retain key management personnel, could have a material adverse effect on the Company's business and results of its operations. At this time, however, the Company believes that it has good working relationships with its distributors and is competitive with respect to these matters. The Company is currently dependent on SCP continuing to loan the Company funds to meet its operating requirements. Further the Company must successfully renegotiate its lease agreements and refinance its debt or obtain new financing. These factors, among others, indicate the Company may be unable to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts, or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1999 Total revenues for the three months ended September 30, 2000 increased $72,171 or 0.8% to $8,247,489 from $8,175,318 for the prior year. Admission revenues decreased $42,228 or 0.7%, concession sales increased $90,004 or 3.9%, and other operating revenues increased by $24,394, or 13.3%. The decrease in admissions revenues is attributable to a decrease in attendance, offset by modest increases in the average ticket price. The increase in concession revenues is due to increased concession sales per patron. Total attendance decreased 6.3% from the second quarter of last year, however, the average ticket price and the concession revenue per cap increased 5.9% and 10.8%, respectively, for the second quarter of fiscal 2001 as compared to the second quarter of fiscal 2000. Film rental and booking costs for the three months ended September 30, 2000 decreased $134,016 or 4.4% to $2,907,042 from $3,041,058 for the previous fiscal year's second quarter. The decrease is attributable to a decrease in admission revenues and a reduced cost of film relative to last year's second quarter. As a percentage of admission revenues, film rental and booking costs decreased to 51.6% for the three months ended September 30, 2000 from 53.5% for the three months ended September 30, 1999, due to the timing and terms of new releases in this year's second quarter compared to the prior year. The cost of concession supplies for the three months ended September 30, 2000 decreased $22,250 or 5.0% to $423,127 from $445,377 for the previous year. The decrease is attributable to reduced concession product costs relative to last year's second quarter. As a percentage of concession revenues, the cost of concession supplies decreased to 17.6% for the three months ended September 30, 2000 from 19.3% for the three months ended September 30, 1999. Theater operating expenses for the three months ended September 30, 1999 increased $800,924 or 25.2% to $3,973,662 compared to $3,172,738 for the previous year. This increase in operating expenses was due to the addition of the San Bernardino 20 complex that opened in December 1999, and the addition of four screens to the Mission Grove complex in April 2000. As a percentage of total revenues, theater operating expenses increased by 9.4% to 48.2% for the three months ended September 30, 2000, compared to 38.8% for the three months ended September 30, 1999. 10 11 General and administrative expenses for the three months ended September 30, 2000 decreased $101,581 or 12.1% to $735,160 compared to $836,741 for the previous year. The decrease is primarily attributable to management's efforts to reduce general and administrative costs. As a percentage of total revenues, general and administrative expense decreased by 1.3% to 8.9% for the three months ended September 30, 2000, compared to 10.2% for the three months ended September 30, 1999. Depreciation and amortization for the three months ended September 30, 2000 increased $221,484 or 36.9% to $821,241 compared to $599,758 for the previous year, due to the increase in the Company's balance of fixed assets as a result of the addition of the San Bernardino 20 complex and the addition of four screens to the Mission Grove complex. Interest expense for the fiscal three months ended September 30, 2000 increased $62,101 or 53.6% to $178,028 compared to $115,927 for the previous year. This increase is due to an increase in the Company's average debt balance and higher interest rates on the Company's debt in the second quarter of fiscal 2001 as compared to 2000. Interest income for the three months ended September 30, 2000 decreased $7,348 or 26.6% to $20,309 from $27,657 for the three months ended September 30, 1999. This decrease is attributable to a decrease in the Company's average cash balance in the second quarter of fiscal 2001 as compared to 2000. The net loss for the three months ended September 30, 2000 increased $883,861 to $892,485 from $8,624 for the three months ended September 30, 1999 as a result of the changes in revenues and expenses described in the preceding paragraphs. SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30, 1999 Total revenues for the six months ended September 30, 2000 decreased $113,049 or 0.7% to $15,367,640 from $15,480,689 for the prior year. Admission revenues decreased $271,881 or 2.5%, concession sales increased $80,876 or 1.8%, and other operating revenues increased by $77,956, or 22.9%. The decrease in admissions revenues is attributable to a decrease in attendance, offset by modest increases in the average ticket price. The increase in concession revenues is due to increased concession sales per patron. Total attendance decreased 5.9% from the first half of last year, however the average ticket price and the concession revenue per cap increased 3.6% and 8.3%, respectively, for the first half of fiscal 2001 as compared to the first half of fiscal 2000. Film rental and booking costs for the six months ended September 30, 2000 decreased $590,989 or 9.9% to $5,352,291 from $5,943,280 for the previous fiscal year's first half. The decrease is attributable to a decrease in admission revenues and a reduced cost of film relative to last year's first half. As a percentage of admission revenues, film rental and booking costs decreased to 51.2% for the six months ended September 30, 2000 from 55.4% for the six months ended September 30, 1999, due to the timing and terms of new releases in this year's first half compared to the prior year. The cost of concession supplies for the six months ended September 30, 2000 decreased $28,423 or 3.5% to $792,765 from $821,188 for the previous year. The decrease is attributable to a decrease in concession product costs relative to last year's first half. As a percentage of concession revenues, the cost of concession supplies decreased to 17.7% for the six months ended September 30, 2000 from 18.6% for the six months ended September 30, 1999. Theater operating expenses for the six months ended September 30, 1999 increased $1,261,657 or 20.3% to $7,480,439 compared to $6,218,782 for the previous year. This increase in operating expenses was due to the addition of the San Bernardino 20 complex that opened in December 1999, and the addition of four screens to the Mission Grove complex in April 2000. As a percentage of total revenues, theater operating expenses increased by 8.5% to 48.7% for the six months ended September 30, 2000, compared to 40.2% for the six months ended September 30, 1999. General and administrative expenses for the six months ended September 30, 2000 decreased $129,693 or 8.3% to $1,439,832 compared to $1,569,525 for the previous year. The decrease is primarily attributable to management's efforts to reduce general and administrative costs. As a percentage of total revenues, general and administrative expense decreased by 0.7% to 9.4% for the six months ended September 30, 2000, compared to 10.1% for the six months ended September 30, 1999. 11 12 Depreciation and amortization for the six months ended September 30, 2000 increased $421,846 or 35.2% to $1,618,731 compared to $1,196,885 for the previous year, due to the increase in the Company's balance of fixed assets as a result of the addition of the San Bernardino 20 complex and the addition of four screens to the Mission Grove complex. Interest expense for the fiscal six months ended September 30, 2000 increased $121,047 or 57.9% to $329,989 compared to $208,942 for the previous year. This increase is due to an increase in the Company's average debt balance and higher interest rates on the Company's debt in the first half of fiscal 2001 as compared to 2000. Interest income for the six months ended September 30, 2000 decreased $11,310 or 28.1% to $28,950 from $40,260 for the six months ended September 30, 1999. This decrease is attributable to a decrease in the Company's average cash balance in the first half of fiscal 2001 as compared to 2000. The net loss for the six months ended September 30, 2000 increased $1,311,426 to $1,749,079 from $437,653 for the six months ended September 30, 1999 as a result of the changes in revenues and expenses described in the preceding paragraphs. LIQUIDITY AND CAPITAL RESOURCES The Company's revenues are collected in cash, principally through box office admissions and concession sales. Because its revenues are received in cash prior to the payment of related expenses, the Company has an operating "float" which partially finances its operations. The Company's capital requirements arise principally in connection with the development of new theaters and the acquisition of existing theaters. Historically, new theaters have been financed with internally generated cash flow, long-term debt, convertible debentures, equity, and facility and equipment leasing. On September 23, 1997, the Company entered into an agreement (the "CAP Agreement") with CinemaStar Acquisition Partners, LLC ("CAP") and Reel Partners LLP ("Reel") whereby Reel provided $3,000,000 of interim debt financing, and CAP acquired a majority equity interest in the Company through a $15 million purchase of newly issued shares of the Company's Common Stock (the "Equity Financing"). Following stockholder approval, the Equity Financing transaction was completed on December 15, 1997. Pursuant to the CAP Agreement, CAP purchased 2,526,352 shares of Common Stock for a purchase price of $5.94 per share. CAP also received, at closing, warrants to purchase 232,947 shares of Common Stock at an exercise price of $5.94 per share. Concurrent with the execution of the CAP Agreement, the Company also issued to CAP a warrant to purchase 142,857 shares of common stock at an exercise price of $5.94 (the "Signing Warrants"). Pursuant to the terms of the CAP Agreement, the Company has and continues to be obligated to issue Adjustment Shares to CAP. The number of Adjustment Shares to be issued is based upon: (i) the recognition of any liabilities not disclosed as of August 31, 1997, (ii) certain expenses incurred and paid by the Company in connection with the contemplated transactions, (iii) any negative cash flow incurred by the Company during the period commencing August 31, 1997 and ending December 15, 1997, and (iv) operating losses experienced by, or the costs of closing, the Company's Plaza Americana 10 facility in Tijuana (now in full operation and achieving operating profits) and San Bernardino Facility (opened December 1999). The measurement of the operating losses and/or closing costs for the two facilities is cumulative, calculated in the aggregate and will take place on the earlier to occur of the closing of each such facility or December 15, 2000. The Company issued 193,037 Adjustment Shares to CAP pursuant to the terms of the CAP Agreement, in September 1998. To the extent there are (a) operating losses at the Company's Tijuana and San Bernardino facilities, calculated in the aggregate, for the three-year period ended December 15, 2000, and (b) expenditures in connection with the discovery of liabilities, or defense and/or settlement of claims, in either case relating to periods prior to August 31, 1997, the Company will be obligated to issue additional Adjustment Shares. On March 28, 2000, the Company sold 2,424,158 shares of the Company's common stock to the Company's principal shareholder, SCP Private Equity Partners, LP ("SCP"). The purchase price was $1.44 per share for an aggregate purchase price of $3,500,000. Pursuant to the terms of the Stock Purchase Agreement, under certain circumstances the Company has the option to sell SCP an additional 692,617 shares of common stock at $1.44 per share for an aggregate purchase price of $1,000,000 at any time until March 28, 2002, so long as there have been no material adverse changes in the Company, or in the Company's business subsequent to March 28, 2000. Under the terms of the Stock Purchase Agreement, the Company granted SCP warrants to purchase an additional 779,194 12 13 shares of the Company's common stock at a price of $1.44 per share. The warrants issued in conjunction with the Stock Purchase Agreement expire on March 28, 2005. In as much as the warrants were issued at fair value, no value has been assigned to these warrants. In October 1998, the Company signed a seven year, $15 million Revolving Credit Agreement with a senior, secured lender. The Revolving Credit Agreement contains various positive and negative covenants, such as consolidated leverage ratio, consolidated fixed charge ratio, maximum fixed asset expenditures, consolidated interest coverage ratio and minimum EBITDA. Borrowings under the Revolving Credit Agreement are collateralized by the Company's tangible and intangible assets, and the stock of the Company's wholly-owned subsidiaries, Cinemas, Inc. and CinemaStar International. The Company may elect to borrow under the Revolving Credit Agreement at either (i) the higher of the lender's reference rate or the federal funds rate plus 0.50% or (ii) the LIBOR rate, in each case plus the applicable margin. The Company was required to reduce the amount of borrowings outstanding under the facility beginning in March 2000. On April 4, 2000, the Company amended its Revolving Credit Agreement. Under the terms of the amendment, the total available borrowing was reduced from $15,000,000 to $5,000,000, and the termination date of credit facility was changed from August 31, 2005 to December 31, 2000. The amendment required the Company to complete the $3,500,000 sale of stock to its principal shareholder, and to use $1,000,000 of the proceeds from the sale of the common stock to reduce the Company's outstanding borrowings on its credit facility from $3,000,000 to $2,000,000. The amendment waived certain covenant violations and adjusted certain positive and negative covenants to make them more consistent with the Company's expected future financial performance. The Company is unable at draw against the facility as of September 30, 2000, as the Company's leverage and interest coverage ratios exceed the maximums established by the April 4, 2000 amendment to the Revolving Credit Agreement. The Company will be able to draw down on the credit facility if its leverage and interest coverage ratios are under the maximum specified by the amendment, however the amount of borrowings the Company anticipates becoming available is not expected to be significant, if any, as the borrowings will continue to be limited by the leverage and interest coverage ratio covenants. As of September 30, 2000, the Company had outstanding borrowings of $2,000,000 under the facility. The Company signed a $1,600,000 mortgage note in January 1996 with Southern Pacific Thrift & Loan (the "Mortgage Note"). The Mortgage Note is secured by a Deed of Trust on the Company's six screen theater property on Third Avenue in Chula Vista. The company ceased operations at this theater effective June 30, 2000, and has elected to stop making debt service payments on the Mortgage Note effective August 31, 2000. Non-payment of the monthly interest and principal payment has put the Company in default of the Mortgage Note agreement. Midland Loan Services, who services this loan, has filed a complaint with the Superior Court of California asserting its rights under the Mortgage Note agreement, and is seeking to foreclose on the property. The Company is continuing its efforts to sell the property. As of September 30, 2000, the outstanding balance on the mortgage loan is approximately $1,558,000. The Company is also in arrears on the September debt service payment of $16,648 and has incurred late fees of approximately $1,000. As a result of the default, all amounts due under the Mortgage Note have become immediately due and payable, and as such the unpaid principal balance, interest and late fees have been reflected as short term liabilities on the Company's balance sheet. During the fourth quarter of fiscal 2000, the Company recorded an asset impairment charge of $1,800,000 to write down the carrying value of this theater to an amount below the mortgage balance. The Company's management believes the property has a market value equal to or in excess of the outstanding balance of the mortgage, and therefore does not believe further impairment write downs are required. On October 12, 2000 the Company signed a $2,000,0000 loan agreement with SCP Private Equity Partners, L.P., its primary shareholder (the "SCP Loan"). The loan is secured by a security interest in the assets of the Company that is junior to the security interest held by the Company's senior lender, Union Bank of California. The purpose of the SCP Loan is to provide the Company with interim working capital financing over the next few months as the Company's management attempts to implement strategies to improve the Company's financial performance and address its liquidity concerns. Loans will be made at the discretion of SCP. The loan bears interest at a rate of 10%, and matures on January 31, 2001. As of November 20, 2000, the Company has borrowed $350,000 under this facility. The Company has generated significant net losses in each fiscal year of its operations, including a net loss of 13 14 $5,231,252 in the fiscal year ended March 31, 2000 and a net loss of $892,485 and $1,749,079 in the three and six month periods ended September 30, 2000, respectively. The fiscal year ended March 31, 2000 loss included an asset impairment charge of $2,000,000; therefore the net loss for the year excluding the asset impairment charge was $3,231,252. There can be no assurance as to when or if the Company will achieve profitability. During the six months ended September 30, 2000, the Company's operating activities resulted in a net use of cash of $2,151,701, as compared to a net source of cash of $962,537 for the six months ended September 30, 1999. The primary cause for the difference in cash used versus generated in the first half of fiscal 2001 as compared to 2000 was an $2,166,944 reduction in the Company's payables during the first half of fiscal 2001. Approximately $1,600,000 of the reduction in payables was related to the payment of construction expenses that had been accrued as of March 31, 2000. The $1,311,426 increase in the first half net loss of the Company in 2001 versus 2000 included increases in non-cash expenses of $421,846 and $75,594 for depreciation and deferred rent expense, respectively. During the six months ended September 30, 2000, the Company's investing activities resulted in a net use of cash of $62,418, as compared to a net use of cash of $2,946,396 for the six months ended September 30, 1999. The Company made limited property acquisitions in the first half of 2001 primarily related to the Mission Grove expansion, where as the Company added $2,946,396 of property in the first half of 2000, primarily related to the construction of the San Bernardino 20. During the six months ended September 30, 2000, the Company's financing activities resulted in a net use of cash of $58,965, as compared to a net source of cash of $1,888,385 for the six months ended September 30, 1999. The primary cause for the difference in cash used versus generated was that the Company only made routine debt payments in the first half of 2001, as compared to the first half of 2000 when the Company drew $2,000,000 from its credit facility to fund its construction projects, which was partially offset by routine debt payments made by the Company. As of September 30, 2000, the Company held cash and cash equivalents in the amount of $373,891. The Company is obligated to pay down the $2,000,000 of borrowings against its credit facility, which terminates on December 31, 2000. Management can make no assurances as to the Company's ability to pay down its credit facility debt, and fund its working capital requirements over the next twelve months. On October 12, 2000, the Company's primary shareholder, SCP, signed a $2,000,000 loan agreement in order to provide the Company with interim working capital to continue operating. Loans under the loan agreement are at the discretion of SCP and mature on January 31, 2001. Through November 14, 2000, the Company has borrowed $350,000 under the agreement. Management plans to improve the Company's liquidity through securing a new debt facility, either a revolving credit facility or a term loan, from a new senior lender. The Company's ability to secure a new debt facility will be enhanced if it is able to complete the sale of the Chula Vista 6 property and pay off the related mortgage on the property. Management can give no assurances that it will be able to secure a debt facility on terms favorable to the Company, if at all. Further management can give no assurances that it will be able to sell the Chula Vista 6 property. Management is also in the process of implementing strategies to increase theater revenues, reduce theater operating expenses, and reduce general and administrative expenses. To the extent management can increase the Company's Earnings Before Interest Depreciation and Amortization (EBITDA), the Company will have an increased capacity for borrowing. Management can give no assurances that its strategies to increase revenues and reduce expenses will be successful, or that it will be able to significantly improve the Company's EBITDA. The Company leases eight theater properties and various equipment under non-cancelable operating lease agreements that expire between the years 2000 and 2021 and require various minimum annual rentals. Several of the theater leases provide for renewal options to extend the leases for additional five-to-ten year periods. Certain theater leases also require the payment of property taxes, normal maintenance and insurance on the properties and additional rents based on percentages of gross theater and concession revenues in excess of various specified revenue levels. Certain of the Company's former officers, directors, and stockholders personally guarantee certain of the Company's theater operating leases. The estimated minimum lease payments due under non-cancelable operating leases for fiscal year 2001 was approximately $5,501,000. At September 30, 2000, the aggregate future minimum lease payments due under non-cancelable operating leases was approximately $99,665,000. 14 15 The Company did not make lease payment on four of its theater facility leases due October 1, 2000 and did not make lease payments on five of its theater facility leases due on November 1, 2000. The Company is therefore in default on these lease agreements. The Company's management is currently in negotiations with several of its landlords in an attempt to reduce the rent payments related to their respective properties. The Company's management can give no assurances that it will be able to renegotiate its facility lease agreements on terms favorable to the Company, if at all. As of March 31, 2000, the Company had total net deferred income tax assets of approximately $7,192,000. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As a result of the Company's continued losses and uncertainties surrounding the realization of the net operating loss carryforward and other deferred tax assets, management has determined that the realization of the deferred tax assets is not "more likely than not." Accordingly, a 100% valuation allowance has been recorded against the net deferred income tax assets. As of March 31, 2000, the Company had net operating loss carryforwards ("NOL's") of approximately $15,000,000 and $5,000,000 for Federal and California income tax purposes, respectively. The Federal NOL's are available to offset future years taxable income, and they expire in 2007 through 2021 if not utilized prior to that time. The California NOL's are available to offset future years taxable income, and they expire in 2000 through 2006 if not utilized prior to that time. Federal and state tax laws restrict the utilization of these NOL's as a result of the Company's changes in ownership. The Company's initial public offering and certain other equity transactions have resulted in an "ownership change" as defined in Section 382 of the Internal Revenue Code of 1986, as amended. As a result, the Company's use of its net operating loss carryforwards to offset taxable income in any post-ownership change period will be subject to certain specified annual limitations. SEASONALITY The Company's revenues have been seasonal, coinciding with the timing of major releases of motion pictures by the major distributors. Generally, the most marketable motion pictures are released during the summer and the Thanksgiving through year-end holiday season. The unexpected emergence of a hit film during other periods can alter this trend. The timing of such releases can have a significant effect on the Company's results of operations, and the results of one quarter are not necessarily indicative of results for subsequent quarters. CURRENCY FLUCTUATIONS The Company is subject to the risks of fluctuations in the value of the Mexican Peso relative to the U.S. dollar. These risks are heightened because a majority of the revenues in Mexico are collected in Mexican Pesos, but the lease for the theater complex is denominated in U.S. dollars. While the Company does not believe it has been materially adversely effected by currency fluctuations to date, there can be no assurance it will not be so affected in the future, and it has taken no steps to guard against these risks. PART II -- OTHER INFORMATION ITEM 1 -- LEGAL PROCEEDINGS On June 17, 1998, The Clark Real Estate Group, Inc. sued the Company in San Diego Superior Court alleging that the Company breached a 50-year lease relating to commercial real property located in the Rancho Del Rey Business Center consisting of approximately 35,000 square feet. The complaint alleges that the lease was terminated as a result of the Company's failure to perform and seeks damages of $1.25 million. The landlord has already leased the property to another tenant, which the Company believes would mitigate all, or a portion of the damages sought. Landlord's proposed sale is terminated. Parties are stipulating to general reference in order to permit evaluation by neutral expert. The Company intends to vigorously defend this action. Management does not believe the ultimate outcome of this matter will have a material adverse impact on the Company's financial position or its results of operations. On March 9, 2000, Russell Seheult, a former director of the Company filed suit in the Superior Court for the State of 15 16 California in San Bernardino County. He alleges the Company has breached its obligation to make weekly payments in the amount of $1,000 pursuant to a purported consulting agreement between him and the Company. This matter is in the early stages of discovery, and a trial date has not been set. Management does not believe the ultimate outcome of this matter will have a material adverse impact on the Company's financial position or its results of operations. In addition, from time to time the Company is involved in routine litigation and proceedings in the ordinary course of its business. The Company is not currently involved in any other pending litigation matters that the Company believes would have a material adverse effect on the Company. ITEM 2 -- CHANGES IN SECURITIES None ITEM 3 -- DEFAULTS IN SENIOR SECURITIES The Company is currently in default under two of its debt agreements. See Notes 1 and 5 and the Company's "Management Discussion and Analysis of Financial Condition and Results of Operations" above in reference thereto. ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None ITEM 5 -- OTHER INFORMATION Paul W. Hobby resigned from his position as Co-Chief Executive Officer and member of the Board of Directors, effective October 19, 2000. Mr. Hobby's one year commitment to the Company had expired and he decided not to extend his commitment. ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 10.1 Loan Agreement by and between CinemaStar Luxury Theaters, Inc. and SCP Private Equity Partners, LP, dated as of October, 2000. 10.2 Security Agreement by and between CinemaStar Luxury Theaters, Inc. and SCP Private Equity Partners, LP, dated as of October, 2000. Item 27. Financial Data Schedule (b) REPORTS ON FORM 8-K None SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 20, 2000 CinemaStar Luxury Theaters, Inc. by: /s/ Jack R. Crosby ------------------------------------ Jack R. Crosby Chairman and Chief Executive Officer (principal executive officer) by: /s/ Donald H. Harnois, Jr. ------------------------------------ Donald H. Harnois, Jr. Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) 16 EX-10.1 2 v67377ex10-1.txt EXHIBIT 10.1 1 EXHIBIT 10.1 LOAN AGREEMENT DRAFT COPY This Loan Agreement (the "Agreement") is made as of this ___ day of October, 2000, by and between CinemaStar Luxury Theaters, Inc., a Delaware corporation ("Borrower"), and SCP Private Equity Partners, L.P., a Pennsylvania limited partnership ("Lender"). A. Subject to the terms and conditions herein, and in other documents to be executed concurrently herewith, the parties have reached an agreement whereby Borrower and Lender will enter into a ______ Million Dollars and Zero Cents ($______) Loan ("Loan"). Borrower's obligations to repay the Loan shall be evidenced by this Loan and secured by a Security Agreement (Security Agreement") to be executed by Borrower concurrently herewith (as at any time amended, modified, or supplemented). NOW, THEREFORE, the Borrower and Lender hereby agree as follows: 1. LOAN. Subject to and upon the terms and conditions set forth herein, and as set forth in the Note, Lender agrees during the period commencing on the date hereof and continuing until notice by Lender ("Availability Period") to make from time to time an advance or advances (each of which is herein called an "Advance") to Borrower in an aggregate principal amount not to exceed at any one time outstanding the amount of ______________ Dollars and Zero Cents ($_______). (a) NOTICE OF BORROWING. Whenever Borrower desires to borrow hereunder it shall submit a notice of proposed borrowing ("Borrowing Certificate") specifying the proposed date of borrowing, the proposed term of borrowing, the amount of the proposed borrowing, a certification of the intended use of the proceeds of such borrowing, which use shall be satisfactory to Lender. Lender shall thereupon furnish an Advance of funds in an amount equal to the amount of such approved Borrowing Certificate to such bank account as the Borrower and Lender may mutually agree. Advances may be borrowed, repaid and reborrowed; provided that all Advances, including the requested Advance and all loan or advances heretofore made under the Loan, shall not exceed in the aggregate principal amount at any time outstanding the sum of _________ Dollars and Zero Cents ($_________). 2. REPAYMENT OBLIGATION. For value received, Borrower promises to pay to Lender, or order, the principal amount of _______________ Dollars and Zero Cents ($______), with interest on such amount until paid, at the rate set forth below. This Loan shall be secured by the Security Agreement executed concurrently herewith. 3. REPAYMENT OF LOAN. (a) The outstanding principal amount of the Loan shall be due and payable as follows: 2 (1) Stated Due Date. The Loan shall be paid on the due date stated in the respective notices of borrowing, unless demand is sooner made by Lender. (2) Demand. The Loan shall be repaid upon the demand of Lender. (3) Dissolution of Borrower. Lender may demand repayment of the Loan upon commencement of the dissolution of Borrower. The Loan may be prepaid in whole or in part at any time without penalty. Lender shall maintain a separate Loan Account to record Advances hereunder by Lender to Borrower, it being the intent hereof that all indebtedness of Borrower incurred hereunder on account of Advances shall be governed exclusively by this Agreement. (b) Statement of Account. The debit balance of the Loan Account shall reflect the amount of the indebtedness of Borrower to Lender from time to time by reason of Advances hereunder and payments thereof or thereon. (c) Security Agreement. Pursuant to this Loan, the payment obligations arising hereunder are secured by that Security Agreement dated October __, 2000, which Borrower has executed in favor of Lender concurrently herewith. 4. INTEREST. Interest shall be payable on the outstanding principal of the Loan until repayment at the rate of ten percent (10%) per annum. Interest shall be calculated on the number of calendar days actually elapsed on the basis of a year of 365 days and paid on the earliest of (i) on the due date of the respective Advances, (ii) on demand of Lender and (iii) on the dissolution of the Borrower. 5. SUBORDINATION TO UNION BANK. Lender and Borrower recognize that Union Bank of California, N.A. holds a first priority secured position with respect to all of the assets of Borrower. Lender and Borrower agree that all Advances made hereunder shall be and shall remain subordinate to the secured position of Union Bank. 6. REPRESENTATIONS AND WARRANTIES. For the purpose of inducing Lender to enter into this Agreement and to make the Advances, Borrower hereby represents and warrants as of the date hereof and as of each drawdown date, that: (a) Organization and Standing. Borrower is a corporation duly organized and validly existing under the laws of California, and in all other jurisdictions in which the conduct, of its businesses or the ownership or lease of its properties requires such qualification, except where the failure to so qualify could not have a material adverse effect on the Borrower, its business or its financial condition. The Borrower now has and will at all times have full power and authority to own its properties and to conduct its business as now conducted or contemplated to be conducted. The Borrower has complied with all filing, permit, license and other requirements of federal, state and local laws necessary to prevent the Borrower from thereafter being precluded, by reason of its failure so to comply with any such requirements, from continuing to do business in respect to applicable jurisdictions and as now conducted, and no 3 action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand or notice has been filed or commenced against the Borrower alleging any failure to so comply. The Borrower has no Affiliates or Subsidiaries. (b) No Breach; Authorizations and Required Consents. Neither the execution, delivery nor performance of this Loan Agreement by or on behalf of Borrower will conflict with or result in a breach of any of the terms, conditions or provisions of the charter documents of Borrower or any judgment, order, injunction, decree, regulation or ruling of any court or governmental authority to which Borrower is subject or is aware, or any material agreement, contract or commitment to which Borrower is a party, or by which Borrower is bound or to which Borrower's property or assets are subject, or constitute a material default thereunder, or give to others any interests or rights, including rights of termination, cancellation or acceleration, in or with respect to any of such agreements, contracts or commitments, or otherwise require the consent or approval of any person, which consent has not heretofore been obtained. (c) No Litigation or Adverse Events. Borrower has not received any notice that an action, proceeding or investigation is pending or threatened that questions the validity of this Loan Agreement or any action taken or to be taken pursuant hereto. (d) Authorization of Agreement. Borrower has full legal right, power, capacity and authority and any approval required by law to execute and deliver this Loan Agreement and otherwise to consummate the transactions contemplated by this Loan Agreement. This Agreement has been duly authorized, executed and delivered by or on behalf of Borrower and constitutes a valid and legally binding obligation of Borrower enforceable in accordance with its terms. (e) No Event of Default. Borrower is not in default in the payment or performance of any of its obligations under any other agreement, instrument or undertaking to which it is a party or by which its assets are bound. 7. CONDITIONS PRECEDENT. Prior to the making of any Advance Borrower shall have complied with the following conditions precedent to the satisfaction of Lender, unless otherwise waived in writing by Lender: (a) Supporting Documents. Borrower shall have delivered to Lender the Borrowing Certificate and such other certificates, resolutions and other documentation as Lender shall request in connection with each advance. (b) Compliance by Borrower. Borrower shall be in compliance with all terms, covenants and conditions of this Agreement and the Note, there shall exist no event of default and no event which with the giving of notice or the lapse of time or both would constitute an event of default and each of the representations and warranties made by Borrower herein and in any of the ancillary documents shall be true and correct on and as of such date with the effect as though such representations and warranties had been made on and as of such date. 4 (c) Compliance by Lender. Lender shall be in compliance with all terms, covenants and conditions of this Agreement and the Note, and there shall exist no event of default and no event which with the giving of notice or the lapse of time or both would constitute an event of default. Lender is entitled to refuse any request for an advance in the event of default or an event which with the giving of notice or the lapse of time both would constitute an event of default. 8. COVENANTS. Borrower covenants and agrees that, until payment in full of all of the outstanding principal and interest due and owing hereunder and the termination of the Loan, Borrower will: (a) Permitted Use of Proceeds. Use all the proceeds of the Advances only to fund the ongoing working capital requirements for Borrower, and to repay existing indebtedness. (b) Existence. Comply with all laws and regulations applicable to Borrower and do or cause to be done all things necessary to preserve, renew and keep in full force and effect (i) the existence of the Borrower in California and in all other jurisdictions where Borrower conducts business and (ii) all rights, licenses, permits and franchises of Borrower. (c) Books, Records and Other Information. Maintain at all times true and complete books, records, reports, and accounts in which true and correct entries shall be made of its transactions in accordance with GAAP, including, without limitation, books and records with respect to all costs and expenditures incurred in connection with each of the Products. Borrower shall allow any representative of Lender to examine all such books, records, reports and files of Borrower and to make copies thereof, at such reasonable times and on reasonable prior notice during business hours and as often as Lender may request, and shall furnish such financial information as Lender may request. (d) Notice of Events, etc. Promptly give notice in writing to Lender of (i) any facts or circumstances that vitiate or render any of the representations or warranties contained in this Agreement untrue or false in any respect, or (ii) the occurrence of any Event of Default or the occurrence of any event which with notice and/or the passage of time will result in the occurrence of any Event of Default. (e) Further Assurances. At Borrower's cost and expense, duly execute and deliver, or cause to be executed and delivered to Lender, such further agreements, documents and instruments and do or cause to be done such further acts as may be necessary or proper to evidence or otherwise carry out more effectively the provisions and purposes of this Agreement as Lender may from time to time reasonably request. (f) Liabilities. Not create, incur, assume or suffer to exist, contingently or otherwise, any liabilities or indebtedness of Borrower, except unsecured liabilities incurred in the ordinary course of the business in accordance with the budget approved by the venturers of Borrower. 5 9. EVENTS OF DEFAULT. An Event of Default shall mean the occurrence of any of the following events: (a) Payment Default. If Borrower shall default in the payment of any part of the principal or interest due under this Agreement, the Note, or any other obligations when the same shall become due and payable, whether at the stated maturity or by declaration or otherwise. (b) Other Default. If Borrower shall default in the performance of or compliance with any term contained in this Agreement or the Note, other than those referred to in Section 9(a), and such default shall not have been remedied, or affirmative action acceptable to Lender shall not have been taken to cure the same, within ten (10) days after written notice thereof shall have been given to Borrower. (c) Breach of Representations. If any representation or warranty herein made by Borrower subsequently proves to have been untrue in any material respect, or any statement, certificate or data furnished by Borrower hereunder proves to have been untrue in any material respect as of the date as of which the facts therein were stated or certified. (d) Bankruptcy. If Borrower shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a voluntary petition in bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or shall file any answer admitting or shall fail to deny the material allegations of a petition filed against Borrower for any such relief, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower. 10. REMEDIES ON DEFAULT, ETC. If an Event of Default shall have occurred and shall be continuing, Lender may (in addition to any other rights Lender may have under this Loan Agreement or the Note) proceed to (i) terminate its Loan Agreement, (ii) declare the entire unpaid aggregate principal amount of the then outstanding loan balance owed to Lender to be forthwith due and payable, whereupon the same, both as to principal and interest, shall become forthwith due and payable, without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived, and/or (iii) proceed to protect and enforce the rights of Lender by a suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any agreement contained herein, or for an injunction against a violation of any of the terms thereof or in aid of the exercise of any right, power or remedy granted thereby or by law, equity, statute, or otherwise. Borrower shall pay to Lender such amounts as shall be sufficient to cover the cost and expense of any action taken by Lender to protect and enforce such rights upon an Event of Default, including (without limitation) reasonable attorney fees. No course of dealing and no delay on the part of Lender in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice Lender's rights, powers or remedies. No right, power or remedy conferred hereby shall be exclusive of any right, power or remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise. 6 11. MISCELLANEOUS. (a) Survival of Representations and Warranties. The parties acknowledge and agree that the representations and warranties contained in this Agreement shall survive indefinitely. (b) Assignment. This Agreement and any rights and obligations hereunder may not be assigned by Borrower without the consent of Lender, nor may Lender assign its rights and obligations hereunder without the consent of the other, provided however, that Lender may assign its rights and obligations hereunder to its ultimate parent company or to any of the direct or indirect wholly-owned subsidiaries of such ultimate parent company, without consent. (c) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties, successors and assigns. (d) Notices. Any notice to any party hereunder shall be given in writing (i) by personal delivery, (ii) by prepaid courier service addressed to the addresses set forth below, (iii) by facsimile or (iv) by certified mail, postage paid, to the addresses set forth below. If to Borrower: CinemaStar Luxury Theaters, Inc. 122230 El Camino Real, Suite 320 San Diego, CA 92130 Attn.: Chief Financial Officer Facsimile: (858) 509-9426 If to Lender: SCP Private Equity Partners, L.P. ---------------- ---------------- Attn.: Treasurer Facsimile: (---)-------- Any such notice shall be deemed received upon the earlier of (i) actual receipt or (ii) ten (10) days after mailing as provided above. Notice of change of address shall be given by written notice in the manner detailed in this Section. (e) Governing Law. This Agreement and all disputes hereunder shall be construed in accordance with, and governed by, the laws of California applied to contracts made and to be performed entirely in California between residents of California. (f) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and which together shall constitute a single agreement. (g) Expenses. Except as otherwise provided herein, the parties hereto shall each pay all costs and expenses of their respective performance of, and compliance with, the agreements and conditions contained herein on their respective parts to be performed or complied with. 7 (h) Headings. The headings in this Agreement are intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this agreement. (i) Waivers. No waiver of any of the provisions of this Agreement shall be valid and enforceable unless such waiver is in writing and signed by the party to be charged, and, unless otherwise stated therein, no such waiver shall constitute a waiver of any other provision hereof (whether or not similar) or a continuing waiver. (j) Further Assurances. Each of the parties hereto shall from time to time, without further consideration, execute and deliver such other documents and take such other actions as may reasonably be requested by another party hereto in order to effectuate the provisions of this Agreement. (k) Entire Agreement. This Agreement and the agreements, instruments and other documents to be delivered hereunder constitute the entire understanding and agreement between the parties hereto concerning the subject matter hereof. All negotiations between the parties hereto are merged into this Agreement, and there are no representations, warranties, covenants, understandings, or agreements, oral or otherwise, in relation thereto between the parties other than those incorporated herein and to be delivered hereunder. Except as otherwise expressly contemplated by this Agreement, nothing expressed or implied in this Agreement is intended or shall be construed so as to grant or confer on any person, firm or corporation other than the parties hereto any rights or privileges hereunder. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties to be bound thereby. IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date set forth above. CINEMASTAR LUXURY THEATERS, INC., a California corporation ----------------------------------- By: Donald Harnois Its: Chief Financial Officer SCP PRIVATE EQUITY PARTNERS, L.P., A California partnership By: ------------------------------- Its: ------------------------------- 1563630.1 EX-10.2 3 v67377ex10-2.txt EXHIBIT 10.2 1 EXHIBIT 10.2 SECURITY AGREEMENT DRAFT COPY This SECURITY AGREEMENT (this "Agreement") is made as of this __ day of September 2000, by CinemaStar Luxury Theater, Inc., a Delaware corporation (the "Grantor"), and SCP Private Equity Partners, L.P. (the "Secured Party"). RECITALS A. The Grantor and the Secured Party have entered into that certain Loan Agreement, dated as of October __, 2000, (the "Loan Agreement"). B. Pursuant to the Loan Agreement, the Grantor and Secured Party have agreed that Secured Party will loan money to Borrower for the continued operation of the business of Borrower. C. The Grantor is indebted to the Secured Party pursuant to the Loan Agreement, in the original principal amount of _____________ and Zero Cents ($______), dated October __, 2000, executed by the Grantor in favor of the Secured Party (as amended or supplemented from time to time, the "Loan"). The Grantor has agreed to the grant of the security interest made herein pursuant to the Loan Agreement. AGREEMENT NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor hereby agrees as follows for the benefit of the Secured Party and his successors and assigns: 1. Grant of Security. To the full extent permitted under applicable law, Grantor hereby assigns to the Secured Party, and grants to the Secured Party a security interest in, all the Grantor's right, title and interest in, to, and under the property described in the paragraphs below, now owned or hereafter acquired, and in all proceeds and products thereof, in whatever form and whether such proceeds arise before or after the commencement of any case under the United States Bankruptcy Code, 11 U.S.C. ss.ss. 101 et seq. (or any successor statute), by or against the Grantor, including, without limitation, all payments under insurance whether or not the Secured Party is the loss payee thereof, all proceeds of any governmental taking, and any indemnity, warranty, letter of credit (including the right to draw on such letter of credit), or guaranty payable by reason of any default under, loss of, or damage to or otherwise with respect to any of such property (collectively, the "Collateral"): (a) all Accounts; (b) all Chattel Paper (c) all Documents; (d) all Equipment; (e) all General Intangibles; 2 (f) all Instruments; (g) all Intellectual Property; (h) all Inventory; (i) all Pledged Securities; (j) all Investment Property; (k) all Deposit Accounts and other bank accounts; (l) all books and records pertaining to the Collateral; and (m) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing. 2. Security for Payment and Performance of Obligations and Termination of Security Interest. (a) The grant of security set forth in this Agreement secures the faithful performance and payment of all obligations of the Grantor to the Secured Party hereunder, under the Purchase Agreement, and under the Note, and all extensions, modifications, substitutions, replacements, and renewals of any thereof (collectively, the "Secured Obligations"). Without limited the generality of the foregoing, this Agreement secures the payment of all amounts that constitute part of the Secured Obligations and would be owed by Grantor but for the fact that such obligations are unenforceable or not allowable owing to the existence of bankruptcy, reorganization, or similar proceedings involving Grantor. The foregoing security interest shall terminate only upon performance and payment in full of all of the Secured Obligations. 3. Liability under Other Agreements. Anything herein to the contrary notwithstanding, (a) Grantor shall remain liable under all agreements constituting Collateral, if any, to which the Grantor is a party, to the extent set forth therein, to perform all of the Grantor's duties and obligations thereunder to the same extent as if this Agreement had not been executed; (b) the exercise by the Secured Party of any of the Secured Party's rights hereunder shall not release Grantor from any of the Grantor's duties or obligations under such agreements; and (c) the Secured Party shall not have any obligations or liability under such agreements by reason of this Agreement, nor shall the Secured Party be obligated to perform any of the obligations or duties of Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. (a) Subordination. Lender and Borrower recognize that Union Bank of California, N.A. holds a first priority secured position with respect to all of the Collateral of Borrower referenced in Section 1(a) - (m) above. Lender and Borrower agree that the security interest granted herein shall be and shall remain subordinate to the secured position of Union Bank 4. Grantor's Representation and Warranties. Grantor represents and warrants the following to Secured Party. (a) Incorporation and Good Standing. The Grantor (i) is a corporation duly organized, validly existing, and in good standing under the laws of the State of California, and (ii) has full corporate 3 power and authority to carry on the business in which it is engaged and to own and use the properties owned, leased, and used by it. (b) Authorization for Transaction. The Grantor has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. (c) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the Purchase Agreement or Note, will (i) violate any law or regulation to which the Grantor is subject or any provision of its Articles of Incorporation or Bylaws, or (ii) conflict with, result in a breach of or constitute a default under any contract to which the Grantor is a party or by which it is bound. The Grantor does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency for the parties to consummate the transactions contemplated by this Agreement. (d) Valid Security Interest. This Agreement creates a valid security interest of the Secured Party in the Collateral securing the Secured Obligations, and upon the filing of the financing statements delivered in connection with the execution and delivery of this Agreement and the taking of possession by the Secured Party of such instruments as the Secured Party may require, all filings and other actions necessary to perfect and protect such security interest will have been duly taken. No effective financing statement under the Uniform Commercial Code, or other instrument similar in effect, covering all or part of the Collateral will be filed in any recording office except by the Grantors in accordance with the Purchase Agreement and Note. (e) The Grantor shall, at its own expense, maintain insurance with respect to the Collateral in such amounts, against such risks, in such form, and with such insurers, as shall be satisfactory to the Secured Party from time to time. 5. Additional Covenants of the Grantor with respect to the Collateral. The Grantor shall: (a) Cause the Collateral to be maintained and preserved in the same condition, repair and working order as exists on the date of this Agreement, ordinary wear and tear excepted, and shall forthwith (or in the case of any loss or damage to any of the Collateral, as quickly as practicable after the occurrence thereof) make or cause to be made all repairs, replacements, and other improvements in connection therewith that are commercially reasonable. The Grantor shall promptly furnish to the Secured Party a statement respecting any material loss or damage to any of the Collateral and shall notify the Secured Party of any decisions not to make or cause to be made any repair, replacement, or improvement related thereto. (b) Cause the Collateral to be kept in jurisdictions where all action required by Secured Party to perfect its security interest in the Collateral has been taken with respect to the Collateral. Without limiting the generality of the foregoing, the Grantor agrees that no material item of tangible Collateral, other than vehicles or inventory in transit in the ordinary course of business, shall be moved or removed from the place it is currently located without the prior written consent of the Secured Party. (c) Pay promptly when due all taxes, fees, assessments, and governmental charges or levies imposed upon or in respect of the Collateral or this Agreement and all claims against the Collateral. (d) Perform in a timely manner all obligations of the Grantor under any agreement relating to any of the Collateral the failure to perform which would materially adversely affect the rights of the Grantor thereunder. 4 (e) Comply with all laws, orders, regulations and ordinances of all governmental authorities relating to the business operations and assets of the Grantor, except for laws, orders, regulations and ordinances, the violation of which would not have an adverse effect on the value of, or the Secured Party's interest in, any of the Collateral or, in the aggregate, would not have a material adverse effect on any Grantor's financial condition, results of operations or business. 6. Maintenance of Business. (a) Grantor shall keep the Grantor's principal place of business and chief executive office and the office where the Grantor keeps its records and files at the location specified herein, and shall not change its principal place of business and chief executive office, or its name, or its state of organization, or merge with any person, without, in each case, at least thirty (30) days' prior written notice to the Secured Party. The Grantor shall hold and preserve such records and files and upon reasonable notice shall permit representatives of the Secured Party at any time during normal business hours to inspect and make abstracts from such records and files. 7. Transfer, Release and Other Liens. (a) The Grantor shall not, except as expressly permitted by this Agreement, the Purchase Agreement or the Note (and subject to the terms thereof): (i) sell, assign (by operation of law or otherwise), lease, charter, encumber or otherwise dispose of any of the Collateral, other than inventory in the ordinary course of business, without the prior written consent of the Secured Party; or (ii) create or suffer to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Collateral. (b) The liens granted pursuant to this Agreement shall remain at all times in a first priority position until satisfied in full. 8. Secured Party May Perform. If the Grantor fails to perform any agreement contained herein, under the Purchase Agreement, or the Note, then the Secured Party may perform, or cause the performance of, such agreement, and the expenses of the Secured Party incurred in connection therewith shall be payable by the Grantor. 9. Secured Party's Duties. The powers conferred on the Secured Party hereunder are solely to protect the interests of the Secured Party in the Collateral, and shall not impose any duty upon the Secured Party to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. 10. Default/Remedies. (a) The occurrence of any of the following events, for any reason, whether voluntary or involuntary, pursuant to the order of any court or other governmental authority, or otherwise, shall constitute an "Event of Default" hereunder: (i) any default in the payment when due of any Secured Obligation which is not cured within any applicable cure period specified therein; 5 (ii) any failure to comply with any other term or provision of this Agreement which failure is not cured within thirty (30) calendar days after notice thereof from the Secured Party; (iii) any other breach of, default or event of default under or failure to comply with any term or provision of this Agreement, or the Loan Agreement, which is not cured within any applicable cure period specified therein; (iv) there exists a default under any deed of trust, lien or security agreement affecting or relating to the Collateral in favor of any person other than Secured Party or relating to obligations other than the Secured Obligations (including without limitation in favor of Sanwa) which is not cured within any applicable cure period specified herein; or (v) if any representation or warranty made herein is false in any material respect. (b) If any Event of Default shall have occurred and be continuing: (i) In lieu of or in addition to exercising any other power hereby granted or otherwise available to the Secured Party, the Secured Party (without notice, demand, or declaration of default, which are hereby waived by the Grantor) may declare all unpaid Secured Obligations immediately due and payable, whereupon they shall become due and payable, and (whether or not the Secured Obligations are so accelerated) may proceed by an action or actions in equity or at law for the seizure and sale of the Collateral or any part thereof, for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, for the foreclosure or sale of the Collateral or any part thereof under the judgment or decree of any court of competent jurisdiction, for the appointment or a receiver pending any foreclosure hereunder or the sale of the Collateral or any part thereof, or for the enforcement of any other appropriate equitable or legal remedy; and upon the commencement of judicial proceedings by the Secured Party to enforce any right under this Agreement, the Secured Party shall be entitled as a matter of right against the Grantor to such appointment of a receiver, without regard to the adequacy of the security by virtue of this Agreement or any other collateral or to the solvency of the Grantor. (ii) In addition to other rights and remedies provided for herein or otherwise available to the Secured Party, the Secured Party may exercise in respect of the Collateral all the rights and remedies of a secured party on default under the California Uniform Commercial Code, and also may (A) require the Grantor to, and the Grantor hereby agrees that, at its expense and upon request of the Secured Party, it forthwith shall, assemble all or part of the Collateral as directed by the Secured Party and make it available to the Secured Party at such places reasonably convenient to all parties as the Secured Party may designate, and (B) without notice except as specified below, sell the Collateral or any part thereof in one or more sales at public or private sales, at any of the Secured Party's offices or elsewhere, for cash, on credit, or for future delivery and at such price or prices and upon such other terms as the Secured Party may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be required by law, at least 5 days' notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Secured Party shall not be obligated to make any sale of Collateral, regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale from time to time by public announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Secured Party shall have the right to become the purchaser at any public sale made pursuant to the provisions of this Section 10 and shall have the right to 6 credit against the amount of the bid made therefor the amount payable to the Secured Party out of the net proceeds of such sale. (iii) All cash held by the Secured Party as Collateral, and all cash proceeds received by the Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral, may, in the discretion of the Secured Party, be held by the Secured Party as Collateral, and/or then or at any time thereafter, applied as follows: (A) First, to the payment of all costs and expenses incident to the enforcement of this Agreement, including, but not limited to, reasonable fees and expenses of the agents, contractors, and attorneys of the Secured Party incurred in connection with such sale, collection, or realization; (B) Second, to the payment of all other Secured Obligations, in such order as the Secured Party may elect; and (C) Third, the remainder, if any, to the Grantor or to whomever may be lawfully entitled to receive such remainder; provided, however, that the Grantor shall remain liable to the Secured Party for any deficiency in the Secured Obligations remaining unpaid after the application of such proceeds as provided in this Section 10(b)(iii), and provided further that, to the extent not prohibited by applicable law, nothing herein contained shall in any way limit or restrict the Secured Party's rights to proceed directly against the Grantor or any other person without first causing the Secured Party to exhaust, or in any manner to exercise its rights in respect of, the Collateral. (iv) Subject to any requirements of applicable law, the Grantor agrees that neither the Grantor nor any of the Grantor's affiliates under its control shall at any time have or assert any right under any law pertaining to the marshalling of assets, the sale of property in the inverse order of alienation, the administration of estates of decedents, appraisement, valuation, stay, extension, or redemption now or hereafter in force in order to prevent or hinder the rights of the Secured Party or any purchaser of the Collateral or any part thereof under this Agreement, and the Grantor, to the extent permitted by applicable law, hereby waives the benefit of all such laws. (v) Upon any sale made under the powers of sale herein granted and conferred, the receipt of the Secured Party shall be sufficient discharge to the purchaser or purchasers at any sale for the purchase money, and such purchaser or purchasers, and the heirs, devisees, personal representatives, successors, and assigns thereof, shall not, after paying such purchase money and receiving such receipt of the Secured Party, be obliged to see to the application thereof or be in any way answerable for any loss, misapplication, or nonapplication thereof. 11. Indemnity and Expense. The Grantor shall upon demand pay to the Secured Party the amount of any and all reasonable costs and expenses, including the reasonable fees and disbursements of counsel and/or any experts and agents, that the Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the inspection, custody, preservation, use, or operation of, the sale of, the collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Secured Party hereunder (including the defense of any claims or counterclaims asserted against the Secured Party arising out of this Agreement or the transactions contemplated hereby), (iv) the failure by the Grantor to perform or observe any of the provisions hereof or the failure of any representation or warranty of the Grantor made herein to be true and correct in all respects, or (v) the representation of the Secured Party in connection with any insolvency, bankruptcy, reorganization, receivership, or similar 7 proceeding by, affecting or relating to the Grantor or any of the Collateral. Until paid to Secured Party, such sums shall bear interest from the date incurred at the applicable rate of interest set forth in the Note. 12. Miscellaneous. (a) Notice. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been properly given hereunder: (a) upon personal delivery to the addresses set forth below, (b) upon receipt of such notice if sent by registered or certified mail, return receipt requested, postage prepaid in the United States Mail, (c) upon receipt of such notice if deposited in the custody of a nationally recognized overnight delivery service, or (d) upon receipt of such notice if sent by telecopy and receipt is confirmed. Notice shall be addressed as follows (or to such other addresses as the parties may specify by due notice to the others): To the Grantor: CinemaStar Luxury Theaters, Inc. 12230 El Camion Real, Suite 320 San Diego, CA 92130 Attn: Don Harnois To the Secured Party: SCP Private Equity Partners, L.P. ----------------- ----------------- (b) Continuing Security Interest: Etc. This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until payment in full of the Secured Obligations and performance of all other obligations secured hereby; and (ii) be binding upon and inure to the benefit of the parties and the parties' successors and assigns. (c) Severability. If any provision of this Agreement shall be deemed or held to be invalid or unenforceable for any reason, it shall be adjusted, if possible, rather than voided, so as to achieve the intent of the parties to the fullest extent possible. In any event, such provision shall be severable from, and shall not be construed to have any effect on, the remaining provisions of this Agreement, which shall continue to be in full force and effect. (d) Rights Cumulative: No Waiver. The Secured Party's options, powers, rights, privileges, and immunities specified herein or arising hereunder are in addition to, and not exclusive of, those otherwise created or existing now or at any time, whether by contract, by statute, or by rule of law. The Secured Party shall not, by any act, delay, omission, or otherwise, be deemed to have modified, discharged, or waived any of the Secured Party's options, powers, or rights in respect of this Agreement, and no modification, discharge, or waiver of any such option, power, or right shall be valid unless set forth in writing signed by the Secured Party or the Secured Party's authorized agent, and then only to the extent therein set forth. A waiver by the Secured Party of any right or remedy hereunder on any one occasion shall be effective only in the specific instance and for the specific purpose for which given, and shall not be construed as a bar to any right or remedy that the Secured Party would otherwise have on any other occasion. (e) Entire Agreement. This Agreement and the written agreements referred to herein and executed in connection herewith constitute the entire understanding among the Grantor and Secured Party with respect to the subject matter hereof. It supersedes all prior negotiations, prior discussions or other agreements, letters and understandings, oral or written, relating to the subject matter hereof. 8 (f) Governing Law. This Agreement shall be governed, construed interpreted and enforced in accordance with the laws of State of California, without giving effect to any conflicts or choice of law which otherwise may be applicable. (g) Amendment. This Agreement may only be amended or modified by the written agreement of the Grantor and Secured Party. (h) Litigation Forum. Grantor hereby agrees that any action arising out of this Agreement may be brought and maintained in the Superior Court for the County of Santa Clara, State of California. (i) Further Assurances. Each party agrees to perform any further action and to execute and deliver any further documents reasonably necessary and proper to carry out the intent of this Agreement. (j) Headings. The headings of the various sections of this Agreement are for convenience only and are not intended to explain or modify any of the provisions of this Agreement. (k) Survival of Obligations. All obligations of Grantor set forth in this Agreement shall survive the execution of this Agreement. (l) Effect of Course of Dealing. No course of dealing between the Grantor and Secured Party in exercising any of their respective rights under this Agreement shall operate as a waiver of any such rights, except where expressly waived in writing. IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly executed and delivered as of the date first above written. GRANTOR: CinemaStar Luxury Theater, Inc., a California corporation By: ----------------------------- Name: Donald Harnois Title: Chief Financial Officer SECURED PARTY: SCP Private Equity Partners, L.P. By: ------------------------------- Name: ---------------------------- Title: --------------------------- EX-27 4 v67377ex27.txt FINANCIAL DATA SCHEDULE
5 6-MOS 6-MOS MAR-31-2001 MAR-31-2000 APR-01-2000 MAR-01-1999 SEP-30-2000 SEP-30-1999 373,891 373,891 0 0 288,047 288,047 0 0 418,075 418,075 1,080,013 1,080,013 13,186,988 13,186,988 0 0 14,267,001 14,267,001 10,766,205 10,766,205 0 0 0 0 0 0 62,892 62,892 3,500,796 3,500,796 14,267,001 14,267,001 15,367,640 15,367,640 15,367,640 15,367,640 6,145,055 6,145,055 16,684,057 16,684,057 0 0 0 0 301,039 301,039 (1,617,456) (1,617,456) 123,623 123,623 1,749,079 1,749,079 0 0 0 0 0 0 1,749,079 1,749,079 (0.28) (0.28) (0.28) (0.28)
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