AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1998 REGISTRATION NO. 333-45859 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ PREMIER PARKS INC. (Exact name of Registrant as specified in its charter) ------------------------ DELAWARE 73-6137714 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) ------------------------ 11501 NORTHEAST EXPRESSWAY KIERAN E. BURKE OKLAHOMA CITY, OKLAHOMA 73131 11501 NORTHEAST EXPRESSWAY TEL: (405) 475-2500 OKLAHOMA CITY, OKLAHOMA 73131 (Address, including zip code, and telephone number, including TEL: (405) 475-2500 area code, of Registrant's principal executive offices) (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------ COPIES TO: JAMES M. COUGHLIN, ESQ. THOMAS R. BROME, ESQ. Baer Marks & Upham LLP Cravath, Swaine & Moore 805 Third Avenue Worldwide Plaza New York, New York 10022 825 Eighth Avenue Tel: (212) 702-5819 New York, New York 10019 Tel: (212) 474-1000 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE (SEE FOLLOWING PAGE.) ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CALCULATION OF REGISTRATION FEE PROPOSED PROPOSED TITLE OF EACH CLASS OF AMOUNT TO MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED(1)(2)(3) BE REGISTERED PRICE PER SHARE OFFERING PRICE(4) REGISTRATION FEE Common Stock, par value $0.05(5)................. (6) (6) (6) Convertible Preferred Stock...................... (6) (6) (6) EqPINES(sm)(7)(8)................................ (6) (6) (6) Total............................................ -- -- $1,183,781,250 $349,216(9) (1) This Registration Statement also pertains to certain rights (the "Rights") attached to each share of Common Stock. Each Right entitles its registered holder to purchase one one-thousandth of a share of a junior participating series of Preferred Stock of the Registrant upon the occurrence of certain prescribed events. Until the occurrence of such events, the Rights are not exercisable, will be evidenced by the certificates for the Common Stock and will be transferred along with and only with the Common Stock. (2) Securities registered hereunder may be sold separately, together or as units with other securities, registered hereunder. This Registration Statement also covers such indeterminate amount of securities as may be issued upon conversion of the Convertible Preferred Stock or EqPINES registered hereunder or as dividends on the Convertible Preferred Stock. (3) No separate consideration will be received for any securities registered hereunder that are issued upon conversion of the Convertible Preferred Stock or EqPINES registered hereunder. (4) Estimated in accordance with Rule 457(o) solely for the purposes of computing the registration fee. (5) Includes shares of Common Stock which may be issued upon exercise of the Underwriters' over-allotment options. See "Underwriting." (6) Pursuant to Rule 457(o), the Amount to be Registered, Proposed Maximum Offering Price Per Share and Proposed Maximum Aggregate Offering Price have been omitted for each class of these securities. (7) Such indeterminate number of EqPINES issued pursuant to a Deposit Agreement. (8) Includes shares of EqPINES which may be issued upon exercise of the Underwriters' over-allotment options. See "Underwriting." (9) $319,447 of which has been previously paid. EXPLANATORY NOTE The Prospectus relating to the Common Stock being registered hereby to be used in connection with a United States offering (the "U.S. Prospectus") is set forth following this page. The Prospectus to be used in connection with a concurrent international offering of the Common Stock (the "International Prospectus") will consist of alternate pages set forth following the U.S. Prospectus and the balance of the pages included in the U.S. Prospectus for which no alternate is provided. The Prospectus to be used in connection with a concurrent offering of EqPINES, representing interests in the Company's Mandatorily Convertible Preferred Stock (the "EqPINES Prospectus") will consist of alternate pages set forth following the International Prospectus and the balance of the pages included in the U.S. Prospectus for which no alternate is provided. The U.S. Prospectus and the International Prospectus are identical except that they contain different front and back cover pages and the International Prospectus contains an additional section under the caption "Certain United States Federal Tax Considerations to Non-United States Holders." The U.S. Prospectus and the EqPINES Prospectus are identical except that they contain different front and back cover pages, a different "Legal Matters" section and to the extent, in each case, of references to the different securities or the related offering, different "Prospectus Summary -- The Offering" sections and different "Underwriting" sections. Alternate pages for the International Prospectus and the EqPINES Prospectus are separately designated. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. Subject to Completion, dated March 25, 1998 PROSPECTUS [LOGO] 13,000,000 SHARES PREMIER PARKS INC. COMMON STOCK ------------------ All of the shares of Common Stock offered hereby will be sold by Premier Parks Inc. (collectively with its predecessor, the "Company" or "Premier"). Of the 13,000,000 shares of Common Stock offered, 10,400,000 shares are being offered initially in the United States and Canada in a United States offering (the "U.S. Offering") by the U.S. Underwriters and 2,600,000 shares are being offered outside the United States and Canada in a concurrent offering (the "International Offering") by the International Managers (together with the U.S. Underwriters, the "Underwriters"). These offerings are collectively referred to herein as the "Offering" or the "Common Stock Offering." See "Underwriting." The Offering is being made in connection with the acquisition (the "Six Flags Acquisition") by the Company of all of the capital stock of Six Flags Entertainment Corporation ("SFEC"). The Company is concurrently offering $ million aggregate principal amount at maturity of its senior discount notes due 2008, with estimated gross proceeds of $250.0 million, $280.0 million aggregate principal amount of its senior notes due 2006, and 5,000,000 Premium Income Equity Securities (the "EqPINES(SM)") representing interests in the Company's mandatorily convertible preferred stock (the "Mandatorily Convertible Preferred Stock") with estimated gross proceeds of $228.2 million (assuming the underwriters' over-allotment option for 750,000 EqPINES is not exercised). SFEC is concurrently offering $170.0 million aggregate principal amount of senior notes due 2006 (collectively the "Concurrent Offerings" and, together with the Offering, the "Offerings"). The Offerings will finance, in whole or in part, the Six Flags Acquisition. The Company may also issue depositary shares (the "Seller Depositary Shares") representing interests in up to $200.0 million of the Company's convertible redeemable preferred stock to the current stockholders of SFEC as part of the consideration for the Six Flags Acquisition. The Company may reduce (but not below $100 million) or may eliminate the Seller Depositary Shares by increasing the cash portion of the consideration for the Six Flags Acquisition and may, if issued, redeem the Seller Depositary Shares for cash within 90 days of the closing at the higher of the issuance price and market value. If the Seller Depositary Shares are not issued, the additional cash portion of the consideration for the Six Flags Acquisition will be funded from the net proceeds of the Common Stock Offering. The closing of the Offering is conditioned upon the closing of the Concurrent Offerings and the Six Flags Acquisition. The Common Stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "PKS." On March 23, 1998, the last sales price of the Common Stock, as reported by the NYSE, was $57 3/16 per share. The Company has applied to list the EqPINES on the NYSE. The Mandatorily Convertible Preferred Stock will not be so listed and the Company does not expect that there will be any trading market for the Mandatorily Convertible Preferred Stock except as represented by the EqPINES. ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 19 HEREIN FOR CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) Per Share..................................... $ $ $ Total(3)...................................... $ $ $ (1) The Company and its operating subsidiaries have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company has granted options to the Underwriters to purchase up to 1,950,000 additional shares of Common Stock on the same terms and conditions as set forth herein solely to cover over-allotments, if any. If such options were exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company would be $ , $ and $ , respectively. See "Underwriting." ------------------------ The shares of Common Stock offered by this Prospectus are offered by the U.S. Underwriters subject to prior sale, to withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the U.S. Underwriters and to certain further conditions. It is expected that delivery of the shares of Common Stock will be made at the offices of Lehman Brothers Inc., New York, New York, on or about , 1998. ------------------------ LEHMAN BROTHERS SALOMON SMITH BARNEY FURMAN SELZ NATIONSBANC MONTGOMERY SECURITIES LLC , 1998 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Proxy statements, periodic reports and other information filed by the Company can be inspected and copied at the public reference facilities of the Commission's principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the regional offices of the Commission at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies of such material can be obtained from the public reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. In addition, the Commission maintains a Website (http://www.sec.gov) that also contains such reports, proxy statements and other information filed by the Company. The Common Stock of the Company is listed on the NYSE. In addition, application will be made to list the EqPINES and the Common Stock issuable on conversion of the Mandatorily Convertible Preferred Stock on the NYSE. Such reports, proxy statements and other information concerning the Company can also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. The Company has filed with the Commission a Registration Statement on Form S-3 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act") with respect to the securities offered hereby. For purposes hereof, the term "Registration Statement" means the original Registration Statement and any and all amendments thereto. In accordance with the rules and regulations of the Commission, this Prospectus does not contain all of the information set forth in the Registration Statement and the schedules and exhibits thereto. Each statement made in this Prospectus concerning a document filed as an exhibit to the Registration Statement is qualified in its entirety by reference to such exhibit for a complete statement of its provisions. For further information pertaining to the Company and the securities offered hereby, reference is made to such Registration Statement, including the exhibits and schedules thereto, which may be inspected or obtained as provided in the foregoing paragraph. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents filed by the Company with the Commission are incorporated by reference into this Prospectus and made a part hereof as of their respective dates: 1. The Company's Annual Report on Form 10-K for the year ended December 31, 1997. 2. The audited financial statements of Kentucky Kingdom Inc. as of November 2, 1997, and for the year then ended included in the Company's Current Report on Form 8-K, dated November 7, 1997, as amended. 3. The Company's Current Report on Form 8-K, dated December 15, 1997, as amended. 4. The Company's Current Report on Form 8-K, dated February 9, 1998. 5. The description of the shares of Common Stock contained in the Company's Registration Statement on Form 8-A dated December 11, 1997 and filed under the Exchange Act, including any amendment or report filed for the purpose of updating such description. 6. The description of the rights relating to the shares of Common Stock contained in the Company's Registration Statement on Form 8-A dated January 12, 1998, as amended, and filed under the Exchange Act, including any amendment or report filed for the purpose of updating such description. 7. The information contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Registration Statement on Form S-3 (File No. 333-46897). All documents filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the Offering shall also be deemed to be incorporated by reference into this Prospectus. 2 Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide, without charge, to each person to whom this Prospectus is delivered, on the written or oral request of any such person, a copy of any or all of the documents incorporated herein by reference (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into such documents). Requests should be directed to: Premier Parks Inc., 11501 Northeast Expressway, Oklahoma City, Oklahoma 73131, Attention: Richard A. Kipf, Corporate Secretary (telephone number: (405) 475-2500, Ext. 219). CERTAIN PERSONS PARTICIPATING IN THESE OFFERINGS MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE EqPINES OR THE COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF EqPINES OR COMMON STOCK FOLLOWING THE PRICING OF THE OFFERINGS TO COVER A SYNDICATE SHORT POSITION IN THE EqPINES OR COMMON STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE EqPINES OR THE COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES RELATING TO THE OFFERING, SEE "UNDERWRITING." LOONEY TUNES, BUGS BUNNY, DAFFY DUCK, TWEETY BIRD and YOSEMITE SAM are copyrights and trademarks of Warner Bros., a division of Time Warner Entertainment Company, L.P. ("TWE"). BATMAN, BATMOBILE, GOTHAM CITY AND SUPERMAN are copyrights and trademarks of DC Comics, a partnership between TWE and a subsidiary of Time Warner Inc. SPORTS ILLUSTRATED is a trademark of Time Inc., a subsidiary of Time Warner Inc. HBO is a trademark of TWE. SIX FLAGS GREAT ADVENTURE, SIX FLAGS GREAT AMERICA and SIX FLAGS are federally registered trademarks of Six Flags Theme Parks Inc. FIESTA TEXAS and all related indicia are trademarks of Fiesta Texas Theme Park, Ltd. POPEYE and all related indicia are copyrights and trademarks of King Features Syndicate, Inc., a unit of The Hearst Corporation. This Prospectus includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical facts included in this Prospectus, including, without limitation, the statements under "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" and located elsewhere herein regarding industry prospects and the Company's financial position are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations are disclosed in this Prospectus, both together with such forward-looking statements and under "Risk Factors." 3 (This page has been left blank intentionally.) 4 PROSPECTUS SUMMARY PRIOR TO THE DATE OF THIS PROSPECTUS, THE EXISTING COMPANY CALLED "PREMIER PARKS INC." WILL BECOME A WHOLLY-OWNED SUBSIDIARY OF THE REGISTRANT AND THE OUTSTANDING SHARES OF CAPITAL STOCK OF THE EXISTING PREMIER PARKS INC. WILL BECOME, ON A SHARE-FOR-SHARE BASIS, SHARES OF CAPITAL STOCK OF THE REGISTRANT WHICH WILL THEN BE RENAMED "PREMIER PARKS INC." (THE "PREMIER MERGER"). AS USED HEREIN, THE TERMS THE "COMPANY" AND "PREMIER" MEAN FOR ANY PERIOD PRIOR TO THE PREMIER MERGER, THE EXISTING PREMIER PARKS INC. AND ITS CONSOLIDATED SUBSIDIARIES AND FOR ANY PERIOD SUBSEQUENT THERETO, THE REGISTRANT AND ITS CONSOLIDATED SUBSIDIARIES. THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY AND SHOULD BE READ IN CONJUNCTION WITH THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, ALL INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO GIVE EFFECT TO THE PREMIER MERGER AND THE ACQUISITIONS (AS DEFINED HEREIN) AND ASSUMES THAT THE UNDERWRITERS' OVERALLOTMENT OPTIONS ARE NOT EXERCISED. AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT REQUIRES OTHERWISE, THE TERMS (I) THE "1996 ACQUISITIONS" REFERS TO THE ACQUISITIONS OF ELITCH GARDENS, THE GREAT ESCAPE, WATERWORLD SACRAMENTO AND WATERWORLD CONCORD (TOGETHER, THE "WATERWORLD PARKS") AND RIVERSIDE PARK, (II) THE "1997 ACQUISITIONS" REFERS TO THE ACQUISITION OF KENTUCKY KINGDOM--THE THRILL PARK IN LOUISVILLE, KENTUCKY ("KENTUCKY KINGDOM"), THE PROPOSED ACQUISITION OF ALL OF THE OUTSTANDING CAPITAL STOCK OF WALIBI S.A. ("WALIBI") ASSUMING SUCCESSFUL COMPLETION OF THE WALIBI TENDER OFFER (AS DEFINED HEREIN), AS WELL AS THE COMPANY'S MANAGEMENT CONTRACT, LEASE AND PURCHASE OPTION WITH RESPECT TO MARINE WORLD AFRICA USA IN VALLEJO, CALIFORNIA ("MARINE WORLD"), (III) THE "SIX FLAGS ACQUISITION" REFERS TO THE ACQUISITION, BY MERGER, OF ALL OF THE CAPITAL STOCK OF SIX FLAGS ENTERTAINMENT CORPORATION ("SFEC" AND, TOGETHER WITH ITS CONSOLIDATED SUBSIDIARIES, "SIX FLAGS") WHICH WILL OCCUR CONTEMPORANEOUSLY WITH THE CLOSING OF THE OFFERING, (IV) THE "ACQUISITIONS" REFERS TO THE 1996 ACQUISITIONS, THE 1997 ACQUISITIONS AND THE SIX FLAGS ACQUISITION AND (V) THE "SIX FLAGS PARKS" REFERS TO THE PARKS OPERATED BY SIX FLAGS ON THE DATE OF THE SIX FLAGS ACQUISITION, AND THE "PREMIER PARKS" REFERS TO ALL OF THE PARKS OPERATED BY THE COMPANY (INCLUDING PARKS ACQUIRED AND TO BE ACQUIRED IN THE 1997 ACQUISITIONS, BUT EXCLUDING THE SIX FLAGS PARKS). ALL PRO FORMA FINANCIAL INFORMATION PRESENTED HEREIN GIVES PRO FORMA EFFECT TO EACH OF THE ACQUISITIONS (OTHER THAN MARINE WORLD). ALL PARK ATTENDANCE INFORMATION AND RANKINGS BASED ON SUCH DATA INCLUDED IN THIS PROSPECTUS (OTHER THAN ATTENDANCE DATA FOR THE PREMIER PARKS AND THE SIX FLAGS PARKS) ARE BASED ON INFORMATION PUBLISHED BY AMUSEMENT BUSINESS, A RECOGNIZED INDUSTRY PUBLICATION, WHICH, ACCORDING TO SUCH PUBLICATION, INCLUDES ESTIMATES BASED ON SOURCES IT BELIEVES TO BE RELIABLE. RANKINGS OF METROPOLITAN AND DESIGNATED MARKET AREAS ("DMA") ARE BASED ON A COPYRIGHTED 1996-97 SURVEY OF TELEVISION HOUSEHOLDS PUBLISHED BY A.C. NIELSEN MEDIA RESEARCH. ALL INFORMATION IN THIS PROSPECTUS RELATING TO THE ASSUMED PROCEEDS OF THE OFFERINGS AND RELATED SIX FLAGS FINANCINGS, THE AMOUNTS AND NUMBERS OF SECURITIES TO BE SOLD THEREIN AND THE INTEREST AND DIVIDEND RATES ON THOSE SECURITIES IS BASED ON THE ASSUMPTIONS DESCRIBED IN "UNAUDITED PRO FORMA FINANCIAL STATEMENTS" CONTAINED ELSEWHERE HEREIN. THE COMPANY The Company is the largest regional theme park operator, and the second largest theme park company, in the world, based on 1997 attendance of approximately 37 million at its parks. It operates 31 regional parks, including 15 of the 50 largest theme parks in North America based on 1997 attendance. The Company's theme parks serve nine of the ten largest metropolitan areas in the country. The Company estimates that approximately two-thirds of the population of the continental U.S. live within a 150-mile radius of the Company's theme parks. On a pro forma basis, the Company's total revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA") for the year ended December 31, 1997 was approximately $815.3 million and $263.5 million, respectively. See "Unaudited Pro Forma Financial Statements." A substantial portion of the proceeds of the Offerings will be used to fund the Six Flags Acquisition. See "--The Six Flags Transactions." Six Flags operates eight regional theme parks, as well as three 5 separately gated water parks and a wildlife safari park (each of which is located near one of the theme parks). None of the Six Flags Parks is located within the primary market of any of the Premier Parks. During 1997, the Six Flags Parks drew, in the aggregate, approximately 68% of their patrons from within a 100-mile radius. During that year, Six Flags' attendance, revenue and EBITDA totaled approximately 22.2 million, $708.7 million and $164.1 million, respectively. Six Flags has operated regional theme parks under the Six Flags name for over thirty years. As a result, Six Flags has established a nationally-recognized brand name. Premier will obtain worldwide ownership of the Six Flags brand name and expects to use the Six Flags brand name, generally beginning in the 1999 season, at most of the Premier Parks. In addition, as part of the Six Flags Acquisition, the Company will obtain from Warner Bros. and DC Comics the exclusive right for theme-park usage of certain Warner Bros. and DC Comics characters throughout the United States (except the Las Vegas metropolitan area) and Canada. These characters include BUGS BUNNY, DAFFY DUCK, TWEETY BIRD, YOSEMITE SAM, BATMAN, SUPERMAN and others. Since 1991, Six Flags has used these characters to market its parks and to provide an enhanced family entertainment experience. The long-term license will include the right to sell merchandise featuring the characters at the parks and will apply to all of the Company's current theme parks, as well as future parks that meet certain criteria. Premier intends to make extensive use of these characters at the Six Flags Parks and, commencing in 1999, at most of the existing Premier Parks. The Company believes that use of the Warner Bros. and DC Comics characters promotes attendance, supports higher ticket prices, increases lengths-of-stay and enhances in-park spending. See "Business--Licenses." The Premier Parks consist of nine regional theme parks (six of which include a water park component) and four water parks located across the United States, as well as six regional theme parks and two smaller attractions located in Europe and scheduled to be acquired in March 1998 in the acquisition of Walibi. During the 1997 operating season, the 11 parks then owned by Premier drew, on average, approximately 82% of their patrons from within a 100-mile radius, with approximately 35.7% of visitors utilizing group and other pre-sold tickets and approximately 20.6% utilizing season passes. Under current management, since 1989 Premier has assumed control of 30 parks, and has achieved significant internal growth. The 11 parks owned by the Company for the 1997 operating season achieved same park growth during 1997 in attendance, revenue and park-level operating cash flow (representing all park operating revenues and expenses without depreciation and amortization or allocation of corporate overhead or interest expense) of 17.3%, 21.3% and 59.5%, respectively, as compared to 1996. See "--Summary Historical and Pro Forma Data." The Company's parks are individually themed and provide a complete family-oriented entertainment experience. The Company's theme parks generally offer a broad selection of state-of-the-art and traditional thrill rides, water attractions, themed areas, concerts and shows, restaurants, game venues and merchandise outlets. In the aggregate, the Company's theme parks offer more than 800 rides, including over 90 roller coasters, making the Company the leading provider of "thrill rides" in the industry. The Company believes that its parks benefit from limited direct competition. The combination of limited supply of real estate appropriate for theme park development, high initial capital investment, long development lead-time and zoning restrictions provides each of the parks with a significant degree of protection from competitive new theme park openings. Based on its knowledge of the development of other theme parks in the United States, the Company's management estimates that it would cost at least $200 million and would take a minimum of two years to construct a new regional theme park comparable to the Company's largest parks. The Company's senior and operating management team has extensive experience in the theme park industry. Premier's six senior executive officers have over 150 years aggregate experience in the industry and its ten general managers (prior to the Six Flags Acquisition) have an aggregate of approximately 210 6 years experience in the industry, including approximately 85 years at the Premier Parks. A number of Premier's executives and operating personnel have experience at Six Flags. According to AMUSEMENT BUSINESS, total North American amusement/theme park attendance in 1997 was approximately 270 million. Total attendance for the 50 largest parks in North America was 167.2 million in 1997, compared to 145.0 million in 1994, representing a compound annual growth rate of 4.9%. The Company believes that this growth reflects two trends: (i) demographic growth in the 5-24 year old age group, which is expected to continue through 2010 and (ii) an increasing emphasis on family-oriented leisure and recreation activities. The Company's strategy for achieving growth includes the following key elements: (i) pursuing growth opportunities at existing parks; (ii) expanding the Company's parks; and (iii) making selective acquisitions. PURSUING GROWTH OPPORTUNITIES AT EXISTING PARKS The Company believes there are substantial opportunities for continued internal growth at its parks. The Company seeks to increase revenue by increasing attendance and per capita spending, while also maintaining strict control of operating expenses. The primary elements used to achieve this objective are: (i) adding rides and attractions and improving overall park quality; (ii) enhancing marketing and sponsorship programs; (iii) increasing group sales, season passes and other pre-sold tickets; (iv) implementing ticket pricing strategies to maximize ticket revenues and park utilization; (v) adding and enhancing restaurants and merchandise and other revenue outlets; and (vi) adding special events. This approach is designed to exploit the operating leverage inherent in the theme park business. Once parks achieve certain critical attendance levels, operating cash flow margins increase because revenue growth through incremental attendance gains and increased in-park spending is not offset by a comparable increase in operating expenses, because a large portion of such expenses is relatively fixed during any given year. THE PREMIER PARKS Management believes it has demonstrated the effectiveness of its strategy at the Premier Parks owned prior to the 1997 Acquisitions. For example, during the year ended December 31, 1997, the three parks acquired in the Company's 1995 acquisition of Funtime Parks, Inc. (the "Funtime Acquisition") achieved compound annual growth in attendance, revenue and park-level operating cash flow of 10.2%, 14.9% and 27.2%, respectively, compared to 1995. Similarly, during the year ended December 31, 1997, the five parks acquired in the 1996 Acquisitions realized growth in attendance, revenue and park-level operating cash flow of 33.8%, 37.9% and 228.9%, respectively, compared to 1996. In particular, two of the parks acquired in the 1996 Acquisitions, Elitch Gardens in Denver and Riverside Park in Springfield, Massachusetts, realized dramatic growth during their first year under the Company's ownership. As a result of capital investment and improved marketing, during the year ended December 31, 1997, attendance and revenue at Elitch Gardens grew 62.1% and 53.3%, respectively, and park-level operating cash flow increased from $(1.8) million to $8.6 million, as compared to 1996. Similarly, during the year ended December 31, 1997, attendance and revenue at Riverside Park increased 57.7% and 56.7%, respectively, and park-level operating cash flow increased from $1.5 million to $8.2 million, as compared to 1996. Management believes that each of the parks acquired by Premier in the 1997 Acquisitions offer similar opportunities to implement the Company's growth strategy. For example, at Marine World, a well-known wildlife park located in the San Francisco market, management is expanding the park's entertainment component with theme park rides and attractions, investing approximately $35-$40 million for the 1998 season to add fourteen new rides in the first phase of this expansion. The Walibi acquisition provides the Company with a significant presence in the expanding theme park industry in Europe and management believes that the Company's strategy of targeted capital investment and sophisticated marketing can improve performance at these parks. The Company has agreed to invest approximately $38 million in the 7 Walibi Parks (as defined herein) over the three years commencing with the 1999 season. See "-- Other Recent Developments" and "Business--Pursuing Growth Opportunities at Existing Parks." The Company believes that, by virtue of the Six Flags Acquisition, a number of the existing Premier Parks have the potential over the next several seasons to accelerate their rate of growth. Recent attendance levels at the Six Flags theme parks (between 1.7 millon and 3.6 million in 1997) have been substantially higher than the annual attendance at the largest Premier Parks (between 1.0 million and 1.5 million during that year). Management believes that a number of the existing Premier Parks, particularly Adventure World, Geauga Lake, Kentucky Kingdom, Marine World and Riverside Park, all of which are located in or near major metropolitan areas, can significantly accelerate their market penetration and the expansion of their geographic market through the use of the Six Flags brand name, aggressive marketing campaigns featuring the animated characters licensed from Warner Bros. and DC Comics, as well as targeted capital investment in new rides and attractions. Management also believes that this expanded penetration, as well as the incorporation of the animated characters in the parks and in merchandise sales, can result in increased per capita spending at the existing Premier Parks. The Company expects to commence general use of the Six Flags brand name and the licensed characters at the Premier Parks for the 1999 season. THE SIX FLAGS PARKS The Six Flags Parks generally enjoy significant market penetration. Thus, although the Company plans to make targeted capital expenditures at these parks to increase attendance and per capita spending levels, it expects to increase significantly the EBITDA of these parks primarily through increased operating efficiencies. First, and most importantly, the Company believes that it can substantially reduce Six Flags' corporate overhead and other corporate-level expenses. Second, the Company expects to achieve significant improvement in park-level operating margins. Third, by virtue of economies of scale, the Company believes that operating efficiencies in areas such as marketing, insurance, promotion, purchasing and other expenses can be realized. Finally, the Company believes that its increased size following the Six Flags Acquisition will enable it to achieve savings in capital expenditures. EXPANDING THE COMPANY'S PARKS The Company is expanding several of the Premier Parks in order to increase attendance and per capita spending. For example, the Company is constructing an economy motel at its Darien Lake park for the 1998 season to supplement the existing campgrounds. In addition, the Company recently purchased campgrounds adjacent to Geauga Lake and expects to add, prior to the 1999 season, a more complete complement of "dry" rides to Wyandot Lake, which is currently primarily a water park. In addition, the Company owns 400 acres adjacent to Adventure World which are zoned for entertainment, recreational and residential uses and are available for complementary uses. Additional acreage owned by the Company and suitable for development exists at several of the other Premier Parks. The Company may expand in the future certain of the Six Flags Parks by adding complementary attractions, such as campgrounds, lodging facilities, new water parks and concert venues. For example, Six Flags owns over 1,500 undeveloped acres adjacent to Six Flags Great Adventure (located between New York City and Philadelphia) suitable for such purposes. Additional acreage suitable for development exists at several other Six Flags Parks. See "Business--Environmental and Other Regulation." MAKING SELECTIVE ACQUISITIONS The U.S. regional theme park industry is highly fragmented with over 150 parks owned by over 100 operators. Management believes that, in addition to the Acquisitions, there are numerous acquisition opportunities, both in the U.S. and abroad, that can expand its business. While the Company will continue to pursue acquisitions of regional parks with attendance between 300,000 and 1.5 million annually, the Company will also consider acquisitions of larger parks or park chains (such as Six Flags). 8 The Company believes it has a number of competitive advantages in acquiring theme parks. Operators of destination or large regional park chains, other than Cedar Fair L.P., have not generally been actively seeking to acquire parks in recent years. Additionally, as a multi-park operator with a track record of successfully acquiring, improving and repositioning parks, the Company has numerous competitive advantages over single-park operators in pursuing acquisitions and improving the operating results at acquired parks. These advantages include the ability to (i) exercise group purchasing power (for both operating and capital assets); (ii) achieve administrative economies of scale; (iii) attract greater sponsorship revenue, support from sponsors with nationally-recognized brands and marketing partners; (iv) use the Six Flags brand name and the characters licensed from Warner Bros. and DC Comics; (v) recruit and retain superior management; (vi) optimize the use of capital assets by rotating rides among its parks to provide fresh attractions; (vii) access capital markets; and (viii) use its NYSE-listed Common Stock as a portion of the acquisition consideration. See "Risk Factors--Uncertainty of Future Acquisitions; Potential Effects of Acquisitions" and "Business--Acquisition Strategy." The Company's principal executive offices are located at 11501 Northeast Expressway, Oklahoma City, Oklahoma 73131, (405) 475-2500 and at 122 East 42nd Street, New York, New York 10168, (212) 599-4690. THE SIX FLAGS TRANSACTIONS The Offering is one of a series of related transactions (the "Six Flags Transactions") which will be consummated immediately prior to or concurrently with the Offering. The elements of the Six Flags Transactions are: THE PREMIER MERGER The company presently named Premier Parks Inc. (together with its consolidated subsidiaries, "Premier Operations") will merge in the Premier Merger with a wholly-owned subsidiary of Premier Parks Holdings Corporation in accordance with Section 251(g) of the Delaware General Corporation Law. As a result of the Premier Merger, holders of shares of Common Stock of Premier Operations will become, on a share-for-share basis, holders of Common Stock of Premier Parks Holdings Corporation, and Premier Operations will become a wholly-owned subsidiary of Premier Parks Holdings Corporation. On the effective date of the Premier Merger, Premier Operations will change its name to Premier Parks Operations Inc., and Premier Parks Holdings Corporation will change its name to Premier Parks Inc. THE SIX FLAGS ACQUISITION Pursuant to an Agreement and Plan of Merger dated as of February 9, 1998 (the "Six Flags Agreement"), Premier will acquire by merger all of the capital stock of SFEC from its current stockholders (the "Sellers") for $965 million (plus an approximate $11 million adjustment based on year-end balance sheet adjustments and option cancellation costs). The purchase price is payable all in cash or, at the Company's option, in cash and Seller Depositary Shares representing interests in up to $200.0 million of the Company's Convertible Redeemable Preferred Stock (the "Seller Preferred Stock"). The Company may reduce (but not below $100.0 million) or eliminate the Seller Depositary Shares by increasing the cash portion of the purchase price. If the Seller Depositary Shares are not issued, the additional cash portion of the purchase price will be funded from the net proceeds of the Common Stock Offering. At the date of acquisition, Six Flags' liabilities will include approximately $192.3 million principal amount at maturity ($161.1 million accreted value at December 28, 1997) of SFEC's Zero Coupon Senior Notes due 1999 (the "SFEC Zero Coupon Senior Notes") and approximately $285.0 million principal amount at maturity ($269.9 million accreted value at December 28, 1997) of 12 1/4% Senior Subordinated Discount Notes due 2005 (the "SFTP Senior Subordinated Notes") of Six Flags Theme Parks Inc. (together with its subsidiaries, "SFTP"), an indirect wholly-owned subsidiary of SFEC. See "Description of Indebtedness." In addition, the Company will refinance all outstanding Six Flags bank indebtedness (approximately $348.5 9 million at December 28, 1997) and certain other indebtedness of SFEC (approximately $30.5 million at December 28, 1997). See "Description of Six Flags Agreement." THE FINANCINGS In the Offerings: 1. The Company will issue (the "Common Stock Offering") 13,000,000 shares of Common Stock with estimated gross proceeds of $593.2 million (based upon the average closing price of the Company's Common Stock for the twenty trading days ended February 27, 1998). 2. The Company will issue (the "EqPINES Offering") 5,000,000 EqPINES representing interests in the Company's % Mandatorily Convertible Preferred Stock (the "Mandatorily Convertible Preferred Stock" and, together with the Seller Preferred Stock, the "Convertible Preferred Stock"), with estimated gross proceeds of $228.2 million (based upon the average closing price of the Company's Common Stock for the twenty trading days ended February 27, 1998). See "Description of EqPINES." 3. The Company will issue (the "Discount Notes Offering") $ million aggregate principal amount at maturity of its % Senior Discount Notes due 2008 (the "Company Senior Discount Notes") with estimated gross proceeds of $250.0 million. See "Description of Indebtedness--Company Senior Discount Notes." 4. The Company will issue (the "Senior Notes Offering") $280.0 million principal amount of its % Senior Notes due 2006 (the "Company Senior Notes" and, together with the Company Senior Discount Notes, the "Company Notes"). See "Description of Indebtedness--Company Senior Notes." 5. SFEC will issue (the "SFEC Notes Offering") $170.0 million principal amount of its % Senior Notes due 2006 (the "New SFEC Notes") guaranteed on a fully subordinated basis by the Company. The proceeds of the New SFEC Notes, together with additional funds, will be deposited in escrow to repay in full at or prior to maturity the SFEC Zero Coupon Senior Notes. See "Description of Indebtedness--New SFEC Notes." In addition, the Company is using approximately $225.0 million of borrowings under the Premier Credit Facility (as defined below) to pay the cash portion of the Walibi purchase price and refinance certain Walibi net indebtedness (which together are estimated to be $122.5 million) and to prefund capital expenditures and provide working capital (which together are estimated to be approximately $102.5 million). The Company will also borrow approximately $420.0 million under a new $472.0 million Six Flags senior secured credit facility (the "Six Flags Credit Facility" and, together with the Premier Credit Facility, the "Credit Facilities") primarily to repay bank indebtedness of SFTP. See "Description of Indebtedness-- Premier Credit Facility" and "--Six Flags Credit Facility." The closing of the Offering is conditioned upon the closing of all other elements of the Six Flags Transactions. Although the size of one or more of the Offerings may be changed, the aggregate gross proceeds of all the Offerings is not expected to change materially. 10 The following table sets forth a summary of the expected sources and uses of funds associated with the Six Flags Transactions: AMOUNT (IN SOURCES THOUSANDS) ----------- Common Stock Offering(1)(2).................................................... $ 593,190 EqPINES Offering(1)............................................................ 228,150 Issuance of Seller Depositary Shares(2)........................................ 200,000 Company Senior Discount Notes Offering(1)...................................... 250,000 Company Senior Notes Offering(1)............................................... 280,000 SFEC Notes Offering(1)......................................................... 170,000 Borrowings under the Premier Credit Facility(3)................................ 102,500 Borrowings under the Six Flags Credit Facility................................. 420,000 ----------- Total...................................................................... $2,243,840 ----------- ----------- USES Acquisition of SFEC capital stock.............................................. $ 965,000 Adjustment to purchase price of SFEC capital stock............................. 11,000 Deposit for repayment of SFEC Zero Coupon Senior Notes......................... 175,030 Repayment of Six Flags indebtedness............................................ 382,430 Interest escrow for Company Senior Notes(4).................................... 76,260 Restricted Cash Account(5)..................................................... 75,000 Financing of tender offer for partnership interests in Six Flags Over Texas(6)..................................................................... 117,250 Prefunding of capital expenditures and working capital(7)...................... 350,450 Transaction offering fees, expenses, discounts and escrows..................... 91,420 ----------- Total...................................................................... $2,243,840 ----------- ----------- - ------------------------ (1) Reflects assumed gross proceeds. (2) If the Company determines not to issue the Seller Depositary Shares, the additional cash necessary to pay that portion of the purchase price for the Six Flags Acquisition will be funded from net proceeds of the Common Stock Offering. (3) Does not include an estimated $122.5 million (assuming a 100% Walibi Tender Offer (as defined herein)) of borrowings to be used to fund the Walibi acquisition. (4) Represents escrow to prefund the first six semi-annual interest payments thereon. (5) Represents restricted cash to satisfy obligations under the arrangements relating to the Co-Venture Parks (as defined herein) and to fund dividends on the Convertible Preferred Stock, as required under the indentures that will govern the Company Notes. See "Description of Securities--Preferred Stock--Seller Preferred Stock" and "Description of EqPINES--Dividends." (6) Reflects tender of approximately 33% of the units representing limited partnership interests. See "Business--Description of Parks--Six Flags Over Texas and Six Flags Hurricane Harbor." (7) See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity, Capital Commitments and Resources." 11 Following the Six Flags Transactions, the Company's structure will be: Chart demonstrating Parent-Subsidiary relationships and the respective debt/credit obligations of each such entity following the Offerings. 12 OTHER RECENT DEVELOPMENTS KENTUCKY KINGDOM. In November 1997, the Company acquired all of the membership interests of the limited liability company that owns substantially all of the assets used in the operation of Kentucky Kingdom, a combination theme and water park located in Louisville, Kentucky, for an aggregate purchase price of $64.0 million, of which approximately $4.8 million was paid by delivery of 121,671 shares of Common Stock, with the balance paid in cash and by the assumption of liabilities. Depending upon the level of revenues at Kentucky Kingdom during each of the 1998-2000 seasons, the Company may be required to issue additional shares of Common Stock to the seller. MARINE WORLD. In April 1997, the Company became manager of Marine World, a marine and exotic wildlife park located in Vallejo, California, pursuant to a contract with an agency of the City of Vallejo under which the Company is entitled to receive an annual base management fee of $250,000 and up to $250,000 annually in additional fees based on park performance. In November 1997, the Company exercised an option to lease approximately 40 acres of land within the site for nominal rent and an initial term of 55 years (plus four ten-year and one four-year renewal options). The Company intends to expand the park's entertainment component by adding theme park rides and attractions on the leased land, which is located within the existing park, in order to create one fully-integrated regional theme park at the site. Premier is entitled to receive, in addition to the management fee, 80% of the cash flow generated by the combined operations at the park, after combined operating expenses and debt service on outstanding debt obligations relating to the park. The Company is currently implementing the first phase of the expansion of the entertainment component at Marine World. The Company also has an option to purchase the entire site commencing in February 2002 at a purchase price equal to the greater of the then principal amount of certain debt obligations of the seller (expected to aggregate $52.0 million at February 2002) or the then fair market value of the seller's interest in the park (based on a formula relating to the seller's 20% share of Marine World's cash flow). The Company currently expects to exercise this purchase option when it becomes exercisable. WALIBI. In December 1997, the Company entered into an agreement (the "Walibi Agreement") with three of the principal stockholders of Walibi, S.A. ("Walibi"), pursuant to which the Company expects to purchase in March 1998 approximately 50% of the outstanding capital stock of Walibi (the "Private Acquisition"). Following the closing of the Private Acquisition, the Company will commence a "public takeover bid," as defined and regulated under Belgian law (the "Walibi Tender Offer"), for the remainder of the outstanding capital stock of Walibi. Walibi is a corporation (SOCIETE ANONYME) organized under the laws of Belgium. Walibi's stock is currently traded on the Official Market of the Brussels Stock Exchange. It owns six theme parks (the "Walibi Parks"), two located in Belgium, one in The Netherlands and three in France, as well as two smaller attractions in Belgium. Walibi's operations had combined 1997 attendance of approximately 3.5 million. The transaction values Walibi at approximately $139.5 million (at the exchange rate of Belgian Francs ("BEF") 37.065 to US$1 on December 31, 1997), based on a multiple of seven times Walibi's 1997 EBITDA. This amount includes the assumption or refinancing of Walibi net indebtedness (total debt less cash and cash equivalents) which aggregated approximately $53.0 million at December 31, 1997. As a result, the aggregate consideration to be paid by the Company for the outstanding stock of Walibi (assuming the Company acquires 100% of the outstanding Walibi capital stock pursuant to the Walibi Tender Offer) will be $86.5 million (based on the year-end exchange rate). The purchase price in the Private Acquisition will be paid 80% in cash in BEF and 20% in Common Stock (approximately 229,000 shares). Shares of Common Stock issued in the Private Acquisition will not be registered under the Securities Act and will be subject to a "lock-up" agreement until the later of June 6, 1998 or 41 days after the consummation of the Private Acquisition. The Company has agreed to grant certain registration rights 13 under the Securities Act to the sellers in the Walibi acquisition with respect to shares issued in the Private Acquisition. The consideration offered in the Walibi Tender Offer will be payable at the election of the holders of Walibi capital stock (i) in cash only or (ii) in cash and shares of Common Stock in the same ratio as the Private Acquisition. The Company will fund the cash portion of the purchase price of the Walibi acquisition (as well as the refinancing of certain indebtedness of Walibi) from borrowings under a $300.0 million senior secured credit facility (the "Premier Credit Facility") entered into by Premier Operations in March 1998. See "Description of Indebtedness--Premier Credit Facility." In addition, the Company will be obligated to issue additional shares of Premier Common Stock in the event certain gross revenue targets are met for the Walibi Parks. Under the terms of the Walibi Agreement, the Company has agreed to invest at least BEF 1.4 billion (approximately $38 million based on the year-end exchange rate) in the Walibi Parks over the three years commencing with the 1999 season. 14 THE OFFERING Common Stock offered(1): U.S. Offering................... 10,400,000 shares International Offering.......... 2,600,000 shares Total......................... 13,000,000 shares Common Stock outstanding: prior to the Offering(2)........ 18,873,111 shares after the Offering(3)........... 32,331,111 shares The Offerings..................... The Company is concurrently offering (i) 13,000,000 shares of Common Stock, (ii) 5,000,000 EqPINES representing interests in Mandatorily Convertible Preferred Stock with estimated gross proceeds of $228.2 million, (iii) $ million aggregate principal amount at maturity of Company Senior Discount Notes, with estimated gross proceeds of $250.0 million, and (iv) $280.0 million principal amount of Company Senior Notes. In addition, SFEC is offering $170.0 million of New SFEC Notes. The Company also may issue Seller Depositary Shares representing interests in up to $200.0 million of Seller Preferred Stock as part of the consideration for the Six Flags Acquisition. See "--The Six Flags Transactions," "Description of Indebtedness--Company Senior Discount Notes," "--Company Senior Notes," "--New SFEC Notes," "Description of Securities--Preferred Stock--Seller Preferred Stock" and "Description of EqPINES." The Offerings are conditioned upon the closing of all other elements of the Six Flags Transactions. Use of Proceeds................... The Company intends to apply the net proceeds from the Offerings to fund the cash portion of the purchase price for the Six Flags Acquisition; to provide for the repayment in full of the SFEC Zero Coupon Senior Notes and for certain interest payments on the the Company Senior Notes; to fund improvements and expansion of the Company's parks, including the parks acquired in the Six Flags Acquisition and the 1997 Acquisitions; to acquire and make improvements at additional theme parks; and for general corporate purposes, including working capital requirements. See "Use of Proceeds." NYSE symbols: Common Stock.................... "PKS" EqPINES......................... "PKSPrA" - ------------------------ (1) Excludes 1,950,000 shares of Common Stock issuable upon exercise of the Underwriters' over-allotment options. (2) Includes an aggregate of 375,000 unvested restricted shares issued to the Company's Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, which vest proportionately on January 1 of the five years commencing 1999. Excludes (i) an aggregate of 45,039 shares of Common Stock issuable upon exercise of warrants; (ii) an aggregate of 1,270,000 shares of Common Stock reserved for issuance under the Company's Stock Incentive Plans, of which options for 764,700 shares have been granted and options for 455,800 shares are presently exercisable; and (iii) an aggregate of 450,000 additional restricted shares issuable at the option of the Company to the Company's Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, under employment agreements with such officers. (3) Assumes the issuance of 229,000 shares in the Private Acquisition and 229,000 shares in the Walibi Tender Offer. Excludes (i) any shares issuable to the sellers in the Kentucky Kingdom and Walibi acquisitions depending upon the future revenues of the acquired parks; (ii) shares issuable upon conversion of the Convertible Preferred Stock or as dividends on the Mandatorily Convertible Preferred Stock; and (iii) 1,950,000 shares of Common Stock issuable upon exercise of the Underwriters' over-allotment options. 15 SUMMARY HISTORICAL AND PRO FORMA DATA The tables below contain certain summary historical and pro forma financial and operating data for the Company and certain summary historical financial and operating data for Six Flags. The historical financial data of the Company for 1996 includes the 1996 Acquisitions (other than Riverside Park) from the dates of the respective acquisitions. The pro forma financial and operating data of the Company for the year ended December 31, 1997 give effect to (i) the acquisitions of Walibi (assuming a 100% Walibi Tender Offer on the basis of 80% payable in cash and 20% payable in shares of Common Stock) and Kentucky Kingdom as if they had occurred on January 1, 1997; and (ii) the acquisition of Six Flags as if it had occurred on December 30, 1996 (the first day of Six Flags' 1997 fiscal year). The following summary historical financial and operating data, except for attendance and revenue per visitor data, for each of the years in the three-year period ended December 31, 1997 (or December 28, 1997 in the case of Six Flags) have been derived from the financial statements of the Company and Six Flags appearing elsewhere in this Prospectus and should be read in conjunction with those financial statements (including the notes thereto), "Unaudited Pro Forma Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Other historical financial and operating data (except attendance and revenue per visitor data) have been derived from audited consolidated financial statements which are not included herein. YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 1993 1994 1995(1) 1996(2) 1997 --------- --------- ----------- ----------- ------------------------ PRO ACTUAL(3) FORMA(4) ----------- ----------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE, RATIO AND PER VISITOR AMOUNTS) THE COMPANY STATEMENT OF OPERATIONS DATA: Total revenue.............................. $ 21,860 $ 24,899 $ 41,496 $ 93,447 $ 193,904 $ 815,333 Gross profit(5)............................ 7,787 7,991 13,220 31,388 69,731 263,200 Income from operations(5).................. 3,019 2,543 3,948 14,461 33,184 131,620 Interest expense, net...................... (1,438) (2,299) (5,578) (11,121) (17,775) (180,273) Income (loss) before extraordinary loss.... 1,354 102 (1,045)(6) 1,765 14,099 (41,292) Income (loss) before extraordinary loss per common share--Basic...................... $ .51 $ .04 $ (.40)(6) $ .14 $ .79 $ (2.14) --Diluted.................... $ .51 $ .04 $ (.40)(6) $ .13 $ .76 $ (2.14) OTHER DATA: EBITDA(7).................................. $ 4,562 $ 4,549 $ 7,706 $ 22,994 $ 61,340(8) $ 263,455 Adjusted EBITDA(9)......................... -- -- -- -- -- $ 306,037 Net cash provided by operating activities(10)........................... $ 2,699 $ 1,060 $ 10,646 $ 11,331 $ 47,150 $ 153,027 Depreciation and amortization.............. $ 1,537 $ 1,997 $ 3,866 $ 8,533 $ 19,792 $ 107,138 Capital expenditures....................... $ 7,674 $ 10,108 $ 10,732 $ 39,423 $ 135,852 $ 212,229(11) Total attendance........................... 1,322 1,408 2,302 (12 4,518 (12 8,631 (12 36,530(13) Revenue per visitor(14).................... $ 16.54 $ 17.68 $ 18.03 $ 20.66 $ 22.18 $ 27.37 SELECTED RATIOS: Net debt/EBITDA(15)........................ -- -- -- -- -- 4.8x Total debt/EBITDA(15)...................... -- -- -- -- -- 7.0x EBITDA/cash interest expense(15)........... -- -- -- -- -- 2.2x EBITDA/total interest expense(15).......... -- -- -- -- -- 1.4x Ratio of earnings to fixed charges(16)..... 2.1x 1.1x (16) 1.3 x 2.3 x (16) Ratio of earnings to combined fixed charges and preferred stock dividends(16)........ 2.1x 1.1x (16) 1.2 x 2.3 x (16) DECEMBER 31, 1997 --------------------------- ACTUAL(17) PRO FORMA(18) ----------- -------------- (UNAUDITED) (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents............................................................ $ 84,288 $ 479,804(19) Total assets......................................................................... $ 611,321 $3,553,662 Total long-term debt and capitalized lease obligations (excluding current maturities)........................................................................ $ 216,231 $2,032,831 Total debt........................................................................... $ 217,026 $2,035,626 Mandatorily redeemable preferred stock............................................... -- $ 200,000 Stockholders' equity................................................................. $ 323,749 $1,130,180 (SEE FOOTNOTES ON FOLLOWING PAGE) 16 - ------------------------ (1) The historical Statement of Operations Data for 1995 reflect the results of the parks acquired in the Funtime Acquisition from the date of acquisition, August 15, 1995. (2) The historical Statement of Operations Data for 1996 reflect the results of Elitch Gardens from October 31, 1996, the Waterworld Parks from November 19, 1996 and The Great Escape from December 4, 1996 (the dates of their respective acquisitions). (3) The historical Statement of Operations Data for 1997 reflect the results of Riverside Park from February 5, 1997 and Kentucky Kingdom from November 7, 1997 (the dates of their respective acquisitions). (4) The pro forma financial and operating data for the year ended December 31, 1997 give effect to (i) the acquisitions of Walibi (assuming a 100% Walibi Tender Offer on the basis of 80% payable in cash and 20% payable in shares of Common Stock) and Kentucky Kingdom as if they had occurred on January 1, 1997; and (ii) the acquisition of Six Flags as if it had occured on December 30, 1996 (the first day of Six Flags' 1997 fiscal year). The pro forma income per share for 1997 gives effect to the January 1997 public offering, the Common Stock Offering and the EqPINES Offering (assuming no exercise of the Underwriters' over-allotment options) as if they had occurred on January 1, 1997. See "Unaudited Pro Forma Financial Statements-- Unaudited Pro Forma Statement of Operations" generally and with respect to certain assumptions used in respect of the related financings. (5) Gross profit is revenue less operating expenses, costs of products sold and depreciation and amortization. Income from operations is gross profit less selling, general and administrative expenses. (6) During 1995, the Company incurred an extraordinary loss of $140,000, net of income tax benefit, on extinguishment of debt in connection with the Funtime Acquisition. This extraordinary loss is not included in income (loss) before extraordinary loss and income (loss) before extraordinary loss per common share for 1995. (7) EBITDA is defined as earnings before extraordinary loss, interest expense, net, income tax expense (benefit), depreciation and amortization, minority interest and equity in loss of real estate partnership. The Company has included information concerning EBITDA because it is used by certain investors as a measure of the Company's ability to service and/or incur debt. EBITDA is not required by generally accepted accounting principles ("GAAP") and should not be considered in isolation or as an alternative to net income, net cash provided by operating, investing and financing activities or other financial data prepared in accordance with GAAP or as an indicator of the Company's operating performance. This information should be read in conjunction with the Statements of Cash Flows contained in the Company's financial statements included elsewhere herein. Equity in loss of real estate partnership was $142,000, $83,000, $69,000, $78,000 and $59,000 during each of the five years ended December 31, 1997, respectively. Pro Forma EBITDA includes equity in operations of theme parks and the depreciation and amortization ($6,830,000) of the investment in the Co-Venture Parks (as defined herein) included therein. (8) Includes an $8,364,000 termination fee paid to the Company upon termination of its prior agreement to become managing general partner of the Texas Co-Venture Partnership (as defined herein). Such termination fee is not included in the pro forma amounts. (9) Adjusted EBITDA reflects the Company's pro forma EBITDA plus the portion of the pro forma EBITDA of Six Flags Over Georgia and Six Flags Over Texas (the "Co-Venture Parks") ($34,672,000) distributed on a pro forma basis to the other limited partners and therefore not included in the Company's pro forma EBITDA. See Note (1) to the Six Flags Selected Historical Financial and Operating Data. The Co-Venture Partnership (as defined herein) agreements restrict the amount of cash distributable to the Company. See "Business--Description of Parks--Six Flags Parks--Six Flags Over Georgia" and "--Six Flags Over Texas and Six Flags Hurricane Harbor." Adjusted EBITDA also includes $7,910,000 of pro forma EBITDA of Marine World for 1997 which is not already reflected in the Company's pro forma EBITDA. The Company manages the operations of Marine World and has an option to purchase the entire park beginning in February 2002. Adjusted EBITDA is not indicative of the Company's ability to service or incur indebtedness and is not a measure of the Company's profitability or liquidity. Adjusted EBITDA is not meant to be predictive of future operating results. (10) During each of the five years ended December 31, 1997, the Company's net cash used in investing activities was $7,698,000, $10,177,000, $74,139,000, $155,149,000 and $217,070,000, respectively. During those periods, net cash provided by financing activities was $2,106,000, $7,457,000, $90,914,000, $119,074,000 and $250,165,000, respectively. (11) Does not include pro forma amount expended ($93,700,000) by the Company to purchase interests of the limited partners in the Co-Venture Partnerships. (12) Represents in the case of 1995 attendance at the three parks owned by the Company prior to the Funtime Acquisition for the entire 1995 season and attendance at the Funtime parks from and after August 15, 1995. In the case of 1996, historical attendance does not include attendance at any of the parks acquired in the 1996 Acquisitions since those acquisitions were completed following the 1996 season. Historical attendance for the year ended December 31, 1997 does not include attendance at Marine World or attendance at Kentucky Kingdom since that park was acquired following the 1997 season. (13) Pro forma attendance information includes attendance at Marine World for 1997. (14) Pro forma and historical revenue per visitor for all applicable periods does not include revenue of Paradise Island (a fee-per-attraction entertainment center that does not track attendance, acquired in November 1996). Pro forma revenue per visitor also excludes revenue and attendance of Marine World and the Co-Venture Parks. (15) Total debt/EBITDA and Net debt/EBITDA include total outstanding pro forma indebtedness of the Company (excluding the SFEC Zero Coupon Senior Notes) in the accreted principal amount of $1,831,951,000. Net debt deducts from total outstanding pro forma indebtedness $556,064,000 (representing $479,804,000 of pro forma cash and cash equivalents and $76,260,000 of pro forma restricted-use investments placed in escrow to fund the first six semi-annual interest payments on the Company Senior Notes). See "Capitalization." EBITDA/cash interest expense is calculated using pro forma cash interest expense of $119,492,000. EBITDA/total interest expense is calculated using pro forma total interest expense $185,712,000 (excluding interest on the SFEC Zero Coupon Senior Notes). (16) For the purpose of determining the ratio of earnings to fixed charges, and the ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of income (loss) before extraordinary loss and before income taxes and fixed charges. Fixed charges consist of interest expense net of interest income, amortization of deferred financing costs and discount or premium relating to indebtedness, and the portion (approximately one-third) of rental expense that management believes represents the interest component of rent expense. Preferred stock dividend requirements have been increased to an amount representing the before tax earnings which would have been required to cover such dividend requirements. For the year ended December 31, 1995, the Company's earnings were insufficient to cover fixed charges by $1,738,000, and were insufficient to cover combined fixed charges and preferred stock dividends by $2,620,000. On a pro forma basis, for the year ended December 31, 1997, the Company's earnings were insufficient to cover fixed charges and combined fixed charges and preferred stock dividends by $31,818,000 and $77,720,000, respectively. (FOOTNOTES CONTINUED ON FOLLOWING PAGE) 17 (17) Actual balance sheet data as of December 31, 1997 include the Company's purchase of Kentucky Kingdom and investment in Marine World as of that date. (18) The pro forma balance sheet data give effect to the acquisitions of Walibi (assuming a 100% Walibi Tender Offer on the basis of 80% payable in cash and 20% payable in shares of Common Stock) and Six Flags, the Offerings (assuming no exercise of the underwriters' over-allotment options) and the related financings as if they had occurred on December 31, 1997. Includes SFEC Zero Coupon Senior Notes as well as cash held in escrow to repay the SFEC Zero Coupon Senior Notes. Pro forma total long-term debt and total debt include SFEC Zero Coupon Senior Notes and SFTP Senior Subordinated Notes at fair value rather than accreted amount. See "Capitalization." See also "Unaudited Pro Forma Financial Statements--Unaudited Pro Forma Balance Sheet" generally and with respect to certain assumptions used in respect of the related financings. (19) Excludes $326,300,000 of restricted-use investments. See "Capitalization." --------------------------------------------------------- YEAR ENDED ----------------------------------------------------------------------- DECEMBER 26, JANUARY 1, DECEMBER 31, DECEMBER 29, DECEMBER 28, 1993 1995 1995 1996 1997 ------------- ----------- ------------- ------------- ------------- (IN THOUSANDS, EXCEPT PER VISITOR AMOUNTS) SIX FLAGS STATEMENT OF OPERATIONS DATA:(1) Total revenue............................... $ 532,455 $ 556,791 $ 629,457 $ 680,876 $ 708,666 Income from operations(2)................... 53,236 54,561 66,738 67,715 79,575 Interest expense, net....................... (54,963) (48,753) (63,282) (76,530) (84,430) Net (loss).................................. (12,944) (695) (3,287) (15,249) (3,708) OTHER DATA: EBITDA(3)................................... 122,371 134,642 150,182 155,132 164,068 Net cash provided by operating activities(4)............................. 111,934 100,895 124,587 128,602 110,303 Depreciation and amortization............... 69,135 80,081 83,444 87,417 84,493 Capital expenditures........................ 34,057 42,039 45,578 75,627 67,675(5) Total attendance............................ 19,144 19,855 21,830 22,796 22,229 Revenue per visitor......................... $ 27.81 $ 28.04 $ 28.83 $ 29.87 $ 31.88 - ------------------------ (1) Prior to the Six Flags Acquisition, Six Flags, through two subsidiaries, was the general partner in theme park limited partnerships (the "Co-Venture Partnerships") related to the Co-Venture Parks. For the fiscal years presented, Six Flags accounted for the parks as co-ventures, i.e., their revenues and expenses (excluding partnership depreciation) were included in the Six Flags consolidated statements of operations and the net amounts distributed to the limited partners were deducted as expenses. Except for the limited partnership units owned in the Georgia park at December 28, 1997, Six Flags had no rights or title to the Co-Venture Parks' assets or to the proceeds from any sale of the Co-Venture Parks' assets or liabilities during the periods presented. The Co-Venture Parks contributed revenues of $160.6 million, $152.0 million and $176.8 million to Six Flags in the fiscal years 1995, 1996 and 1997, respectively. During these three fiscal years, the Co-Venture Parks contributed EBITDA of $36.8 million, $24.3 million and $34.7 million (after payments of $11.6 million, $ 8.1 million and $21.3 million to the limited partners). In 1995, 1996 and 1997, the Co-Venture Parks produced $48.4 million, $32.4 million and $56.0 million of EBITDA, respectively. In connection with the Six Flags Acquisition, Six Flags is transferring its interests in the Co-Venture Parks to Premier. Premier intends to account for its interests in the Co-Venture Parks under the equity method of accounting. (2) Income from operations is revenue less operating, general and administrative expenses, costs of products sold and depreciation and amortization. (3) EBITDA is defined as earnings before interest expense, net, income tax expense (benefit), depreciation and amortization and minority interest. The Company has included information concerning EBITDA because it is used by certain investors as a measure of a company's ability to service and/or incur debt. EBITDA is not required by generally accepted accounting principles ("GAAP") and should not be considered in isolation or as an alternative to net income, net cash provided by operating, investing and financing activities or other financial data prepared in accordance with GAAP or as an indicator of the Six Flags operating performance. This information should be read in conjunction with the Statements of Cash Flows contained in the financial statements of Six Flags included elsewhere herein. (4) During each of the fiscal years ended December 26, 1993, January 1, 1995, December 31, 1995, December 29, 1996 and December 28, 1997, Six Flags' net cash used in investing activities was approximately $41.6 million, $43.8 million, $93.9 million, $81.2 million, and $149.7 million, respectively. During these periods, net cash provided (used) in financing activities was approximately $(73.2) million, $(55.6) million, $10.6 million, $(52.2) million, and $10.6 million, respectively. (5) Does not include amount expended ($62.7 million) by Six Flags to purchase interests of the limited partners in the Co-Venture Partnerships. 18 RISK FACTORS PRIOR TO MAKING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER MATTERS REFERRED TO IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS: RISKS ASSOCIATED WITH SUBSTANTIAL INDEBTEDNESS AND OTHER OBLIGATIONS Following the Six Flags Transactions, the Company will be highly leveraged. On a pro forma basis, as of December 31, 1997, the Company had total outstanding indebtedness (excluding the SFEC Zero Coupon Senior Notes) in the accreted principal amount of approximately $1,832.0 million, including (i) $250.0 million in accreted value at that date of the Company Senior Discount Notes ($ million principal amount at maturity in 2008); (ii) $280.0 million in aggregate principal amount of Company Senior Notes; (iii) $125.0 million in aggregate principal amount of Premier Operations' 9 3/4% Senior Notes due 2007 (the "1997 Premier Notes"); (iv) $90.0 million in aggregate principal amount of Premier Operations' 12% Senior Notes due 2003 (the "1995 Premier Notes" and, together with the 1997 Premier Notes, the "Premier Notes"); (v) $269.9 million in accreted value at that date of SFTP Senior Subordinated Notes ($285.0 million principal amount at maturity in 2005); (vi) $170.0 million in aggregate principal amount of New SFEC Notes (together with the Company Notes, the Premier Notes and the SFTP Senior Subordinated Notes, the "Senior Notes"); (vii) $225.0 million in outstanding borrowings under the Premier Credit Facility; (viii) $420.0 million in outstanding borrowings under the Six Flags Credit Facility and (ix) $2.0 million of capitalized lease obligations. Pro forma indebtedness at that date also included $161.1 million accreted value of SFEC Zero Coupon Senior Notes, which will be repaid from the proceeds of the New SFEC Notes together with other funds. On a pro forma basis, as of December 31, 1997, the Company would have had stockholders' equity of approximately $1,130.2 million. In addition, the annual dividends (which are payable in cash, in the case of the Seller Preferred Stock, or in cash, or by issuance of shares of Common Stock, at the option of the Company, in the case of the Mandatorily Convertible Preferred Stock) on the Convertible Preferred Stock aggregate $ , and the Company is required to offer to purchase the Seller Preferred Stock in 2010 (if not earlier redeemed or converted). On a pro forma basis, for the year ended December 31, 1997, the Company's earnings would have been insufficient to cover its combined fixed charges and preferred stock dividends by approximately $77.7 million. In addition, the indentures relating to the Senior Notes (the "Indentures") permit the Company to incur additional indebtedness under certain circumstances. See "Capitalization," "Selected Historical and Pro Forma Financial and Operating Data," "Unaudited Pro Forma Financial Statements" and "Description of Indebtedness." By reason of the Six Flags Acquisition, the Company will be required to offer to repurchase the SFTP Senior Subordinated Notes at a price equal to 101% of their accreted amount (approximately $287.9 million at June 15, 1998). On March 23, 1998, the last reported sales price of these notes was substantially in excess of their accreted amount. The Company has not entered into any standby arrangement to finance the purchase of such notes, and there can be no assurance that the Company would be able to obtain such financing in the event that it were to become necessary. In addition to its obligations under its outstanding indebtedness and preferred stock, the Company is required to (i) make minimum annual distributions of approximately $46.2 million (subject to cost of living adjustments) to its partners in two Six Flags Parks, Six Flags Over Georgia and Six Flags Over Texas (the "Co-Venture Parks") and (ii) make minimum capital expenditures at each of the Co-Venture Parks during rolling five-year periods, based generally on 6% of such park's revenues. Cash flow from operations at the Co-Venture Parks will be used to satisfy these requirements first, before any funds are required from the Company. The Company has also agreed to purchase a maximum number of 5% per year (accumulating to the extent not purchased in any given year) of the total limited partnership units outstanding as of the date of the co-venture agreements that govern the partnerships (to the extent tendered by the unit holders). The agreed price for these purchases is based on a valuation for each respective Co-Venture Park equal to the greater of (i) a value derived by multiplying its weighted-average four year EBITDA (as defined therein) by a specified multiple (8.0 in the case of the Georgia park and 8.5 in the case of the Texas park) 19 or (ii) $250.0 million in the case of the Georgia park and $374.8 million in the case of the Texas park. The Company's obligations with respect to Six Flags Over Georgia and Six Flags Over Texas will continue until 2027 and 2028, respectively. In March 1998 Six Flags completed a tender offer pursuant to which it purchased approximately 33% of the outstanding limited partner units in the Texas park for an aggregate purchase price of $117.3 million. Six Flags funded the tender from borrowings which must be refinanced by the Company in connection with the Six Flags Acquisition. The Company has assumed a 25% tender for purposes of preparing the pro forma financial information contained herein. Since a larger number of units were tendered, the Company will be required to refinance the additional indebtedness of Six Flags incurred by virtue thereof and, accordingly, will have less cash to prefund capital expenditures and working capital requirements. As the Company purchases units relating to either Co-Venture Park, it will be entitled to the minimum distribution and other distributions attributable to such units, unless it is then in default under the applicable agreements with its partners at such Co-Venture Park. Time Warner Inc. and certain of its affiliates (collectively, "Time Warner") have guaranteed the obligations of Six Flags under these agreements. Premier will indemnify Time Warner in respect of its guarantee pursuant to a Subordinated Indemnity Agreement (the "Subordinated Indemnity Agreement"). See "Description of Six Flags Agreement." The Company estimates that its maximum unit purchase obligation for 1998, when purchases are required only for the Georgia park, will aggregate approximately $13 million (approximately $31 million for 1999, when purchases for both partnerships are required) and its minimum capital expenditures for 1998 at these parks will total approximately $11 million. See "Business--Description of Parks--Six Flags Parks--Six Flags Over Georgia" and "--Six Flags Over Texas and Six Flags Hurricane Harbor." In addition, the Company has agreed to invest approximately $38 million to expand the six Walibi Parks over three years, commencing 1999. The Company's ability to make scheduled payments on, or to refinance, its indebtedness, to pay dividends on its preferred stock, or to fund planned capital expenditures and its obligations under the arrangements relating to the Co-Venture Parks, will depend on its future performance, which, to a certain extent, is subject to general economic, financial, weather, competitive and other factors that are beyond its control. The Company believes that, based on current and anticipated operating results, cash flow from operations, available cash, available borrowings under the Credit Facilities and the net proceeds of the Offerings (to the extent not used in connection with the Six Flags Acquisition) will be adequate to meet the Company's future liquidity needs, including anticipated requirements for working capital, capital expenditures, scheduled debt and preferred stock dividends and its obligations under arrangements relating to the Co-Venture Parks, for at least the next several years. The Company may, however, need to refinance all or a portion of its existing debt on or prior to maturity or to obtain additional financing. There can be no assurance that the Company's business will generate sufficient cash flow from operations, that currently anticipated cost savings will be realized or that future borrowings will be available under the Credit Facilities in an amount sufficient to enable the Company to service its indebtedness or to fund its other liquidity needs. In addition, there can be no assurance that the Company will be able to effect any such refinancing on commercially reasonable terms or at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity, Capital Commitments and Resources." The degree to which the Company will be leveraged following the Six Flags Transactions could have important consequences to the Company, including, but not limited to: (i) making it more difficult for the Company to satisfy its obligations, (ii) increasing the Company's vulnerability to general adverse economic and industry conditions, (iii) limiting the Company's ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions and other general corporate requirements, (iv) requiring the dedication of a substantial portion of the Company's cash flow from operations to the payment of principal of, and interest on, its indebtedness and dividends on its preferred stock, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, acquisitions or other general corporate purposes, (v) limiting the Company's flexibility in planning for, or reacting to, changes in its business and the industry, and (vi) placing the Company at a competitive disadvantage vis-a-vis less 20 leveraged competitors. In addition, the Indentures and the Credit Facilities will contain financial and other restrictive covenants that will limit the ability of the Company to, among other things, borrow additional funds. Failure by the Company to comply with such covenants could result in an event of default which, if not cured or waived, would have a material adverse effect on the Company. See "Description of Indebtedness." The Company's inability to service its obligations would have a material adverse effect on the market value and marketability of the Common Stock and the EqPINES. In the event of bankruptcy proceedings involving the Company, the Company's creditors will have a claim upon the Company's assets prior in right to the holders of Common Stock and EqPINES. HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW OF SUBSIDIARIES The Company has no operations of its own and derives all of its revenue from its subsidiaries. Therefore, the Company's ability to pay its obligations (including debt service on the Company Senior Discount Notes, the Company Senior Notes and dividend and redemption obligations on the Convertible Preferred Stock and obligations under the Subordinated Indemnity Agreement with Time Warner) when due is dependent upon the receipt of sufficient funds from its direct and indirect subsidiaries. SFEC is also a holding company and its ability to pay its obligations (including debt service on the New SFEC Notes) when due, as well as to pay any dividends or distributions to the Company, is similarly dependent. Under the terms of the indentures governing the Premier Notes, the SFTP Senior Subordinated Notes and the New SFEC Notes, the Premier Credit Facility and the Six Flags Credit Facility, the payment of dividends by Premier Operations, SFEC and SFTP are subject to restrictive covenants that will significantly restrict or prohibit their ability to pay dividends or make other distributions to the Company. See "Description of Indebtedness" for a summary of the terms of the dividend restrictions. In addition, the terms of the Company Notes and the Mandatorily Convertible Preferred Stock will permit the Company's subsidiaries to incur additional indebtedness, the terms of which could limit or prohibit the payment of dividends or the making of other distributions by such subsidiaries. The Premier Credit Facility will prohibit the payment of dividends by Premier Operations to the Company for any purpose other than a one time distribution, not to exceed $20.0 million, on the date of the Six Flags Acquisition. The Six Flags Credit Facility will prohibit the payment of dividends by SFTP to SFEC or the Company, except a one time distribution, not to exceed $10.0 million, and dividends to provide funds to pay dividends on the Seller Preferred Stock and to pay interest on the New SFEC Notes (but in each case, only if no default has occurred and is continuing under the Six Flags Credit Facility). As a result, there can be no assurance that dividends, distributions or loans to the Company from its subsidiaries will be sufficient to fund its obligations. See "Description of Indebtedness." If any indebtedness of any of the Company's subsidiaries were to be accelerated, there would be no assurance that the assets of any such subsidiary would be sufficient to repay such indebtedness. The Company's rights to participate in the distribution of the assets of its operating subsidiaries upon a liquidation or reorganization of such companies will be subject to the prior claims of their respective creditors. RESTRICTIVE DEBT COVENANTS The Credit Facilities contain a number of significant covenants that, among other things, restrict the ability of the Company's operating subsidiaries to dispose of assets, incur additional indebtedness, pay cash dividends, create liens on assets, make investments or acquisitions, engage in mergers or consolidations, make capital expenditures, engage in certain transactions with affiliates or redeem or repurchase the indebtedness of such subsidiaries. In addition, under the Credit Facilities, Premier Operations and SFTP are each required to comply with specified financial ratios and tests, including interest expense, fixed charges and total debt coverage ratios. The Indentures also contain a series of restrictive covenants. The Company is currently in compliance with the covenants and restrictions contained in the Credit Facilities and the applicable Indentures. However, its ability to continue to comply with financial tests and 21 ratios in the Credit Facilities may be affected by events beyond its control, including prevailing economic, financial, weather and industry conditions. The breach of any such financial covenant could result in the termination of the Credit Facilities (and the acceleration of the maturity of all amounts outstanding thereunder) and, by virtue of cross default provisions, the acceleration of the maturity of other indebtedness of the Company, including the Senior Notes. In addition, under the terms of the Subordinated Indemnity Agreement (which lasts until 2028), without the consent of Time Warner, the Company cannot incur indebtedness (other than the New SFEC Notes) at SFEC or any of its subsidiaries that is secured by any assets of (or guaranteed by) the Company, Premier Operations or any of its subsidiaries, or secure any indebtedness of the Company, Premier Operations or any of its subsidiaries with any of the assets of (or guarantees by) SFEC or any of its subsidiaries. These covenants could inhibit the ability of the Company to borrow in the future. ABILITY TO MANAGE RAPID GROWTH The Six Flags Acquisition is significantly larger than any of Premier's previous acquisitions, and the combination and integration of the respective operations of Six Flags and Premier will be of a substantially greater scale than previously undertaken by Premier and will be ongoing concurrently with the integration of Walibi, its first foreign acquisition. The increased size of Premier's operations and the process of combining and integrating Six Flags with Premier, particularly during the same period as the integration of Walibi, will place substantial additional demands upon existing management resources and require Premier to effectively redeploy such resources, including hiring new personnel. There can be no assurance that Premier's management will be able to successfully integrate the operations of Six Flags or Walibi or that the anticipated benefits of the Six Flags Acquisition or the Walibi acquisition to Premier will be realized or, if realized, as to the timing thereof. The inability to successfully manage the integration of Six Flags or Walibi with Premier would have a material adverse effect on Premier's results of operations and financial condition. UNCERTAINTY OF FUTURE ACQUISITIONS; POTENTIAL EFFECTS OF ACQUISITIONS In addition to the Acquisitions, the Company intends to continue to make selective acquisitions that would expand its business. There can be no assurance that the Company will be able to locate and acquire additional businesses. To the extent any such acquisition would result in the incurrence or assumption of indebtedness by the Company (or its operating subsidiaries), such incurrence or assumption must comply with the limitations on the Company's (or such subsidiary's) ability to incur or assume indebtedness under the Credit Facilities and the Indentures. There can be no assurance that any future acquisition will be permissible under these loan agreements or that waivers of any such covenants could be obtained. See "--Restrictive Debt Covenants." In certain instances, a consummated acquisition may adversely affect the Company's financial condition and reported results, at least in the short-term, depending on many factors, including capital requirements and the accounting treatment of such acquisition. There can be no assurance that the 1997 Acquisitions, the Six Flags Acquisition or any future acquisition will perform as expected, will not result in significant unexpected liabilities or will ever contribute significant revenues or profits to the Company. Shares of Common Stock (or securities convertible into Common Stock) were or will be used as a portion of the aggregate consideration in the acquisitions of The Great Escape, Riverside Park, Kentucky Kingdom, Walibi and may be used in the Six Flags Acquisition. The Company may issue a substantial number of shares of Common Stock (or convertible securities) to fund future acquisitions. By virtue of the foregoing, the Company's acquisitions could have an adverse effect on the market price of the Common Stock and the EqPINES. RISKS OF ACCIDENTS AND DISTURBANCES AT PARKS; EFFECTS OF LOCAL CONDITIONS AND EVENTS Because substantially all of the Company's parks feature "thrill rides," attendance at the parks and, consequently, revenues may be adversely affected by any serious accident or similar occurrence with 22 respect to a ride. In that connection, in June 1997, a slide collapsed at the Company's Waterworld park in Concord, California, resulting in one fatality and the park's closure for twelve days. The collapse had a material adverse effect on that park's 1997 operating performance, as well as a lesser impact on the Company's Sacramento water park (which is also named "Waterworld"), located approximately seventy miles from the Concord park, but did not have a material effect on the balance of the Company's 1997 operations. The Company has recovered all of the Concord park's operating shortfall under its business interruption insurance. Premier Operations' liability insurance policies provide coverage of up to $25.0 million per loss occurrence and require Premier Operations to pay the first $50,000 of loss per occurrence. Six Flags' liability insurance policies provide coverage of up to $175.0 million per loss occurrence and require Six Flags to pay the first $2.0 million per loss occurrence. Other local conditions and events can also adversely affect attendance. For example, in 1994, the Company's Six Flags Magic Mountain park experienced significant attendance declines and interruptions of business as a result of the Los Angeles County earthquake centered in Northridge, California. Six Flags Over Georgia experienced attendance declines in 1996 as a result of the 1996 Summer Olympics. Management believes that the geographic diversity of the Company's theme parks reduces the effects of such occurrences on the Company's consolidated results. In addition, in view of the proximity of certain of the Company's parks to major urban areas and the appeal of the parks to teenagers and young adults, the Company's parks could experience disturbances that could adversely affect the image of and attendance levels at its parks. Working together with local police authorities, the Company has taken certain security-related precautions designed to prevent disturbances in its parks, but there can be no assurance that it will be able to prevent any such disturbances. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS As a result of the Walibi acquisition, a portion of the Company's operations will be conducted in Europe, and the Company will become subject to risks that are inherent in operating abroad. These risks can include difficulties in staffing and managing foreign operations, longer payment cycles, problems in collecting accounts receivable, political risks, unexpected changes in regulatory requirements, fluctuations in currency exchange rates, import restrictions or prohibitions, delays from customs brokers or government agencies and potentially adverse tax consequences resulting from operating in multiple jurisdictions with different tax laws. There can be no assurance that these and other comparable risks, individually or in the aggregate, will not adversely impact the Company's financial and operating results in Europe. EFFECTS OF INCLEMENT WEATHER; SEASONAL FLUCTUATIONS OF OPERATING RESULTS Because the great majority of theme parks' attractions are outdoor activities, attendance at parks and, accordingly, the Company's revenues are significantly affected by the weather. Additionally, seven of the Company's parks are primarily water parks which, by their nature, are more sensitive to adverse weather than are theme parks. Unfavorable weekend weather and unusual weather of any kind can adversely affect park attendance. The operations of the Company are highly seasonal, with more than 80% of park attendance occurring in the second and third calendar quarters of each year. The great majority of the Company's revenue is collected in those quarters while most expenditures for capital improvements and significant maintenance are incurred when the parks are closed in the first and fourth quarters. Accordingly, the Company believes that quarter-to-quarter comparisons of its results of operations should not be relied upon as an indication of future performance. Nevertheless, the market price of the Common Stock may fluctuate significantly in response to variations in the Company's quarterly and annual results of operations. HIGHLY COMPETITIVE BUSINESS The Company's parks compete directly with other theme, water and amusement parks and indirectly with all other types of recreational facilities and forms of entertainment within their market areas, 23 including movies, sports attractions and vacation travel. Accordingly, the Company's business is and will continue to be subject to factors affecting the recreation and leisure time industries generally, such as general economic conditions and changes in discretionary consumer spending habits. Within each park's regional market area, the principal factors affecting competition include location, price, the uniqueness and perceived quality of the rides and attractions in a particular park, the atmosphere and cleanliness of a park and the quality of its food and entertainment. DEPENDENCE ON KEY PERSONNEL The Company's success depends upon the continued contributions of its executive officers and key operating personnel, particularly Kieran E. Burke, Chairman and Chief Executive Officer, and Gary Story, President and Chief Operating Officer. The loss of services of, or a material reduction in the amount of time devoted to the Company by, either of such individuals or certain other key personnel could adversely affect the business of the Company. Although the Company recently entered into three-year employment agreements with each of Mr. Burke and Mr. Story, there is no assurance that the Company will be able to retain their services during that period. Under certain circumstances, the loss of the services of both Messrs. Burke and Story and the failure to replace them within a specified time period would constitute a default under the Credit Facilities. CERTAIN ANTI-TAKEOVER CONSIDERATIONS; CHANGE OF CONTROL Certain provisions of the Company's Certificate of Incorporation and By-Laws may have the effect of discouraging or delaying attempts to gain control of the Company, including provisions which could result in the Company's stockholders receiving less for their shares of Common Stock than otherwise might be available in the event of a take-over attempt. These provisions include: (i) authorizing the Board of Directors to fix the size of the Board of Directors between three and 15 directors; (ii) authorizing directors to fill vacancies on the Board of Directors that occur between annual meetings; and (iii) restricting the persons who may call a special meeting of stockholders. Additionally, the Company's authorized but unissued preferred stock can be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. In that connection, the Company has a plan that grants to common stockholders rights to purchase shares of preferred stock (with characteristics of Common Stock) upon the occurrence of certain events, including events that could lead to a change in control. The existence of this rights plan could discourage or hinder attempts by third parties to obtain control of the Company. Furthermore, certain provisions of Delaware law may also discourage or hinder attempts by third parties to obtain control of the Company. See "Description of Securities--Rights Plan" and "-- Delaware Law and Certain Charter and By-Law Provisions." In addition, certain events that could lead to a change of control of the Company will constitute a Change of Control under the Indentures relating to the Senior Notes (other than the Indenture relating to the SFTP Senior Subordinated Notes), and require the Company to make an offer to purchase these Senior Notes. A Change of Control is also a default under the Credit Facilities. The Six Flags Transactions do not constitute a Change of Control under the Indentures (other than the Indenture relating to the SFTP Senior Subordinated Notes). By virtue of the Six Flags Transactions, the Company will be required to make an offer to purchase the SFTP Senior Subordinated Notes. See "--Risks Associated with Substantial Indebtedness and Other Obligations." As part of the Six Flags Acquisition, the Company will obtain from Warner Bros. and DC Comics the exclusive right for theme-park usage of certain Warner Bros. and DC Comics characters throughout the United States (except the Las Vegas metropolitan area) and Canada. Warner Bros. can terminate this license under certain circumstances, including if persons engaged in the movie or television industries obtain control of the Company. CASH DIVIDENDS UNLIKELY The Company has not paid dividends on its Common Stock during the three years ended December 31, 1997 and does not anticipate paying any cash dividends thereon in the foreseeable future. The Company's ability to pay cash dividends on the Common Stock will be restricted under the Indentures 24 relating to the Company Notes and will be affected by, among other factors, the Company's substantial indebtedness and holding company structure. See "--Risks Associated with Substantial Indebtedness and Other Obligations" and "--Holding Company Structure; Limitations on Access to Cash Flow of Subsidiaries." SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE Upon consummation of the Offerings, the Company will have 32.3 million shares of Common Stock outstanding and 5.0 million EqPINES (initially convertible into 5.0 million shares of Common Stock) outstanding. Future sales of Common Stock (or Seller Depositary Shares) by existing stockholders pursuant to Rule 144 under the Securities Act, or through the exercise of outstanding registration rights or otherwise, could have an adverse effect on the prevailing market price of the Common Stock and the Company's ability to raise additional capital. Except for the Common Stock to be sold in the Common Stock Offering, the Convertible Preferred Stock and shares of Common Stock issued upon conversion of the Convertible Preferred Stock, the Company has agreed not to offer, sell, contract to sell or otherwise issue any shares of Common Stock (except pursuant to outstanding options and warrants) or other capital stock or securities convertible into or exchangeable for, or any rights to acquire, Common Stock or other capital stock, with certain exceptions (including certain exceptions for Common Stock or other capital stock issued or sold in connection with future acquisitions by the Company, including any Common Stock to be issued in connection with the Walibi acquisition), prior to the expiration of 90 days from the date of this Prospectus without the prior written consent of Lehman Brothers Inc. ("Lehman Brothers"). The Company's officers, directors and principal stockholders, who hold in the aggregate approximately 6.0 million shares of Common Stock (including shares issuable upon exercise of outstanding options and warrants and outstanding shares of restricted stock), have agreed not to sell any such shares for 90 days following the date of this Prospectus without the consent of Lehman Brothers. In addition, the Sellers in the Six Flags Acquisition have agreed not to sell any Seller Preferred Stock during such 90-day period. Thereafter, all such shares held by the Company's officers, directors and principal stockholders will be eligible for sale in the public market (subject, in most cases, to applicable volume limitations and other resale conditions imposed by Rule 144). In addition, subject to the "lock-up" arrangements described above and a minimum 41-day "lock-up" agreed to by the sellers in the Walibi acquisition, holders of approximately 4.9 million shares of Common Stock and the holders of Seller Preferred Stock have the right to require the Company to register such shares (and, in the case of the Seller Preferred Stock, the shares of Common Stock issuable upon conversion thereof) for sale under the Securities Act. Depending upon the level of future revenues at Kentucky Kingdom and Walibi, the Company may also be required in the future to issue additional shares of Common Stock (assuming the maximum number of shares of Common Stock are issued in the Walibi Tender Offer) with an aggregate market value of up to $15.0 million to the sellers thereof. See "Prospectus Summary--Other Recent Developments." The Company may also pay quarterly dividend payments on the EqPINES (which aggregate $ million over three years) by issuing additional shares of Common Stock. The sale, or the availability for sale, of substantial amounts of Common Stock or securities convertible into Common Stock in the public market at any time subsequent to the date of this Prospectus could adversely affect the prevailing market price of the Common Stock and the EqPINES. See "Description of Securities--Registration Rights." LESS EQUITY APPRECIATION FOR EQPINES THAN COMMON STOCK The opportunity for equity appreciation afforded by an investment in the EqPINES is less than the opportunity for equity appreciation afforded by an investment in Common Stock. Holders of EqPINES will realize no equity appreciation if at the Mandatory Conversion Date (as defined herein) the Conversion Price (as defined herein) of the Common Stock is below the Threshold Appreciation Price (as defined herein), and less than all of the equity appreciation if at such time the Conversion Price of the Common Stock is above the Threshold Appreciation Price. Holders of EqPINES will realize the entire decline in equity value if at such time the Conversion Price of the Common Stock is below the Initial Price (as defined herein). See "Description of EqPINES--Mandatory Conversion of EqPINES." 25 DILUTION OF COMMON STOCK The Conversion Rate, the Optional Conversion Rate, the Threshold Appreciation Price and the Initial Price (each as defined herein) on the EqPINES are subject to adjustment for certain events, such as stock splits and combinations, stock dividends, certain other actions by the Company that modify its capital structure and certain other transactions involving the Company. See "Description of EqPINES--Conversion Adjustments" and "--Adjustment for Certain Consolidations or Mergers." Such rates and prices will not be adjusted for other events, such as offerings of Common Stock for cash or in connection with acquisitions that may adversely affect the market price of Common Stock. Due to the relationship of such rates and prices to the market price of Common Stock, such other events may also adversely affect the trading price of the EqPINES. There can be no assurance that the Company will not make such offerings of Common Stock or as to the size of such offerings, if any. LIMITED VOTING RIGHTS FOR EQPINES The Mandatorily Convertible Preferred Stock represented by the EqPINES does not carry any right to vote at the stockholders' meetings of the Company, except with respect to adverse charter and by-law amendments or the authorization or creation of classes of capital stock ranking senior as to payment of dividends or liquidation preference to the Mandatorily Convertible Preferred Stock, as well as in certain circumstances involving protracted dividend arrearages. See "Description of EqPINES--Voting Rights." As a result, unless holders of EqPINES voluntarily convert their EqPINES into Common Stock prior to the Mandatory Conversion Date, such holders will not be entitled to any rights with respect to the Common Stock (including, without limitation, voting rights and the right to receive any dividends or other distributions on the Common Stock) until such time, and will generally have no influence on virtually all matters submitted for general stockholder approval. UNCERTAINTY OF FEDERAL INCOME TAX CONSEQUENCES FOR MANDATORILY CONVERTIBLE PREFERRED STOCK No statutory, judicial or administrative authority directly addresses the characterization of the Mandatorily Convertible Preferred Stock or instruments similar to the Mandatorily Convertible Preferred Stock for U.S. federal income tax purposes. As a result, significant aspects of the U.S. federal income tax consequences of an investment in the Mandatorily Convertible Preferred Stock (including investments in EqPINES representing interests in Mandatorily Convertible Preferred Stock) are not certain. No ruling is being requested from the Internal Revenue Service (the "Service") with respect to the Mandatorily Convertible Preferred Stock or the EqPINES and no assurance can be given that the Service will agree with the conclusions expressed under "Description of EqPINES--Federal Income Tax Consequences." Distributions on the Mandatorily Convertible Preferred Stock (including distributions that are paid in the form of shares of Common Stock and constructive distributions) will be taxable for U.S. federal income tax purposes as ordinary dividend income and, subject to limitations described in "Description of EqPINES--Federal Income Tax Consequences--Dividends," will be eligible for the dividends-received deduction that is available to certain U.S. corporate holders only to the extent paid out of current or accumulated earnings and profits of the Company as determined for U.S. federal income tax purposes. Such distributions otherwise will be treated in the manner described under "Federal Income Tax Consequences--Dividends." It is uncertain whether the Company will have any current or accumulated earnings and profits. To the extent that the Company does not have current or accumulated earnings and profits, or the amount of such distributions exceeds the Company's current or accumulated earnings and profits, distributions on the Mandatorily Convertible Preferred Stock (whether actual or constructive) will constitute tax-free returns of capital to the extent of the holder's tax basis in the Mandatorily Convertible Preferred Stock and thereafter will constitute capital gain, and will not be eligible for the dividends-received deduction. In the case of a distribution on the Mandatorily Convertible Preferred Stock that is paid in the form of shares of Common Stock, the fair market value of such Common Stock on the distribution date will be taxable for U.S. federal income tax purposes in the same manner as a cash distribution would be treated. 26 ABSENCE OF A PREVIOUS MARKET FOR THE EQPINES The EqPINES are a new issue of securities with no established trading market. Application has been made to list the EqPINES on the NYSE, but no assurance can be given as to the development or liquidity of any trading market in the EqPINES. If an active market does not develop, the market price and liquidity of the EqPINES will be adversely affected. IMPACT OF YEAR 2000 ISSUE An issue exists for all companies that rely on computers as the year 2000 approaches. The "Year 2000" problem is the result of the past practice in the computer industry of using two digits rather than four to identify the applicable year. This practice will result in incorrect results when computers perform arithmetic operations, comparisons or data field sorting involving years later than 1999. The Company anticipates that it will be able to test its entire system using its internal programming staff and outside computer consultants and intends to make any necessary modifications to prevent disruption to its operations. Costs in connection with any such modifications are not expected to be material. However, if such modifications are not completed in a timely manner, the Year 2000 problem may have a material adverse impact on the operations of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Impact of Year 2000 Issue." 27 USE OF PROCEEDS The net proceeds to be received by the Company from the Offerings, after deducting estimated underwriting discounts and commissions and estimated expenses payable by the Company, will be approximately $ million (or approximately $ million if the Underwriters' over-allotment options are exercised in full). The Company intends to use the net proceeds from the Offerings to fund the $765 million cash portion of the purchase price (plus an approximate $11 million adjustment) payable to the Sellers in the Six Flags Acquisition; to provide funds for the repayment in full of the SFEC Zero Coupon Senior Notes and for certain interest payments on the Company Senior Notes; to fund improvements and expansion of the Company's parks, including the Walibi Parks and the Six Flags Parks; to acquire and make improvements at additional theme parks; and for general corporate purposes, including working capital requirements. Although the Company has had discussions with respect to several additional acquisition opportunities, no agreement or understanding with respect to any future acquisition has been reached. There can be no assurance that any such additional acquisitions will be made. See "Prospectus Summary--The Six Flags Transactions--The Financings," "Risk Factors--Uncertainty of Future Acquisitions; Potential Effects of Acquisitions" and "Business--Acquisition Strategy." The Company presently intends to use the net proceeds of any exercise of the Underwriters' over-allotment options to reduce the amount of (or eliminate) the Seller Preferred Stock to be issued in the Six Flags Acquisition (or to redeem the Seller Preferred Stock within 90 days of its issuance). Further, if the Company determines not to issue the Seller Preferred Stock, the additional cash portion of the purchase price for the Six Flags Acquisition will be funded from the net proceeds of the Common Stock Offering. Pending their ultimate use, the portion of net proceeds from the Offerings not used in connection with the Six Flags Acquisition may be invested in short-term, investment grade, interest bearing securities, certificates of deposit or direct or guaranteed obligations of the United States. 28 CAPITALIZATION The following table sets forth as of December 31, 1997, (i) the actual capitalization of the Company; and (ii) the pro forma capitalization of the Company after giving effect to the acquisitions of Walibi (assuming a 100% Walibi Tender Offer with 80% paid in cash and 20% paid in shares of Common Stock) and Six Flags, and after giving effect to the Offerings (assuming that the Underwriters' over-allotment options are not exercised) and other related financings. This table should be read in conjunction with the consolidated financial statements of the Company and Six Flags (including the notes thereto) included elsewhere in this Prospectus, and "Unaudited Pro Forma Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." DECEMBER 31, 1997 ---------------------- ACTUAL PRO FORMA --------- ----------- (UNAUDITED) (IN THOUSANDS) Cash and cash equivalents......................................................................... $ 84,288 $ 479,804(1) --------- ----------- --------- ----------- Restricted-use investments........................................................................ $ -- $ 326,290(2)(3) --------- ----------- --------- ----------- Short-term debt(4)................................................................................ $ 795 $ 2,795 --------- ----------- --------- ----------- Long-term debt (excluding current maturities): Premier Credit Facility....................................................................... $ -- $ 224,000 Six Flags Credit Facility..................................................................... -- 419,000 1995 Premier Notes............................................................................ 90,000 90,000 1997 Premier Notes............................................................................ 125,000 125,000 Company Senior Discount Notes................................................................. -- 250,000 Company Senior Notes.......................................................................... -- 280,000(3) New SFEC Notes................................................................................ -- 170,000 SFEC Zero Coupon Senior Notes................................................................. -- 170,100(2)(5) SFTP Senior Subordinated Notes................................................................ -- 303,500(5) Other......................................................................................... 1,231 1,231 --------- ----------- Total long-term debt...................................................................... 216,231 2,032,831(2) --------- ----------- Mandatorily redeemable preferred stock (none outstanding (actual) and outstanding (with a liquidation value of $200.0 million) (pro forma))............................................... -- 200,000 --------- ----------- Stockholders' equity: Common Stock (90,000,000 authorized; 18,873,111 outstanding (actual)(6) and 32,331,111 outstanding (pro forma)(7)) and Mandatorily Convertible Preferred Stock (none outstanding (actual) and 10,000 outstanding (pro forma)(8))..................................... 323,749 1,130,180 --------- ----------- Total capitalization...................................................................... $ 539,980 $3,363,011 --------- ----------- --------- ----------- - ------------------------------ (1) Cash balances include prefunding of capital expenditures and working capital. (2) The pro forma amount for the SFEC Zero Coupon Senior Notes and total long-term debt do not give effect to the repayment thereof from the net proceeds of the SFEC Notes Offering. Similarly, pro forma restricted-use investments include $175.0 million which will be held in escrow to repay the SFEC Zero Coupon Senior Notes. (3) Restricted use investments include (i) $76.3 million which will be deposited in escrow to fund the first six semi-annual interest payments on the Company Senior Notes, (ii) a $75.0 million restricted cash account to fund certain obligations in respect of the Co-Venture Parks and dividend payments on the Convertible Preferred Stock and (iii) $175.0 million which will be held in escrow to repay the SFEC Zero Coupon Notes. (4) Represents current portion of long-term debt, including $1.0 million in respect of the Premier Credit Facility and $1.0 million in respect of the Six Flags Credit Facility. At December 31, 1997, the Company did not have any amounts outstanding under its then-existing revolving credit facility, which was terminated in February 1998. At March 24, 1998, the Company had borrowed $10.0 million under the revolving credit facility portion of the Premier Credit Facility. (5) Represents fair market value of such indebtedness at December 31, 1997. Actual accreted amounts outstanding at December 31, 1997 were $161.1 million for the SFEC Zero Coupon Senior Notes and $269.9 million for the SFTP Senior Subordinated Notes. (6) Includes an aggregate of 375,000 unvested restricted shares issued to the Company's Chief Executive Officer, Chief Operating Officer and Chief Financial Officer which vest proportionately on January 1 of the five years commencing 1999. Excludes (i) an aggregate of 45,039 shares of Common Stock issuable upon exercise of warrants; (ii) an aggregate of 1,270,000 shares of Common Stock reserved for issuance under the Company's Stock Incentive Plans, of which options for 764,700 shares have been granted and options for 455,800 shares are presently exercisable and (iii) an aggregate of 450,000 additional restricted shares issuable at the Company's option to the Company's Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, under employment agreements with such officers. (7) Assumes the issuance of 229,000 shares in the Private Acquisition and 229,000 shares in the Walibi Tender Offer. Excludes (i) any shares issuable to the sellers in the Kentucky Kingdom and Walibi acquisitions depending upon the future revenues of the acquired parks; (ii) shares issuable upon conversion of the Convertible Preferred Stock or as dividends on the Mandatorily Convertible Preferred Stock; and (iii) 1,950,000 shares of Common Stock issuable upon exercise of the underwriters' over-allotment options. (8) Excludes effect of 750,000 EqPINES issuable upon exercise of the underwriters' over-allotment option. 29 SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA The following selected historical financial and operating data, except for attendance and revenue per visitor data, of (i) the Company as of and for each of the years in the three-year period ended December 31, 1997, and (ii) Six Flags as of December 29, 1996 and December 28, 1997 and for each of the three years in the period ended December 28, 1997, are derived from the audited financial statements of each entity appearing elsewhere in this Prospectus. The selected historical financial data of the Company and Six Flags for fiscal years 1993 and 1994 have been derived from audited financial statements which are not included herein. The historical financial data of the Company for the year ended December 31, 1995 include the results of the Funtime parks from August 15, 1995, the date of the Funtime Acquisition. The historical financial data of the Company for the year ended December 31, 1996 include the operations of Elitch Gardens from October 31, 1996, the Waterworld Parks from November 19, 1996 and The Great Escape from December 4, 1996 (the dates of their respective acquisitions). The historical financial data of the Company for the year ended December 31, 1997 include the operations of Riverside Park from February 5, 1997 and Kentucky Kingdom from November 7, 1997 (the dates of their respective acquisitions). The following selected pro forma financial and operating data of the Company for the year ended December 31, 1997 are derived from the Unaudited Pro Forma Financial Statements appearing elsewhere in this Prospectus. The pro forma financial and operating data of the Company are presented for informational purposes only, have been prepared based on estimates and assumptions deemed by the Company to be appropriate and do not purport to be indicative of the financial position or results of operations which would actually have been attained if the relevant acquisitions had occurred on the assumed dates or which may be achieved in the future. 30 SELECTED HISTORICAL FINANCIAL AND OPERATING DATA YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1993 1994 1995(1) 1996(2) 1997 --------- --------- --------- --------- ---------------------- PRO ACTUAL(3) FORMA(4) --------- ----------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE, RATIO AND PER VISITOR AMOUNTS) THE COMPANY Statement of Operations Data: Revenue: Theme park admissions.......... $ 12,874 $ 13,936 $ 21,863 $ 41,162 $ 94,611 $ 424,108 Theme park food, merchandise and other.................... 8,986 10,963 19,633 52,285 99,293 391,225 --------- --------- --------- --------- --------- ----------- Total revenue................ 21,860 24,899 41,496 93,447 193,904 815,333 --------- --------- --------- --------- --------- ----------- Operating costs and expenses: Operating expenses............. 10,401 12,358 19,775 42,425 81,356 335,620 Selling, general and administrative............... 4,768 5,448 9,272 16,927 36,547 131,580 Cost of products sold.......... 2,135 2,553 4,635 11,101 23,025 109,375 Depreciation and amortization................. 1,537 1,997 3,866 8,533 19,792 107,138 --------- --------- --------- --------- --------- ----------- Total operating costs and expenses................... 18,841 22,356 37,548 78,986 160,720 683,713 --------- --------- --------- --------- --------- ----------- Income from operations....... 3,019 2,543 3,948 14,461 33,184 131,620 Other income (expense): Interest expense, net.......... (1,438) (2,299) (5,578) (11,121) (17,775) (180,273) Equity in operations of theme parks........................ -- -- -- -- -- 18,216 Termination fee, net of expenses..................... -- -- -- -- 8,364 -- Minority interest.............. -- -- -- -- -- (516) Other income (expense)......... (136) (74) (177) (78) (59) (408) --------- --------- --------- --------- --------- ----------- Total other income (expense).................. (1,574) (2,373) (5,755) (11,199) (9,470) (162,981) --------- --------- --------- --------- --------- ----------- Income (loss) before income taxes...................... 1,445 170 (1,807) 3,262 23,714 (31,361) Income tax expense (benefit)..... 91 68 (762) 1,497 9,615 9,931 --------- --------- --------- --------- --------- ----------- Income (loss) before extraordinary loss......... $ 1,354 $ 102 $ (1,045 (5) $ 1,765 $ 14,099 $ (41,292) --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- ----------- Income (loss) before extraordinary loss per common share--basic........ $ .51 $ .04 $ (.40 (5) $ .14 $ .79 $ (2.14) --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- ----------- Income (loss) before extraordinary loss per common share--diluted...... $ .51 $ .04 $ (.40 (5) $ .13 $ .76 $ (2.14) --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- ----------- OTHER DATA: EBITDA(6)........................ $ 4,562 $ 4,549 $ 7,706 $ 22,994 $ 61,340(7) $ 263,455 Adjusted EBITDA(8)............... -- -- -- -- -- $ 306,037 Net cash provided by operating activities(9).................. $ 2,699 $ 1,060 $ 10,646 $ 11,331 $ 47,150 $ 153,027 Capital expenditures............. $ 7,674 $ 10,108 $ 10,732 $ 39,423 $ 135,852 $ 212,229(10) Total attendance................. 1,322 1,408 2,302 (11 4,518 (11 8,631 (11 36,530(12) Revenue per visitor(13).......... $ 16.54 $ 17.68 $ 18.03 $ 20.66 $ 22.18 $ 27.37 SELECTED RATIOS: Net debt/EBITDA(14).............. -- -- -- -- -- 4.8x Total debt/EBITDA(14)............ -- -- -- -- -- 7.0x EBITDA/cash interest expense(14).................... -- -- -- -- -- 2.2x EBITDA/total interest expense(14).................... -- -- -- -- -- 1.4x Ratio of earnings to fixed charges(15).................... 2.1x 1.1x (15) 1.3x 2.3x (15) Ratio of earnings to combined fixed charges and preferred stock dividends(15)............ 2.1x 1.1x (15) 1.2x 2.3x (15) 31 AS OF DECEMBER 31, --------------------------------------------------------------------- 1993 1994 1995 1996 1997 --------- --------- --------- --------- ------------------------- PRO ACTUAL(16) FORMA(17) ----------- ------------ (UNAUDITED) (IN THOUSANDS) THE COMPANY Balance Sheet Data: Cash and cash equivalents................. $ 3,026 $ 1,366 $ 28,787 $ 4,043 $ 84,288 $ 479,804(18) Total assets.............................. $ 36,708 $ 45,539 $ 173,318 $ 304,803 $ 611,321 $3,553,662 Total long-term debt and capitalized lease obligations (excluding current maturities)........................... $ 18,649 $ 22,216 $ 93,213 $ 149,342 $ 216,231 $2,032,831 Total debt................................ $ 20,821 $ 24,108 $ 94,278 $ 150,834 $ 217,026 $2,035,626 Mandatorily redeemable preferred stock.... -- -- -- -- -- $ 200,000 Stockholders' equity...................... $ 13,192 $ 18,134 $ 45,911 $ 113,182 $ 323,749 $1,130,180 - ------------------------ (1) The historical Statement of Operations Data for 1995 reflect the results of the parks acquired in the Funtime Acquisition from the date of acquisition, August 15, 1995. (2) The historical Statement of Operations Data for 1996 reflect the results of Elitch Gardens from October 31, 1996, the Waterworld Parks from November 19, 1996 and The Great Escape from December 4, 1996 (the dates of their respective acquisitions). (3) The historical Statement of Operations Data for 1997 reflect the results of Riverside Park from February 5, 1997 and Kentucky Kingdom from November 7, 1997 (the dates of their respective acquisitions). (4) The pro forma financial and operating data for the year ended December 31, 1997 give effect to (i) the acquisitions of Walibi (assuming a 100% Walibi Tender Offer on the basis of 80% payable in cash and 20% payable in shares of Common Stock) and Kentucky Kingdom as if they had occurred on January 1, 1997; and (ii) the acquisition of Six Flags as if it had occurred on December 30, 1996 (the first day of Six Flags' 1997 fiscal year). The pro forma income per share for 1997 gives effect to the January 1997 public offering, the Common Stock Offering and the EqPINES Offering (assuming no exercise of the Underwriters' over-allotment options) as if they had occurred on January 1, 1997. See "Unaudited Pro Forma Financial Statements--Unaudited Pro Forma Statement of Operations" generally and with respect to certain assumptions used in respect of the related financings. (5) During 1995, the Company incurred an extraordinary loss of $140,000, net of income tax benefit, on extinguishment of debt in connection with the Funtime Acquisition. This extraordinary loss is not included in income (loss) before extraordinary loss and income (loss) before extraordinary loss per common share for 1995. (6) EBITDA is defined as earnings before extraordinary loss, interest expense, net, income tax expense (benefit), depreciation and amortization, minority interest and equity in loss of real estate partnership. The Company has included information concerning EBITDA because it is used by certain investors as a measure of the Company's ability to service and/or incur debt. EBITDA is not required by GAAP and should not be considered in isolation or as an alternative to net income, net cash provided by operating, investing and financing activities or other financial data prepared in accordance with GAAP or as an indicator of the Company's operating performance. This information should be read in conjunction with the Statements of Cash Flows contained in the Company's financial statements included elsewhere herein. Equity in loss of real estate partnership was $142,000, $83,000, $69,000, $78,000, and $59,000 during each of the five years ended December 31, 1997, respectively. Pro Forma EBITDA includes equity in operations of theme parks and the depreciation and amortization ($6,830,000) of the investment in the Co-Venture Parks included therein. (7) Includes an $8,364,000 termination fee paid to the Company upon termination of its prior agreement to become managing general partner of the Texas Co-Venture Partnership. Such termination fee is not included in the pro forma amounts. (8) Adjusted EBITDA reflects the Company's pro forma EBITDA plus the portion of the pro forma EBITDA of the Co-Venture Parks ($34,672,000) distributed on a pro forma basis to the other limited partners and therefore not included in the Company's pro forma EBITDA. See Note (1) to the Six Flags Selected Historical (FOOTNOTES CONTINUED ON FOLLOWING PAGE) 32 Financial and Operating Data. The Co-Venture Partnership agreements restrict the amount of cash distributable to the Company. See "Business--Six Flags Parks--Six Flags Over Georgia" and "--Six Flags Over Texas and Six Flags Hurricane Harbor." Adjusted EBITDA also includes $7,910,000 of pro forma EBITDA of Marine World for 1997 which is not already reflected in the Company's pro forma EBITDA. The Company manages the operations of Marine World and has an option to purchase the entire park beginning in February 2002. Adjusted EBITDA is not indicative of the Company's ability to service or incur indebtedness and is not a measure of the Company's profitability or liquidity. Adjusted EBITDA is not meant to be predictive of future operating results. (9) During each of the five years ended December 31, 1997, the Company's net cash used in investing activities was $7,698,000, $10,177,000, $74,139,000, $155,149,000 and $217,070,000, respectively. During those periods, net cash provided by financing activities was $2,106,000, $7,457,000, $90,914,000, $119,074,000 and $250,165,000, respectively. (10) Does not include pro forma amount expended ($93,700,000) by the Company to purchase interests of the limited partners in the Co-Venture Partnerships. (11) Represents in the case of 1995 attendance at the three parks owned by the Company prior to the Funtime Acquisition for the entire 1995 season and attendance at the Funtime parks from and after August 15, 1995. In the case of 1996, historical attendance does not include attendance at any of the parks acquired in the 1996 Acquisitions since those acquisitions were completed following the 1996 season. Historical attendance for the year ended December 31, 1997 does not include attendance at Marine World or attendance at Kentucky Kingdom since that park was acquired following the 1997 season. (12) Pro forma attendance information includes attendance at Marine World for 1997. (13) Pro forma and historical revenue per visitor for all applicable periods do not include revenue of Paradise Island (a fee-per-attraction entertainment center that does not track attendance, acquired in November 1996). Pro forma revenue per visitor also excludes revenue and attendance of Marine World and the Co-Venture Parks. (14) Total debt/EBITDA and Net debt/EBITDA include total outstanding pro forma indebtedness of the Company (excluding the SFEC Zero Coupon Senior Notes) in the accreted principal amount of $1,831,951,000. Net debt deducts from total outstanding pro forma indebtedness $556,064,000 (representing $479,804,000 of pro forma cash and cash equivalents and $76,260,000 of pro forma restricted-use investments placed in escrow to fund the first six semi-annual interest payments on the Company Senior Notes). See "Capitalization." EBITDA/cash interest expense is calculated using pro forma cash interest expense of $119,492,000. EBITDA/total interest expense is calculated using pro forma total interest expense of $185,712,000 (excluding interest on the SFEC Zero Coupon Senior Notes). (15) For the purpose of determining the ratio of earnings to fixed charges, and the ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of income (loss) before extraordinary loss and before income taxes and fixed charges. Fixed charges consist of interest expense net of interest income, amortization of deferred financing costs and discount or premium relating to indebtedness and the portion (approximately one-third) of rental expense that management believes represents the interest component of rent expense. Preferred stock dividend requirements have been increased to an amount representing the before tax earnings which would have been required to cover such dividend requirements. For the year ended December 31, 1995, the Company's earnings were insufficient to cover fixed charges by $1,738,000 and were insufficient to cover combined fixed charges and preferred stock dividends by $2,620,000. On a pro forma basis, for the year ended December 31, 1997, the Company's earnings were insufficient to cover fixed charges and combined fixed charges and preferred stock dividends by $31,818,000 and $77,720,000, respectively. (16) Actual balance sheet data as of December 31, 1997 include the Company's purchase of Kentucky Kingdom and investment in Marine World as of that date. (17) The pro forma balance sheet data give effect to the acquisitions of Walibi (assuming a 100% Walibi Tender Offer on the basis of 80% payable in cash and 20% payable in Common Stock) and Six Flags, the Offerings (assuming no exercise of the underwriters' over-allotment options) and the related financings as if they had occurred on December 31, 1997. Includes SFEC Zero Coupon Senior Notes as well as cash held in escrow to repay the SFEC Zero Coupon Senior Notes. Pro forma total long-term debt and total debt include SFEC Zero Coupon Senior Notes and SFTP Senior Subordinated Notes at fair value rather than accreted amount. See "Capitalization." See also "Unaudited Pro Forma Financial Statements--Unaudited Pro Forma Balance Sheet" generally and with respect to certain assumptions used in respect of the related financings. (18) Excludes $326,300,000 of restricted-use investments. See "Capitalization." 33 YEAR ENDED ---------------------------------------- DECEMBER 31, DECEMBER 29, DECEMBER 28, 1995 1996 1997 ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER VISITOR AMOUNTS) SIX FLAGS STATEMENT OF OPERATIONS DATA(1): Revenue: Operating services.................................................. $ 366,665 $ 405,558 $ 427,569 Sales of products and other......................................... 262,792 275,318 281,097 ------------ ------------ ------------ Total revenue(1).................................................. 629,457 680,876 708,666 ------------ ------------ ------------ Costs and expenses: Operating, general and administrative............................... 388,137 419,756 443,359 Cost of products sold............................................... 91,138 105,988 101,239 Depreciation and amortization....................................... 83,444 87,417 84,493 ------------ ------------ ------------ Total costs and expenses.......................................... 562,719 613,161 629,091 ------------ ------------ ------------ Income from operations(2)............................................. 66,738 67,715 79,575 Other income (expense): Interest expense, net............................................... (63,282) (76,530) (84,430) Minority interest................................................... -- (1,297) 1,147 ------------ ------------ ------------ Total other income (expense)...................................... (63,282) (77,827) (83,283) ------------ ------------ ------------ Income (loss) before income taxes................................. 3,456 (10,112) (3,708) Income tax expense.................................................... 6,743 5,137 -- ------------ ------------ ------------ Net (loss)........................................................ $ (3,287) $ (15,249) $ (3,708) ------------ ------------ ------------ ------------ ------------ ------------ OTHER DATA: EBITDA(3)............................................................. $ 150,182 $ 155,132 $ 164,068 Net cash provided by operating activities(4).......................... $ 124,587 $ 128,602 $ 110,303 Capital expenditures.................................................. $ 45,578 $ 75,627 $ 67,675(5) Total attendance...................................................... 21,830 22,796 22,229 Revenue per visitor................................................... $ 28.83 $ 29.87 $ 31.88 - ------------------------ (1) Prior to the Six Flags Acquisition, Six Flags, through two subsidiaries, was the general partner in the Co-Venture Partnerships. For the fiscal years presented, Six Flags accounted for the parks as co-ventures, i.e., their revenues and expenses (excluding partnership depreciation) were included in Six Flags consolidated statements of operations and the net amounts distributed to the limited partners were deducted as expenses. Except for the limited partnership units owned in the Georgia park at December 28, 1997, Six Flags had no rights or title to the Co-Venture Parks' assets or to the proceeds from any sale of the Co-Venture Parks' assets or liabilities during the periods presented. The Co-Venture Parks contributed revenues of $160.6 million, $152.0 million and $176.8 million to Six Flags in the fiscal years 1995, 1996 and 1997, respectively. During these three fiscal years, the Co-Venture Parks contributed EBITDA of $36.8 million, $24.3 million and $34.7 million (after payment of $11.6 million, $8.1 million and $21.3 million to the limited partners). In 1995, 1996 and 1997, the Co-Venture Parks produced $48.4 million, $32.4 million and $56.0 million of EBITDA, respectively. In connection with the Six Flags Transactions, SFEC is transferring its interest in the Co-Venture Parks to Premier. Premier intends to account for its interests in the Co-Venture Parks under the equity method of accounting. (2) Income from operations is revenue less operating, general and administrative expenses, costs of products sold and depreciation and amortization. (3) EBITDA is defined as earnings before interest expense, net, income tax expense (benefit), depreciation and amortization and minority interest. The Company has included information concerning EBITDA because it is used by certain investors as a measure of a company's ability to service and/or incur debt. EBITDA is not required by GAAP and should not be considered in isolation or as an alternative to net income, net cash provided by operating, investing and financing activities or other financial data prepared in accordance with GAAP or as an indicator of the Six Flags operating 34 performance. This information should be read in conjunction with the Statements of Cash Flows contained in the Six Flags financial statements included elsewhere herein. (4) During each of the fiscal years ended December 31, 1995, December 29, 1996 and December 28, 1997, Six Flags' net cash used in investing activities was approximately $93.9 million, $81.2 million and $149.7 million, respectively. During these periods, net cash provided (used) in financing activities was approximately $10.6 million, $(52.2) million and $10.6 million, respectively. (5) Does not include amount expended ($62.7 million) by Six Flags to purchase interests of the limited partners in the Co-Venture Partnerships. 35 UNAUDITED PRO FORMA FINANCIAL STATEMENTS The following unaudited pro forma financial statements (the "Pro Forma Financial Statements") of the Company are based upon and should be read in conjunction with the historical financial statements of Premier, Kentucky Kingdom, Six Flags and Walibi, which are included elsewhere in this Prospectus, except in the case of Kentucky Kingdom and Walibi which are incorporated herein by reference. The unaudited pro forma statement of operations for the year ended December 31, 1997 gives effect to the acquisitions of Kentucky Kingdom, Six Flags, and Walibi, the financings associated with the transactions, and the issuance of Convertible Preferred Stock and Common Stock as if they had occurred on January 1, 1997 (except in the case of Six Flags, which was treated as if it occurred December 30, 1996, the first day of the 1997 fiscal year of Six Flags). The Pro Forma Financial Statements also give pro forma effect to the new arrangements with respect to the Co-Venture Parks entered into by Six Flags in 1997. The unaudited pro forma balance sheet is presented as if the acquisitions of Six Flags and Walibi, the financings associated with the transactions, and the issuance of Convertible Preferred Stock and Common Stock occurred on December 31, 1997 (except in the case of Six Flags, which was treated as if it were acquired December 28, 1997, the last day of the 1997 fiscal year of Six Flags). The acquisitions will be accounted for using the purchase method of accounting. Allocations of the purchase price have been determined based upon estimates of fair value. The final allocation of the purchase price may differ from these preliminary estimates due to the final allocation being based on the completion of valuations of certain acquired assets and assumed liabilities and management's evaluation of such items. The Pro Forma Financial Statements are for informational purposes only, have been prepared based upon estimates and assumptions deemed by the Company to be appropriate and do not purport to be indicative of the financial position or results of operations which would actually have been attained if the acquisitions had occurred as presented in such statements or which could be achieved in the future. 36 PREMIER PARKS INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT FOR RATIO, SHARE AND PER SHARE DATA) PRO FORMA ADJUSTMENTS HISTORICAL --------------- HISTORICAL KENTUCKY HISTORICAL HISTORICAL COMBINED CO-VENTURE PREMIER KINGDOM (1) SIX FLAGS WALIBI (2) COMPANY ADJUSTMENTS(3) ---------- ------------- ----------- ------------- ----------- --------------- REVENUE: Theme park admissions.................. $ 94,611 $ 11,562 $ 368,139 $ 43,742 $ 518,054 $ (93,946) Theme park food, merchandise, and other................................ 99,293 10,152 340,527 24,101 474,073 (82,848) ---------- ------------- ----------- ------------- ----------- --------------- Total revenue...................... 193,904 21,714 708,666 67,843 992,127 (176,794) ---------- ------------- ----------- ------------- ----------- --------------- OPERATING COSTS AND EXPENSES: Operating expenses..................... 81,356 5,705 330,033 31,629 448,723 (100,445) Selling, general and administrative.... 36,547 5,194 113,326 10,567 165,634 (17,474) Costs of products sold................. 23,025 2,684 101,239 6,097 133,045 (24,137) Depreciation and amortization.......... 19,792 2,344 84,493 13,998 120,627 (12,107) ---------- ------------- ----------- ------------- ----------- --------------- Total operating costs and expenses......................... 160,720 15,927 629,091 62,291 868,029 (154,163) ---------- ------------- ----------- ------------- ----------- --------------- Income (loss) from operations.......... 33,184 5,787 79,575 5,552 124,098 (22,631) OTHER INCOME (EXPENSE): Interest expense, net.................. (17,775) (3,974) (84,430) (3,409) (109,588) -- Equity in operations of theme parks.... -- -- -- -- -- 22,631 Termination fee, net of expenses....... 8,364 -- -- -- 8,364 -- Minority interest...................... -- -- 1,147 -- 1,147 -- Other income (expense)................. (59) 293 -- (289) (55) -- ---------- ------------- ----------- ------------- ----------- --------------- Total other income (expense)....... (9,470) (3,681) (83,283) (3,698) (100,132) 22,631 Income (loss) before income taxes...... 23,714 2,106 (3,708) 1,854 23,966 -- Income tax expense (benefit)........... 9,615 -- -- 2,373 11,988 -- ---------- ------------- ----------- ------------- ----------- --------------- Net income (loss)...................... $ 14,099 $ 2,106 $ (3,708) $ (519) $ 11,978 $ -- ---------- ------------- ----------- ------------- ----------- --------------- ---------- ------------- ----------- ------------- ----------- --------------- Net income (loss) applicable to common stock................................ $ 14,099 $ 2,106 $ (3,708) $ (519) $ 11,978 $ -- ---------- ------------- ----------- ------------- ----------- --------------- ---------- ------------- ----------- ------------- ----------- --------------- Net income (loss) per common share..... $ 0.79 (15) (15) (15) (15) ---------- ---------- Weighted average shares................ 17,938,000 (15) (15) (15) (15) ---------- ---------- EBITDA (16)............................ $ 61,340 $ 8,424 $ 164,068 $ 19,261 $ 253,093 $ -- ---------- ------------- ----------- ------------- ----------- --------------- ---------- ------------- ----------- ------------- ----------- --------------- Net cash provided by operating activities........................... $ 47,150 $ 4,042 $ 110,303 $ 12,206 17) $ 173,701 $ -- ---------- ------------- ----------- ------------- ----------- --------------- ---------- ------------- ----------- ------------- ----------- --------------- Ratio of earnings to fixed charges..... 2.3x Ratio of earnings to combined fixed charges and preferred stock dividends............................ 2.3x PREMIER COMPANY OPERATIONS (4) SIX FLAGS PRO FORMA --------------- ----------- ---------- REVENUE: Theme park admissions.................. $ -- $ -- $ 424,108 Theme park food, merchandise, and other................................ -- -- 391,225 --------------- ----------- ---------- Total revenue...................... -- -- 815,333 --------------- ----------- ---------- OPERATING COSTS AND EXPENSES: Operating expenses..................... (62)(5) (12,596) 335,620 Selling, general and administrative.... (2,903)(6) (13,677) 131,580 Costs of products sold................. (261)(7) 728(7) 109,375 Depreciation and amortization.......... (6,587)(8) 5,205(8) 107,138 --------------- ----------- ---------- Total operating costs and expenses......................... (9,813) (20,340) 683,713 --------------- ----------- ---------- Income (loss) from operations.......... 9,813 20,340 131,620 OTHER INCOME (EXPENSE): Interest expense, net.................. (13,156)(9) (57,529) (180,273) Equity in operations of theme parks.... -- (4,415) 0 ) 18,216 Termination fee, net of expenses....... (8,364)(11) -- -- Minority interest...................... -- (1,663) (516) Other income (expense)................. (353)(13) -- (408) --------------- ----------- ---------- Total other income (expense)....... (21,873) (63,607) (162,981) Income (loss) before income taxes...... (12,060) (43,267) (31,361) Income tax expense (benefit)........... (3,882)(14) 1,825 14 9,931 --------------- ----------- ---------- Net income (loss)...................... $ (8,178) $ (45,092) $ (41,292) --------------- ----------- ---------- --------------- ----------- ---------- Net income (loss) applicable to common stock................................ $ (8,178) $ (73,092) ) $ (69,292) --------------- ----------- ---------- --------------- ----------- ---------- Net income (loss) per common share..... $ (2.14)(15) ---------- ---------- Weighted average shares................ 32,331,000(15) ---------- ---------- EBITDA (16)............................ $ (5,491 ) $ 15,853 $ 263,455 --------------- ----------- ---------- --------------- ----------- ---------- Net cash provided by operating activities........................... $ (17,376 ) $ (3,298 ) $ 153,027 --------------- ----------- ---------- --------------- ----------- ---------- Ratio of earnings to fixed charges..... (18) Ratio of earnings to combined fixed charges and preferred stock dividends............................ (18) See accompanying notes to unaudited pro forma statement of operations. 37 Premier Parks Inc. Notes to Unaudited Pro Forma Statement of Operation Year Ended December 31, 1997 (All amounts in thousands, except share data) BASIS OF PRESENTATION The accompanying unaudited pro forma statement of operations for the year ended December 31, 1997, has been prepared based upon certain pro forma adjustments to historical financial information of the Company, Kentucky Kingdom, Six Flags and Walibi. The Company's acquisition of the operating assets of Kentucky Kingdom occurred on November 7, 1997. The Company's acquisition of the capital stock of SFEC and Walibi are scheduled to be completed in the second quarter of 1998. The unaudited pro forma statement of operations for the year ended December 31, 1997, has been prepared assuming the acquisitions, the related financings, the issuance of the Convertible Preferred Stock and Common Stock and the new Co-Venture Park arrangements occurred January 1, 1997 (except in the case of Six Flags, which was treated as if it were acquired on December 30, 1996, the first day of the 1997 fiscal year of Six Flags). The unaudited pro forma statement of operations should be read in conjunction with the financial statements of the Company, Kentucky Kingdom, Six Flags and Walibi and notes thereto included elsewhere herein or, in the case of Kentucky Kingdom and Walibi, which are incorporated herein by reference. PRO FORMA ADJUSTMENTS (1) The results of Kentucky Kingdom included herein represent the ten months during 1997 prior to the acquisition of Kentucky Kingdom by the Company. Revenues, operating expenses and other expenses for the first two months (November and December 1996) of Kentucky Kingdom's fiscal year ended November 2, 1997 were $2, $1,199 and $849, respectively, and are not included in the accompanying unaudited pro forma statement of operations. (2) The results of Walibi are converted from Belgian Francs ("BEF") and are accounted for using generally accepted accounting principles of Belgium. The following table reflects the adjustment of the Walibi statement of operations to conform to U.S. generally accepted accounting principles and U.S. dollars (using the December 31, 1997 exchange rate of 37.065 BEF to US$1): AMOUNT ACCOUNTING ADJUSTED AMOUNT (IN BEF) ADJUSTMENTS AMOUNT (IN U.S.$) ----------- ------------ ---------- ---------- Theme park admissions........................................ 1,621,309 -- 1,621,309 $ 43,742 Theme park food, merchandise, and other...................... 893,291 -- 893,291 24,101 ----------- ------------ ---------- ---------- Total revenue................................................ 2,514,600 -- 2,514,600 67,843 ----------- ------------ ---------- ---------- Operating expenses........................................... 1,175,031 (2,700) 1,172,331 31,629 Selling, general and administrative.......................... 391,677 -- 391,677 10,567 Costs of products sold....................................... 225,974 -- 225,974 6,097 Depreciation and amortization................................ 524,988 (6,144) 518,844 13,998 ----------- ------------ ---------- ---------- Total operating costs and expenses........................... 2,317,670 (8,844) 2,308,826 62,291 ----------- ------------ ---------- ---------- Income (loss) from operations................................ 196,930 8,844 205,774 5,552 Interest expense, net........................................ (126,383) -- (126,383) (3,409) Other income (expense)....................................... (10,700) -- (10,700) (289) ----------- ------------ ---------- ---------- Total other income (expense)................................. (137,083) -- (137,083) (3,698) ----------- ------------ ---------- ---------- Income (loss) before income taxes............................ 59,847 8,844 68,691 1,854 Income tax expense........................................... 59,287 28,656 87,943 2,373 ----------- ------------ ---------- ---------- Net income (loss)............................................ 560 (19,812) (19,252) $ (519) ----------- ------------ ---------- ---------- ----------- ------------ ---------- ---------- 38 PREMIER PARKS INC. NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (CONTINUED) YEAR ENDED DECEMBER 31, 1997 (ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) The unaudited pro forma statement of operations data assume all Walibi stockholders accept the Walibi Tender Offer. If no such holders tender their shares, the pro forma adjustment for minority interest would have been increased by $1,969. (3) Represents results of the Six Flags Over Texas and Six Flags Over Georgia theme parks. Prior to the Six Flags Acquisition, Six Flags included the results of the Co-Venture Partnerships in Six Flags' consolidated statements of operations and the net amounts paid to the limited partners thereof were reflected as an operating expense. After the date of the Six Flags Acquisition, the Company will account for the results of the Co-Venture Partnerships using the equity method of accounting. Under this method of accounting, the Company's interest in the Co-Venture Partnerships will be reflected in equity in operations of theme parks. (4) Represents adjustments arising from Premier's acquisitions of Kentucky Kingdom and Walibi, including interest expense associated with borrowings under the Premier Credit Facility, and from the elimination of Premier's termination fee referred to in note (11) below. (5) Adjustments reflect reductions in park-level operating expenses of $62 in the case of Kentucky Kingdom and $12,596, in the case of Six Flags. (6) Adjustments reflect reductions in selling, general and administrative expenses of $897 in the case of Kentucky Kingdom (including insurance, franchise tax and other expenses); $2,006 in the case of Walibi (including costs relating to its annual report, other shareholder-related expenses, salaries and other expenses) and $13,677 in the case of Six Flags (including national advertising and promotion expenses, insurance, and other expenses, net of reduction of accrued restructuring costs and other non-recurring items). (7) Adjustments reflect $261 of cost reductions related to termination of concessionaire arrangements at Kentucky Kingdom, and elimination of $728 of non-recurring benefits from reversing previously accrued expenses at Six Flags during 1997. (8) Adjustments in the Premier Operations column reflect the elimination of historical depreciation and amortization of $16,342 for Kentucky Kingdom and Walibi and the inclusion of estimated pro forma depreciation of $7,909 and amortization of $1,846. Adjustments in the Six Flags column reflect the elimination of historical depreciation of $58,902 and the inclusion of estimated pro forma depreciation of $25,937 and the elimination of historical amortization of $13,484 (after reduction of $12,107 of amortization related to the Co-Venture Partnerships) and the inclusion of estimated pro forma amortization of $51,654. Depreciation by the Company is based on useful lives of 20 years and intangible assets are amortized over 25 years. In the case of Walibi, the pro forma value of property and equipment was increased from historical recorded value. In the case of Six Flags, the pro forma value of property and equipment is estimated to be consistent with the historical recorded value. Thus, the net pro forma reduction of Six Flags depreciation is a result of longer average lives used by the Company. The increase in Six Flags net pro forma amortization results from the increase in the pro forma amount of intangible assets and the amortization of such costs over 25 years. The allocation of the Six Flags purchase price to property and equipment, based on book value, and to intangible assets based on the excess of the purchase price over the estimated value of the acquired net assets is subject to adjustment. The final allocation of the purchase price may differ from these preliminary estimates due to the final allocation being based on the completion of valuations of certain acquired assets and assumed liabilities and management's evaluation of such items. (9) Adjustments reflect the interest expense associated with the Company Notes, the New SFEC Notes, the Premier Credit Facility, and the Six Flags Credit Facility net of the elimination of the interest expense associated with the Company and Six Flags credit facilities previously outstanding, the long- term debt of Kentucky Kingdom, the long-term debt of Walibi, and the elimination of the interest 39 PREMIER PARKS INC. NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (CONTINUED) YEAR ENDED DECEMBER 31, 1997 (ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) income earned by the Company on the cash used in the purchase of Kentucky Kingdom as if the Company had made the above acquisitions as of January 1, 1997 (except in the case of Six Flags, which was treated as if it occurred on December 30, 1996, the first day of the 1997 fiscal year of Six Flags). Issuance costs associated with the new borrowings are being amortized over the respective terms. The components of the adjustments are as follows: In the case of the Premier Operations adjustments: Interest expense on Premier Credit Facility (assuming a 7 7/8% interest rate)................................................... $ (17,719) Interest expense from amortization of issuance costs............... (600) Interest expense from commitment fees on the Premier Credit Facility......................................................... (375) Elimination of historical interest expense - Premier............... 655 Elimination of historical interest expense - Walibi................ 3,409 Elimination of historical interest expense - Kentucky Kingdom...... 3,974 Elimination of historical interest income on cash used to acquire Kentucky Kingdom................................. (2,500) --------- $ (13,156) --------- --------- In the case of the Six Flags adjustments: Interest expense on Company Senior Notes (assuming a 10% interest rate)............................................................ $ (28,000) Interest expense on Company Senior Discount Notes (assuming an 11% interest rate)................................................... (27,500) Interest expense on New SFEC Notes (assuming a 9 1/2% interest rate)............................................................ (16,150) Interest expense on Six Flags Credit Facility (assuming a 8.198% interest rate)................................................... (34,432) Interest expense from amortization of issuance costs............... (4,614) Interest expense from commitment fee on the Six Flags Credit Facility......................................................... (260) Elimination of historical interest expense - Six Flags............. 53,427 --------- $ (57,529) --------- --------- A 0.125% change in the interest rates on the Company Notes, New SFEC Notes and Credit Facilities would increase interest expense, net, in the case of Premier Operations, by $281, in the case of Six Flags by $1,400 and, in the case of Company Pro Forma, by $1,681. (10) Adjustment reflects the equity in the operations of the Six Flags Over Texas and Six Flags Over Georgia theme parks, based upon the Company's 25% ownership of the limited partnership that owns the Georgia park and the estimated 25% ownership of the limited partnership that owns the Texas park, as if the Georgia and Texas partnership agreements had been in effect as of January 1, 1997. Adjustments were also made to reflect (i) the elimination of the historical amortization expense related to the investment in the Texas limited partnership of $8,402, (ii) the estimated amortization of $3,125 of the 25% investment in the Texas limited partnership, (iii) recognition of the increased minimum level of required limited partnership distributions of $20,261 as a result of the change in agreement, (iv) receipt of $6,925 of limited partnership distributions associated with the 25% ownership of the limited partnership, and (v) cost savings associated with allocation of national advertising costs and insurance costs of $3,644. The pro forma statement of operations assumes a 25% tender acceptance rate for units in the Texas limited partnership. If 50% of such units are tendered, equity in operations of theme parks would be $17,338 as compared to the $13,538 reflected in the pro forma statement of operations. (11) Adjustment reflects the elimination of $8,364 termination fee paid to the Company in connection with the termination of the Company's prior agreement to become managing general partner of the Texas Co-Venture Partnership. 40 PREMIER PARKS INC. NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (CONTINUED) YEAR ENDED DECEMBER 31, 1997 (ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) (12) Adjustment reflects the increase of $1,663 relating to the minority interest owner's share of operations related to net cost reductions at Fiesta Texas reflected above. (13) Adjustment reflects the reduction of $353 of other income (expense) of Kentucky Kingdom related to a lease obligation not assumed by the Company and assets not purchased by the Company. (14) Adjustments reflects the application of income taxes to the pro forma adjustments and to the acquired operations that were not previously directly subject to income taxation, after consideration of permanent differences, at a rate of 39%. (15) Net income (loss) applicable to common stock is adjusted to reflect $28,000 of dividends payable to holders of Seller Preferred Stock and EqPINES at assumed dividend rates of 6 1/2% and 7 1/2%, respectively. Net income (loss) per common share and weighted average share data are not presented for Kentucky Kingdom, Six Flags and Walibi as the information is not meaningful. In the event of an all cash Walibi Tender Offer, net income (loss) per common share would be $(2.16) and pro forma weighted average number of common shares would be 32,092,000. The calculation of pro forma weighted average shares outstanding for the year ended December 31, 1997 is as follows: Pro forma weighted average number of common shares outstanding before the Common Stock Offering and the Walibi acquisition... 18,873,000 Common shares to be issued in the Common Stock Offering, the proceeds of which will be used in part to fund the Six Flags Acquisition, as if issued on January 1, 1997.................. 13,000,000 Common shares to be issued as partial consideration for the Private Acquisition, as if issued on January 1, 1997.......... 229,000 Common shares to be issued as partial consideration for the Walibi Tender Offer, as if issued on January 1, 1997.......... 229,000 --------- Pro forma weighted average number of common shares outstanding................................................... 32,331,000 --------- --------- (16) EBITDA is defined as earnings before interest expense, net, income tax expense (benefit), depreciation and amortization, minority interest and equity in loss of real estate partnership. The Company has included information concerning EBITDA because it is used by certain investors as a measure of the Company's ability to service and/or incur debt. EBITDA is not required by GAAP and should not be considered in isolation or as an alternative to net income, net cash provided by operating, investing and financing activities or other financial data prepared in accordance with GAAP or as an indicator of the Company's operating performance. This information should be read in conjunction with the Statements of Cash Flows contained in the financial statements included elsewhere herein. Equity in loss of real estate partnership was $59,000 during the year ended December 31, 1997. Pro forma EBITDA includes equity in operations of theme parks and the depreciation and amortization ($6,830,000) of the investment in the Co-Venture Parks included therein. (17) The operating cash flow for Walibi during 1997 was 452,430 BEF. At an exchange rate of 37.065 BEF to US$1, the operating cash flow would have been $12,206. (18) On a pro forma basis, for the year ended December 31, 1997, the Company's earnings were insufficient to cover fixed charges and combined fixed charges and preferred stock dividends by $31,818 and $77,720, respectively. 41 PREMIER PARKS INC. UNAUDITED PRO FORMA BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) HISTORICAL HISTORICAL HISTORICAL PREMIER SIX FLAGS WALIBI (1) ----------- ----------- ----------- ASSETS: Cash and cash equivalents................................................................ $ 84,288 $ 16,805 $ 16,423 Accounts receivable...................................................................... 6,537 7,258 5,693 Inventories.............................................................................. 5,547 14,338 1,748 Income tax receivable.................................................................... 995 -- -- Prepaid expenses and other current assets................................................ 3,690 11,899 1,595 ----------- ----------- ----------- Total current assets................................................................. 101,057 50,300 25,459 Deferred charges......................................................................... 10,123 20,171 Restricted-use investments............................................................... -- -- -- Deposits and other....................................................................... 3,949 26,784 281 ----------- ----------- ----------- Total other assets................................................................... 14,072 46,955 281 Investment in theme parks, net........................................................... -- 78,370 -- Property and equipment, net.............................................................. 450,256 492,137 91,174 Intangible assets, net................................................................... 45,936 196,928 2,431 ----------- ----------- ----------- Total assets......................................................................... $ 611,321 $ 864,690 $ 119,345 ----------- ----------- ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable and accrued expenses.................................................... $ 23,199 $ 61,014 $ 11,387 Accrued interest payable................................................................. 9,785 3,431 -- Current maturities of long-term debt and capitalized lease obligations................... 795 56,633 18,843 ----------- ----------- ----------- Total current liabilities............................................................ 33,779 121,078 30,230 Long-term debt and capitalized lease obligations......................................... 216,231 753,369 50,545 Other long-term liabilities.............................................................. 4,025 12,570 1,970 Deferred income taxes.................................................................... 33,537 -- 4,706 Mandatorily redeemable preferred stock................................................... -- -- -- Stockholders' equity..................................................................... 323,749 (22,327) 31,894 ----------- ----------- ----------- Total liabilities and stockholders' equity........................................... $ 611,321 $ 864,690 $ 119,345 ----------- ----------- ----------- ----------- ----------- ----------- COMPANY PROFORMA COMPANY COMBINED ADJUSTMENTS PRO FORMA ----------- ----------- ----------- ASSETS: Cash and cash equivalents................................................................ $ 117,516 $(135,210) 2) $ 479,804 (1,262,134)(3) 1,759,632(4) Accounts receivable...................................................................... 19,488 19,488 Inventories.............................................................................. 21,633 21,633 Income tax receivable.................................................................... 995 995 Prepaid expenses and other current assets................................................ 17,184 17,184 ----------- ----------- ----------- Total current assets................................................................. 176,816 362,288 539,104 Deferred charges......................................................................... 30,294 39,166(4) 49,289 (20,171)(3) Restricted-use investments............................................................... -- 251,290(4) 326,290 75,000(4) Deposits and other....................................................................... 31,014 (10,984)(3) 52,530 25,000(3) 7,500(4) ----------- ----------- ----------- Total other assets................................................................... 61,308 366,801 428,109 Investment in theme parks, net........................................................... 78,370 (18,274)(3) 153,796 93,700(3) Property and equipment, net.............................................................. 1,033,567 17,326(2) 1,050,893 Intangible assets, net................................................................... 245,295 1,094,436(3) 1,381,760 42,029(2) ----------- ----------- ----------- Total assets......................................................................... $1,595,356 $1,958,306 $3,553,662 ----------- ----------- ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable and accrued expenses.................................................... $ 95,600 $ 95,600 Accrued interest payable................................................................. 13,216 (3,431)(3) 9,785 Current maturities of long-term debt and capitalized lease obligations................... 76,271 (18,843)(2) 2,795 (56,633)(3) 2,000(4) ----------- ----------- ----------- Total current liabilities............................................................ 185,087 (76,907) 108,180 Long-term debt and capitalized lease obligations......................................... 1,020,145 (50,545)(2) 2,032,831 (279,769)(3) 1,343,000(4) Other long-term liabilities.............................................................. 18,565 35,000(3) 53,565 Deferred income taxes.................................................................... 38,243 6,584(2) 28,906 (15,921)(3) Mandatorily redeemable preferred stock................................................... -- 200,000(3) 200,000 Stockholders' equity..................................................................... 333,316 (31,894)(2) 1,130,180 22,327(3) 18,843(2) (1,421)(4) 789,009(4) ----------- ----------- ----------- Total liabilities and stockholders' equity........................................... $1,595,356 $1,958,306 $3,553,662 ----------- ----------- ----------- ----------- ----------- ----------- See accompanying notes to unaudited pro forma balance sheet. 42 PREMIER PARKS INC. NOTES TO UNAUDITED PRO FORMA BALANCE SHEET DECEMBER 31, 1997 (ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) BASIS OF PRESENTATION The accompanying unaudited pro forma balance sheet as of December 31, 1997, has been prepared based on certain pro forma adjustments to historical financial information of the Company, Six Flags and Walibi. The Company's acquisition of the capital stock of SFEC and Walibi are scheduled to be completed in the second quarter of 1998. The unaudited pro forma balance sheet as of December 31, 1997, has been prepared assuming the acquisition of Six Flags and Walibi occurred on December 31, 1997. The unaudited pro forma balance sheet should be read in conjunction with the financial statements of the Company, Six Flags and Walibi and notes thereto included elsewhere herein or, in the case of Walibi, incorporated herein by reference. PRO FORMA ADJUSTMENTS (1) The amounts for Walibi are converted from Belgian Francs ("BEF") and are accounted for using generally accepted accounting principles of Belgium. The following table reflects the adjustment of the Walibi balance sheet to conform to U.S. generally accepted accounting principles and the conversion to U.S. dollars (using the December 31, 1997 exchange rate of 37.065 BEF to US$1) : AMOUNT ACCOUNTING ADJUSTED AMOUNT (IN BEF) ADJUSTMENTS AMOUNT (IN U.S.$) ---------------- ----------- --------- ----------- Cash and cash equivalents.................................. 608,724 -- 608,724 $ 16,423 Accounts receivable........................................ 210,997 -- 210,997 5,693 Inventories................................................ 64,780 -- 64,780 1,748 Prepaid expenses and other current assets.................. 69,909 (10,800) 59,109 1,595 Deposits and other......................................... 10,407 -- 10,407 281 Property and equipment, net................................ 3,393,688 (14,344) 3,379,344 91,174 Intangible assets, net..................................... 45,694 44,429 90,123 2,431 Total assets............................................... 4,404,199 19,285 4,423,484 119,345 Accounts payable and accrued expenses...................... 404,365 17,636 422,001 11,387 Current maturities of long-term debt and capitalized lease 698,411 -- 698,411 18,843 obligations.............................................. Long-term debt and capitalized lease obligations........... 1,873,467 -- 1,873,467 50,545 Other long-term liabilities................................ 58,015 15,000 73,015 1,970 Deferred income taxes...................................... 281,475 (107,029) 174,446 4,706 Stockholders' equity....................................... 1,088,466 93,678 1,182,144 31,894 Total liabilities and stockholders' equity................. 4,404,199 19,285 4,423,484 119,345 43 NOTES TO UNAUDITED PRO FORMA BALANCE SHEET (CONTINUED) DECEMBER 31, 1997 (ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) (2) Adjustment reflects the purchase of the outstanding capital stock of Walibi for $64,822 of cash and in Common Stock of the Company valued at $18,843, as well as $1,000 of estimated transaction costs. As of December 31, 1997, Walibi had $69,388 of debt outstanding. As part of the acquisition, the debt will be paid in full. The purchase price, including the debt payment, will be funded from the Premier Credit Facility. The acquisition of Walibi will be accounted for using the purchase price method of accounting. Allocation of the purchase price for purposes of the pro forma balance sheet was based upon estimated fair values of assets and liabilities. Estimated fair value of property and equipment exceeds the historical carrying value by $17,326. Other than intangible assets and deferred tax liabilities, fair value is not anticipated to differ significantly from the current recorded value of other assets and liabilities. Deferred tax liabilities have been increased by $6,584 as a result of the differences between the fair value and tax basis of the assets and liabilities. Purchase price in excess of the estimated fair value of the acquired net assets has been reflected as an increase in intangible assets. The unaudited pro forma balance sheet data assumes a 100% acceptance of the Walibi Tender Offer with 80% of the tender offer consideration payable in cash and 20% in shares of Common Stock. If a 100% acceptance of an all cash Walibi Tender Offer occurs, pro forma cash and cash equivalents and stockholders' equity would decrease by $9,422. If no shares of Walibi capital stock are tendered, the Company Pro Forma amounts would be as follows: COMPANY PRO FORMA ---------- Cash and cash equivalents................................................................... $ 573,686 Intangible assets, net...................................................................... 1,363,791 Total assets................................................................................ 3,629,575 Current maturities of long-term debt and capitalized lease obligations...................... 21,638 Long-term debt and capitalized lease obligations............................................ 2,083,376 Other long-term liabilities................................................................. 69,512 Stockholders' equity........................................................................ 1,120,758 (3) Adjustment reflects the purchase of the outstanding capital stock of Six Flags for $776,000 of cash and Seller Preferred Stock of $200,000, transaction costs of $10,000 and the purchase of 25% of the outstanding limited partnership units of the Texas Co-Venture Park for $93,700. Six Flags has commenced the tender offer on the terms described under "Business--Description of Parks--Six Flags over Texas and Six Flags Hurricane Harbor". The Company has assumed a 25% tender acceptance rate based on comparable results of the prior tender relating to the Georgia park. A $25,000 indemnity escrow will be established from the purchase price to fund indemnification claims of Premier under the Six Flags Agreement. The indemnity escrow is reflected as a deposit and as an other long-term liability. As of December 31, 1997, Six Flags had $810,002 of debt outstanding. The Company will refinance outstanding indebtedness of $379,003 and $3,431 of accrued interest and assume $430,999 of long-term debt. The purchase price and debt repayment will be funded from proceeds of the Offerings. The acquisition will be accounted for using the purchase method of 44 NOTES TO UNAUDITED PRO FORMA BALANCE SHEET (CONTINUED) DECEMBER 31, 1997 (ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) accounting. Allocation of the purchase price for purposes of the pro forma balance sheet was based upon estimated fair values of assets and liabilities. Fair value of assets and liabilities approximate recorded historical amounts, except for the fair value of the assumed debt and certain other assets, investments and deferred charges. The fair value of the assumed debt was $42,601 higher than the recorded value and certain other assets were reduced by $49,429. Additionally, $10,000 of liabilities related to changes in contractual agreements and other obligations are reflected as other long-term liabilities. Purchase price in excess of the estimated fair value of the acquired net assets has been reflected as an increase in intangible assets. The unaudited pro forma combined balance sheet data assumes a 25% tender acceptance rate in the tender offer for units in the Texas Co-Venture Park. In the event of a 50% tender acceptance rate, the applicable Company Pro Forma amounts would be as follows: COMPANY PRO FORMA ----------- Cash and cash equivalents.............................................................. $ 386,104 Investment in theme parks, net......................................................... $ 247,496 (4) Adjustment reflects the following proceeds and costs: Equity: Common Stock (assuming 13,000,000 shares issued at $45.63 per share based upon the average closing price of the Company's common stock for the twenty trading days ended February 27, 1998)........................ $ 593,190 EqPINES (assuming 5,000,000 shares issued at $45.63 per share).......... 228,150 Less discounts and costs................................................ (32,331) ----------- $ 789,009 ----------- ----------- Debt: Company Senior Notes.................................................... $ 280,000 Company Senior Discount Notes........................................... 250,000 New SFEC Notes.......................................................... 170,000 Premier Credit Facility ($1,000 principal due within one year).......... 225,000 Six Flags Credit Facility ($1,000 principal due within one year)........ 420,000 ----------- 1,345,000 Less debt issuance costs.................................................... (40,587) ----------- $1,304,413 ----------- ----------- Deferred charges of $1,421 associated with the Company's prior credit facility are reflected as a reduction in stockholders' equity. As part of the Six Flags agreements, the Company will establish a $75,000 restricted-use investment securing the Company's obligations related to the Co-Venture Parks' requirements and certain obligations related to the Convertible Preferred Stock. The Company will also establish a deposit of $7,500 related to securing the Company's obligation with respect to minimum annual distributions and mandatory capital expenditures at the Co-Venture Parks. Additionally, the Company will be establishing restricted-use investments of $175,030 related to the repayment of the SFEC Zero Coupon Senior Notes and of $76,260 for payment of the first six semi-annual interest payments on the Company's Senior Notes. 45 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's revenue is derived from the sale of tickets for entrance to its parks (approximately 52.7%, 44.0% and 48.8% in 1995, 1996 and 1997, respectively) and the sale of food, merchandise, games and attractions inside its parks and other income (approximately 47.3%, 56.0% and 51.2% in 1995, 1996 and 1997, respectively). The Company's principal costs of operations include salaries and wages, employee benefits, advertising, outside services, maintenance, utilities and insurance. The Company's expenses are relatively fixed. Costs for full-time employees, maintenance, utilities, advertising and insurance do not vary significantly with attendance, thereby providing the Company with a significant degree of operating leverage as attendance increases and fixed costs per visitor decrease. The Company acquired three parks in 1995 in the Funtime Acquisition, and acquired four parks during the last quarter of 1996. The Company acquired Riverside Park in February 1997, and Kentucky Kingdom in November 1997. In addition, the Company assumed management of Marine World in April 1997, exercised a lease option with respect to a portion of that park in November 1997, and executed a purchase option for the entire park in September 1997. The following discussion as it relates to 1996 includes two presentations. The first includes the historical results of the Company (including the results of the parks acquired in the 1996 Acquisitions (other than Riverside Park) only from their dates of acquisition forward (October 31, 1996 for Elitch Gardens; November 19, 1996 for the Waterworld parks; and December 4, 1996 for The Great Escape). The second includes both the historical results for the Company and the results of the parks acquired in the 1996 Acquisitions for periods prior to the dates of their respective acquisition. The following discussion as it relates to 1997 includes the results of the parks acquired in the 1996 Acquisitions (other than Riverside Park) for the full year, as well as Kentucky Kingdom and Riverside Park from their dates of acquisition forward, and includes Marine World only to the extent of the management fee received and depreciation expense related to that park. The Company believes that significant opportunities exist to acquire additional theme parks. Although the Company has had discussions with respect to several additional business acquisitions, no agreement or understanding has been reached with respect to any specific future acquisition other than the Six Flags and Walibi acquisitions. In addition, the Company intends to continue its on-going expansion of the rides and attractions and overall improvement of its parks to maintain and enhance their appeal. Management believes this strategy has contributed to increased attendance, lengths of stay and in-park spending and therefore, profitability. A consummated acquisition, including, the Six Flags and Walibi acquisitions, when consummated, may adversely affect the Company's operating results, at least in the short term, depending on many factors including capital requirements and the accounting treatment of any such acquisition. See "Unaudited Pro Forma Financial Statements." 46 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 AND 1996 The table below sets forth certain financial information with respect to the Company (including the 1996 Acquisitions and Riverside Park) for the year ended December 31, 1996 and with respect to the Company and Kentucky Kingdom and Marine World for the year ended December 31, 1997: YEAR ENDED DECEMBER 31, 1996 YEAR ENDED DECEMBER 31, 1997 --------------------------------------------------------- ------------------------------------- HISTORICAL HISTORICAL HISTORICAL 1996 PREMIER NINE MONTHS ACQUISITIONS (EXCLUDING ENDED SEPTEMBER FOR PERIODS MARINE KENTUCKY 30, 1996 FOR SUBSEQUENT TO WORLD AND KINGDOM HISTORICAL 1996 SEPTEMBER 30, HISTORICAL KENTUCKY AND MARINE HISTORICAL PREMIER(1) ACQUISITIONS(2) 1996(3) COMBINED KINGDOM)(4) WORLD(5) PREMIER ----------- --------------- -------------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (IN THOUSANDS) (IN THOUSANDS) REVENUE: Theme park admissions...... $ 41,162 $ 34,062 $ 724 $ 75,948 $ 94,611 $ -- $ 94,611 Theme park food, merchandise and other.... 52,285 30,453 1,020 83,758 99,103 190 99,293 ----------- ------- -------------- ----------- ----------- ----------- ----------- Total revenue............ 93,447 64,515 1,744 159,706 193,714 190 193,904 ----------- ------- -------------- ----------- ----------- ----------- ----------- OPERATING COSTS AND EXPENSES: Operating expenses......... 42,425 23,204 3,116 68,745 80,307 1,049 81,356 Selling, general and administrative........... 16,927 17,035 2,289 36,251 36,461 86 36,547 Costs of products sold..... 11,101 9,448 347 20,896 23,025 -- 23,025 Depreciation and amortization............. 8,533 13,028 703 22,264 19,159 633 19,792 ----------- ------- -------------- ----------- ----------- ----------- ----------- Total operating costs and expenses............... 78,986 62,715 6,455 148,156 158,952 1,768 160,720 ----------- ------- -------------- ----------- ----------- ----------- ----------- Income (loss) from operations................. 14,461 1,800 (4,711) 11,550 34,762 (1,578) 33,184 OTHER INCOME (EXPENSE): Interest expense, net...... (11,121) (4,624) (517) (16,262) (17,763) (12) (17,775) Termination fee, net of expenses................. -- -- -- -- 8,364 -- 8,364 Other income (expense)..... (78) (284) -- (362) (59) -- (59) ----------- ------- -------------- ----------- ----------- ----------- ----------- Total other income (expense).............. (11,199) (4,908) (517) (16,624) (9,458) (12) (9,470) ----------- ------- -------------- ----------- ----------- ----------- ----------- Income before income taxes.................... 3,262 (3,108) (5,228) (5,074) 25,304 (1,590) 23,714 Income tax expense (benefit)................ 1,497 1,131 -- 2,628 9,615 -- 9,615 ----------- ------- -------------- ----------- ----------- ----------- ----------- Net income (loss).......... $ 1,765 $ (4,239) $ (5,228) $ (7,702) $ 15,689 $ (1,590) $ 14,099 ----------- ------- -------------- ----------- ----------- ----------- ----------- ----------- ------- -------------- ----------- ----------- ----------- ----------- - ------------------------ (1) Includes results of the 1996 Acquisitions from and after the acquisition dates. (2) Includes results of the 1996 Acquisitions for the nine months ended September 30, 1996. (3) Includes results of the 1996 Acquisitions for the respective periods commencing October 1, 1996 and ending on the respective acquisition dates (or in the case of Riverside Park, December 31, 1996). (4) Excludes management fee and depreciation expense relating to Marine World and results of Kentucky Kingdom for the period subsequent to the acquisition date, November 7, 1997. (5) Represents management fee and depreciation expense relating to Marine World and results of Kentucky Kingdom from the acquisition date through December 31, 1997. 47 RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997 AND 1996 REVENUE. Revenue aggregated $193.9 million in 1997 ($193.7 million at the eleven parks owned during the 1997 season), compared to $93.4 million in 1996, and to combined revenue of $159.7 million in 1996. This 21.3% increase in revenue at the same eleven parks is primarily attributable to increased attendance (17.3%) at these eleven parks, which resulted in part from increased season pass and group sales at several parks. OPERATING EXPENSES. Operating expenses increased during 1997 to $81.4 million ($80.3 million at the eleven parks owned during the 1997 season) from $42.4 million reported in 1996, and from $68.7 million combined operating expenses for 1996. This 16.9% increase in operating expenses at the same eleven parks is mainly due to additional staffing related to the increased attendance levels and increased pay rates. As a percentage of revenue, operating expenses at these parks constituted 41.5% for 1997 and 43.0% on a combined basis for 1996. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses at the eleven owned parks were $36.5 million in 1997, compared to $16.9 million reported, and $36.3 million combined, selling, general and administrative expenses for 1996. As a percentage of revenues, these expenses at the same eleven parks constituted 18.8% for 1997 and 22.7% for 1996 combined. This increase over 1996 combined expenses relates primarily to increased advertising and marketing expenses to promote the newly acquired parks and the new rides and attractions at all of the parks, increased sales taxes arising from increased volume generally and increased property taxes and professional services, offset by significant reductions in personnel and insurance expenses. COSTS OF PRODUCTS SOLD. Costs of products sold were $23.0 million at the eleven parks for 1997 compared to $11.1 million reported and $20.9 million combined for 1996. Cost of products sold (as a percentage of in-park revenue) at these parks constituted approximately 23.2% for 1997 and 25.0% for 1996 combined. This $2.1 million or 10.2% increase over combined 1996 results is directly related to the 18.3% increase in food, merchandise and other revenues. DEPRECIATION AND INTEREST EXPENSE. Depreciation expense increased $11.3 million over the reported 1996 results. The increase is a result of the full year's effect of the 1996 Acquisitions (other than Riverside Park), the purchase price paid for the Riverside Park and Kentucky Kingdom acquisitions and the on-going capital program at the Company's parks. Interest expense, net, increased $6.7 million from 1996 as a result of interest on the 1997 Premier Notes. TERMINATION FEE, NET OF EXPENSES. During October 1997, the Company entered into an agreement with the limited partner of the partnership that owns Six Flags Over Texas to become the managing general partner of the partnership, to manage the operations of the park, to receive a portion of the income from such operations, and to purchase limited partnership units over the term of the agreement. The agreement was non-exclusive and contained a termination fee of $10,750,000 payable to the Company in the event the agreement was terminated. Subsequent to the Company's agreement with the limited partnership, the prior operator of the park reached an agreement with the limited partnership, and the Company's agreement was terminated. The Company received the termination fee in December 1997 and included the termination fee, net of $2,386,000 of expenses associated with the transaction, as income in 1997. 48 INCOME TAXES. The Company incurred income tax expense of $9.6 million during 1997, compared to $1.5 million during 1996. The effective tax rate for 1997 was approximately 40.5% as compared to 45.9% in 1996. This decrease is the result of the decline in the size of the non-deductible goodwill from the Funtime Acquisition and the acquisition of Riverside Park relative to the Company's income. At December 31, 1997, the Company estimates that it had approximately $37 million of net operating losses ("NOLs") carryforwards for Federal income tax purposes. The NOLs are subject to review and potential disallowance by the Internal Revenue Service upon audit of the Federal income tax returns of the Company and its subsidiaries. In addition, the use of such NOLs is subject to limitations on the amount of taxable income that can be offset with such NOLs. Some of such NOLs also are subject to a limitation as to which of the subsidiaries' income such NOLs are permitted to offset. Accordingly, no assurance can be given as to the timing or amount of the availability of such NOLs to the Company and its subsidiaries. See Note 7 to Premier's Consolidated Financial Statements. 49 YEARS ENDED DECEMBER 31, 1996 AND 1995 The table below sets forth certain financial information with respect to the Company and the Funtime parks for the year ended December 31, 1995 and with respect to the Company and the 1996 Acquisitions (other than Riverside Park) for the year ended December 31, 1996: YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1996 ------------------------------------------------------ -------------------------------------------- HISTORICAL FUNTIME(2) ---------------------------- SIX MONTHS HISTORICAL ENDED FORTY-THREE PREMIER HISTORICAL JULY 2, DAYS ENDED HISTORICAL (EXCLUDING 1996 1996 HISTORICAL PREMIER(1) 1995 AUGUST 14, 1995 COMBINED ACQUISITIONS)(3) ACQUISITIONS(4) PREMIER ----------- ----------- --------------- ----------- --------------- -------------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (IN THOUSANDS) (IN THOUSANDS) Revenue: Theme park admissions......... $ 21,863 $ 6,195 $ 9,680 $ 37,738 $ 41,157 $ 5 $ 41,162 Theme park food, merchandise and other.............. 19,633 8,958 13,450 42,041 52,148 137 52,285 ----------- ----------- ------- ----------- ------- ------- ----------- Total revenue.......... 41,496 15,153 23,130 79,779 93,305 142 93,447 ----------- ----------- ------- ----------- ------- ------- ----------- Expenses: Operating expenses... 19,775 10,537 6,039 36,351 40,568 1,857 42,425 Selling, general and administrative..... 9,272 3,459 2,533 15,264 16,534 393 16,927 Costs of products sold............... 4,635 2,083 2,953 9,671 11,071 30 11,101 Depreciation and amortization....... 3,866 3,316 829 8,011 7,785 748 8,533 ----------- ----------- ------- ----------- ------- ------- ----------- Total costs and expenses............. 37,548 19,395 12,354 69,297 75,958 3,028 78,986 ----------- ----------- ------- ----------- ------- ------- ----------- Income (loss) from operations........... 3,948 (4,242) 10,776 10,482 17,347 (2,886) 14,461 Interest expense, net.................. (5,578) (2,741) (321) (8,640) (11,121) -- (11,121) Other income (expense)............ (177) 4 (4) (177) (78) -- (78) ----------- ----------- ------- ----------- ------- ------- ----------- Total other income (expense)............ (5,755) (2,737) (325) (8,817) (11,199) -- (11,199) ----------- ----------- ------- ----------- ------- ------- ----------- Income before income taxes and extraordinary loss... (1,807) (6,979) 10,451 1,665 6,148 (2,886) 3,262 Income tax expense (benefit)............ (762) (2,722) 4,076 592 2,905 (1,408) 1,497 ----------- ----------- ------- ----------- ------- ------- ----------- Income (loss) before extraordinary loss... $ (1,045) $ (4,257) $ 6,375 $ 1,073 $ 3,243 $ (1,478) $ 1,765 ----------- ----------- ------- ----------- ------- ------- ----------- ----------- ----------- ------- ----------- ------- ------- ----------- - ------------------------ (1) Includes results of the Funtime Acquisition from and after August 15, 1995, the acquisition date. (2) Represents results of the parks acquired in the Funtime Acquisition from January 1, 1995 to August 14, 1995. (3) Excludes operating results of parks acquired in the 1996 Acquisitions, but includes interest expense incurred by virtue of associated financings as of the date incurred. (4) Represents results of the parks acquired in the 1996 Acquisitions (other than Riverside Park which was acquired in February 1997) from their respective acquisition dates through December 31, 1996. 50 REVENUE. Revenue aggregated $93.4 million in 1996 ($93.3 million without the 1996 Acquisitions), compared to $41.5 million actual in 1995, and to combined revenue of $79.8 million in 1995. This 17.0% increase in revenue (excluding the 1996 Acquisitions) over combined 1995 revenue at the same six parks is attributable to increased attendance (10.3%) and per capita revenue (6.3%) at the six parks and increased sponsorship revenue, as well as increased season pass sales at several parks, and increased campground revenue at Darien Lake and income from the new contractual arrangements for 1996 at the Darien Lake Performance Arts Center. OPERATING EXPENSES. Operating expenses increased during 1996 to $42.4 million ($40.6 million excluding the 1996 Acquisitions) from $19.8 million reported in 1995 and from $36.4 million combined operating expenses for 1995. This 11.6% increase in operating expenses (excluding the 1996 Acquisitions) over combined 1995 operating expenses is mainly due to additional staffing related to increased attendance levels and increased pay rates, offset to some extent by a decrease in equipment rental expense in 1996 due to the purchase of equipment that had been leased during 1995. As a percentage of revenue, operating expenses (excluding the 1996 Acquisitions) constituted 43.5% for 1996 and 45.6% on a combined basis for 1995. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses were $16.5 million in 1996 (excluding the 1996 Acquisitions), compared to $9.3 million reported, and $15.3 million combined, selling, general and administrative expenses for 1995. As a percentage of revenue, these expenses constituted 17.7% for 1996 and 19.1% for 1995 combined. This increase over 1995 combined expenses relates primarily to increased advertising and marketing expenses to promote the Funtime parks and the new rides and attractions at all of the parks, increased sales taxes arising from increased volume generally and increased property taxes and professional services. COSTS OF PRODUCTS SOLD. Costs of products sold were $11.1 million for 1996 compared to $4.6 million reported and $9.7 million combined for 1995. Cost of products sold (as a percentage of in-park revenue) constituted approximately 21.2% for 1996 and 23.0% for 1995 combined. This $1.4 million or 14.5% increase over combined 1995 results is directly related to the 24.0% increase in 1996 in food, merchandise and other revenue. DEPRECIATION AND INTEREST EXPENSE. Depreciation and amortization expense was $8.5 million for 1996 as compared to $3.9 million in 1995. The increase was a result of the full year's effect of the Funtime Acquisition, the $116.2 million spent during the fourth quarter of 1996 for the 1996 Acquisitions and the on-going capital program at the Company's parks. Interest expense, net, increased $5.5 million in 1996, as compared to 1995, as a result of interest on the 1995 Premier Notes for twelve months in 1996 as compared to four and one-half months in 1995 and the Company's borrowings under its then-existing senior credit facility made in connection with the 1996 Acquisitions. INCOME TAXES. The Company incurred income tax expense of $1.5 million during 1996, compared to a tax benefit of $762,000 during 1995. The effective tax rate for 1996 was approximately 45.9% as compared to 42.2% in 1995. The increase is the result of twelve months of goodwill amortization in 1996 versus four and one-half months in 1995. The goodwill recognized for financial reporting of the Funtime Acquisition and the 1996 Acquisitions is not deductible for Federal income tax purposes. See Note 7 to Notes to Premier's Consolidated Financial Statements. LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES The operations of the Company are highly seasonal, with the majority of the operating season occurring between Memorial Day and Labor Day. Most of the Company's revenue is collected in the second and third quarters of each year while most expenditures for capital improvements and major maintenance are incurred when the parks are closed. See "Risk Factors -- Effects of Inclement Weather; Seasonal Fluctuations of Operating Results." The Company employs a substantial number of seasonal 51 employees who are compensated on an hourly basis. The Company is not subject to Federal or certain applicable state minimum wage rates in respect of its seasonal employees. However, the 1996 increase of $.90 an hour over two years in the Federal minimum wage rate, and any increase in these state minimum wage rates, may result over time in increased compensation expense for the Company as it relates to these employees as a result of competitive factors. HISTORICAL During 1996, the Company generated net cash of $11.3 million from operating activities. Net cash used in investing activities in 1996 totaled $155.1 million, $116.2 million of which was employed in connection with the 1996 Acquisitions (other than Riverside Park) and $39.4 million represented amounts spent for capital expenditures, offset slightly by proceeds received from equipment sales. Net cash provided by financing activities for 1996 totaled $119.1 million, reflecting the net proceeds from the June 1996 public offering described below and borrowings under the Company's senior credit facility, offset, in part, by scheduled repayments of capitalized lease obligations. During 1997, the Company generated net cash of $47.2 million from operating activities. Net cash used in investing activities in 1997 totaled $217.1 million, $81.4 million of which was employed in connection with the acquisitions of Riverside Park and Kentucky Kingdom and $135.9 million represented amounts spent for capital expenditures at the Company's parks. Net cash provided by financing activities for 1997 totaled $250.2 million, reflecting the net proceeds from the January 1997 offerings of Common Stock and $125.0 million principal amount of 1997 Premier Notes described below, offset in part by repayment of borrowings under the Company's senior credit facility. In June 1996, the Company completed a public offering of approximately 3.9 million shares of Common Stock at a price to the public of $18.00 per share, resulting in aggregate net proceeds to the Company of approximately $65.3 million. In connection with the June 1996 public offering, all of the Company's then outstanding shares of preferred stock, together with all accrued dividends thereon, were converted into approximately 2.6 million shares of Common Stock. In January 1997, the Company completed two concurrent public offerings, issuing an additional 6.9 million shares of Common Stock at a price to the public of $29.00 per share, resulting in aggregate net proceeds to the Company of approximately $189.5 million, and issuing $125 million principal amount of the 1997 Premier Notes, resulting in net proceeds of approximately $120.7 million. On October 31, 1996, the Company acquired substantially all of the assets used in the operation of Elitch Gardens for $62.5 million in cash. On November 19, 1996, the Company acquired substantially all of the assets used in the operation of the Waterworld Parks for an aggregate cash consideration of $17.25 million. On December 4, 1996, the Company acquired substantially all of the assets of The Great Escape for $33.0 million in cash. On February 5, 1997, the Company acquired all of the capital stock of the owner of Riverside Park for approximately $22.2 million, of which $1.0 million was paid in Common Stock with the balance paid in cash. On April 1, 1997, the Company assumed management of Marine World, and subsequently exercised a long-term lease option for a portion of the park and obtained a purchase option with respect to the entire property. In November 1997, the Company purchased substantially all of the assets used in the operation of Kentucky Kingdom for a purchase price of $64.0 million, of which approximately $4.8 million was paid by delivery of 121,671 shares of Common Stock, with the balance paid in cash and by assumption of certain liabilities. Depending on the level of revenues at Kentucky Kingdom during each of the 1998 through 2000 seasons, the Company may be required to issue additional shares of Common Stock to the seller. At December 31, 1997, substantially all of Premier's indebtedness was represented by the Premier Notes in an aggregate principal amount of $215.0 million, which require aggregate annual interest payments of approximately $23.0 million. Except in the event of a change of control of the Company and certain other circumstances, no principal payment on the Premier Notes is due until the maturity dates 52 thereof, August 15, 2003 in the case of the 1995 Premier Notes and January 15, 2007, in the case of the 1997 Premier Notes. In February 1998, Premier terminated its $115.0 million senior secured credit facility and obtained a commitment with respect to the Premier Credit Facility. The Company will expense its remaining deferred charges related to the terminated facility in the first quarter of 1998. The Company expects to enter into the Premier Credit Facility on or about March 6, 1998. PRO FORMA In March 1998, the Company entered into the Premier Credit Facility, pursuant to which it will initially borrow $125.0 million, substantially all of which will be expended in connection with the Walibi acquisition. See "Description of Indebtedness." Upon consummation of the Six Flags Transactions, the Company will issue (i) up to 13,000,000 shares of Common Stock, (ii) up to 5,000,000 EqPINES (depositary shares representing interests in Mandatorily Convertible Preferred Stock), (iii) Seller Depositary Shares representing up to $200.0 million of Seller Preferred Stock, (iv) $ million principal amount at maturity of Company Senior Discount Notes (with estimated gross proceeds of $250.0 million), (v) $280.0 million aggregate principal amount of Company Senior Notes and (vi) $170.0 million aggregate principal amount of New SFEC Notes. The EqPINES will accrue cumulative dividends (payable, at the Company's option, in cash or shares of Common Stock) at % per annum, and will be mandatorily convertible into Common Stock in 2001. The Seller Preferred Stock will accrue cumulative cash dividends at % per annum and the Company is required to offer to purchase the Seller Preferred Stock in 2010. The Company may reduce (but not below $100.0 million) or may eliminate the Seller Depositary Shares by increasing the cash portion of the consideration for the Six Flags Acquisition. If the Company determines not to issue the Seller Depositary Shares, the additional cash portion of the purchase price will be funded from the net proceeds of the Common Stock Offering. The Company Senior Discount Notes will not require any interest payments prior to , 2003, or, except in the event of a change of control of the Company and certain other circumstances, any principal payments prior to their maturity in 2008. The Company Senior Notes will require annual interest payments of $ and, except in the event of a change of control of the Company or certain other circumstances, will not require any principal payments prior to their maturity in 2006. The New SFEC Notes will require annual interest payments of $ and, except in the event of a change of control of the Company or certain other circumstances, will not require any principal payments prior to their maturity in 2006. The net proceeds of the SFEC Notes Offering, together with other funds, will be deposited in escrow to repay in full the SFEC Zero Coupon Senior Notes. In addition, in connection with the Six Flags Transactions, the Company will (i) assume $285.0 million principal amount at maturity of the SFTP Senior Subordinated Notes, which had an accreted value of $269.9 million at December 28, 1997, (ii) refinance all outstanding SFTP bank indebtedness with the proceeds of $420.0 million of borrowings under the Six Flags Credit Facility, and (iii) refinance all outstanding bank debt of SFEC with a portion of the proceeds of the Offerings. The SFTP Senior Subordinated Notes require interest payments of approximately $34.9 million per annum, payable semi-annually commencing December 15, 1998, and, except in certain circumstances, no principal payments are due thereon until their maturity date, June 15, 2005. Term loan borrowings under the Six Flags Credit Facility will mature on November 30, 2004 (with principal payments of $1.0 million in each of 1998 through 2001, $25.0 million in 2002, $40.0 million in 2003 and $303.0 million at maturity). Revolving credit borrowings under this facility ($100.0 million) mature on the fifth anniversary of the Six Flags Credit Facility. Borrowings under the Six Flags Credit Facility will be guaranteed by SFEC and SFTP's subsidiaries and will be secured by substantially all of the assets of SFTP and its subsidiaries and a pledge by SFEC of the stock of SFEC. The Premier Credit Facility includes a five-year $75.0 million revolving credit facility, a five-year $100.0 million term loan facility (with principal payments of $10.0 million, $25.0 million, $30.0 million and $35.0 million in the second, third, fourth and fifth years) and an eight-year $125.0 million term loan facility (with principal payments of $1.0 million in each of the first six years and $25.0 million and $94.0 million in the seventh and eighth years, respectively). Borrowings under the Premier Credit Facility are guaranteed by Premier 53 Operations' domestic subsidiaries and are secured by substantially all of the assets of Premier Operations and such subsidiaries (other than real estate). See "Description of Indebtedness." On a pro forma basis as of December 31, 1997, the Company would have had total outstanding indebtedness in the accreted principal amount of $1,832.0 million (excluding $161.1 million accreted value of the SFEC Zero Coupon Senior Notes which will be repaid from proceeds of the SFEC Notes Offering, together with other funds). Based on actual interest rates for debt outstanding at December 31, 1997 and assumed interest rates for pro forma debt, annual interest payments for 1998 on this indebtedness would have aggregated $136.9 million. In addition, annual dividend payments on the Convertible Preferred Stock at assumed dividend rates would have aggregated $28.0 million. By reason of the Six Flags Acquisition, the Company will be required to offer to purchase the SFTP Senior Subordinated Notes at a price equal to 101% of their accreted amount (approximately $287.9 million at June 15, 1998). On March 23, 1998, the last reported sales price of these notes was substantially in excess of their accreted amount. The Company does not expect to be required to purchase any material amount of these notes by reason of this offer. Although the Company has entered into discussions with lenders to provide a standby arrangement to finance the purchase of such notes, there can be no assurance that such discussions will be successful or that the Company will be able to obtain any other financing in the event that it should become necessary. The Company will be required to (i) make minimum annual distributions of approximately $46.2 million (subject to cost of living adjustments) to its partners in the Co-Venture Parks and (ii) make minimum capital expenditures at each of the Co-Venture Parks during rolling five-year periods, generally based on 6% of such park's revenue. Cash flow from operations at the Co-Venture Parks will be used to satisfy these requirements, before any funds are required from the Company. The Company has also agreed to purchase a maximum number of 5% per year (accumulating to the extent not purchased in any given year) of limited partnership units outstanding as of the date of the co-venture agreements that govern the partnerships (to the extent tendered by the unit holders). The agreed price for these purchases is based on a valuation for each respective Co-Venture Park equal to the greater of (i) a value derived by multiplying its weighted-average four year EBITDA (as defined therein) by a specified multiple (8.0 in the case of the Georgia park and 8.5 in the case of the Texas park) or (ii) $250.0 million in the case of the Georgia park and $374.8 million in the case of the Texas park. The Company's obligations with respect to Six Flags Over Georgia and Six Flags Over Texas will continue until 2026 and 2027, respectively. As the Company purchases units, it will be entitled to the minimum distribution and other distributions attributable to such units unless it is then in default under its obligations to its partners at the Co-Venture Parks. The Company estimates that its maximum unit purchase obligation for 1998, when purchases are required only for the Georgia park, will aggregate approximately $13 million (approximately $31 million for 1999 when purchases for both partnerships are required) and its minimum capital expenditures at these parks for 1998 will total $11 million. In March 1998, Six Flags completed a tender offer pursuant to which it purchased approximately 33% of the outstanding limited partnership units in Six Flags Over Texas, for an aggregate price of $117.3 million, which was financed by borrowings. The Company has assumed a 25% tender for purposes of preparing the pro forma financial information contained herein. Since a larger number of units were tendered, the Company will be required to refinance the additional indebtedness of Six Flags incurred by virtue thereof, and accordingly, will have less cash to prefund capital expenditures and working capital requirements. The degree to which the Company will be leveraged following the Six Flags Transactions could have important consequences to the Company. See "Risk Factors--Risks Associated with Substantial Indebtedness and Other Obligations" and "Description of Indebtedness." The Company's liquidity could be adversely affected by unfavorable weather, accidents or the occurrence of an event or condition, including negative publicity or significant local competitive events (such as the 1996 Summer Olympics in the case of Six Flags Over Georgia) that significantly reduces paid 54 attendance and, therefore, revenue at any of its theme parks. On June 2, 1997, a slide collapsed at the Company's Waterworld park in Concord, California, resulting in one fatality and the park's closure for twelve days. The park re-opened with the approval of the City of Concord on June 14, 1997. Although the collapse and the resulting closure had a material adverse impact on that park's operating performance for 1997, as well as a lesser impact on the Company's Sacramento water park (which is also named "Waterworld"), located approximately seventy miles from the Concord park, the Company's other parks were not adversely affected. The Company has recovered all of the Concord park's operating shortfall under its business interruption insurance. In addition, the Company believes that its liability insurance coverage should be more than adequate to provide for any personal injury liability which may ultimately be found to exist in connection with the collapse. The Company believes that, based on current and anticipated operating results, cash flow from operations, available cash, available borrowings under the Credit Facilities and the net proceeds of the Offerings (to the extent not used in connection with the Six Flags Acquisition) will be adequate to meet the Company's future liquidity needs, including anticipated requirements for working capital, capital expenditures, scheduled debt and preferred stock dividends and its obligations under arrangements relating to the Co-Venture Parks, for at least the next several years. The Company may, however, need to refinance all or a portion of its existing debt on or prior to maturity or to obtain additional financing. See "Risk Factors-- Risks Associated with Substantial Indebtedness and Other Obligations." NEWLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting and display of "comprehensive income" and its components in a set of financial statements. It requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company currently does not have any components of comprehensive income that are not included in net income. After the acquisition of Walibi, the only item not currently included in the Company's consolidated statement of operations would be the currency translation adjustment that will be reported as part of stockholders' equity after the acquisition. The Company will adopt SFAS No. 130 in the year 1998. Also in June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," was issued. SFAS No. 131 is effective for periods beginning after December 15, 1997. SFAS No. 131 requires that a public entity report financial and descriptive information about its reportable segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company will adopt SFAS No. 131 in 1998. However, such adoption is not expected to impact the Company's financial disclosures because the Company's current operations are limited to one reportable operating segment under SFAS No. 131's definitions. After the acquisition of Walibi, the Company will be required to disclose certain financial information related to its foreign operations. In January 1997, the Commission issued Release No. 33-7386, which requires enhanced descriptions of accounting policies for derivative financial instruments and derivative commodity instruments in the footnotes to financial statements. The release also requires certain quantitative and qualitative disclosure outside financial statements about market risks inherent in market risk sensitive instruments and other financial instruments. The requirements regarding accounting policy descriptions were effective for any fiscal period ending after June 15, 1997. However, because derivative financial and commodity instruments have not materially affected the Company's consolidated financial position, cash flows or results of operations, this part of the release does not affect the Company's 1997 financial statement disclosures. The 55 quantitative and qualitative disclosures required by the release will be initially provided in the Company's annual report on Form 10-K for the year ending December 31, 1998. IMPACT OF YEAR 2000 ISSUE An issue exists for all companies that rely on computers as the year 2000 approaches. The "Year 2000" problem is the result of past practices in the computer industry of using two digits rather than four to identify the applicable year. This practice will result in incorrect results when computers perform arithmetic operations, comparisons or data field sorting involving years later than 1999. The Company anticipates that it will be able to test its entire system using its internal programming staff and outside computer consultants and intends to make any necessary modifications to prevent disruption to its operations. Costs in connection with any such modifications are not expected to be material. See "Risk Factors -- Impact of Year 2000 Issue." 56 BUSINESS GENERAL The Company is the largest regional theme park operator, and the second largest theme park company, in the world, based on 1997 attendance of approximately 37 million. It operates 31 regional parks, including 15 of the 50 largest theme parks in North America, based on 1997 attendance. The Company's theme parks serve 9 of the 10 largest metropolitan areas in the country. The Company estimates that approximately two-thirds of the population of the continental U.S. live within a 150-mile radius of the Company's theme parks. On a pro forma basis, the Company's total revenue and EBITDA for the year ended December 31, 1997 was approximately $815.3 million and $263.5 million, respectively. The following table sets forth certain information for the Company's parks: NAME TYPE OF PARK PRIMARY MARKET 1997 ATTENDANCE(1) ACRES(2) - ------------------------------- --------------- --------------------------------- --------------------- ------------- (IN THOUSANDS) PREMIER PARKS: Adventure World................ Theme/Water Baltimore/Washington, D.C. 960 115 Bellewaerde.................... Theme Belgium 670 133 Darien Lake.................... Theme/Water Buffalo/Rochester 1,400 142 Elitch Gardens................. Theme/Water Denver 1,450 60 Frontier City.................. Theme Oklahoma City 520 60 Geauga Lake.................... Theme/Water Cleveland 1,250 116 The Great Escape............... Theme/Water Lake George/Albany, New York 680 100 Kentucky Kingdom............... Theme/Water Louisville 1,150 58 Marine World................... Theme/Wildlife San Francisco 1,100 105 Riverside Park................. Theme New England/Boston 1,200 160 Walibi Aquitaine............... Theme France 240 74 Walibi Flevo................... Theme The Netherlands 450 250 Walibi Rhone-Alpes............. Theme/Water France 350 35 Walibi Schtroumpf.............. Theme France 350 375 Walibi Wavre and Aqualibi...... Theme/Water Belgium 960 120 Waterworld USA/Concord......... Water San Francisco 180 24 Waterworld USA/Sacramento...... Water Sacramento 290 20 White Water Bay................ Water Oklahoma City 320 22 Wyandot Lake................... Water Columbus, Ohio 390 18 SIX FLAGS PARKS: Six Flags AstroWorld........... Theme Houston 1,990 90 Six Flags Water World.......... Water Houston 280 14 Six Flags Fiesta Texas......... Theme San Antonio 1,640 200 Six Flags Great Adventure...... Theme New York City/Philadelphia 3,690(3) 576(3) Six Flags Wild Safari Animal Park........................... Wildlife New York City/Philadelphia (3) (3) Six Flags Great America........ Theme Chicago/Milwaukee 3,040 86 Six Flags Magic Mountain....... Theme Los Angeles 3,270 110 Six Flags Hurricane Harbor..... Water Los Angeles 350 11 Six Flags St. Louis............ Theme St. Louis 1,690 499 Six Flags Over Georgia......... Theme Atlanta 2,780 196 Six Flags Over Texas........... Theme Dallas/Fort Worth 2,950 197 Six Flags Hurricane Harbor..... Water Dallas/Fort Worth 560 49 - ------------------------ (1) Excludes approximately 0.4 million in attendance at Walibi's two smaller attractions. (2) Includes acreage currently dedicated to park usage. Additional acreage suitable for development exists at many of the facilities. (3) Attendance and acreage information for Six Flags Great Adventure also includes data for the adjacent Six Flags Wild Safari Animal Park. The Six Flags Parks consist of eight regional theme parks, as well as three separately gated water parks and a wildlife safari park (each of which is located near one of the theme parks). None of the Six Flags Parks are located within the primary market of any of the Premier Parks. During 1997, the Six Flags Parks drew, in the aggregate, approximately 68% of their patrons from within a 100-mile radius. During that year, Six Flags' attendance, revenue and EBITDA totaled approximately 22.2 million, $708.7 million and $164.1 million, respectively. 57 Six Flags has operated regional theme parks under the Six Flags name for over thirty years. As a result, Six Flags has established a nationally-recognized brand name. Premier will obtain worldwide ownership of the Six Flags brand name and expects to use the Six Flags brand name, generally beginning in the 1999 season, at most of the Premier Parks. In addition, as part of the Six Flags Acquisition, the Company will obtain from Warner Bros. and DC Comics the exclusive right for theme-park usage of certain Warner Bros. and DC Comics characters throughout the United States (except the Las Vegas metropolitan area) and Canada. These characters include BUGS BUNNY, DAFFY DUCK, TWEETY BIRD, YOSEMITE SAM, BATMAN, SUPERMAN and others. Since 1991, Six Flags has used these characters to market its parks and to provide an enhanced family entertainment experience. The long-term license will include the right to sell merchandise featuring the characters at the parks and will apply to all of the Company's current theme parks, as well as future parks that meet certain criteria. Premier intends to make extensive use of these characters at the Six Flags Parks and, commencing in 1999, at most of the existing Premier Parks. The Company believes that use of the Warner Bros. and DC Comics characters promotes attendance, supports higher ticket prices, increases lengths-of-stay and enhances in-park spending. See "--Licenses." The Premier Parks consist of nine regional theme parks (six of which include a water park component) and four water parks located across the United States, as well as six regional theme parks and two smaller attractions located in Europe and scheduled to be acquired in March 1998 in the acquisition of Walibi. During the 1997 operating season, the eleven parks then owned by Premier drew, on average, approximately 82% of their patrons from within a 100-mile radius, with approximately 35.7% of visitors utilizing group and other pre-sold tickets and approximately 20.6% utilizing season passes. Under current management, since 1989 Premier has assumed control of 30 parks, and has achieved significant internal growth. The 11 parks owned by the Company for the 1997 operating season achieved same park growth in attendance, revenue and park-level operating cash flow (representing all park operating revenues and expenses without depreciation and amortization or allocation of corporate overhead or interest expense) of 17.3%, 21.3% and 59.5%, respectively, as compared to 1996. The Company's parks are individually themed and provide a complete family-oriented entertainment experience. The Company's theme parks generally offer a broad selection of state-of-the-art and traditional thrill rides, water attractions, themed areas, concerts and shows, restaurants, game venues and merchandise outlets. In the aggregate, the Company's theme parks offer more than 800 rides, including over 90 roller coasters, making the Company the leading provider of "thrill rides" in the industry. The Company believes that its parks benefit from limited direct competition. The combination of limited supply of real estate appropriate for theme park development, high initial capital investment, long development lead-time and zoning restrictions provides each of the parks with a significant degree of protection from competitive new theme park openings. Based on its knowledge of the development of other theme parks in the United States, the Company's management estimates that it would cost at least $200 million and would take a minimum of two years to construct a new regional theme park comparable to the Company's largest parks. The Company's senior and operating management team has extensive experience in the theme park industry. Premier's six senior executive officers have over 150 years aggregate experience in the industry and its ten general managers (prior to the Six Flags Acquisition) have an aggregate of approximately 210 years experience in the industry, including approximately 85 years at the Premier Parks. A number of Premier's executives and operating personnel have experience at Six Flags. According to AMUSEMENT BUSINESS, total North American amusement/theme park attendance in 1997 was approximately 270 million. Total attendance for the 50 largest parks in North America was 167.2 million in 1997, compared to 145.0 million in 1994, representing a compound annual growth rate of 4.9%. The Company believes that this growth reflects two trends: (i) demographic growth in the 5-24 year old age 58 group, which is expected to continue through 2010 and (ii) an increasing emphasis on family-oriented leisure and recreation activities. The Company's strategy for achieving growth includes the following key elements: (i) pursuing growth opportunities at existing parks; (ii) expanding the Company's parks; and (iii) making selective acquisitions. PURSUING GROWTH OPPORTUNITIES AT EXISTING PARKS The Company believes there are substantial opportunities for continued internal growth at its parks. The Company's operating strategy is to increase revenue by increasing attendance and per capita spending, while also maintaining strict control of operating expenses. This approach is designed to exploit the operating leverage inherent in the theme park business. Once parks achieve certain critical attendance levels, operating cash flow margins increase because revenue growth through incremental attendance gains and increased in-park spending is not offset by a comparable increase in operating expenses, because a large portion of such expenses is relatively fixed during any given year. The primary elements of this strategy include: --ADDING RIDES AND ATTRACTIONS AND IMPROVING OVERALL PARK QUALITY. The Company regularly makes investments in the development and implementation of new rides and attractions at its parks. The Company believes that the introduction of marketable rides is an important factor in promoting each of the parks in order to increase market penetration and encourage longer visits, which lead to increased attendance and sales of food and merchandise. Once a park reaches an appropriate level of attractions for its market size, the Company will add new marketable attractions at that park only every three to four years. --ENHANCING MARKETING AND SPONSORSHIP PROGRAMS. Premier's parks have benefitted from professional, creative marketing programs which emphasize the marketable rides and attractions, breadth of available entertainment and value provided by each park. Following the Six Flags Acquisition, the Company intends to implement marketing programs that also emphasize the Six Flags brand name, as well as the animated characters licensed from Warner Bros. and DC Comics. The Company has also successfully attracted well known sponsorship and promotional partners, such as Pepsi, McDonald's, Coca-Cola, Taco Bell, Blockbuster, 7-Eleven, Wendy's, First USA Bank, Best Western and various supermarket chains. The Company believes that its increased number of parks and annual attendance has enabled it to expand and enhance its sponsorship and promotional programs. --INCREASING GROUP SALES, SEASON PASSES AND OTHER PRE-SOLD TICKETS. Group sales and pre-sold tickets provide the Company with a consistent and stable base of attendance, representing over 35.7% of aggregate attendance at the 11 parks owned by the Company in the 1997 season, with approximately 20.6% of patrons utilizing season passes. --IMPLEMENTING TICKET PRICING STRATEGIES TO MAXIMIZE TICKET REVENUES AND PARK UTILIZATION. Management regularly reviews its ticket price levels and ticket category mix in order to capitalize on opportunities to implement selective price increases, both through main gate price increases and the reduction in the number and types of discounts. Management believes that opportunities exist to implement marginal ticket price increases without significant reductions in attendance levels. Such increases have successfully been implemented on a park-by-park basis in connection with the introduction of major new attractions or rides. In addition, the Company offers discounts on season, multi-visit and group tickets and also offers discounts on tickets for specific periods, in order to increase attendance at less popular times such as weekdays and evenings. --INCREASING AND ENHANCING RESTAURANTS AND MERCHANDISE AND OTHER REVENUE OUTLETS TO INCREASE LENGTH-OF-STAY AND IN-PARK SPENDING. The Company also seeks to increase in-park spending by adding well-themed restaurants, remodeling and updating existing restaurants and adding new merchandise outlets. The Company has successfully increased spending on food and beverages by introducing well- 59 recognized local and national brands, such as Domino's, Friendly's, KFC and TCBY. Typically, the Company operates these revenue outlets and often is the franchisee. Finally, the Company has taken steps to decrease the waiting time for its most popular restaurants and merchandise outlets. --ADDING SPECIAL EVENTS. The Company has also developed a variety of off-season special events designed to increase attendance and revenue prior to Memorial Day and after Labor Day. Examples include Hallowscream and Fright Fest-Registered Trademark-, Halloween events in which parks are transformed with supernatural theming, scary rides and haunting shows, Oktoberfest, in which traditional German food, theming, music and entertainment are presented at the parks and Holiday in the Park-Registered Trademark-, a winter holiday event, in which several parks are transformed with winter and holiday theming. THE PREMIER PARKS Management believes it has demonstrated the effectiveness of its strategy at the Premier Parks owned prior to the 1997 Acquisitions. The Company first implemented its strategy at the parks it owned prior to the Funtime Acquisition. FRONTIER CITY--In 1990 and 1991, an aggregate of approximately $7.0 million was invested in Frontier City to add several major rides, expand and improve the children's area, significantly increase the size of and theme the group picnic facilities and construct a 12,000 square foot air-conditioned mall and main events center. These additions, combined with an aggressive marketing strategy, resulted in Frontier City's attendance and revenue increasing approximately 54% and 83%, respectively, from 1989 to 1991. ADVENTURE WORLD--Since acquiring Adventure World in January 1992, the Company has invested approximately $42 million in the park to add numerous rides and attractions and to improve theming. As a result of these improvements, as well as aggressive and creative marketing and sales strategies, Adventure World's attendance increased during the five seasons ended 1997 at a compound annual rate of 21.5%. Additionally, revenue and park-level operating cash flow at Adventure World increased from $6.1 million and $0.1 million, respectively, for 1992 to $20.2 million and $4.9 million, respectively, for 1997. The Company is continuing to apply its growth strategy to the three Funtime parks, acquired in August 1995. Since that time, the Company has invested approximately $43 million at these parks to add marketable rides and attractions and make other improvements and implemented creative marketing and sales programs. As a result of this strategy, during 1997, the Funtime parks achieved compound annual growth in attendance, revenue and park-level operating cash flow of 10.2%, 14.9% and 27.2%, respectively, as compared to 1995. DARIEN LAKE--For the 1996 and 1997 seasons, Premier invested approximately $21 million, adding numerous rides and attractions and 50 recreational vehicles. Further, the Company entered into a long-term contract with a national concert promoter under which the promoter invested $2.5 million to make improvements at Darien Lake's 20,000 seat amphitheater and agreed to book at least twenty nationally-recognized performers per season. As a result of these investments and creative marketing and sales initiatives, during 1997 , Darien Lake achieved compound annual growth of 15.2% in attendance, 20.5% in revenue and 45.2% in park-level operating cash flow over the results for 1995. During the 1997 season, the Company began to apply its operating strategy to the five parks acquired in the 1996 Acquisitions. The Company invested approximately $65 million in the parks for that season to add marketable rides and attractions and make other improvements and implemented creative marketing and sales programs. As a result of this strategy, during 1997, these five parks achieved growth in attendance, revenue and park-level operating cash flow of 33.8%, 37.9% and 228.9%, respectively, as compared to 1996. ELITCH GARDENS--Subsequent to its October 1996 acquisition of Elitch Gardens, the Company invested approximately $30 million at that park for the 1997 season, adding three major marketable rides including a "state-of-the-art" steel suspended looping roller coaster, an entire water park, a new main entrance and 60 main street (including a theatre) and numerous revenue outlets, as well as substantial theming and landscaping. As a result, during 1997, attendance and revenue at Elitch Gardens grew 62.1% and 53.3%, respectively, and park-level operating cash flow increased from ($1.8) million to $8.6 million, as compared to 1996. RIVERSIDE PARK--The Company invested approximately $25 million for the 1997 season at Riverside Park, which it acquired in February 1997, to add three major marketable rides, including a "state-of-the-art" steel suspended looping roller coaster, a group picnic area, a new main entrance and improved theming and landscaping. As a result, during 1997, attendance and revenue at Riverside Park increased 57.7% and 56.7%, respectively, and park-level operating cash flow increased from $1.5 million to $8.2 million, as compared to 1996. Management believes that each of the parks acquired by Premier in the 1997 Acquisitions offer similar opportunities to implement the Company's growth strategy. Specifically, the Company believes it can increase attendance and per capita revenue at Kentucky Kingdom. The Company intends to invest approximately $10 million at Kentucky Kingdom for the 1998 season to add dueling wooden roller coasters, a five-story interactive family water attraction and restaurants and other revenue outlets. Marine World represents an opportunity to operate and eventually own an established, well-known wildlife park in the San Francisco market, with excellent access to major area highways. Premier has exercised its option to lease approximately 40 acres at Marine World for a term of up to 99 years at a nominal rent. Upon exercise of the lease option, Premier became entitled to receive, in addition to its management fee, 80% of the cash flow generated by the park after operating expenses and debt service. Management intends to expand the park's entertainment component with theme park rides and attractions. The Company is currently implementing the first phase of this expansion of Marine World by investing approximately $35-$40 million for the 1998 season to add fourteen new rides, including a boomerang steel roller coaster, a river rapids ride and a shoot-the-chute giant splash ride. In September 1997, the Company was granted an option to purchase the entire site commencing in February 2002, which it currently expects to exercise at that time. The Walibi acquisition provides the Company with a significant presence in the expanding theme park industry in Europe and management believes that the Company's strategy of targeted capital investment and sophisticated marketing can improve performance at these parks. The Company has agreed to invest approximately $38 million in the Walibi Parks over the three years commencing with the 1999 season. The Company believes that the Walibi Parks have suffered from limited available funds for investment and a lack of creative marketing. Additionally, the Company believes that the presence of Disney Land Paris outside of Paris has resulted in greater awareness of local parks in Europe. For example, in 1997, European park attendance grew 6%, as compared to 4% in North America. Further, the Company believes that, by virtue of the Six Flags Acquisition, a number of the existing Premier Parks have the potential over the next several seasons to accelerate their rate of growth. Recent attendance levels at the Six Flags theme parks (between 1.7 million and 3.6 million in 1997) have been substantially higher than the annual attendance at the largest Premier Parks (between 1.0 million and 1.5 million during that year). Management believes that a number of existing Premier Parks, particularly Adventure World, Geauga Lake, Kentucky Kingdom, Marine World and Riverside Park, all of which are located in or near major metropolitan areas, can significantly accelerate their market penetration and the expansion of their geographic market. Management believes this can be achieved through the use of the Six Flags brand name, aggressive marketing campaigns featuring the animated characters licensed from Warner Bros. and DC Comics, as well as targeted capital investment in new rides and attractions. Management also believes that this expanded penetration, as well as the incorporation of the animated characters in the parks and in merchandise sales can result in increased per capita spending at the existing Premier Parks. The Company expects to commence general use of the Six Flags brand name and the licensed characters at the Premier Parks for the 1999 season. 61 THE SIX FLAGS PARKS The Six Flags Parks generally enjoy significant market penetration. Thus, although the Company plans to make targeted capital expenditures at these parks to increase their attendance and per capita spending levels, it expects to increase significantly the EBITDA of these parks primarily through increases in operating efficiencies. First and most importantly, the Company believes that it can substantially reduce Six Flags' corporate overhead and other corporate-level expenses. Second, the Company expects to achieve significant improvement in park-level operating margins. Third, by virtue of economies of scale, the Company believes that operating efficiencies in areas such as marketing, insurance, promotion, purchasing and other expenses can be realized. Finally, the Company believes that its increased size following the Six Flags Acquisition will enable it to achieve savings in capital expenditures, including by the Company's ability to rotate rides among its parks. EXPANDING THE COMPANY'S PARKS The Company is expanding several of the Premier Parks in order to increase attendance and per capita spending. For example, the Company is constructing an economy motel at Darien Lake for the 1998 season to supplement the campgrounds. In addition, the Company recently purchased campgrounds adjacent to Geauga Lake, and expects to add, prior to the 1999 season, a more complete complement of "dry" rides to Wyandot Lake, which is currently primarily a water park. In addition, the Company owns 400 acres adjacent to Adventure World which are zoned for entertainment, recreational and residential uses and are available for complementary uses. Additional acreage owned by the Company and suitable for development exists at several of the Company's other parks. The Company may use a portion of the proceeds of the Offering and the Concurrent Offerings to fund expansions at its parks. See "Use of Proceeds." The Company may expand in the future certain of the Six Flags Parks by adding complementary attractions, such as campgrounds, lodging facilities, new water parks and concert venues. For example, Six Flags owns over 1,500 undeveloped acres adjacent to Six Flags Great Adventure (located between New York City and Philadelphia) suitable for such purposes. Additional acreage suitable for development exists at several other Six Flags Parks. See "--Environmental and Other Regulation." ACQUISITION STRATEGY The Company expects to achieve further growth beyond that generated from internal growth at its existing parks through continued selective acquisitions of additional regional theme parks. Given its decentralized management approach, the Company has experience in managing assets in diverse locations, and therefore does not seek acquisitions with any specific geographic focus. In that connection, in the first quarter of 1998 the Company expects to acquire a controlling interest in Walibi (and expects to acquire the remaining interest in the second quarter of 1998), which owns six theme parks and two smaller attractions in Europe, and may continue to pursue acquisitions of parks located outside of the United States. The U.S. regional theme park industry is highly fragmented with over 150 parks owned by over 100 operators. Management believes that, in addition to the Acquisitions, there are numerous acquisition opportunities, both in the U.S. and abroad, that can expand its business while the Company will continue to pursue acquisitions of regional parks with attendance between 300,000 and 1.5 million annually, the Company will consider acquisitions of larger parks or chains (such as Six Flags). The Company believes it has a number of competitive advantages in acquiring theme parks. Operators of destination or large regional park chains, other than Cedar Fair L.P., have not generally been actively seeking to acquire parks in recent years. Additionally, as a multi-park operator with a track record of successfully acquiring, improving and repositioning parks, the Company has numerous competitive advantages over single-park operators in pursuing acquisitions and improving the operating results at acquired parks. These advantages include the ability to (i) exercise group purchasing power (for both operating and 62 capital assets); (ii) achieve administrative economies of scale; (iii) attract greater sponsorship revenue, support from sponsors with nationally-recognized brands and marketing partners; (iv) use the Six Flags brand name and the characters licensed from Warner Bros. and DC Comics; (v) recruit and retain superior management; (vi) optimize the use of capital assets by rotating rides among its parks to provide fresh attractions; and (vii) access capital markets. See "Risk Factors--Uncertainty of Future Acquisitions; Potential Effects of Acquisitions." Furthermore, the Company is able to make acquisitions where its capital stock forms all or part of the purchase price. This is particularly important where the seller has a low tax basis in its assets, which the Company believes is often the case with its acquisition targets. While the Company expects that many acquisitions will be made for cash, its ability to use Common Stock for all or part of the purchase price will provide it with an additional advantage over single-park operators in making such acquisitions. For example, shares of Common Stock (or securities convertible into Common Stock) were or will be used as a portion of the aggregate consideration in the acquisitions of Kentucky Kingdom and Walibi and may be used in the Six Flags Acquisition. In most cases, the Company will seek to acquire outright ownership of parks, as it did with the 1996 Acquisitions. However, transactions may be undertaken in other forms, including acquisition of less than full ownership, such as participation in park management, leases or joint venture arrangements. For example, the Company manages Marine World and leases a portion of that facility, with an option to acquire the entire park, commencing in 2002. The Company expects to continue to acquire parks which have been undermanaged and have not benefitted from sustained capital expenditures, and to reposition such parks through the implementation of its operating strategies. The Company may also acquire better performing parks which require less additional investment but where cash flow can be improved through economies of scale in operating and capital expenditures and other enhancements. The Company intends to locate acquisition targets primarily through its own direct efforts. Management has extensive contacts throughout the industry and is an active participant in industry associations. Particular attention is given to cultivating relationships over time with park owners who appear likely to be or become potential sellers due to factors such as age or family or economic circumstances. In addition, the Company has developed a reputation as an active acquiror of regional parks. Through this reputation and general industry contacts, the Company believes that it becomes aware of most acquisition opportunities that develop in its area of focus. THE THEME PARK INDUSTRY HISTORY Although there is a long history of traditional amusement parks, primarily family-owned and consisting of thrill rides and midways, the opening of Disneyland in 1955 introduced the first modern theme park. Several features of modern theme parks distinguish them from the traditional amusement park whose carnival atmosphere and thrill rides offer less to families and adults. Theme parks are designed around one central or several different themes which are consistently applied to all areas, including the rides, attractions, entertainment, food, restaurants and landscape. Modern parks also typically present a variety of free entertainment not found at old-style amusement parks. Theme parks also offer the visitor numerous and diverse dining establishments in order to expand length of stay and position the parks as an all-day entertainment center. Generally, theme parks also plan nighttime entertainment (such as fireworks) and special events, and keep certain rides open into the night to further extend the hours of operation. As a result of these differences, theme parks draw attendance from a wider geographic area and attract a larger number of people from within a given market. Theme parks also attract more families and group outings, and the average length of stay and per capita outlay is greater. 63 The following table identifies the nine largest operators of theme park chains worldwide ranked by total attendance, showing the number and type of such parks operated by each and the aggregate attendance in 1997. TYPE NUMBER 1997 NAME OF OPERATOR OF PARK OF PARKS ATTENDANCE - --------------------------------------------------------------- ----------------------- ------------- ------------- (IN THOUSANDS) Disney......................................................... Destination 8 86,000 PREMIER PARKS(1)............................................... REGIONAL 31 36,500 Anheuser-Busch................................................. Regional/Destination 9 20,700 Universal Studios.............................................. Destination 2 14,300 Cedar Fair..................................................... Regional 7 13,400 Paramount Parks................................................ Regional 6 12,800 Blackpool Pleasure Beach Co.(2)................................ Destination 3 8,800 The Tussauds Group(2).......................................... Regional 3 7,400 Silver Dollar City............................................. Regional/Destination 5 4,900 - ------------------------ (1) Figures for Premier Parks reflect the 1997 Acquisitions and the Six Flags Acquisition as if such acquisitions had all occurred at the commencement of the 1997 season. (2) Does not operate parks in North America. DESTINATION PARKS VERSUS REGIONAL PARKS Destination parks are those designed primarily to attract visitors willing generally to travel long distances and incur significant expense to visit the parks' attractions as part of an extended stay. To accommodate vacationers, many destination parks also include on-site lodging. Walt Disney World and Universal Studios are well-known examples of this type of park. Management believes that destination parks are typically more affected by the national economy than are regional parks. With the exception of Six Flags Magic Mountain, located in the same market as Disneyland and Universal Studios Hollywood, the Company does not believe that its parks compete directly with destination parks. Regional theme parks, such as those historically operated by the Company, are designed to attract visitors for a full day or a significant number of hours. Management views regional theme parks as those that draw the majority of their patrons from within a 50-mile radius of the park and the great majority of their visitors from within a 100-mile radius of the park. Visiting a regional theme park may be significantly less expensive than visiting a destination park because of lower transportation expenses, lower ticket prices and the lack of extended lodging expenses. The U.S. regional theme park industry is highly fragmented with over 150 parks owned by over 100 operators. ATTRACTIONS Regional theme parks attract patrons of all ages. Families and young people are attracted by the variety of major rides and attractions, children's rides and various entertainment areas including thematic shows and concerts. Most park admission policies are "pay-one-price," which entitles a guest to virtually unlimited free access to all rides, shows and attractions. Depending on the size of the property, regional theme parks typically have between 30 and 40 attractions. These rides include roller coasters and water rides, as well as other attractions such as bumper cars, aerial rides and children's rides. A park may also have distinct entertainment and show areas with specific themes such as a wild west or pirate stunt show. Games, food and merchandise stands often reflect the theme of the particular area in which they are located. This enhances the promotional effect of the 64 thematic area. By offering a variety of rides and themed areas, a park is able to target a wider age spectrum from the surrounding population. In addition to thrill rides, many parks offer indoor attractions and outdoor concerts, ranging from musical skits and bands to full-scale evening concerts by prominent entertainers. Selected concerts may require an add-on to the admissions price, but often are part of the regular ticket price, providing added value to visitors. Food service offered ranges from full-service restaurants to fast food. Young people may only be interested in a quick meal between rides while the family may choose to relax for a picnic. Refreshment stands serve snack foods, such as hot dogs, cotton candy and soda. In addition, game booths and merchandise souvenir stands are dispersed throughout a park. HISTORY The Company was incorporated in 1981 as The Tierco Group, Inc., and through 1989 was primarily engaged in the ownership and management of real estate and mortgage loans. In October 1989, the Company's current senior management assumed control, and during 1989, management determined to focus Premier's business on its theme park operations, which at that point consisted of a 50% interest in Frontier City. In 1991, the Company acquired White Water Bay and increased its ownership in Frontier City to in excess of 50%. In 1992, the Company acquired Adventure World and the remaining minority interest in Frontier City and disposed of substantially all of its non-theme park operations. In 1994, the Company changed its name to Premier Parks Inc. On August 15, 1995, the Company completed the Funtime Acquisition. On June 4, 1996, the Company completed a public offering of approximately 3.9 million shares of Common Stock, at a price to the public of $18.00 per share, which raised $65.3 million of net proceeds. In the fourth quarter of 1996, the Company acquired Elitch Gardens, the Waterworld Parks and The Great Escape, and, in February 1997, acquired Riverside Park. In January 1997, the Company completed the issuance, through a public offering, of an additional 6.9 million shares of its Common Stock at a price to the public of $29.00 per share, which raised approximately $189.5 million of aggregate net proceeds. In the fourth quarter of 1997, the Company acquired Kentucky Kingdom and its leasehold interest at Marine World. In the first quarter of 1998, the Company expects to acquire an approximate 50% interest in Walibi, and expects to acquire the remaining interest in the second quarter of 1998. On February 9, 1998, the Company entered into an agreement to acquire all of the outstanding capital stock of SFEC. DESCRIPTION OF PARKS PREMIER PARKS ADVENTURE WORLD Adventure World is a combination theme and water park located in Largo, Maryland, approximately 15 miles east of Washington, D.C. and 30 miles southwest of Baltimore, Maryland. The park's primary market includes Maryland, northern Virginia, Washington, D.C. and parts of Pennsylvania and Delaware. This market provides the park with a permanent resident population base of approximately 6.6 million people within 50 miles and 10.9 million people within 100 miles. The Washington, D.C. and Baltimore markets are the number 7 and number 23 DMAs in the United States, respectively. Based upon in-park surveys, approximately 87% of the visitors to Adventure World in 1997 resided within a 50-mile radius of the park, and 92% resided within a 100-mile radius. The Company owns a site of 515 acres, with 115 acres currently used for park operations. The remaining 400 acres, which are fully zoned for entertainment and recreational uses, provide the Company with ample expansion opportunity, as well as the potential to develop complementary operations, such as an amphitheater. 65 Adventure World's principal competitors are King's Dominion Park, located in Doswell, Virginia (near Richmond); Hershey Park, located in Hershey, Pennsylvania; and Busch Gardens, located in Williamsburg, Virginia. These parks are located approximately 120, 125 and 175 miles, respectively, from Adventure World. DARIEN LAKE & CAMPING RESORT Darien Lake, a combination theme and water park, is the largest theme park in the State of New York and the 38th largest theme park in the United States based on 1997 attendance of 1.4 million. Darien Lake is located off Interstate 90 in Darien Center, New York, approximately 30, 40 and 120 miles from Buffalo, Rochester and Syracuse, New York, respectively. The park's primary market includes upstate New York, western and northern Pennsylvania and southern Ontario, Canada. This market provides the park with a permanent resident population base of approximately 2.1 million people within 50 miles of the park and 3.1 million with 100 miles. The Buffalo, Rochester and Syracuse markets are the number 40, number 75 and number 72 DMAs in the United States, respectively. Based upon in-park surveys, approximately 62% of the visitors to Darien Lake in 1997 resided within a 50-mile radius of the park, and 79% resided within a 100-mile radius. The Darien Lake property consists of approximately 1,000 acres, including 144 acres for the theme park, 242 acres of campgrounds and 593 acres of agricultural, undeveloped and water areas. Darien Lake also has a 20,000 seat amphitheater. Following the 1995 season, the Company entered into a long-term arrangement with a national concert promoter to realize the cash flow potential of the amphitheater. As a result, since it acquired the park, the Company has realized substantial increases in revenues earned from concerts held at the facility. Adjacent to the Darien Lake theme park is a camping resort owned and operated by the Company with 1,180 developed campsites, including 330 recreational vehicles (RV's) available for daily and weekly rental. In addition, there are 500 other campsites available for tenting. Darien Lake is one of the few theme parks in the United States which offers a first class campground adjacent to the park. The campground is the fifth largest in the United States. In 1997, approximately 310,000 people used the Darien Lake campgrounds. The Company believes that substantially all of the camping visitors use the theme park. The Company is constructing an economy motel at the site for the 1998 season to supplement the campgrounds. Darien Lake's principal competitor is Wonderland Park located in Toronto, Canada, approximately 125 miles from Darien Lake. In addition, Darien Lake competes to a lesser degree with three smaller amusement parks located within 50 miles of the park. Darien Lake is significantly larger with a more diverse complement of entertainment than any of these three smaller facilities. ELITCH GARDENS Elitch Gardens is a combination theme and water park located on approximately 60 acres in the downtown area of Denver, Colorado, next to Mile High Stadium and McNichols Arena, and close to Coors Field. Based on 1997 attendance of 1.5 million, Elitch Gardens is the 37th largest theme park in the United States. The park's primary market includes the greater Denver area, as well as most of central Colorado. This market provides the park with a permanent resident population base of approximately 2.4 million people within 50 miles of the park and approximately 3.3 million people within 100 miles. The Denver area is the number 18 DMA in the United States. Based upon in-park surveys, approximately 54% of the visitors to Elitch Gardens in 1997 resided within a 50-mile radius of the park, and 78% resided within a 100-mile radius. A park in Denver under the name of "Elitch Gardens" has been in continuous operation for over 100 years. During 1994 and 1995, the park was relocated from its smaller location on the north side of Denver to its current location in downtown Denver. The park was constructed at a cost of $100.0 million (including land and equipment, as well as extensive infrastructure). The park was reopened in 1995. Management 66 believes that the park, as constructed, did not have sufficient marketable rides and attractions to achieve its attendance potential. In addition, prior to its acquisition in 1996, the park lacked theming and landscaping, as well as creative marketing. Elitch Gardens has no significant direct competitors. FRONTIER CITY Frontier City is a western theme park located along Interstate 35 in northeast Oklahoma City, Oklahoma, approximately 100 miles from Tulsa. The park's market includes nearly all of Oklahoma and certain parts of Texas and Kansas, with its primary market in Oklahoma City and Tulsa. This market provides the park with a permanent resident population base of approximately 1.2 million people within 50 miles of the park and 2.1 million people within 100 miles. The Oklahoma City and Tulsa markets are the number 43 and number 58 DMAs in the United States, respectively. Based upon in-park surveys, approximately 63% of the visitors to Frontier City in 1997 resided within a 50-mile radius of the park, and 69% resided within a 100-mile radius. The Company owns a site of approximately 90 acres, with 60 acres currently used for park operations. The remaining 30 acres provide the Company with the potential to develop complementary operations, such as campgrounds or an amphitheater. Frontier City's only significant competitor is Six Flags Over Texas, the Company's park located in Arlington, Texas, approximately 225 miles from Frontier City. GEAUGA LAKE Geauga Lake is a combination theme and water park, and is the 40th largest theme park in the United States based on 1997 attendance of 1.3 million. Geauga Lake is located in Aurora, Ohio, 20 miles southeast of Cleveland and approximately 30, 60 and 120 miles, respectively, from Akron and Youngstown, Ohio and Pittsburgh, Pennsylvania. This market provides the park with a permanent resident population base of approximately 4.0 million people within 50 miles of the park and 7.4 million within 100 miles. The Cleveland/Akron, Youngstown and Pittsburgh markets are the number 13, number 97 and number 19 DMAs in the United States, respectively. Based upon in-park surveys, approximately 44% of the visitors to Geauga Lake in 1997 resided within a 50-mile radius of the park, and 76% resided within a 100-mile radius. The 257-acre property on which Geauga Lake is situated includes a 55-acre spring-fed lake. The theme park itself presently occupies approximately 116 acres. There are approximately 87 acres of undeveloped land (of which approximately 30 acres have the potential for further development). Geauga Lake's principal competitors are Cedar Point in Sandusky, Ohio and Kennywood in Pittsburgh, Pennsylvania. These parks are located approximately 90 miles and 120 miles, respectively, from Geauga Lake. There are also three small water parks within a 50-mile radius of Geauga Lake, and Sea World, a marine park, is located on the other side of Geauga Lake. While Sea World does, to some extent, compete with Geauga Lake, it is a complementary attraction, and many patrons visit both facilities. In that regard, the Company and Sea World conduct joint marketing programs in outer market areas, involving joint television advertising of combination passes. In addition, combination tickets are sold at each park. THE GREAT ESCAPE The Great Escape, which opened in 1954, is a combination theme and water park located off Interstate 87 in the Lake George resort area, 180 miles north of New York City and 40 miles north of Albany. The park's primary market includes the Lake George tourist population and the upstate New York and western New England resident population. Official statistics indicate that the area had a visitor population of over 7.5 million people in 1995, of which over 3.5 million were overnight visitors, with an average length of stay of 4.3 days. This market provides the park with a permanent resident population base of approximately 800,000 people within 50 miles of the park and 3.3 million people within 100 miles. 67 The Albany market is the number 52 DMA in the United States. Based upon in-park surveys, approximately 41% of the visitors to The Great Escape in 1997 resided within a 50-mile radius of the park, and 69% resided within a 100-mile radius. The Great Escape is located on a site of approximately 335 acres, with 100 acres currently used for park operations. Approximately 30 of the undeveloped acres are suitable for park expansion. The Great Escape's only significant direct competitor is Riverside Park, the Company's park located in Springfield, Massachusetts, approximately 150 miles from The Great Escape. In addition, there is a smaller water park located in Lake George. KENTUCKY KINGDOM Kentucky Kingdom is a combination theme and water park, located on approximately 58 acres on and adjacent to the grounds of the Kentucky State Fair in Louisville, Kentucky, of which approximately 38 acres are leased under ground leases with terms (including renewal options) expiring in 2049, with the balance owned by the Company. Based on 1997 attendance of 1.1 million, Kentucky Kingdom was the 47th largest theme park in the United States. The park's primary market includes Louisville and Lexington, Kentucky, Evansville and Indianapolis, Indiana and Nashville, Tennessee. This market provides the park with a permanent resident population of approximately 1.4 million people within 50 miles and 4.6 million people within 100 miles. The Louisville and Lexington markets are the number 50 and number 67 DMAs in the United States. The Company believes that, although Kentucky Kingdom is outfitted with a large number of rides and has a solid attendance base, the park has suffered from limited available funds for investment and a lack of revenue outlets. Premier intends to spend approximately $10 million prior to the 1998 season to add two major new attractions and to upgrade the quality and quantity of the merchandise outlets and restaurants. The Company also intends to implement more professional and creative marketing, sales and promotional programs. Kentucky Kingdom's only significant direct competitor is Paramount's Kings Island and The Beach, located in Cincinnati, Ohio, approximately 100 miles from the park. MARINE WORLD Marine World, a theme park which has historically featured primarily marine mammals and exotic land animals, is the 47th largest theme park in the United States, based on 1997 attendance of 1.1 million. Marine World is located in Vallejo, California, approximately 32 miles from San Francisco, 22 miles from Oakland and 57 miles from Sacramento. This market provides the park with a permanent resident population base of approximately 5.4 million people within 50 miles and 10.0 million people within 100 miles. The San Francisco/Oakland and Sacramento areas are the number 5 and number 20 DMAs in the United States, respectively. Based upon in-park surveys, approximately 50% of the visitors to Marine World in 1997 resided within a 50-mile radius of the park, and 78% resided within a 100-mile radius. The Company manages the operations of Marine World pursuant to a management agreement entered into in February 1997, pursuant to which the Company is entitled to receive an annual base management fee of $250,000 and up to $250,000 annually in additional fees based on park performance. In addition, in November 1997 the Company exercised at no additional cost an option to lease approximately 40 acres of land at the site on a long-term basis and at nominal rent, entitling the Company to receive, in addition to the management fee, 80% of the cash flow generated by the park after operating expenses and debt service. Finally, the Company has the option to purchase the entire park beginning in February 2002, which it currently expects to exercise at that time. Marine World currently consists of 105 acres comprised of various presentation stadiums, animal habitats, visitor walkways, parking, concession and picnic areas, bordering a 55-acre man-made lake. The park provides for the shelter and care of over 50 marine mammals, 600 land animals, over 70 sharks and rays, birds and reptiles, over 2,600 tropical and cold water fish and marine invertebrates, and 500 butterflies, all featured in a variety of exhibits and participatory attractions. 68 Marine World's principal competitors are Underwater World at Pier 39 in San Francisco, Great America in Santa Clara and Outer Bay at Monterey Bay Aquarium. These parks are located approximately, 30, 60 and 130 miles from Marine World, respectively. In addition, plans for Hecker Pass, a new theme park in Gilroy, California (approximately 100 miles from Marine World) are under development. If developed, the Company believes that the park would not be operational for at least two years. Since taking over the management of Marine World in April 1997, the Company has stabilized the park's performance by reducing operating expenses, shortening the operating season, and beginning to expand the park's entertainment component by adding a themed children's area with children's rides called "Popeye's Seaport" and the DinoSphere TurboRide, a ride simulation theatre. The Company expects to invest between $35-$40 million at Marine World for the 1998 season to add fourteen new rides, including a boomerang steel roller coaster, a river rapids ride and a shoot-the-chute giant splash ride. RIVERSIDE PARK Riverside Park is a combination theme park and motor speedway, located off Interstate 91 near Springfield, Massachusetts, approximately 95 miles west of Boston. Riverside Park's primary market includes Springfield and western Massachusetts, and Hartford and western Connecticut, as well as portions of eastern Massachusetts (including Boston) and eastern New York. Based on 1997 attendance of over 1.2 million, Riverside Park is the 43rd largest theme park in the United States. This market provides the park with a permanent resident population base of approximately 3.1 million people within 50 miles and 14.7 million people within 100 miles. Based upon in-park surveys, approximately 63% of the visitors to Riverside Park in 1997 resided within a 50-mile radius of the park, and 95% resided within a 100-mile radius. Springfield, Hartford/New Haven and Boston are the number 103, number 27 and number 6 DMAs in the United States. Riverside Park is comprised of approximately 160 acres, with 118 acres currently used for park operations, 12 acres for a picnic grove and approximately 30 undeveloped acres. Riverside Park's Speedway is a multi-use stadium which includes a one-quarter mile NASCAR-sanctioned short track for automobile racing which can seat 6,200 for speedway events and 15,000 festival style for concerts. Riverside Park's most significant competitor is Lake Compounce located in Bristol, Connecticut, approximately 50 miles from Riverside Park. Lake Compounce had not been in regular full-service operation for several years. However, the prior owner of the park entered into a joint venture relationship in 1996 with an established park operator, and the park has received a substantial investment of private and public funds and did operate in the 1997 season. To a lesser extent, Riverside Park competes with The Great Escape, the Company's park located in Lake George, New York, approximately 150 miles from Riverside Park. WATERWORLD PARKS The Waterworld Parks consist of two water parks (Waterworld USA/Concord and Waterworld USA/ Sacramento) and one family entertainment center (Paradise Island). Waterworld USA/Concord is located in Concord, California, in the East Bay area of San Francisco. The park's primary market includes nearly all of the San Francisco Bay area. This market provides the park with a permanent resident population base of approximately 6.8 million people within 50 miles of the park and 10.0 million people within 100 miles. The San Francisco Bay market is the number 5 DMA in the United States. Based upon in-park surveys, approximately 94% of the visitors in 1997 resided within a 50-mile radius of the park, and 97% resided within a 100-mile radius. Waterworld USA/Sacramento is located on the grounds of the California State Fair in Sacramento, California. Also located on the fair grounds is Paradise Island, the Company's family entertainment center. The facilities' primary market includes Sacramento and the immediate surrounding area. This market provides the park with a permanent resident population base of approximately 2.7 million people within 50 69 miles of the park and 9.7 million people within 100 miles. The Sacramento market is the number 20 DMA in the United States. Based upon in-park surveys, approximately 80% of the visitors in 1997 resided within a 50-mile radius of the park, and 96% resided within a 100-mile radius. Both facilities are leased under long-term ground leases. The Concord site includes approximately 29 acres, with 24 acres currently used for park operations. The Sacramento facility is located on approximately 20 acres, all of which is used for the park and the family entertainment center. Concord's only significant direct competitor is Raging Waters located in San Jose, approximately 100 miles from that facility. Sacramento's only significant competitor is Sunsplash located in northeast Sacramento, approximately 40 miles from that facility. WHITE WATER BAY White Water Bay is a tropical themed water park situated on 22 acres located along Interstate 40 in southwest Oklahoma City, Oklahoma. The park is the 15th largest water park in the United States based on 1997 attendance of approximately 316,000. The park's primary market includes the greater Oklahoma City metropolitan area. Oklahoma City is the number 43 DMA in the United States. This market provides the park with a permanent resident population base of approximately 1.2 million people within 50 miles of the park and 2.1 million people within 100 miles. Based upon in-park surveys, approximately 80% of the visitors to White Water Bay in 1997 resided within a 50-mile radius of the park, and 87% resided within a 100-mile radius. White Water Bay has no direct competitors. WYANDOT LAKE Wyandot Lake, a water park that also offers "dry" rides, is located just outside of Columbus, Ohio, adjacent to the Columbus Zoo on property sub-leased from the Columbus Zoo. The park's primary market includes the Columbus metropolitan area and other central Ohio towns. This market provides the park with a permanent resident population base of approximately 2.0 million people within 50 miles of the park and approximately 6.4 million people within 100 miles. The Columbus market is the number 34 DMA in the United States. Based on in-park surveys, approximately 85% of the visitors to Wyandot Lake in 1997 resided within a 50-mile radius of the park, and 93% resided within a 100-mile radius. The Company leases from the Columbus Zoo the land, the buildings and several rides which existed on the property at the time the lease was entered into in 1983. The current lease expires in 1998, but the Company expects to exercise the first of its two five-year renewal options. The land leased by Wyandot Lake consists of approximately 18 acres. The park shares parking facilities with the Columbus Zoo. Wyandot Lake's direct competitors are Paramount's Kings Island and The Beach, each located in Cincinnati, Ohio, and Cedar Point, located in Sandusky, Ohio. Each of these parks is located approximately 100 miles from Wyandot Lake. Although the Columbus Zoo is located adjacent to the park, it is a complementary attraction, with many patrons visiting both facilities. WALIBI PARKS In March 1998, Premier is scheduled to acquire approximately 50% of the shares of capital stock of Walibi (on a fully diluted basis) in the Private Acquisition. Thereafter, the Company will commence the Walibi Tender Offer for the balance of the Walibi shares, pursuant to which the Company expects to acquire all or substantially all of such shares. Walibi, a Belgian corporation whose capital stock is traded on the Official Market of the Brussels Stock Exchange, owns six theme parks, two located in Belgium, one in The Netherlands and three in France, as well as two smaller attractions in Brussels. Walibi's operations had combined 1997 attendance of approximately 3.5 million. The Walibi Parks consist of six theme parks and two small attractions throughout Europe, including: Bellewaerde, Mini-Europe and Oceade, Walibi Aquitaine, Walibi Flevo, Walibi Rhone-Alpes, Walibi Schtroumpf and Walibi Wavre and Aqualibi. The Walibi Parks' primary markets include Belgium, The 70 Netherlands, southwestern France, eastern France and northern France. These markets provide the Walibi Parks with a permanent resident population of 23.0 million people within 50 miles and 54.5 million people within 100 miles. The Walibi Parks' most significant competitors are Disneyland Paris, located in France, Meli Park and Bobbeejaanland, each located in Belgium, de Efteling, located in The Netherlands, and Parc Asterix, located in France. SIX FLAGS PARKS In February 1998, Premier entered into the Six Flags Agreement to acquire all of the capital stock of SFEC from the Sellers. See "Description of Six Flags Agreement." Six Flags operates 12 "Six Flags" branded theme parks in eight locations in the United States, consisting of eight major regional theme parks, as well as three separately gated water parks and one wildlife safari park (each located near one of the theme parks). The closing of the Six Flags Acquisition will occur concurrently with the closing of the Offering. SIX FLAGS ASTROWORLD AND SIX FLAGS WATERWORLD Six Flags AstroWorld, the 28th largest theme park in the United States with 1997 attendance of 2.0 million, and the separately gated adjacent Six Flags WaterWorld, with 1997 attendance of 283,000, are located in Houston, Texas on the grounds of an entertainment and sports complex that includes the Houston Astrodome. The Houston, Texas market provides the parks with a permanent resident population of 4.3 million people within 50 miles and 5.2 million people within 100 miles. The Houston market is the number 11 DMA in the United States. Based upon in-park surveys, approximately 68% of the visitors to the parks in 1997 resided within a 50-mile radius of the park, and 73% resided within a 100-mile radius. The Company owns a site of approximately 90 acres used for the theme park, and approximately 14 acres used for the water park. Six Flags AstroWorld indirectly competes with Sea World of Texas and the Company's Six Flags Fiesta Texas, both located in San Antonio, Texas, approximately 200 miles from the park. Six Flags WaterWorld competes with Splashtown and Water Works, two nearby water parks. SIX FLAGS FIESTA TEXAS Six Flags Fiesta Texas (the "Fiesta Park"), the 33rd largest theme park in the United States with 1997 attendance of 1.6 million, is located on approximately 206 acres of land in San Antonio, Texas. The San Antonio, Texas market provides the park with a permanent resident population of 1.7 million people within 50 miles and 3.0 million people within 100 miles. The San Antonio market is the number 38 DMA in the United States. Based upon in-park surveys, approximately 43% of the visitors to the parks in 1997 resided within a 50-mile radius of the park, and 55% resided within a 100-mile radius. Six Flags Fiesta Texas' principal competitor is Sea World of Texas located in San Antonio. In addition, the park competes to a lesser degree with Six Flags Astro-World, the Company's park located in Houston, Texas, approximately 200 miles from the park. PARTNERSHIP STRUCTURE. Six Flags took over management of the park in 1996. The park is operated by San Antonio Theme Park, L.P., a limited partnership (the "Fiesta Partnership"). Partners in the Fiesta Partnership include (i) Six Flags San Antonio, L.P. (a limited partnership between two wholly-owned subsidiaries of SFTP) as a 59% general partner (the "Six Flags GP"), (ii) San Antonio Park GP, LLC (a Delaware limited liability company managed and partially owned by the Sellers in which SFTP holds a 99% equity interest) as a 1% general partner (the "Sellers GP") and (iii) Fiesta Texas Theme Park, Ltd (a Texas limited partnership indirectly wholly-owned by La Cantera Development Company) as a 40% limited partner (the "La Cantera LP"). Pursuant to the Six Flags Acquisition the Sellers will transfer to the Company their 1% interest in the Sellers GP. 71 The land and most of the assets of the Fiesta Park are owned by the La Cantera LP. The La Cantera LP leases the park to the Fiesta Partnership (the "Fiesta Lease"). In exchange, the Fiesta Partnership pays the La Cantera LP a nominal annual rent and is required to make certain capital improvements to and cover all operating expenses of the park. The Fiesta Lease has an initial term which extends through the end of fiscal year 2005, but under certain circumstances may be extended until the end of fiscal year 2015. If extended, the Fiesta Lease can be terminated at the end of fiscal year 2010 at the option of either the Fiesta Partnership or the lessor. The Fiesta Partnership has the right to terminate the Fiesta Lease effective at the end of fiscal year 2001 if it has incurred in excess of a specified cumulative operating loss during the 1998 to 2001 fiscal years. As long as the Fiesta Lease continues in effect, the Fiesta Partnership has the option to purchase the tangible and intangible assets of Fiesta Park and to buy-out the La Cantera LP's interest in the Fiesta Partnership during the initial term of the Fiesta Lease, at the end of fiscal year 2010 should the lessor terminate the Fiesta Lease and at the end of fiscal year 2015. In connection with Six Flags' management of Fiesta Park, the Six Flags GP entered into a management agreement with the Fiesta Partnership (the "Fiesta Agreement") under which it will manage and operate Fiesta Park on the Fiesta Partnership's behalf. Under the terms of the Fiesta Agreement, the Fiesta Partnership will pay the Six Flags GP an annual management fee and intellectual property fee. For the 1996 and 1997 fiscal years, the annual management fee payable to the Six Flags GP was 4% of the Fiesta Partnership's Gross Revenues (as defined in the Fiesta Agreement) for such year. Commencing with the 1998 fiscal year, the management fee is 25% of EBITDA (as defined in the Fiesta Agreement). The intellectual property fee payable to the Six Flags GP throughout the term of the Fiesta Agreement will be based on the Fiesta Partnership's Gross Revenues. SIX FLAGS GREAT ADVENTURE AND SIX FLAGS WILD SAFARI ANIMAL PARK Six Flags Great Adventure, the 10th largest theme park in the United States, and the separately gated adjacent Six Flags Wild Safari Animal Park, the 23rd largest theme park in the United States with 1997 combined attendance of 3.7 million, are located in Jackson, New Jersey, approximately 70 miles south of New York City and 50 miles east of Philadelphia. The New York and Philadelphia markets provide the parks with a permanent resident population of 11.5 million people within 50 miles and 25.9 million people within 100 miles. The New York and Philadelphia markets are the number 1 and number 4 DMAs in the United States, respectively. Based upon in-park surveys, approximately 50% of the visitors to the parks in 1997 resided within a 50-mile radius of the park, and 80% resided within a 100-mile radius. The Company owns a site of approximately 1,862 acres, of which approximately 221 acres are currently used for the thrill-ride based theme park operations, and 1,641 acres remain undeveloped. Additionally, the Company owns approximately 355 adjacent acres that are used for the wildlife safari park, home to 55 species of 1,200 exotic animals which can be seen over a four and a half mile drive. Six Flags Great Adventure's principal competitors are Hershey Park, located in Hershey, Pennsylvania, approximately 150 miles from the park; and Dorney Park, located in Allentown, Pennsylvania, approximately 75 miles from the park. SIX FLAGS GREAT AMERICA Six Flags Great America, the 16th largest theme park in the United States with 1997 attendance of 3.0 million, is located in Gurnee, Illinois, between Chicago, Illinois and Milwaukee, Wisconsin. The Chicago and Milwaukee markets provide the park with a permanent resident population of 7.6 million people within 50 miles and 12.5 million people within 100 miles. The Chicago and Milwaukee markets are the number 3 and number 31 DMAs in the United States, respectively. Based upon in-park surveys, approximately 64% of the visitors to the park in 1997 resided within a 50-mile radius of the park, and 80% resided within a 100-mile radius. 72 The Company owns a site of approximately 86 acres used for the theme park operations. Six Flags Great America currently has no direct theme park competitors in the region, but does compete with Paramount's Kings Island, located near Cincinnati, Ohio, approximately 350 miles from the park; Cedar Point, located in Sandusky, Ohio, approximately 340 miles from the park; and Six Flags St. Louis, the Company's park located near St. Louis, Missouri, approximately 320 miles from the park. SIX FLAGS MAGIC MOUNTAIN AND SIX FLAGS HURRICANE HARBOR Six Flags Magic Mountain, the 12th largest theme park in the United States with 1997 attendance of 3.3 million, and the separately gated adjacent Six Flags Hurricane Harbor, the 11th largest water park in the United States with 1997 attendance of 351,000, are located in Valencia, California, in the northwest section of Los Angeles County. The Los Angeles, California market provides the parks with a permanent resident population of 9.4 million people within 50 miles and 15.8 million people within 100 miles. The Los Angeles market is the number 2 DMA in the United States. Based upon in-park surveys, approximately 45% of the visitors to the parks in 1997 resided within a 50-mile radius of the parks, and 64% resided within a 100-mile radius. The Company owns a site of approximately 110 acres used for the theme park, and approximately 11 acres used for the pirate-themed water park. Six Flags Magic Mountain's principal competitors include Disneyland in Anaheim, California, located approximately 60 miles from the park, Universal Studios Hollywood in Universal City, California, located approximately 20 miles from the park, Knott's Berry Farm in Buena Park, California, located approximately 50 miles from the park, and Sea World of California in San Diego, California, located approximately 150 miles from the park. Six Flags Hurricane Harbor has no direct competitors in the area. SIX FLAGS OVER GEORGIA Six Flags Over Georgia, the 20th largest theme park in the United States with 1997 attendance of 2.8 million, is located in Mableton, Georgia, approximately 10 miles outside of Atlanta, Georgia. The Atlanta, Georgia market provides the park with a permanent resident population of 3.8 million people within 50 miles and 6.3 million people within 100 miles. The Atlanta market is the number 10 DMA in the United States. Based upon in-park surveys, approximately 42% of the visitors to the park in 1997 resided within a 50-mile radius of the park, and 58% resided within a 100-mile radius. Six Flags Over Georgia's primary competitors include Paramount's Carowinds in Charlotte, North Carolina, located approximately 250 miles from the park, and Dollywood in Pigeon Forge, Tennessee, located approximately 200 miles from the park. The Georgia Limited Partner (as defined below) owns the site of approximately 283 acres, including approximately 87 acres of undeveloped land, all of which is leased to Six Flags Over Georgia II, L.P. (the "Georgia Co-Venture Partnership"). PARTNERSHIP STRUCTURE. On March 18, 1997, Six Flags completed arrangements pursuant to which Six Flags will manage the Georgia park through 2026. Under the agreements governing these arrangements (the "Georgia Agreements"), the Georgia park is owned (excluding real property) by the Georgia Co-Venture Partnership of which a Six Flags subsidiary is the managing general partner. In the second quarter of 1997, two subsidiaries of Six Flags made a tender offer for partnership interests ("LP Units") in the 99% limited partner of the Georgia Co-Venture Partnership (the "Georgia Limited Partner"), that valued the Georgia park at the greater of $250 million or eight times 1997 EBITDA of the Georgia park (the "Georgia Tender Offer Price"). Six Flags purchased approximately 25% of the LP Units in the 1997 tender offer at an aggregate price of $62.7 million. The key elements of these arrangements are as follows: (i) the Georgia Limited Partner (which is not affiliated with Six Flags) received minimum annual distributions of $18.5 million in 1997, which will increase each year thereafter in proportion to increases in the cost of living; (ii) thereafter, Six Flags will be 73 entitled to receive from available cash (after provision for reasonable reserves and after capital expenditures per annum of approximately 6% of prior year's revenues) a management fee equal to 3% of the prior year's gross revenues, and, thereafter, any additional available cash will be distributed 95% to Six Flags and 5% to the Georgia Limited Partner; (iii) commencing in 1998, and on an annual basis thereafter, Six Flags will offer to purchase additional LP Units at a price based on a valuation for the park equal to the greater of $250.0 million or a value derived by multiplying the weighted average four year EBITDA (as defined therein) of the park by 8.0; (iv) in 2027, Six Flags will have the option to acquire all remaining interests in the Georgia park at a price based on the Georgia Tender Offer Price, increased in proportion to the increase in the cost of living between December 1996 and December 2026, and (v) the Company is required to make minimum capital expenditures at the Georgia park during rolling five-year periods, based generally on 6% of the park's revenues. Cash flow from operations at the Georgia park will be used to satisfy these requirements first, before any funds are required from the Company. In connection with the Subordinated Indemnity Agreement, the Company is transferring to Time Warner (who has guaranteed the Six Flags obligations under these arrangements) record title to the corporations which own certain entities that have purchased and will purchase LP Units, and the Company will receive an assignment from Time Warner of all cash flow received on such LP Units and will otherwise control such entities, except in the event of a default by the Company of its obligations under these arrangements. After all such obligations have been satisfied, Time Warner is required to retransfer to the Company such record title for a nominal consideration. In addition, the Company will issue preferred stock of the managing partner of the Georgia Limited Partner to Time Warner which, in the event of such a default, would permit Time Warner to obtain control of such entity. See "Description of Six Flags Agreement." Six Flags has accounted for the Georgia park as a co-venture and included the revenues and expenses of the Georgia Co-Venture Partnership (excluding partnership depreciation and interest expense associated with limited partnership debt) in Six Flags' consolidated financial statements and deducted as expenses the net amounts distributed to the limited partners. The Company intends to account for its interest in the Georgia park under the equity method of accounting. SIX FLAGS OVER TEXAS AND SIX FLAGS HURRICANE HARBOR Six Flags Over Texas, the 16th largest theme park in the United States with 1997 attendance of 2.9 million, and the separately gated Six Flags Hurricane Harbor, the 7th largest water park in the United States with 1997 attendance of 558,000, are located across Interstate 30 from each other in Arlington, Texas, between Dallas and Fort Worth, Texas. The Dallas/Fort Worth market provides the parks with a permanent resident population of 4.5 million people within 50 miles and 5.6 million people within 100 miles. The Dallas/Fort Worth market is the number 8 DMA in the United States. Based upon in-park surveys, approximately 60% of the visitors to the parks in 1997 resided within a 50-mile radius of the park, and 68% resided within a 100-mile radius. The Texas Limited Partner (as defined below) owns the site of approximately 197 acres used for the theme park, and the Company owns approximately an additional 49 acres, of which approximately 18 acres are currently used for Hurricane Harbor and 22 acres remain undeveloped. Six Flags Over Texas' principal competitors include Sea World of Texas and the Company's Six Flags Fiesta Texas, both located in San Antonio, Texas, approximately 285 miles from the park. Six Flags Hurricane Harbor has no direct competitors in the area. PARTNERSHIP STRUCTURE. Six Flags Over Texas is owned (excluding real property) by Texas Flags, Ltd. (the "Texas Co-Venture Partnership"), a Texas limited partnership of which the 1% general partner is a wholly-owned subsidiary of Six Flags, and the 99% limited partner is Six Flags Fund II, Ltd., a Texas limited partnership (the "Texas Limited Partner") which is unaffiliated with Six Flags. 74 In December 1997, Six Flags completed arrangements pursuant to which it will manage Six Flags Over Texas through 2027. The key elements of the new arrangements are as follows: (i) the Texas Limited Partner will receive minimum annual distributions of $27.7 million in 1998, increasing each year thereafter in proportion to increases in the cost of living; (ii) thereafter, Six Flags will be entitled to receive from available cash (after provision for reasonable reserves and after capital expenditures per annum of approximately 6.0% of prior year's revenues) a management fee equal to 3% of the prior year's gross revenues, and, thereafter, any additional available cash will be distributed 92.5% to Six Flags and 7.5% to the Texas Limited Partner; (iii) in the first quarter of 1998, Six Flags made a tender offer for partnership units ("LP Units") in the Texas Limited Partner that valued the park at the greater of approximately $374.8 million or 8.5 times 1997 EBITDA (as defined herein) of the park (the "Texas Tender Offer Price"); (iv) commencing in 1999, and on an annual basis thereafter, Six Flags will offer to purchase LP Units at a price based on a valuation for the park equal to the greater of $374.8 million or a value derived by multiplying the weighted-average four year EBITDA of the park by 8.5; (v) in 2028 Six Flags and its affiliates will have the option to acquire all remaining interests in the park at a price based on the Texas Tender Offer Price, increased in proportion to the increase in the cost of living between December 1997 and December 2027; and (vi) the Company is required to make minimum capital expenditures at the Texas park during rolling five-year periods, based generally on 6% of such park's revenues. Cash flow from operations at the Texas park will be used to satisfy these requirements first, before any funds are required from the Company. In March 1998, Six Flags completed a tender offer pursuant to which Six Flags purchased approximately 33% of the outstanding LP Units for an aggregate purchase price of $117.3 million. In connection with the Subordinated Indemnity Agreement, the Company is transferring to Time Warner (who has guaranteed the Six Flags obligations under these arrangements) record title to the corporations which own certain entities that have purchased and will purchase LP Units and the Company will receive an assignment from Time Warner of all cash flow received on such LP Units and will otherwise control such entities, except in the event of a default by the Company of its obligations under these arrangements. After all such obligations have been satisfied, Time Warner is required to retransfer to the Company such record title for a nominal consideration. In addition, the Company will issue preferred stock of the managing partner of the Texas Co-Venture Partnership to Time Warner which, in the event of such a default, would permit Time Warner to obtain control of such entity. See "Description of Six Flags Agreement." Six Flags has accounted for the park as a co-venture and included the revenues and expenses of the Texas Co-Venture Partnership (excluding partnership depreciation and interest expense associated with limited partnership debt) in its consolidated financial statements and deducted as expenses the net amounts distributed to the Texas Limited Partner. The Company intends to account for its interest in the Texas park under the equity method of accounting. SIX FLAGS ST. LOUIS Six Flags St. Louis, the 33rd largest theme park in the United States with 1997 attendance of 1.7 million, is located in Eureka, Missouri, about 35 miles west of St. Louis, Missouri. The St. Louis market provides the park with a permanent resident population of 2.6 million people within 50 miles and 3.7 million people within 100 miles. The St. Louis market is the number 21 DMA in the United States. Based upon in-park surveys, approximately 55% of the visitors to the park in 1997 resided within a 50-mile radius of the park, and 65% resided within a 100-mile radius. The Company owns a site of approximately 499 acres used for the theme park operations. Six Flags St. Louis competes with Paramount's Kings Island, located near Cincinnati, Ohio, approximately 350 miles from the park; Cedar Point, located in Sandusky, Ohio, approximately 515 miles from the park; Silver Dollar City, located in Branson, Missouri, approximately 250 miles from the park; and Six Flags Great America, the Company's park located near Chicago, Illinois, approximately 320 miles from the park. 75 MARKETING AND PROMOTION The Company attracts visitors through national and local multi-media marketing and promotional programs for each of its parks. The national programs are designed to market and enhance the Six Flags brand name. Local programs are tailored to address the different characteristics of their respective markets and to maximize the impact of specific park attractions and product introductions. All marketing and promotional programs are updated or completely revamped each year to address new developments. Marketing programs are supervised by the Company's Vice President for Marketing, with the assistance of the Company's senior management and its national advertising agency. The Company also develops partnership relationships with well-known national and regional consumer goods companies and retailers to supplement its advertising efforts and to provide attendance incentives in the form of discounts and/or premiums. The Company has also arranged for popular local radio and television programs to be filmed or broadcast live from its parks. Group sales and pre-sold tickets provide the Company with a consistent and stable base of attendance, representing approximately 35.7% of aggregate attendance in 1997 at the eleven parks owned by Premier during that season. Each park has a group sales and pre-sold ticket manager and a well-trained sales staff dedicated to selling multiple group sales and pre-sold ticket programs through a variety of methods, including direct mail, telemarketing and personal sales calls. Historically, Premier has been successful in increasing group sales and pre-sold tickets at its existing and acquired parks. The Company has also developed effective programs for marketing season pass tickets. Season pass sales establish a solid attendance base in advance of the season, thus reducing exposure to inclement weather. Additionally, season pass holders often bring paying guests and generate "word-of-mouth" advertising for the parks. The increased in-park spending which results from season passes is not offset by incremental operating expenses, since such expenses are relatively fixed during the operating season. During 1997, 20.6% of visitors to the eleven parks then owned by the Company utilized season passes. A significant portion of the Company's attendance is attributable to the sale of discount admission tickets. The Company offers discounts on season and multi-visit tickets, tickets for specific dates and tickets to affiliated groups such as businesses, schools and religious, fraternal and similar organizations. The increased in-park spending which results from such attendance is not offset by incremental operating expenses, because such expenses are relatively fixed during the operating season. In 1997, approximately 72% of patrons at the 11 parks then owned by the Company were admitted at a discount rate and, for the year ended December 31, 1997, approximately 44.7% of the Company's revenue was attributable to in-park spending. The Company also implements promotional programs as a means of targeting specific market segments and geographic locations not reached through its group or retail sales efforts. The promotional programs utilize coupons, sweepstakes, reward incentives and rebates to attract additional visitors. These programs are implemented through direct mail, telemarketing, direct response media, sponsorship marketing and targeted multi-media programs. The special promotional offers are usually for a limited time and offer a reduced admission price or provide some additional incentive to purchase a ticket, such as combination tickets with a complementary location. LICENSES Pursuant to the License Agreement among Warner Bros., DC Comics, the Company and SFTP, the Company has the exclusive right for a term through 2053 to use Warner Bros. and DC Comics characters in theme parks throughout the United States and Canada (other than the Las Vegas metropolitan area). In particular, the License Agreement entitles the Company to use, subject to customary approval rights of Warner Bros., and in limited circumstances, approval rights of certain third parties, all animated cartoon and comic book characters that Warner Bros. and DC Comics have the right to license, including as of the 76 date hereof, BATMAN, SUPERMAN, BUGS BUNNY, DAFFY DUCK, TWEETY BIRD and YOSEMITE SAM, and will include the right to sell merchandise using the characters. The license fee is fixed until 2005, and thereafter, the license fee will be subject to periodic scheduled increases and will be payable on a per-theme park basis. In addition, the Company will be required to pay a royalty fee on merchandise sold that uses the licensed characters. Six Flags is also a party to certain additional license agreements with Warner Bros. and Time Warner concerning, among others, HBO BACKLOT COMMISSARY and SPORTS ILLUSTRATED FESTIVAL. Warner Bros. has the right to terminate the License Agreement under certain circumstances, including if any persons involved in the movie or television industries obtain control of the Company and upon a default under the Subordinated Indemnity Agreement. Premier also licenses on a non-exclusive basis certain other characters, including POPEYE, for use at certain Premier Parks. PARK OPERATIONS The Company currently operates in geographically diverse markets in the United States and Europe. Each of the Company's parks is operated to the extent practicable as a separate operating division of the Company in order to maximize local marketing opportunities and to provide flexibility in meeting local needs. Each park is managed by a general manager who reports to one of the Company's regional executives (each of whom report to its Chief Operating Officer) and is responsible for all operations and management of the individual park. Local advertising, ticket sales, community relations and hiring and training of personnel are the responsibility of individual park management in coordination with corporate support teams. Each of the Company's parks is managed by a full-time, on-site management team under the direction of the general manager. Each such management team includes senior personnel responsible for operations and maintenance, marketing and promotion, human resources and merchandising. Park management compensation structures are designed to provide incentives (including stock options and cash bonuses) for individual park managers to execute the Company's strategy and to maximize revenues and operating cash flow at each park. The Company's ten general managers (before the Six Flags Acquisition) have an aggregate of approximately 210 years experience in the industry, including approximately 85 years at parks owned or operated by Premier. The Company's parks are generally open daily from Memorial Day through Labor Day. In addition, most of the Company's parks are open during weekends prior to and following their daily seasons, primarily as a site for theme events (such as Hallowscream, Fright Fest-Registered Trademark-, Oktoberfest and Holiday in the Park-Registered Trademark-). Due to their location, certain Six Flags Parks have longer operation seasons. Typically, the parks charge a basic daily admission price, which allows unlimited use of all rides and attractions, although in certain cases special rides and attractions require the payment of an additional fee. The Company's family entertainment centers are open year-round and do not charge an admission price. CAPITAL IMPROVEMENTS The Company regularly makes capital investments in the development and implementation of new rides and attractions at its parks. The Company purchases both new and used rides. In addition, the Company rotates rides among its parks to provide fresh attractions. The Company believes that the introduction of new rides is an important factor in promoting each of the parks in order to achieve market penetration and encourage longer visits, which lead to increased attendance and in-park spending. In addition, the Company generally adds theming to acquired parks and enhances the theming and landscaping of its existing parks in order to provide a complete family oriented entertainment experience. Capital expenditures are planned on a seasonal basis with most expenditures made during the off-season. Expenditures for materials and services associated with maintaining assets, such as painting and inspecting rides are expensed as incurred and therefore are not included in capital expenditures. 77 The Company's level of capital expenditures are directly related to the optimum mix of rides and attractions given park attendance and market penetration. These targeted expenditures are intended to drive significant attendance growth at the parks and to provide an appropriate complement of entertainment value, depending on the size of a particular market. As an individual park begins to reach an appropriate attendance penetration for its market, management generally plans a new ride or attraction every three to four years in order to enhance the park's entertainment product. MAINTENANCE AND INSPECTION The Company's rides are inspected daily by maintenance personnel during the operating season. These inspections include safety checks, as well as regular maintenance and are made through both visual inspection of the ride and test operation. Senior management of the Company and the individual parks evaluate the risk aspects of each park's operation. Potential risks to employees and staff as well as to the public are evaluated. Contingency plans for potential emergency situations have been developed for each facility. During the off-season, maintenance personnel examine the rides and repair, refurbish and rebuild them where necessary. This process includes x-raying and magnafluxing (a further examination for minute cracks and defects) steel portions of certain rides at high-stress points. The Company has approximately 900 full-time employees who devote substantially all of their time to maintaining the parks and their rides and attractions. In addition to the Company's maintenance and inspection procedures, the Company's liability insurance carrier performs an annual inspection of each park and all attractions and related maintenance procedures. The result of insurance inspections are written evaluation and inspection reports, as well as written suggestions on various aspects of park operations. State inspectors also conduct annual ride inspections before the beginning of each season. Other portions of each park are also subject to inspections by local fire marshals and health and building department officials. Furthermore, the Company uses Ellis & Associates as water safety consultants at its parks in order to train life guards and audit safety procedures. EMPLOYEES The Company employs approximately 2,800 full-time employees and approximately 35,000 seasonal employees during the operating season. In this regard, the Company competes with other local employers for qualified student and other candidates on a season-by-season basis. As part of the seasonal employment program, the Company employs a significant number of teenagers, which subjects the Company to child labor laws. The Company is not subject to federal or certain applicable state minimum wage rates in respect of its seasonal employees. However, the recent increase in the federal or any applicable state minimum wage rate could result over time in increased compensation expense for the Company as it relates to these employees as a result of competitive factors. Approximately 14.8% of the Company's full-time and approximately 15.3% of its seasonal employees are subject to labor agreements with local chapters of national unions. These labor agreements expire in January 2000 (Six Flags Over Texas), December 2000 (Six Flags Over Georgia), December 1999 (Six Flags Great Adventure), January 2000 (Six Flags St. Louis) and January 2000 (Marine World). The Company has never experienced any work stoppages, and believes that it has a strong relationship with its employees and unions. INSURANCE The Company maintains insurance of the type and in amounts that it believes are commercially reasonable and that are available to businesses in its industry. Premier Operations maintains multi-layered general liability policies that provide for excess liability coverage of up to $25.0 million per occurrence. By virtue of self-insured retention limits, Premier Operations is required to pay the first $50,000 of loss per 78 occurrence. Six Flags maintains multi-layered general liability policies that provide for excess liability coverage of up to $175.0 million per occurrence. By virtue of self-insured retention limits ($500,000 per occurrence) and first dollar coverage by a captive insurance company, Six Flags or its wholly-owned insurance company subsidiary is required to pay the first $2 million of loss per occurrence. Premier may alter the insurance coverage of Six Flags following the Six Flags Acquisition. Premier's combined cost for liability insurance and for self-insured claims for 1997 was $0.9 million compared to $0.8 million in 1996 and $0.6 million in 1995. For the same three years Six Flags liability costs and claims were $13.8 million, $15.9 million and $15.8 million, respectively. The Company also maintains fire and extended coverage, workers' compensation, business interruption and other forms of insurance typical to businesses in its industry. The fire and extended coverage policies insure the Company's real and personal properties (other than land) against physical damage resulting from a variety of hazards. ENVIRONMENTAL AND OTHER REGULATION The Company's operations are subject to increasingly stringent federal, state and local environmental laws and regulations including laws and regulations governing water discharges, air emissions, soil and groundwater contamination, the maintenance of underground and above-ground storage tanks and the disposal of waste and hazardous materials. In addition, its operations are subject to other local, state and federal governmental regulations including, without limitation, labor, health, safety, zoning and land use and minimum wage regulations applicable to theme park operations, and local and state regulations applicable to restaurant operations at the park. The Company believes that it is in substantial compliance with applicable environmental and other laws and regulations and, although no assurance can be given, it does not foresee the need for any significant expenditures in this area in the near future. Remediation of certain hazardous substances or petroleum products are underway at the Company's Six Flags Great Adventure Park. The Company does not anticipate that any environmental remediation matters, either individually or in the aggregate, will have a material adverse effect on its financial condition or results of operation. In addition, portions of the undeveloped areas at its parks may be classified as wetlands. Accordingly, the Company may need to obtain governmental permits and other approvals prior to conducting development activities that affect these areas, and future development may be prohibited in some or all of these areas. LEGAL PROCEEDINGS The nature of the industry in which the Company operates tends to expose it to claims by visitors for injuries. Historically, the great majority of these claims have been minor. While the Company believes that it is adequately insured against the claims currently pending against it and any potential liability, if the number of such events resulting in liability significantly increased, or if the Company becomes subject to damages that cannot by law be insured against, such as punitive damages, there may be a material adverse effect on its operations. On March 19, 1997, SFTP, and its wholly-owned subsidiary Six Flags Over Georgia, Inc. (collectively, the "Six Flags Parties") commenced a declaratory judgment action in the Superior Court of Gwinnett County, Georgia, entitled SIX FLAGS OVER GEORGIA, INC. AND SIX FLAGS THEME PARKS, INC. V. SIX FLAGS FUND, LTD. AND AVRAM SALKIN, AS TRUSTEE OF THE CLAIMS TRUST (the "Georgia Litigation"). The Six Flags Parties sought, among other things, a declaration and determination of the rights and obligations of the partners of Six Flags Over Georgia, L.P., with respect to certain disputed partnership affairs and an accounting of all partnership affairs. On April 21, 1997, defendants Six Flags Fund, Ltd. and its affiliates (collectively, the "SFOG Fund Parties") filed a motion to dismiss the declaratory judgment action as well as an answer and counterclaim naming SFEC and Time Warner Entertainment Company, L.P. as additional counterclaim- defendants. The counterclaim seeks imposition of a constructive trust and an accounting, compensatory 79 damages of in excess of $250 million and unspecified punitive damages for alleged breaches of fiduciary duty, conversion, fraud and conspiracy allegedly committed by the counterclaim-defendants in connection with the management of Six Flags Over Georgia. On June 9, 1997, the parties entered into a consent order in which they agreed, among other things, to realign the parties. An amended complaint was then filed by the SFOG Fund Parties as the newly-aligned plaintiffs against the Six Flags Parties in which the same substantive claims were asserted. The Six Flags Parties filed their answer denying liability and asserting several affirmative defenses on July 24, 1997. The Six Flags Parties intend to vigorously contest the allegations of the complaint. The Sellers have agreed to indemnify the Company from any and all liabilities arising out of the Georgia Litigation. See "Description of Six Flags Agreement--Indemnification." 80 MANAGEMENT DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES The following table sets forth certain information with respect to the directors, executive officers and key employees of the Company or its subsidiaries. NAME AGE POSITION WITH COMPANY - --------------------------------- --------- ------------------------------------------------------------------------ Kieran E. Burke.................. 40 Chairman and Chief Executive Officer; Director Gary Story....................... 42 President and Chief Operating Officer; Director James F. Dannhauser.............. 45 Chief Financial Officer; Director Hue W. Eichelberger.............. 39 Executive Vice President Dan Aylward...................... 45 Vice President, General Manager, Marine World Jack D. Bateman.................. 40 Vice President, General Manager, Kentucky Kingdom Timothy D. Black................. 32 Vice President, General Manager, Wyandot Lake James C. Bouy.................... 56 Vice President, General Manager, Elitch Gardens John S. Collins.................. 38 Vice President, General Manager, The Great Escape Jeffrey A. Lococo................ 42 Vice President, General Manager, Geauga Lake Richard A. McCurley.............. 38 Vice President, General Manager, Waterworld Bill Muirhead.................... 42 Vice President, General Manager, Riverside Park Bradley Y. Paul.................. 50 Vice President, General Manager, Darien Lake Manuel Gonzalez-Perez............ 36 Vice President, General Manager, Frontier City Traci E. Blanks.................. 37 Vice President of Marketing David Thomas..................... 40 Vice President of Entertainment Richard A. Kipf.................. 63 Vice President of Administration, Corporate Secretary John Gannon...................... 40 Vice President of Finance Russell Kuteman.................. 45 Vice President of Finance Paul A. Biddelman................ 52 Director Michael E. Gellert............... 66 Director Jack Tyrrell..................... 51 Director Sandy Gurtler.................... 48 Director Charles R. Wood.................. 83 Director KIERAN E. BURKE has served as Chief Executive Officer and a Director of the Company since October 1989 and Chairman of the Board since June 1994. From 1989 through June 1994, he was President of Premier. Mr. Burke also serves as a director of Blue Ridge Real Estate Company and Big Boulder Corporation. Mr. Burke was an investment banker prior to becoming President of Premier. Mr. Burke is a member of the board of directors of the International Association of Amusement Parks & Attractions ("IAAPA"). GARY STORY has served as President and a Director of the Company since June 1994 and as Chief Operating Officer since January 1992. From January 1992 through June 1994, he also served as Premier's Executive Vice President. Prior to that time, he had been General Manager of Frontier City for more than five years. From 1983 through 1984, Mr. Story served as General Manager of Luna Park, an amusement park in Sydney, Australia, during its redevelopment as a theme park and from 1981 through 1983 he served as General Manager of Diversiones del Reino, an amusement park in Mexico City. From 1972 through 1981, Mr. Story served in various capacities with Six Flags. Mr. Story is a former member of the board of directors of IAAPA. JAMES F. DANNHAUSER became Chief Financial Officer of the Company in October 1995 and has served as a Director of Premier since December 1992. From 1990 through June 1996, Mr. Dannhauser was a managing director of Lepercq, de Neuflize & Co. Incorporated, an investment banking firm ("Lepercq"). Mr. Dannhauser is a member of the board of directors of Lepercq. 81 HUE W. EICHELBERGER has served as Executive Vice President since 1996; prior thereto he served as Vice President and General Manager of Adventure World since 1992. From 1991 through 1992, he served as Park Manager of White Water Bay. From 1988 through 1991, he was Associate Director of Corporate Development at Silver Dollar City, Inc. Prior thereto, Mr. Eichelberger served as General Manager of White Water (a water park in Grand Prairie, Texas) and FantaSea (a water park in Wichita, Kansas). DAN AYLWARD has served as Vice President and General Manager of Marine World since February 1997. From January 1995 to February 1997, Mr. Aylward was President and General Manager of Silverwood Theme Park, a small theme park operation in Idaho. From June 1989 to January 1995 he served as General Manager of Old Tucson Studios in Tucson, Arizona. Prior thereto, Mr. Aylward was employed at Kings Island. JACK D. BATEMAN has served as Vice President and General Manager of Kentucky Kingdom since its acquisition by the Company in November 1997. Prior to that time, he served as Director of Marketing at Elitch Gardens since 1996. Prior to joining Premier, Mr. Bateman worked in various capacities at Six Flags for over fifteen years, most recently as Director of Destination Marketing at Six Flags Over Texas. TIMOTHY D. BLACK has served as Vice President and General Manager of Wyandot Lake since 1997. From 1995 through 1997, he was Manager of Park Operations at Six Flags Fiesta Texas. From 1992 to 1995, he was Director of Operations and Maintenance at Frontier City. JAMES C. BOUY served as Vice President and General Manager of Geauga Lake since 1994 and became General Manager of Elitch Gardens following its acquisition by the Company. Prior thereto, from 1992 through 1994, he served as Vice President and General Manager of Kennywood Park in Pittsburgh, Pennsylvania. From 1985 through 1991, Mr. Bouy was employed by Funtime as Vice President and General Manager of Darien Lake. Prior thereto, from 1975 through 1981, he was employed by the Marriott Corporation, where his responsibilities included serving as Chief Operating Officer for The Great American Theme Park in Gurnee, Illinois and The Great American Theme Park in Santa Clara, California. JOHN S. COLLINS has served as a Vice President since 1998 and as General Manager of The Great Escape since November 1996. Prior to that time, he served in various capacities at Geauga Lake for over ten years, most recently as Director of Marketing. JEFFREY A. LOCOCO has served as Vice President and General Manager of Wyandot Lake since 1989 and became the General Manager of Geauga Lake following its acquisition by the Company. From 1982 through 1989, he served as Director of Marketing and Sales of Geauga Lake. From 1980 through 1982, Mr. Lococo served as Regional Sales Manager with Marriott's Great America Theme Park. RICHARD A. MCCURLEY has served as Vice President and General Manager of Frontier City and White Water Bay since 1994 and became General Manager of Waterworld following its acquisition by the Company. He joined Premier in 1992 as Director of Revenue for Frontier City and White Water Bay and, during that year, transferred to become Director of Revenue for Adventure World. From 1985 through 1992, Mr. McCurley was Food Service Manager and later Food Service Director at Knotts Berry Farms. Prior to that period, he spent six years with Worlds of Fun, a major theme park in Kansas City, Missouri, ultimately serving as Director of Food Services. BILL MUIRHEAD has served as Vice President and General Manager of Riverside Park since January 1997. Prior to that, beginning in 1992, he served as Vice President and General Manager of Expo/Tiered Retail Services Inc., a company headquartered in Hong Kong and specialized in developing themed retail and gaming operations in the South Pacific rim. Prior thereto, Mr. Muirhead was employed at Dorney Park and Six Flags Great Adventure. 82 BRADLEY Y. PAUL has served as Vice President and General Manager of Darien Lake since 1991. From 1984 through 1991 he served as Marketing Director of Darien Lake. MANUEL GONZALEZ-PEREZ has served as Vice President and General Manager of Frontier City since 1996. From 1995 to 1996 he served as Director of Park Revenue and Operation at Frontier City. From 1991 to 1995, Mr. Gonzalez-Perez was President and CEO for Park Street (Family Entertainment Center) in Mexico and from 1991 to 1994 he served as Revenue Director for Reine Arthon in Mexico City. TRACI E. BLANKS has served as Vice President of Marketing since 1995. From 1992 through 1994, she served as Vice President Marketing for Frontier City and White Water Bay. From 1986 through 1992, she served as Director of Marketing for Frontier City, and as such was responsible for all marketing and group sales programs. From 1986 through 1987, she also served as Manager of Advertising and Promotions for Frontier City. DAVID THOMAS has served as Vice President of Entertainment since 1993. From 1987 through 1993, he was responsible for the Company's show productions (including booking national touring acts to appear at the parks) as well as the staging of numerous festivals including Oktoberfest and Hallowscream. Prior to 1987, he served as President of Silvertree Productions, producing over forty stage shows, musicals, stunt spectaculars and magic illusion presentations. RICHARD A. KIPF has served as Corporate Secretary of the Company (or its predecessors) since 1975 and has served as Vice President of Administration since 1994. JOHN P. GANNON has served as Vice President of Finance for the Company since August of 1995 when Premier purchased Funtime Parks, Inc. Mr. Gannon had previously served as Vice President and Treasurer for Funtime Parks, Inc. from 1990 to 1995. From 1987 to 1990, he served as a controller for Geauga Lake Park in Aurora, Ohio. Prior thereto, Mr. Gannon, a certified public accountant, was employed with Ernst & Young, beginning in 1979, and was assigned to the Funtime audit. Mr. Gannon is a past president of the Akron Chapter of the Institute of Management Accounts. RUSSELL W. KUTEMAN has served as Vice President of Finance of the Company since 1996. From 1986 through 1996, Mr. Kuteman served as the Vice President of Finance for Wet 'n Wild and later Six Flags. Prior to 1986, Mr. Kuteman served as Vice President of Finance for several independent petroleum companies. Mr. Kuteman is a CPA, and began his professional career with Peat, Marwick, Mitchell & Co. in 1976. PAUL A. BIDDELMAN has served as a Director of the Company since December 1992. Since December 1997, Mr. Biddelman has been president of Hanseatic Corporation ("Hanseatic"), a private investment company. Prior to that date, he was treasurer of Hanseatic for more than five years. Mr. Biddelman also serves as a director of Electronic Retailing Systems International, Inc., Insituform Technologies, Inc., Celadon Group, Inc., Petroleum Heat and Power Co., Inc. and Star Gas Corporation (general partner of Star Gas Partners, L.P.). MICHAEL E. GELLERT has served as a Director of the Company since March 1989. He previously served as a Director of Premier and as a Trustee of Tierco from 1979 until 1986. From June 1989 through June 1994, he also served as the Chairman of the Board of Premier. Mr. Gellert is a general partner of Windcrest Partners ("Windcrest"), a New York limited partnership. Windcrest, the principal business of which is private investing, is an affiliate of Premier. Mr. Gellert also serves as a director of Devon Energy Corp., Humana Inc., Seacor Holdings, Inc., Regal Cinemas, Inc. and The Putnam Trust Company of Greenwich Advisory Board of The Bank of New York. JACK TYRRELL has served as a Director of Premier since December 1992. For more than five years, Mr. Tyrrell has been a general partner of Lawrence Venture Partners, a general partnership, the principal business of which is that of acting as general partner of Lawrence, Tyrrell, Ortale & Smith ("LTOS"), a 83 private investment limited partnership. Mr. Tyrrell is also a general partner of LTOS II Partners, a general partnership, the principal business of which is that of acting as general partner of Lawrence, Tyrrell, Ortale & Smith II, L.P. ("LTOS II"), a private investment limited partnership. Mr. Tyrrell is also a general partner of Richland Partners, L.P., a limited partnership, the principal business of which is that of acting as general partner of Richland Ventures, L.P. ("Richland"), a private investment limited partnership. In addition, Mr. Tyrrell is a general partner of Richland Partners II, L.P., a limited partnership, the principal business of which is that of acting as general partner of Richland Ventures II, L.P. ("Richland II"), a private investment limited partnership. Mr. Tyrrell also serves as a director of National Health Investors, Inc. and Regal Cinemas, Inc. SANDY GURTLER has served as a Director of the Company since 1997. Mr. Gurtler is the chief executive officer, a director and a shareholder of Chilcott Entertainment Corp., which was the general partner of the owner of Elitch Gardens prior to the acquisition of the park by the Company in October 1996. Mr. Gurtler also serves as a consultant to the Company. CHARLES R. WOOD has served as a Director of the Company since 1997. Mr. Wood is the President and sole shareholder of Storytown USA, Inc. and Fantasy Rides Corporation, which collectively owned The Great Escape prior to the acquisition of the park by the Company in December 1996. Mr. Wood also serves as a consultant to the Company and owns, directly or through wholly-owned corporations, a variety of businesses in the Lake George area, including real estate, motels, restaurants and an action park. 84 PRINCIPAL STOCKHOLDERS The following table sets forth certain information as of January 1, 1998 (except as noted below) as to Common Stock owned by (a) each of the Company's current directors and senior executive officers; (b) all current directors and officers of the Company as a group; and (c) each person who, to the best of the Company's knowledge, beneficially owned on that date more than 5% of the outstanding Common Stock. PERCENTAGE OF CLASS NUMBER OF SHARES ------------------------ BENEFICIALLY PRIOR TO AFTER NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING - -------------------------------------------------------------------------- ----------------- ----------- ----------- Kieran E. Burke(1)........................................................ 314,877 1.6 * Paul A. Biddelman(2)...................................................... 2,657,071 14.1 8.2 James F. Dannhauser(3).................................................... 76,665 * * Michael E. Gellert(4)..................................................... 1,368,961 7.3 4.2 Gary Story(5)............................................................. 143,000 * * Jack Tyrrell(6)........................................................... 695,253 3.7 2.2 Sandy Gurtler............................................................. -- -- -- Charles R. Wood........................................................... 9,091(7) * * Robert J. Gellert(8)...................................................... 1,254,553 6.6 3.9 122 East 42nd Street New York, New York 10168 Windcrest Partners(9)..................................................... 1,136,025 6.0 3.5 122 East 42nd Street New York, New York 10168 Hanseatic Corporation(10)................................................. 2,657,071 14.1 8.2 Wolfgang Traber 450 Park Avenue New York, New York 10152 FMR Corp.(11)............................................................. 1,296,500 6.9 4.0 82 Devonshire Street Boston, Massachusetts 02109 Baron Capital Group(12)................................................... 1,184,700 6.3 3.7 767 Fifth Avenue New York, NY 10153 Warburg Pincus Asset Management(13)....................................... 968,145 5.1 3.0 466 Lexington Avenue New York, NY 10017 All directors and officers as a group(14) (14 persons).................... 5,306,419 27.5 16.2 - ------------------------ * Less than one percent. (1) Includes 75,637 shares of Common Stock and warrants and options to purchase 239,238 shares of Common Stock for his own account as to which Mr. Burke has sole voting and investment power. Does not include 258,675 shares under the unvested portion of options and restricted shares granted. (2) Represents shares of Common Stock beneficially owned by Hanseatic Corporation ("Hanseatic"), of which Mr. Biddelman is President. See footnote (10) below. (3) Includes 32,665 shares of Common Stock and options to purchase 44,000 shares of Common Stock. Does not include 154,325 shares under the unvested portion of options and restricted shares granted. (4) Includes 232,936 shares of Common Stock, as to which Mr. Gellert has sole voting and investment power. Also includes 1,136,025 shares of Common Stock beneficially owned by Windcrest Partners 85 ("Windcrest") which shares voting and investment power with its general partners, Michael E. Gellert and Robert J. Gellert. (5) Includes 25,000 shares of common stock and options to purchase 118,000 shares of Common Stock. Does not include 197,000 shares under the unvested portion of options and restricted shares granted. (6) Includes 9,794 shares of Common Stock for his own account; 4,396 shares of Common Stock held in a trust for the benefit of his son; 311,940 shares of Common Stock beneficially owned by Lawrence, Tyrrell, Ortale & Smith II, L.P. ("LTOS II"); and an aggregate of 369,123 shares of Common Stock beneficially owned by Richland Ventures, L.P. ("Richland") and Richland Ventures II, L.P. ("Richland II"). Mr. Tyrrell, who is a general partner of the respective general partners of LTOS II, Richland and Richland II, disclaims beneficial ownership of all shares held by such entities. (7) Represents shares held by Double "H" Hole in the Woods Ranch, Inc., a charitable organization of which Mr. Wood is Chairman of the Board. (8) Includes 2,514 shares of Common Stock for his own account, as to which he has sole voting and investment power; 40,351 shares of Common Stock as agent for 26 other persons and entities with whom he shares voting and investment power; 2,168 shares of Common Stock as trustee for Michael E. Gellert's sister with respect to which he shares voting and investment power with Peter J. Gellert (who holds these shares as agent); 5,558 shares of Common Stock as trustee of irrevocable trusts for the benefit of Michael E. Gellert's children as to which he has sole voting and investment power; 1,083 shares of Common Stock as trustee of an irrevocable trust for the benefit of his brother as to which he has sole voting and investment power; 1,854 shares of Common Stock as trustee of a trust for the benefit of a second cousin as to which he has sole voting and investment power; 1,136,025 shares of Common Stock owned by Windcrest, which shares voting and investment power with its general partners, Michael E. Gellert and Robert J. Gellert; and 65,000 shares of Common Stock beneficially owned by Lexfor Corporation of which he is President and a director, as to which he shares voting and investment power with the other officers and directors. Michael E. Gellert disclaims beneficial ownership of the shares of Common Stock owned by the trusts for the benefit of his children. (9) Windcrest shares voting and investment power with its general partners, Michael E. Gellert and Robert J. Gellert. (10) Represents shares of Common Stock beneficially owned by Hanseatic. Mr. Traber holds a majority of the shares of capital stock of Hanseatic and thus may be deemed to beneficially own such Common Stock. Of such shares, 2,588,695 shares of Common Stock are held by Hanseatic Americas LDC, a Bahamian limited duration company in which the sole managing member is Hansabel Partners LLC, a Delaware limited liability company in which the sole managing member is Hanseatic. The remaining shares of Common Stock are held by Hanseatic for discretionary customer accounts. Information has been derived from Amendment No. 7 to Schedule 13D, dated December 5, 1997. (11) Includes 1,213,200 shares of Common Stock beneficially owned by Fidelity Management & Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp. and a registered investment adviser (including 3,400 shares of Common Stock owned by Fidelity American Special Situations Trust ("FASST"), an English unit trust as to which Fidelity acts as a sub-adviser); 81,400 shares of Common Stock beneficially owned by Fidelity Management Trust Company ("FMT"), a wholly-owned subsidiary of FMR Corp. and a bank; and 5,300 shares beneficially owned by Fidelity International Limited ("FIL"), a Bermudan investment adviser and former majority-owned subsidiary of Fidelity (including 3,400 shares of Common Stock owned by FASST, as to which a subsidiary of FIL acts as an investment adviser). Edward C. Johnson 3d, Chairman of FMR Corp. and FIL, Abigail P. Johnson, a director of FMR Corp., and members of the Johnson family may be deemed to form a controlling group with respect to FMR Corp. Information has been derived from Schedule 13G, dated December 30, 1997. 86 (12) Includes 1,136,700 shares of Common Stock beneficially owned by BAMCO, Inc., a registered investment adviser as to which Baron Capital Group ("BCG") and Ronald Baron ("Baron"), President of BCG, may be deemed parent holding companies; and 48,000 shares of Common Stock beneficially owned by Baron Capital Management, Inc., a registered investment adviser as to which BCG and Baron may be deemed parent holding companies. Information has been derived from Schedule 13G, dated February 17, 1998. (13) Represents shares beneficially owned by Warburg Pincus Asset Management, Inc., a registered investment adviser. Information has been derived from Amendment No. 1 to Schedule 13G, dated January 12, 1998. (14) The share amounts listed include shares of Common Stock that the following persons have the right to acquire within 60 days from December 1, 1997 (Kieran E. Burke, 239,238 shares (see footnote (1)); James F. Dannhauser, 44,000 shares (see footnote (3)); Gary Story, 118,000 shares (see footnote (5)); and all directors and officers as a group, 442,839 shares. 87 DESCRIPTION OF SIX FLAGS AGREEMENT GENERAL On February 9, 1998, the company presently named Premier Parks Inc., certain wholly-owned subsidiaries of Premier, SFEC and each of the Sellers entered into the Six Flags Agreement. The Six Flags Agreement provides for the Six Flags Acquisition, pursuant to which Premier will acquire, by merger, all of the capital stock of SFEC from the Sellers for $965 million (the "Capital Stock Consideration") (plus an approximate $11 million adjustment based on year-end balance sheet adjustments and option cancellation costs). The Capital Stock Consideration will be payable all in cash or, at the Company's option, in cash and Seller Depositary Shares representing interests in up to $200 million of the Seller Preferred Stock. The Company may reduce (but not below $100.0 million) or may eliminate the Seller Depositary Shares by increasing the cash portion of the purchase price. The net proceeds of the Offerings will be used, in whole or in part, to fund the cash portion of the Capital Stock Consideration. If the Company determines not to issue the Seller Depositary Shares, the additional cash portion of the Capital Stock Consideration will be funded from the net proceeds of the Common Stock Offering. Consummation of the Six Flags Acquisition is a condition to the Offerings. THE MERGERS Prior to the Six Flags Acquisition, and pursuant to the Premier Merger, the company presently named Premier Parks Inc. will merge with a wholly-owned subsidiary of Premier Parks Holdings Corporation in accordance with Section 251(g) of the Delaware General Corporation Law. As a result of the Premier Merger, holders of shares of Common Stock of Premier will become, on a share-for-share basis, holders of Common Stock of Premier Parks Holdings Corporation, and Premier will become a wholly-owned subsidiary of Premier Parks Holdings Corporation. On the effective date of the Premier Merger, Premier will change its name to Premier Parks Operations Inc., and Premier Parks Holdings Corporation will change its name to Premier Parks Inc. In addition to the share-for-share exchange, each option or similar right exercisable for capital stock of Premier outstanding immediately prior to the Premier Merger automatically will be converted into an option or similar right exercisable for a number of shares of the Common Stock equal to the number of shares of capital stock of Premier for which such option or similar right was exercisable immediately prior to the Premier Merger. Immediately following the closing of the Offerings, SFEC and a wholly-owned subsidiary of the Company will be merged pursuant to the Six Flags Acquisition, with SFEC continuing as the surviving corporation and as a wholly-owned subsidiary of the Company. Pursuant to the Six Flags Acquisition, (i) each share of capital stock of SFEC outstanding immediately prior to the Six Flags Acquisition, all of which are held by the Sellers, automatically will be converted into the right to receive a pro rata share of the Capital Stock Consideration based on the aggregate number of such shares (together with a cash payment in lieu of any fractional shares of Seller Preferred Stock to which the Sellers would have otherwise been entitled as part of the Capital Stock Consideration) and (ii) each option or similar right exercisable for capital stock of SFEC outstanding immediately prior to the Six Flags Acquisition automatically will be cancelled in exchange for a cash payment by SFEC (all such cash payments together, the "SFEC Option Consideration") of all amounts necessary to fund such payments being loaned or contributed by the Company. CONDITIONS The Six Flags Agreement contains customary closing conditions of the parties. In addition, the Company's obligation to consummate the Six Flags Acquisition is subject to the condition that the 88 Company raise equity capital in an amount at least equal to the difference between $900.0 million and the value of the Seller Preferred Stock issued to the Sellers pursuant to the Six Flags Acquisition. INDEMNIFICATION The Six Flags Agreement contains customary representations, warranties, covenants and other agreements of the parties. Each Seller has agreed to indemnify and hold harmless the Company against certain damages, claims and liabilities (and the cost and expenses related thereto) suffered by the Company in respect of (i) any breach of or inaccuracy in any representation or warranty contained in the Six Flags Agreement made by such Seller individually, or by the Sellers collectively, and (ii) any breach or violation of any covenant or agreement made by any Seller for itself or on behalf of SFEC or its subsidiaries contained in the Six Flags Agreement or any documents delivered at the closing thereunder. The Company has agreed to indemnify and hold harmless the Sellers against certain damages, claims and liabilities (and the cost and expenses related thereto) suffered by the Sellers in respect to (i) any breach of or inaccuracy in any representation or warranty made by or on behalf of the Company, and (ii) any breach or violation of any covenant made by or on behalf of the Company in the Six Flags Agreement or any documents delivered at the closing thereunder. Generally, no party may make a claim for indemnification for breaches of representations and warranties and of covenants and other agreements as described in the immediately preceding paragraph after the date (the "Claims Termination Date") which is the earlier of (i) the 45th day following the date on which audited annual financial statements of the Company and its consolidated subsidiaries for the 1998 fiscal year are first made available to the Company and (ii) April 30, 1999. The Company may not make any claims for indemnification for breaches of any of the Sellers' representations and warranties until the aggregate amount of the damages suffered exceeds $5 million (the "Basket Amount"), whereupon the Sellers are obligated to pay in full all such amounts for indemnification, including the Basket Amount. The total maximum amount that the Sellers are required to pay for indemnification for breaches of the Sellers' representations and warranties under the Six Flags Agreement is $25 million. The Sellers' ability to make indemnification claims for breaches of any of the Company's representations and warranties is subject to a corresponding Basket Amount and $25 million maximum amount. Upon consummation of the Six Flags Acquisition, the Company will deposit $25 million in cash into an escrow fund under a General Indemnity Escrow Agreement to be entered into by the Company with the Sellers and certain holders of options exercisable for capital stock of SFEC. A portion of such deposit will come from the Capital Stock Consideration payable to the Sellers, with the balance to come from the SFEC Option Consideration payable to the optionholders who are party to the General Indemnity Escrow Agreement. The escrow fund will be the sole source of payment for the Sellers' indemnification obligations to the Company for breaches of or inaccuracies in the Sellers' representations and warranties. Any payment as a result of breaches of or inaccuracies in an individual Seller's representations and warranties may be limited to such individual Seller's contribution to the escrow fund. In addition, the Sellers have agreed to indemnify the Company from any and all liabilities arising out of the Georgia Litigation. See "Business--Legal Proceedings." AGREEMENTS RELATED TO THE SIX FLAGS AGREEMENT Certain ancillary agreements will be entered into pursuant to the Six Flags Agreement in connection with the Six Flags Acquisition. See "Business--Licenses" and "Description of Securities--Registration Rights." In addition to the ancillary agreements to be entered into in connection with the Six Flags Acquisition that are described elsewhere herein, at the closing of the Six Flags Transactions, the Company will enter 89 into the Subordinated Indemnity Agreement with Time Warner, pursuant to which the Company will indemnify Time Warner in respect of its effective guarantee of the SFEC Zero Coupon Senior Notes, and the Company and Six Flags will indemnify Time Warner in respect of its guarantee of the obligations of Six Flags under the agreements relating to the Co-Venture Parks. Pursuant to the Subordinated Indemnity Agreement, the Company will transfer to Time Warner record title to the corporations which own certain entities that have purchased and will purchase units of the limited partners of such partnerships, and the Company will receive an assignment from Time Warner of all cash flow received on such units and will otherwise control such entities, except in the event of a default by the Company of its obligations under the Subordinated Indemnity Agreement. After all such obligations have been satisfied, Time Warner is required to retransfer to the Company such record title for a nominal consideration. In the event of a default, the Subordinated Indemnity Agreement allows Time Warner to acquire the stock of the entities that purchase units of the limited partners of the Co-Venture Parks and the assets of the Company subsidiary which holds the general partner interest in the Co-Venture Parks. In addition, the Company will issue preferred stock of the managing partners of the Co-Venture Parks to Time Warner which, in the event of such a default, would permit Time Warner to obtain control of such entities. The Subordinated Indemnity Agreement also limits the Company's ability to sell the Six Flags Parks. Except in the case of the New SFEC Notes, under the terms of the Subordinated Indemnity Agreement, without the consent of Time Warner, the Company cannot incur indebtedness at SFEC or any of its subsidiaries that is secured by any assets of (or guaranteed by) the Company, Premier Operations or any of its subsidiaries, or secure any indebtedness of the Company, Premier Operations or any of its subsidiaries with any of the assets of (or guarantees by) SFEC or any of its subsidiaries. In connection with the Premier Merger, Premier, SFEC and Premier Operations will enter into a Shared Services Agreement pursuant to which Premier will provide certain corporate, administrative and other general services to SFEC and Premier Operations for their operations and the operations of their subsidiaries. Generally, Premier will provide legal, financial, accounting, human resources, information systems, payroll, marketing and promotion, and other services to its subsidiaries. In addition, the purchasing, design and implementation of capital improvements, the production of live entertainment at the parks, as well as the purchasing of operating supplies, will generally be done by Premier on behalf of its subsidiaries. With respect to such services provided generally to the parks, the costs thereof, including third party costs and appropriate corporate overhead, will generally be allocated based on each park's percentage of Premier's revenues. Costs of services provided to particular parks, such as costs relating to capital improvements, will be allocated to such park and will normally include, in addition to direct costs, an allocation of time spent and expenses incurred by corporate personnel in providing such services. SFEC and Premier Operations will be obligated to purchase such services only so long as they may deem such services to be necessary or desirable for their operations and the operations of their subsidiaries. A tax sharing agreement will be entered into between Premier and SFEC for the purpose of allocating to SFEC its share of any actual federal income tax liability of Premier's consolidated federal income tax group that will include SFEC and its eligible subsidiaries. Under the tax sharing agreement, SFEC will be required to make payments to Premier shortly before Premier is required to make tax payments, including estimated tax payments, to the Internal Revenue Service on behalf of the consolidated group. Premier will act as agent for SFEC and its subsidiaries with respect to federal income tax matters and will pay to the Internal Revenue Service the federal income tax liability of the consolidated group. Under the tax sharing agreement, the amount that SFEC and its subsidiaries will owe to Premier may not exceed the tax liability that they would have owed if they were not members of Premier's consolidated group and instead were a separate consolidated group, but without taking into account any of their tax attribute carrybacks or carryforwards. The tax sharing agreement will provide for the application of similar principles to any unitary, consolidated or combined state or local income tax filing group that includes SFEC or any of its subsidiaries in the same group with Premier or any of its subsidiaries other than SFEC and its subsidiaries. 90 DESCRIPTION OF INDEBTEDNESS PREMIER CREDIT FACILITY Borrowings under the Premier Credit Facility, which was entered into in March 1998, are secured by substantially all of the assets of Premier Operations and its domestic subsidiaries (other than real estate), and guaranteed by such subsidiaries. The Premier Credit Facility has an aggregate availability of $300.0 million consisting of (i) a five-year $75.0 million revolving credit facility for working capital and general corporate purposes (the "Revolving Credit Facility"); (ii) a five-year $100.0 million term loan facility ("Facility B"); and (iii) an eight-year $125.0 million term loan facility ("Facility C" and, together with Facility B, the "Term Loan Facilities"), in each case, to fund acquisitions and make capital improvements. The Company expects to borrow $125.0 million in March 1998, in part, to fund the cash portion of the purchase price for the Walibi acquisition. Interest rates per annum under the Premier Credit Facility are equal to either (a) a base rate equal to the higher of the Federal Funds Rate plus 1/2% or the prime rate of Citibank, N.A., in each case, plus the Applicable Margin (as defined therein) or (b) the London Interbank Offered Rate plus the Applicable Margin. The Revolving Credit Facility will terminate on March 31, 2003. Borrowings under Facility B will mature on March 31, 2003 and borrowings under Facility C will mature on March 31, 2006; however, aggregate principal payments and reductions of $10.0 million, $25.0 million, $30.0 million and $35.0 million will be required during the second, third, fourth and fifth years of Facility B and aggregate principal payments of $1.0 million each are required in each of the first six years of Facility C in addition to a $25.0 million payment in year seven and a $94.0 million payment in year eight. The Premier Credit Facility contains restrictive covenants that, among other things, limit the ability of Premier Operations and its subsidiaries to dispose of assets; incur additional indebtedness or liens; pay dividends; repurchase stock; make investments; engage in mergers or consolidations; and engage in certain transactions with subsidiaries and affiliates. In addition, the Premier Credit Facility requires that Premier Operations comply with certain specified financial ratios and tests, including ratios of total debt to EBITDA, interest expense to EBITDA and fixed charges to EBITDA. Defaults under the Premier Credit Facility include (i) failure to repay principal when due; (ii) failure to pay interest within three days after due; (iii) default in the performance of certain obligations of Premier Operations' principal subsidiaries under the Security Agreement (as defined thereunder); (iv) failure to comply with certain covenants, conditions or agreements under the credit agreement which, in certain cases, continues for 30 days; (v) default by Premier Operations or any of its principal subsidiaries in respect of any indebtedness above specified levels; (vi) certain events of bankruptcy; (vii) certain judgments against Premier Operations or any of its principal subsidiaries; (viii) the occurrence of a Change in Control (as defined thereunder); (ix) the assertion of certain Environmental Claims (as defined thereunder); and (x) under certain circumstances, the failure by Messrs. Burke and Story to serve Premier Operations in their present positions and the failure to replace them within a specified time period. SIX FLAGS CREDIT FACILITY Borrowings under the Six Flags Credit Facility, which will be entered into on or prior to the closing of the Six Flags Acquisition, will be secured by substantially all of the assets of SFTP and its subsidiaries and a pledge by SFEC of the stock of SFEC, and will be guaranteed by such subsidiaries and SFEC. The Six Flags Credit Facility will have an aggregate availability of $472 million consisting of (i) up to $100.0 million under a Revolving Credit Facility to be used to refinance existing outstanding Six Flags bank indebtedness and for working capital and other general corporate purposes; and (ii) up to $372.0 million under Facility B to be used to refinance existing outstanding Six Flags bank indebtedness and fund acquisitions and make capital improvements. The Company anticipates that Facility B will be fully funded in connection with the Six Flags Acquisition. Interest rates per annum under the Six Flags Credit Facility are equal to either (a) a base rate equal to the higher of the Federal Funds Rate plus 1/2% or the prime rate of Citibank, N.A., in each case, plus the Applicable Margin (as defined therein) or (b) the London Interbank Offered Rate plus the Applicable Margin. The Revolving Credit Facility will terminate five years from the closing of the Six Flags Acquisition. Borrowings under Facility B will mature on November 30, 2004. However, for Facility B, 91 aggregate principal payments and reductions of $1.0 million will be required during each of the first, second, third and fourth years and aggregate principal payments of $25.0 million and $40.0 million are required in years five and six, and $303.0 million at maturity. The Six Flags Credit Facility will contain restrictive covenants that, among other things, limit the ability of SFTP and its subsidiaries to dispose of assets; incur additional indebtedness or liens; pay dividends; repurchase stock; make investments; engage in mergers or consolidations; and engage in certain transactions with subsidiaries and affiliates. In addition, the Six Flags Credit Facility will require SFTP to comply with certain specified financial ratios and tests, including ratios of total debt to EBITDA, interest expense to EBITDA, and fixed charges to EBITDA. Defaults under the Six Flags Credit Facility will include (i) failure to repay principal when due; (ii) failure to pay interest within three days after due; (iii) default in the performance of certain obligations of SFTP's principal subsidiaries under the Security Agreement (as defined thereunder); (iv) failure to comply with certain covenants, conditions or agreements under the credit agreement which, in certain cases, continues for 30 days; (v) default by SFTP or any of its principal subsidiaries in respect of any indebtedness above specified levels; (vi) certain events of bankruptcy; (vii) certain judgments against SFTP or any of its principal subsidiaries; (viii) the occurrence of a Change in Control (as defined thereunder); (ix) the assertion of certain Environmental Claims (as defined thereunder); and (x) under certain circumstances, the failure by Messrs. Burke and Story to serve as Chief Executive Officer and Chief Operating Officer of SFTP and the failure to replace them within a specified time period. COMPANY SENIOR DISCOUNT NOTES The Company Senior Discount Notes are senior obligations of the Company, in an aggregate principal amount at maturity sufficient to generate gross proceeds of $250.0 million. The Company Senior Discount Notes will mature on , 2008. The Company Senior Discount Notes accrete in value until , 2003 at which time the accreted value will equal 100% of their principal amount. The Company Senior Discount Notes bear cash interest at the rate of % per annum, commencing , 2003, and are not guaranteed by the Company's subsidiaries. Approximately $75.0 million of net proceeds from the sale of the Senior Discount Notes will be deposited with the trustee to provide a fund until , 2003 (the "Restricted Cash Account") to satisfy obligations under the Co-Venture Parks agreements and to pay dividends on the Convertible Preferred Stock. The Company's obligations will be secured pending disbursement by a pledge of the Restricted Cash Account. The Company Senior Discount Notes are redeemable, at the Company's option, in whole or in part, at any time on or after , 2003, at specified redemption prices, together with accrued and unpaid interest, if any, to the date of redemption. Upon the occurrence of a Change of Control (as defined in the applicable Indenture), the Company will be required to make an offer to repurchase the Company Senior Discount Notes at a price equal to 101% of the accreted value thereof, prior to , 2003 or 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase, on or after , 2003. Neither the Premier Merger nor the Six Flags Acquisition constitutes a Change of Control under the Indenture relating to the Company Senior Discount Notes. The Indenture relating to the Company Senior Discount Notes contains restrictive covenants that, among other things, limit the ability of the Company to dispose of assets; incur additional indebtedness or liens; pay dividends; engage in mergers or consolidations; and engage in certain transactions with subsidiaries and affiliates. Defaults under the applicable Indenture include (i) failure to pay interest on the Company Senior Discount Notes within 30 days after such payments are due; (ii) failure to pay principal or premium, if any, on the Company Senior Discount Notes; (iii) failure to comply for 30 days after notice with the Company's repurchase obligations upon the occurrence of a Change of Control or an Asset Sale (as defined in the applicable Indenture) or with certain covenants or provisions governing the Restricted 92 Cash Account and failure to comply for 60 days after notice with the other agreements contained in the applicable Indenture, the Company Senior Discount Notes or the Restricted Cash Account; (iv) the default by the Company or any of its Restricted Subsidiaries (as defined in the applicable Indenture) in respect of any indebtedness above specified levels; (v) certain events of bankruptcy or insolvency; (vi) a material breach or default of, or repudiation by the Company of its obligations under the escrow agreement governing the Restricted Cash Account or the unenforceability of the escrow agreement governing the Restricted Cash Account against the Company; and (vii) certain judgements against the Company or any of its Restricted Subsidiaries above specified levels. COMPANY SENIOR NOTES The Company Senior Notes are senior obligations of the Company, in the aggregate principal amount of $280.0 million of which up to $76.3 million will be used to capitalize a three-year overfund account (the "Interest Escrow Account") with respect to the Company Senior Notes. The Company Senior Notes will mature on , 2006. The Company Senior Notes bear interest at the rate of % per annum and are not guaranteed by the Company's subsidiaries. The Company Senior Notes are redeemable, at the Company's option, in whole or in part, at any time on or after , 2002, at specified redemption prices, together with accrued and unpaid interest, if any, to the date of redemption. Upon the occurrence of a Change of Control (as defined in the applicable Indenture) the Company will be required to make an offer to repurchase the Company Senior Notes at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. Neither the Premier Merger nor the Six Flags Acquisition constitutes a Change of Control under the Indenture relating to the Company Senior Notes. The Indenture relating to the Company Senior Notes contains restrictive covenants that, among other things, limit the ability of the Company to dispose of assets; incur additional indebtedness or liens; pay dividends; engage in mergers or consolidations; and engage in certain transactions with subsidiaries and affiliates. Defaults under the applicable Indenture include (i) failure to pay interest on the Company Senior Notes within 30 days (two days in the case of interest payments due on or prior to , 2001) after such payments are due; (ii) failure to pay principal or premium, if any on the Company Senior Notes; (iii) failure to comply for 30 days after notice with the Company's repurchase obligations upon the occurrence of a Change of Control or an Asset Sale (as defined in the applicable Indenture) or with certain covenants or the provisions governing the Interest Escrow Account and failure to comply for 60 days after notice with the other agreements contained in the applicable Indenture, the Company Senior Notes or the Interest Escrow Account; (iv) the default by the Company or any of its Restricted Subsidiaries (as defined in the applicable Indenture) in respect of any indebtedness above specified levels; (v) certain events of bankruptcy or insolvency; (vi) a material breach or default of, or repudiation by the Company of its obligations under, the escrow agreement governing the Interest Escrow Account or the unenforceability of the escrow agreement governing the Interest Escrow Account against the Company; and (vii) certain judgments against the Company or any of its Restricted Subsidiaries above specified levels. PREMIER NOTES The Premier Notes are senior, unsecured obligations of Premier Operations, in the aggregate principal amount of $215.0 million, of which $90.0 million will mature on August 15, 2003 (the 1995 Premier Notes) and $125.0 million will mature on January 15, 2007 (the 1997 Premier Notes). The 1995 Premier Notes bear interest at the rate of 12% per annum and the 1997 Premier Notes bear interest at the rate of 9 3/4% per annum. The Premier Notes are guaranteed on a senior, unsecured basis by the principal operating subsidiaries of Premier Operations. The 1995 Premier Notes are redeemable, at Premier Operations' option, in whole or in part, at any time on or after August 15, 1999, at specified redemption prices, together with accrued and unpaid 93 interest, if any, to the date of redemption. The 1997 Premier Notes are redeemable, at Premier Operations' option, in whole or in part, at any time on or after January 15, 2002, at specified redemption prices, together with accrued and unpaid interest, if any, to the date of redemption. Upon the occurrence of a Change of Control (as defined in the relevant Indenture), Premier Operations will be required to make an offer to repurchase the Premier Notes at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. Neither the Premier Merger nor the Six Flags Acquisition constitutes a Change of Control under the Indentures relating to the Premier Notes. The Indentures relating to the Premier Notes contain restrictive covenants that, among other things, limit the ability of Premier Operations to dispose of assets; incur additional indebtedness or liens; pay dividends; engage in mergers or consolidations; and engage in certain transactions with subsidiaries and affiliates. Defaults under these Indentures include (i) failure to pay interest on the applicable Premier Notes within 30 days after such payments are due; (ii) failure to repay principal when due at its maturity date, upon optional redemption, upon required repurchase, upon acceleration or otherwise; (iii) failure to comply for 30 days after notice with Premier Operations' repurchase obligations upon the occurrence of a Change of Control and failure to comply for 60 days after notice with the other covenants contained in the applicable Indenture; (iv) the default by Premier Operations or any of its principal subsidiaries in respect of any indebtedness above specified levels; (v) certain events of bankruptcy; (vi) certain judgments against Premier Operations or any principal subsidiaries; (vii) any principal subsidiaries (as defined in the indentures) ceasing to be in full force and effect (except as contemplated by the terms thereof); and (viii) the denial or disaffirmation by any principal subsidiary of its obligations under the applicable Indentures, which continues for 10 days. SFTP SENIOR SUBORDINATED NOTES The SFTP Senior Subordinated Notes are unsecured senior subordinated obligations of SFTP, in an aggregate principal amount of $285.0 million and will mature on June 15, 2005. The SFTP Senior Subordinated Notes accrete in value until June 15, 1998, at which time the accreted value will equal 100% of their principal amount. The SFTP Senior Subordinated Notes bear interest at the rate of 12 1/4% per annum, payable semiannually on June 15 and December 15 of each year, commencing December 15, 1998. The SFTP Senior Subordinated Notes are guaranteed on a senior, unsecured basis by the principal operating subsidiaries of SFTP. The SFTP Senior Subordinated Notes are redeemable, at SFTP's option, in whole or in part, at any time on or after June 15, 2000 at specified redemption prices, together with accrued and unpaid interest, if any, to the date of redemption. Upon the occurrence of a Change of Control (as defined in the applicable Indenture), SFTP is required to make an offer to repurchase the SFTP Senior Subordinated Notes at a price equal to 101% of the accreted value thereof to the date of repurchase. The Six Flags Transactions constitute a Change of Control under the Indenture relating to the SFTP Senior Subordinated Notes, and the Company will be required to make an offer to purchase the SFTP Senior Subordinated Notes within 30 days of the closing of the Six Flags Transactions. The Company does not expect that it will be required to purchase any material amount of such Notes pursuant to such offer. See "Risk Factors--Risks Associated with Substantial Indebtedness." The Indenture pursuant to which the SFTP Senior Subordinated Notes were issued contains restrictive covenants that, among other things, limit the ability of SFTP and its subsidiaries to dispose of assets; incur additional indebtedness or liens; pay dividends; engage in mergers or consolidations; and engage in certain transactions with subsidiaries and affiliates. Defaults under this Indenture include (i) failure to pay interest on the SFTP Senior Subordinated Notes within 30 days after such payments are due; (ii) failure to repay principal when due at its maturity date, upon optional redemption, upon required repurchase, upon acceleration or otherwise; (iii) failure to comply for 30 days after notice with SFTP's repurchase obligations upon the occurrence of a Change of Control and failure to comply for 60 days after notice with the other covenants contained in the Indenture; 94 (iv) the default by SFTP or any Significant Subsidiary (as defined in the applicable indenture) in respect of any indebtedness above specified levels; (v) certain events of bankruptcy; (vi) certain judgments against SFTP or any Significant Subsidiary; (vii) any note guarantee (as defined in the applicable Indenture) ceasing to be in full force and effect (except as contemplated by the terms thereof); and (viii) the denial or disaffirmation by any note guarantor (as defined in the applicable indenture) of its obligations under the applicable Indenture or any note guarantee, which continues for 10 days. SFEC ZERO COUPON SENIOR NOTES The SFEC Zero Coupon Senior Notes are senior unsecured obligations of SFEC, in an aggregate principal amount of $192.25 million and will mature on December 15, 1999. The SFEC Zero Coupon Senior Notes accrete in value until December 15, 1999, at which time the accreted value will equal 100% of their principal amount. There are no periodic payments on the SFEC Zero Coupon Senior Notes. One of the Sellers, Time Warner, has effectively guaranteed the SFEC Zero Coupon Senior Notes, and the Company has indemnified Time Warner in respect of its guarantee. The Company will use the proceeds of the SFEC Notes Offering, together with other funds, to repay SFEC Zero Coupon Senior Notes. Until so used, such proceeds and other funds (or U.S. government obligations purchased therefrom) will be deposited in escrow. The SFEC Zero Coupon Senior Notes may not be redeemed prior to maturity. Defaults under the indenture relating to the SFEC Zero Coupon Senior Notes include (i) the failure by SFEC or Time Warner to comply for 30 days after written notice with any covenant in the applicable indenture; (ii) failure to pay, when due, upon final maturity or upon acceleration, the principal amount of any indebtedness of SFEC or any of its subsidiaries in excess of $5.0 million, or any indebtedness of Time Warner or any of its Material Subsidiaries (as defined in the applicable indenture) in excess of $50 million, if such indebtedness is not discharged within 60 days after written notice; (iii) certain events of bankruptcy of SFEC or Seller; and (iv) failure to pay the principal amount of any SFEC Zero Coupon Senior Note at its maturity date. Accordingly, after the Six Flags Acquisition, such a default by Time Warner could result in the acceleration of the maturity of the SFEC Zero Coupon Senior Notes. NEW SFEC NOTES The New SFEC Notes will be senior, unsecured obligations of SFEC, in the aggregate principal amount of $170.0 million. The New SFEC Notes will mature on , 2006. The New SFEC Notes will bear interest at the rate of % per annum and will be guaranteed by the Company on a fully subordinated basis (the "Guarantee") but will not be guaranteed by SFEC's subsidiaries. All of the net proceeds from the sale of the New SFEC Notes will be placed in escrow (the "SFEC Escrow Account") for repayment of the SFEC Zero Coupon Senior Notes. The indenture relating to the New SFEC Notes will provide that SFEC will defease the SFEC Zero Coupon Senior Notes no later than 360 days from the date of the Offerings. The New SFEC Notes will be redeemable, at SFEC's option, in whole or in part, at any time on or after , 2002 at specified redemption prices, together with accrued and unpaid interest, if any, to the date of redemption. Upon the occurrence of a Change of Control (as defined in the applicable Indenture), SFEC will be required to make an offer to repurchase the New SFEC Notes at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. Neither the Premier Merger nor the Six Flags Acquisition constitutes a Change of Control under the Indenture relating to the New SFEC Notes. The Indenture relating to the New SFEC Notes contains restrictive covenants that, among other things, limit the ability of SFEC to dispose of assets; incur additional indebtedness or liens; pay dividends; engage in mergers or consolidations; and engage in certain transactions with subsidiaries and affiliates. Defaults under the applicable Indenture include (i) failure to pay interest on the New SFEC Notes within 30 days after such payments are due; (ii) failure to pay principal or premium, if any on the New SFEC 95 Notes; (iii) failure to comply for 30 days after notice with SFEC's repurchase obligations upon the occurrence of a Change of Control or an Asset Sale (as defined in the applicable Indenture) or with certain covenants or the provisions governing the SFEC Escrow Account and failure by either the Company or SFEC to comply for 60 days after notice with the other agreements contained in the applicable Indenture, the Guarantee, the SFEC Escrow Account or the New SFEC Notes; (iv) the default by SFEC or any of its Restricted Subsidiaries (as defined in the applicable Indenture), in respect of any indebtedness above specified levels; (v) certain events of bankruptcy or insolvency; (vi) if the Guarantee shall be held invalid, unenforceable or shall cease for any reason to be in full force and effect or any person acting on behalf of the Company shall deny or disaffirm the Company's obligations under the Guarantee; (vii) a material breach or default of, or repudiation by the Company of its obligations under the escrow agreement governing the SFEC Escrow Account or the unenforceability of the escrow agreement governing the SFEC Escrow Account against the Company; and (viii) certain judgements against SFEC or any of its Restricted Subsidiaries above specified levels. 96 DESCRIPTION OF SECURITIES COMMON STOCK The Company's authorized capital stock includes 90,000,000 shares of Common Stock, par value $0.05 per share. Each share of Common Stock entitles the holder thereof to one vote. Holders of the Common Stock have equal ratable rights to dividends from funds legally available therefor, when, as and if declared by the Board of Directors and are entitled to share ratably, as a single class, in all of the assets of the Company available for distribution to holders of Common Stock upon the liquidation, dissolution or winding up of the affairs of the Company. Holders of Common Stock do not have preemptive, subscription or conversion rights. However, each outstanding share of Common Stock currently has attached to it one right (a "Right") issued pursuant to an Amended and Restated Rights Agreement (the "Rights Agreement"). Each Right entitles its registered holder to purchase one one-thousandth of a share of a junior participating series of Preferred Stock designated to have economic and voting terms similar to those of one share of Common Stock, as described under "--Rights Plan" below. After the Offerings, 32,331,111 shares of Common Stock will be outstanding and shares will be reserved for future issuance (1,315,038 for options and warrants and upon conversion of the Convertible Preferred Stock). Bank One Trust Company, N.A., Oklahoma City, Oklahoma, is the transfer agent and registrar for the Common Stock. PREFERRED STOCK The Company's authorized capital stock includes 500,000 shares of Preferred Stock, par value $1.00 per share. The Preferred Stock may be issued in series, and shares of each series will have such rights and preferences as are fixed by the Board of Directors in resolutions authorizing the issuance of that particular series. In designating any series of Preferred Stock, the Board of Directors may, without further action by the holders of the Common Stock, fix the number of shares constituting that series and fix the dividend rights, dividend rate, conversion rights, voting rights (which may be greater or lesser than the voting rights of the Common Stock), rights and terms of redemption (including any sinking fund provisions), and the liquidation preferences of such series of Preferred Stock. Holders of any series of Preferred Stock, when and if issued, may have priority claims to dividends and to any distributions upon liquidation of the Company, and other preferences over the holders of the Common Stock. After giving effect to the Six Flags Transactions, shares of Preferred Stock will be outstanding. In addition, approximately 20,600 shares of Preferred Stock have been reserved for issuance under the Rights Plan. MANDATORILY CONVERTIBLE PREFERRED STOCK Pursuant to the EqPINES Offering, the Company will issue EqPINES in respect of its Mandatorily Convertible Preferred Stock. The terms of the EqPINES and the Manditorily Convertible Preferred Stock are described under "Description of EqPINES." SELLER PREFERRED STOCK In connection with the Six Flags Acquisition, the Company may issue to the Sellers Seller Depositary Shares for up to $200.0 million of Seller Preferred Stock. The Company may reduce (but not below $100.0 million) or may eliminate the Seller Depositary Shares by increasing the cash portion of the consideration for the Six Flags Acquisition. The following is a summary of the terms of the Seller Preferred Stock. DIVIDENDS. Subject to the terms of the Company Notes, holders of shares of the Seller Preferred Stock will be entitled to receive annually cash dividends out of funds of the Company legally available for payment, at an annual rate of % of the $ liquidation value (the "Liquidation Value") per share. Dividends will be cumulative from the date of original issuance of the Seller Preferred Stock. The Seller Preferred Stock will rank PARI PASSU as to dividends with the Mandatorily Convertible Preferred Stock and have priority as to dividends over the Common Stock and any other series or class of the Company's stock hereafter issued. 97 LIQUIDATION RIGHTS. In case of the voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of shares of Seller Preferred Stock are entitled to receive the amount equal to the Liquidation Value thereof, plus an amount equal to any accrued and unpaid dividends to the payment date, before any payment or distribution is made to the holders of Common Stock or any other series or class of the Company's stock hereafter issued which ranks junior as to liquidations rights to the Seller Preferred Stock. The Seller Preferred Stock will rank PARI PASSU as to liquidation with the Mandatorily Convertible Preferred Stock. VOTING RIGHTS. The holders of each share of the Seller Preferred Stock will not be entitled to any voting rights, except as required by Delaware law and except in certain circumstances involving a default by the Company in the payment of dividends, the authorization of capital stock having a preference as to dividends or upon liquidation over the Seller Preferred Stock, charter amendments materially affecting the rights of the holders or mergers or consolidations of the Company. CONVERSION RIGHTS. The holders of Seller Preferred Stock will be entitled at any time after the 90th day following the date of issuance to convert their shares of Seller Preferred Stock into Common Stock at an initial conversion price equal to % of the weighted average of the trading prices for all of the sales of the Common Stock on the NYSE for the 20 consecutive trading days ending on the third trading day prior to the issuance of the Seller Preferred Stock, subject to adjustment in certain circumstances, including the payment of a stock dividend on shares of the Common Stock, combinations and subdivisions of the Common Stock, certain reclassifications of the Common Stock, the issuance to the Company's stockholders of rights or warrants to subscribe for or purchase shares of Common Stock at a price per share less than the then-current market price (determined as provided in the Certificate of Designation of the Seller Preferred Stock) of the Common Stock and certain cash dividends and distributions of evidences of indebtedness or assets to holders of certain of the Company's capital stock. The Seller Depositary Shares may be voluntarily converted by the holders thereof upon the same terms and conditions as the Seller Preferred Stock represented by such Seller Depositary Shares, adjusted to reflect the fact that Seller Depositary Shares represent a one-five hundredth interest of a share of Seller Preferred Stock. OPTIONAL REDEMPTION BY COMPANY. The Company may redeem all (but not less than all) of the Seller Preferred Stock at any time during the 90 days following the date of issuance at a redemption price equal to the greater of Liquidation Value or the fair market value of the Seller Preferred Stock, in each case plus accrued and unpaid dividends. Except as provided in the preceding sentence, shares of Seller Preferred Stock will not be redeemable prior to , 2001. On or after such date, the shares of Seller Preferred Stock will be redeemable at the option of the Company, in whole or in part, at any time or from time to time on not less than 30 nor more than 60 days notice by mail, at the redemption prices equal to the Liquidation Value plus a premium based on 70% of the dividend rate (declining ratably on an annual basis until 2010) plus, in each case, accrued and unpaid dividends to the redemption date. MANDATORY REDEMPTION BY COMPANY. On the twelfth anniversary of the date of issuance of the Seller Preferred Stock, the Company must offer to purchase all outstanding shares at the Liquidation Value, plus accrued and unpaid dividends thereon to the date of purchase. REGISTRATION RIGHTS Holders of approximately 4.9 million shares of Common Stock have rights to require the Company to register such shares for sale under the Securities Act. In addition, such holders have the right to have such shares included in a future registration statement relating to Common Stock and, in certain cases, other equity securities, subject to customary provisions relating to the right of the underwriters of any such offering to exclude such shares if their inclusion would impair the success of such offering. In the event such holders exercise their registration rights, the Company will be required to bear all registration expenses other than underwriting discounts or other selling expenses and fees and expenses of counsel to such holders. 98 Upon consummation of the Six Flags Acquisition, Sellers will have the right to require the Company to file a shelf registration statement within 90 days of the closing with respect to the Seller Depositary Shares, as well as the shares of Common Stock issuable upon conversion of the underlying Seller Preferred Stock (the "Conversion Shares") received by them. In addition, Sellers will have the right to require the Company on no more than four occasions to register such shares of Seller Depositary Shares and Conversion Shares for sale under the Securities Act. Sellers may not demand the registration of any of such shares during such time as the shelf registration statement is effective or within six months after the effective date of a registration statement filed in response to a previous demand. Further, Sellers will have the right to have such Seller Depositary Shares included in a future registration statement relating to the Seller Depositary Shares or Common Stock, as the case may be, subject to customary provisions relating to the right of the underwriters of any such offering to exclude such shares if their inclusion would impair the success of such offering. If Sellers exercise their registration rights, the Company will be required to bear all registration expenses other than underwriting discounts and commissions. SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE Upon consummation of the Offerings, the Company will have 32.3 million shares of Common Stock outstanding and 5.0 million EqPINES (initially convertible into 5.0 million shares of Common Stock) outstanding. Future sales of Common Stock (or Seller Depositary Shares) by existing stockholders pursuant to Rule 144 under the Securities Act, or through the exercise of outstanding registration rights or otherwise, could have an adverse effect on the prevailing market price of the Common Stock and the Company's ability to raise additional capital. Except for the Common Stock to be sold in the Common Stock Offering, the Convertible Preferred Stock and shares of Common Stock issued upon conversion of the Convertible Preferred Stock, the Company has agreed not to offer, sell, contract to sell or otherwise issue any shares of Common Stock (except pursuant to outstanding options and warrants) or other capital stock or securities convertible into or exchangeable for, or any rights to acquire, Common Stock or other capital stock, with certain exceptions (including certain exceptions for Common Stock or other capital stock issued or sold in connection with future acquisitions by the Company, including any Common Stock to be issued in connection with the Walibi acquisition), prior to the expiration of 90 days from the date of this Prospectus without the prior written consent of Lehman Brothers. The Company's officers, directors and principal stockholders, who hold in the aggregate approximately 6.0 million shares of Common Stock (including shares issuable upon exercise of outstanding options and warrants and outstanding shares of restricted stock), have agreed not to sell any such shares for 90 days following the date of this Prospectus without the consent of Lehman Brothers. In addition, the Sellers in the Six Flags Acquisition have agreed not to sell any Seller Preferred Stock during such 90-day period. Thereafter, all such shares held by the Company's officers, directors and principal stockholders will be eligible for sale in the public market (subject, in most cases, to applicable volume limitations and other resale conditions imposed by Rule 144). In addition, subject to the "lock-up" arrangements described above and a minimum 41-day "lock-up" agreed to by the sellers in the Walibi acquisition, holders of approximately 4.9 million shares of Common Stock and the holders of Seller Preferred Stock have the right to require the Company to register such shares (and, in the case of the Seller Preferred Stock, the shares of Common Stock issuable upon conversion thereof) for sale under the Securities Act. Depending upon the level of future revenues at Kentucky Kingdom and Walibi, the Company may also be required in the future to issue additional shares of Common Stock (assuming the maximum number of shares of Common Stock are issued in the Walibi Tender Offer) with an aggregate market value of up to $15.0 million to the sellers thereof. See "Prospectus Summary--Other Recent Developments." The Company may also pay quarterly dividend payments on the EqPINES (which aggregate $ million over three years) by issuing additional shares of Common Stock. The sale, or the availability for sale, of substantial amounts of Common Stock or securities convertible into Common Stock in the public market at any time subsequent to the date of this Prospectus could adversely affect the prevailing market price of the Common Stock and the EqPINES. See "-- Registration Rights." 99 RIGHTS PLAN Each outstanding share of Common Stock currently has attached to it one Right issued pursuant to the Rights Agreement. Each Right entitles its registered holder to purchase one one-thousandth of a share of a junior participating series of Preferred Stock designated to have economic and voting terms similar to those of one share of Common Stock, for $250.00, subject to adjustment (the "Rights Exercise Price"), but only after the earlier to occur of (i) the tenth day following a public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the outstanding voting stock of the Company (an "Acquiring Person") or (ii) the tenth business day (or such later date as may be determined by the Board of Directors prior to such time as any person becomes an Acquiring Person) after the date (the "Flip-in Date") of the commencement or announcement of a person's or group's intention to commence a tender or exchange offer whose consummation will result in the ownership of 15% or more of the Company's outstanding voting stock (even if no shares are actually purchased pursuant to such offer) (in either case, the "Separation Time"). The Rights will not trade separately from the shares of Common Stock unless and until the Separation Time occurs. The Rights Agreement provides that an Acquiring Person does not include (A) the Company, (B) any subsidiary of the Company, (C) any employee benefit plan or employee stock plan of the Company, or any trust or other entity organized, appointed, established or holding Common Stock for or pursuant to the terms of any such plan or (D) any person whose ownership of 15% or more of the shares of voting stock of the Company then outstanding results solely from (i) any action or transaction approved by the Board of Directors before such person acquires such 15% beneficial ownership or (ii) a reduction in the number of issued and outstanding shares of voting stock of the Company pursuant to a transaction or transactions approved by the Board of Directors (provided that any person that does not become an Acquiring Person by reason of clause (i) or (ii) above shall become an Acquiring Person upon his acquisition of any additional 1% of the Company's voting stock unless such acquisition of additional voting stock will not result in such person becoming an Acquiring Person by reason of such clause (i) or (ii)). The Rights will not be exercisable until the business day following the Separation Time. The Rights will expire on the earlier of (i) the close of business on December 10, 2007 and (ii) the date on which the Rights are redeemed or terminated as described below. The Rights Exercise Price and the number of Rights outstanding, or in certain circumstances the securities purchasable upon exercise of the Rights, are subject to adjustment upon the occurrence of certain events. Once any person becomes an Acquiring Person, unless the Rights are earlier redeemed or exchanged as described below, if (i) the Company were to be merged into or consolidated with another entity (whether or not related to a 15% stockholder), (ii) the Company were to merge with another entity (whether or not related to a 15% stockholder) and be the surviving corporation, but any shares of the Company's Common Stock were changed into or exchanged for other securities or assets, or (iii) more than 50% of the Company's assets or earning power were to be sold in one or a series of related transactions, each Right then outstanding would "flip-over" and would require that its holder be entitled to buy, at the exercise price, that number of shares of common stock of the acquiring company which at the time of the merger or sale would have a market value of two times the exercise price of the Right (i.e., a discount of 50%). Any business combination not providing for the issuance of common stock of the acquiring company in compliance with such provisions would be prohibited. Unless the Rights are earlier redeemed or exchanged as described below, if a person or group becomes the beneficial owner of 15% or more of the Company's voting stock, each Right not owned by such stockholder would become exercisable, at the Rights Exercise Price, for that number of shares of Preferred Stock which at the time of such transaction would have a market value of two times the Rights Exercise Price. 100 At any time after the acquisition by a person or group of affiliated or associated persons of beneficial ownership of 15% or more of the outstanding voting stock of the Company and before the acquisition by a person or group of 50% or more of the outstanding voting stock of the Company, the Board of Directors may elect to cause the Company to exchange the Rights (other than Rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one share of the Company's Common Stock per Right, subject to adjustment. The Rights are redeemable by the Company by a vote of a majority of the Board of Directors at a price of $.01 per Right at any time prior to the close of business on the Flip-in Date (or at such later date as may be authorized by the Board of Directors and a majority of the Continuing Directors (as defined in the Rights Agreement)). The Rights may be redeemed after the time that any person has become an Acquiring Person only if approved by a majority of the Continuing Directors. The Rights have no voting rights, and they are not entitled to dividends. The Rights will not prevent a takeover of the Company. The Rights, however, may cause substantial dilution to a person or group that acquires 15 percent or more of the Common Stock unless the Rights are first redeemed or terminated by the Board of Directors of the Company. Nevertheless, the Rights should not interfere with a transaction that, in the judgment of the Board of Directors, is in the best interests of the Company and its stockholders because the Rights can be redeemed, as hereinabove described, before the consummation of such transaction. The complete terms of the Rights are set forth in the Rights Agreement. The Rights Agreement is incorporated by reference as an exhibit to the Registration Statement of which this Prospectus is a part, and the foregoing description is qualified in its entirety by reference thereto. A copy of the Rights Agreement can be obtained upon written request to the Rights Agent. DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS Certain provisions of the Delaware General Corporation Law may also be considered to have an anti-takeover effect. Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the time of the transaction in which the person became an interested stockholder unless (i) prior to the time the person became an interested stockholder, either the business combination or the transaction which resulted in the person becoming an interested stockholder is approved by the board of directors of the corporation, (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owns at least 85% of the outstanding voting stock, or (iii) on or after such time the business combination is approved by the board of directors and by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the stockholder. An "interested stockholder" is a person who owns 15% or more of the corporation's outstanding voting stock or who is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder, as well as the affiliates and associates of such person. The restrictions of Section 203 do not apply if, among other things, a corporation, by action of its stockholders, adopts an amendment to its certificate of incorporation or by-laws expressly electing not to be governed by Section 203, PROVIDED THAT, in addition to any other vote required by law, such amendment to the certificate of incorporation or by-laws must be approved by the affirmative vote of a majority of the shares entitled to vote. Moreover, an amendment so adopted is not effective until twelve months after its adoption and does not apply to any business combination between the corporation and any person who became an interested stockholder of such corporation on or prior to such adoption. The Company's Restated Certificate of Incorporation and By-Laws do not currently contain any provisions electing not to be governed by Section 203 of the Delaware General Corporation Law. 101 In addition, the Restated Certificate of Incorporation and By-Laws of the Company contain a number of provisions which may be deemed to have the effect of discouraging or delaying attempts to gain control of the Company, including (i) authorizing the Board of Directors to fix the size of the Board of Directors between three and 15 directors; (ii) authorizing directors to fill vacancies on the Board of Directors that occur between annual meetings; (iii) restricting the persons who may call a special meeting of stockholders; and (iv) authorizing the issuance of Preferred Stock. Further, the applicable Indentures and the Credit Facilities require the Company to make an offer to purchase the Company Senior Discount Notes and the Company Senior Notes and repay all indebtedness under the Credit Facilities upon a Change of Control (as defined therein) of the Company. The existence of the foregoing provisions could result in (i) the Company being less attractive to a potential acquiror and (ii) the Company's stockholders receiving less for their shares of Common Stock than otherwise might be available in the event of a take-over attempt. 102 DESCRIPTION OF EQPINES EACH OF THE EQPINES REPRESENTS BENEFICIAL OWNERSHIP OF ONE-FIVE HUNDREDTH OF A SHARE OF MANDATORILY CONVERTIBLE PREFERRED STOCK AND ENTITLES THE HOLDER (AS EVIDENCED BY ITS RECORD HOLDING OF THE DEPOSITARY RECEIPT (COLLECTIVELY, THE "DEPOSITARY RECEIPTS") EVIDENCING THE EQPINES) TO THAT PROPORTION OF ALL THE RIGHTS, PREFERENCES AND PRIVILEGES OF THE PROPORTIONATE SHARE OF MANDATORILY CONVERTIBLE PREFERRED STOCK REPRESENTED THEREBY. SEE "DESCRIPTION OF DEPOSITARY ARRANGEMENTS". THE SUMMARY OF THOSE RIGHTS, PREFERENCES AND PRIVILEGES AND OTHERWISE OF THE TERMS OF THE EQPINES CONTAINED HEREIN DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ALL OF THE PROVISIONS OF THE FORM OF CERTIFICATE OF DESIGNATION RELATING TO THE SHARES OF MANDATORILY CONVERTIBLE PREFERRED STOCK (THE "CERTIFICATE OF DESIGNATION"), A COPY OF WHICH HAS BEEN FILED WITH THE COMMISSION AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. DIVIDENDS Holders of the EqPINES will be entitled to receive, through the Depositary, when, as and if declared on the Mandatorily Convertible Preferred Stock represented thereby by the Board of Directors, dividends from the date of initial issuance of the EqPINES (which issuance will be evidenced by the initial issuance of the Depositary Receipts) (the "Issue Date") at the rate of $ per annum or $ per quarter payable quarterly in arrears on January 1, April 1, July 1 and October 1 or, if any such date is not a Business Day (as defined herein), on the next succeeding Business Day (each such date, a "Regular Dividend Payment Date"). The first dividend will be for the period from the Issue Date to, but excluding, July 1, 1998, and will be payable on such date. Dividends will be payable on the Mandatorily Convertible Preferred Stock to holders of record of shares of Mandatorily Convertible Preferred Stock as they appear on the stock register of the Company on record dates not less than 15 nor more than 60 days preceding the payment date thereof, as will be fixed by the Board of Directors. The Depositary will be the holder of record of shares of Mandatorily Convertible Preferred Stock represented by the EqPINES, and dividends paid by the Company in respect of such shares of Mandatorily Convertible Preferred Stock will, accordingly, be paid to the Depositary. The Depositary will distribute dividends on the Mandatorily Convertible Preferred Stock paid to it by the Company to holders of the EqPINES in accordance with the procedures described in "Description of Depositary Arrangements--Dividends and Other Distributions." Dividends will cease to become payable by the Company to the Depositary for distribution to the holders of the EqPINES when dividends cease to accrue on the Mandatorily Convertible Preferred Stock represented thereby on the Mandatory Conversion Date or on the date of the earlier conversion of the EqPINES at the option of the holder. Dividends distributed through the Depositary to the holders of the EqPINES for any period less than a full quarterly dividend period will be paid by the Company to the Depositary on the Mandatorily Convertible Preferred Stock represented thereby on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in any period less than one month. Dividends on the Mandatorily Convertible Preferred Stock will accrue whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared. Accrued but unpaid dividends on the Mandatorily Convertible Preferred Stock will cumulate as of the dividend payment date on which they first become payable, but no interest will accrue on any accumulated but unpaid dividends. Dividends may be paid, at the election of the Company, (i) out of funds legally available therefor, (ii) through the delivery of shares of Common Stock or (iii) through any combination of the foregoing, provided that a dividend may be paid in whole or in part by delivery of shares of Common Stock only if paid on the Regular Dividend Payment Date for such dividend. If the Company elects to pay any dividend, in whole or in part, by delivery of shares of Common Stock, the amount of such dividend payment to be distributed per EqPINES in shares of Common Stock (the "Stock Dividend Amount") will be distributed by the Depositary to the holders of EqPINES which are holders on the record date for such dividend payment. The Depositary will deliver to each such holder of EqPINES, for each EqPINES held, a number of shares of Common Stock determined by dividing the dollar amount of the Stock Dividend Amount by 103 an amount (the "Cash Equivalent Amount") equal to 95% of the average Closing Price (as defined herein) per share of Common Stock on the ten Trading Days (as defined herein) ending on the third Trading Day preceding the related record date (the "Dividend Stock Price") (appropriately adjusted in such manner as the Board of Directors in good faith deems appropriate to take into account any stock dividend on the Common Stock, or any subdivision, split, combination or reclassification of the Common Stock that occurs, or the ex-dividend date for which occurs, during the period following the first Trading Day in such ten- Trading Day Period and ending on the last full Trading Day immediately preceding the payment of the dividend). The Dividend Stock Price for any dividend which will be paid, in whole or in part, through the delivery of shares of Common Stock will be determined on the related record date for such dividend payment. The Depositary will deliver a cash adjustment as described under "--Fractional Shares" in lieu of delivering a fractional share in distributing a dividend payable in Common Stock to a holder of EqPINES if delivering shares of Common Stock on the basis of that holder's aggregate holdings of EqPINES on the related record date would otherwise result in delivery of a fractional share. Any portion of a dividend on the Mandatorily Convertible Preferred Stock that is declared and not paid by the Company through delivery of shares of Common Stock on the related Regular Dividend Payment Date will be paid in cash. The market price of the Common Stock may vary from the Dividend Stock Price between the date of determination of such Dividend Stock Price and the subsequent delivery of shares of Common Stock, in payment of a dividend, by the Depositary to the holders of EqPINES entitled thereto. If the market value on the related dividend payment date of the shares of Common Stock delivered in payment of a dividend is more than 5% lower than the Dividend Stock Price as of the related record date and the holder of the EqPINES who receives the dividend sells such shares of Common Stock at such lower price, the holder's actual dividend yield for the dividend period in respect of which such dividend was paid would be lower than the stated dividend yield on the EqPINES. In addition, in connection with any such sale the holder is likely to incur commissions and transaction costs. If the Company elects to make a dividend payment, in whole or in part, through the delivery of shares of Common Stock, it will give notice of such determination by publication, on the related record date for such dividend payment, in a daily newspaper of national circulation. The EqPINES, as representative of beneficial ownership interests in the Mandatorily Convertible Preferred Stock, will rank on a parity, both as to payment of dividends and distribution of assets upon liquidation, with the Seller Preferred Stock and any other preferred stock issued in the future by the Company that by its terms ranks PARI PASSU with the Mandatorily Convertible Preferred Stock. Whether or not the Mandatory Conversion Date has occurred, (A) no dividends (other than dividends payable in shares of, or warrants, rights or options exercisable for or convertible into shares of, any capital stock, including without limitation, the Common Stock, of the Company ranking junior to the Mandatorily Convertible Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation (collectively "Junior Stock") and cash in lieu of fractional shares in connection with any such dividend) may be paid or declared in cash or otherwise, nor may any other distribution be made (other than a distribution payable in Junior Stock and cash in lieu of fractional shares in connection with any such distribution), on any Junior Stock; (B) no shares of any Junior Stock may be purchased, redeemed or otherwise acquired by the Company or any of its subsidiaries (except in connection with a reclassification or exchange of any Junior Stock through the issuance of other Junior Stock (and cash in lieu of fractional shares in connection therewith) or the purchase, redemption or other acquisition of any Junior Stock (i) with any Junior Stock (and cash in lieu of fractional shares in connection therewith) or (ii) in connection with purchases in an aggregate amount up to $5.0 million from employees of the Company on termination of their employment for whatever reason) nor may any funds be set 104 aside or made available for any sinking funds for the purchase, redemption or acquisition of any Junior Stock; and (C) no dividends or other distributions may be declared or paid on any Preferred Stock (including the Mandatorily Convertible Preferred Stock) that does not constitute Junior Stock ("Parity Preferred Stock") (other than dividends or other distributions payable in Junior Stock and cash in lieu of fractional shares in connection therewith), and the Company may not purchase, redeem or otherwise acquire any Parity Preferred Stock (except with any Junior Stock and cash in lieu of fractional shares in connection therewith and except with the right, subject to the requirement set out following clause (iv) of this paragraph and any similar requirement of any other Preferred Stock, to receive accrued and unpaid dividends) unless, in the case of either (A) or (B) or (C): (i) full dividends on Parity Preferred Stock have been paid, or declared and set aside for payment, for all dividend periods terminating on or prior to the date of such dividend, distribution, purchase, redemption, acquisition, setting aside or making available, as applicable, to the extent such dividends are cumulative, (ii) dividends in full for the current quarterly dividend period have been paid, or declared and set aside for payment, on all Parity Preferred Stock to the extent such dividends are cumulative, (iii) the Company has paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all purchase, retirement, and sinking funds, if any, for any Parity Preferred Stock, and (iv) the Company is not in default on any of its obligations to redeem any Parity Preferred Stock, or, in the case of (C) only, with respect to the declaration and payment of dividends on Parity Preferred Stock, any such dividends are declared and paid pro rata so that the amounts of any dividends declared and paid per share of Mandatorily Convertible Preferred Stock and each other share of Parity Preferred Stock will in all cases bear to each other the same ratio that accrued and unpaid dividends (including any accumulation with respect to unpaid dividends for prior dividend periods, if such dividends are cumulative) per share of Mandatorily Convertible Preferred Stock and such other share of Parity Preferred Stock bear to each other. MANDATORY CONVERSION OF EQPINES Unless voluntarily converted into Common Stock prior thereto, on , 2001 (the "Mandatory Conversion Date"), each EqPINES will automatically convert into a number of shares of Common Stock at the Conversion Rate (as defined below) and the holder thereof will have the right to receive cash in an amount equal to the accrued and unpaid dividends on the Mandatorily Convertible Preferred Stock represented by such EqPINES to the Mandatory Conversion Date (other than previously declared dividends deliverable to a holder of record of the Depositary Receipt evidencing such EqPINES as of a prior date), whether or not declared (the "Accrued Amount"), out of funds legally available for the payment of dividends, subject to the requirement set forth following clause (iv) of the immediately preceding paragraph and any other similar requirement of any other Preferred Stock. The "Conversion Rate" is equal to (a) if the Conversion Price (as defined below) is greater than or equal to $ (the "Threshold Appreciation Price"), shares of Common Stock per EqPINES, (b) if the Conversion Price is less than the Threshold Appreciation Price but is greater than $ (the "Initial Price"), a fraction, equal to the Initial Price divided by the Conversion Price, of one share of Common Stock per EqPINES and (c) if the Conversion Price is less than or equal to the Initial Price, one share of Common Stock per EqPINES. Each of the Conversion Rate, the Threshold Appreciation Price and the Initial Price are subject to adjustment as provided in "--Conversion Adjustments." THE VALUE 105 OF THE COMMON STOCK TO BE RECEIVED BY HOLDERS OF THE EqPINES UPON MANDATORY CONVERSION WILL NOT NECESSARILY EQUAL THE LIQUIDATION VALUE OF THE EqPINES. Any shares of Common Stock received by holders of EqPINES that are not affiliated with the Company will be free of any transfer restrictions and the holders of the EqPINES will be responsible for the payment of any and all brokerage costs upon the subsequent sale of such shares. No fractional shares of Common Stock will be delivered by the Depositary to the holders of EqPINES upon mandatory conversion on the Mandatory Conversion Date (see "--Fractional Shares" below). Notwithstanding the foregoing, (i) in the case of certain dilution events, the Conversion Rate, the Threshold Appreciation Price and the Initial Price will be subject to adjustment and (ii) in the case of certain adjustment events, the consideration received by holders of the EqPINES upon mandatory conversion at the Mandatory Conversion Date will be shares of Common Stock, other securities and/or cash. See "--Conversion Adjustments" and "--Adjustment for Certain Consolidations or Mergers" below. The "Conversion Price" is the average Closing Price per share of Common Stock for the 20 Trading Days immediately prior to (but not including) the Mandatory Conversion Date; provided, however, that, if there are not 20 Trading Days for the Common Stock occurring later than the 60th calendar day immediately prior to, but not including, the Mandatory Conversion Date, the "Conversion Price" will be the market value per share of Common Stock as of the Mandatory Conversion Date as determined by a nationally recognized investment banking firm retained for such purpose by the Company. The "Closing Price" of any security on any date of determination means (i) the closing sale price (or, if no closing sale price is reported, the last reported sale price) of such security (regular way) on the NYSE on such date, (ii) if such security is not listed for trading on the NYSE on any such date, as reported in the composite transactions for the principal United States securities exchange on which such security is so listed, (iii) if such security is not so listed on a United States national or regional securities exchange, as reported by the NASDAQ Stock Market, (iv) if such security is not so reported, the last quoted bid price for such security in the over-the-counter market as reported by the National Quotation Bureau or similar organization, or (v) if such security is not so quoted, the average of the mid-point of the last bid and ask prices for such security from each of at least three nationally recognized investment banking firms selected by the Company for such purpose. A "Trading Day" is defined as a Business Day on which the security, the Closing Price of which is being determined, (A) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (B) has traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of such security. "Business Day" means any day that is not a Saturday, a Sunday or a day on which the NYSE, banking institutions or trust companies in The City of New York are authorized or obligated by law or executive order to close. For illustrative purposes only, the following chart shows the number of shares of Common Stock that a holder of EqPINES would receive for each EqPINES at various Conversion Prices. The table assumes that there will be no adjustments to the Conversion Rate described under "--Conversion Adjustments" and "--Adjustment for Certain Consolidations or Mergers" below. There can be no assurance that the Conversion Price will be within the range set forth below. Given the Initial Price of $ per EqPINES and the Threshold Appreciation Price of $ per EqPINES, a holder of EqPINES 106 would receive, through the Depositary, upon mandatory conversion at the Mandatory Conversion Date the following number of shares of Common Stock: CONVERSION PRICE NUMBER OF SHARES OF COMMON STOCK OF COMMON STOCK (1) - --------------------------- --------------------------------- $ - ------------------------ (1) In lieu of any fractional share otherwise deliverable in respect of the aggregate number of EqPINES of any holder that are converted upon mandatory conversion, such holder will be entitled to receive an amount in cash equal to the same fraction of the Closing Price of the Common Stock as of the fifth Trading Day immediately preceding the Mandatory Conversion Date. As the foregoing chart illustrates, if upon mandatory conversion at the Mandatory Conversion Date the Conversion Price is greater than or equal to $ , the Company will be obligated to deliver, through the Depositary, shares of Common Stock per EqPINES, resulting in the holders of the EqPINES receiving only % of the appreciation in market value of the Common Stock above $ . If upon mandatory conversion at the Mandatory Conversion Date, the Conversion Price is greater than $ and less than $ , the Company will be obligated to deliver, through the Depositary, only a fraction of a share of Common Stock having a market value equal to $ per EqPINES, resulting in the holders of the EqPINES receiving none of the appreciation in the market value of the Common Stock from $ to $ . If upon mandatory conversion at the Mandatory Conversion Date, the Conversion Price is less than or equal to $ , the Company will be obligated to deliver, through the Depositary, one share of Common Stock per EqPINES, regardless of the market price of such shares, resulting in the holders of the EqPINES realizing the entire loss on the decline in market value of the Common Stock. CONVERSION AT THE OPTION OF THE HOLDER The EqPINES are convertible, in whole but not in part, at the option of the holders thereof, at any time prior to the Mandatory Conversion Date, into shares of Common Stock at a rate of shares of Common Stock for each EqPINES (the "Optional Conversion Rate"), equivalent, for each EqPINES, to a conversion price of $ per share of Common Stock (the "Optional Conversion Price"), subject to adjustment as described under "--Conversion Adjustments" and "--Adjustment for Certain Consolidations or Mergers" below. No fractional shares of Common Stock will be delivered by the Depositary to the holders of EqPINES upon their optional conversion (see "--Fractional Shares" below). Conversions of EqPINES at the option of the holders may be effected in accordance with the procedures described in "Description of Depositary Arrangements--Conversion Provisions--Conversion at the Option of the Holder." Holders of EqPINES at the close of business on a record date for any payment of declared dividends on the Mandatorily Convertible Preferred Stock will be entitled to receive the dividends so declared on the corresponding dividend payment date notwithstanding the optional conversion of the EqPINES following such record date and prior to such dividend payment date. However, EqPINES (as evidenced by Depositary Receipts) surrendered for optional conversion after the close of business on a record date for any payment of declared dividends and before the opening of business on the next succeeding dividend payment date must be accompanied by payment in cash of an amount equal to the dividend payable on such date. Except as provided above, upon any optional conversion of EqPINES, the Company will make no payment of or allowance for unpaid dividends, whether or not in arrears, through the Depositary on such EqPINES or previously declared dividends or distributions on the shares of Common Stock issued upon such conversion. 107 CONVERSION ADJUSTMENTS The Conversion Rate and the Optional Conversion Rate are each subject to adjustment as appropriate in certain circumstances, including if the Company shall (a) pay a stock dividend or make a distribution with respect to its Common Stock in shares of Common Stock, (b) subdivide or split its outstanding Common Stock, (c) combine its outstanding Common Stock into a smaller number of shares, (d) issue by reclassification of its shares of Common Stock any shares of Common Stock, (e) issue rights or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price (as defined below) of the Common Stock on the record date for the determination of stockholders entitled to receive such rights or warrants, or (f) pay a dividend or distribute to all holders of its Common Stock evidences of its indebtedness, cash or other assets (including capital stock of the Company but excluding any cash dividends or distributions, other than Extraordinary Cash Distributions (as defined below), and dividends referred to in clause (a) above) or issue rights or warrants (other than those referred to in clause (e) above) to all holders of its Common Stock entitling them to subscribe for or purchase any of its securities. If an adjustment is made to the Conversion Rate pursuant to any of clauses (a) through (f) above, an adjustment will also be made to the Threshold Appreciation Price and Initial Price as such terms are used to determine which of clauses (a), (b) or (c) of the definition will apply at the Mandatory Conversion Date and for purposes of calculating the fraction in clause (b) of such definition. The required adjustments to the Threshold Appreciation Price and the Initial Price will be made at the Mandatory Conversion Date by multiplying each by the inverse of the fractional adjustment made to the Conversion Rate in such circumstances pursuant to the Certificate of Designation. In addition, the Company will be entitled (but will not be required) to make upward adjustments in the Conversion Rate and the Optional Conversion Rate as the Company, in its sole discretion, shall determine to be advisable, in order that any stock dividend, subdivision or split of shares, distribution of rights to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock (or any transaction which could be treated as any of the foregoing transactions pursuant to Section 305 of the Internal Revenue Code of 1986, as amended (the "Code")) hereafter made by the Company to its stockholders will not be taxable in whole or in part. "Current Market Price" means, as of any date of determination, the average Closing Price per share of Common Stock for the 20 Trading Days immediately prior to the date of determination; provided, however, that if there are not 20 Trading Days for the Common Stock occurring later than the 60th calendar day immediately prior to, but not including, such date, the Current Market Price will be determined as the market value per share of Common Stock as of such date as determined by a nationally recognized investment banking firm retained for such purpose by the Company. "Extraordinary Cash Distributions" means, with respect to any cash dividend or distribution paid on any date, the amount, if any, by which all cash dividends and cash distributions on the Common Stock paid during the consecutive 12-month period ending on and including such date (other than cash dividends and cash distributions for which an adjustment to the Conversion Rate or the Optional Conversion Rate was previously made) exceeds, on a per share of Common Stock basis, 10% of the average of the daily Closing Price of the Common Stock over such consecutive 12-month period. All adjustments to the Conversion Rate and the Optional Conversion Rate will be calculated to the nearest 1/100th of a share of Common Stock. No adjustment in the Conversion Rate or the Optional Conversion Rate will be required unless such adjustment would require an increase or decrease of at least 1% therein; PROVIDED, HOWEVER, that any adjustments which, by reason of the foregoing, are not required to be made will be carried forward and taken into account in any subsequent adjustment. All adjustments will be made successively. Whenever the Conversion Rate, the Threshold Appreciation Price, the Initial Price and the Optional Conversion Rate are adjusted as provided in the preceding paragraph, the Company will file with the Depositary and the transfer agent for the shares of Mandatorily Convertible Preferred Stock a certificate with respect to such adjustment, make a prompt public announcement thereof and mail a notice to holders of the EqPINES. 108 No adjustment will be made to the Conversion Rate, the Threshold Appreciation Price, the Initial Price or the Optional Conversion Rate in the event that the Company issues Common Stock for cash, including at prices below its then-existing market price, the Conversion Price or the Optional Conversion Price. The Conversion Rate, the Threshold Appreciation Price, the Initial Price and the Optional Conversion Rate will also not be adjusted for other events, such as issuances of Common Stock in connection with acquisitions, that may adversely affect the market price of the Common Stock. See "Risk Factors--Dilution of Common Stock." ADJUSTMENT FOR CERTAIN CONSOLIDATIONS OR MERGERS In case of any consolidation or merger to which the Company is a party (other than a merger or consolidation in which the Company is the surviving or continuing corporation and in which each share of Common Stock outstanding immediately prior to the merger or consolidation remains unchanged in all material respects), or in case of any sale or transfer to another corporation of the property of the Company as an entirety or substantially as an entirety, or in case of any statutory exchange of securities with another corporation (other than in connection with a merger or acquisition), each EqPINES will, after consummation of such transaction, be subject to (i) conversion at the option of the holder into the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock (including fractional shares for this purpose) into which such EqPINES might have been converted immediately prior to consummation of such transaction and (ii) conversion on the Mandatory Conversion Date into the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock (including fractional shares for this purpose) into which such EqPINES would have been converted if the conversion on the Mandatory Conversion Date had occurred immediately prior to the date of consummation of such transaction, plus the right, subject to the rights of other Preferred Stock, to receive, through the Depositary, cash in an amount equal to all accrued and unpaid dividends on the Mandatorily Convertible Preferred Stock represented by such EqPINES (other than previously declared dividends deliverable to a holder of record of the Depositary Receipt evidencing such EqPINES as of a prior record date); and assuming in each case that such holder of shares of Common Stock failed to exercise rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon consummation of such transaction (provided that, if the kind or amount of securities, cash or other property receivable upon consummation of such transaction is not the same for each non-electing share, then the kind and amount of securities, cash or other property receivable upon consummation of such transaction for each non-electing share will be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). The kind and amount of securities into or for which the EqPINES will be convertible after consummation of such transaction will be subject to adjustment as described above under the caption "--Conversion Adjustments" following the date of consummation of such transaction. The Company may not become a party to any such transaction unless the terms thereof are consistent with the foregoing. FRACTIONAL SHARES No fractional shares of Common Stock will be delivered by the Depositary upon conversion of the EqPINES. In lieu of any fractional share otherwise deliverable in respect of the aggregate number of EqPINES of any holder that are converted upon mandatory conversion or any voluntary conversion, such holder will be entitled to receive an amount in cash equal to the same fraction of the Closing Price of the Common Stock (A) as of the fifth Trading Day immediately preceding the Mandatory Conversion Date, in the case of mandatory conversion, or (B) as of the second Trading Day immediately preceding the effective date of conversion, in the case of an optional conversion by a holder. If more than one EqPINES is surrendered for conversion at one time by or for the same holder, the number of shares of Common Stock issuable upon conversion thereof will be computed on the basis of the aggregate number of EqPINES so converted. 109 In addition, no fractional shares of Common Stock will be delivered by the Depositary to holders of the EqPINES in connection with the Depositary's distribution of dividends on the Mandatorily Convertible Preferred Stock paid by the Company to it in shares of Common Stock. In lieu of any fractional share otherwise so deliverable, such holders will be entitled to receive an amount in cash equal to the same fraction of the Closing Price of the Common Stock determined as of the fifth Trading Day immediately preceding the dividend payment date. On the Mandatory Conversion Date, the fractional share of Common Stock that any holder of EqPINES would otherwise be entitled to receive shall be determined by adding all the fractional shares such holder would otherwise be entitled to receive on the mandatory conversion of all EqPINES held by such holder and on the payment of the regular quarterly dividend on all EqPINES held by such holder. On that date, the Company may, at its option, deliver any resulting whole number of shares in shares of Common Stock and the resulting fraction in cash. In the event that (i) mandatory conversion of the EqPINES, (ii) voluntary conversions of EqPINES, (iii) the Depositary's delivery of shares of Common Stock as dividends to the holders of EqPINES, (iv) the combination of (i) and (iii) pursuant to the preceding sentence or (v) any combination of the foregoing result in more than one holder of EqPINES being entitled to cash in lieu of a fractional share on the related date of conversion or dividend payment, as applicable, the Company will deliver to the Depositary for distribution to the holders of the EqPINES cash in an amount equal to the total amount of cash to which all holders of EqPINES are entitled in lieu of fractional shares on such date. If payment in cash in lieu of fractional shares of Common Stock in accordance with the preceding three paragraphs would result in the Company's failure to be in compliance with any debt instrument to which it is a party, the Company will be entitled to deliver a whole share of Common Stock in lieu of cash to holders of EqPINES entitled to fractional shares of Common Stock (beginning with the holders entitled to the largest fractional shares) until delivery of cash in lieu of fractional shares of Common Stock to the remaining holders of EqPINES would no longer result in the Company's failure to be in compliance with such debt instrument. LIQUIDATION RIGHTS In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, and subject to the rights of holders of any other series of Preferred Stock, the holders of EqPINES will be entitled to receive an amount equal to the per share price to public of the EqPINES shown on the cover page of this Prospectus plus accrued and unpaid dividends on the Mandatorily Convertible Preferred Stock represented thereby, out of the assets of the Company available for distribution to stockholders, before any distribution of assets is made to holders of Junior Stock upon liquidation, dissolution or winding up. If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the assets of the Company are insufficient to permit the payment of the full preferential amounts payable with respect to shares of Mandatorily Convertible Preferred Stock and all other series of Parity Preferred Stock, the holders of shares of Mandatorily Convertible Preferred Stock and of all other series of Parity Preferred Stock will share ratably in any distribution of assets of the Company in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of Mandatorily Convertible Preferred Stock will not be entitled to any further participation in any distribution of assets by the Company. A consolidation or merger of the Company with one or more corporations or a sale or transfer of substantially all of the assets of the Company shall not be deemed to be a liquidation, dissolution or winding up of the Company. 110 VOTING RIGHTS The holders of shares of Mandatorily Convertible Preferred Stock (including shares of Mandatorily Convertible Preferred Stock represented by EqPINES) will not be entitled to any voting rights, except as required by applicable state law and as described below. In the event that dividends on the Mandatorily Convertible Preferred Stock (including shares of Mandatorily Convertible Preferred Stock represented by EqPINES) or any other series of Preferred Stock are in arrears and unpaid for six quarterly dividend periods, or if any other series of Preferred Stock shall be entitled for any other reason to exercise voting rights, separate from the Common Stock, to elect any Directors of the Company ("Preferred Stock Directors"), the holders of the shares of Mandatorily Convertible Preferred Stock (voting separately as a class with holders of all other series of Preferred Stock which does not have a separate class vote and upon which like voting rights have been conferred and are exercisable), with each share of Mandatorily Convertible Preferred Stock entitled to 500 votes (equivalent to one vote for each EqPINES) on this and other matters in which Preferred Stock votes as a group, will be entitled to vote for the election of two Preferred Stock Directors, such Directors to be in addition to the number of Directors constituting the Board of Directors immediately prior to the accrual of such right. Such right, when vested, will continue until all dividends in arrears on the Mandatorily Convertible Preferred Stock and such series of Preferred Stock will have been paid in full and the right of any other series of Preferred Stock to exercise voting rights, separate from the Common Stock, to elect any Preferred Stock Directors will terminate or have terminated, and, when so paid and such termination occurs or has occurred, such voting right will cease. Upon any termination of the aforesaid voting right, subject to the requirements of the Delaware corporation law and the Restated Certificate of Incorporation of the Company, such Preferred Stock Directors will cease to be Directors of the Company and will resign. The Company will not, without the approval of the holders of at least 66 2/3 percent of all the shares of Mandatorily Convertible Preferred Stock then outstanding: (i) amend, alter or repeal any of the provisions of the Restated Certificate of Incorporation or the By-laws of the Company so as to affect adversely the powers, preferences or rights of the holders of the shares of Mandatorily Convertible Preferred Stock then outstanding or reduce the minimum time required for any notice to which only the holders of the shares of Mandatorily Convertible Preferred Stock then outstanding may be entitled (an amendment of the Restated Certificate of Incorporation to authorize or create, or increase the authorized amount of or to issue, Junior Stock, preferred stock ranking on parity with the shares of Mandatorily Convertible Preferred Stock or any stock of any class ranking on parity with the shares of Mandatorily Convertible Preferred Stock will be deemed not to affect adversely the powers, preferences or rights of the holders of the shares of Mandatorily Convertible Preferred Stock); (ii) create any series of preferred stock ranking prior to the shares of Mandatorily Convertible Preferred Stock as to payment of dividends or the distribution of assets upon liquidation; or (iii) authorize or create, or increase the authorized amount of, any capital stock, or any security convertible into capital stock, of any class ranking prior to the shares of Mandatorily Convertible Preferred Stock as to payment of dividends or the distribution of assets upon liquidation. TRANSFER AGENT AND REGISTRAR The Bank of New York will act as transfer agent and registrar for, and paying agent for the payment of dividends on, the EqPINES and shares of Mandatorily Convertible Preferred Stock. LISTING Application will be made to list the EqPINES and the Common Stock issuable on conversion of the Mandatorily Convertible Preferred Stock on the NYSE. The Mandatorily Convertible Preferred Stock will not be so listed and the Company does not expect that there will be any trading market for the Mandatorily Convertible Preferred Stock except as represented by the EqPINES. 111 FEDERAL INCOME TAX CONSEQUENCES The following is a general discussion regarding the material United States Federal income tax consequences expected to apply to a holder with respect to the purchase, ownership and disposition of the shares of EqPINES representing interests in Mandatorily Convertible Preferred Stock. This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations promulgated thereunder and the administrative and judicial interpretations thereof, all as in effect on the date of this Prospectus. This discussion is intended for informational purposes only, and does not address aspects of taxation, other than Federal income taxation, or all tax consequences that may be relevant in the particular circumstances of each holder (some of which, such as dealers in securities, banks, insurance companies, tax-exempt organizations and foreign persons, may be subject to special rules). There can be no assurance that future changes in applicable law or administrative and judicial interpretations thereof, any of which could have a retroactive effect, will not adversely affect the tax consequences discussed herein or that there will not be differences of opinion as to the interpretation of applicable law. Stock having terms closely resembling those of the shares of Mandatorily Convertible Preferred Stock has not been the subject of any regulation, ruling or judicial decision currently in effect, and there can be no assurance that the Service will take the positions set forth below. The Company has not and will not seek a ruling from the Service as to any tax matters relating to the shares of Mandatorily Convertible Preferred Stock. PERSONS CONSIDERING THE PURCHASE OF SHARES OF MANDATORILY CONVERTIBLE PREFERRED STOCK SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION. THE FOLLOWING DISCUSSION RELATES ONLY TO SHARES OF MANDATORILY CONVERTIBLE PREFERRED STOCK OR SHARES OF COMMON STOCK RECEIVED UPON CONVERSION THEREOF OR IN EXCHANGE THEREFOR THAT ARE HELD AS CAPITAL ASSETS WITHIN THE MEANING OF SECTION 1221 OF THE CODE. THIS SUMMARY PERTAINS ONLY TO A HOLDER THAT IS (I) A CITIZEN OR RESIDENT OF THE U.S. FOR U.S. FEDERAL INCOME TAX PURPOSES, (II) AN ESTATE SUBJECT TO U.S. FEDERAL INCOME TAXATION WITHOUT REGARD TO THE SOURCE OF ITS INCOME, (III) A CORPORATION CREATED OR ORGANIZED IN OR UNDER THE LAWS OF THE U.S. OR ANY POLITICAL SUBDIVISION THEREOF OR (IV) A TRUST WHICH IS SUBJECT TO THE SUPERVISION OF A COURT WITHIN THE U.S. AND THE CONTROL OF A U.S. FIDUCIARY. EQPINES Holders of the EqPINES will be treated for United States federal income tax purposes as owners of the shares of Mandatorily Convertible Preferred Stock represented by the EqPINES. Accordingly, the tax treatment of the owners of the EqPINES will be the same as the tax treatment of the owners of the Mandatorily Convertible Preferred Stock as described below. Thus, upon the withdrawal of shares of Mandatorily Convertible Preferred Stock in exchange for Depositary Receipts evidencing the ownership of EqPINES as provided in the Depositary Agreement, (i) no gain or loss will be recognized by an exchanging holder, (ii) the tax basis of each share of Mandatorily Convertible Preferred Stock to an exchanging holder will be the same as the aggregate tax basis of the EqPINES exchanged therefor, and (iii) the holding period for shares of Mandatorily Convertible Preferred Stock in the hands of an exchanging holder will include the period during which such holder held the EqPINES exchanged therefor. References in this section "Federal Income Tax Consequences," to holders of the Mandatorily Convertible Preferred Stock will mean both holders of shares of Mandatorily Convertible Preferred Stock and holders of EqPINES representing shares of Mandatorily Convertible Preferred Stock. References to shares of Mandatorily Convertible Preferred Stock will mean both shares of Mandatorily Convertible Preferred Stock and EqPINES. DIVIDENDS. Dividends paid on the shares of Mandatorily Convertible Preferred Stock out of the Company's current or accumulated earnings and profits will be taxable as ordinary income and will generally will qualify for the 70 percent intercorporate dividends-received deduction provided that the 112 minimum holding period (generally at least 46 days) and that other applicable requirements are satisfied, and subject further to the discussion of Code Section 1059(f), below. Under certain circumstances, a corporate holder may be subject to the alternative minimum tax with respect to a portion of the amount of its dividends-received deduction. To the extent the Company does not have sufficient current or accumulated earnings and profits in the years that the Mandatorily Convertible Preferred Stock is outstanding, distributions made with respect to the Mandatorily Convertible Preferred Stock for any such year will be treated as a return of capital rather than a taxable dividend. Such distributions will reduce the holder's tax basis in its Mandatorily Convertible Preferred Stock and, to the extent distributions exceed such tax basis they will be treated as capital gain. Such distributions will not be eligible for the dividends-received deduction. It is uncertain whether the Company currently has, and whether it will have prior to the Mandatory Conversion Date, any current or accumulated earnings and profits. Under certain circumstances, a corporation that receives an "extraordinary dividend," as defined in Section 1059(c) of the Code, is required to reduce its stock basis by the non-taxed portion of such dividend. Generally, quarterly dividends that are not in arrears and that are paid to an original holder of the shares of Mandatorily Convertible Preferred Stock will not constitute extraordinary dividends under Section 1059(c). However, under Section 1059(f), any dividend with respect to "disqualified preferred stock" is treated as an "extraordinary dividend." For this purpose, "disqualified preferred stock" includes stock which is preferred as to dividends if the issue price of such stock exceeds its liquidation rights or redemption price. However, although the issue is not free from doubt, it is believed that the Mandatorily Convertible Preferred Stock is not "disqualified preferred stock." DISTRIBUTION OF COMMON STOCK IN LIEU OF CASH DIVIDEND. If the Company pays a distribution on the Mandatorily Convertible Preferred Stock in the form of Common Stock, such distribution will be taxable in the same manner as distributions described above under "Dividends." The amount of such distribution will equal the fair market value on the distribution date of the Common Stock distributed to a holder on that date. A holder's tax basis in Common Stock so received will equal the fair market value of such Common Stock on the distribution date, and such holder's holding period for such Common Stock will commence on the day following the distribution date. REDEMPTION PREMIUM. Under certain circumstances, Section 305(c) of the Code requires that any excess of the redemption price of redeemable preferred stock over its issue price be includable in income, prior to receipt, as a constructive dividend. However, although the issue is not free from doubt it is believed that Section 305(c) does not apply to stock with terms such as those of the shares of Mandatorily Convertible Preferred Stock. MANDATORY OR OPTIONAL CONVERSION INTO COMMON STOCK. Gain or loss generally will not be recognized by a holder upon the conversion of shares of Mandatorily Convertible Preferred Stock into shares of Common Stock if no cash is received. Income may be recognized, however, to the extent Common Stock or cash is received in payment of accrued and unpaid dividends upon a conversion. Such income would probably be characterized as dividend income although some uncertainty exists as to the appropriate characterization of payments in satisfaction of undeclared accrued and unpaid dividends. In addition, a holder who receives cash in lieu of a fractional share will be treated as having received the fractional share and exchanged it for cash in a transaction subject to Section 302 of the Code and related provisions. This exchange generally should result in capital gain or loss measured by the difference between the cash received for the fractional share interest and the holder's basis in the fractional share. Generally, a holder's tax basis in the Common Stock received upon the conversion of the shares of Mandatorily Convertible Preferred Stock, other than shares of Common Stock taxed upon receipt, will equal the adjusted tax basis of the converted shares of Mandatorily Convertible Preferred Stock (exclusive of any basis allocable to a fractional share interest) and the holding period of such Common Stock will include the holding period of the converted shares of Mandatorily Convertible Preferred Stock. 113 ADJUSTMENT OF CONVERSION RATE. Certain adjustments (or failure to make adjustments) to the Conversion Rate and the Optional Conversion Rate to reflect the Company's issuance of certain rights, warrants, evidences of indebtedness, securities or other assets to holders of Common Stock may result in constructive distributions taxable as dividends to the holders of the shares of Mandatorily Convertible Preferred Stock which may constitute (and cause other dividends to constitute) "extraordinary dividends" to corporate holders as described above. CONVERSION OF MANDATORILY CONVERTIBLE PREFERRED STOCK AFTER DIVIDEND RECORD DATE. If a holder of shares of Mandatorily Convertible Preferred Stock exercises the holder's right to convert the shares of Mandatorily Convertible Preferred Stock into shares of Common Stock after a dividend record date but before payment of the dividend, then, upon conversion the holder generally will be required to pay the Company an amount equal to the portion of such dividend attributable to the current quarterly dividend period, which amount would increase the tax basis of the Common Stock received. The holder would recognize the dividend payment as income in accordance with the rules described under "Dividends" above. DISPOSITION OF MANDATORY CONVERTIBLE PREFERRED STOCK AND COMMON STOCK. A holder that disposes of or is deemed to dispose of Mandatory Convertible Preferred Stock or Common Stock that was received either upon the conversion of such preferred stock or as the dividend distribution generally will realize gain (or loss) to the extent that the proceeds of such disposition (not including any proceeds attributable to any declared accrued but unpaid dividends which will be taxable as such to holders of record who have not previously included such dividends in income), net of any reasonable costs of disposition, exceed (or are exceeded by) the adjusted tax basis of the Mandatory Convertible Preferred Stock or Common Stock that is disposed of by such holder. Such gain or loss will be capital gain or loss, and, for individual holders that held the Mandatory Convertible Preferred Stock and Common Stock for more than 18 months, may be subject to a preferential tax rate of 20%. BACKUP WITHHOLDING. Certain non-corporate holders may be subject to backup withholding at a current rate of 31 percent on dividends. Generally, backup withholding applies only if a taxpayer fails to furnish or certify a proper taxpayer identification number or if the taxpayer is notified by the Service that the taxpayer has failed to report payments of interest and dividends properly. Holders should consult their tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining any applicable exemption. MISCELLANEOUS Upon issuance, the shares of Mandatorily Convertible Preferred Stock will be fully paid and nonassessable. Holders of EqPINES and Mandatorily Convertible Preferred Stock will have no preemptive rights. The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of Mandatorily Convertible Preferred Stock, such number of shares of Common Stock as will from time to time be issuable upon the conversion of all the shares of Mandatorily Convertible Preferred Stock then outstanding. Shares of Mandatorily Convertible Preferred Stock converted into Common Stock of the Company or otherwise acquired by the Company will resume the status of authorized and unissued shares of preferred stock, undesignated as to series, and will be available for subsequent issuance. 114 DESCRIPTION OF DEPOSITARY ARRANGEMENTS THE FOLLOWING SUMMARY OF THE TERMS AND PROVISIONS OF THE DEPOSITARY ARRANGEMENTS FOR THE EQPINES DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY, THE DEPOSIT AGREEMENT, AS DEFINED BELOW (WHICH CONTAINS THE FORM OF THE DEPOSITARY RECEIPT, AS DEFINED BELOW). Each EqPINES represents one-five hundredth of a share of Mandatorily Convertible Preferred Stock deposited under a Deposit Agreement dated as of April 1, 1998 (the "Deposit Agreement"), among the Company, The Bank of New York, as depositary (the "Depositary"), and the holders from time to time of depositary receipts executed and delivered thereunder (the "Depositary Receipts"). Subject to the terms of the Deposit Agreement, each owner of a EqPINES is entitled, proportionately, to all the rights, preferences and privileges of the shares of Mandatorily Convertible Preferred Stock represented thereby (including dividend, conversion, voting and liquidation rights), and, subject to all of the limitations of the shares of Mandatorily Convertible Preferred Stock represented thereby, contained in the Certificate of Designation and summarized under "Description of EqPINES." The corporate trust office of The Bank of New York is located at 101 Barclay Street, New York, NY 10286. The EqPINES are evidenced by Depositary Receipts. Copies of the Deposit Agreement, the form of which has been filed with the Registration Statement of which this Prospectus is a part, are available for inspection at the office of the Depositary listed above. EXECUTION AND DELIVERY OF DEPOSITARY RECEIPTS The Company will deposit the shares of Mandatorily Convertible Preferred Stock represented by the EqPINES being offered hereby with the Depositary, in exchange for Depositary Receipts, which the Company will deliver to the Underwriters (as defined herein) upon consummation of the EqPINES Offering. The Deposit Agreement does not provide for the deposit of shares of Mandatorily Convertible Preferred Stock and the withdrawal of Depositary Receipts by any party other than the Company. WITHDRAWAL OF MANDATORILY CONVERTIBLE PREFERRED STOCK Upon surrender of Depositary Receipts at the corporate trust office of the Depositary, the owner of the EqPINES evidenced thereby is entitled to delivery at such office of certificates evidencing the number of shares of Mandatorily Convertible Preferred Stock (but only in whole shares of Mandatorily Convertible Preferred Stock) represented by such EqPINES. If the Depositary Receipts delivered by the holder evidence a number of EqPINES in excess of the number of EqPINES representing the number of shares of Mandatorily Convertible Preferred Stock to be withdrawn, the Depositary will at the same time deliver to such holder a new Depositary Receipt or Receipts evidencing such excess number of EqPINES. The Company does not expect that there will be any public trading market for the shares of Mandatorily Convertible Preferred Stock except as represented by the EqPINES. See "Risk Factors--Absence of a Previous Market for the EqPINES." CONVERSION PROVISIONS MANDATORY CONVERSION. As described under "Description of EqPINES--Mandatory Conversion of EqPINES," the EqPINES are subject to mandatory conversion into shares of Common Stock on the Mandatory Conversion Date. CONVERSION AT THE OPTION OF THE HOLDER. As described under "Description of EqPINES-- Conversion at the Option of the Holder," the EqPINES may be converted, in whole but not in part, into shares of Common Stock at the option of the holder at any time prior to the Mandatory Conversion Date. To effect such an optional conversion, a holder of EqPINES must deliver Depositary Receipts evidencing the EqPINES to be converted, together with a written notice of conversion and a proper assignment of the Depositary Receipts to the Company or in blank (and, if such conversion is to occur after the close of 115 business on a record date for any payment of declared dividends and before the opening of business on the next succeeding dividend payment date, payment in cash of an amount equal to the dividend payable on such date), to the Depositary or its agent. A holder who delivers Depositary Receipts evidencing the EqPINES to the Depositary on a record date for any payment of declared dividends for conversion on the succeding dividend payment date will not be required to include payment of the dividend payable on such date upon deliver of such Depositary Receipts. Each optional conversion of EqPINES shall be deemed to have been effected immediately prior to the close of business on the date on which the foregoing requirements shall have been satisfied. The conversion shall be at the Optional Conversion Rate in effect at such time and on such date. If only a portion of the EqPINES evidenced by a Depositary Receipt is to be converted, a new Depositary Receipt or Receipts will be issued for any EqPINES not converted. No fractional shares of Common Stock will be issued to any holder upon mandatory or optional conversion of its EqPINES. See "--Dividends and Other Distributions" below. After the date fixed for conversion, the EqPINES so converted will no longer be deemed to be outstanding and all rights of the holders of such EqPINES will cease, except the right to receive the Common Stock and amounts payable on such conversion and any money or other property to which the holders of such EqPINES are entitled upon such conversion, upon surrender to the Depositary of the Depositary Receipt or Receipts evidencing such EqPINES. DIVIDENDS AND OTHER DISTRIBUTIONS The Depositary will distribute all cash dividends or other cash distributions (other than cash dividends or cash distributions paid by the Company to the Depositary in lieu of fractional shares) and all dividends or other distributions paid by the Company in shares of Common Stock (other than payments of whole shares of Common Stock in lieu of fractional shares pursuant to the final paragraph under "Description of EqPINES--Fractional Shares") in respect of the Mandatorily Convertible Preferred Stock to the record holders of Depositary Receipts in proportion, insofar as practicable, to the number of EqPINES owned by such holders. The Depositary will distribute whole shares of Common Stock paid by the Company to it on the Mandatory Conversion Date in lieu of cash payments for fractional shares otherwise payable by the Company on the Mandatorily Convertible Preferred Stock to holders of EqPINES entitled to such fractional shares, beginning with the holders entitled to the largest fractional shares. The Depositary will distribute cash dividends or other cash distributions received by it from the Company in lieu of fractional shares to a record holder of Depositary Receipts on the basis of such holder's aggregate record holdings of Depositary Receipts (i) on the related record date for a dividend payment or (ii) which are to be converted into Common Stock on a conversion date, as applicable, if delivering shares of Common Stock on that basis in payment of the dividend or upon conversion would otherwise result in delivery of a fractional share. The Depositary will, in any such event, deliver an amount in cash to such record holder as set forth in "Description of EqPINES--Fractional Shares." On the Mandatory Conversion Date, the fractional share of Common Stock that any holder of EqPINES would otherwise be entitled to receive shall be determined by adding all the fractional shares such holder would otherwise be entitled to receive on the mandatory conversion of all EqPINES held by such holder and on the payment of the regular quarterly dividend on all EqPINES held by such holder. If the Company elects to deliver resulting whole number of shares in shares of Common Stock and the resulting fraction in cash, the Depositary will distribute shares and cash received by it to the applicable holders of EqPINES. In the event that (i) mandatory conversion of the EqPINES, (ii) voluntary conversions of EqPINES, (iii) the Depositary's delivery of shares of Common Stock as dividends to the holders of EqPINES, (iv) the combination of (i) and (iii) pursuant to the preceding sentence or (v) any combination of the foregoing result in any holder of EqPINES being entitled to cash in lieu of a fractional share on the related date of conversion or dividend payment, as applicable, the Company will deliver to the Depositary for distribution 116 to such holders cash in an amount equal to the total amount of cash to which all such holders are entitled in lieu of fractional shares on such date. In the event of a distribution other than cash or Common Stock in respect of the shares of Mandatorily Convertible Preferred Stock, the Depositary will distribute property received by it to the record holders of Depositary Receipts in proportion, insofar as practicable, to the number of EqPINES owned by such holders, unless the Depositary determines that it is not feasible to make such distribution, in which case the Depositary may, with the approval of the Company, adopt such method as it deems equitable and practicable for the purpose of effecting such distribution, including sale (at public or private sale) of such property and distribution of the net proceeds from such sale to such holders. The amount distributed in any of the foregoing cases will be reduced by any amount required to be withheld by the Company or the Depositary on account of taxes. RECORD DATE Whenever (i) any cash dividend or other cash distribution or any dividend to be paid by the Company in shares of Common Stock shall become payable, any distribution other than cash shall be made, or any rights, preferences or privileges shall be offered with respect to the shares of Mandatorily Convertible Preferred Stock, or (ii) the Depositary shall receive notice of any meeting at which holders of shares of Mandatorily Convertible Preferred Stock are entitled to vote or of which holders of shares of Mandatorily Convertible Preferred Stock are entitled to notice, the Depositary shall in each such instance fix a record date (which shall be the same date as the record date for the shares of Mandatorily Convertible Preferred Stock) for the determination of the holders of Depositary Receipts (x) who shall be entitled to receive such dividend, distribution, rights, preferences or privileges or the net proceeds of the sale thereof or (y) who shall be entitled to give instructions for the exercise of voting rights at any such meeting or to receive notice of such meeting. VOTING OF MANDATORILY CONVERTIBLE PREFERRED STOCK Upon receipt of notice of any meeting at which holders of shares of Mandatorily Convertible Preferred Stock are entitled to vote, the Depositary will mail the information contained in such notice of meeting to the record holders of Depositary Receipts. Each record holder of Depositary Receipts on the record date (which will be the same date as the record date for the shares of Mandatorily Convertible Preferred Stock) will be entitled to instruct the Depositary as to the exercise of the voting rights pertaining to the number of shares of Mandatorily Convertible Preferred Stock represented by such holder's EqPINES. The Depositary will endeavor, insofar as practicable, to vote the number of shares of Mandatorily Convertible Preferred Stock represented by such EqPINES in accordance with such instructions, and the Company has agreed to take all reasonable action which may be deemed necessary by the Depositary in order to enable the Depositary to do so. The Depositary will abstain from voting shares of Mandatorily Convertible Preferred Stock to the extent it does not receive specific written voting instructions from the holders of Depositary Receipts. AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT The form of Depositary Receipts and any provision of the Deposit Agreement may at any time be amended by agreement between the Company and the Depositary. However, any amendment that imposes any fees, taxes or other charges payable by holders of Depositary Receipts (other than taxes and other governmental charges, fees and other expenses payable by such holders as stated under "Charges of Depositary"), or that otherwise prejudices any substantial existing right of holders of Depositary Receipts, will not take effect as to outstanding Depositary Receipts until the expiration of 90 days after notice of such amendment has been mailed to the record holders of outstanding Depositary Receipts. Every holder of Depositary Receipts at the time any such amendment becomes effective shall be deemed to consent and 117 agree to such amendment and to be bound by the Deposit Agreement, as so amended. In no event may any amendment impair the right of any owner of EqPINES, subject to the conditions specified in the Deposit Agreement, upon surrender of the Depositary Receipts evidencing such EqPINES to receive shares of Mandatorily Convertible Preferred Stock or, upon conversion of the shares of Mandatorily Convertible Preferred Stock represented by EqPINES, to receive shares of Common Stock, and in each case any money or other property represented thereby, except in order to comply with mandatory provisions of applicable law. The Depositary may resign or be removed by the Company. Such resignation or removal will only become effective upon the appointment of a qualified successor depositary which expressly assumes the obligations of the Depositary under the Deposit Agreement. CHARGES OF DEPOSITARY The Company will pay all charges of the Depositary including charges in connection with the initial deposit of the shares of Mandatorily Convertible Preferred Stock, the initial execution and delivery of the Depositary Receipts, the distribution of information to the holders of Depositary Receipts with respect to matters on which shares of Mandatorily Convertible Preferred Stock are entitled to vote, withdrawals of the shares of Mandatorily Convertible Preferred Stock by the holders of Depositary Receipts or conversion of the shares of Mandatorily Convertible Preferred Stock, except for taxes (including transfer taxes, if any) and other governmental charges and such other charges as are provided in the Deposit Agreement to be at the expense of holders of Depositary Receipts or persons depositing shares of Mandatorily Convertible Preferred Stock. GENERAL The Depositary will make available for inspection by holders of Depositary Receipts at its corporate office all reports and communications from the Company that are delivered to the Depositary and made generally available to the holders of the shares of Mandatorily Convertible Preferred Stock. Neither the Depositary nor the Company will be liable if it is prevented or delayed by law or any circumstance beyond its control from or in performing its obligations under the Deposit Agreement. 118 UNDERWRITING Under the terms of and subject to the conditions contained in an underwriting agreement (the "U.S. Underwriting Agreement"), among the Company and each of the underwriters named below (the "U.S. Underwriters"), for whom Lehman Brothers Inc., Smith Barney Inc., Furman Selz LLC and NationsBanc Montgomery Securities LLC are acting as representatives (the "Representatives"), each of the several U.S. Underwriters has agreed to purchase from the Company, and the Company has agreed to sell to each U.S. Underwriter, the aggregate number of shares of Common Stock set forth opposite the name of such U.S. Underwriter below: NUMBER OF U.S. UNDERWRITERS COMMON SHARES - ------------------------------------------------------------------------------------------------- --------------- Lehman Brothers Inc.............................................................................. Smith Barney Inc................................................................................. Furman Selz LLC.................................................................................. NationsBanc Montgomery Securities LLC............................................................ --------------- Total........................................................................................ 10,400,000 --------------- --------------- Under the terms of and subject to the conditions contained in an underwriting agreement (the "International Underwriting Agreement"), among the Company and each of the international managers named below (the "International Managers"), for whom Lehman Brothers International (Europe), Smith Barney Inc., Furman Selz LLC and NationsBanc Montgomery Securities LLC are acting as Lead Managers (the "Lead Managers"), each of the several International Managers has agreed to purchase from the Company, and the Company has agreed to sell to each International Manager, the aggregate number of shares of Common Stock set forth opposite the name of such International Manager below: NUMBER OF INTERNATIONAL MANAGERS COMMON SHARES - ------------------------------------------------------------------------------------------------- --------------- Lehman Brothers International (Europe)........................................................... Smith Barney Inc................................................................................. Furman Selz LLC.................................................................................. NationsBanc Montgomery Securities LLC............................................................ --------------- Total........................................................................................ 2,600,000 --------------- --------------- The U.S. Underwriting Agreement and the International Underwriting Agreement (collectively, the "Underwriting Agreements") provide that the obligations of the U.S. Underwriters and the International Managers, respectively, to purchase shares of Common Stock, are subject to the approval of certain legal matters by counsel and to certain other conditions and that if any of the shares of Common Stock are purchased by the U.S. Underwriters pursuant to the U.S. Underwriting Agreement or by the International Managers pursuant to the International Underwriting Agreement, all the shares of Common Stock agreed to be purchased by either the U.S. Underwriters or the International Managers, as the case may be, pursuant to their respective Underwriting Agreements, must be so purchased. The offering price and underwriting discounts and commissions for the U.S. Offering and the International Offering are identical. The closing of each of the U.S. Offering, the International Offering and the Concurrent Offerings is conditioned upon the closing of the other and of the other Six Flags Transactions. The Company has been advised by the Representatives and the Lead Managers that the U.S. Underwriters and the International Managers propose to offer shares of Common Stock directly to the public initially at the public offering price set forth on the cover page of this Prospectus and to certain selected dealers (who may include the U.S. Underwriters and International Managers) at such public offering price less a selling concession not to exceed $ per share. The selected dealers may reallow a concession not to exceed $ per share. After the initial offering of the Common Stock, 119 the offering price, the concession to selected dealers and the reallowance to other dealers may be changed by the U.S. Underwriters and the International Managers. The U.S. Underwriters and the International Managers have entered into an Agreement Among U.S. Underwriters and International Managers (the "Agreement Among") pursuant to which each U.S. Underwriter has agreed that, as part of the distribution of the shares of Common Stock offered in the U.S. Offering, (a) it is not purchasing any of such shares for the account of anyone other than a U.S. or Canadian Person (as defined below) and (b) it has not offered or sold, and will not offer, sell, resell or deliver, directly or indirectly, any of such shares or distribute any prospectus relating to the U.S. Offering outside the United States or Canada or to anyone other than a U.S. or Canadian Person. In addition, pursuant to the Agreement Among, each International Manager has agreed that, as part of the distribution of the shares of Common Stock offered in the International Offering, (a) it is not purchasing any of such shares for the account of any U.S. or Canadian Person and (b) it has not offered or sold, and will not offer, sell, resell or deliver, directly or indirectly, any of such shares or distribute any prospectus relating to the International Offering within the United States or Canada or to any U.S. or Canadian Person. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the Underwriting Agreements and the Agreement Among, including: (i) certain purchases and sales between the U.S. Underwriters and the International Managers; (ii) certain offers, sales, resales, deliveries or distributions to or through investment advisors or other persons exercising investment discretion; (iii) purchases, offers or sales by a U.S. Underwriter that is also acting as an International Manager or by an International Manager that is also acting as a U.S. Underwriter; and (iv) other transactions specifically approved by the U.S. Underwriters and International Managers. As used herein, "U.S. or Canadian Person" means any resident or citizen of the United States or Canada, any corporation, pension, profit sharing or other trust or other entity organized under or governed by the laws of the United States or Canada or any political subdivision thereof (other than the foreign branch of any United States or Canadian Person), any estate or trust the income of which is subject to United States or Canadian federal income taxation regardless of the source of its income, and any United States or Canadian branch of a person other than a United States or Canadian Person. The term "United States" means the United States of America (including, the states thereof and the District of Columbia) and its territories, its possessions and other areas subject to its jurisdiction. The term "Canada" means the provinces of Canada, its territories, its possessions and other areas subject to its jurisdiction. Pursuant to the Agreement Among, sales may be made among the U.S. Underwriters and the International Managers of such number of shares of Common Stock as may be mutually agreed. The price of any shares so sold shall be the public offering price as then in effect for Common Stock being sold by the U.S. Underwriters and the International Managers, less an amount not greater than the selling concession unless otherwise determined by mutual agreement. To the extent that there are sales pursuant to the Agreement Among, the number of shares initially available for sale by the U.S. Underwriters and the International Managers may be more or less than the amount specified on the cover page of this Prospectus. Each International Manager has represented and agreed that: (i) it is not carrying on investment business in the United Kingdom in contravention of Section 3 of the Financial Services Act 1986; (ii) it has not offered or sold and, prior to the date six months after the latest closing date for the issue of the shares of Common Stock, will not offer or sell any shares of Common Stock to persons in the United Kingdom by means of any document except to persons whose ordinary business is to buy or sell securities or debentures, whether as principal or agent, or otherwise in circumstances that do not constitute an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulation 1995; (iii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the shares of Common Stock in, from or otherwise involving the United Kingdom; and (iv) it has only issued or passed on, and will only issue or pass on, to any person in the United Kingdom, any document received by it in connection with the issue of the Common Stock if 120 that person is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the document may otherwise lawfully be issued or passed on and that it will procure that any purchaser from it of shares of Common Stock undertakes to comply with the provisions of this paragraph. Purchasers of the shares of Common Stock offered pursuant to the Common Stock Offering may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price set forth on the cover page hereof. Except for the Common Stock to be sold in the Common Stock Offering and the Convertible Preferred Stock or shares of Common Stock to be issued upon conversion of the Convertible Preferred Stock, the Company has agreed not to offer, sell, contract to sell or otherwise issue any shares of Common Stock or other capital stock or securities convertible into or exchangeable for, or any rights to acquire, Common Stock or other capital stock, with certain exceptions (including certain exceptions for Common Stock or other capital stock issued or sold in connection with future acquisitions by the Company, including its proposed acquisition of Walibi), prior to the expiration of 90 days from the date of this Prospectus without the prior written consent of Lehman Brothers on behalf of the Representatives and the Lead Managers. The Company's officers, directors and principal stockholders, who hold in the aggregate approximately 6.0 million shares of Common Stock (including shares issuable upon exercise of outstanding options, warrants and restricted stock), have agreed not to, directly or indirectly, offer, sell or otherwise dispose of shares of Common Stock of the Company or any securities convertible into or exchangeable for or any rights to acquire, Common Stock or other capital stock of the Company for 90 days following the date of this Prospectus without the prior written consent of Lehman Brothers. In addition, the Sellers in the Six Flags Acquisition have agreed not to sell any Seller Preferred Stock (or shares of Common Stock issuable upon conversion thereof) acquired by them in the Six Flags Acquisition during such 90-day period. The Company has granted to the U.S. Underwriters and the International Managers options to purchase up to an additional 1,560,000 and 390,000 shares of Common Stock, respectively, at the initial public offering price to the public, less the underwriting discounts and commissions shown on the cover page of this Prospectus, solely to cover over-allotments, if any. The options may be exercised at any time up to 30 days after the date of this Prospectus. To the extent that the U.S. Underwriters and the International Managers exercise such options, each of the U.S. Underwriters and the International Managers, as the case may be, will be committed (subject to certain conditions) to purchase a number of additional shares proportionate to such U.S. Underwriter's or International Manager's initial commitment as indicated in the preceding tables. The Company and its operating subsidiaries (including Six Flags) have agreed to indemnify the U.S. Underwriters and the International Managers against certain liabilities, including liabilities under the Securities Act, and to contribute to payments which the U.S. Underwriters and the International Managers may be required to make in respect thereof. Until the distribution of the shares of Common Stock offered hereby is completed, rules of the Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase the Common Stock. As an exception to these rules, the Representatives and the Lead Managers are permitted to engage in certain transactions that stabilize the price of the Common Stock. Such transactions may consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Common Stock. If the Underwriters create a short position in the Common Stock in connection with the Common Stock Offering (I.E., if they sell more shares of Common Stock than are set forth on the cover page of this Prospectus), the Representatives and the Lead Managers may reduce that short position by purchasing the Common Stock in the open market after the distribution has been completed. The Representatives and the Lead Managers may also elect to reduce any short position by exercising all or part of the over-allotment options described herein. 121 The Representatives and the Lead Managers also may impose a penalty bid on certain Underwriters and selling group members. This means that if the Representatives or the Lead Managers purchase Common Stock in the open market to reduce the Underwriters' short position or to stabilize the price of the Common Stock, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those shares of Common Stock as part of the Offering. In general, purchases of a security for the purposes of stabilization or to reduce a syndicate short position could cause the price of the security to be higher than it might otherwise be in the absence of such purchases. The imposition of a penalty bid might have an effect on the price of a security to the extent that it were to discourage resales of the security by purchasers in the applicable offering. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the Representatives or the Lead Managers will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. An application will be made to list the EqPINES and the Common Stock into which shares of Mandatorily Convertible Preferred Stock are convertible on the NYSE. The Mandatorily Convertible Preferred Stock will not be so listed and the Company does not expect that there will be any trading market for the Mandatorily Convertible Preferred Stock except as represented by the EqPINES. Each of Lehman Brothers, Smith Barney Inc. and Furman Selz LLC has from time to time provided certain investment banking services to the Company and its affiliates for which they have received customary fees. LBI Group Inc., an affiliate of Lehman Brothers is party to financing commitments provided to the Company in connection with the Six Flags Transactions and has received customary fees in connection therewith. In addition, Lehman Brothers, Smith Barney Inc. and Furman Selz LLC acted as underwriters of the Company's 1996 and 1997 public offerings and are acting (along with NationsBanc Montgomery Securities LLC) as underwriters in connection with the Concurrent Offerings and will receive customary fees in connection therewith. An affiliate of Lehman Brothers is a lender under each of the Credit Facilities. LEGAL MATTERS The validity of the Common Stock offered hereby and certain legal matters in connection with the Offering will be passed upon for the Company by Baer Marks & Upham LLP, New York, New York. The Underwriters are being represented by Cravath, Swaine & Moore, New York, New York. 122 EXPERTS The consolidated financial statements of the Company as of December 31, 1996 and 1997, and for each of the years in the three-year period ended December 31, 1997, have been included herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The financial statements of Six Flags Entertainment Corporation as of December 28, 1997 and December 29, 1996 and for the three years ended December 28, 1997, December 29, 1996 and December 31, 1995 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report appearing elsewhere herein and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The audited financial statements of Kentucky Kingdom, Inc. as of November 2, 1997 and for the year then ended incorporated in this Prospectus by reference from the Company's amended report on Form 8-K/A have been audited by Carpenter, Mountjoy & Bressler, PSC, independent auditors, as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The financial statements of Walibi, S.A. at December 31, 1997 and for the year then ended, appearing in the Company's Form 8-K/A dated December 15, 1997, which is incorporated herein by reference are incorporated herein in reliance upon the report of Coopers & Lybrand LLP, independent auditors included in the Form 8-K/A and upon the authority of such firm as experts in accounting and auditing. 123 INDEX TO FINANCIAL STATEMENTS PAGE --------- CONSOLIDATED FINANCIAL STATEMENTS OF PREMIER PARKS INC.: Independent Auditors' Report............................................................................. F-2 Consolidated Balance Sheets.............................................................................. F-3 Consolidated Statements of Operations.................................................................... F-4 Consolidated Statements of Stockholders' Equity.......................................................... F-5 Consolidated Statements of Cash Flows.................................................................... F-6 Notes to Consolidated Financial Statements............................................................... F-8 CONSOLIDATED FINANCIAL STATEMENTS OF SIX FLAGS ENTERTAINMENT CORPORATION: Report of Independent Auditors........................................................................... F-26 Consolidated Statements of Operations.................................................................... F-27 Consolidated Balance Sheets.............................................................................. F-28 Consolidated Statements of Stockholders' Equity (Deficit)................................................ F-29 Consolidated Statements of Cash Flows.................................................................... F-30 Notes to Consolidated Financial Statements............................................................... F-31 F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Premier Parks Inc.: We have audited the accompanying consolidated balance sheets of Premier Parks Inc. and subsidiaries as of December 31, 1996 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Premier Parks Inc. and subsidiaries as of December 31, 1996 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Oklahoma City, Oklahoma February 23, 1998 F-2 PREMIER PARKS INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1997 ASSETS 1996 1997 - -------------------------------------------------------------------------------------- ----------- ----------- Current assets: Cash and cash equivalents........................................................... $ 4,043,000 $84,288,000 Accounts receivable................................................................. 1,180,000 6,537,000 Inventories......................................................................... 4,200,000 5,547,000 Income tax receivable............................................................... -- 995,000 Prepaid expenses and other current assets........................................... 3,416,000 3,690,000 ----------- ----------- Total current assets............................................................ 12,839,000 101,057,000 ----------- ----------- Other assets: Deferred charges.................................................................... 6,752,000 10,123,000 Deposits and other.................................................................. 9,087,000 3,949,000 ----------- ----------- Total other assets.............................................................. 15,839,000 14,072,000 ----------- ----------- Property and equipment, at cost....................................................... 263,175,000 485,866,000 Less accumulated depreciation....................................................... 17,845,000 35,610,000 ----------- ----------- 245,330,000 450,256,000 Intangible assets..................................................................... 31,669,000 48,876,000 Less accumulated amortization....................................................... 874,000 2,940,000 ----------- ----------- 30,795,000 45,936,000 ----------- ----------- Total assets.................................................................... $304,803,000 $611,321,000 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------------- Current liabilities Accounts payable and accrued expenses............................................... $11,059,000 $23,199,000 Accrued interest payable............................................................ 4,304,000 9,785,000 Current portion of capitalized lease obligations.................................... 1,492,000 795,000 ----------- ----------- Total current liabilities....................................................... 16,855,000 33,779,000 ----------- ----------- Long-term debt and capitalized lease obligations: Long-term debt: Senior notes...................................................................... 90,000,000 215,000,000 Credit facility................................................................... 57,574,000 -- Capitalized lease obligations....................................................... 1,768,000 1,231,000 ----------- ----------- Total long-term debt and capitalized lease obligations.......................... 149,342,000 216,231,000 Other long-term liabilities........................................................... 4,846,000 4,025,000 Deferred income taxes................................................................. 20,578,000 33,537,000 ----------- ----------- Total liabilities............................................................... 191,621,000 287,572,000 ----------- ----------- Stockholders' equity: Preferred stock, 500,000 shares authorized at December 31, 1996 and 1997; no shares issued and outstanding at December 31, 1996 and 1997.............................. -- -- Common stock, $.05 par value, 30,000,000 and 90,000,000 shares authorized at December 31, 1996 and 1997, respectively; 11,392,669 and 18,899,457 shares issued and 11,366,323 and 18,873,111 shares outstanding at December 31, 1996 and 1997, respectively...................................................................... 569,000 944,000 Capital in excess of par value...................................................... 144,642,000 354,235,000 Accumulated deficit................................................................. (31,340,000) (17,241,000) Deferred compensation............................................................... -- (13,500,000) ----------- ----------- 113,871,000 324,438,000 Less 26,346 common shares of treasury stock, at cost................................ (689,000) (689,000) ----------- ----------- Total stockholders' equity...................................................... 113,182,000 323,749,000 ----------- ----------- Total liabilities and stockholders' equity...................................... $304,803,000 $611,321,000 ----------- ----------- ----------- ----------- See accompanying notes to consolidated financial statements. F-3 PREMIER PARKS INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 1995 1996 1997 -------------- -------------- -------------- Revenue: Theme park admissions.......................................... $ 21,863,000 $ 41,162,000 $ 94,611,000 Theme park food, merchandise, and other........................ 19,633,000 52,285,000 99,293,000 -------------- -------------- -------------- Total revenue.............................................. 41,496,000 93,447,000 193,904,000 -------------- -------------- -------------- Operating costs and expenses: Operating expenses............................................. 19,775,000 42,425,000 81,356,000 Selling, general and administrative............................ 9,272,000 16,927,000 36,547,000 Costs of products sold......................................... 4,635,000 11,101,000 23,025,000 Depreciation and amortization.................................. 3,866,000 8,533,000 19,792,000 -------------- -------------- -------------- Total operating costs and expenses......................... 37,548,000 78,986,000 160,720,000 -------------- -------------- -------------- Income from operations..................................... 3,948,000 14,461,000 33,184,000 Other income (expense): Interest expense, net.......................................... (5,578,000) (11,121,000) (17,775,000) Termination fee, net of expenses............................... -- -- 8,364,000 Other income (expense)......................................... (177,000) (78,000) (59,000) -------------- -------------- -------------- Total other income (expense)............................... (5,755,000) (11,199,000) (9,470,000) -------------- -------------- -------------- Income (loss) before income taxes.......................... (1,807,000) 3,262,000 23,714,000 Income tax expense (benefit)..................................... (762,000) 1,497,000 9,615,000 -------------- -------------- -------------- Income (loss) before extraordinary loss.................... (1,045,000) 1,765,000 14,099,000 Extraordinary loss on extinguishment of debt, net of income tax benefit of $90,000 in 1995..................................... (140,000) -- -- -------------- -------------- -------------- Net income (loss).......................................... $ (1,185,000) $ 1,765,000 $ 14,099,000 -------------- -------------- -------------- -------------- -------------- -------------- Net income (loss) applicable to common stock............... $ (1,714,000) $ 1,162,000 $ 14,099,000 -------------- -------------- -------------- -------------- -------------- -------------- Weighted average number of common shares outstanding--basic...... 3,938,000 8,603,000 17,938,000 -------------- -------------- -------------- -------------- -------------- -------------- Income (loss) per average common share outstanding-- basic:...... Income (loss) before extraordinary loss.................... $ (.40) $ .14 $ .79 Extraordinary loss......................................... (.04) -- -- -------------- -------------- -------------- Net income (loss).......................................... $ (.44) $ .14 $ .79 -------------- -------------- -------------- -------------- -------------- -------------- Weighted average number of common shares outstanding--diluted.... 3,938,000 8,972,000 18,438,000 -------------- -------------- -------------- -------------- -------------- -------------- Income (loss) per average common share outstanding-- diluted: Income (loss) before extraordinary loss.................... $ (.40) $ .13 $ .76 Extraordinary loss......................................... (.04) -- -- -------------- -------------- -------------- Net income (loss).......................................... $ (.44) $ .13 $ .76 -------------- -------------- -------------- -------------- -------------- -------------- See accompanying notes to consolidated financial statements. F-4 PREMIER PARKS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 SERIES A, 7% CUMULATIVE CONVERTIBLE PREFERRED STOCK COMMON STOCK -------------------- -------------------- CAPITAL IN SHARES SHARES EXCESS OF ACCUMULATED DEFERRED TREASURY ISSUED AMOUNT ISSUED AMOUNT PAR VALUE DEFICIT COMPENSATION STOCK TOTAL --------- --------- --------- --------- ---------- ------------ ------------- ----------- ---------- Balances at December 31, 1994............ -- $ -- 3,398,467 $ 170,000 50,573,000 (31,920,000) -- (689,000) 18,134,000 Issuance of preferred stock........... 200,000 200,000 -- -- 19,800,000 -- -- -- 20,000,000 Conversion of debt to common stock........... -- -- 1,485,433 74,000 8,888,000 -- -- -- 8,962,000 Net loss.......... -- -- -- -- -- (1,185,000) -- -- (1,185,000) --------- --------- --------- --------- ---------- ------------ ------------- ----------- ---------- Balances at December 31, 1995............ 200,000 200,000 4,883,900 244,000 79,261,000 (33,105,000) -- (689,000) 45,911,000 Conversion of preferred stock to common stock........... (200,000) (200,000) 2,560,928 128,000 72,000 -- -- -- -- Issuance of common stock........... -- -- 3,947,841 197,000 65,309,000 -- -- -- 65,506,000 Net income........ -- -- -- -- -- 1,765,000 -- -- 1,765,000 --------- --------- --------- --------- ---------- ------------ ------------- ----------- ---------- Balances at December 31, 1996............ -- -- 11,392,669 569,000 144,642,000 (31,340,000) -- (689,000) 113,182,000 Issuance of common stock........... -- -- 7,506,788 375,000 209,593,000 -- (14,625,000) -- 195,343,000 Amortization of deferred compensation.... -- -- -- -- -- -- 1,125,000 -- 1,125,000 Net income........ -- -- -- -- -- 14,099,000 -- -- 14,099,000 --------- --------- --------- --------- ---------- ------------ ------------- ----------- ---------- Balances at December 31, 1997............ -- $ -- 18,899,457 $ 944,000 354,235,000 (17,241,000) (13,500,000) (689,000) 323,749,000 --------- --------- --------- --------- ---------- ------------ ------------- ----------- ---------- --------- --------- --------- --------- ---------- ------------ ------------- ----------- ---------- See accompanying notes to consolidated financial statements. F-5 PREMIER PARKS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 1995 1996 1997 --------------- --------------- --------------- Cash flows from operating activities: Net income (loss).......................................... $ (1,185,000) $ 1,765,000 $ 14,099,000 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.......................... 3,866,000 8,533,000 19,792,000 Deferred compensation.................................. -- -- 1,125,000 Extraordinary loss on early extinguishment of debt..... 230,000 -- -- Amortization of debt issuance costs.................... 317,000 811,000 1,918,000 Gain on sale of assets................................. -- (51,000) (46,000) (Increase) decrease in accounts receivable............. 5,794,000 (215,000) (5,272,000) Deferred income taxes (benefit)........................ (808,000) 1,433,000 6,737,000 Increase in income tax receivable...................... -- -- (995,000) Increase in inventories and prepaid expenses and other current assets....................................... (455,000) (2,360,000) (1,150,000) (Increase) decrease in deposits and other assets....... 1,197,000 (3,947,000) 6,237,000 Increase (decrease) in accounts payable and accrued expenses............................................. (2,366,000) 5,216,000 (776,000) Increase in accrued interest payable................... 4,056,000 146,000 5,481,000 --------------- --------------- --------------- Total adjustments...................................... 11,831,000 9,566,000 33,051,000 --------------- --------------- --------------- Net cash provided by operating activities.................... 10,646,000 11,331,000 47,150,000 --------------- --------------- --------------- Cash flows from investing activities: Proceeds from the sale of equipment........................ -- 476,000 246,000 Other investments.......................................... (63,000) (48,000) (38,000) Additions to property and equipment........................ (10,732,000) (39,423,000) (135,852,000) Acquisition of theme park assets........................... -- (116,154,000) (60,050,000) Acquisition of Funtime Parks, Inc. in 1995 and Stuart Amusement Company in 1997, net of cash acquired.......... (63,344,000) -- (21,376,000) --------------- --------------- --------------- Net cash used in investing activities........................ (74,139,000) (155,149,000) (217,070,000) --------------- --------------- --------------- Cash flows from financing activities: Repayment of debt.......................................... (17,487,000) (1,082,000) (66,576,000) Proceeds from borrowings................................... 93,500,000 57,574,000 132,500,000 Net cash proceeds from issuance of preferred stock......... 20,000,000 -- -- Net cash proceeds from issuance of common stock............ -- 65,306,000 189,530,000 Payment of debt issuance costs............................. (5,099,000) (2,724,000) (5,289,000) --------------- --------------- --------------- Net cash provided by financing activities.................... 90,914,000 119,074,000 250,165,000 --------------- --------------- --------------- Increase (decrease) in cash and cash equivalents............. 27,421,000 (24,744,000) 80,245,000 Cash and cash equivalents at beginning of year............... 1,366,000 28,787,000 4,043,000 --------------- --------------- --------------- Cash and cash equivalents at end of year..................... $ 28,787,000 $ 4,043,000 $ 84,288,000 --------------- --------------- --------------- --------------- --------------- --------------- F-6 PREMIER PARKS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 1995 1996 1997 ------------ ------------- ------------- Supplementary cash flow information: Cash paid for interest............................................. $ 1,701,000 $ 11,640,000 $ 18,315,000 ------------ ------------- ------------- ------------ ------------- ------------- Cash paid (received) for income taxes (refund)..................... $ (22,000) $ 64,000 $ 3,697,000 ------------ ------------- ------------- ------------ ------------- ------------- Supplemental disclosure of noncash investing and financing activities: 1995 - Common stock (1,485,433 shares) was exchanged for $9,095,000 of debt, net of $133,000 of costs. - The Company acquired certain rides and attractions through capital leases with obligations totaling $3,259,000. 1996 - Preferred stock (200,000 shares) was converted into common stock (2,560,928 shares). - The Company issued $200,000 of common stock (9,091 shares) as a component of a theme park acquisition. - The Company acquired certain equipment through a capital lease with an obligation of $64,000. 1997 - The Company issued $5,813,000 of common stock (153,800 shares) as components of theme park acquisitions. - The Company issued restricted common stock (450,000 shares) to certain employees valued at $14,625,000. - The Company assumed $268,000 of capital lease obligations as a component of a theme park acquisition. See accompanying notes to consolidated financial statements. F-7 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997 (1) SUMMARY OF SIGNIFICANT POLICIES DESCRIPTION OF BUSINESS Premier Parks Inc. (the "Company") owns and operates regional theme amusement and water parks. As of December 31, 1997, the Company and its subsidiaries own and operate twelve parks: Adventure World, a combination theme and water park located in Largo, Maryland; Darien Lake & Camping Resort, a combination theme and water park with an adjacent camping resort and performing arts center, located between Buffalo and Rochester, New York; Elitch Gardens, a theme park located in Denver, Colorado; Frontier City, a western theme park located in Oklahoma City, Oklahoma; Geauga Lake, a combination theme and water park located near Cleveland, Ohio; The Great Escape and Splash Water Kingdom, a combination theme and water park located in Lake George, New York; Kentucky Kingdom--The Thrill Park, located in Louisville, Kentucky; Riverside Park, a theme park located near Springfield, Massachusetts; two water parks operated under the name Waterworld/USA, located in Northern California; White Water Bay, a tropical water park located in Oklahoma City, Oklahoma; and Wyandot Lake, a water park which also includes "dry rides" located in Columbus, Ohio. The Company also manages Marine World Africa USA in Vallejo, California. BASIS OF PRESENTATION The Company's accounting policies reflect industry practices and conform to generally accepted accounting principles. The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and limited partnerships and limited liability companies in which the Company beneficially owns 100% of the interests. Intercompany transactions and balances have been eliminated in consolidation. The Company's investment in a partnership in which it does not own a controlling interest is accounted for using the equity method and included in other assets. CASH EQUIVALENTS Cash equivalents of $2,753,000 and $73,694,000 at December 31, 1996 and 1997, respectively, consist of short-term highly liquid investments with a remaining maturity as of purchase date of three months or less, which are readily convertible into cash. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost (first in, first out) or market and primarily consist of products for resale including merchandise and food and miscellaneous supplies including repair parts for rides and attractions. F-8 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (1) SUMMARY OF SIGNIFICANT POLICIES (CONTINUED) ADVERTISING COSTS Production costs of commercials and programming are charged to operations in the year first aired. The costs of other advertising, promotion, and marketing programs are charged to operations in the year incurred. The amounts capitalized at year-end are included in prepaid expenses. Advertising and promotions expense incurred was $5,700,000, $9,100,000, and $21,600,000 during 1995, 1996, and 1997, respectively. DEFERRED CHARGES The Company capitalizes all costs related to the issuance of debt with such costs included in deferred charges in the consolidated balance sheets. The amortization of such costs is recognized as interest expense under a method approximating the interest method over the life of the respective debt issue. As of December 31, 1996, approximately $626,000 of costs associated with the Company's January 1997 debt and equity offerings (notes 5 and 8) were also included in deferred charges. DEPRECIATION AND AMORTIZATION Buildings and improvements are depreciated over their estimated useful lives of approximately 30 years by use of the straight-line method. Furniture and equipment are depreciated using the straight-line method over 5-10 years. Rides and attractions are depreciated using the straight-line method over 5-25 years. Amortization of property associated with capitalized lease obligations is included in depreciation expense in the consolidated financial statements. Maintenance and repairs are charged directly to expense as incurred, while betterments and renewals are generally capitalized in the property accounts. When an item is retired or otherwise disposed of, the cost and applicable accumulated depreciation are removed and the resulting gain or loss is recognized. INTANGIBLE ASSETS Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected period to be benefited, generally 25 years. Impairment of goodwill is assessed whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. LONG-LIVED ASSETS The Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," on January 1, 1996. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of SFAS No. 121 did not have an impact on the Company's consolidated financial position or results of operations in 1996. F-9 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (1) SUMMARY OF SIGNIFICANT POLICIES (CONTINUED) INTEREST EXPENSE RECOGNITION Interest on notes payable is generally recognized as expense on the basis of stated interest rates. Capitalized lease obligations that do not have a stated interest rate or that have interest rates considered to be lower than prevailing market rates (when the obligations were incurred) are carried at amounts discounted to impute a market rate of interest cost. Total interest expense incurred was $6,074,000, $12,597,000, and $25,714,000 in 1995, 1996 and 1997, respectively. Interest expense in the accompanying consolidated statements of operations is shown net of interest income. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. INCOME (LOSS) PER COMMON SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." SFAS No. 128 revised the previous calculation methods and presentations of earnings per share. The statement requires that all prior-period earnings per share data be restated. The Company adopted SFAS No. 128 in the fourth quarter of 1997 as required by the statement. The effect of applying SFAS No. 128 was not material to the Company's prior period's earnings per share data. The previously reported amounts for earnings per share were replaced by basic earnings per share and diluted earnings per share. Basic earnings per share for the second quarter of 1997 and for the year 1996 are $.01 per share higher than the previously reported primary earnings per share amounts. The Company issued convertible preferred stock in 1995. Preferred stock dividends of $529,000 and $603,000, which were paid through additional issuances of common stock, were considered in determining net income (loss) applicable to common stock in 1995 and 1996, respectively. Under the provisions of SFAS No. 128, basic earnings per share is computed by dividing net income (loss) applicable to common stock by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if the Company's outstanding stock options were exercised (calculated using the treasury stock method). The following table reconciles the weighted average number of common shares outstanding used in the calculations of basic and diluted income per average common share outstanding for the years 1996 and 1997. The Company incurred a loss in 1995 and the effect on diluted loss per average common share F-10 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (1) SUMMARY OF SIGNIFICANT POLICIES (CONTINUED) outstanding of all contingently issuable common shares was antidilutive. Therefore, there is no difference in the number of shares used in the basic and diluted calculations for the year 1995. YEAR ENDED DECEMBER 31, ------------------------ 1996 1997 ---------- ------------ Weighted average number of common shares outstanding-- basic....... 8,603,000 17,938,000 Dilutive effect of potential common shares issuable upon the exercise of employee stock options............................... 369,000 500,000 ---------- ------------ Weighted average number of common shares outstanding-- diluted..... 8,972,000 18,438,000 ---------- ------------ ---------- ------------ STOCK OPTIONS On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB No. 25, "Accounting for Stock Issued to Employees," whereby compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Companies which continue to apply the provisions of APB No. 25 are required by SFAS No. 123 to disclose pro forma net earnings and net earnings per share for employee stock option grants made in 1995, 1996 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB No. 25, and has provided the pro forma disclosures required by SFAS No. 123 in note 8. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS Reclassifications have been made to certain amounts reported in 1995 and 1996 to conform with the 1997 presentation. (2) FAIR VALUE OF FINANCIAL INSTRUMENTS The recorded amounts for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and accrued interest payable approximate fair value because of the short maturity of these financial instruments. The fair value estimates, methods, and assumptions relating to the Company's other financial instruments are discussed in note 5. F-11 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (3) ACQUISITION OF THEME PARKS PRIOR TO JANUARY 1998 Pursuant to a merger agreement, on August 15, 1995, the Company acquired Funtime Parks, Inc. ("Funtime"), a company owning three regional theme parks, for an initial purchase price of approximately $60,000,000 in cash, with an additional amount of approximately $5,400,000 paid to the former shareholders as a postclosing adjustment related to the operating cash flows of the former Funtime parks after the acquisition date. The acquisition was accounted for as a purchase. As of the acquisition date and after giving effect to the purchase, $18,030,000 of deferred tax liabilities were recognized for the tax consequences attributable to the differences between the financial statement carrying amounts and the tax basis of Funtime's assets and liabilities. Approximately $13,500,000 of cost in excess of the fair value of the net assets acquired was recorded as goodwill. The accompanying 1995, 1996 and 1997 consolidated statements of operations reflect the results of Funtime from the date of acquisition (August 15, 1995). On October 31, 1996, the Company acquired all of the interests of a partnership which owned substantially all of the assets used in the operation of Elitch Gardens for $62,500,000 in cash. Thereupon, the partnership dissolved by operation of law. As a result, the assets were then directly owned by the Company. The transaction was accounted for as a purchase. In addition, the Company entered into a five-year non-competition agreement with the president of Elitch Gardens Company's general partner. Based upon the purchase method of accounting, the purchase price was primarily allocated to property and equipment with $4,506,000 of costs recorded as intangible assets, primarily goodwill. The general partner and a principal limited partner of Elitch Gardens Company have agreed severally to indemnify the Company for claims in excess of $100,000 in an amount up to $1,000,000 per partner. On November 19, 1996, the Company acquired all of the interests of two partnerships which owned substantially all of the assets used in the operation of the two Waterworld/USA water parks and a related family entertainment center for an aggregate cash purchase price of approximately $17,250,000, of which $862,500 was placed in escrow to fund potential indemnification claims by the Company. Thereupon, the partnerships dissolved by operation of law. As a result, the assets were then directly owned by the Company. The transaction was accounted for as a purchase. Based upon the purchase method of accounting, the purchase price was primarily allocated to property and equipment with $5,110,000 of costs recorded as intangible assets, primarily goodwill. On December 4, 1996, the Company acquired all of the interests in a limited liability company which owned substantially all of the assets used in the operation of The Great Escape and Splash Water Kingdom for a cash purchase price of $33,000,000. The transaction was accounted for as a purchase. In connection with the acquisition, the Company entered into a non-competition agreement and a related agreement with the former owner, providing for an aggregate consideration of $1,250,000. In addition, as a component of the transaction, the Company issued 9,091 shares of its common stock ($200,000) to an affiliate of the former owner. Based upon the purchase method of accounting, the purchase price was primarily allocated to property and equipment with $9,221,000 of costs recorded as intangible assets, primarily goodwill. The accompanying 1996 and 1997 consolidated statement of operations reflects the results of the Elitch Gardens, Waterworld/USA, and The Great Escape and Splash Water Kingdom acquisitions from their respective acquisition dates. F-12 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (3) ACQUISITION OF THEME PARKS PRIOR TO JANUARY 1998 (CONTINUED) On February 5, 1997, the Company acquired all of the outstanding common stock of Stuart Amusement Company ("Stuart"), the owner of Riverside Park and an adjacent multi-use stadium, for a purchase price of $22,200,000 ($1,000,000 of which was paid through issuance of 32,129 of the Company's common shares). The transaction was accounted for as a purchase. As of the acquisition date and after giving effect to the purchase, $6,623,000 of deferred tax liabilities were recognized for the tax consequences attributable to the differences between the financial statement carrying amounts and the tax basis of Stuart's assets and liabilities. Approximately $10,484,000 of cost in excess of the fair value of the net assets acquired was recorded as intangible assets, primarily goodwill. On November 7, 1997, the Company acquired all of the interests of a limited liability company which owned substantially all of the theme park assets of Kentucky Kingdom--The Thrill Park ("Kentucky Kingdom"), located in Louisville, Kentucky, for a purchase price of $64,000,000 of which $4,831,000 was paid through the issuance of 121,671 shares of the Company's common stock. The Company may be required to issue additional shares of common stock based upon the level of revenues at Kentucky Kingdom during 1998, 1999, and 2000. The acquisition was accounted for as a purchase. The purchase price was primarily allocated to property and equipment with $4,592,000 of costs recorded as intangible assets, primarily goodwill. The value of the additional shares, if any, will be recognized as additional goodwill. The accompanying 1997 consolidated statement of operations reflects the results of Stuart and Kentucky Kingdom from their respective acquisition dates. The following summarized pro forma results of operations assumes that for the year ended December 31, 1997, the Stuart and Kentucky Kingdom acquisitions and related transactions occurred as of the beginning of 1997 and for the year ended December 31, 1996, assumes that these acquisitions, the Elitch Gardens, The Great Escape and Splash Water Kingdom and Waterworld/USA acquisitions, and the related transactions occurred as of the beginning of 1996. 1996 1997 ---------- ---------- (UNAUDITED) (IN THOUSANDS) Total revenues........................................................ $ 175,224 $ 215,620 Net income............................................................ 12,436 15,210 Income per weighted average common share outstanding-- basic.......... .66 .81 F-13 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (4) PROPERTY AND EQUIPMENT Property and equipment, at cost, are classified as follows: 1996 1997 -------------- -------------- Land......................................................... $ 27,760,000 $ 40,099,000 Buildings and improvements................................... 106,302,000 159,661,000 Rides and attractions........................................ 112,379,000 254,969,000 Equipment.................................................... 16,734,000 31,137,000 -------------- -------------- Total...................................................... 263,175,000 485,866,000 Less accumulated depreciation................................ (17,845,000) (35,610,000) -------------- -------------- $ 245,330,000 $ 450,256,000 -------------- -------------- -------------- -------------- Included in property and equipment are costs and accumulated depreciation associated with capitalized leases as follows: 1996 1997 ------------ ------------ Cost.............................................................. $ 6,069,000 $ 6,386,000 Accumulated depreciation.......................................... (577,000) (826,000) ------------ ------------ $ 5,492,000 $ 5,560,000 ------------ ------------ ------------ ------------ (5) LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS At December 31, 1996 and 1997, long-term debt and capitalized lease obligations consist of: 1996 1997 -------------- -------------- Long term debt: Senior notes due 2003 (a).................................. $ 90,000,000 $ 90,000,000 Senior notes due 2007 (b).................................. -- 125,000,000 Credit facility (c)........................................ 57,574,000 -- -------------- -------------- Total long-term debt......................................... 147,574,000 215,000,000 Capitalized lease obligations: Capitalized lease obligations maturing 1998 through 2000, requiring aggregate annual lease payments ranging from approximately $20,000 to $548,000 including implicit interest at rates ranging from 9.875% to 14% and secured by equipment with a net book value of approximately $5,560,000 as of December 31, 1997....................... 3,260,000 2,026,000 -------------- -------------- Total.................................................... $ 150,834,000 $ 217,026,000 -------------- -------------- -------------- -------------- F-14 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (5) LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED) (a) The notes are senior unsecured obligations of the Company, with a $90,000,000 aggregate principal amount, and mature on August 15, 2003. The notes bear interest at 12% per annum payable semiannually on August 15 and February 15 of each year, commencing February 15, 1996. The notes are redeemable, at the Company's option, in whole or part, at any time on or after August 15, 1999, at varying redemption prices. Additionally, at any time prior to August 15, 1998, the Company may redeem in the aggregate up to 33 1/3% of the original aggregate principal amount of notes with the proceeds of one or more public equity offerings at a redemption price of 110% of the principal amount. These notes are guaranteed on a senior, unsecured, joint and several basis by all of the Company's principal operating subsidiaries. The proceeds of the notes were used in the Funtime acquisition and in the refinancing of previously existing indebtedness. The Company recognized a $230,000 loss on early extinguishment of debt during 1995. The loss was recorded, net of tax effect, as an extraordinary item. The indenture under which the notes were issued was amended January 21, 1997, in contemplation of the Company's January 1997 senior debt and equity offerings. The indenture places limitations on operations and sales of assets by the Company or its subsidiaries, permits incurrence of additional debt only in compliance with certain financial ratios, and limits the Company's ability to pay cash dividends or make other distributions to the holders of its capital stock or to redeem such stock. The indenture, as amended, permits the Company, subject to certain limitations, to incur additional indebtedness, including the $125,000,000 of indebtedness issued January 31, 1997 described below and secured senior revolving credit facility indebtedness of up to $75,000,000. All of the Company's subsidiaries, except for one indirect wholly owned subsidiary, Funtime-Famous Recipe, Inc., are full, unconditional, and joint and several guarantors of the notes. The assets and operations of Funtime-Famous Recipe, Inc. are inconsequential to the Company and its consolidated financial position and results of operations. Condensed financial statement information for the guarantors is not included herein, as the Company does not believe such information would be material to the understanding of the Company and its direct and indirect subsidiaries. (b) On January 31, 1997, the Company issued $125,000,000 of 9 3/4% senior notes due January 2007. The notes are senior unsecured obligations of the Company and equal to the Company's 2003 notes in priority upon liquidation. Interest is payable on January 15 and July 15 of each year, commencing July 15, 1997. The notes are redeemable, at the Company's option, in whole or in part, at any time on or after January 15, 2002, at varying redemption prices. Additionally, at any time prior to January 15, 2000, the Company may redeem in the aggregate up to 33 1/3% of the original aggregate principal amount of notes with the proceeds of one or more public equity offerings at a redemption price of 110% of the principal amount. The notes are guaranteed on a senior, unsecured, joint and several basis by all of the Company's principal operating subsidiaries. The indenture under which the notes were issued places limitations substantially similar to those of the Company's senior notes due in 2003. A portion of the proceeds were used to fully pay amounts outstanding under the Company's Credit Facility. (c) In connection with the 1996 acquisitions described in note 3, in October 1996 the Company entered into a senior secured credit facility (the "Credit Facility") with a syndicate of banks. The Credit F-15 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (5) LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED) Facility had an aggregate availability of $115,000,000 of which (i) up to $30,000,000 under the revolving credit facility (the "Revolving Credit Facility") was for working capital and general corporate purposes; (ii) up to $25,000,000 ("Facility A") was to finance capital expenditures prior to April 30, 1998; and (iii) up to $60,000,000 ("Facility B") was to finance certain acquisitions by the Company (including the acquisitions described in note 3), provided that at least 50% of the consideration for any such acquisition or improvements under Facility A or Facility B (collectively, the "Term Loan Facility") was required to have been funded by the Company. Interest rates per annum under the Credit Facility were equal to a base rate equal to the higher of the Federal Funds Rate plus 1/2% or the prime rate of Citibank N.A., in each case plus the Applicable Margin (as defined thereunder) or the London Interbank Offered Rate plus the Applicable Margin. Commitment fees approximated $53,000 and $620,000 in 1996 and 1997, respectively. The Revolving Credit Facility was to terminate October 31, 2002 (reducing to $15,000,000 on October 31, 2001) and borrowings under the Term Loan Facility were to mature October 31, 2001; however, aggregate principal payments of $7,500,000, $20,000,000 and $25,000,000 were to be required under the Term Loan Facility during 1998, 1999 and 2000, respectively. Borrowings under the Revolving Credit Facility were required to be fully paid for at least 30 days each year and were secured by substantially all of the Company's assets (other than real estate) and guarantees of the Company's principal subsidiaries. Borrowings under the Term Loan Facility were secured by the assets acquired with the proceeds thereof, and limited guarantees of the Company's principal subsidiaries. The Credit Facility contained restrictive covenants that, among other things, limited the ability of the Company and its subsidiaries to dispose of assets; incur additional indebtedness or liens; pay dividends; repurchase stock; make investments; engage in mergers or consolidations and engage in certain transactions with subsidiaries and affiliates. In addition, the Credit Facility required that the Company comply with certain specified financial ratios and tests, including ratios of total debt to earnings before interest, taxes and depreciation and amortization (EBITDA), interest expense to EBITDA, and fixed charges to EBITDA. On January 31, 1997, the Company and the syndicate of banks agreed to amend the Credit Facility. The $30,000,000 Revolving Credit Facility has a maturity date of December 31, 2001 (without reduction prior to that date). Additionally, following repayment of amounts that were then outstanding under the Term Loan Facility through the use of proceeds from the Company's January 1997 debt and equity offerings, the Term Loan Facility was converted into an $85,000,000 reducing revolving credit facility. The Term Loan Facility, as amended, will be available to fund acquisitions and make capital improvements. The amount available under the Term Loan Facility reduces to $75,000,000 on December 31, 1999, to $45,000,000 on December 31, 2000, and matures on December 31, 2001. Borrowings under the amended Credit Facility are secured by substantially all the assets of the Company and its subsidiaries (other than real estate) and are guaranteed by the Company's operating subsidiaries. The restrictive covenants are essentially the same as those of the original October 1996 credit facility. On February 9, 1998, the Company terminated the Credit Facility. No amounts were outstanding as of December 31, 1997 or as of the termination date. F-16 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (5) LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED) Annual maturities of long-term debt and capitalized lease obligations, adjusted to reflect the payment of the amounts outstanding under the Credit Facility through use of proceeds of the January 1997 note issuance, during the five years subsequent to December 31, 1997, are as follows: 1998.......................................................................... $ 795,000 1999.......................................................................... 412,000 2000.......................................................................... 723,000 2001.......................................................................... 67,000 2002 and thereafter........................................................... 215,029,000 -------------- $ 217,026,000 -------------- -------------- The fair value of the Company's long-term debt is estimated by using quoted prices or discounted cash flow analyses based on current borrowing rates for debt with similar maturities. Under the above assumptions the estimated fair value of long-term debt and capitalized lease obligations at December 31, 1996 and 1997, is approximately $160,000,000 and $236,000,000, respectively. (6) TERMINATION FEE During October 1997, the Company entered into an agreement with the limited partner of the partnership that owns the Six Flags Over Texas theme park. The general terms of the agreement were for the Company to become the managing general partner of the partnership, to manage the operations of the park, to receive a portion of the income from such operations, and to purchase limited partnership units over the term of the agreement. The provisions of the agreement also granted the Company an option to purchase all of the partnership interests in the partnership at the end of the agreement. The agreement was non-exclusive and contained a termination fee of $10,750,000 payable to the Company in the event the agreement was terminated. Subsequent to the Company's agreement with the limited partnership, the prior operator of the theme park also reached an agreement with the limited partnership. The Company received the termination fee in December 1997 and has included the termination fee, net of $2,386,000 of expenses associated with the transaction, as a component of other income (expense) in the accompanying 1997 consolidated statement of operations. F-17 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (7) INCOME TAXES Income tax expense (benefit) allocated to operations for 1995, 1996 and 1997 consists of the following: CURRENT DEFERRED TOTAL ------------ ------------ ------------ 1995: U.S. Federal...................................... $ (44,000) $ (508,000) $ (552,000) State and local................................... -- (210,000) (210,000) ------------ ------------ ------------ $ (44,000) $ (718,000) $ (762,000) ------------ ------------ ------------ ------------ ------------ ------------ 1996: U.S. Federal...................................... $ -- $ 1,335,000 $ 1,335,000 State and local................................... 64,000 98,000 162,000 ------------ ------------ ------------ $ 64,000 $ 1,433,000 $ 1,497,000 ------------ ------------ ------------ ------------ ------------ ------------ 1997: U.S. Federal...................................... $ 2,505,000 $ 6,060,000 $ 8,565,000 State and local................................... 373,000 677,000 1,050,000 ------------ ------------ ------------ $ 2,878,000 $ 6,737,000 $ 9,615,000 ------------ ------------ ------------ ------------ ------------ ------------ Recorded income tax expense (benefit) allocated to operations differed from amounts computed by applying the U.S. federal income tax rate of 34% in 1995 and 1996 and 35% in 1997 to pretax income (loss) approximately as follows: 1995 1996 1997 ------------ ------------ ------------ Computed "expected" federal income tax expense (benefit)......................................... $ (614,000) $ 1,109,000 $ 8,300,000 Amortization of goodwill............................ 78,000 180,000 327,000 Other, net.......................................... (68,000) 87,000 200,000 Effect of state and local income taxes, net of federal tax benefit............................... (158,000) 121,000 788,000 ------------ ------------ ------------ $ (762,000) $ 1,497,000 $ 9,615,000 ------------ ------------ ------------ ------------ ------------ ------------ Substantially all of the Company's future taxable temporary differences (deferred tax liabilities) relate to the different financial accounting and tax depreciation methods and periods for property and equipment. The Company's net operating loss carryforwards, alternative minimum tax carryforwards, and deferred compensation amounts represent future income tax deductions (deferred tax assets). The tax effects of these temporary differences as of December 31, 1996 and 1997, are presented below: 1996 1997 ------------- ------------- Deferred tax assets before valuation allowance................. $ 11,496,000 $ 21,891,000 Less valuation allowance....................................... 1,196,000 1,196,000 ------------- ------------- Net deferred tax assets........................................ 10,300,000 20,695,000 Deferred tax liabilities....................................... 30,878,000 54,232,000 ------------- ------------- Net deferred tax liability..................................... $ 20,578,000 $ 33,537,000 ------------- ------------- ------------- ------------- The Company's deferred tax liability results from the financial carrying value for property and equipment being substantially in excess of the Company's tax basis in the corresponding assets. The F-18 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (7) INCOME TAXES (CONTINUED) Company's property and equipment are being depreciated primarily over a 7-year period for tax reporting purposes and a longer 20- to 25-year period for financial purposes. The faster tax depreciation has resulted in tax losses which can be carried forward to future years to offset future taxable income. Because most of the Company's depreciable assets' financial carrying value and tax basis difference will reverse before the expiration of the Company's net operating loss carryforwards and taking into account the Company's projections of future taxable income over the same period, management believes that it will more likely than not realize the benefits of these net future deductions. The Company has experienced ownership changes within the meaning of the Internal Revenue Code Section 382 and the regulations thereunder. As a result of the ownership changes, net operating loss carryforwards generated before the ownership changes can be deducted in subsequent periods only in certain limited situations. Accordingly, it is probable that the Company will not be able to use most of the net operating loss carryforwards generated prior to October 30, 1992. A valuation allowance for the pre-October 1992 net operating loss carryforwards has been established. The Company experienced an additional ownership change on June 4, 1996 as a result of the issuance of shares of common stock and the conversion of preferred stock into additional shares of common stock. This ownership change may limit the use of the Company's November 1992 through June 1996 net operating loss carryforwards in a given year; however, it is more likely than not that the post-October 1992 carryforwards will be fully utilized by the Company before their expiration. As of December 31, 1997, the Company has approximately $36,709,000 of net operating loss carryforwards available for federal income tax purposes which expire through 2012. Included in that total are pre-October 30, 1992, net operating loss carryforwards of which $3,400,000 are not expected to be utilized. Additionally, the Company has approximately $4,370,000 of alternative minimum tax credits which have no expiration date. (8) STOCKHOLDERS' EQUITY PREFERRED STOCK The Company has authorized 500,000 shares of preferred stock, $1 par value. During 1995, the Company issued 200,000 shares of Series A, 7% cumulative convertible preferred stock at $100 per share. During June 1996, the shares, including all dividends thereon, were converted into 2,560,928 common shares. The Company has agreed to provide the former preferred stockholders certain registration rights relative to the common stock issued upon conversion of the preferred stock. Holders of Series A preferred stock were entitled to receive cumulative dividends at an annual rate of $7 per share. At the Company's election, dividends were payable in cash and/or in additional Series A preferred stock. The terms of the Company's senior notes and credit facility limit the Company's ability to pay cash dividends. All dividends paid to the preferred stockholders were made by additional issuances of common stock at the time of the conversion into shares of common stock as described above. All shares of preferred stock rank senior and prior in right to all of the Company's now or hereafter issued common stock with respect to dividend payments and distribution of assets upon liquidation or dissolution of the Company. F-19 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (8) STOCKHOLDERS' EQUITY (CONTINUED) COMMON STOCK In August 1995, the Company issued 1,175,063 common shares in full exchange for the Company's $7,000,000 senior subordinated convertible notes and 310,370 common shares in full exchange for the Company's $2,095,000 junior subordinated term loan. The Company has agreed to provide the stockholders certain registration rights in the future. On April 4, 1996, a majority of the Company's common and preferred shareholders and the Company's board of directors approved a one-for-five reverse stock split effective May 6, 1996. The par value of common stock was increased to $.05 per share from $.01 per share. Additionally, the authorized common shares of the Company were changed to 30,000,000. The accompanying consolidated financial statements and notes to the consolidated financial statements reflect the reverse stock split as if it had occurred as of the earliest date presented. On June 4, 1996, and June 6, 1996, the Company issued 3,425,000 and 513,750, respectively, of its common shares resulting in net proceeds to the Company of $65,306,000. Additionally, on June 4, 1996, the Company exchanged 2,560,928 of its common shares for all 200,000 shares of its previously outstanding preferred stock. On January 31, 1997, the Company issued 6,900,000 of its common shares resulting in net proceeds to the Company of approximately $189,530,000. STOCK OPTIONS AND WARRANTS In 1993, 1994, 1995, and 1996, certain members of the Company's management were issued seven-year options to purchase 145,200, 36,000, 248,000, and 337,500, of its common shares, at an exercise price of $5.00, $7.50, $8.25, and $22.00 per share, respectively, under the Company's 1993, 1995 and 1996 Stock Option and Incentive Plans (the Plans). No stock options were issued during 1997. Stock options are granted with an exercise price equal to the stock's fair market value at the date of grant. These options may be exercised on a cumulative basis with 20% of the total exercisable on date of issuance and with an additional 20% being available for exercise on each of the succeeding anniversary dates. Any unexercised portion of the options will automatically and without notice terminate upon the seventh anniversary of the issuance date or upon termination of employment. At December 31, 1997, there were 503,300 additional shares available for grant under the Plans. The per share weighted-average fair value of stock options granted during 1995 and 1996 was $5.56 and $14.97 on the date of grant using the Black--Scholes option-pricing model with the following weighted-average assumptions: 1995--expected dividend yield 0%, risk-free interest rate of 5.5%, and an expected life of 5 years; 1996--expected dividend yield 0%, risk-free interest rate of 6.25%, and an expected life of 5 years. The Company applies APB Opinion No. 25 in accounting for its stock options and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options F-20 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (8) STOCKHOLDERS' EQUITY (CONTINUED) under SFAS No. 123, the Company's net income (loss) would have been changed to the pro forma amounts indicated below: 1995 1996 1997 ------------- ------------ ------------- Net income (loss) applicable to common stock: As reported $ (1,714,000) $ 1,162,000 $ 14,099,000 Pro forma (1,880,000) 390,000 13,325,000 Income (loss) per average common share outstanding--basic: As reported $ (.44) $ .14 $ .79 Pro forma (.48) .05 .74 Pro forma net income (loss) applicable to common stock reflects only options granted in 1995 and 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income (loss) amounts presented above because compensation cost is reflected over the options' vesting period of 4 years and compensation cost for options granted prior to January 1, 1995 is not considered. Stock option activity during the periods indicated is as follows: NUMBER OF WEIGHTED-AVERAGE SHARES EXERCISE PRICE ----------- ----------------- Balance at December 31, 1994.................................... 181,200 $ 5.50 Granted....................................................... 248,000 8.25 Exercised..................................................... -- -- Forfeited..................................................... -- -- Expired....................................................... -- -- ----------- ------ Balance at December 31, 1995.................................... 429,200 7.09 Granted....................................................... 337,500 22.00 Exercised..................................................... -- -- Forfeited..................................................... -- -- Expired....................................................... -- -- ----------- ------ Balance at December 31, 1996.................................... 766,700 13.65 Granted....................................................... -- -- Exercised..................................................... -- -- Forfeited..................................................... (2,000) 5.00 Expired....................................................... -- -- ----------- ------ Balance at December 31, 1997.................................... 764,700 $ 13.67 ----------- ------ ----------- ------ F-21 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (8) STOCKHOLDERS' EQUITY (CONTINUED) At December 31, 1997, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $5.00 to $22.00 and 5.01 years, respectively. At December 31, 1995, 1996, and 1997, the number of options exercisable was 151,120, 304,460 and 455,800, respectively, and weighted-average exercise price of those options was $6.30, $10.01 and $11.25, respectively. In 1989, the Company's current chairman was issued a ten-year warrant to purchase 26,346 common shares (currently being held as treasury stock) at an exercise price of $1.00 per share and a ten-year warrant to purchase 18,693 common shares at an exercise price of $1.00 per share. SHARE RIGHTS PLAN On December 10, 1997, the Company's board of directors authorized a share rights plan. Under the plan, stockholders have one right for each share of common stock held. The rights become exercisable ten business days after (a) an announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the voting shares outstanding, or (b) the commencement or announcement of a person's or group's intention to commence a tender or exchange offer that could result in a person or group owning 15% or more of the voting shares outstanding. Each right entitles its holder (except a holder who is the acquiring person) to purchase 1/100 of a share of a junior participating series of preferred stock designated to have economic and voting terms similar to those of one share of common stock for $250.00, subject to adjustment. In the event of certain merger or asset sale transactions with another party or transactions which would increase the equity ownership of a shareholder who then owned 15% or more of the Company, each right will entitle its holder to purchase securities of the merging or acquiring party with a value equal to twice the exercise price of the right. The rights, which have no voting power, expire in 2008. The rights may be redeemed by the Company for $.01 per right until the right becomes exercisable. RESTRICTED STOCK GRANT The Company has issued 450,000 restricted common shares to members of the Company's senior management. The restrictions on the stock lapse ratably over a six-year term commencing January 1, 1998, generally based upon the continued employment of the members of management. The restrictions also lapse if any or all members are terminated without cause or if a change in control of the Company occurs. The fair value of the restricted shares, as determined at the date of grant, approximated $14,625,000 and will be recognized as an expense over the vesting term. (9) 401(K) PLAN The Company has a qualified, contributory 401(k) plan (the Plan). All regular employees are eligible to participate in the Plan if they have completed one full year of service and are at least 21 years old. The Company matches 100% of the first 2% and 25% of the next 6% of salary contributions made by employees. The accounts of all participating employees are fully vested. The Company recognized F-22 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (9) 401(K) PLAN (CONTINUED) approximately $32,000, $150,000 and $377,000 of expense in the years ended December 31, 1995, 1996 and 1997, respectively. (10) MARINE WORLD In April 1997, the Company became manager of Marine World, a marine and exotic wildlife park located in Vallejo, California, pursuant to a contract with an agency of the City of Vallejo under which the Company is entitled to receive an annual base management fee of $250,000 and up to $250,000 annually in additional fees based on park performance. In November 1997, the Company exercised its option to lease approximately 40 acres of land within the site for nominal rent and an initial term of 55 years (plus four ten-year and one four-year renewal options). At December 31, 1997, the Company is in the process of adding theme park rides and attractions on the leased land, which is located within the existing park, in order to create one fully-integrated regional theme park at the site. The Company is entitled to receive, in addition to the management fee, 80% of the cash flow generated by the combined operations at the park, after combined operating expenses and debt service on outstanding debt obligations relating to the park. The Company also has an option to purchase the entire site commencing in February 2002 at a purchase price equal to the greater of the then principal amount of certain debt obligations of the seller (expected to aggregate $52.0 million at February 2002) or the then fair market value of the seller's interest in the park (based on a formula relating to the seller's 20% share of Marine World's cash flow). The Company currently expects to exercise this purchase option when it becomes exercisable. (11) COMMITMENTS AND CONTINGENCIES The Company leases office space under a lease agreement which expires April 30, 2001. The lease requires minimum monthly payments over its term and also escalation charges for proportionate share of expenses as defined in the lease. An affiliate of the Company shares office space with the Company and has agreed to pay 50% of the rental payments. Rent expense recognized by the Company (after deduction of amounts paid by the affiliate) for the years ended December 1995, 1996 and 1997, aggregated $68,000, $64,000, and $64,000, respectively. The Company leases the sites of Wyandot Lake and each of the two Waterworld/USA locations with rent based upon percentages of revenues earned by each park. During 1995, 1996, and 1997, the Company recognized approximately $100,000, $385,000 and $1,110,000, respectively, of rental expense under these rent agreements. Total rental expense, including office space and park sites, was approximately $550,000, $1,227,000, and $2,229,000 for the years ended December 31, 1995, 1996, and 1997, respectively. On June 2, 1997, a water slide collapsed at the Company's Waterworld/USA park in Concord, California, resulting in one fatality and the park's closure for twelve days. Although the collapse and the resulting closure had a material adverse impact on that park's operating performance for 1997, as well as a lesser impact on the Company's Sacramento water park (which is also named "Waterworld/USA"), located approximately seventy miles from the Concord park, the Company's other parks were not adversely affected. The Company has recovered all of the Concord park's operating shortfall under its business interruption insurance. In addition, the Company believes that its liability insurance coverage should be F-23 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (11) COMMITMENTS AND CONTINGENCIES (CONTINUED) adequate to provide for any personal injury liability which may ultimately be found to exist in connection with the collapse. The Company is party to various legal actions arising in the normal course of business. Matters that are probable of unfavorable outcome to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, the Company's estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. None of the actions are believed by management to involve amounts that would be material to consolidated financial condition, operations, or liquidity after consideration of recorded accruals. (12) CERTAIN TRANSACTIONS During 1995, in connection with the acquisition of Funtime and the issuance of the $90,000,000 senior notes, the Company paid investment banking and financial advisory fees in the amount of $800,000 and $475,000 to Lepercq, de Neuflize & Co. Incorporated (Lepercq) and Hanseatic Corporation (Hanseatic), respectively. Two directors of the Company are director and treasurer, respectively, of Lepercq and Hanseatic. (13) PROPOSED ACQUISITIONS OF ADDITIONAL THEME PARKS On December 15, 1997, the Company entered into an agreement with the majority shareholders of Walibi, S.A. ("Walibi"), to purchase the outstanding stock of Walibi held by the majority shareholders. The purchase agreement commits the Company to tender for the remaining stock. The estimated aggregate purchase price of the Walibi common stock plus the debt of Walibi to be assumed by the Company will approximate $140,000,000. The acquisition will be accounted for using the purchase method of accounting and is expected to be completed in March 1998. On February 9, 1998, the Company agreed to purchase 100% of the capital stock of Six Flags Entertainment Corporation for $965,000,000 (subject to adjustment) and the assumption of approximately $770,000,000 of indebtedness. The purchase price is payable in cash or, at the Company's option, cash and up to $200,000,000 of preferred stock. The Company has filed registration statements to offer equity and debt securities to fund the cash portion of the purchase price. The acquisition will be accounted for using the purchase method of accounting and is expected to be completed in April 1998. If the agreement to purchase Six Flags is terminated, except as a result of legal or governmental restrictions or by mutual consent, the Company may be required to pay a termination fee of $25,000,000. F-24 PREMIER PARKS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995, 1996 AND 1997 (14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Following is a summary of the unaudited interim results of operations for the years ended December 31, 1996 and 1997: 1996 ------------------------------------------------------------------------ FIRST SECOND THIRD FOURTH FULL QUARTER QUARTER QUARTER QUARTER YEAR ------------ ------------- ------------- ------------- ------------- Revenue................................ $ 2,430,000 $ 26,953,000 $ 60,409,000 $ 3,655,000 $ 93,447,000 Net income (loss) applicable to common stock................................ (5,584,000) (744,000) 16,238,000 (8,748,000) 1,162,000 Net income (loss) applicable to common stock per share: Basic.............................. $ (1.15) $ (.11) $ 1.43 $ (.77) $ .14 Diluted............................ $ (1.15) $ (.11) $ 1.39 $ (.77) $ .13 1997 -------------------------------------------------------------------------- FIRST SECOND THIRD FOURTH FULL QUARTER QUARTER QUARTER QUARTER YEAR ------------ ------------- -------------- ------------- -------------- Revenue............................. $ 4,264,000 $ 62,468,000 $ 120,014,000 $ 7,158,000 $ 193,904,000 Net income (loss) applicable to common stock...................... (9,742,000) 5,698,000 27,237,000 (9,094,000) 14,099,000 Net income (loss) applicable to common stock per share: Basic........................... $ (.61) $ .31 $ 1.49 $ (.48) $ .79 Diluted......................... $ (.61) $ .30 $ 1.45 $ (.48) $ .76 F-25 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Six Flags Entertainment Corporation We have audited the accompanying consolidated balance sheets of Six Flags Entertainment Corporation as of December 28, 1997 and December 29, 1996 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 28, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Six Flags Entertainment Corporation at December 28, 1997 and December 29, 1996 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 28, 1997 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP New York, New York February 14, 1998 F-26 SIX FLAGS ENTERTAINMENT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997 (IN THOUSANDS) 1995 1996 1997 ---------- ---------- ---------- Revenues: Operating services......................................................... $ 366,665 $ 405,558 $ 427,569 Sales of products.......................................................... 255,030 268,150 271,046 Other...................................................................... 7,762 7,168 10,051 ---------- ---------- ---------- 629,457 680,876 708,666 ---------- ---------- ---------- Costs and expenses: Operating, general and administrative expenses............................. 388,137 419,756 443,359 Cost of products sold...................................................... 91,138 105,988 101,239 Depreciation............................................................... 51,848 55,090 58,902 Amortization............................................................... 31,596 32,327 25,591 Interest, net.............................................................. 63,282 76,530 84,430 Minority interest.......................................................... -- 1,297 (1,147) ---------- ---------- ---------- 626,001 690,988 712,374 ---------- ---------- ---------- Income (loss) before income taxes............................................ 3,456 (10,112) (3,708) Income tax expense........................................................... 6,743 5,137 -- ---------- ---------- ---------- Net loss..................................................................... $ (3,287) $ (15,249) $ (3,708) ---------- ---------- ---------- ---------- ---------- ---------- See notes to consolidated financial statements. F-27 SIX FLAGS ENTERTAINMENT CORPORATION CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 29, 1996 AND DECEMBER 28, 1997 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1996 1997 ---------- ---------- ASSETS Current assets: Cash and cash equivalents................................................................. $ 45,587 $ 16,805 Receivables, net.......................................................................... 6,559 3,258 Receivable from affiliate................................................................. -- 4,000 Inventories, net.......................................................................... 13,526 14,338 Maintenance supplies...................................................................... 6,620 8,051 Prepaid expenses and other current assets................................................. 4,150 3,848 ---------- ---------- Total current assets...................................................................... 76,442 50,300 Property and equipment, net............................................................... 489,068 492,137 Investment in co-venture parks, net....................................................... 19,135 78,370 Excess of cost over net assets acquired, net.............................................. 205,117 196,928 Deferred financing costs, net............................................................. 24,278 20,171 Other assets, net......................................................................... 12,727 26,784 ---------- ---------- Total assets.............................................................................. $ 826,767 $ 864,690 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable.......................................................................... $ 29,518 $ 21,055 Accrued liabilities....................................................................... 49,885 43,390 Current portion of long-term debt......................................................... 38,332 26,130 Short-term borrowings..................................................................... 1,585 30,503 ---------- ---------- Total current liabilities................................................................. 119,320 121,078 Long-term debt............................................................................ 714,993 753,369 Other long-term liabilities............................................................... 14,728 12,420 Minority interest......................................................................... 1,297 150 Commitments and contingencies Stockholders' Deficit: Class A Convertible Preferred Stock ($.01 par value per share: 6,100,000 shares authorized; 5,100,000 shares issued and outstanding at December 29, 1996 and December 28, 1997; $243,572 and $273,499 aggregate liquidation preference at December 29, 1996 and December 28, 1997, respectively).................................................... 51 51 Class B Convertible Preferred Stock ($.01 par value per share; 4,900,000 shares authorized, issued and outstanding at December 29, 1996 and December 28, 1997; $196,000 aggregate liquidation preference at December 29, 1996 and December 28, 1997)............ 49 49 Class A Common Stock ($.01 par value per share; 6,100,000 shares authorized; 51 shares issued and outstanding at December 29, 1996 and December 28, 1997)...................... -- -- Class B Common Stock ($.01 par value per share: 20,000,000 shares authorized; 49 shares issued and outstanding at December 29, 1996 and December 28, 1997)...................... -- -- Additional paid-in capital................................................................ 35,983 40,217 Accumulated deficit....................................................................... (56,159) (59,867) Unearned compensation reserved stock awards............................................... (3,495) (2,777) ---------- ---------- Total stockholders' deficit............................................................... (23,571) (22,327) ---------- ---------- Total liabilities and stockholders' deficit............................................... $ 826,767 $ 864,690 ---------- ---------- ---------- ---------- See notes to consolidated financial statements. F-28 SIX FLAGS ENTERTAINMENT CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) PREFERRED STOCK A PREFERRED STOCK B COMMON STOCK ADDITIONAL ---------------------- ---------------------- ------------------------ PAID-IN ACCUMULATED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT --------- ----------- --------- ----------- ----------- ----------- ----------- ------------ Balance at January 1, 1995... -- $ -- -- $ -- 300 $ -- $ 122,320 $ (37,623) Net loss..................... -- -- -- -- -- -- -- (3,287) 1995 Refinancing............. -- -- -- -- -- -- (90,843) -- 1995 Recapitalization........ 5,100,000 51 4,900,000 49 (200) -- (100) -- Reserved stock awards........ -- -- -- -- -- -- 4,372 -- Amortization of unearned compensation............... -- -- -- -- -- -- -- -- --------- ----- --------- ----- --- ----- ----------- ------------ Balance at December 31, 1995....................... 5,100,000 51 4,900,000 49 100 -- 35,749 (40,910) Net loss..................... -- -- -- -- -- -- -- (15,249) Reserved stock awards........ -- -- -- -- -- -- 234 -- Amortization of unearned compensation............... -- -- -- -- -- -- -- -- --------- ----- --------- ----- --- ----- ----------- ------------ Balance at December 29, 1996....................... 5,100,000 51 4,900,000 49 100 -- 35,983 (56,159) Net loss..................... -- -- -- -- -- -- -- (3,708) Reserved stock awards........ -- -- -- -- -- -- 234 -- Amortization of unearned compensation............... -- -- -- -- -- -- -- -- Capital contribution......... -- -- -- -- -- -- 4,000 -- --------- ----- --------- ----- --- ----- ----------- ------------ Balance at December 28, 1997....................... 5,100,000 $ 51 4,900,000 $ 49 100 $ -- $ 40,217 $ (59,867) --------- ----- --------- ----- --- ----- ----------- ------------ --------- ----- --------- ----- --- ----- ----------- ------------ STOCKHOLDERS' UNEARNED EQUITY COMPENSATION (DEFICIT) --------------- ------------- Balance at January 1, 1995... $ -- $ 84,697 Net loss..................... -- (3,287) 1995 Refinancing............. -- (90,843) 1995 Recapitalization........ -- -- Reserved stock awards........ (4,372) -- Amortization of unearned compensation............... 220 220 ------- ------------- Balance at December 31, 1995....................... (4,152) (9,213) Net loss..................... -- (15,249) Reserved stock awards........ (234) -- Amortization of unearned compensation............... 891 891 ------- ------------- Balance at December 29, 1996....................... (3,495) (23,571) Net loss..................... -- (3,708) Reserved stock awards........ (234) -- Amortization of unearned compensation............... 952 952 Capital contribution......... -- 4,000 ------- ------------- Balance at December 28, 1997....................... $ (2,777) $ (22,327) ------- ------------- ------- ------------- See notes to consolidated financial statements. F-29 SIX FLAGS ENTERTAINMENT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997 (IN THOUSANDS) 1995 1996 1997 ----------- ---------- ---------- OPERATING ACTIVITIES: Net loss..................................................................... $ (3,287) $ (15,249) $ (3,708) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization.............................................. 83,444 87,417 84,493 Noncash interest expense................................................... 26,998 43,688 48,552 Minority interest.......................................................... -- 1,297 (1,147) Inventory reserve.......................................................... -- 1,077 -- Deferred income taxes...................................................... 806 5,137 -- Changes in current assets and liabilities: Receivables................................................................ 3,068 401 3,301 Inventories................................................................ (1,518) (3,648) (812) Maintenance supplies....................................................... (303) (914) (1,431) Prepaid expenses and other current assets.................................. (1,308) 43 302 Accounts payable and accrued liabilities................................... 17,820 9,286 (14,958) Other, net................................................................... (1,133) 67 (4,289) ----------- ---------- ---------- Net cash provided by operating activities.................................... 124,587 128,602 110,303 ----------- ---------- ---------- INVESTING ACTIVITIES: Investment in co-venture parks............................................... (8,729) (5,548) (10,654) Cost of acquisitions, including real estate held for development............. (39,593) -- -- Purchase of co-venture limited partnership units............................. -- -- (62,678) Prepayment of SFOT partnership obligation.................................... -- -- (10,725) Purchase of property and equipment........................................... (45,578) (75,627) (67,675) Proceeds from sale of land and property...................................... -- -- 2,000 ----------- ---------- ---------- Net cash used in investing activities........................................ (93,900) (81,175) (149,732) ----------- ---------- ---------- FINANCING ACTIVITIES: Net proceeds from related party debt......................................... 65,969 -- -- Proceeds from revolving lines of credit...................................... 2,205 41,673 97,936 Payments on revolving lines of credit........................................ (2,124) (40,881) (58,521) Payments on term loans....................................................... (55,500) (53,000) (59,000) Proceeds from other debt..................................................... -- -- 30,232 ----------- ---------- ---------- Net cash provided by (used in) financing activities.......................... 10,550 (52,208) 10,647 ----------- ---------- ---------- Increase (decrease) in cash and cash equivalents............................. 41,237 (4,781) (28,782) Cash and cash equivalents at beginning of year............................... 9,131 50,368 45,587 ----------- ---------- ---------- Cash and cash equivalents at end of year..................................... $ 50,368 $ 45,587 $ 16,805 ----------- ---------- ---------- ----------- ---------- ---------- See notes to consolidated financial statements. F-30 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION Six Flags Entertainment Corporation ("SFEC", and together with its subsidiaries, "Six Flags"), a Delaware corporation, was formed in 1991 to effect the acquisition of S.F. Holdings, Inc. ("Holdings") and its subsidiary Six Flags Theme Parks Inc. ("SFTP"). SFEC owns 100% of the Common Stock of Holdings, which owns 100% of the Common Stock of SFTP. Prior to June 23, 1995, SFEC was wholly owned by Time Warner Entertainment Company, L.P., a Delaware limited partnership ("TWE"). On June 23, 1995, TWE caused SFEC to undergo a recapitalization and TWE sold 51% of its interest in SFEC to an investor group (the "Investor Group") led by Boston Ventures Management, Inc., a private investment management firm (the "1995 Recapitalization"). In connection with the 1995 Recapitalization, SFEC consummated a series of transactions (the "1995 Refinancing", together with the 1995 Recapitalization, the "1995 Refinancing and Recapitalization"). SFEC and Holdings are holding companies which have no significant operations independent of their ownership of SFTP. Accordingly, the consolidated financial statements of Six Flags consist principally of the assets, liabilities, operations and cash flows of SFTP and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain amounts have been reclassified to conform to the current year presentation. Six Flags operates twelve "Six Flags" branded theme parks in eight locations throughout the United States. Nine of the theme parks--Six Flags Great Adventure and Wild Safari Animal Park (New York-Philadelphia), Six Flags Great America (Chicago-Milwaukee), Six Flags Magic Mountain and Six Flags Hurricane Harbor (Los Angeles) (collectively "Six Flags California"), Six Flags Astroworld and Six Flags Waterworld (Houston) (collectively "Six Flags Houston"), Six Flags St. Louis (St. Louis) and Six Flags Hurricane Harbor (Dallas-Ft. Worth)--are owned directly by SFTP. Six Flags Fiesta Texas located in San Antonio, Texas is leased by a limited partnership of which a subsidiary of SFTP is a general partner and manages the park. Two parks--Six Flags Over Texas (Dallas-Ft. Worth) and Six Flags Over Georgia (Atlanta)--are operated by SFTP pursuant to partnership agreements (the "co-venture parks"). Six Flags Over Texas is owned by a limited partnership ("Texas Flags") of which the managing general partner is a wholly-owned subsidiary of SFTP. Six Flags Over Georgia is owned by a limited partnership of which the managing general partner is SFOG II, Inc., a Delaware corporation which is a wholly-owned subsidiary of SFEC ("SFOG II"). Six Flags has entered into new partnership agreements for the management of Six Flags Over Georgia and Six Flags Over Texas through 2026 and 2027, respectively. See the Investment In Co-venture Parks footnote for a description of these new agreements. In March 1996, SFTP completed arrangements pursuant to which SFTP, through wholly-owned subsidiaries, manages the Fiesta Texas theme park located in San Antonio, Texas ("Fiesta Park"). The Fiesta Park, which is owned by a subsidiary of La Cantera Development Company ("La Cantera"), an affiliate of United Service Automobile Association ("USAA"), was leased to a newly formed limited partnership (the "Fiesta Partnership") in which SFTP, acting through wholly-owned subsidiaries (the "Six Flags GP"), is a general partner with an approximate 60% equity interest. La Cantera is the limited partner with a 40% equity interest. In connection with these arrangements, the Fiesta Partnership obtained an option to purchase the tangible and intangible assets related to the Fiesta Park as well as the limited partner's interest in the Fiesta Partnership. In addition, Six Flags GP receives an annual management fee and intellectual property fee in connection with the management of the Fiesta Park. The management fee is based on revenues for 1996 and 1997 and will be based on operating profit thereafter. The intellectual property fee is based on revenues. F-31 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SFTP's consolidated results for 1996 include a full year of Fiesta Park's operations. The following unaudited proforma financial information for the 1995 fiscal year gives effect to consolidation of Fiesta Park as if it had occurred at the beginning of the 1995 fiscal year. These proforma results are not necessarily indicative of what the results would have been had SFTP actually managed the park during 1995. Proforma revenues and net loss would have been $672 million and $8.6 million, respectively, if the consolidation of the Fiesta Park occurred at the beginning of the 1995 fiscal year. The 1995, 1996, and 1997 fiscal years each consisted of 52 weeks. The 1995 fiscal year ended on December 31, 1995, while the 1996 and 1997 fiscal years ended on December 29, 1996 and December 28, 1997, respectively. 1995 REFINANCING AND RECAPITALIZATION The 1995 Refinancing and Recapitalization was effected through the following transactions consummated in June 1995: 1. SFEC effected a recapitalization (the "Recapitalization") pursuant to which its Common Stock (all of which was owned by TWE) was recapitalized into shares of Class A Convertible Preferred Stock (representing approximately 51% of the equity), Class B Convertible Preferred Stock (representing approximately 49% of the equity) and Common Stock (the "SFEC Common Stock"), which has nominal value. 2. TWE sold to the Investor Group all of the outstanding shares of SFEC's Class A Convertible Preferred Stock and 51% of the outstanding shares of the SFEC Common Stock. 3. SFTP borrowed $475.0 million on a term basis pursuant to a credit agreement dated as of June 23, 1995 (the "Credit Agreement") with a group of banks. 4. SFTP issued $285.0 million aggregate principal amount of 12.25% Senior Subordinated Discount Notes due 2005 (the "12.25% Notes") at an aggregate issue price of $200.0 million. 5. SFTP paid TWE $640 million in connection with (i) the repurchase of all assets previously sold to TWE as part of the sale and leaseback transactions, (ii) the repayment of intercompany indebtedness and related accrued interest, (iii) a payment as required under a license agreement entered into with TWE and (iv) a payment in consideration of TWE entering into a non-competition agreement for the benefit of Six Flags. The total amount paid to TWE in excess of the outstanding indebtedness to TWE has been accounted for as an equity transaction. 6. SFTP incurred approximately $27.5 million in deferred financing fees and approximately $7.5 million in transaction fees related to the 1995 Refinancing and Recapitalization. The amount paid for transaction fees has been accounted for as an equity transaction. In addition, the 2% participation in a trust, which holds all TWE-owned aircraft, ceased upon the consummation of the 1995 Refinancing and Recapitalization. The elimination of the remaining net book value of this 2% interest (approximately $1.8 million) has been accounted for as an equity transaction. ACCOUNTING AND FINANCIAL REPORTING POLICIES REVENUES AND EXPENSES Operating services revenue consists primarily of theme park admissions and parking, corporate sponsorships and other in-park services. Sales of products consist primarily of revenues from the in-park sales of food and beverages, merchandise, gifts and souvenirs, games of skill and gasoline. Operating F-32 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) expenses consist of theme park employee compensation and benefits (approximately 50%) and advertising media and production (approximately 10%-15%). Park maintenance materials and services, utilities, operating supplies, insurance and other operating service costs account for the remainder. Cost of products sold consists of the cost of food and beverages, gifts and souvenirs, games of skill prizes and gasoline sold. During 1997, Six Flags reversed approximately $7.3 million of expense accruals no longer deemed necessary. Such amounts have been reflected as expense reductions of $0.7 million in cost of products sold, and $6.6 million in operating, general and administrative expenses in the current year statement of operations. INCOME TAXES Six Flags uses the liability method of accounting for income taxes required by FASB Statement No. 109, "Accounting for Income Taxes". CASH EQUIVALENTS Cash equivalents consist of short-term, highly liquid investments purchased with a maturity date of three months or less. INVENTORIES Inventories, primarily products held for resale, are valued at the lower of cost or market. Cost is determined principally using the first-in, first-out method. OFF-SEASON EXPENSES Theme park operations are highly seasonal with substantially all revenues being generated in the second and third quarters. Such revenues are recognized when earned, while cost of products sold, general and administrative expenses, interest on debt and income taxes are recognized when incurred. All other interim period costs related to park operations are considered off-season expenses and are charged to interim periods based upon estimated annual revenues. No costs are deferred at the end of a fiscal year. PROPERTY AND EQUIPMENT Property and equipment, which includes land, rides and attractions, buildings and improvements, and other (principally machinery and equipment) are stated at cost (fair value at the date of acquisition). Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets. The estimated lives used in computing depreciation are: Rides and attractions........................................ 3 to 25 years 10 to 33 Buildings and improvements................................... years Other........................................................ 3 to 15 years INVESTMENT IN CO-VENTURE PARKS Six Flags, through two subsidiaries, is the general partner in two theme park limited partnerships. Six Flags accounts for the parks as co-ventures, i.e., the revenues and expenses (excluding partnership depreciation) are included in Six Flags' consolidated statements of operations and the net amounts distributed to the limited partners are deducted as expenses. Except for the limited partnership units purchased pursuant to the tender offer, Six Flags has no rights or title to the co-venture park assets or to F-33 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) the proceeds from any sale of the co-venture parks' assets. Accordingly, Six Flags' consolidated balance sheets do not include any of the co-venture parks' assets. The investment in co-venture parks included in the consolidated balance sheets represents (i) Six Flags' interest in the estimated future cash flows from the operations of the co-venture parks and is amortized over the life of the partnership agreements, and (ii) the value of Limited Partnership units purchased pursuant to the SFOG tender offer. The co-venture parks contributed revenues of $160.6 million, $152.0 million and $176.8 million to Six Flags in the fiscal years 1995, 1996 and 1997, respectively. See the Investment In Co-venture Parks footnote below for a description of the new agreements extending the management of Six Flags Over Georgia and Six Flags Over Texas, each for another 30-year term. DEFERRED FINANCING COSTS Deferred financing costs consist of debt issuance costs incurred in connection with the Credit Agreement, the issuance of the 12.25% Notes and the issuance of the $192.3 million aggregate principal amount of Zero Coupon Senior Notes due 1999 (the "Zero Coupon Notes") in December 1992. Deferred financing costs are amortized over the life of the related debt. Accumulated amortization of deferred financing costs at December 29, 1996 and December 28, 1997 amounted to $8.3 million and $12.0 million, respectively. EXCESS OF COST OVER NET ASSETS ACQUIRED The excess of cost over net assets acquired is amortized over periods not exceeding forty years using the straight-line method. Accumulated amortization at December 29, 1996 and December 28, 1997 amounted to $39.6 million and $47.7 million, respectively. OTHER ASSETS Other assets consist primarily of intangible assets, which are amortized over periods of two to thirteen years using the straight-line method. Additionally, in 1997, other assets include a $10.7 million prepayment in accordance with the Texas Agreements. See the Investment In Co-venture Parks footnote. REVENUE RECOGNITION In general, Six Flags recognizes operating revenue from ticket sales when guests are admitted to the parks. Theme park operations are highly seasonal and substantially all revenues are generated in the second and third quarters of the fiscal year. CONCENTRATIONS OF CREDIT RISKS Financial instruments, which potentially subject Six Flags to concentrations of credit risk, consist primarily of cash and cash equivalents and receivables. Six Flags places its cash and cash equivalents with high credit, quality institutions and minimizes its credit risk exposure relating to receivables through formal credit policies and monitoring procedures. FINANCIAL INSTRUMENTS The fair value of financial instruments, such as long-term debt, is disclosed when significantly different from the recorded values of such instruments in the consolidated balance sheets pursuant to FASB Statement No. 107, "Disclosure about Fair Value of Financial Instruments." Six Flags generally estimates F-34 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) the fair value of its long-term debt by using discounted cash flow analyses based on Six Flags' current borrowing rates for debt with similar maturities, or by quoted market prices for the same issues. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. IMPAIRMENT OF LONG-LIVED ASSETS The carrying value of long-lived assets, including intangibles, is reviewed if the facts and circumstances, such as significant declines in revenues, earnings or cash flows, or material adverse changes in the business climate, suggest that it may be impaired. Six Flags performs its review by comparing the book value relating to long-lived assets to the estimated future undiscounted cash flows relating to such long-lived assets. If any impairment in the value of the long- lived assets is indicated, the carrying value of the long-lived assets is adjusted to reflect such impairment calculated based on the discounted cash flows of the impaired assets or the assets fair value, as appropriate. ADVERTISING Advertising costs are expensed as incurred or the first time the advertising takes place. Six Flags incurred advertising costs of approximately $53.4 million, $64.6 million and $61.1 million in the 1995, 1996 and 1997 fiscal years, respectively INVENTORIES Inventories at December 29, 1996 and December 28, 1997 consist of the following (in thousands): 1996 1997 --------- --------- Merchandise, gifts and souvenirs........................................ $ 10,892 $ 12,029 Food and beverages...................................................... 1,242 948 Games................................................................... 1,158 1,133 Other................................................................... 234 228 --------- --------- $ 13,526 $ 14,338 --------- --------- --------- --------- F-35 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment at December 29, 1996 and December 28, 1997 consist of the following (in thousands): 1996 1997 ----------- ----------- Land................................................................ $ 55,218 $ 50,582 Buildings and improvements.......................................... 249,066 263,475 Rides and attractions............................................... 364,770 389,798 Other............................................................... 8,239 9,033 Construction in progress............................................ 36,950 55,368 ----------- ----------- 714,243 768,256 Less accumulated depreciation....................................... (225,175) (276,119) ----------- ----------- $ 489,068 $ 492,137 ----------- ----------- ----------- ----------- INVESTMENT IN CO-VENTURE PARKS Changes in the investment in co-venture parks at December 29, 1996 and December 28, 1997 are as follows (in thousands): 1996 1997 ---------- ---------- Balance at beginning of period........................................ $ 34,404 $ 19,135 Capital additions made by the co-venture parks........................ 5,436 16,147 Operations, net of distributions to the limited partners.............. 18,603 18,633 Distributions to Six Flags............................................ (18,491) (24,126) Amortization.......................................................... (20,817) (11,515) ---------- ---------- 19,135 18,274 ---------- ---------- Purchase of SFOG limited partnership units............................ -- 62,678 Amortization.......................................................... -- (2,582) ---------- ---------- -- 60,096 ---------- ---------- $ 19,135 $ 78,370 ---------- ---------- ---------- ---------- F-36 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SIX FLAGS OVER GEORGIA On March 18, 1997, Six Flags, Time Warner and TWE completed arrangements pursuant to which SFOG II will manage the Six Flags Over Georgia Park through 2026. Under the agreements governing the new arrangements (the "Georgia Agreements"), the Six Flags Over Georgia Park is owned by a newly formed limited partnership ("Six Flags Over Georgia II") of which SFOG II is the managing general partner. The key elements of the new arrangements are as follows: (i) the limited partner (which is not affiliated with Six Flags) will receive minimum annual distributions of $18.5 million in 1997, increasing each year thereafter in proportion to increases in the cost of living; thereafter, SFOG II will be entitled to receive from available cash (after provision for reasonable reserves and after capital expenditures per annum of approximately 6% of prior year revenues) a management fee equal to 3% of the prior year's gross revenues; and, thereafter, any additional available cash will be distributed 95% to SFOG II and 5% to the limited partner; (ii) in the second quarter of 1997, a subsidiary of SFTP (the "SFTP-SFOG Subsidiary") and a subsidiary of SFEC (the "SFEC-SFOG Subsidiary") made a tender offer for partnership interests ("SFOG LP Units") in Six Flags Fund, Ltd. (L.P.), which owns 99% of the limited partner of Six Flags Over Georgia II, that valued the Six Flags Over Georgia Park at the greater of $250 million or 8.0 times 1997 EBITDA of the Six Flags Over Georgia Park (the "SFOG Tender Offer Price"); (iii) commencing in 1998, and on an annual basis thereafter, the SFTP-SFOG Subsidiary and the SFEC-SFOG Subsidiary will offer to purchase additional SFOG LP Units at a price based on the greater of the SFOG Tender Offer Price or the EBITDA of the Six Flags Over Georgia Park for the prior four years (provided that no more than $50 million of such SFOG LP Units will be acquired by the SFTP-SFOG Subsidiary); and (iv) in 2026, Six Flags and its affiliates will have the option to acquire the Six Flags Over Georgia Park at a price based on the Tender Offer Price, increased in proportion to the increase in the cost of living between December 1996 and December 2026. SFEC, SFTP, and TWE have guaranteed certain of the obligations (including the minimum annual distributions noted in (i) above) of SFOG II and Six Flags Over Georgia II under the Georgia Agreements, and in consideration therefor, SFOG II has agreed to assign to SFTP at least 90% of the cash distributions it receives from time to time from Six Flags Over Georgia II. Six Flags continues to account for the Six Flags Over Georgia Park as a co-venture and includes the revenues and expenses of Six Flags Over Georgia II partnership (excluding partnership depreciation) in Six Flags' consolidated financial statements and deducts as expenses the net amounts distributed to the limited partners. As a result of entering into the Georgia Agreements, Six Flags expects a reduction in net income and net cash flow allocation from Six Flags Over Georgia II. On May 6, 1997, in connection with the closing of the tender offer described above, the SFTP-SFOG Subsidiary and the SFEC-SFOG Subsidiary purchased approximately 17% and 8%, respectively, of SFOG LP Units for approximately $42.4 million and $20.3 million, respectively. The purchase of SFOG LP Units entitles each such purchaser the right to receive minimum annual distributions and any residual distributions (5% of available cash after the minimum annual distributions and management fee distributions) in proportion to the percentage amounts purchased. The purchase of SFOG LP Units by the SFTP-SFOG Subsidiary was financed through a drawdown on Six Flags' secured revolving line of credit available for acquisitions under the Credit Agreement and the purchase of SFOG LP Units by the SFEC-SFOG Subsidiary was financed through loans from TWE, which were subsequently refinanced with demand loans from Chase Bank. See Long-Term Debt footnote. In connection with the purchase of the SFOG LP Units, approximately $49.8 million of the excess of cost over net assets acquired associated with this investment is being amortized over 30 years. The net F-37 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) investment in SFOG LP Units is presented as part of the investment in co-venture parks. Accumulated amortization at December 28, 1997 amounted to $2.6 million. SIX FLAGS OVER TEXAS On November 24, 1997, Six Flags, Time Warner and TWE completed arrangements pursuant to which Six Flags Over Texas, Inc., a wholly-owned subsidiary of SFTP ("SFOT"), will manage the Six Flags Over Texas Park through 2027. Under the agreements governing the new arrangements (the "Texas Agreements"), the Six Flags Over Texas Park will continue to be owned by Texas Flags Ltd., a limited partnership ("Six Flags Over Texas") of which SFOT is the managing general partner. The key elements of the new arrangements are as follows: (i) the limited partner (which is not affiliated with Six Flags) will receive minimum annual distributions of $27.7 million in 1998, increasing each year thereafter in proportion to increases in the cost of living; thereafter, SFOT II will be entitled to receive from available cash (after provision for reasonable reserves and after capital expenditures per annum of approximately 6% of prior year revenues) a management fee equal to 3% of the prior year's gross revenues; and, thereafter, any additional available cash will be distributed 92.5% to SFOT and 7.5% to the limited partner; (ii) in the first quarter of 1998, a subsidiary of SFTP (the "SFTP-SFOT Subsidiary") and a subsidiary of SFEC (the "SFEC-SFOT Subsidiary") have commenced a tender offer for partnership interests ("SFOT LP Units") in Six Flags Over Texas, Ltd., which owns 99% of the limited partner of Six Flags Over Texas, that values the Six Flags Over Texas Park at the greater of $375 million or 8.5 times 1998 EBITDA of the Six Flags Over Texas Park (the "SFOT Tender Offer Price"); (iii) commencing in 1999, and on an annual basis thereafter, the SFTP-SFOT Subsidiary and the SFEC-SFOT Subsidiary will offer to purchase additional SFOT LP Units at a price based on the EBITDA of the Six Flags Over Texas Park for the prior four years; and (iv) in 2027, Six Flags and its affiliates will have the option to acquire the Six Flags Over Texas Park at a price based on the SFOT Tender Offer Price, increased in proportion to the increase in the cost of living between December 1997 and December 2027. SFEC, SFTP and TWE have guaranteed certain of the obligations (including the minimum annual distributions noted in (i) above) of SFOT under the Texas Agreements. Six Flags intends to continue to account for the Six Flags Over Texas Park as a co- venture and to include the revenues and expenses of Texas Flags partnership (excluding partnership depreciation) in Six Flags' consolidated financial statements and deduct as expenses the net amounts distributed to the limited partners. As a result of entering into the Texas Agreements, Six Flags expects a reduction in net income and net cash flow allocation from Texas Flags. In connection with the entering into the Texas Agreements, a subsidiary of SFEC loaned $10.7 million to Texas Flags Ltd. during December 1997 as a prepayment of its obligations under the Texas Agreements. This amount has been included in other assets, net as of December 28, 1997. The tender offer for SFOT LP Units commenced on January 23, 1998 and is expected to close on March 12, 1998. Six Flags will purchase these units through the SFEC-SFOT Subsidiary and will finance the purchase of such units through loans from a syndicate of lenders. F-38 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ACCRUED LIABILITIES Accrued liabilities at December 29, 1996 and December 28, 1997 consist of the following (in thousands): 1996 1997 --------- --------- Insurance............................................................... $ 15,867 $ 15,608 Income taxes payable.................................................... 4,036 557 Real estate and property taxes.......................................... 2,983 3,352 Compensation and payroll taxes.......................................... 7,920 8,728 Interest................................................................ 2,741 3,431 Pension costs........................................................... 2,868 921 Deferred revenue........................................................ 4,422 4,352 Other................................................................... 9,048 6,441 --------- --------- $ 49,885 $ 43,390 --------- --------- --------- --------- SHORT-TERM BORROWINGS Short-term borrowings at December 29, 1996 and December 28, 1997 consist of the following (in thousands): 1996 1997 --------- --------- 8.5% Note payable to Chase Bank, due March 31, 1998...................... $ -- $ 19,778 7.2% Note payable to TWE, due March 31, 1998............................. -- 10,725 Co-venture parks general partner line of credit.......................... 1,585 -- --------- --------- $ 1,585 $ 30,503 --------- --------- --------- --------- The proceeds from the note payable to Chase Bank were used to purchase approximately 8% of SFOG LP Units pursuant to the tender offer for such units. The proceeds from the TWE note payable were loaned to Texas Flags Ltd. in connection with the Texas Agreements. See the Investment in Co-venture Parks footnote. The weighted average interest rate of short-term borrowings outstanding as of December 29, 1996 and December 28, 1997 was 7.5 % and 8.5%, respectively. F-39 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) LONG-TERM DEBT Long-term debt of Six Flags at December 29, 1996 and December 28, 1997 consists of the following (in thousands): 1996 1997 ---------- ---------- Credit Agreement, due through 2003, interest rates from 8.5% to 9.13%............................................................... $ 366,500 $ 348,500 12.25% Notes of SFTP, due 2005, less unamortized discount of $45,328 and $15,075 at December 29, 1996 and December 28, 1997, respectively........................................................ 239,672 269,925 Zero Coupon Notes of SFEC, due 1999, less unamortized discount of $45,097 and $31,176 at December 29, 1996 and December 28, 1997, respectively........................................................ 147,153 161,074 ---------- ---------- 753,325 779,499 Less current portion.................................................. (38,332) (26,130) ---------- ---------- $ 714,993 $ 753,369 ---------- ---------- ---------- ---------- The scheduled annual maturities of Six Flags' debt are as follows (in thousands): 1998.............................................................. $ 26,130 1999.............................................................. 216,074 2000.............................................................. 65,000 2001.............................................................. 60,000 2002.............................................................. 39,870 Thereafter........................................................ 372,425 --------- $ 779,499 --------- --------- CREDIT AGREEMENT In 1995, SFTP entered into a $600 million Credit Agreement with a group of lenders. The Credit Agreement consists of a $345 million Tranche A Senior Secured Term Loan Facility (the "Tranche A Term Facility"), a $130 million Tranche B Senior Secured Term Loan Facility (the "Tranche B Term Facility")(together the "Term Facilities"), and a Senior Secured Revolving Credit Facility (the "Revolving Facility"). The Revolving Facility provides for revolving loans to SFTP and the issuance of letters of credit for the account of SFTP in an aggregate principal amount of up to $125 million, of which not more than $12 million may be represented by letters of credit. The interest rates per annum applicable to the Tranche A Term Facility and Revolving Facility are LIBOR plus 2.50%, as adjusted semi-annually. The interest rate per annum applicable to the Tranche B Term Facility is LIBOR plus 3.00%, as adjusted semi-annually. The amounts outstanding under the Term Facilities were $307.5 million at December 28, 1997. At December 29, 1996, there were no amounts borrowed against the Revolving Facility. The amounts borrowed against the Revolving Facility as of December 28, 1997 were $41 million. As of December 28, 1997, the Company had $9.3 million in letters of credit outstanding. Borrowings under the Tranche A Term Facility are payable as to principal in July and September of each year through 2001. Borrowings under the Tranche B Term Facility are payable in July and September of each year through 2002 and in June 23, 2003. SFTP is required to make mandatory prepayments of F-40 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) loans, and letters of credit will be mandatorily reduced based on certain criteria, as defined in the Credit Agreement. At least once during the period from June 30 to August 31 in each fiscal year, SFTP must repay all loans outstanding under the Revolving Facility in excess of an amount equal to the lesser of (a) $50.0 million and (b) the principal amount of loans then outstanding under the Revolving Facility that were used to finance related business acquisitions. SFTP may not make drawings under the Revolving Facility for 30 consecutive days following the date of such repayment. During such period, SFTP must also cause each co-venture park limited partnership to repay all amounts outstanding under their unsecured credit lines and not to make drawings thereunder for 30 consecutive days following the date of such repayment. The obligations of SFTP under the Credit Agreement are unconditionally and irrevocably guaranteed by each of SFTP's direct or indirect subsidiaries, other than the co-venture partnerships and certain special purpose subsidiaries. In addition, the Credit Agreement is secured by first priority security interests in all capital stock and other equity interests of SFEC and its subsidiaries. SFTP is required to pay a per annum fee equal to 2.50%, plus a fronting fee of 0.25%, of the aggregate face amount of outstanding letters of credit under the Revolving Facility and a per annum fee equal to 0.50% on the undrawn portion of the commitments in respect of the Revolving Facility. Commitment fees totaled $0.3 million, $0.6 million and $0.4 million in 1995, 1996 and 1997, respectively. The Credit Agreement contains a number of significant covenants that, among other things, restricts the ability of SFTP to dispose of assets, incur additional indebtedness, repay other indebtedness, amend material agreements, pay dividends, create liens on assets, enter into leases, make investments or acquisitions, engage in mergers or consolidations, make capital expenditures, or engage in certain transactions with subsidiaries and affiliates and will otherwise restrict corporate activities. In addition, under the Credit Agreement SFTP is required to comply with specified financial ratios and tests, including cash interest expense coverage, debt service coverage and debt to earnings ratios. The Credit Agreement also contains provisions that prohibit any modification of the indenture governing the Notes in any manner adverse to the lenders under the Credit Agreement and that limit SFTP's ability to refinance the Notes without the consent of such lenders. In December 1995, SFTP entered into no-cost interest rate collar transactions with certain lenders (or their affiliates) under the Credit Agreement. The interest rate collar transactions effectively protect against an increase in the three month LIBOR above 7% but limits SFTP's ability to benefit from a decline in the three month LIBOR below 4.55% with respect to $172 million, $150 million and $130 million notional amounts of debt during the 1996, 1997 and 1998 fiscal years, respectively. Interest payments/receipts on these interest rate collar agreements will be made quarterly. No such payments/receipts occurred through December 28, 1997. The fair value of the Credit Agreement and related interest rate collar transactions approximated their carrying value as of December 29, 1996 and December 28, 1997. SENIOR SUBORDINATED DISCOUNT NOTES SFTP issued the 12.25% Notes on June 23, 1995 (the "Issue Date") pursuant to an Indenture dated as of such date, among SFTP, the Note Guarantors and United States Trust Company of New York, as trustee. In November 1995, SFTP offered to exchange $285.0 million aggregate principal amount of its 12.25% Series A Senior Subordinated Discount Notes due 2005 (the "Series A Notes" and, together with the 12.25% Notes, the "Notes") for a like principal amount of its 12.25% Notes. The exchange offer expired on December 18, 1995, and $283.5 million aggregate principal amount of the Series A Notes were F-41 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) exchanged for an equal principal amount of 12.25% Notes. The Series A Notes are governed by the same indenture as, and are substantially identical to, the 12.25% Notes. However, unlike the 12.25% Notes, the Series A Notes were issued in a transaction registered under the Securities Act of 1933, as amended. The Notes are and will be unsecured senior subordinated obligations of SFTP, limited to $285.0 million aggregate principal amount, maturing on June 15, 2005. The Notes will accrete in value for purposes of the Indenture until June 15, 1998, at which time the accreted value of the Notes will equal 100% of their principal amount ($285 million). Interest payable in cash will not accrue or be payable prior to June 15, 1998; thereafter, the accreted value of the Notes will no longer increase and cash interest will be payable semi-annually on June 15 and December 15 of each year, commencing December 15, 1998, at a rate of 12.25% per annum. The Notes will be redeemable, at SFTP's option, in whole or in part, at any time on or after June 15, 2000 through maturity. If redeemed during the 12-month period commencing on June 15 of the years set forth below, SFTP will be required to pay the following redemption prices: PERIOD REDEMPTION PRICE - ---------------------------------------------------------------------------- ---------------- 2000........................................................................ 106.0% 2001........................................................................ 104.0% 2002........................................................................ 102.0% 2003 and thereafter......................................................... 100.0% In addition, at any time prior to June 15, 1998, SFTP may, subject to certain requirements, redeem Notes having a principal amount of up to 35% of the original aggregate principal amount of the Notes with the net cash proceeds of one or more public equity offering by SFTP at a redemption price equal to 112.25% of the accreted value of the Notes to be redeemed as of the redemption date; provided, however, that at least 65% of the original aggregate principal amount of the Notes must remain outstanding. The fair value of the Notes, estimated based on the quoted market prices, was $230.1 million and $303.5 million at December 29, 1996 and December 28, 1997, respectively. The Notes are guaranteed on an unsecured, senior subordinated basis by Six Flags Over Georgia, Inc., Six Flags Over Texas, Inc. and S.F. Partnership (the "Note Guarantors"), each of which is a wholly-owned subsidiary of SFTP. ZERO COUPON NOTES The Zero Coupon Notes are unsecured obligations of SFEC issued under an Indenture dated as of December 16, 1992, as amended, between SFEC, TWE and the United States Trust Company of New York, as trustee (the "Indenture"). The Zero Coupon Notes may not be redeemed prior to maturity and there will be no periodic payments of interest over the life of the Zero Coupon Notes. TWE has unconditionally and irrevocably agreed that upon a failure by SFEC to pay the principal amount of the Zero Coupon Notes upon maturity, or to pay the Accreted Value Amount (as defined in the Indenture) upon a declaration of acceleration following a Secondary Event of Default (as defined in the Indenture), TWE will offer to purchase the Zero Coupon Notes from the holders thereof at a predetermined price. TWE's obligation to make the offer to purchase will rank PARI PASSU with all other unsecured and unsubordinated obligations for money borrowed of TWE. The fair value of the Notes, estimated based on the quoted market prices, was $154.3 million and $170.1 million at December 29, 1996 and December 28, 1997, respectively. F-42 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) STOCKHOLDERS' EQUITY Pursuant to the 1995 Refinancing and Recapitalization, SFEC's outstanding equity consists of 5,100,000 shares of Class A Convertible Preferred Stock, par value $.01 per share, 4,900,000 shares of Class B Convertible Preferred Stock, par value $.01 per share, 51 shares of Class A Common Stock, par value $.01 per share ("Class A Common Stock"), and 49 shares of Class B Common Stock, par value $.01 per share ("Class B Common Stock"). The Class A Convertible Preferred Stock has a liquidation preference per share of $40 plus accrued and unpaid dividends to the liquidation date. Dividends accrue on the outstanding shares of Class A Convertible Preferred Stock on a daily basis at the rate of 12% per annum, compounded semi-annually on December 1 and June 1 of each year. Accrued and unpaid dividends for the Class A Convertible Preferred Stock were $39.6 million and $69.5 million at December 29, 1996 and December 28, 1997, respectively. The Class B Convertible Preferred Stock has a liquidation preference per share of $40. No dividends shall accrue on the Class B Convertible Preferred Stock. Members of the Investor Group own 51% of the equity of SFEC, consisting of all of the outstanding shares of Class A Convertible Preferred Stock and Class A Common Stock, and TWE owns 49% of the equity of SFEC, consisting of all of the outstanding shares of Class B Convertible Preferred Stock and Class B Common Stock. SFEC's Class A Convertible Preferred Stock and Class A Common Stock are further divided into shares of voting stock (known as Class A-1 Convertible Preferred Stock and Class A-1 Common Stock, respectively) and non-voting stock (known as Class A-2 Convertible Preferred Stock and Class A-2 Common Stock, respectively). The non-voting shares of each such class were created for the benefit of certain regulated entities (each a "Regulated Holder") whose ability to own voting stock is restricted. Shares of Class A-1 Convertible Preferred Stock and Class A-1 Common Stock may be exchanged by a Regulated Holder on a share-for-share basis for non-voting shares of such class. Shares of Class A-2 Convertible Preferred Stock and Class A-2 Common Stock may be exchanged on a share-for-share basis for voting shares of each such class if such shares are held by a person other than by a Regulated Holder. Except for voting rights specifically accorded to a particular class under Delaware law, the shares of Class A-1 Common Stock and Class B Common Stock vote together as a single class on matters requiring stockholder action. Six Flags has entered into an Employment Agreement ("the Agreement") with an Executive (the "Executive") whereby SFEC agrees to reserve for issuance a certain number of shares of Class B Common Stock (the "Reserved Shares"), as defined in the Agreement. The Reserved Shares will become vested on December 31, 2000, subject to the Executive's employment having continued through such date or prior thereto if certain events occur as defined in the Agreement. Upon vesting of the Reserved Shares, the Executive will be entitled to receive from Six Flags, in addition to the issued shares, any dividends or distributions had such shares been issued and outstanding at the time that such dividends or distributions were declared and paid as defined in the Agreement. Six Flags has recognized compensation expense related to the Reserved Shares during 1996 and 1997. Under the Agreement, the Executive was also granted options to purchase shares of SFEC's Class B Common Stock. The options include an option to purchase an additional 163,936 shares of SFEC's Class B Common Stock (the "Tranche 1 Option"), and a second option to purchase an additional 327,872 shares of SFEC's Class B Common Stock (the "Tranche 2 Option"). The exercise price of the Tranche 1 Option is based on a September 1995 exercise price of $40.64 per share, increasing at a cumulative annual rate of 10%. The exercise price of the Tranche 2 Option is based on a September 1995 exercise price of $40.94, increasing at a cumulative annual rate of 15%. On each September 15 while the Executive is employed under Agreement, the number of shares of SFEC's Class B Common Stock reserved for issuance under the terms of the Tranche 1 Option will decrease by 5,858.9 shares, at which time the Executive will be granted a like number of additional Reserved Shares. In addition, SFEC granted additional options for the purchase F-43 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) of 327,872 shares of SFEC's Class B Common Stock to members of management of Six Flags and its subsidiaries. The terms of these options will be similar to the Tranche 1 Option and Tranche 2 Option described above. The options become exercisable only if there is a triggering event, as defined in the stock option plan agreement. Accordingly, these stock options have been treated as if they were unissued due to the uncertainty regarding the Executive's and other management employees' ability to exercise such options. In 1995, the Financial Accounting Standards Board issued SFAS. No. 123, "Accounting for Stock-Based Compensation," which permits either recording the estimated value of stock-based compensation over the applicable vesting period or disclosing such cost in the notes to the financial statements. Six Flags has adopted the disclosure-only provisions of SFAS 123. Had compensation cost for the stock options been determined consistent with SFAS 123, the proforma effect would not have been significant. PENSION PLAN Six Flags maintains a noncontributory, defined benefit pension plan (the "Plan") covering substantially all of Six Flags' full-time employees. The Plan permits normal retirement at age 65, with early retirement at ages 55 through 64 upon attainment of ten years of credited service. The early retirement benefit is reduced for benefits commencing before age 62. Plan benefits are calculated according to a benefit formula based on age, average compensation over the highest consecutive five-year period during the employee's last ten years of employment and years of service. Plan assets are invested primarily in common stocks and mutual funds. The Plan does not have significant liabilities other than benefit obligations. Under Six Flags' funding policy, contributions to the Plan are determined using the projected unit credit cost method. This funding policy meets the requirements under the Employee Retirement Income Security Act of 1974. F-44 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The reconciliation of the funded status of the Plan for the fiscal years 1996 and 1997 follows (in thousands): 1996 1997 --------- --------- Actuarial present value of current accumulated pension obligations, including vested benefits of $35,615 and $45,289 in 1996 and 1997, respectively.......................................................... $ 41,243 $ 52,436 --------- --------- --------- --------- Actuarial present value of accumulated pension obligations, adjusted for assumptions regarding future compensation levels (projected benefit obligations).......................................................... $ 58,702 $ 68,912 Pension assets at market value.......................................... 60,560 77,024 --------- --------- Projected benefit obligation less than pension assets................... (1,858) (8,112) Unrecognized net gain................................................... 3,389 7,943 Unrecognized prior service costs........................................ 1,337 1,090 --------- --------- Accrued pension liability............................................... $ 2,868 $ 921 --------- --------- --------- --------- Net pension cost for the fiscal years 1995, 1996 and 1997 included the following components (in thousands): 1995 1996 1997 ---------- --------- ---------- Pension costs for benefits earned........................... $ 2,035 $ 3,133 $ 3,025 Interest cost on projected benefit obligation............... 3,612 4,436 4,858 Actual return on pension assets............................. (3,510) (8,484) (13,584) Net amortization and deferrals.............................. (176) 3,776 7,912 ---------- --------- ---------- Net pension cost............................................ $ 1,961 $ 2,861 $ 2,211 ---------- --------- ---------- ---------- --------- ---------- Measurement of the projected benefit obligation was based on the following assumptions: 1995 1996 1997 --------- --------- --------- Discount rate.......................................................... 7.25% 7.75% 7.25% Return on plan assets.................................................. 9.00% 9.00% 9.00% Expected rate of salary progression.................................... 6.00% 6.00% 5.00% SAVINGS PLAN Under the provisions of the Six Flags' savings plan, all full-time and seasonal employees of Six Flags completing one year of service (minimum 1,000 hours) and attaining age 21 are eligible to participate and may contribute up to 6% of compensation as a tax deferred basic contribution. Each participant may also elect to make additional contributions of up to 10% of compensation (up to 4% tax deferred). Tax deferred contributions to the savings plan may not exceed amounts defined by the Internal Revenue Service ($9,500 for 1997). Both the basic and additional contributions are at all times vested. Six Flags, at its discretion, may make matching contributions of up to 100% of its employees' basic contributions. Six Flags contributed $0.7 million for each of the 1996 and 1995 Plan years, representing up to 30% of the employees' basic contributions. Six Flags plans to make $0.9 million in contributions for the 1997 plan year. Six Flags matching contributions to the savings plan are made in the first quarter of the succeeding year. F-45 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) INCOME TAXES Significant components of income tax expense are as follows (in thousands): 1995 1996 1997 --------- --------- --------- Current Federal........................................................ $ 3,668 $ -- $ -- State.......................................................... 2,269 -- -- --------- --------- --------- Total current.................................................... 5,937 -- -- --------- --------- --------- Deferred Federal........................................................ 606 4,369 -- State.......................................................... 200 768 -- --------- --------- --------- Total deferred................................................... 806 5,137 -- --------- --------- --------- $ 6,743 $ 5,137 $ -- --------- --------- --------- --------- --------- --------- Income tax expense (benefit) varied from the U.S. federal statutory income tax rate due to the following (in thousands): 1995 1996 1997 --------- --------- --------- Tax provision (benefit) on income (loss) at U.S. federal statutory rate of 35%....................................... $ 1,209 $ (3,539) $ (1,298) Non-deductible amortization of goodwill....................... 2,762 2,287 2,866 State income taxes, net of federal benefit.................... 1,600 499 -- Carryover of net operating losses............................. -- 5,822 (1,241) Other......................................................... 1,172 68 (327) --------- --------- --------- Income tax expense............................................ $ 6,743 $ 5,137 $ -- --------- --------- --------- --------- --------- --------- Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. F-46 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Significant components of Six Flags' deferred tax assets and liabilities at December 29, 1996 and December 28, 1997 are as follows (in thousands): 1996 1997 ---------- --------- Deferred tax liabilities: Depreciation......................................................... $ 18,800 $ 33,736 Deferral related to tax and fiscal year end difference............... 41,051 46,225 Other................................................................ 22,824 7,256 ---------- --------- Total deferred tax liabilities......................................... 82,675 87,217 ---------- --------- Deferred tax assets: Tax basis in excess of book basis.................................... 58,964 55,467 Net operating loss carryforwards..................................... 24,698 43,071 Other................................................................ 4,835 4,600 ---------- --------- Total deferred tax assets.............................................. 88,497 103,138 Valuation allowance.................................................... (5,822) (15,921) ---------- --------- Net deferred tax assets................................................ 82,675 87,217 ---------- --------- Net deferred income taxes.............................................. $ -- $ -- ---------- --------- ---------- --------- Realization of deferred tax assets associated with the net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration. Management believes that there is a risk that certain of these net operating loss carryforwards may expire unused and, accordingly, has established a valuation allowance against them. Although realization is not assured for the remaining deferred tax assets, management believes it is more likely than not that they will be realized through future taxable earnings or alternative tax strategies. At December 31, 1997, Six Flags has approximately $123.0 million of net operating loss carryforwards, which expire through 2012. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information consists of the following (in thousands): 1995 1996 1997 ----------- --------- ---------- Cash interest paid........................................ $ 35,282 $ 34,284 $ 36,089 ----------- --------- ---------- ----------- --------- ---------- Income taxes paid......................................... $ 5,401 $ -- $ 3,479 ----------- --------- ---------- ----------- --------- ---------- 1995 Refinancing and Recapitalization: Proceeds from term loans................................ $ 475,000 $ -- $ -- Proceeds from the 12.25% Notes.......................... 200,024 -- -- Repayment of TWE debt................................... (558,453) -- -- Return of capital....................................... (89,047) -- -- Payment of deferred financing fees...................... (27,524) -- -- ----------- --------- ---------- $ -- $ -- $ -- ----------- --------- ---------- ----------- --------- ---------- F-47 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) RELATED PARTY TRANSACTIONS TRANSACTIONS WITH TIME WARNER ENTERTAINMENT COMPANY, L.P. AND AFFILIATES On December 31, 1997, TWE contributed $4.0 million to Six Flags pursuant to an agreement with the Investor Group. This capital contribution is reflected as an affiliate receivable as of December 28, 1997. On May 5, 1997, TWE loaned $19.5 million to a subsidiary of Six Flags. The proceeds from this affiliate loan were used to purchase approximately 8% of SFOG LP Units pursuant to the tender offer for such units. On December 23, 1997, this affiliate loan, along with accrued interest, was refinanced with Chase Bank. On November 24, 1997, TWE loaned $10.7 million to another Six Flags subsidiary. The proceeds of this affiliate loan were loaned to Texas Flags Ltd. in connection with the Texas Agreements. See the Investment In Co-venture Parks footnote. In 1996 and 1997, Six Flags reimbursed TWE and its affiliates $4.4 million and $2.6 million, respectively, for royalties on merchandise, advertising and other expenses. Employees of a subsidiary of TWE served as senior management of Six Flags during 1995. Costs associated with this management team, including compensation and overhead, were charged to Six Flags by TWE. During 1995, Six Flags was also allocated costs for additional services from TWE, including accounting services, insurance coverage, transportation, and other services. Costs allocated from TWE were at a level agreed upon by TWE and Six Flags. Six Flags believes that this method of allocation was reasonable and that the allocated costs approximated the costs which would have been incurred on a stand-alone basis. In 1995, Six Flags recorded approximately $5.3 million for merchandise royalties, advertising, and other expenses, as well as compensation, overhead and other services allocated to Six Flags by TWE. Liabilities relating to such amounts are included in other long-term liabilities in the accompanying consolidated balance sheets. There were no costs allocated from TWE subsequent to June 23, 1995. As part of the 1995 Refinancing and Recapitalization, Six Flags entered into a new license agreement (the "License Agreement") pursuant to which it obtained the exclusive right for a term of 55 years to theme park use in the United States and Canada (excluding the Las Vegas, Nevada metropolitan area) of all animated, cartoon and comic book characters that Warner Bros. and DC Comics have the right to license for such use during the term of the agreement, including all characters which, prior to the effectiveness of the License Agreement, already had been licensed by Warner Bros. and DC Comics to Six Flags for use in connection with Six Flags' theme parks. Under the License Agreement, Six Flags will pay an annual license fee of $500,000 for each of the first ten years of the license term. Thereafter, the license fee will be subject to periodic scheduled increases and will be payable on a per-theme park basis. The annual license fees will also be increased by amounts equal to any third-party payments which may be payable by Warner Bros. or DC Comics as a result of the use of any licensed character by Six Flags. Six Flags entered into an amendment to the License Agreement ("Amendment No. 1") which provides the exclusive right for a period of three years ending December 31, 1998, to theme park use of elements contained in released versions of certain theatrical motion pictures and television shows, along with usage of the "Warner Bros. Backlot Logo" (the "Logo Usage"). Each separate motion picture, television series and/or Logo Usage may be utilized only in connection with live shows within Six Flags' parks. Six Flags was charged $400,000 in total for the years 1996 and 1997 and will be charged $150,000 in 1998 for the rights granted pursuant to Amendment No. 1. F-48 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In addition to the annual license fees described above, Six Flags is also required to pay royalties on sales of products incorporating the licensed characters at standard royalty rates for such products, subject to increase from time to time. Warner Bros. will be entitled to terminate the License Agreement prior to the expiration of the stated term if Six Flags, at any time during the term, is directly or indirectly controlled by a person that derives significant revenues from the production or distribution of motion pictures or engages in certain other businesses competitive with TWE. Six Flags also entered into a license agreement with TWE pursuant to which TWE granted Six Flags a 25-year license to use the trademarks and service marks relating to the "Home Box Office" and "HBO" names and the "HBO" logo for use in connection with the operation of restaurants in Six Flags' theme parks. The TWE license is royalty-free for the first ten years of its term. Thereafter, annual royalties will be established every five years. Six Flags also entered into an agreement entitling Six Flags (i) to use the name "Time Warner" in connection with operating a retail merchandise outlet with the name "Time Warner Studio Store" at Six Flags' theme parks and for establishing a themed area in each of Six Flags' theme parks to be called "Time Warner Studios" and (ii) to stage a concert series in Six Flags' theme parks under the name "Warner Music Rock Review." Six Flags also entered into a license agreement with the Sports Illustrated division of Time Warner pursuant to which Time Warner granted Six Flags a ten-year royalty-free license to use the "Sports Illustrated" and "Sports Illustrated for Kids" trademarks and service marks in connection with the operation of a sports festival at Six Flags' theme parks. The licensor under each of these additional license agreements has the right to terminate the license granted thereby if, during the stated term of any such license agreement, the Warner Bros. License Agreement is terminated for any reason. The licensor also has the right under certain circumstances to suspend the right of any of Six Flags' theme parks to use the licenses granted thereby if the license is not sufficiently utilized in such theme park. At January 1, 1995, Six Flags had amounts outstanding to TWE aggregating $488.0 million. Interest expense relating to the amounts due to TWE for fiscal year 1995 amounted to $18.0 million. At January 1, 1995, accrued interest on the TWE debt amounted to $7.2 million. As part of the 1995 Refinancing, all amounts due to TWE were repaid. COMMITMENTS AND CONTINGENCIES LEGAL PROCEEDINGS AND OTHER Six Flags is a party to lawsuits incidental to its business and against which Six Flags believes it is adequately insured or which will not result in losses material to the consolidated financial position or results of operations of Six Flags. On March 19, 1997, SFTP, and its wholly-owned subsidiary Six Flags Over Georgia, Inc. (collectively, the "Six Flags Parties") commenced a declaratory judgement action in the Superior Court of Gwinnett County, Georgia, entitled Six Flags Over Georgia, Inc. and Six Flags Theme Parks, Inc. v. Six Flags Fund, Ltd. and Avram Salkin, as Trustee of the Claims Court. The Six Flags Parties sought, among other things, a declaration and determination of rights and obligations of the partners of Six Flags Over Georgia, LP with respect to certain disputed partnership affairs and an accounting of all partnership affairs. On April 21, 1997, defendants Six Flags Fund Ltd. and its affiliates (collectively, the "SFOG Fund Parties") filed a motion to discuss the declaratory judgment action as well as an answer and counterclaim naming SFEC and Time Warner Entertainment Company, LP as additional counterclaim-defendants. The counterclaim seeks imposition of a constructive trust, compensatory damages of in excess of $250 million and unspecified punitive damages for alleged breaches of fiduciary duty, conversion, fraud and conspiracy allegedly committed by the counterclaim-defendants in connection with the management of the Six Flags Over F-49 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Georgia theme park (the "Georgia Park"). Six Flags and the other counterclaim-defendants intend to vigorously contest these allegations. On June 9, 1997, the parties entered into a Consent Order in which they agreed, among other things, to realign the parties. An Amended Complaint was then filed by the SFOG Fund Parties as the newly aligned plaintiffs against the Six Flags Parties in which the same substantive claims were asserted. The Six Flags Parties filed their answer denying liability and asserting several affirmative defenses on July 24, 1997. The Six Flags Parties intend to vigorously contest the allegations of the complaint. On February 2, 1995, Six Flags entered into an agreement with the Jackson Township Municipal Utilities Authority of New Jersey (the "Authority") which provides for the extension of the Authority's sanitary sewer collection facilities to Six Flags Great Adventure ("SFGA"), Six Flags' theme park located in Jackson, New Jersey, and connection of the SFGA property to such facilities. SFGA will be entitled to utilize approximately 40% of the total capacity of the extension and the Authority will waive SFGA's fees relating to connecting to the extension. The Authority through the New Jersey Waste Water Treatment Trust ("NJWWTT") plans to issue approximately $6.5 million of tax-exempt bonds (the "Bonds") to finance the costs of the extension. Six Flags has agreed to pay the Authority amounts equal to principal and interest on the Bonds plus fees to the NJWWTT. Such debt service payments are estimated at approximately $0.5 million per annum over the 20-year life of the bonds. In addition, Six Flags has permitted the Authority to retain, as security, $0.9 million that the Authority currently owes to Six Flags. These amounts will be repaid to Six Flags on a pro rata basis as the principal of the Bonds is amortized. Six Flags will be entitled to credits against the debt service payments as new users connect to the extension and pay for the 60% of capacity not used by SFGA. Six Flags made the first principal and interest payment on the bonds, approximately $0.2 million, during the first quarter of 1998. LEASES Six Flags leases certain buildings, vehicles, equipment and rides under operating leases. Vehicles are generally leased under a Fleet Lease Agreement, which provides for early lease termination under certain conditions. All other leases are generally noncancellable and may contain renewal options upon expiration. Total rent expense for the fiscal years ended 1995, 1996 and 1997 was $12.0 million, $8.5 million and $9.7 million, respectively. Minimum future rent payments totaling $16.0 million under commitments for noncancellable operating leases in effect at the end of 1997 are payable as follows: $5.7 million in 1998, $4.3 million in 1999, $3.0 million in 2000, $1.9 million in 2001, $1.0 million in 2002 and $0.1 million for years thereafter. SUBSEQUENT EVENT On February 9, 1998, TWE and Boston Ventures Management, Inc. entered into an agreement with Premier Parks Inc. ("Premier") to sell SFEC for approximately $1.9 billion. Under the terms of the agreement, Premier will acquire 100% of the equity of SFEC for $965 million, subject to adjustment, including $765 million in cash and $200 million in convertible preferred stock of Premier. Premier will assume a total of approximately $890 million of debt. As part of the transaction, the companies will enter into a long-term licensing agreement that gives Premier the exclusive theme park rights in the U.S. and Canada (excluding the Las Vegas, Nevada Metropolitan area) of all Warner Bros. and DC Comics animated cartoon and comic book characters. The transaction is expected to close in the second quarter of 1998. These financial statements do not reflect any adjustments relating to the consummation of the transaction. F-50 SIX FLAGS ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Premier expects to finance the transaction with approximately $700 million of public equity and equity equivalents as well as public debt and bank financing. The consummation of this transaction will cause the reserved shares and options discussed in the Stockholders' Equity footnote to become vested and exercisable, respectively. F-51 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE U.S. UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS PAGE ---- Available Information..................................................... 2 Incorporation of Certain Information by Reference......................... 2 Prospectus Summary........................................................ 5 Risk Factors.............................................................. 18 Use of Proceeds........................................................... 27 Capitalization............................................................ 28 Selected Historical and Pro Forma Financial and Operating Data............ 29 Unaudited Pro Forma Financial Statements.................................. 35 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................. 45 Business.................................................................. 55 Management................................................................ 79 Principal Stockholders.................................................... 83 Description of Six Flags Agreement........................................ 86 Description of Indebtedness............................................... 89 Description of Securities................................................. 95 Description of EqPINES.................................................... 101 Description of Depositary Arrangements.................................... 113 Underwriting.............................................................. 117 Legal Matters............................................................. 120 Experts................................................................... 121 Index to Financial Statements............................................. F-1 13,000,000 SHARES [LOGO] PREMIER PARKS INC. COMMON STOCK ------------------ PROSPECTUS , 1998 --------------------- LEHMAN BROTHERS SALOMON SMITH BARNEY FURMAN SELZ NATIONSBANC MONTGOMERY SECURITIES LLC - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THIS PRELIMINARY OFFICIAL STATEMENT AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO COMPLETION OR AMENDMENT WITHOUT NOTICE. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY THEM BE ACCEPTED, PRIOR TO THE TIME THE OFFICIAL STATEMENT IS DELIVERED IN FINAL FORM. UNDER NO CIRCUMSTANCES SHALL THIS PRELIMINARY OFFICIAL STATEMENT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF, THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION, QUALIFICATION OR FILING UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. Subject to Completion, dated March 25, 1998 PROSPECTUS [International Alternate Page] [LOGO] 13,000,000 SHARES PREMIER PARKS INC. COMMON STOCK ------------------- All of the shares of Common Stock offered hereby will be sold by Premier Parks Inc. (collectively with its predecessor, the "Company" or "Premier"). Of the 13,000,000 shares of Common Stock offered, 2,600,000 shares are being offered initially outside the United States and Canada in an international offering (the "International Offering") by the International Managers and 10,400,000 shares are being offered inside the United States and Canada in a concurrent offering (the "U.S. Offering") by the U.S. Underwriters (together with the International Managers, the "Underwriters"). These offerings are collectively referred to herein as the "Offering." See "Underwriting." The Offering is being made in connection with the acquisition (the "Six Flags Acquisition") by the Company of all of the capital stock of Six Flags Entertainment Corporation ("SFEC"). The Company is concurrently offering $ million aggregate principal amount at maturity of its senior discount notes due 2008, with estimated gross proceeds of $250.0 million, $280.0 million aggregate principal amount of its senior notes due 2006, and 5,000,000 Premium Income Equity Securities (the "EqPINES-SM-") representing interests in the Company's mandatorily convertible preferred stock (the "Mandatorily Convertible Preferred Stock") with estimated gross proceeds of $228.2 million (assuming the underwriters' over-allotment option for 750,000 EqPINES is not exercised). SFEC is concurrently offering $170.0 million aggregate principal amount of senior notes due 2006 (collectively, the "Concurrent Offerings" and, together with the Offering, the "Offerings"). The Offerings will finance, in whole or in part, the Six Flags Acquisition. The Company may also issue depositary shares (the "Seller Depositary Shares") representing interests in up to $200.0 million of the Company's convertible redeemable preferred stock to the current stockholders of SFEC as part of the consideration for the Six Flags Acquisition. The Company may reduce (but not below $100 million) or may eliminate the Seller Depositary Shares by increasing the cash portion of the consideration for the Six Flags Acquisition and may, if issued, redeem the Seller Depositary Shares for cash within 90 days of the closing at the higher of the issuance price and market value. If the Seller Depositary Shares are not issued, the additional cash portion of the consideration for the Six Flags Acquisition will be funded from the net proceeds of the Common Stock Offering. The closing of the Offering is conditioned upon the closing of the Concurrent Offerings and the Six Flags Acquisition. The Common Stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "PKS." On March 23, 1998, the last sales price of the Common Stock, as reported by the NYSE, was $57 3/16 per share. The Company has applied to list the EqPINES on the NYSE. The Mandatorily Convertible Preferred Stock will not be so listed and the Company does not expect that there will be any trading market for the Mandatorily Convertible Preferred Stock except as represented by the EqPINES. ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 18 HEREIN FOR CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) Per Share................................................ $ $ $ Total(3)................................................. $ $ $ (1) The Company and its operating subsidiaries have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company has granted options to the Underwriters to purchase up to 1,950,000 additional shares of Common Stock on the same terms and conditions as set forth herein solely to cover over-allotments, if any. If such options were exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company would be be $ , $ and $ , respectively. See "Underwriting." ------------------------ The shares of Common Stock offered by this Prospectus are offered by the International Managers subject to prior sale, to withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the International Managers and to certain further conditions. It is expected that delivery of the shares of Common Stock will be made at the offices of Lehman Brothers Inc., New York, New York, on or about , 1998. -------------------------- LEHMAN BROTHERS SALOMON SMITH BARNEY INTERNATIONAL FURMAN SELZ NATIONSBANC MONTGOMERY SECURITIES LLC , 1998 [International Alternate Page] CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS TO NON-UNITED STATES HOLDERS The following is a general summary of the material United States federal income and estate tax considerations to a Foreign Holder (as defined below) relevant to the ownership and disposition of shares of Common Stock. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), final, temporary and proposed United States Treasury Regulations promulgated thereunder, Service rulings, official pronouncements and judicial decisions, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect, or different interpretations. This summary does not discuss all the tax consequences that may be relevant to a particular Foreign Holder in light of the holder's particular circumstances and it is not intended to be applicable in all respects to all categories of Foreign Holders, some of whom may be subject to special rules not discussed below. In addition, this summary does not address any state, local or foreign tax considerations that may be relevant to a Foreign Holder's decision to purchase shares of Common Stock. As used herein, a "Foreign Holder" means any person who, for United States federal income tax purposes, is neither (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or of any State or of any of its territories or possessions or (iii) a domestic trust or estate. ALL HOLDERS THAT ARE FOREIGN HOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF SHARES OF COMMON STOCK IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES. SALE OR EXCHANGE OF COMMON STOCK Subject to the discussion of backup withholding below, any capital gain realized upon a sale or exchange of Common Stock by a beneficial owner who is a Foreign Holder ordinarily will not be subject to United States federal income tax unless (i) such gain is effectively connected with a trade or business conducted by such Foreign Holder within the United States (in which case the branch profits tax may also apply if the holder is a foreign corporation), (ii) in the case of a Foreign Holder that is an individual, such holder is present in the United States for a period or periods aggregating 183 days or more in the taxable year of the sale or exchange and certain other conditions are met or (iii) the Company is or has been a "United States real property holding corporation" (a "USRPHC") for federal income tax purposes and such Foreign Holder has held, directly or constructively, more than 5% of the outstanding Common Stock within the five-year period ending on the date of the sale or exchange, and no treaty exception is applicable. It is uncertain whether the Company is a USRPHC within the meaning of the Code. If the Company is or becomes a USRPHC then a Foreign Holder described in (iii) of the preceding sentence generally will be subject to United States federal income tax at regular graduated rates on gain recognized on a sale or other disposition of Common Stock. Accordingly, a Foreign Holder that intends to acquire more than 5% of the outstanding Common Stock should consult its tax advisor regarding possible adverse tax consequences to such holder. DIVIDENDS ON COMMON STOCK Generally, any dividends paid on Common Stock will be subject to United States federal withholding tax at a rate of 30% of the amount of the dividend, or at a lower applicable treaty rate. However, if the dividend is effectively connected with a United States trade or business of a Foreign Holder, it will be subject to United States federal income tax on a net basis at ordinary federal income tax rates (in which case the branch profits tax may also apply if such holder is a foreign corporation), and will not be subject to the 30% withholding tax. Under current Treasury Regulations, a holder's status as a non-United States person and eligibility for a tax treaty reduced rate of withholding will be determined by reference to the holder's address and to any outstanding certificates or statements concerning eligibility for a reduced rate of withholding, unless facts and circumstances indicate that reliance on such address, certificates or statements is not warranted. [International Alternate Page] However, the Service has recently issued Regulations that require a non-United States person to provide certifications under penalties of perjury in order to obtain treaty benefits for payments made after December 31, 1998. FEDERAL ESTATE TAXES Common Stock that is beneficially owned by an individual who is neither a citizen nor a resident of the United States at the time of death will be included in such holder's gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. BACKUP WITHHOLDING AND INFORMATION REPORTING Generally, dividends on Common Stock paid to holders that are Foreign Holders that are subject to the 30% or a reduced treaty rate of United States federal withholding tax will be exempt from backup withholding tax. Otherwise, backup withholding of United States federal income tax at a rate of 31% may apply to dividends paid with respect to Common Stock to holders that are not "exempt recipients" and that fail to provide certain information (including the holder's taxpayer identification number) in the manner required by United States law and applicable regulations. Payments of the proceeds from the sale by a holder that is a Foreign Holder of shares of Common Stock made to or through a foreign office of a broker will not be subject to information reporting or backup withholding, except that if the broker is a United States person, a controlled foreign corporation for United States tax purposes or a foreign person 50% or more of whose gross income is effectively connected with a United States trade or business for a specified three-year period, information reporting may apply to such payments. Payments of the proceeds from the sale of shares of Common Stock to or through the United States office of a broker will be subject to information reporting and backup withholding unless the holder certifies as to its non-United States status or otherwise establishes an exemption from information reporting and backup withholding. [International Alternate Page] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE INTERNATIONAL MANAGERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS PAGE ---- Available Information..................................................... 2 Incorporation of Certain Information by Reference......................... 2 Prospectus Summary........................................................ 5 Risk Factors.............................................................. 18 Use of Proceeds........................................................... 27 Capitalization............................................................ 28 Selected Historical and Pro Forma Financial and Operating Data............ 29 Unaudited Pro Forma Financial Statements.................................. 35 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................. 45 Business.................................................................. 55 Management................................................................ 79 Principal Stockholders.................................................... 83 Description of Six Flags Agreement........................................ 86 Description of Indebtedness............................................... 89 Description of Securities................................................. 95 Description of EqPINES.................................................... 101 Description of Depositary Arrangements.................................... 113 Certain United States Federal Tax Considerations to Non-United States Holders................................................................. 116 Underwriting.............................................................. 118 Legal Matters............................................................. 121 Experts................................................................... 121 Index to Financial Statements............................................. F-1 13,000,000 SHARES [LOGO] PREMIER PARKS INC. COMMON STOCK ------------------ PROSPECTUS , 1998 ------------------------ LEHMAN BROTHERS SALOMON SMITH BARNEY INTERNATIONAL FURMAN SELZ NATIONSBANC MONTGOMERY SECURITIES LLC - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [Convertible Stock] INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. UNDER NO CIRCUMSTANCES SHALL THIS REGISTRATION STATEMENT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF, THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. Subject to Completion, dated March 25, 1998 [Alternate Page-EqPINES] PROSPECTUS 5,000,000 EQPINES-SM- PREMIER PARKS INC. PREMIUM INCOME EQUITY SECURITIES ("EQPINES-SM-") CONSISTING OF DEPOSITARY SHARES, EACH REPRESENTING ONE-FIVE HUNDREDTH OF A SHARE OF % MANDATORILY CONVERTIBLE PREFERRED STOCK --------------------- [LOGO] All of the Premium Income Equity Securities ("EqPINES-SM-") offered hereby (the "Offering" or the "EqPINES Offering") are being sold by Premier Parks Inc. (collectively with its predecessor, the "Company" or "Premier"). Each of the EqPINES represents one five-hundredth of a share of % Mandatorily Convertible Preferred Stock ("Mandatorily Convertible Preferred Stock") of the Company deposited with the Depositary (as defined herein). Each EqPINES, through the Depositary, entitles the holder to all proportional rights and preferences of the share of Mandatorily Convertible Preferred Stock represented thereby. The liquidation preference of each EqPINES is $ , plus accrued and unpaid dividends thereon. See "Description of EqPINES". Unless converted by the holder into the Company's common stock, par value $0.05 per share (the "Common Stock") prior thereto, on , 2001 (the "Mandatory Conversion Date") each EqPINES will automatically convert into a number of shares of Common Stock at the Conversion Rate. The "Conversion Rate" is, subject to adjustment in certain events, equal to (a) if the Conversion Price (as defined below) is greater than or equal to $ (the "Threshold Appreciation Price"), shares of Common Stock per EqPINES, (b) if the Conversion Price is less than the Threshold Appreciation Price but greater than $ (the "Initial Price"), a fraction, equal to the Initial Price divided by the Conversion Price, of one share of Common Stock per EqPINES and (c) if the Conversion Price is less than or equal to the Initial Price, one share of Common Stock per EqPINES. The Threshold Appreciation Price and the Initial Price are also subject to adjustment in certain events. The "Conversion Price" is the average Closing Price (as defined herein) per share of Common Stock for the 20 Trading Days (as defined herein) immediately prior to (but not including) the Mandatory Conversion Date, except as otherwise described herein. See "Description of EqPINES--Mandatory Conversion of EqPINES". At any time prior to the Mandatory Conversion Date, each EqPINES is convertible, in whole but not in part, at the option of the holder thereof into shares of Common Stock, subject to adjustment in certain events. See "Description of EqPINES--Conversion at the Option of the Holder". The value of the Common Stock that will be received by holders of EqPINES upon their conversion may be more or less than the amount paid for the EqPINES offered hereby due to market fluctuations in the price of the Common Stock. Annual dividends on the EqPINES are cumulative at a rate of $ per EqPINES from the date of initial issuance, payable quarterly in arrears on each January 1, April 1, July 1 and October 1, commencing July 1, 1998. The Company may, at its option, pay dividends with cash, shares of Common Stock or in some combination of both, provided that dividends may be paid with Common Stock only if paid on the Regular Dividend Payment Date (as defined herein) for such dividend. For purposes of calculating dividend payments, each share of Common Stock delivered to holders of EqPINES for payment of dividends will be valued at 95% of the average Closing Price for the Common Stock over a ten-Trading Day period preceding the related record date for the dividend payment. See "Description of EqPINES--Dividends" and "-- Mandatory Conversion of EqPINES". The holders of Mandatorily Convertible Preferred Stock (including shares of Mandatorily Convertible Preferred Stock represented by the EqPINES) are not entitled to any voting rights, except as required by applicable state law and with respect to adverse charter and by-law amendments or the authorization or creation of classes of capital stock ranking senior as to payment of dividends or liquidation preference to the Mandatorily Convertible Preferred Stock, and in certain circumstances involving protracted dividend arrearages. See "Description of EqPINES--Voting Rights". The EqPINES Offering is being made in connection with the acquisition (the "Six Flags Acquisition") by the Company of all of the capital stock of Six Flags Entertainment Corporation ("SFEC"). The Company is concurrently offering $ million aggregate principal amount at maturity of its senior discount notes due 2008, with estimated gross proceeds of $250.0 million, $280.0 million aggregate principal amount of its senior notes due 2006, and 13,000,000 shares of Common Stock with estimated gross proceeds of $593.2 million (assuming the underwriters' over-allotment options are not exercised) (the "Common Stock Offering"). SFEC is concurrently offering $170.0 million aggregate principal amount of senior notes due 2006 (collectively, the "Concurrent Offerings" and, together with the EqPINES Offering, the "Offerings"). The Offerings will finance, in whole or in part, the Six Flags Acquisition. The Company may also issue up to depositary shares (the "Seller Depositary Shares") representing interests in up to $200.0 million of the Company's convertible redeemable preferred stock to the current stockholders of SFEC as part of the consideration for the Six Flags Acquisition. The Company may reduce (but not below $100 million) or may eliminate the Seller Depositary Shares by increasing the cash portion of the consideration for the Six Flags Acquisition and may, if issued, redeem the Seller Depositary Shares for cash within 90 days of the closing at the higher of the issuance price and market value. If the Seller Depositary Shares are not issued, the additional cash portion of the consideration for the Six Flags Acquisition will be funded from the net proceeds of the Common Stock Offering. The closing of the Offering is conditioned upon the closing of the Concurrent Offerings and the Six Flags Acquisition. Application will be made to list the EqPINES and the Common Stock issuable on conversion of the Mandatorily Convertible Preferred Stock on the New York Stock Exchange (the "NYSE"). The Mandatorily Convertible Preferred Stock will not be so listed and the Company does not expect that there will be any trading market for the Mandatorily Convertible Preferred Stock except as represented by the EqPINES. The Common Stock is listed on the NYSE under the symbol "PKS". On March 23, 1998, the last sales price of the Common Stock, as reported by the NYSE was $57 3/16 per share. --------------------------- SEE "RISK FACTORS" BEGINNING ON PAGE 19 HEREIN FOR CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) Per EqPINES.............................................. $ $ $ Total(3)................................................. $ $ $ (1) The Company and its operating subsidiaries have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting". (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company has granted an option to the Underwriters to purchase up to an additional 750,000 EqPINES on the same terms and conditions as set forth herein solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." --------------------------- The EqPINES offered by this Prospectus are offered by the Underwriters subject to prior sale, to withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the Underwriters and to certain further conditions. It is expected that delivery of the Depositary Receipts evidencing the EqPINES will be made at the offices of Lehman Brothers Inc., New York, New York, on or about , 1998. LEHMAN BROTHERS SALOMON SMITH BARNEY , 1998 [Alternate Page-EqPINES] THE OFFERING Securities........................ 5,000,000 EqPINES, consisting of depositary shares, each representing one five-hundredth of a share of Mandatorily Convertible Preferred Stock, are offered hereby. Each EqPINES entitles the holder to that proportion of all the rights, preferences and privileges of a share of Mandatorily Convertible Preferred Stock (including dividend, conversion, voting and liquidation rights and preferences) represented thereby. Dividends......................... $ per annum per EqPINES cumulative from the date of initial issuance, payable quarterly in arrears on each January 1, April 1, July 1 and October 1, commencing July 1, 1998. The Company may, at its option, pay dividends with cash, shares of Common Stock or in some combination of both, provided that dividends may be paid with Common Stock only if paid on the Regular Dividend Payment Date (as defined herein) for such dividend. For purposes of dividend payments, each share of Common Stock will be valued at 95% of the average Closing Price (as defined herein) for the Common Stock over a ten Trading Day (as defined herein) period preceding the related record date for the dividend payment. See "Description of EqPINES--Dividends" and "--Mandatory Conversion of EqPINES". Mandatory Conversion.............. On , 2001 (the "Mandatory Conversion Date"), each EqPINES will automatically convert into shares of Common Stock at the Conversion Rate. The "Conversion Rate" is, subject to adjustment in certain events, equal to (a) if the Conversion Price (as defined below) is greater than or equal to $ (the "Threshold Appreciation Price"), shares of Common Stock per EqPINES, (b) if the Conversion Price is less than the Threshold Appreciation Price but is greater than $ (the "Initial Price"), a fraction, equal to the Initial Price divided by the Conversion Price, of one share of Common Stock per EqPINES and (c) if the Conversion Price is less than or equal to the Initial Price, one share of Common Stock per EqPINES. The Threshold Application Price and the Initial Price are also subject to adjustment in certain events. The "Conversion Price" is the average Closing Price per share of Common Stock for the 20 Trading Days immediately prior to (but not including) the Mandatory Conversion Date, except as otherwise described herein. See "Description of EqPINES-- Mandatory Conversion of EqPINES". Optional Conversion............... At any time prior to the Mandatory Conversion Date, each EqPINES is convertible, in whole but not in part, at the option of the holder thereof into shares of Common Stock, subject to adjustment in certain events. See "Description of EqPINES--Conversion at the Option of the Holder" and "Description of Depositary Arrangements--Conversion Provisions". Voting Rights..................... The holders of EqPINES will be entitled to direct the voting of the shares of Mandatorily Convertible Preferred Stock represented thereby. See "Description of EqPINES--Voting Rights". The Mandatorily Convertible Preferred Stock has no voting rights, except as required by applicable state law and 13 [Alternate Page-EqPINES] except that (i) if dividends on the Mandatorily Convertible Preferred Stock or any other series of the Company's Preferred Stock are in arrears and unpaid for six quarterly dividend periods the Mandatorily Convertible Preferred Stock (voting as a class with certain other series of Preferred Stock) will be entitled to elect two directors of the Company and (ii) the Mandatorily Convertible Preferred Stock will have voting rights with respect to certain alterations of the Company's Restated Certificate of Incorporation and By-Laws and the creation or authorization of preferred stock or other capital stock (or securities convertible into capital stock) ranking prior to the Mandatorily Convertible Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation. See "Description of Depositary Arrangements--Voting of Mandatorily Convertible Preferred Stock". Liquidation Preference and Ranking......................... The EqPINES, as representative of beneficial ownership interests in the Mandatorily Convertible Preferred Stock, will rank prior to the Common Stock as to payment of dividends and distributions of assets upon liquidation. The liquidation preference of each EqPINES is an amount equal to the sum of (i) $ and (ii) all accrued and unpaid dividends thereon. See "Description of EqPINES--Dividends" and "-- Liquidation Rights". Listing........................... Application will be made to list the EqPINES and the Common Stock issuable on conversion of the Mandatorily Convertible Preferred Stock on the NYSE. The Mandatorily Convertible Preferred Stock will not be so listed and the Company does not expect that there will be any trading market for the Mandatorily Convertible Preferred Stock except as represented by the EqPINES. The Offerings..................... The Company is concurrently offering (i) 13,000,000 shares of Common Stock, with estimated gross proceeds of $593.2 million, (ii) the 5,000,000 EqPINES offered hereby, (iii) $ million aggregate principal amount at maturity of Company Senior Discount Notes, with estimated gross proceeds of $250.0 million and (iv) $280.0 million principal amount of Company Senior Notes. In addition, SFEC is issuing $170.0 million of New SFEC Notes. The Company may also issue Seller Depositary Shares representing interests in up to $200.0 million of Seller Preferred Stock as part of the consideration for the Six Flags Acquisition. See "--The Six Flags Transactions", "Description of Indebtedness--Company Senior Discount Notes", "-- Company Senior Notes", "--New SFEC Notes", "Description of Securities--Preferred Stock--Seller Preferred Stock" and "Description of EqPINES". The Offerings are conditioned upon the closing of all other elements of the Six Flags Transactions. Use of Proceeds................... The Company intends to apply the net proceeds from the Offerings to fund the cash portion of the purchase price for the Six Flags Acquisition; to provide for the repayment in full of the SFEC Zero Coupon Senior Notes; to fund improvements and expansion of the Company's parks, including the parks acquired in the Six Flags Acquisition and the 1997 Acquisitions; to acquire and make improvements at additional theme parks; and for general corporate purposes, including working capital requirements. See "Use of Proceeds". 14 [Alternate Page-EqPINES] NYSE symbols: Common Stock.................... "PKS" EqPINES......................... 15 [Alternate Page-EqPINES] UNDERWRITING Under the terms of and subject to the conditions contained in an underwriting agreement (the "Underwriting Agreement"), among the Company and each of the underwriters named below (the "Underwriters"), each of the several Underwriters has agreed to purchase from the Company, and the Company has agreed to sell to each Underwriter, the aggregate number of EqPINES set forth opposite the name of such Underwriter below: NUMBER OF UNDERWRITERS EQPINES --------------- Lehman Brothers Inc.............................................................................. Smith Barney Inc. ............................................................................... ------- Total......................................................................................... ------- ------- The Underwriting Agreement provides that the obligations of the Underwriters to purchase EqPINES are subject to the approval of certain legal matters by counsel and to certain other conditions and that if any of the EqPINES are purchased by the Underwriters pursuant to the Underwriting Agreement, all the EqPINES agreed to be purchased by the Underwriters pursuant to the Underwriting Agreement must be so purchased. The closing of each of the EqPINES Offering and the Concurrent Offerings is conditioned upon the closing of the other and of the other Six Flags Transactions. The Company has been advised that the Underwriters propose to offer EqPINES directly to the public initially at the public offering price set forth on the cover page of this Prospectus and to certain selected dealers (who may include the Underwriters) at such public offering price less a selling concession not to exceed $ per EqPINES. The selected dealers may reallow a concession not to exceed $ per EqPINES. After the initial offering of the EqPINES, the offering price, the concession to selected dealers and the reallowance to other dealers may be changed by the Underwriters. Except for the EqPINES to be sold in the EqPINES Offering (and the Mandatorily Convertible Preferred Stock represented thereby), the Seller Preferred Stock and the Common Stock to be sold in the Concurrent Offerings or issued upon conversion of the Convertible Preferred Stock, the Company has agreed not to offer, sell, contract to sell or otherwise issue any shares of Common Stock or other capital stock or securities convertible into or exchangeable for, or any rights to acquire Common Stock or other capital stock, with certain exceptions (including certain exceptions for Common Stock or other capital stock issued or sold in connection with future acquisitions by the Company, including its proposed acquisition of Walibi), prior to the expiration of 90 days from the date of this Prospectus without the prior written consent of Lehman Brothers. The Company's officers, directors and principal stockholders, who hold in the aggregate approximately 6.0 million shares of Common Stock (including shares issuable upon exercise of outstanding options, warrants and restricted stock), have agreed not to, directly or indirectly, offer, sell or otherwise dispose of shares of Common Stock of the Company or any securities convertible into or exchangeable for or any rights to acquire, Common Stock or other capital stock of the Company for 90 days following the date of this Prospectus without the prior written consent of Lehman Brothers. In addition, the Sellers in the Six Flags Acquisition have agreed not to sell any Seller Preferred Stock (or shares of Common Stock issuable upon conversion thereof) acquired by them in the Six Flags Acquisition during such 90-day period. The Company has granted to the Underwriters an option to purchase up to an additional 750,000 EqPINES at the initial public offering price to the public, less the underwriting discounts and commissions shown on the cover page of this Prospectus, solely to cover over-allotments, if any. The option may be exercised at any time up to 30 days after the date of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will be committed (subject to certain conditions) to purchase a number of additional shares proportionate to such Underwriter's initial commitment as indicated in the preceding table. 117 [Alternate Page-EqPINES] The Company and its operating subsidiaries (including Six Flags) have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments which the Underwriters may be required to make in respect thereof. Until the distribution of the EqPINES offered hereby is completed, rules of the Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase the EqPINES and the Common Stock. As an exception to these rules, the Underwriters are permitted to engage in certain transactions that stabilize the price of the EqPINES and the Common Stock. Such transactions may consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the EqPINES and the Common Stock. If the Underwriters create a short position in the EqPINES in connection with the EqPINES Offering (I.E., if they sell more EqPINES than are set forth on the cover page of this Prospectus), the Underwriters may reduce that short position by purchasing EqPINES in the open market after the distribution has been completed. The Underwriters also may impose a penalty bid on certain Underwriters and selling group members. This means that if the Underwriters purchase EqPINES in the open market to reduce their short position or to stabilize the price of the EqPINES, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those EqPINES as part of the EqPINES Offering. In general, purchases of a security for the purposes of stabilization or to reduce a syndicate short position could cause the price of the security to be higher than it might otherwise be in the absence of such purchases. The imposition of a penalty bid might have an effect on the price of a security to the extent that it were to discourage resales of the security by purchasers in the applicable offering. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the EqPINES. In addition, neither the Company nor any of the Underwriters makes any representation that the Underwriters will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. An application will be made to list the EqPINES and the Common Stock into which the Mandatorily Convertible Preferred Stock are convertible on the NYSE. The Mandatorily Convertible Preferred Stock will not be so listed and the Company does not expect that there will be any trading market for the Mandatorily Convertible Preferred Stock except as represented by the EqPINES. The EqPINES are a new issue of securities with no established trading market. While application has been made to list the EqPINES on the NYSE, no assurance can be given as to the development or liquidity of any trading market in the EqPINES. If an active market does not develop, the market price and liquidity of the EqPINES will be adversely affected. Each of Lehman Brothers and Smith Barney Inc. has from time to time provided certain investment banking services to the Company and its affiliates for which they have received customary fees. LBI Group Inc., an affiliate of Lehman Brothers is party to financing commitments provided to the Company in connection with the Six Flags Transactions and has received customary fees in connection therewith. In addition, Lehman Brothers and Smith Barney Inc. acted as underwriters of the Company's 1996 and 1997 public offerings and are acting as underwriters in connection with the Concurrent Offerings and will receive customary fees in connection therewith. An affiliate of Lehman Brothers is a lender under each of the Credit Facilities. LEGAL MATTERS The validity of the EqPINES and the Mandatorily Convertible Preferred Stock offered hereby and certain legal matters in connection with the EqPINES Offering will be passed upon for the Company by Baer Marks & Upham LLP, New York, New York. The Underwriters are being represented by Cravath, Swaine & Moore, New York, New York. 118 [Alternate Page--EqPINES] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS PAGE ---- Available Information..................................................... 2 Incorporation of Certain Information by Reference......................... 2 Prospectus Summary........................................................ 5 Risk Factors.............................................................. 19 Use of Proceeds........................................................... 28 Capitalization............................................................ 29 Selected Historical and Pro Forma Financial and Operating Data............ 30 Unaudited Pro Forma Financial Statements.................................. 36 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................. 46 Business.................................................................. 56 Management................................................................ 80 Principal Stockholders.................................................... 84 Description of Six Flags Agreement........................................ 87 Description of Indebtedness............................................... 90 Description of Securities................................................. 96 Description of EqPINES.................................................... 102 Description of Depositary Arrangements.................................... 114 Underwriting.............................................................. 118 Legal Matters............................................................. 119 Experts................................................................... 120 Index to Financial Statements............................................. F-1 5,000,000 EQPINES-SM- [LOGO] PREMIER PARKS INC. PREMIUM INCOME EQUITY SECURITIES EACH REPRESENTING ONE FIVE-HUNDREDTH OF A SHARE OF % MANDATORILY CONVERTIBLE PREFERRED STOCK ------------------------ PROSPECTUS , 1998 --------------------- LEHMAN BROTHERS SALOMON SMITH BARNEY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the various expenses to be borne by the Registrant in connection with the issuance and distribution of the securities being registered (other than underwriting discounts and commissions). All amounts presented are estimates except the Securities and Exchange Commission registration fee and the National Association of Securities Dealers, Inc. filing fee. Securities and Exchange Commission registration fee............................. $ 349,216 National Association of Securities Dealers, Inc. filing fee..................... 30,500 New York Stock Exchange listing fee............................................. 163,900 Accounting fees and expenses.................................................... 110,000 Legal fees and expenses......................................................... 350,000 Printing and engraving expenses................................................. 630,000 Transfer agent and registrar fees............................................... 10,000 Depositary fees................................................................. 5,000 Miscellaneous................................................................... 151,384 --------- Total fees and expenses......................................................... $1,800,000 ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law which covers the indemnification of directors, officers, employees and agents of a corporation is hereby incorporated herein by reference. Reference is made to Article XXV of the Registrant's By-Laws which provides for indemnification by the Registrant in the manner and to the full extent permitted by Delaware law. Reference is also made to Section 8 of the U.S. Underwriting Agreement and the International Underwriting Agreement, to be filed by amendment as Exhibits 1(a) and 1(b), respectively. ITEM 16. EXHIBITS. See Exhibit Index. ITEM 17. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933. (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. II-1 (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided, however, That paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (3) That, for purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (4) That, for the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) The undersigned Registrant hereby undertakes that, for the purposes of determining any liability under the Securities Act of 1933 (the "Act"), each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference herein shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York on the 24th day of March, 1998. PREMIER PARKS INC. By: /s/ KIERAN E. BURKE ------------------------------------------ Kieran E. Burke CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER II-3 Pursuant to the requirements of the Securities Act of 1933, this registration statement on Form S-3 has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- Chairman of the Board and * Chief Executive Officer - ------------------------------ (principal executive March 24, 1998 Kieran E. Burke officer) * Director, President and - ------------------------------ Chief March 24, 1998 Gary Story Operating Officer Chief Financial Officer * and - ------------------------------ Director (principal March 24, 1998 James F. Dannhauser financial and accounting officer) * - ------------------------------ Director March 24, 1998 Paul A. Biddelman * - ------------------------------ Director March 24, 1998 Michael E. Gellert * - ------------------------------ Director March 24, 1998 Jack Tyrrell * - ------------------------------ Director March 24, 1998 Sandy Gurtler * - ------------------------------ Director March 24, 1998 Charles R. Wood *By: JAMES M. COUGHLIN ------------------------- James M. Coughlin Attorney-in-fact II-4 EXHIBIT INDEX PAGE ----- (1) Underwriting Agreements: (a) Form of U.S. Underwriting Agreement among the Registrant, certain of its subsidiaries, Lehman Brothers Inc., Smith Barney Inc., Furman Selz LLC and NationsBanc Montgomery Securities LLC as representatives of the several U.S. Underwriters......................... (b) Form of International Underwriting Agreement among the Registrant, certain of its subsidiaries, Lehman Brothers International (Europe), Smith Barney Inc., Furman Selz LLC and NationsBanc Montgomery Securities LLC as representatives of the several International Managers................................................................................... (c) Form of Agreement among U.S. Underwriters and International Managers....................... (d) Form of Underwriting Agreement among the Registrant, certain of its subsidiaries, Lehman Brothers Inc., and Smith Barney Inc. (Premium Income Equity Securities).................... (e) Form of Underwriting Agreement among the Registrant, certain of its subsidiaries, Lehman Brothers Inc., Salomon Brothers Inc and NationsBanc Montgomery Securities LLC as representatives of the several Underwriters (Company Notes)................................ (f) Form of Underwriting Agreement among Six Flags Entertainment Corporation, certain of its subsidiaries, Lehman Brothers Inc., Salomon Brothers Inc. and NationsBanc Montgomery Securities LLC as representatives of the several Underwriters (New SFEC Notes)............. (2) Plan of Acquisition: (a) Agreement and Plan of Merger dated February 9, 1998, among the Registrant, the subsidiaries of the Registrant named therein, the holders of capital stock of Six Flags Entertainment Corporation and Six Flags Entertainment Corporation-- incorporated by reference from Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated February 9, 1998........ (b) Subordinated Indemnity Agreement dated February 9, 1998, among the Registrant, the subsidiaries of the Registrant named therein, Time Warner Inc., the subsidiaries of Time Warner Inc. named therein, Six Flags Entertainment Corporation and the subsidiaries of Six Flags Entertainment Corporation named therein.............................................. (4) Instruments Defining the Rights of Security Holders, Including Indentures: (a) Indenture dated as of August 15, 1995, among the Registrant, the subsidiaries of the Registrant named therein and United States Trust Company of New York, as trustee -- incorporated by reference from Exhibit 4(2) to Registrant's Registration Statement on Form S-1 (Reg. No. 33-62225) declared effective on November 9, 1995 (the "1995 Registration Statement")................................................................................ (b) Form of First Supplemental Indenture dated as of November 9, 1995 --incorporated by reference from Exhibit 4(2.1) to the 1995 Registration Statement........................... (c) Purchase Agreement, dated August 10, 1995, among the Registrant, the subsidiaries of the Registrant named therein and Chemical Securities Inc. --incorporated by reference from Exhibit 4(3) to the 1995 Registration Statement............................................ (d) Exchange and Registration Rights Agreement, dated August 14, 1995, among the Registrant, the subsidiaries of the Registrant named therein and Chemical Securities Inc. -- incorporated by reference from Exhibit 4(4) to the 1995 Registration Statement............. II-5 (e) Convertible Note Purchase Agreement, dated as of March 3, 1993, between the Registrant and the purchasers named therein (including forms of Senior Subordinated Convertible Notes and Registration Rights Agreement) -- incorporated by reference from Exhibit 4(i) to Form 10-K of the Registrant for the year ended December 31, 1993..................................... (f) Form of Subscription Agreement, dated October 1992, between the Registrant and certain investors -- incorporated by reference from Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated October 30, 1992......................................................... (g) Stock Purchase and Warrant Issuance Agreement, dated October 16, 1989, between the Registrant and Kieran E. Burke -- incorporated by reference from Exhibit 4(i) to Form 10-K of the Registrant for the year ended December 31, 1989..................................... (h) Warrant, dated October 16, 1989, to purchase 131,728 shares of Common Stock issued by the Registration to Kieran E. Burke -- incorporated by reference from Exhibit 4(k) to Form 10-K of the Registrant for the year ended December 31, 1989..................................... (i) Warrant, dated October 16, 1989, to purchase 93,466 shares of Common Stock issued by the Registrant to Kieran E. Burke -- incorporated by reference from Exhibit 4(l) to Form 10-K of the Registrant for the year ended December 31, 1989..................................... (j) Form of Common Stock Certificate -- incorporated by reference from Exhibit 4(l) to the Registrant's Registration Statement on Form S-2 (Reg. No. 333-08281) declared effective on May 28, 1996............................................................................... (k) Form of depositary receipt evidencing ownership of Premium Income Equity Securities (filed as part of Exhibit 4(u) hereof)............................................................ (m) Form of Indenture dated as of February 1, 1997, among the Registrant and the Bank of New York, as trustee (including the form of Notes) -- incorporated by reference from Exhibit 4(l) to the Registrant's Registration Statement on Form S-2 (Reg. No. 333-16573) filed with the Securities and Exchange Commission on January 22, 1997................................. (n) Form of Second Supplemental Indenture dated January 21, 1997 -- incorporated by reference from Exhibit 4(n) to the Registrant's Registration Statement on Form S-2 (Reg. No. 333-16573) filed with the Securities and Exchange Commission on January 22, 1997........... (o) Form of Indenture, dated as of March , 1998, between the Registrant and the Bank of New York....................................................................................... (p) Form of Indenture, dated as of March , 1998, between the Registrant and The Bank of New York....................................................................................... (q) Form of Indenture, dated as of March , 1998, among the Registrant, Six Flags Entertainment Corporation and The Bank of New York....................................................... (r) Form of Certificate of Designation, Rights and Preferences relating to Seller Preferred Stock...................................................................................... (s) Form of Certificate of Designation, Rights and Preferences relating to Mandatorily Convertible Preferred Stock................................................................ (t) Amended and Restated Rights Agreement, dated as of January 12, 1998, between the Registrant and Bank One Trust Company, N.A. (including certificate of designation of Series A Junior Participating Preferred Stock) incorporated by reference from Exhibit 4.1 to the Registrant's Current Report on Form 8-K as amended, dated December 15, 1997................ (u) Form of Deposit Agreement dated as of , 1998, among the Registrant, the Bank of New York, and the holders from time to time of depositary receipts executed and delivered thereunder....................................................................... II-6 (v) Form of Pledge and Escrow Agreement dated as of , 1998 by and between the Registrant and The Bank of New York, as Trustee (Senior Notes) (included in Exhibit 4(o) hereof) (w) Form of Pledge, Escrow and Disbursement Agreement dated as of , 1998 by and between the Registrant and The Bank of New York, as Trustee (Senior Discount Notes) (included in Exhibit 4(p) hereof) (x) Pledge, Escrow and Disbursement Agreement by and between Six Flags Entertainment Corporation and The Bank of New York, as Trustee (SFEC Notes) (included in Exhibit 4(q) hereof) (5) Opinion of Baer Marks & Upham LLP, including consent...................................................... **(12) (a) Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends... **(12) (b) Computation of Ratio of Earnings to Fixed Charges.......................................... (23) Consents: (a) Consent of Baer Marks & Upham LLP (included in Exhibit (5))................................ (b) Consent of KPMG Peat Marwick LLP........................................................... (c) Consent of Ernst & Young LLP............................................................... *(d) Consent of Coopers & Lybrand LLP........................................................... (e) Consent of Carpenter Mountjoy & Bressler, PSC.............................................. **(24) Power of Attorney......................................................................................... **(27) Financial Data Schedule................................................................................... - ------------------------ * To be incorporated by reference to the Company's Current Report on Form 8-K to be filed prior to the effective date of this Registration Statement ** Previously filed II-7