<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1996.
REGISTRATION NO. 333-________________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
CINEMARK USA, INC.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
<TABLE>
<S> <C> <C>
TEXAS 8932 75-2206284
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
7502 Greenville Avenue, Suite 800 Lee Roy Mitchell
Dallas, TX 75231-3830 7502 Greenville Avenue, Suite 800
(214) 696-1644 Dallas, TX 75231-3830
(ADDRESS, INCLUDING ZIP CODE, AND (214) 696-1644
TELEPHONE NUMBER, INCLUDING (NAME, ADDRESS, INCLUDING ZIP CODE,
AREA CODE, OF REGISTRANTS' AND TELEPHONE NUMBER,INCLUDING
PRINCIPAL EXECUTIVE OFFICES) AREA CODE, OF AGENT FOR SERVICE)
--------------------
COPIES TO:
Terry M. Schpok, P.C. Michael D. Cavalier
Akin, Gump, Strauss, Hauer & Feld, L.L.P. Associate General Counsel
1700 Pacific Avenue Cinemark USA, Inc.
Suite 4100 7502 Greenville Avenue
Dallas, Texas 75201-4618 Suite 800
Dallas, Texas 75231-3830
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------
<TABLE>
<CAPTION>
=====================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9-5/8% Series B Senior Subordinated
Notes due 2008 . . . . . . . . . . . $200,000,000 100% $200,000,000 $68,965.52
=====================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrants
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, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<PAGE> 2
***************************************************************************
* *
* 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 September 13, 1996
PRELIMINARY PROSPECTUS
CINEMARK USA, INC.
OFFER TO EXCHANGE ITS
[LOGO] 9-5/8% SERIES B SENIOR SUBORDINATED NOTES
DUE 2008
FOR ANY AND ALL OF ITS OUTSTANDING
9-5/8% SERIES A SENIOR SUBORDINATED NOTES
DUE 2008
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 p.m., NEW YORK CITY TIME,
ON _________, 1996, UNLESS EXTENDED (THE "EXPIRATION DATE")
Cinemark USA, Inc., a Texas corporation (the "Company"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange $1,000 principal amount of its 9-5/8% Series B Senior
Subordinated Notes due 2008 (the "Series B Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant
to a Registration Statement (as defined herein) of which this Prospectus is a
part, for each $1,000 principal amount of the outstanding 9-5/8% Series A
Senior Subordinated Notes due 2008 (the "Series A Notes"), of the Company of
which $200,000,000 principal amount is outstanding. The Series B Notes and the
Series A Notes are together referred to herein as the "Notes." The terms of
the Series B Notes are identical in all material respects to the terms of the
Series A Notes except that the registration and other rights relating to the
exchange of Series A Notes for Series B Notes and the restrictions on transfer
set forth on the face of the Series A Notes will not appear on the Series B
Notes. See "The Exchange Offer." The Series B Notes are being offered
hereunder in order to satisfy certain obligations of the Company under a
Registration Rights Agreement dated as of August 15, 1996 (the "Registration
Rights Agreement"). Based on an interpretation by the staff of the Securities
and Exchange Commission (the "Commission"), Series B Notes issued pursuant to
the Exchange Offer in exchange for Series A Notes may be offered for resale,
resold and otherwise transferred by a holder thereof (other than a holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act")), without compliance
with the registration and (except as provided in the following paragraph) the
prospectus delivery provisions of the Securities Act, provided that such Series
B Notes are acquired in the ordinary course of such holder's business and such
holder has no arrangement with any person to participate in the distribution of
such Series B Notes.
Each broker-dealer that receives Series B Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Series B Notes received in exchange for Series A Notes where
such Series A Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of twelve months after the effective date hereof, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "The Exchange Offer."
(cover page continued)
<PAGE> 3
The Company will not receive any proceeds from the Exchange Offer and will
pay all the expenses incident to the Exchange Offer. Tenders of Series A Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. If the Company terminates the Exchange Offer and does not
accept for exchange any Series A Notes, it will promptly return the Series A
Notes to the holders thereof. See "The Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the
Series A Notes or the Series B Notes. To the extent that Series A Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Series A Notes could be adversely affected. If a market for the
Series B Notes should develop, the Series B Notes could trade at a discount
from their principal amount. The Company does not currently intend to list the
Series B Notes on any securities exchange or to seek approval for quotation
through any automated quotation system. There can be no assurance that an
active public market for the Series B Notes will develop.
The Exchange Agent for the Exchange Offer is United States Trust Company of
Texas, N.A.
SEE "RISK FACTORS" ON PAGE 14 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN
THE NOTES.
--------------------
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 THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is ______________, 1996
2
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Series B Notes offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Series B Notes offered hereby, reference is made
to the Registration Statement, including the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of certain documents
are not necessarily complete, and, in each instance, reference is made to the
copy of the document filed as an exhibit to the Registration Statement. Each
such statement is qualified in its entirety by such reference. The
Registration Statement can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at the Commission's regional offices at Suite
1400, Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511, and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can also be obtained from the Commission at prescribed
rates through its Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material may also be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov.
In the event the Company is not subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") at any
time following the consummation of the Exchange Offer, the Company will be
required under the Indenture, dated as of August 15, 1996 (the "Indenture"),
among the Company and United States Trust Company of Texas, N.A., as trustee
(the "Trustee"), pursuant to which the Series A Notes were, and the Series B
Notes will be, issued, to continue to file with the Commission and furnish to
holders of the Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such financial information and
(ii) all reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such report. To permit compliance
with Rule 144A in connection with resales of Series A Notes, the Company will
furnish upon the request of a holder of a Series A Note and a prospective
purchaser designated by such holder the information required to be delivered
under Rule 144A(d)(4) under the Securities Act if at the time of such request
the Company is not a reporting company under Section 13 or 15(d) of the
Exchange Act nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder.
The Company is a reporting company under the Exchange Act and, as long as the
Company continues to be a reporting company, it will not be required to deliver
information required to be delivered under Rule 144A(d)(4).
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Company's Consolidated Financial Statements, including the
notes thereto, appearing elsewhere in this Prospectus. Unless the context
otherwise requires, references in this Propectus to the "Company" include the
Company and its subsidiaries. Also, as used in this Prospectus, the term
"Restricted Subsidiary" refers to any direct or indirect subsidiary of the
Company (and such Restricted Subsidiaries, collectively with the Company, the
"Restricted Group") other than Cinemark International, Inc. (f/k/a Cinemark
II, Inc.) ("Cinemark International"), and its subsidiaries. The term
"Unrestricted Subsidiary" refers to Cinemark International or any direct or
indirect subsidiaries of Cinemark International (collectively, the
"Unrestricted Group").
THE COMPANY
The Company is the fifth largest motion picture exhibitor in North America
in terms of the number of screens in operation. At June 30, 1996, the Company
operated 1,417 screens in 172 theatres located in 28 states, Canada, Chile and
Mexico, consisting of 1,055 screens in 121 "first run" theatres and 362 screens
in 51 "discount" theatres. Of the Company's 1,417 screens, 863 (or 61%) were
built by the Company over the past six years, and, as a result, the Company
believes it operates one of the most modern theatre circuits in the industry.
All of the Company's theatres are multiplex facilities with approximately 90%
of the Company's screens located in theatres of six or more screens. The
Company believes that its ratio of screens to theatres (8.2 to 1 at June 30,
1996) is the highest of the five largest theatre circuits in the U.S. and is
approximately 60% higher than the industry average (less than 5 to 1). From its
fiscal year ended December 31, 1991 through the twelve months ended June 30,
1996, the Company has increased consolidated revenues approximately 95% from
$164.4 million to $320.6 million and has increased EBITDA (as defined herein)
approximately 131% from $26 million to $60.0 million.
The Company is an industry leader in new theatre construction and operation
and, according to industry sources, has constructed more screens than any other
exhibitor during the 1990s. The Company believes that the attractiveness,
comfort and viewing experience provided by its modern facilities result in the
Company's theatres more often being the preferred destination for moviegoers in
its markets.
The Company believes that a number of positive trends have developed in the
theatre exhibition industry, including the ongoing trend toward the
development of larger multiplexes. The Company is actively participating in
this trend, commonly referred to as the "rescreening of America." The Company's
management experience and financial flexibility permit it to introduce larger
multiplex theatre facilities into areas previously served by smaller theatres,
thereby capturing moviegoers who seek more attractive surroundings, wider
variety of films, better customer service, shorter lines, more convenient
parking and a greater choice of seating to view popular movies. The Company's
larger multiplex facilities increase per screen revenues and operating margins
and enhance its operating efficiencies. Such theatres enable the Company to
present films appealing to several segments of the moviegoing public while
serving patrons from common support facilities (such as box office, concession
areas, rest rooms and lobby). In addition, larger multiplex facilities provide
the Company with greater flexibility in staffing, movie scheduling and
equipment utilization while reducing congestion throughout the theatre.
Theatrical exhibition is the primary distribution channel for new motion
picture releases. The Company believes that the successful theatrical release
of a movie abroad and in "downstream" distribution channels, such as home video
and pay-per-view, network and syndicated television, is largely dependent on
its successful theatrical release in the U.S. The Company believes that as a
result of increased revenues from the successful release of films in both movie
theatres and other distribution channels, major film production companies have
increased and will continue to increase the number of films being produced.
Additionally, increased revenues
4
<PAGE> 6
permit major film production companies to create "event" films such as Jurassic
Park, Twister and Independence Day which utilize the latest advances in
computer technology to enhance production quality and special effects. The
Company believes that an increasing supply of quality feature films and "event"
films will increase theatre attendance. The Company also believes that
international markets for theatrical exhibition, which have historically been
underserved due to antiquated and/or run-down theatres, will continue to
experience rapid growth as additional multiplex theatres are introduced.
In addition, the Company believes that certain demographic trends favor the
theatre exhibition industry. Information obtained from the U.S. Bureau of
Census indicates that the number of 12 to 20 year olds in the U.S., the largest
moviegoing segment of the population, is projected to grow an aggregate of 7.5%
through the year 2000. Furthermore, according to the Motion Picture Association
of America ("MPAA"), the number of patrons over 40 years old as a percentage of
the total movie audience has more than doubled from approximately 14% in 1986
to approximately 33% in 1995. The Company believes that film producers have
recognized the importance of this segment of the population and are producing
an increased number of films primarily targeted to this more mature audience,
including films such as Forrest Gump, Apollo 13, Mr. Holland's Opus and Sense
and Sensibility.
BUSINESS STRATEGY
The Company intends to continue to grow through new theatre development by
applying the same techniques it has implemented since it was founded. The
Company believes that it is unique among major theatre exhibitors in the
development and execution of the following four-part business strategy:
Continue to build in underserved mid-sized markets. The Company intends to
continue to build first run theatres in underserved mid-sized markets and
suburbs of major metropolitan areas with populations of 50,000 to 200,000 where
the Company frequently will be the sole or leading exhibitor in terms of first
run screens operated. The Company believes it gains maximum access to film
product, and thereby realizes a competitive advantage, by locating its modern
multiplex theatres in new and existing film zones where little or no
competition for film product exists.
Capitalize on popularity of "megaplex" concept. The Company intends to
expand its construction of larger "megaplex" entertainment centers in major
metropolitan areas. In December 1992, the Company opened its first megaplex,
Hollywood USA , a 15-screen, 52,000 square-foot complex containing a large
video arcade and a pizzeria. The Company subsequently opened two additional
megaplexes styled after the original Hollywood USA . Based upon the success of
these complexes, which consistently rank among the Company's top grossing
facilities on a per screen basis, the Company expanded the megaplex concept. In
the last twelve months, the Company has developed three megaplexes, each
exceeding 80,000 square feet and featuring 16 or more screens with 75 foot
screens in the largest auditoriums, stadium seating, digital sound, a pizzeria,
a coffee bar and a large video arcade room. Five of these megaplex facilities
are either currently under construction or scheduled to begin construction
during the remainder of 1996.
Continue to expand discount theatre niche. The Company intends to continue
to build discount theatres (admission of $1 to $2 per ticket) primarily in
major metropolitan markets to serve patrons who miss a film during its first
run exhibition or who may not be able to afford to attend first run theatres on
a frequent basis. The Company believes that its discount theatres allow it to
serve these segments of the total moviegoing population, increasing the number
of potential customers beyond traditional first run moviegoers. The Company
develops its multiplex discount theatres with many of the same amenities as its
first run theatres, including wall-to-wall screens, comfortable seating with
cupholder armrests, digital sound, multiple concession stands and a video game
room. The Company's discount theatres generally have higher attendance, lower
film
5
<PAGE> 7
costs and a greater proportion of concession revenues than its first run
theatres. As of June 30, 1996, approximately 30% of the Company's theatres were
discount theatres.
Develop modern American-style theatres in underserved international
markets. The Company intends to continue to develop multiplex theatres directly
or through joint venture arrangements with local partners in underserved
international markets. The Company's activities to date in international
markets have been directed toward Latin America, which the Company believes is
severely underscreened and is still typically served by one- and two-screen
theatres which are often antiquated and/or run-down. The Company believes that
the same economic factors giving rise to the multiplex rescreening trend in the
U.S. are similarly applicable to international markets. The Company believes
that it was the first U.S. circuit to open American-style modern multiplex
theatres in Chile and Mexico, and has recently begun exploring development
opportunities in Argentina and Brazil. For a discussion of an agreement in
principle to renegotiate certain indebtedness of Cinemark Mexico (as defined
herein) see "Description of Certain Debt Instruments -- Cinemark Mexico
Indenture."
RECENT DEVELOPMENTS
In February 1996, the Company replaced its existing bank line of credit
with the Credit Facility (as defined herein), which has a final maturity of
2003 and provides for borrowing availability of up to $175 million. In March
1996, the Company received $41 million from the sale of common stock to Cypress
Merchant Banking Partners L.P. and Cypress Pictures Ltd. (collectively,
"Cypress"). At the same time, Cypress purchased for $98 million outstanding
shares of common stock from shareholders.
On August 15, 1996, the Company issued $200 million aggregate principal
amount of Series A Notes (the "Series A Notes Offering"). The net proceeds of
the Series A Notes Offering were used by the Company to (i) repurchase an
aggregate of $123,370,000 principal amount of the Company's 12% Senior Notes
due 2001 (the "Old Notes") and pay premiums and consent fees related thereto
pursuant to an Offer to Purchase and Consent Solicitation (the "Repurchase
Offer") to repurchase all of the Company's outstanding $125 million principal
amount of Old Notes and (ii) reduce the Company's indebtedness under the Credit
Facility.
The Credit Facility, the Cypress investment, the completion of the
Repurchase Offer and the Series A Notes Offering have collectively extended the
average maturity of the Company's indebtedness, reduced the average interest
rate on its indebtedness and increased its equity capitalization base. The
Company believes that these steps will enhance its financial flexibility in
pursuing its business strategy and allow it to take advantage of the growth
opportunities in the theatre exhibition industry.
The Company's principal offices are located at 7502 Greenville Avenue,
Suite 800, Dallas, Texas 75231-3830, and its telephone number at that location
is (214) 696-1644.
6
<PAGE> 8
THE EXCHANGE OFFER
REGISTRATION RIGHTS AGREEMENT . . . The Series A Notes were issued by the
Company on August 15, 1995 to qualified
institutional buyers and institutional
accredited investors. In connection
therewith, the Company executed and
delivered for the benefit of the holders
of the Series A Notes the Registration
Rights Agreement providing for, among
other things, the Exchange Offer.
THE EXCHANGE OFFER . . . . . . . . The Company is offering to issue $1,000
principal amount of Series B Notes in
exchange for each $1,000 principal amount
of Series A Notes validly tendered
pursuant to the Exchange Offer. As of
the date hereof, $200,000,000 in
aggregate principal amount of Series A
Notes are outstanding. The Company will
issue the Series B Notes to holders
promptly following the Expiration Date.
See "Risk Factors--Consequences of
Failure to Exchange."
Based on an interpretation by the staff
of the Commission set forth in no-action
letters issued to third parties, the
Company believes that Series B Notes
issued pursuant to the Exchange Offer in
exchange for Series A Notes may be
offered for resale, resold and otherwise
transferred by a holder thereof (other
than a "Restricted Holder," being a
person that is an affiliate of the
Company within the meaning of Rule 405
under the Securities Act) without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that the holder
is acquiring the Series B Notes in the
ordinary course of its business and is
not participating, and has no arrangement
or understanding with any person to
participate, in a distribution of the
Series B Notes. Eligible holders wishing
to accept the Exchange Offer must
represent to the Company that such
conditions have been met. Any
broker-dealer who holds Series A Notes
acquired for its own account as a result
of market-making or other trading
activities, and who receives Series B
Notes in the exchange for such Series A
Notes pursuant to the Exchange Offer, may
be a statutory underwriter and must
deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of Series B
Notes, which prospectus may be the
prospectus for the Exchange Offer so long
as it contains a plan of distribution
with respect to such resale transactions.
See "The Exchange Offer."
RESALE . . . . . . . . . . . . . . Based on an interpretation by the staff
of the Commission, the Company believes
that Series B Notes issued pursuant to
the Exchange Offer in exchange for Series
A Notes may be offered for resale and
resold or otherwise transferred by
holders thereof (other than any
Restricted Holder) without compliance
with the registration and prospectus
delivery provisions of the Securities
Act, provided that such Series B Notes
are acquired in the ordinary course of
such holders' business and such holders
have no arrangement with any person to
participate in the distribution of such
Series B Notes. See
7
<PAGE> 9
"Mary Kay Cosmetics, Inc.," SEC No-Action
Letter (available June 5, 1991); "Morgan
Stanley & Co., Incorporated," SEC
No-Action Letter (available June 5,
1991); and "Exxon Capital Holdings
Corporation," SEC No-Action Letter
(available May 13, 1988). Any broker
dealer who holds Series A Notes acquired
for its own account as a result of
market-making or other trading
activities, and who receives Series B
Notes in the exchange for such Series A
Notes pursuant to the Exchange Offer, may
be a statutory underwriter and must
deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of Series B
Notes, which prospectus may be the
prospectus for the Exchange Offer so long
as it contains a plan of distribution
with respect to such resale transactions.
See "Shearman & Sterling," No-Action
Letter (available July 2, 1993).
If any person were to participate in the
Exchange Offer for the purpose of
distributing securities in a manner not
permitted by the preceding paragraph,
such person (i) could not rely on the
position of the staff of the Commission
enunciated in "Exxon Capital Holdings
Corporation" or similar interpretive
letters and (ii) must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with a secondary resale
transaction. Therefore, each holder of
Series A Notes who accepts the Exchange
Offer must represent in the Letter of
Transmittal that it meets the conditions
described above. See "The Exchange
Offer--Terms of the Exchange Offer."
EXPIRATION DATE . . . . . . . . . . 5:00 p.m., New York City time, on
__________, 1996 unless the Exchange
Offer is extended, in which case the term
"Expiration Date" means the latest date
and time to which the Exchange Offer is
extended. See "The Exchange
Offer--Expiration Date; Extensions;
Amendments."
CONDITIONS TO THE EXCHANGE
OFFER . . . . . . . . . . . . . . The Exchange Offer is subject to certain
customary conditions which may be waived
by the Company. See "The Exchange
Offer--Conditions."
No federal or state regulatory
requirements must be complied with or
approvals obtained in connection with the
Exchange Offer, other than the
registration provisions of the Securities
Act and any applicable registration or
qualification provisions of state
securities laws.
PROCEDURE FOR TENDERING OLD
NOTES . . . . . . . . . . . . . . Each holder of Series A Notes wishing to
accept the Exchange Offer must complete,
sign and date the Letter of Transmittal,
or a facsimile thereof, in accordance
with the instructions contained herein
and therein, and mail or otherwise
deliver such Letter of Transmittal, or
such facsimile, together with the Series
A Notes to
8
<PAGE> 10
be exchanged and any other required
documentation, to the Exchange Agent (as
defined herein) at the address set forth
herein and therein. Series A Notes may
be physically delivered but physical
delivery is not required if a
confirmation of a book-entry of such
Series A Notes to the Exchange Agent's
account at The Depository Trust Company
("DTC" or the "Depository") is delivered
in a timely fashion. By executing the
Letter of Transmittal, each holder will
represent to the Company that, among
other things, the Series B Notes acquired
pursuant to the Exchange Offer are being
obtained in the ordinary course of
business of the person receiving such
Series B Notes, whether or not such
person is the holder, that neither the
holder nor any such other person is
engaged in, or intends to engage in, or
has an arrangement or understanding with
any person to participate in, the
distribution of such Series B Notes and
that neither the holder nor any such
other person is an "affiliate," as
defined under Rule 405 of the Securities
Act, of the Company or any Guarantor.
Each broker or dealer that receives
Series B Notes for its own account in
exchange for Series A Notes, where such
Series A Notes were acquired by such
broker or dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with
any resale of such Series B Notes. See
"The Exchange Offer-- Procedures for
Tendering" and "Plan of Distribution."
See "The Exchange Offer--Procedure for
Tendering" and "Plan of Distribution."
SPECIAL PROCEDURES FOR
BENEFICIAL HOLDERS . . . . . . . Any beneficial holder whose Series A
Notes are registered in the name of his
broker, dealer, commercial bank, trust
company or other nominee and who wishes
to tender in the Exchange Offer should
contact such registered holder promptly
and instruct such registered holder to
tender on his behalf. If such beneficial
holder wishes to tender on his own
behalf, such beneficial holder must,
prior to completing and executing the
Letter of Transmittal and delivering his
Series A Notes, either make appropriate
arrangements to register ownership of the
Series A Notes in such holder's name or
obtain a properly completed bond power
from the registered holder. The transfer
of record ownership may take considerable
time. See "The Exchange Offer--Procedure
for Tendering."
GUARANTEED DELIVERY
PROCEDURES . . . . . . . . . . . Holders of Series A Notes who wish to
tender their Series A Notes and whose
Series A Notes are not immediately
available or who cannot deliver their
Series A Notes and a properly completed
Letter of Transmittal or any other
documents required by the Letter of
Transmittal to the Exchange Agent prior
to the Expiration Date, as the case may
be, may tender their Series A Notes
according to the guaranteed delivery
procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
9
<PAGE> 11
WITHDRAWAL RIGHTS . . . . . . . . . Tenders of Series A Notes may be
withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration
Date. See "The Exchange
Offer--Withdrawal of Tenders."
ACCEPTANCE OF SERIES A NOTES AND
DELIVERY OF SERIES B NOTES . . . The Company will accept for exchange any
and all Series A Notes which are validly
tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the
Expiration Date. The Series B Notes
issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
CERTAIN TAX CONSIDERATIONS . . . . The exchange pursuant to the Exchange
Offer will generally not be a taxable
event for federal income tax purposes.
See "Federal Income Tax Consequences."
EXCHANGE AGENT . . . . . . . . . . United States Trust Company of Texas,
N.A., the Trustee under the Indenture, is
serving as exchange agent (the "Exchange
Agent") in connection with the Exchange
Offer.
DESCRIPTION OF SERIES B NOTES
SECURITIES OFFERED . . . . . . . . $200,000,000 aggregate principal amount
of 9-5/8% Series B Senior Subordinated
Notes due 2008.
MATURITY DATE . . . . . . . . . . . August 1, 2008.
OPTIONAL REDEMPTION . . . . . . . . Interest on the Series B Notes will
accrue at the rate of 9-5/8% per annum
payable semi-annually in arrears on
February 1 and August 1 of each year,
commencing February 1, 1997.
OPTIONAL REDEMPTION . . . . . . . . The Series B Notes will be redeemable at
the option of the Company, in whole or in
part, at any time on or after August 1,
2001, at the redemption prices set forth
herein, plus accrued and unpaid interest,
if any, to the date of redemption. In
addition, on or before August 1, 1999,
the Company may redeem up to 35% of the
original aggregate principal amount of
the Series B Notes at a redemption price
of 110% of the principal amount thereof,
plus accrued and unpaid interest, if any,
to the date of redemption, with the net
proceeds of one or more Equity Offerings
(as defined herein); provided, however,
that at least 65% of the original
aggregate principal amount of the Series
B Notes remain outstanding following each
such redemption. See "Description of
Series B Notes--Optional Redemption."
CHANGE OF CONTROL OFFER . . . . . . Upon the occurrence of a Change of
Control (as defined herein), the Company
will be required to make an offer to
repurchase the
10
<PAGE> 12
Series B Notes at a price equal to 101%
of the principal amount thereof, plus
accrued and unpaid interest, if any, to
the date of repurchase. See "Description
of Series B Notes--Repurchase at the
Option of Holders--Change of Control."
RANKING . . . . . . . . . . . . . . The Series B Notes will be general
unsecured obligations of the Company,
subordinated in right of payment to all
existing and future Senior Indebtedness
of the Company, including all obligations
of the Company under the Credit Facility.
As of August 31, 1996, the Company had
outstanding $18.2 million of Senior
Indebtedness. The Series B Notes will be
effectively subordinated to the
indebtedness of the Company's
subsidiaries ($22.4 million at August 31,
1996). See "Description of Series B
Notes--Subordination."
CERTAIN COVENANTS . . . . . . . . . The Indenture pursuant to which the
Series B Notes will be issued (the
"Indenture") contains certain covenants
that, among other things, limit the
ability of the Company and its Restricted
Subsidiaries to incur additional
Indebtedness, pay dividends or make other
distributions, repurchase any capital
stock or subordinated Indebtedness, make
certain investments, create certain
liens, enter into certain transactions
with affiliates, sell assets or enter
into certain mergers and consolidations.
In addition, the Indenture contains a
covenant limiting the lines of business
of certain Unrestricted Subsidiaries.
See "Description of Series B
Notes--Certain Covenants."
USE OF PROCEEDS . . . . . . . . . . There will be no proceeds to the Company
from any exchange pursuant to the
Exchange Offer.
RISK FACTORS
For a discussion of certain factors that should be considered before
exchanging Series A Notes for Series B Notes in the Exchange Offer, see "Risk
Factors."
11
<PAGE> 13
SUMMARY FINANCIAL AND OPERATING DATA
The following tables set forth selected consolidated financial data for
the Company for the periods and at the dates indicated for each of the five
most recent fiscal years ended December 31, 1995, for the twelve months ended
June 30, 1996 and for the six months ended June 30, 1995 and 1996.
Supplemental financial data for the Restricted Group are derived from
supplemental schedules to the Consolidated Financial Statements, appearing
elsewhere in this Prospectus. The financial data for the twelve months ended
June 30, 1996 and for the six months ended June 30, 1995 and 1996 are derived
from the unaudited financial statements of the Company. The Company believes
the financial data for the twelve months ended June 30, 1996 and for the six
months ended June 30, 1995 and 1996 reflect all adjustments (which include only
normal recurring adjustments) necessary for a fair presentation of such data.
Operating results for the twelve months ended June 30, 1996 and for the six
months ended June 30, 1995 and 1996 are not necessarily indicative of results
for the full fiscal year. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements, including the
notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
TWELVE ENDED
YEAR ENDED DECEMBER 31, MONTHS ENDED JUNE 30,
------------------------------------------------- JUNE 30, ---------------
1991 1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ---- ----
(In thousands, except theatre, screen and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (CONSOLIDATED):
Revenues . . . . . . . . . . . . . . . . . $164,425 194,652 $239,659 $ 283,077 $ 298,559 $ 320,649 $136,214 $158,304
Theatre operating costs . . . . . . . . . 132,523 154,825 185,100 218,748 227,719 242,655 105,343 120,280
General and administrative expenses . . . 7,993 10,119 12,162 17,095 19,555 21,814 9,141 11,400
Depreciation and amortization . . . . . . 9,817 9,830 10,939 15,121 15,925 17,491 7,105 8,672
Operating income . . . . . . . . . . . . . 14,092 19,878 31,458 32,113 35,361 38,688 14,625 17,953
Interest expense(1) . . . . . . . . . . . 7,653 12,258 17,102 18,917 19,374 18,825 10,315 9,767
Income before extraordinary items . . . . 4,770 5,726 9,720 7,006 13,155 17,681 2,638 7,164
Net income . . . . . . . . . . . . . . . . 3,701 5,829 9,720 7,006 13,155 17,346 2,638 6,829
OTHER FINANCIAL DATA (CONSOLIDATED):
Cash flow from operations . . . . . . . . $ 17,982 $23,376 $ 27,181 $ 32,665 $ 36,090 $ 50,507 $ 8,046 $ 22,463
Theatre level cash flow(2) . . . . . . . . 31,902 39,827 54,559 64,329 70,840 77,993 30,870 38,024
EBITDA(3) . . . . . . . . . . . . . . . . 25,977 32,117 45,808 50,851 55,708 59,951 24,014 28,258
Ratio of earnings to fixed charges(4) . . 1.46x 1.43x 1.61x 1.46x 1.69x 1.86x 1.32x 1.68x
Pro forma ratio of earnings to
fixed charges(5) . . . . . . . . . . . . 1.63x 1.85x 1.64x
SUPPLEMENTAL FINANCIAL DATA
(RESTRICTED GROUP):(6)
EBITDA(3) . . . . . . . . . . . . . . . . $ 25,977 $32,089 $ 45,433 $ 49,408 $ 54,319 $ 58,208 $ 23,622 $ 27,511
Pro forma interest expense(7) . . . . . . 19,799 19,623 9,812
Ratio of EBITDA to pro forma
interest expense . . . . . . . . . . . . 2.74x 2.97x 2.80x
Pro forma long-term debt, including
current maturities (at period end)(8) . 200,530 200,530
Ratio of pro forma long term debt
to EBITDA (at period end)(8) . . . . . . 3.45x
OPERATING DATA:
United States (Restricted Group)
Theatres owned (at period end)(9) . . . 136 147 153 154 150 153 156 153
Screens owned (at period end)(9) . . . 915 1,010 1,084 1,121 1,155 1,212 1,141 1,212
Total attendance (in thousands) . . . . 45,372 51,087 59,632 63,401 61,006 63,025 28,237 30,256
Outside United States (Unrestricted Group)
Theatres owned (at period end)(10) . . - - - 4 9 11 5 11
Screens owned (at period end)(10) . . . - - - 42 92 114 54 114
Total attendance (in thousands) . . . - - - 1,407 4,210 6,359 1,520 3,669
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
-------------------------------------------------- -------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED(11)
---- ---- ---- ---- ---- ------ -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (CONSOLIDATED):
Cash and temporary cash investments . . . $ 3,885 $29,368 $ 44,454 $ 31,056 $ 13,925 $ 7,122 $ 8,042
Theatre properties and equipment-net . . . 77,274 93,952 117,017 155,798 224,482 287,563 287,563
Total assets . . . . . . . . . . . . . . . 99,321 147,661 189,361 217,185 267,747 326,106 330,477
Total long-term debt, including
current portion . . . . . . . . . . . 78,403 130,662 152,787 167,374 198,145 202,760 221,906
Shareholders' equity (deficiency) . . . . 1,933 (11,094) (760) 2,732 11,345 58,079 49,045
</TABLE>
12
<PAGE> 14
- ---------------
(1) Includes amortization of debt issue cost and debt discount.
(2) Revenues less theatre operating costs (which is not a measure of
financial performance under generally accepted accounting principles)
("GAAP"). Theatre level cash flow is a financial measure commonly used
in the Company's industry and should not be construed as an alternative
to cash flow from operations (as determined in accordance with GAAP) as
an indicator of operating performance or as a measure of liquidity.
(3) Represents net income before depreciation and amortization, interest
expense, changes in deferred lease expense, accrued and unpaid
compensation expense relating to any stock appreciation and stock
option plans, equity in income (loss) of affiliates, gain (loss) on
sale of assets, minority interests, provision for income taxes and
extraordinary items. EBITDA is a financial measure commonly used in
the Company's industry and should not be construed as an alternative to
cash flows from operating activities (as determined in accordance with
GAAP), as an indicator of operating performance or as a measure of
liquidity.
(4) For the purpose of calculating the ratio of earnings to fixed charges,
(i) earnings consist of income (loss) before income taxes and
extraordinary items plus fixed charges excluding capitalized interest
and (ii) fixed charges consist of interest expense, capitalized
interest, amortization of debt issue cost and debt discount and the
portion of rental expense which is deemed to be representative of the
interest factor.
(5) Gives effect to the Repurchase Offer and the Series A Notes Offering as
of the beginning of the period. See "Capitalization."
(6) The restrictive covenants in the Indenture apply only to the Restricted
Group and supplemental financial data represents data pertaining to the
Restricted Group only. See supplemental schedules to the Consolidated
Financial Statements, including the notes thereto, appearing elsewhere
in this Prospectus.
(7) Calculated based on debt outstanding at the end of the period for the
subsequent four quarter period. Gives effect to the Repurchase Offer
and the Series A Notes Offering as if both had occurred at the end of
such period and does not include amortization of debt issue cost for
the Series A Notes.
(8) Gives effect to the Repurchase Offer and the Series A Notes Offering as
if both had occurred at the end of such period. See "Capitalization."
(9) The data as of period end 1991, 1992, 1993, 1994 (and June 1995), 1995
(and June 1996) exclude two theatres (20 screens), two theatres (23
screens), two theatres (23 screens), three theatres (33 screens) and
four theatres (54 screens), respectively, operated by the Company
pursuant to management agreements.
(10) The data as of period end 1993, 1994 (and June 1995), 1995 and June
1996 exclude two theatres (18 screens), two theatres (18 screens),
three theatres (25 screens), three theatres (25 screens) and four
theatres (37 screens), respectively, operated through affiliates of
the Company in Canada and Chile.
(11) Gives effect to the Repurchase Offer and the Series A Notes Offering.
See "Capitalization."
13
<PAGE> 15
RISK FACTORS
Holders of Series A Notes should carefully consider the specific risk
factors set forth below as well as the other information contained in this
Prospectus before deciding to tender their Series A Notes in the Exchange
Offer.
DEPENDENCE UPON MOTION PICTURE PRODUCTION AND PERFORMANCE
The Company's business is dependent both upon the availability of suitable
motion pictures for exhibition in its theatres and the performance of such
films in the Company's markets. Poor performance of films or disruption in the
production of motion pictures by the major studios and/or independent producers
could have a material adverse effect on the Company's business. Since the major
film distributors have historically released those films which they anticipate
will be the most successful during the summer and holiday seasons, poor
performance of such films or disruption in the release of films during such
periods could adversely affect the Company's results for a particular quarter.
SUBSTANTIAL INDEBTEDNESS
As of August 31, 1996, the Company had total outstanding indebtedness of
$240.6 million. The Company's leveraged financial position poses substantial
risks to holders of the Series B Notes, including the risks that: (i) a
substantial portion of the Company's cash flow from operations will be
dedicated to the payment of interest on the Series B Notes and the payment of
principal of and interest on borrowings under the Credit Facility and other
indebtedness; (ii) the Company's ability to obtain financing in the future for
working capital, capital expenditures and general corporate purposes may be
impeded; and (iii) the Company may be more vulnerable to economic downturns
which may limit its ability to withstand competitive pressures. The Company
believes that, based on its current level of operations, it will have
sufficient liquidity and access to capital to carry on its business and will be
able to meet its scheduled debt service requirements. However, there can be no
assurance that the future cash flow of the Company will be sufficient to meet
the Company's obligations and commitments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Description of Series B Notes," and "Description of
Certain Debt Instruments."
SUBORDINATION OF SERIES B NOTES
The Series B Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company, including obligations under the Credit Facility. As of August
31, 1996, the Company had outstanding Senior Indebtedness of $18.2 million.
Subject to certain limitations, the Indenture permits the Company to incur
additional indebtedness, including Senior Indebtedness. See "Description of
Series B Notes -- Certain Covenants -- Limitation on Indebtedness." In
addition, the Series B Notes will be effectively subordinated to indebtedness
of the Company's subsidiaries ($22.4 million as of August 31, 1996). The
indebtedness under the Credit Facility will also become due prior to the time
the principal obligations under the Series B Notes become due. As a result of
the subordination provisions contained in the Indenture, in the event of a
liquidation or insolvency of the Company, the assets of the Company will be
available to pay obligations on the Series B Notes only after all Senior
Indebtedness has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Series B Notes then
outstanding. In addition, substantially all of the assets of the Company and
its subsidiaries may in the future be pledged to secure other indebtedness of
the Company. See "Description of Series B Notes" and "Description of Certain
Debt Instruments."
14
<PAGE> 16
SUBSTANTIAL CAPITAL EXPENDITURES; UNCERTAINTIES RELATING TO FUTURE EXPANSION
PLANS
The Company plans to open a total of approximately 390 screens in the U.S.
in 1996 and 1997. From January 1, 1996 to June 30, 1996, the Company has opened
four theatres (60 screens) and has fifteen theatres (191 screens) under
construction. In addition, as of June 30, 1996, the Company has approximately
ten theatres (139 screens) scheduled to begin construction during the remainder
of 1996 or in 1997. The Company estimates that capital expenditures in
connection with the development of these 390 screens in 1996 and 1997 will be
approximately $110 million and $70 million, respectively. As of June 30, 1996,
the Company had expended approximately $50 million toward the development of
these screens. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." These planned
capital expenditures are equal to or in excess of capital expenditures by the
Company over the last several years and there can be no assurance that the
financial performance of these screens will be equivalent to the performance of
the Company's existing screens.
The Company intends to pursue a strategy of expansion that will involve the
development of new theatres, both domestically and in international markets,
certain of which may be larger and more costly than those developed by the
Company to date. In addition, the Company's strategy of expansion may involve
acquisitions of existing theatres and theatre circuits. There is significant
competition for potential site locations and existing theatre and theatre
circuit acquisition opportunities. As a result of such competition, the Company
may be unable to acquire attractive site locations or existing theatres or
theatre circuits on terms the Company considers acceptable. Furthermore, the
Company can make no assurances that it will be able to successfully develop or
acquire suitable theatres in the future, that such theatres will be successful
or that the Company's expansion strategy will result in improvements to the
business, financial condition or profitability of the Company.
INTERNATIONAL OPERATIONS
All of the Company's operations outside of the U.S. and future expansion
outside of the U.S. and Canada will be conducted through Cinemark
International, an Unrestricted Subsidiary under the Indenture. As of June 30,
1996, the Company, through Cinemark Mexico (USA), Inc. ("Cinemark Mexico"), a
subsidiary of Cinemark International, operated eleven theatres (114 screens) in
Mexico. Additionally, the Company operates and owns a 50% interest in two
theatres (13 screens) in Chile. The Company continues to investigate
opportunities in these and other international markets. Governmental
regulation of the motion picture industry in international markets differs
significantly from regulation in the U.S. The Company's international
operations are subject to certain political, economic and other uncertainties
not encountered in domestic operations. The Company's international operations
also face the additional risks of fluctuating currency values, hard currency
shortages and controls of foreign currency exchange. Cinemark Mexico had net
operating losses during fiscal years 1994 and 1995 due principally to costs
associated with the development of new multiplex theatres, interest costs
relating to its debt obligations and the devaluation of the Mexican currency.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Company, through Cinemark
International, plans to invest up to $40 million in international ventures,
principally in Latin America, over the next two to three years. The Company
anticipates that investments in excess of Cinemark International's available
cash will be funded by the Company, subject to the restrictive covenants in the
Indenture, or by debt or equity financing to be provided by third parties
directly to Cinemark International or its subsidiaries. Indebtedness incurred
by Unrestricted Subsidiaries is not subject to the terms of the Indenture. See
"Description of Series B Notes."
In July 1996, Cinemark Mexico reached a non-binding agreement in principle
with the institutional holder of $22.0 million of its $22.4 million principal
amount 12% Senior Subordinated Notes due 2003 (the
15
<PAGE> 17
"Cinemark Mexico Notes") pursuant to which Cinemark Mexico and such holder
agreed to the exchange of all Cinemark Mexico Notes owned by such holder, and
accrued unpaid interest from February 1, 1996 to the date of such exchange, for
a new series of notes (the "New Mexico Notes").
As a result of the agreement in principle, Cinemark Mexico did not make the
approximately $1.3 million cash interest payment on the Cinemark Mexico Notes
otherwise due on August 1, 1996. The Company and the majority holder of the
Cinemark Mexico Notes are currently negotiating definitive documentation to
effectuate the terms of the non-binding agreement in principle. However, there
can be no assurance that any such documentation will be successfully
negotiated, approved or executed. In such event, and if Cinemark Mexico fails
to make the interest payment, an event of default under the Cinemark Mexico
Indenture (as defined herein) could result, which event of default would have a
material adverse effect on Cinemark Mexico if the maturity of the Cinemark
Mexico Notes is accelerated. Because Cinemark Mexico is an Unrestricted
Subsidiary, acceleration of the Cinemark Mexico Notes would not be an event of
default under the Indenture, the Credit Facility or any other of the Company's
existing debt instruments. See "Description of Certain Debt Instruments --
Cinemark Mexico Indenture."
RESTRICTIONS IMPOSED BY THE CREDIT FACILITY
The Credit Facility requires the Company to maintain specified financial
ratios and tests, including a Debt Service Coverage Ratio and a Total Debt to
Cash Flow Ratio, each as defined in the Credit Facility. In addition, the
Credit Facility restricts, among other things, the Company's ability to incur
additional indebtedness, make asset dispositions, create or incur liens on any
of the Company's assets, make certain payments and dividends or merge or
consolidate. A failure to comply with the restrictions contained in the Credit
Facility could lead to an event of default thereunder, which could result in an
acceleration of such indebtedness. There can be no assurance that the Company
would have sufficient resources or have access to sufficient resources to pay
its obligations under the Credit Facility if such indebtedness is accelerated.
See "Description of Certain Debt Instruments -- Credit Facility."
COMPETITION
The motion picture business is highly competitive. The Company competes
against both local and national exhibitors. Some of the Company's competitors
have substantially greater financial resources than the Company. The Company's
theatres also face competition from a number of alternative downstream
distribution channels, such as home video and network, syndicated and
pay-per-view television. The Company is also subject to competition from other
forms of entertainment competing for the public's leisure time and disposable
income. See "Business -- Competition."
EFFECTIVE CONTROL BY PRINCIPAL SHAREHOLDERS
As of June 30, 1996, the Company's Chief Executive Officer, Lee Roy
Mitchell and his affiliates beneficially owned an aggregate of 53.1% and
Cypress beneficially owned an aggregate of 46.1% of the outstanding shares of
common stock of the Company. Mr. Mitchell beneficially owns all of the voting
common stock of the Company and has the voting power to elect the entire Board
of Directors, subject to the ability of Cypress Advisors L.P. ("CALP") to
designate a specified number of Board members. Additionally, if such
shareholders were to vote all of their shares in a similar manner, they would
have sufficient voting power to determine the outcome of any corporate
transaction or other matter submitted to the shareholders for approval. See
"Principal Shareholders" and "Certain Transactions -- Cypress Investment."
16
<PAGE> 18
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend, in large part, on the efforts, abilities
and experience of its executive officers and other key employees of the
Company. The loss of the services of such individuals could have a material
adverse effect on the Company's business. See "Management."
REPURCHASE OF SERIES B NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer to repurchase the Series B Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase. Certain events involving a Change of Control will result in an
event of default under the Credit Facility and may result in an event of
default under other indebtedness of the Company that may be incurred in the
future. An event of default under the Credit Facility or other future Senior
Indebtedness could result in an acceleration of such indebtedness, in which
case the subordination provisions of the Series B Notes would require payment
in full of such Senior Indebtedness before repurchase of the Series B Notes.
See "Description of Series B Notes -- Repurchase at the Option of Holders --
Change of Control," "-- Subordination" and "Description of Certain Debt
Instruments -- Credit Facility." There can be no assurance that the Company
would have sufficient resources to repurchase the Series B Notes or pay its
obligations if the indebtedness under the Credit Facility or other future
Senior Indebtedness were accelerated upon the occurrence of a Change of
Control. The inability to repay Senior Indebtedness of the Company, if
accelerated, and to repurchase all of the tendered Series B Notes would
constitute an event of default under the Indenture. These provisions may be
deemed to have anti-takeover effects and may delay, defer or prevent a merger,
tender offer or other takeover attempt. No assurance can be given that the
terms of any future indebtedness will not contain cross default provisions
based upon Change of Control or other defaults under such debt instruments.
LACK OF PUBLIC MARKET
The Series B Notes are a new issue of securities for which there is
currently no trading market. The Company does not currently intend to list the
Series B Notes on any securities exchange or to seek approval for quotation
through the automated quotation system. There can be no assurance that an
active trading market for the Series B Notes will exist. If a market were to
exist, the Series B Notes could trade at prices that may be lower than the
initial offering price of the Series A Notes depending on many factors,
including prevailing interest rates and the markets for similar securities,
general economic conditions and the financial condition and performance of, and
prospects for, the Company. See "Description of Series B Notes -- Exchange
Offer; Registration Rights."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Series A Notes who do not exchange their Series A Notes for
Series B Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Series A Notes as set forth in the legend
thereon as a consequence of the issuance of the Series A Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Series A Notes
under the Securities Act. Series B Notes issued pursuant to the Exchange Offer
in exchange for Series A Notes may be offered for resale, resold or otherwise
transferred by Holders thereof (other than any such holder which is an
"affiliate" of the Company or any Guarantor within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such Series
B Notes are acquired in the ordinary course of such holders' business and such
holders have no
17
<PAGE> 19
arrangement with any person to participate in the distribution of such Notes.
Each broker-dealer that receives Series B Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Series B Notes. The Letter of Transmittal
states that, by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Series B Notes received in exchange for Series A Notes where
such Series A Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of twelve months after the effective date of this
Prospectus, it will make this Prospectus available to any broker-dealer for use
in connection with any such resale. See "Plan of Distribution." However, to
comply with the securities laws of certain jurisdictions, if applicable, the
Series B Notes may not be offered or sold unless they have been registered or
qualified for sale in such jurisdictions or an exemption from registration or
qualification is available and is complied with. To the extent that Series A
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Series A Notes will be adversely
affected.
18
<PAGE> 20
THE EXCHANGE OFFER
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The Series A Notes were sold by the Company on August 15, 1996 to initial
purchasers (the "Initial Purchasers"), who resold the Series A Notes to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) and other institutional "accredited investors" (as defined in Rule 501(a)
under the Securities Act). In connection with the sale of the Series A Notes,
the Company and the Initial Purchasers entered into the Registration Rights
Agreement pursuant to which the Company agreed to use its best efforts to file
with the Commission a registration statement (the "Exchange Offer Registration
Statement") with respect to an offer to exchange the Series A Notes for Series
B Notes within 30 days following the issuance of the Series A Notes. In
addition, the Company agreed to use its best efforts to cause the Exchange
Offer Registration Statement to become effective under the Securities Act and
to issue the Series B Notes pursuant to the Exchange Offer. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Exchange
Offer Registration Statement. See "Description of Notes--Exchange Offer;
Registration Rights."
This Exchange Offer is being made pursuant to the Registration Rights
Agreement to satisfy the Company's obligations thereunder. The term "holder,"
with respect to the Exchange Offer, means any person in whose name Series A
Notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Series A Notes are held of record by the Depository Trust Company.
The Company is generally not required to file any registration statement to
register any outstanding Series A Notes. Holders of Series A Notes who do not
tender their Series A Notes or whose Series A Notes are tendered but not
accepted would have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act, if they wish to sell their
Series A Notes.
Based on an interpretation by the staff of the Commission, the Company
believes that Series B Notes issued pursuant to the Exchange Offer in exchange
for Series A Notes may be offered for resale, resold and otherwise transferred
by the holders thereof (other than a Restricted Holder) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such Series B Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution of such Series B Notes. See "Mary Kay
Cosmetics, Inc.," SEC No-Action Letter (available June 5, 1991); "Morgan
Stanley & Co., Incorporated," SEC No-Action Letter (available June 5, 1991);
and "Exxon Capital Holdings Corporation," SEC No-Action Letter (available May
13, 1988). Any broker dealer who holds Series A Notes acquired for its own
account as a result of market-making or other trading activities, and who
receives Series B Notes in the exchange for such Series A Notes pursuant to the
Exchange Offer, may be a statutory underwriter and must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
Series B Notes, which prospectus may be the prospectus for the Exchange Offer
so long as it contains a plan of distribution with respect to such resale
transactions. See "Shearman & Sterling," No-Action Letter (available July 2,
1993).
If any person were to participate in the Exchange Offer for the purpose of
distributing securities in a manner not permitted by the Commission's
interpretation, such person (i) could not rely on the position of the staff of
the Commission enunciated in "Exxon Capital Holdings Corporation" or similar
interpretive letters and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. Accordingly, each eligible holder wishing to accept the
Exchange Offer must represent to the Company in the Letter of Transmittal that
the conditions described above have been met.
19
<PAGE> 21
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, holders of Series A Notes in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or Blue Sky laws of such jurisdiction. Prior to the
Exchange Offer, however, the Company will use its best efforts to register or
qualify the Series B Notes for offer and sale under the securities or Blue Sky
laws of such jurisdictions as is necessary to permit consummation of the
Exchange Offer and do any and all other acts or things necessary or advisable
to enable the offer and sale in such jurisdiction of the Series B Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all
Series A Notes validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date. The exchange of Series B Notes for Series A Notes will be
made with respect to all Series A Notes validly tendered and not withdrawn on
or prior to the Expiration Date, within two business days following the
Expiration Date. The Series B Notes issued pursuant to the Exchange Offer will
be delivered promptly following the Expiration Date. The Company will issue
$1,000 principal amount of Series B Notes in exchange for each $1,000 principal
amount of outstanding Series A Notes accepted in the Exchange Offer. Holders
may tender some or all of their Series A Notes pursuant to the Exchange Offer
in denominations of $1,000 and integral multiples of $1,000 in excess thereof.
The form and terms of the Series B Notes will be the same in all material
respects as the form and terms of the Series A Notes, except that the Series B
Notes will be registered under the Securities Act and hence will not bear
legends restricting the transfer thereof.
HOLDERS OF SERIES A NOTES DO NOT HAVE ANY APPRAISAL OR DISSENTERS' RIGHTS
UNDER THE TEXAS BUSINESS CORPORATIONS ACT OR THE INDENTURE IN CONNECTION WITH
THE EXCHANGE OFFER. THE COMPANY INTENDS TO CONDUCT THE EXCHANGE OFFER IN
ACCORDANCE WITH THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT. SERIES A
NOTES WHICH ARE NOT TENDERED FOR EXCHANGE OR ARE TENDERED BUT NOT ACCEPTED IN
THE EXCHANGE OFFER WILL REMAIN OUTSTANDING AND BE ENTITLED TO THE BENEFITS OF
THE INDENTURE, BUT WILL NOT BE ENTITLED TO ANY REGISTRATION RIGHTS UNDER THE
REGISTRATION RIGHTS AGREEMENT.
The Company shall be deemed to have accepted validly tendered Series A
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Series A Notes for the purpose of receiving Series B Notes from the
Company and delivering Series B Notes to such holders.
If any tendered Series A Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Series A Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
The registration expenses to be incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and accounting and
legal fees, will be paid by the Company. The Company has agreed to pay,
subject to the instructions in the Letter of Transmittal, all transfer taxes,
if any, relating to the sale or disposition of such holder's Series A Notes
pursuant to the Exchange Offer. See "--Fees and Expenses."
20
<PAGE> 22
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City time, on
___________, 1996, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended. The Company will notify the
Exchange Agent of any extension by oral or written notice and will make a
public announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date.
The Company reserves the right (i) to delay accepting for exchange any
Series A Notes for Series B Notes, to extend the Exchange Offer or terminate
the Exchange Offer and to refuse to accept for exchange Series A Notes for
Series B Notes, if any of the conditions set forth herein under "--Conditions"
shall have occurred and shall not have been waived by the Company, by giving
oral or written notice of such delay, extension or termination to the Exchange
Agent, and (ii) to amend the terms of the Exchange Offer in any manner. Any
such delay in acceptance, extension, termination or amendment will be followed
as promptly as practicable by public announcements. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the Series A Notes of such amendment, and
the Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the amendment and the manner of
disclosure to the holders of the Series B Notes, if the Exchange Offer would
otherwise expire during such five to ten business day period. The rights
reserved by the Company in this paragraph are in addition to the Company's
rights set forth below under the caption "Conditions."
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the Exchange Offer, the Company shall have no obligation to publish,
advertise, or otherwise communicate any such public announcement, other than by
making a timely release to a financial news service.
PROCEDURE FOR TENDERING
Only a holder of Series A Notes may tender such Series A Notes in the
Exchange Offer. The term "holder" with respect to the Exchange Offer means any
person in whose name Series A Notes are registered on the books of the Company
or any other person who has obtained a properly completed bond power from the
registered holder. To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, or a facsimile thereof, have the
signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile,
together with the Series A Notes (unless such tender is being effected pursuant
to the procedure for book-entry transfer described below) and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. Signatures on a Letter of Transmittal or a
notice of withdrawal, as the case may be, must be guaranteed by a member firm
of a registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States or by any other "Eligible Guarantor
Institution" as such term is defined in Rule 17Ad-15(a)(2) of the Exchange Act
(each an "Eligible Institution") unless the Series A Notes tendered pursuant
thereto are tendered (i) by a registered holder who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (ii) for the account of an Eligible Institution.
Any financial institution that is a participant in the Depository's
Book-Entry Transfer Facility system may make book-entry delivery of the Series
A Notes by the Depository to transfer such Series A Notes into the Exchange
Agent's account in accordance with the Depository's procedure for such
transfer. Although delivery
21
<PAGE> 23
of Series A Notes may be effected through book-entry transfer into the Exchange
Agent's account at the Depository, the Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received or confirmed by
the Exchange Agent at its address set forth in "Exchange Agent" below prior to
5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS
TO THE DEPOSITORY IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of Series A Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF SERIES A NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR SERIES A NOTES SHOULD BE SENT TO
THE COMPANY. HOLDERS MAY ALSO REQUEST THAT THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES EFFECT SUCH TENDER FOR SUCH
HOLDERS.
If the Letter of Transmittal or any Series A Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of a corporation or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
the Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Series A Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Series A Notes not properly tendered or any Series A Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the absolute right to waive any
irregularities or conditions of tender as to particular Series A Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Series A Notes must be cured within such time as the
Company shall determine. Although the Company intends to request the Exchange
Agent to notify the holders of defects or irregularities with respect to
tenders of Series A Notes, neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Series A Notes nor shall any of them
incur any liability for failure to give such notification. Tenders of Series A
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Series A Notes received by the Exchange Agent that are
not validly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the Exchange Agent without cost to the
tendering holder unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
By tendering, each holder will represent to the Company that, among other
things (i) it is not an affiliate of the Company, (ii) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the Series B Notes to be issued
in the Exchange Offer and (iii) it is acquiring the Series B Notes in its
ordinary course of business. If the holder is a broker-dealer that will
receive Series B Notes for its own account in exchange for Series A Notes that
22
<PAGE> 24
were acquired as a result of market-making activities or other trading
activities, such holder by tendering will acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Notes.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Series A Notes and (i) whose Series A
Notes are not immediately available, or (ii) who cannot deliver their Series A
Notes, the Letter of Transmittal or any other required documents to the
Exchange Agent, or cannot complete the procedure for book-entry transfer prior
to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Series A Notes,
the certificate number or numbers of such Series A Notes (if available)
and the principal amount of Series A Notes tendered, together with a
duly executed Letter of Transmittal (or facsimile thereof), stating
that the tender is being made thereby and guaranteeing that, within
three business days after the Expiration Date, the certificate(s)
representing the Series A Notes to be tendered in proper form for
transfer (or a confirmation of a book-entry transfer into the Exchange
Agent's account at the Depository of Series A Notes delivered
electronically and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Series A Notes in proper form for transfer (or a confirmation
of a book-entry transfer into the Exchange Agent's account at the
Depository of Series A Notes delivered electronically) and all other
documents required by the Letter of Transmittal are received by the
Exchange Agent within five business days after the date of execution
of the Notice of Guaranteed Delivery.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Series A Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date, unless previously accepted for exchange.
To withdraw a tender of Series A Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date and prior to acceptance for exchange thereof by the
Company. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Series A Notes to be withdrawn (the "Depositor"), (ii)
identify the Series A Notes to be withdrawn (including the certificate number
or numbers and principal amount of such Series A Notes), (iii) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Series A Notes were tendered (including required
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Trustee with respect to the Series A Notes to register the transfer
of such Series A Notes into the name of the Depositor withdrawing the tender
and (iv) specify the name in which any such Series A Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such withdrawal
notices will be determined by the Company, whose
23
<PAGE> 25
determination shall be final and binding on all parties. Any Series A Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Series B Notes will be issued with respect thereto unless
the Series A Notes so withdrawn are validly re-tendered. Any Series A Notes
which have been tendered but which are not accepted for exchange will be
returned by the Exchange Agent to the holder thereof without cost to such
holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Series A Notes may be
retendered by following one of the procedures described above under
"--Procedure for Tendering" at any time prior to the Expiration Date.
CONDITIONS
In addition, and notwithstanding any other term of the Exchange Offer, the
Company will not be required to accept for exchange any Series A Notes for
Series B Notes tendered and may terminate or amend the Exchange Offer as
provided herein before the acceptance of such Series A Notes, if any of the
following conditions exist:
(i) there shall have been instituted, threatened or be pending any
action or proceeding before or by any court, governmental, regulatory or
administrative agency or instrumentality, or by any other person, in
connection with the Exchange Offer that is, or is reasonably likely to be,
or which would or might be, in the sole judgment of the Company, materially
adverse to the business, operations, properties, condition (financial or
otherwise), assets, liabilities or prospects of the Company and its
subsidiaries, taken as a whole, or which would or might, in the sole
judgment of the Company, prohibit, prevent, restrict or delay consummation
of the Exchange Offer or have a material adverse effect on the contemplated
benefits of the Exchange Offer to the Company; or
(ii) there shall have occurred any material adverse development, in
the sole judgment of the Company, with respect to any action or proceeding
concerning the Company and its subsidiaries, taken as a whole; or
(iii) there exists an order, statute, rule, regulation, executive
order, stay, decree, judgment or injunction that shall have been proposed,
enacted, entered, issued, promulgated, enforced or deemed applicable by any
court or governmental, regulatory or administrative agency or
instrumentality that, in the sole judgment of the Company, would or might
prohibit, prevent, restrict or delay consummation of the Exchange Offer, or
that is, or is reasonably likely to be, in the sole judgment of the
Company, materially adverse to the business, operations, properties,
condition (financial or otherwise), assets, liabilities or prospects of the
Company and its subsidiaries, taken as a whole; or
(iv) there shall have occurred or be likely to occur any event
affecting the business or financial affairs of the Company or any of its
subsidiaries that, in the sole judgment of the Company, would or might
prohibit, prevent, restrict or delay consummation of, or could materially
impair the contemplated benefits to the Company of, the Exchange Offer; or
(v) there shall have occurred (1) any general suspension of, or
limitation on prices for, trading in securities in the United States
securities or financial markets, (2) any significant adverse change in the
price of the Notes or in the United States securities or financial markets,
(3) a material impairment in the trading market for debt securities, (4) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States (whether or not mandatory), (5) any
limitation (whether or not mandatory) by a government authority, or other
event that, in the reasonable judgment of the Company, might affect the
extension of credit by banks or other lending institutions in the United
States,
24
<PAGE> 26
(vi) a commencement of a war, armed hostilities or other national or
international crisis directly or indirectly involving the United States or
(vii) in the case of any of the foregoing existing on the date hereof, a
material acceleration or worsening thereof.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company in its sole discretion regardless of the circumstances
giving rise to such conditions, and may be waived by the Company, in whole or
in part at any time and from time to time, in its sole discretion. If the
Company waives or amends the foregoing conditions, the Company will, if
required by applicable law, extend the Exchange Offer for a minimum of five
business days from the date that the Company first gives notice, by public
announcement or otherwise, of such waiver or amendment, if the Exchange Offer
would otherwise expire within such five business-day period. Any determination
by the Company concerning the events described in this section shall be final
and binding upon all persons.
EXCHANGE AGENT
United States Trust Company of Texas, N.A., the Trustee under the
Indenture, has been appointed as Exchange Agent for the Exchange Offer.
Questions and requests for assistance and requests for additional copies of
this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
By Hand Delivery, Mail United States Trust Company of Texas, N.A.
or Overnight Courier: 2001 Ross Avenue, Suite 2700
Dallas, Texas 75201-2936
Attn: Corporate Trust Department
Facsimile Transmission: (214) 754-1303
Attn: Corporate Trust Department
Confirm: (214) 754-1200
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
telegraph, telephone or in person by officers and regular employees of the
Company and its affiliates in person, by telegraph or telephone.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The Company may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Series A Notes and in handling or
forwarding tenders for exchange. The Company will pay the other expenses to be
incurred in connection with the Exchange Offer, including fees and expenses of
the Trustee, accounting and legal fees and printing costs.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Series A Notes pursuant to the Exchange Offer. If, however, certificates
representing Series B Notes or Series A Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the
25
<PAGE> 27
name of, any person other than the registered holder of the Series A Notes
tendered, or if tendered Series A Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Series A
Notes pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange
Offer will be amortized by the Company over the term of the Series B Notes
under generally accepted accounting principles.
26
<PAGE> 28
CAPITALIZATION
The following table sets forth the actual unaudited consolidated
capitalization of the Company at June 30, 1996 and the consolidated
capitalization of the Company as adjusted to give effect to the Repurchase
Offer and the Series A Offering. This table should be read in conjunction with
the more detailed information and the Company's Consolidated Financial
Statements, including the notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------
ACTUAL AS ADJUSTED(1)
---------- --------------
(In thousands)
<S> <C> <C>
Cash and temporary cash investments . . . . . . . . . . . . . . . . . . . . . . $ 7,122 $ 8,042
========== =========
Long-term debt, including current maturities:
Credit Facility(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,500 $ --
12% Senior Notes due 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000 1,630
12% Senior Subordinated Notes of Cinemark Mexico due 2003(3) . . . . . . . . 20,640 20,640
9-5/8% Senior Subordinated Notes due 2008 . . . . . . . . . . . . . . . . . . -- 199,106(4)
Other indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530 530
---------- ---------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,670 221,906
Minority interest in subsidiaries(5) . . . . . . . . . . . . . . . . . . . . . 4,740 4,740
Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,079 49,045(6)
---------- ---------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . $ 265,489 $ 275,691
========== =========
</TABLE>
- ---------------
(1) Gives effect to the Repurchase Offer and the Series A Offering.
(2) A total of $175 million is available to the Company under the Credit
Facility, subject to compliance with the terms thereof. As of August 31,
1996, the amount outstanding under the Credit Facility was $16 million and
the effective interest rate on such borrowing was 6.5%. See "Description
of Certain Debt Instruments--Credit Facility."
(3) The 12% Senior Subordinated Notes were issued by Cinemark Mexico, a
subsidiary of Cinemark International and an Unrestricted Subsidiary. The
amount shown is net of unamortized debt discount equal to approximately
$1.8 million associated with the issuance of such notes.
(4) The amount shown is net of debt discount equal to approximately $.9 million
associated with the issuance of the Series A Notes.
(5) Includes $3.4 million associated with warrants to purchase common stock of
Cinemark Mexico held by third parties.
(6) Gives effect to (i) the extraordinary loss resulting from the write off of
$2.5 million of unamortized financing costs attributable to the Old Notes
and (ii) the premium paid in the Repurchase Offer and the Consent Fee and
related fees, net of the tax benefit.
27
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth selected consolidated financial data for the
Company for the periods and at the dates indicated for each of the five most
recent fiscal years ended December 31, 1995, for the twelve months ended June
30, 1996 and for the six months ended June 30, 1995 and 1996. Supplemental
financial data for the Restricted Group are derived from supplemental schedules
to the Consolidated Financial Statements, appearing elsewhere in this
Prospectus. The financial data for the twelve months ended June 30, 1996 and
for the six months ended June 30, 1995 and 1996 are derived from the unaudited
financial statements of the Company. The Company believes the financial data
for the twelve months ended June 30, 1996 and for the six months ended June 30,
1995 and 1996 reflect all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of such data. Operating results
for the twelve months ended June 30, 1996 and for the six months ended June 30,
1995 and 1996 are not necessarily indicative of results for the full fiscal
year. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements, including the notes thereto,
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWELVE SIX MONTHS
MONTHS ENDED ENDED
YEAR ENDED DECEMBER 31, JUNE 30, JUNE 30,
------------------------------------------------ ---------------
1991 1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ---- ----
(In thousands, except theatre, screen and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (CONSOLIDATED):
Revenues . . . . . . . . . . . . . . . . . $164,425 194,652 $239,659 $ 283,077 $ 298,559 $ 320,649 136,214 $158,304
Theatre operating costs . . . . . . . . . 132,523 154,825 185,100 218,748 227,719 242,655 105,343 120,280
General and administrative expenses . . . 7,993 10,119 12,162 17,095 19,555 21,814 9,141 11,400
Depreciation and amortization . . . . . . 9,817 9,830 10,939 15,121 15,925 17,491 7,105 8,672
Operating income . . . . . . . . . . . . . 14,092 19,878 31,458 32,113 35,361 38,688 14,625 17,953
Interest expense(1) . . . . . . . . . . . 7,653 12,258 17,102 18,917 19,374 18,825 10,315 9,767
Income before extraordinary items . . . . 4,770 5,726 9,720 7,006 13,155 17,681 2,638 7,164
Net income . . . . . . . . . . . . . . . . 3,701 5,829 9,720 7,006 13,155 17,346 2,638 6,829
OTHER FINANCIAL DATA (CONSOLIDATED):
Cash flow from (used for)
Operations . . . . . . . . . . . . . . $ 17,982 $23,376 $ 27,181 $ 32,665 $ 36,090 $ 50,507 $ 8,046 $ 22,463
Investing activities . . . . . . . . . (13,128) (35,432) (35,560) (62,876) (80,268) (124,465) (28,401) (72,598)
Financing activities . . . . . . . . . (2,587) 35,509 25,051 13,273 32,031 65,888 9,385 43,242
Theatre level cash flow(2) . . . . . . . . 31,902 39,827 54,559 64,329 70,840 77,993 30,870 38,024
EBITDA(3) . . . . . . . . . . . . . . . . 25,977 32,117 45,508 50,851 55,708 59,951 24,014 28,258
Ratio of earnings to fixed charges(4) . . 1.46x 1.43x 1.61x 1.46x 1.69x 1.86x 1.32x 1.68x
Pro forma ratio of earnings to
fixed charges(5) . . . . . . . . . . . 1.63x 1.85x 1.64x
SUPPLEMENTAL FINANCIAL DATA
(RESTRICTED GROUP):(6)
EBITDA(3) . . . . . . . . . . . . . . . . $ 25,977 $32,089 $ 45,433 $ 49,408 $ 54,319 $ 58,208 $23,622 $ 27,511
Pro forma interest expense(7) . . . . . . 19,799 19,623 9,812
Ratio of EBITDA to pro forma
interest expense . . . . . . . . . . . 2.74x 2.97x 2.80x
Pro forma long-term debt, including
current maturities (at period end)(8) 200,530 200,530
Ratio of pro forma long-term debt
to EBITDA (at period end) . . . . . . . 3.45x
OPERATING DATA:
United States (Restricted Group)
Theatres owned (at period end)(9) . . . 136 147 153 154 150 153 156 153
Screens owned (at period end)(9) . . . 915 1,010 1,084 1,121 1,155 1,212 1,141 1,212
Total attendance . . . . . . . . . . . 45,372 51,087 59,632 63,401 61,006 63,025 28,237 30,256
Outside United States
Theatres owned (at period end)(10) . . -- -- -- 4 9 11 5 11
Screens owned (at period end)(10) . . . -- -- -- 42 92 114 54 114
Average attendance per screen . . . . . -- -- -- 1,407 4,210 6,359 1,520 3,669
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
-------------------------------------------------- -------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED(11)
---- ---- ---- ---- ---- ------ -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (CONSOLIDATED):
Cash and temporary cash investments . . . . . $ 3,885 $29,368 $ 44,454 $ 31,056 $ 13,925 $ 7,122 $ 8,042
Theatre properties and equipment-net . . . . 77,274 93,952 117,017 155,798 224,482 287,563 287,563
Total assets . . . . . . . . . . . . . . . . 99,321 147,661 189,361 217,185 267,747 326,106 330,477
Total long-term debt, including
current portion . . . . . . . . . . . . . . 78,403 130,662 152,787 167,374 198,145 202,760 221,906
Shareholders' equity (deficiency) . . . . . . 1,933 (11,094) (760) 2,732 11,345 58,079 49,045
</TABLE>
28
<PAGE> 30
- ---------------
(1) Includes amortization of debt issue cost and debt discount.
(2) Revenues less theatre operating costs (which is not a measure of financial
performance under generally accepted accounting principles) ("GAAP").
Theatre level cash flow is a financial measure commonly used in the
Company's industry and should not be construed as an alternative to cash
flow from operations (as determined in accordance with GAAP) as an
indicator of operating performance or as a measure of liquidity.
(3) Represents net income before depreciation and amortization, interest
expense, changes in deferred lease expense, accrued and unpaid compensation
expense relating to any stock appreciation and stock option plans, equity
in income (loss) of affiliates, gain (loss) on sale of assets, minority
interests, provision for income taxes and extraordinary items. EBITDA is a
financial measure commonly used in the Company's industry and should not be
construed as an alternative to cash flows from operating activities (as
determined in accordance with GAAP), as an indicator of operating
performance or as a measure of liquidity.
(4) For the purpose of calculating the ratio of earnings to fixed charges, (i)
earnings consist of income (loss) before income taxes and extraordinary
items plus fixed charges excluding capitalized interest and (ii) fixed
charges consist of interest expense, capitalized interest, amortization of
debt issue cost and debt discount and the portion of rental expense which
is deemed to be representative of the interest factor.
(5) Gives effect to the Repurchase Offer and the Series A Notes Offering as of
the beginning of the period. See "Capitalization."
(6) The restrictive covenants in the Indenture apply only to the Restricted
Group and supplemental financial data represents data pertaining to the
Restricted Group only. See supplemental schedules to the Consolidated
Financial Statements, including the notes thereto, appearing elsewhere in
this Prospectus.
(7) Calculated based on debt outstanding at the end of the period for the
subsequent four quarter period. Gives effect to the Repurchase Offer and
the Series A Notes Offering as if both had occurred at the end of such
period and does not include amortization of debt issue cost for the Series
A Notes.
(8) Gives effect to the Repurchase Offer and the Series A Offering as if both
had occurred at the end of such period. See "Capitalization."
(9) The data as of period end 1991, 1992, 1993, 1994 (and June 1995), 1995 (and
June 1996) exclude two theatres (20 screens), two theatres (23 screens),
two theatres (23 screens), three theatres (33 screens) and four theatres
(54 screens), respectively, operated by the Company pursuant to management
agreements.
(10) The data as of period end 1993, 1994 (and June 1995), 1995 and June 1996
exclude two theatres (18 screens), two theatres (18 screens), three
theatres (25 screens), three theatres (25 screens) and four theatres (37
screens), respectively, operated through affiliates of the Company in
Canada and Chile.
(11) Gives effect to the Repurchase Offer and the Series A Notes Offering. See
"Capitalization."
29
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following is an analysis of the financial condition and results of
operations of the Company. This analysis should be read in conjunction with the
Company's Consolidated Financial Statements, including the notes thereto,
appearing elsewhere in this Prospectus.
The Company's revenues are generated primarily from box office receipts and
concession sales. The Company's revenues are affected by changes in attendance
and average admission and concession revenues per patron. Attendance is
primarily affected by the commercial appeal of the films released during the
period or year reported. Since the Company's formation, attendance has grown
principally from the development and acquisition of theatres. The Company has
generally experienced increases in average admission and concession revenues
per patron from ticket and concession price increases as well as the
development of theatres in markets that can support higher ticket and
concession prices. Additional revenues related to theatre operations are
generated by electronic video games installed in video arcades located in some
of the Company's theatres.
Film rentals, concession supplies and salaries and wages vary directly with
changes in revenues. These expenses have historically represented approximately
65% of all theatre operating expenses and approximately 50% of revenues. Film
rental costs are based on a percentage of admissions revenues as determined by
film license agreements. The Company purchases concession supplies to replace
units sold. Although salaries and wages include a fixed component of cost
(i.e., the minimum staffing cost to operate a theatre facility during non-peak
periods), salaries and wages move in relation to revenues as theatre staffing
is adjusted to handle attendance volume.
Conversely, facility lease expense is primarily a fixed cost at the theatre
level as the Company's facility leases generally require a fixed monthly
minimum rent payment. Facility lease expense as a percentage of revenues is
also affected by the number of leased versus fee owned facilities. The addition
of a larger proportion of fee owned properties in the future should result in a
decrease in facility lease expense as a percentage of revenues and an increase
in the level of depreciation expense.
Additionally, advertising cost is primarily fixed at the theatre level as
daily movie directories placed in newspapers represent the largest component of
advertising costs. The monthly cost of these ads is based on the size of the
directory. However, advertising costs have remained relatively constant when
expressed as a percentage of revenues as screen growth results in the addition
of new or larger directory ads.
Utilities and other costs include certain costs that are fixed such as
property taxes, certain costs which are variable such as liability insurance,
and certain costs that possess both fixed and variable components such as
utilities, repairs and maintenance and security services.
The results of operations of acquired theatres are included in the
Company's Consolidated Financial Statements from their date of acquisition.
Fiscal years ended December 31, 1993, 1994 and 1995 are not directly comparable
due to the effects of new theatre openings, acquired theatres and the impact of
the debt service associated with the financings undertaken. Theatre closings
have had no significant effect on the operations of the Company. See notes 1
and 3 of notes to the Consolidated Financial Statements.
30
<PAGE> 32
RESULTS OF OPERATIONS
Set forth below is a summary of operating revenues and expenses, certain
income statement items expressed as a percentage of revenues, average screen
count and revenues per average screen count for the three most recent fiscal
years ended December 31, 1995 and the six months ended June 30, 1995 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA (In millions):
Revenues
Admissions . . . . . . . . . $ 147.0 $ 174.5 $ 183.1 $ 82.8 $ 97.4
Concessions . . . . . . . . . 83.3 95.2 102.1 46.4 53.5
Other . . . . . . . . . . . . 9.4 13.4 13.4 7.0 7.4
--------- ---------- --------- --------- ---------
Total revenues . . . . . . . . . $ 239.7 $ 283.1 $ 298.6 $ 136.2 $ 158.3
========= ========== ========= ========= =========
Cost of operations
Film rentals . . . . . . . . $ 70.3 $ 84.0 $ 89.0 $ 39.1 $ 46.9
Concession supplies . . . . . 15.3 17.5 17.3 8.4 9.0
Salaries and wages . . . . . 34.0 39.5 40.6 20.0 21.3
Facility leases . . . . . . . 27.3 29.6 30.9 15.3 15.9
Advertising . . . . . . . . . 6.0 7.2 7.6 3.5 4.2
Utilities and other . . . . . 32.2 40.9 42.3 19.0 23.0
--------- ---------- --------- --------- ---------
Total cost of operations . $ 185.1 $ 218.7 $ 227.7 $ 105.3 $ 120.3
========= ========== ========= ========= =========
OPERATING DATA AS A PERCENTAGE OF TOTAL REVENUES(1):
Revenues
Admissions . . . . . . . . . 61.3% 61.6% 61.3% 60.8% 61.5%
Concessions . . . . . . . . . 34.8 33.6 34.2 34.1 33.8
Other . . . . . . . . . . . . 3.9 4.8 4.5 5.1 4.7
--------- ---------- --------- --------- ---------
Total revenues . . . . . . 100.0 100.0 100.0 100.0 100.0
Cost of operations
Film rentals(1) . . . . . . . 47.8 48.1 48.6 47.2 48.2
Concession supplies(1) . . . 18.4 18.4 16.9 18.2 16.9
Salaries and wages . . . . . 14.2 14.0 13.6 14.7 13.4
Facility leases . . . . . . . 11.4 10.5 10.3 11.2 10.1
Advertising . . . . . . . . . 2.5 2.5 2.5 2.6 2.6
Utilities and other . . . . . 13.4 14.4 14.2 14.0 14.5
Total cost of operations . . . . 77.2 77.3 76.3 77.3 76.0
General and administrative
expenses . . . . . . . . . . 5.1 6.0 6.6 6.7 7.2
Depreciation and amortization . . 4.6 5.3 5.3 5.2 5.5
Operating income . . . . . . . . 13.1 11.4 11.8 10.8 11.3
Interest expense . . . . . . . . 7.1 6.7 6.4 7.6 6.2
Income before income taxes . . . 6.6 5.0 7.8 3.6 8.0
Net income . . . . . . . . . . . 4.1 2.5 4.4 1.9 4.3
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- -----------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Average screen count
(month end average) 1,042 1,131 1,195 1,179 1,276
=========== =========== =========== =========== ===========
Revenues per average
screen count . . . $ 229,999 $ 250,289 $ 249,840 $ 115,533 $ 124,062
=========== =========== =========== =========== ===========
</TABLE>
- ---------------
(1) All costs are expressed as a percentage of total revenues, except film
rentals, which are expressed as a percentage of admissions revenues, and
concession supplies, which are expressed as a percentage of concessions
revenues.
31
<PAGE> 33
COMPARISON OF SIX MONTH PERIODS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Operating results for the six month period ended June 30, 1996 are not
necessarily indicative of the results to be achieved for the full year.
Revenues. Revenues for the six months ended June 30, 1996, increased to
$158.3 million from $136.2 million for the six months ended June 30, 1995, a
16.2% increase. The increase in revenues is primarily attributable to a 14%
increase in attendance as the result of a strong industry performance during
the six months ended June 30, 1996, compared to the six months ended June 30,
1995, and the net addition of 131 screens since June 30, 1995. Revenues per
average screen increased 7.4% to $124,062 for the six months ended June 30,
1996 from $115,533 for the six months ended June 30, 1995.
Cost of Operations. Cost of operation, as a percentage of revenue,
decreased to 76.0% for the six months ended June 30, 1996 from 77.3% in 1995.
The decrease as a percentage of revenues resulted from a decrease in salaries
and wages as a percentage of revenues to 13.4% in 1996 from 14.7% in 1995, a
decrease in facility lease expense as a percentage of revenues to 10.1% in 1996
from 11.2% in 1995 and a decrease in concession supplies as a percentage of
concession revenues to 16.9% in 1996 from 18.2% in 1995. These decreases were
partially offset by increases during the period in film rentals as a percentage
of admission revenues to 48.2% in 1996 from 47.2% in 1995 and an increase in
utilities and other as a percentage of revenues to 14.5% in 1996 from 14.0% in
1995.
General and Administrative Expenses. General and administrative expenses
as a percentage of revenues increased for the six months ended June 30, 1996,
to 7.2% from 6.7% for the six months ended June 30, 1995. The absolute level
of general and administrative expenses increased to $11.4 million for the six
months ended June 30, 1996 from $9.1 million for the six months ended June 30,
1995. The increase as a percentage of revenues and in absolute terms is
primarily the result of a $1.8 million special bonus payment paid to key
employees during the second quarter of 1996 to provide for the estimated taxes
due on the exercise of non-qualified stock options.
Depreciation and Amortization. Depreciation and amortization increased
22.1% to $8.7 million for the six months ended June 30, 1996 from $7.1 million
for the six months ended June 30, 1995. The increase is a result of the net
addition of $119.7 million in theatre property and equipment since the second
quarter of 1995, a 50.4% increase. The difference in the percentage increase
in depreciation and amortization compared to the increase in theatre property
and equipment is a result of the timing of when the additions were placed in
service during the period.
Interest Expense. Interest costs incurred, including amortization of debt
issue cost and debt discount, increased 7.9% to $11.1 million (including the
capitalization of $1.4 million of interest to properties under construction)
for the six months ended June 30, 1996 from $10.3 million in the six months
ended June 30, 1995. The increase in interest costs incurred for the six
months ended June 30, 1996 was due principally to an increase in average debt
outstanding resulting from borrowings under the Credit Facility.
Income Taxes. Income taxes increased to $5.4 million for the six months
ended June 30, 1996 from $2.2 million in the six months ended June 30, 1995,
resulting primarily from the increase in income before taxes. The Company's
effective rate for the six months ended June 30, 1996 decreased to 43% from
45.7% in the six months ended June 30, 1995. The decrease was primarily a
result of the reduction in the relative level of goodwill amortization and
foreign losses as a result of the increase in total earnings. The effective
tax rates reflect the full reserve of the potential tax benefit associated with
the loss incurred by Cinemark Mexico.
32
<PAGE> 34
Other Gains and Losses. Other gains and losses for the six months ended
June 30, 1996 of $3.7 million is primarily attributable to a gain from the
settlement of litigation.
Extraordinary Items. The Company replaced its bank line of credit with a
revolving and term credit agreement in February 1996. Borrowings under the new
credit facility were used to repay indebtedness under the Company's previous
$75 million bank line of credit. As a result, an extraordinary loss of $.3
million (net of related tax benefit) was recognized in connection with the
write-off of the unamortized debt issue cost associated with the Company's
previous bank line of credit.
Net Income. Net income of $6.8 million for the six months ended June 30,
1996 and $2.6 million for the six months ended June 30, 1995 includes the
consolidated losses of the Cinemark Mexico of $1.6 million (net of minority
interest) and $1.5 million (net of minority interest), respectively.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
Revenues. Revenues in 1995 increased to $298.6 million from $283.1 million
in 1994, a 5.5% increase. The increase is primarily attributable to a combined
increase of 5.1% in admission and concession revenues per patron. Attendance
remained constant despite the addition of 130 screens. The contribution from
these new screens is not fully reflected in the Company's operations, as a
majority of the new screens were not opened until late 1995. The contribution
to revenues from admission and concession price increases was partially offset
by a decrease in per patron revenues in Mexico as a result of the devaluation
of the Mexican peso that began in late December 1994. Revenues per average
screen remained constant at approximately $250,000 per screen despite average
admission and concession price increases and improved revenues per screen from
new U.S. screen openings as revenues per screen for the 92 screens the Company
operated in Mexico declined significantly as a result of the Mexican peso
devaluation.
Cost of Operations. Cost of operations, as a percentage of revenues,
decreased to 76.3% in 1995 from 77.3% in 1994. The decrease resulted primarily
from a decrease in concession costs as a percentage of concession revenue to
16.9% in 1995 from 18.4% in 1994 associated with an increase in concession
pricing which was partially offset by an increase in film rental expense as a
percentage of admission revenues to 48.6% in 1995 from 48.1% in 1994. Other
operating costs as a percentage of revenues remained relatively constant
between the two periods.
General and Administrative Expenses. General and administrative expenses,
as a percentage of revenues, increased to 6.6% in 1995 from 6% in 1994. General
and administrative expenses increased to $19.6 million in 1995 from $17.1
million in 1994, primarily from increases in salaries and wages, travel, and
miscellaneous expenses associated with the Company's domestic and international
expansion and increased amortized compensation expense resulting from the grant
of stock options at less than fair market value.
Depreciation and Amortization. Depreciation and amortization increased
5.3% in 1995 to $15.9 million from $15.1 million in 1994. The increase is a
result of the net addition of $79.5 million in theatre property and equipment
during 1995, a 38.2% increase over 1994. Depreciation and amortization expense
did not increase in direct proportion with the increase in theatre property and
equipment as $43.7 million of the additions were either placed in service in
late 1995 or will be placed in service in 1996.
Interest Expense. Interest costs incurred, including amortization of debt
issue cost and debt discount, increased 2.4% during 1995 to $21.1 million
(including the capitalization of $1.7 million of interest to fee properties
under construction) from $19.5 million of interest costs in 1994 (including $.6
million of capitalized interest). The increase in interest costs incurred for
1995 was due principally to an increase in average debt outstanding resulting
from borrowings under the Company's bank line of credit.
33
<PAGE> 35
Other Gains and Losses. In 1995, the Company recorded a gain on the sale
of 10 theatre properties (46 screens) of $5.5 million and losses of $.6 million
relating to the disposition of an interest in Funtime Pizza International, L.C.
and the write-off of costs, principally professional fees, relating to merger
negotiations with another theatre circuit which were terminated in May 1995.
Income Taxes. Income taxes increased to $10.1 million in 1995 compared to
$7.1 million in 1994, a 42.9% increase, resulting from the increase in income
before taxes. The Company's effective tax rate for 1995 was 43.4% compared to
50.2% for 1994. The decrease in the effective tax rate was primarily a result
of reduction in the relative level of goodwill and foreign losses as a result
of the increase in total earnings. The effective tax rates reflect the full
reserve of the potential tax benefit associated with the loss incurred by
Cinemark Mexico.
Net Income. Net income of $13.2 million in 1995 and $7.0 million in 1994
included the consolidated losses of Cinemark Mexico of $2.7 million (net of
minority interest) and $2.5 million (net of minority interest), respectively.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993
Revenues. Revenues in 1994 increased to $283.1 million from $239.7 million
in 1993, an 18.1% increase. This increase is attributable to a 3.8% increase in
attendance for 1994 over 1993 (primarily attributable to a strong industry
performance), the addition of 91 screens in 1994 and the first full year of
operations of 96 screens opened or acquired in 1993. Revenues were also
positively affected by a combined 5.5% increase in average admission and
concession revenues per patron. Revenues per average screen increased 8.8% to
$250,289 in 1994 from $229,999 in 1993, resulting from a strong industry
performance, new screen openings and increases in average admission and
concession price revenues per patron.
Cost of Operations. Cost of operations as a percentage of revenues
remained flat at 77.3% in 1994 compared to 77.2% in 1993. Cost of operations
increased 18.2% in 1994 to $218.7 million from $185.1 million in 1993. An
increase in utility and other expenses as a percentage of revenues to 14.4% in
1994 from 13.4% in 1993 was substantially offset by a decrease in facility
leases as a percentage of revenues to 10.5% in 1994 from 11.4% in 1993. Other
operating costs as a percentage of revenues remained relatively constant
between the two periods.
General and Administrative Expenses. General and administrative expenses,
as a percentage of revenues, increased to 6.0% in 1994 from 5.1% in 1993.
General and administrative expenses increased to $17.1 million in 1994 from
$12.2 million in 1993, primarily from increases in salaries and wages, legal,
travel and miscellaneous expenses associated with the Company's development
program and cost of establishing an office in Mexico for international
expansion (including salaries and wages, rent and travel costs).
Depreciation and Amortization. Depreciation and amortization increased
38.2% to $15.1 million for 1994 from $10.9 million for 1993. The increase is a
result of the net addition of $48.4 million in theatre properties and equipment
during 1994, an increase of 30.3% over 1993 and the acceleration of the rate of
amortization of goodwill and non-competition agreements with respect to the
closing of certain Funtime Pizza restaurants resulting in an increase in
amortization of $1.6 million.
Interest Expense. Interest costs incurred, including amortization of debt
issue cost and debt discount, increased 10.6% to $18.9 million in 1994 from
$17.1 million in 1993. The increase was due principally to an increase in
average debt outstanding resulting from the issuance of 12% Senior Subordinated
Notes by Cinemark Mexico and borrowings under the Company's bank line of
credit.
Income Taxes. Income taxes increased to $7.1 million in 1994 from $6.2
million in 1993 resulting primarily from an increase in the effective tax rate
to 50% in 1994 from 39% in 1993. The increase in the effective rate is
34
<PAGE> 36
the result of a 128% increase in goodwill amortization during the year and the
full reserve of the potential tax benefit associated with the loss generated by
Cinemark Mexico.
Net Income. Net income of $7.0 million in 1994 and $9.7 million in 1993
included the consolidated losses of Cinemark Mexico of $2.5 million (net of
minority interest) and $.8 million (net of minority interest), respectively.
INFLATION AND FOREIGN CURRENCY
The Mexican currency has experienced a significant devaluation since
December 1994. Cinemark Mexico's debt and certain of Cinemark Mexico's theatre
lease rents are denominated in U.S. dollars while its revenues are denominated
in Mexican pesos. As a result of the devaluation, certain costs of Cinemark
Mexico have almost doubled in relation to Cinemark Mexico's revenues.
Additionally, almost all of the equipment and interior finish material of
Cinemark Mexico's theatres have been imported from the U.S. As a result of the
devaluation, Cinemark Mexico has recognized a $10.2 million cumulative
unrealized currency translation loss adjustment in shareholders' equity as of
March 31, 1996. The devaluation has significantly and adversely affected the
Mexican economy and will impact the short term profitability of Cinemark
Mexico's theatres. Additionally, there is a reduced level of available capital
in the Mexican financial markets due to a significant rise in Mexican interest
rates. This in turn has resulted in the reduced availability of developer
financing for future projects. Such events have caused delays in Cinemark
Mexico's current projects and a reduction in the rate of expansion initially
anticipated by Cinemark Mexico. The value of the Mexican peso has remained
constant since the end of the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues are collected in cash, primarily through box office
receipts and the sale of concession items. Because its revenues are received in
cash prior to the payment of related expenses, the Company has an operating
"float" and, as a result, historically has not required traditional working
capital financing. Primarily due to the lack of significant inventory and
accounts receivable, the Company has typically operated with a negative working
capital position for its ongoing theatre operations. The major film
distributors generally release during the summer and holiday seasons those
films which they anticipate will be the most successful. Consequently, the
Company typically generates higher revenues during such periods. The Company's
cash flow from operations was $36.1 million in 1995 compared to $32.7 million
in 1994 and $27.2 million in 1993.
The Company's theatres are typically equipped with modern projection and
sound equipment, with approximately 61% of the screens operated by the Company
having been built in the last six years. Maintenance capital expenditures for
all theatres operated by the Company for 1995 were $5.1 million or
approximately 1.7% of revenues. The Company believes that future annual
maintenance capital expenditures will not significantly change as a percentage
of revenues. The Company's investing activities have been principally in
connection with new theatre openings and acquisitions of existing theatres and
theatre circuits and have amounted to $80.3 million, $62.9 million and $35.6
million in 1995, 1994 and 1993, respectively. New theatre openings and
acquisitions historically have been financed with internally generated cash and
by debt financing, including borrowings under the Company's bank line of
credit. Cash flow from financing activities amounted to $32 million, $13.3
million and $25.1 million in 1995, 1994 and 1993, respectively. The Company has
historically leased properties instead of purchasing because of the
significantly lower capital requirements for developing a leasehold theatre ($1
million to $2 million per theatre) compared to the capital requirements for
developing a fee owned theatre (generally $3.5 million to $6 million per
theatre). From January 1, 1996 to June 30, 1996, the Company has opened four
theatres (60 screens) and has fifteen theatres (191 screens) under
construction. In addition, as of June 30, 1996, the Company has ten theatres
(139 screens) scheduled to begin construction during the remainder of 1996 or
in 1997, and plans to open a total of 390 screens in the U.S. Certain of these
theatres will be megaplexes which may cost in excess of $15 million per
theatre. The Company currently estimates that its capital expenditures for the
development of these screens in 1996 and 1997 will be approximately $110
million and $70 million, respectively. As of June 30, 1996, the Company had
expended approximately $50 million toward the development of these screens.
Actual expenditures
35
<PAGE> 37
for theatre development and acquisitions during 1996 are subject to change
based upon the availability of attractive opportunities for expansion of the
Company's theatre circuit.
On June 10, 1992, the Company issued 12% Senior Notes due 2002 (the "Old
Notes"). The Old Notes bear interest at the rate of 12% per annum, payable
semi-annually on June 1 and December 1 of each year. A sinking fund providing
for the redemption of Old Notes in equal amounts on June 1, 2000 and June 1,
2001 is calculated to retire 50% of the Old Notes prior to maturity. From the
proceeds of the Old Notes, the Company contributed $20 million to the capital
of Cinemark International. Cinemark International plans to invest up to an
additional $40 million in international ventures principally in Latin America
over the next two to three years. The Company anticipates that investments in
excess of Cinemark International's available cash will be funded by the
Company, subject to the restrictive covenants in the Indenture, or by debt or
equity financing to be provided by third parties directly to Cinemark
International or its subsidiaries.
On February 14, 1996, the Company replaced its existing bank line of credit
with the Credit Facility, which has a final maturity of 2003 and provides for
borrowing availability of up to $175 million. Any amounts borrowed by the
Company under the Credit Facility prior to February 13, 1999 will be borrowed
on a revolving basis. On February 13, 1999, any outstanding revolving
borrowings under the Credit Facility will be converted into a term loan. In
addition, subject to the limitation on incurrence of indebtedness under the
Indenture and to the conditions set forth in the Credit Facility, on February
13, 1999, the Company may borrow as a term loan the difference between $175
million and the then outstanding balance under the Credit Facility (provided
such balance is less than $175 million). The term loan will be payable
quarterly beginning June 30, 1999 with 11.25%, 18.75%, 23.75% and 36.25% of the
initial principal amount of the term loan due in 1999, 2000, 2001 and 2002,
respectively. Any remaining principal amount of the term loan is due and
payable on February 13, 2003. Borrowings under the Credit Facility are secured
by a pledge of the issued and outstanding capital stock of the Company owned by
Mr. Mitchell and his affiliates. As of August 31, 1996, the Company had
borrowed $16 million under the Credit Facility and the effective interest rate
on such borrowings was 6.5% per annum. See "Description of Certain Debt
Instruments -- Credit Facility."
In 1993, the Company incorporated Cinemark de Mexico, S.A. de C.V.
("Cinemark de Mexico") as an indirect subsidiary of Cinemark International to
pursue new development opportunities in Mexico. At June 30, 1996, the Company
operated eleven theatres (114 screens) and had two theatres (25 screens) under
commitment with executed leases. In 1993 and 1994, Cinemark Mexico, which is
the direct parent of Cinemark de Mexico, issued $22.4 million principal amount
of Cinemark Mexico Notes (as defined herein) with detachable warrants. At June
30, 1996, Cinemark International owned 91.4% (71.8% on a fully diluted basis
including the exercise of the warrants) of the common stock of Cinemark Mexico.
The remaining 8.6% (6.7% on a fully diluted basis including the exercise of the
warrants) was owned by a corporation controlled by Mexican citizens. See
"Business -- International" and note 5 of the notes to the Consolidated
Financial Statements. The Cinemark Mexico Indenture (as defined herein)
governing the Cinemark Mexico Notes originally required Cinemark Mexico to
maintain a Cash Flow Coverage Ratio (as defined in the Cinemark Mexico
Indenture) of 2.0 to 1.0, beginning in the third quarter of 1995. Cinemark
Mexico has amended the Indenture to allow a postponement of the implementation
of this covenant until the third quarter of 1997. Cinemark Mexico has reached
an agreement in principle with the holder of a majority of the Cinemark Mexico
Notes to further postpone the implementation of this covenant until the first
quarter of 2000. The agreement in principle also provides that Cinemark Mexico
will issue new notes to such holder which provide for interest to be paid, at
the option of the Company, in cash or in kind, in exchange for all Cinemark
Mexico Notes owned by such holder, and accrued unpaid interest from February 1,
1996 to the date of such exchange. Cinemark Mexico will issue approximately
$1.3 million of a new series of notes, in exchange for all of the issued and
outstanding warrants to purchase shares of common stock of Cinemark Mexico
owned by such holder.
Cinemark Mexico and such holder elected to pursue the exchange of the
Cinemark Mexico Notes for such new notes in order to provide for additional
cash liquidity to fund capital investments in the Cinemark Mexico business and
to take full advantage of the opportunities Cinemark Mexico currently believes
exist in the Mexican motion
36
<PAGE> 38
picture exhibition industry. In this connection, Cinemark International has
agreed to make an additional $10 million investment in common stock of Cinemark
Mexico when the new notes are issued. As a result of the agreement in
principle, Cinemark Mexico did not make the approximately $1.3 million cash
interest payment on the Cinemark Mexico Notes otherwise due on August 1, 1996.
For a discussion of the agreement in principle see "Certain Debt Instruments --
Cinemark Mexico Indenture."
The Cinemark Mexico Indenture also allows for the incurrence by Cinemark
Mexico of $10 million of additional senior debt. On December 4, 1995, Cinemark
Mexico entered into the Mexico Credit Facility (as defined herein), allowing
it to borrow $10 million from Cinemark International. As of June 30, 1996,
Cinemark Mexico had borrowed $9 million under the Mexico Credit Facility.
Cinemark International entered into a joint venture agreement in November
1992 with a Chilean theatre operator. Cinemark Chile, S.A. ("Cinemark Chile")
currently operates two theatres (13 screens), and as of June 30, 1996, had one
theatre (12 screens) under commitment. If additional capital is required for
other theatre development opportunities in Chile, the Company expects to obtain
such capital from third parties through debt or equity issuance by Cinemark
Chile. In December 1995, Cinemark entered into a joint venture agreement with
Argentine theatre operators to develop multiplex theatres in Argentina. In 1996
Cinemark LTDA, a Brazilian company ("Cinemark Brazil"), was organized as an
indirect subsidiary of Cinemark International. Cinemark Brazil will develop
modern multiplex theatres in Brazil. Cinemark Brazil plans to begin
construction on its first theatre within the next 90 days.
SALE OF STOCK
On March 12, 1996, the Company issued and sold to Cypress shares of common
stock for a total purchase price of $41 million. The net proceeds from the sale
of common stock to Cypress have been used to fund the Company's growth and
pursue its business plan.
REPURCHASE OFFER AND SERIES A OFFERING
On July 15, 1996, the Company commenced an offer to purchase and consent
solicitation (the "Repurchase Offer") to repurchase up to all of the Old Notes
and amend the Old Indenture (as defined herein) pursuant to which the Old Notes
were issued. The holders of an aggregate principal amount of $123,370,000 of
Old Notes (of a total of $125 million principal amount of Old Notes
outstanding) tendered their Old Notes and delivered consents pursuant to the
Repurchase Offer. On August 15, 1996, the Company issued $200 million aggregate
principal amount of Series A Notes pursuant to the Series A Offering. The net
proceeds of the Series A Offering were used by the Company to (i) repurchase an
aggregate of $123,370,000 principal amount of Old Notes and pay premium and
consents payments related thereto pursuant to the Repurchase Offer and (ii)
reduce the Company's indebtedness under the Credit Facility.
37
<PAGE> 39
BUSINESS
THE COMPANY
The Company is the fifth largest motion picture exhibitor in North America
in terms of the number of screens in operation. At June 30, 1996, the Company
operated 1,417 screens in 172 theatres located in 28 states, Canada, Chile and
Mexico, consisting of 1,055 screens in 121 first run theatres and 362 screens
in 51 "discount" theatres. Of the Company's 1,417 screens, 863 (or 61%) were
built by the Company over the past six years, and, as a result, the Company
believes it operates one of the most modern theatre circuits in the industry.
All of the Company's theatres are multiplex facilities with approximately 90%
of the Company's screens located in theatres of six or more screens. The
Company believes that its ratio of screens to theatres (8.2 to 1 at June 30,
1996) is the highest of the five largest theatre circuits in the U.S. and is
approximately 60% higher than the industry average (less than 5 to 1). From its
fiscal year ended December 31, 1991 through the twelve months ended March 31,
1996, the Company has increased consolidated revenues approximately 88% from
$164.4 million to $309.1 million and has increased EBITDA approximately 129%
from $26 million to $59.4 million.
The Company is an industry leader in new theatre construction and operation
and, according to industry sources, has constructed more screens than any other
exhibitor during the 1990s. The Company believes that the attractiveness,
comfort and viewing experience provided by its modern facilities result in the
Company's theatres more often being the preferred destination for moviegoers in
its markets.
The Company is actively participating in the ongoing trend toward the
development of larger multiplexes, commonly referred to as "the rescreening of
America." The Company's management experience and financial flexibility permit
it to introduce larger multiplex theatre facilities into areas previously
served by smaller theatres, thereby capturing moviegoers who seek more
attractive surroundings, wider variety of films, better customer service,
shorter lines, more convenient parking and a greater choice of seating to view
popular movies. The Company's larger multiplex facilities increase per screen
revenues and operating margins and enhance its operating efficiencies. Such
theatres enable the Company to present films appealing to several segments of
the moviegoing public while serving patrons from common support facilities
(such as box office, concession areas, rest rooms and lobby). In addition,
larger multiplex facilities provide the Company with greater flexibility in
staffing, movie scheduling and equipment utilization while reducing congestion
throughout the theatre. Larger multiplex facilities also provide increased
flexibility in determining the length of time that a film will run. The Company
can lengthen the run of a film by switching it to a smaller auditorium after
peak demand has subsided and has the potential to generate higher profits as
film license agreements typically provide for a lower film rent to be paid
later in a film's run.
In addition, the Company owns a majority interest in and operates a chain
of 21 video rental stores (of which 20 stores are located in Texas and one
store is located in Georgia). See "Certain Transactions -- 2 Day Video, Inc."
OVERVIEW OF THE THEATRE INDUSTRY
The theatre exhibition industry in the U.S. is comprised of approximately
460 exhibitors, approximately 240 of which operate four or more theatres. As of
May 1995, the ten largest exhibitors (in terms of number of screens) operated
approximately 50% of the total screens, with no one exhibitor operating more
than 10% of the total screens.
U.S. box office sales of approximately $5.5 billion in 1995 was a record
for the industry. Overall attendance has remained stable during the most recent
six year period, with no single year varying more than 6.2% from the average.
The Company believes that the primary reason for the variances in the
year-to-year attendance is the overall audience appeal of the films released.
The following table represents the results of a survey by the National
38
<PAGE> 40
Association of Theatre Owners outlining the historical trends in U.S. theatre
attendance, average ticket prices and box office sales for the last six years.
<TABLE>
<CAPTION>
U.S. Box
Attendance Average Office Sales
Year (Millions) Ticket Price (Millions)
---- ---------- ------------ ----------
<S> <C> <C> <C>
1990 . . . . . . . . . 1,189 $4.225 $5,022
1991 . . . . . . . . . 1,141 $4.211 $4,803
1992 . . . . . . . . . 1,173 $4.152 $4,871
1993 . . . . . . . . . 1,244 $4.143 $5,154
1994 . . . . . . . . . 1,292 $4.178 $5,386
1995 . . . . . . . . . 1,263 $4.351 $5,494
</TABLE>
Theatrical exhibition is the primary distribution channel for new motion
picture releases. The Company believes that the successful theatrical release
of a movie abroad and in "downstream" distribution channels, such as home video
and pay-per-view, network and syndicated television, is largely dependent on
its successful theatrical release in the U.S. The Company further believes
that the emergence of new motion picture distribution channels has not
adversely affected attendance at theatres and that these distribution channels
do not provide an experience comparable to the out-of-home experience of
viewing a movie in a theatre. The Company believes that the public will
continue to recognize the advantages of viewing a movie on a large screen with
superior audio and visual quality, while enjoying a variety of concessions and
sharing the experience with a large audience.
The Company believes that as a result of increased revenues from the
successful release of films in both movie theatres and other distribution
channels, major film production companies have increased and will continue to
increase the number of films being produced. Film producers have increased
their revenues from these distribution channels by approximately 200% over the
past ten years to $18.9 billion in 1995. The increased revenue potential from
film distribution in recent years can be attributed to increased demand
resulting from the domestic and international growth of the movie theatre
industry and the home video industry, and the significantly increased channel
capacity created by enhanced cable and satellite-based transmission systems.
Moreover, the Company believes independent producers and distributors, such as
Gramercy Pictures, Turner Pictures (which includes New Line Cinemas and Castle
Rock Entertainment) and Dreamworks SKG, the highly-publicized partnership among
Jeffrey Katzenberg, Steven Speilberg and David Geffen, should help increase
motion picture production. Additionally, increased revenues permit major film
production companies to create "event" films such as Jurassic Park, Twister and
Independence Day which utilize the latest advances in computer technology to
enhance production quality and special effects. The Company believes that an
increasing supply of quality feature films and "event" films exhibited with
advanced projection and stereo sound equipment such as Digital Theatre Sound
Systems, Dolby -- Digital Sound and Sony -- Dynamic Digital Sound will
enhance the moviegoing experience and will increase the theatre attendance of
exhibitors with modern multiplex theatres designed to exhibit such motion
pictures.
Increased international distribution is also producing important sources of
revenue for film distributors and growth opportunities for exhibitors. The
international market share of total box office receipts in 1995 was 49.3% up
from 30.4% in 1984. Since 1985, international box office receipts have grown at
a 10.8% compounded annual rate. The Company believes that many international
markets for theatrical exhibition, which have historically been underserved due
to antiquated and/or run-down theatres, will continue to experience rapid
growth as additional multiplex theatres are introduced.
In addition, the Company believes that certain demographic trends favor the
theatre exhibition industry. Information obtained from the U.S. Bureau of
Census indicates that the number of 12 to 20 year olds in the U.S., the largest
moviegoing segment of the population, is projected to grow an aggregate of 7.5%
through the year 2000. Furthermore, according to MPAA, the number of patrons
over 40 years old as a percentage of the total movie
39
<PAGE> 41
audience has more than doubled from approximately 14% in 1986 to approximately
33% in 1995. The Company believes that film producers have recognized the
importance of this segment of the population and are producing an increased
number of films primarily targeted to this more mature audience, including
films such as Forrest Gump, Apollo 13, Mr. Holland's Opus and Sense and
Sensibility.
BUSINESS STRATEGY
The Company intends to continue to grow through new theatre development by
applying the same techniques it has implemented since it was founded. The
Company believes that it is unique among major theatre exhibitors in the
development and execution of the following four-part business strategy:
Continue to build in underserved mid-sized markets. The Company intends to
continue to build first run theatres in underserved mid-sized markets and
suburbs of major metropolitan areas with populations of 50,000 to 200,000 where
the Company frequently will be the sole or leading exhibitor in terms of first
run screens operated. The Company believes it gains maximum access to film
product, and thereby realizes a competitive advantage, by locating its modern
multiplex theatres in new and existing film zones where little or no
competition for film product exists.
Capitalize on popularity of "megaplex" concept. The Company intends to
expand its construction of larger "megaplex" entertainment centers in major
metropolitan areas. In December 1992, the Company opened its first megaplex,
Hollywood USA, a 15-screen, 52,000 square-foot complex containing a large
video arcade and a pizzeria. The Company subsequently opened two additional
megaplexes styled after the original Hollywood USA . Based upon the success of
these complexes, which consistently rank among the Company's top grossing
facilities on a per screen basis, the Company expanded the megaplex concept. In
the last twelve months, the Company has developed three megaplexes, each
exceeding 80,000 square feet and featuring 16 or more screens with 75 foot
screens in the largest auditoriums, stadium seating, digital sound, a pizzeria,
a coffee bar and a large video arcade room. Five of these megaplex facilities
are either currently under construction or scheduled to begin construction
during the remainder of 1996.
Continue to expand discount theatre niche . The Company intends to continue
to build discount theatres (admission of $1 to $2 per ticket) primarily in
major metropolitan markets to serve patrons who miss a film during its first
run exhibition or who may not be able to afford to attend first run theatres on
a frequent basis. The Company believes that its discount theatres allow it to
serve these segments of the total moviegoing population, increasing the number
of potential customers beyond traditional first run moviegoers. The Company
develops its multiplex discount theatres with many of the same amenities as its
first run theatres, including wall-to-wall screens, comfortable seating with
cupholder armrests, digital sound, multiple concession stands and a video game
room. The Company's discount theatres generally have higher attendance, lower
film costs and a greater proportion of concession revenues than its first run
theatres. As of June 30, 1996, approximately 30% of the Company's theatres were
discount theatres.
Develop modern American-style theatres in underserved international
markets. The Company intends to continue to develop multiplex theatres directly
or through joint venture arrangements with local partners in underserved
international markets. The Company's activities to date in international markets
have been directed toward Latin America, which the Company believes is severely
underscreened and is still typically served by one- and two-screen theatres
which are often antiquated and/or run-down. The Company believes that the same
economic factors giving rise to the multiplex rescreening trend in the U.S. are
similarly applicable to international markets. The Company believes that it
was the first U.S. circuit to open American-style modern multiplex theatres in
Chile and Mexico, and has recently begun exploring development opportunities in
Argentina and Brazil. For a discussion of an agreement in principle to
renegotiate certain indebtedness of Cinemark Mexico see "Description of Certain
Debt Instruments -- Cinemark Mexico Indenture."
40
<PAGE> 42
OPERATIONS
The Company's corporate office, which employed approximately 130
individuals as of June 30, 1996, is responsible for theatre development and
site selection, lease negotiation, theatre design and construction, film
licensing and settlements, concession vendor negotiations and financial and
accounting activities. The Company's theatre operations are divided into six
geographic divisions, each of which is headed by a regional leader. The
Company's regional leaders have an average of 16 years experience in the movie
theatre industry and each is responsible for supervising approximately 15% of
the Company's theatre managers. Theatre managers are responsible for the
day-to-day operations of the Company's theatres including optimizing staffing,
developing innovative theatre promotions, preparing movie schedules, purchasing
concession inventory, maintaining a clean and functioning facility and training
theatre staff.
To maintain quality and consistency within the Company's theatres, the
Company conducts regular inspections of each theatre and operates a program
which involves unannounced visits by unidentified customers who report on the
quality of service, film presentation and cleanliness of the theatre.
Theatre Development
The Company continually evaluates existing and new markets for potential
theatre locations. The Company generally seeks to develop theatres in markets
that are underscreened as a result of changing demographic trends or that are
served by aging theatre facilities. Some of the factors the Company considers
in determining whether to develop a theatre in a particular location are the
market's population and average household income, the proximity to retail
corridors, convenient roadway access, the proximity to competing theatres and
the effect on the Company's existing theatres in the market, if any.
The Company designs its multiplex theatres with bright colors, neon, tile
and marble and state-of-the-art technology, to create a festive and memorable
experience for the customer. The Company has designed several prototype
theatres, each of which can be adapted to suit the size requirements of a
particular location and the availability of parking, and to respond to
competitive factors or specific area demographics. The Company believes the
fully designed prototypes result in significant construction and operating cost
savings. More importantly, the Company believes that construction and operation
of high quality theatres provides significant competitive advantages as theatre
patrons, and therefore film distributors, seek clean, conveniently located,
modern facilities with state-of-the-art equipment.
The Company's theatres typically contain auditoriums consisting of 100 to
400 seats each and feature wall-to-wall screens, high back rocking chairs with
cupholder armrests, digital sound, multiple concession stands and video game
rooms. The Company's megaplex facilities typically will exceed 80,000 square
feet, feature 16 or more screens with 75 foot screens in the largest
auditoriums, stadium seating, digital sound, a pizzeria, a coffee bar and a
large video arcade room. The Company believes that, in particular, stadium
style auditoriums with digital sound provide an entertainment experience which
is superior to that available at a conventional theatre. Jurassic Park,
released in the summer of 1993, was the first major motion picture to utilize
digital sound. The Company estimates that at least a majority of the films
produced in 1996 will have digital soundtracks available as an alternative to
the standard stereo soundtrack. More than 50% of the Company's first run
theatres have one or more auditoriums with digital sound capabilities, and the
Company is continuing to add digital sound capabilities.
Film Licensing
Films are typically licensed from film distributors owned by major film
production companies and from independent film distributors that distribute
films for smaller production companies. For first run films, film
41
<PAGE> 43
distributors typically establish geographic zones and offer each available film
to all theatres in a zone. The size of a film zone is generally determined by
the population density, demographics and box office potential of a particular
market or region, and can range from a radius of three to five miles in major
metropolitan and suburban areas to up to 15 miles in small towns. The Company
currently operates theatres in approximately 89 first run film zones. Each
film, regardless of the distributor, is generally licensed to only one theatre
in each zone. New film releases are licensed at the discretion of the film
distributors on an allocation or previewed bid basis. In film zones where the
Company has little or no competition, the Company selects those pictures it
believes will be most successful. In film zones where the Company faces
competition, the Company usually licenses films on an allocation basis. Under
an allocation process, a particular distributor will rotate films among
exhibitors, typically providing movies to competing exhibitors solely based on
the order of their release. For second run films, film distributors establish
availability on a market-by-market basis after the completion of exhibition at
first run theatres, and permit each theatre within a market to exhibit such
films without regard to film zones.
The Company licenses films through its booking office located at the
Company's corporate headquarters in Dallas, Texas. All of the major motion
picture studios and distributors also maintain offices in Dallas. The Company's
film bookers have significant experience in the theatre industry and have
developed long-standing relationships with the film distributors. Each film
booker is responsible for a geographic region and maintains relationships with
representatives of each of the major motion picture studios and distributors
having responsibility for their respective geographic regions. The Company
licenses films from all of the major distributors and is not dependent on any
one studio for motion picture product.
Prior to negotiating for a film license, the Company's booking personnel
evaluate the prospects for the film. The criteria considered for each film
include cast, director, plot, performance of similar films, estimated film
rental costs, expected MPAA rating and the outlook for other upcoming films.
Successful licensing depends upon knowledge of the tastes of local residents.
A film license typically specifies a rental fee to be paid to the
distributor based on the higher result of either a gross receipts formula or a
theatre admissions revenue sharing formula. Under a gross receipts formula, the
distributor receives a specified percentage of box office receipts, with the
percentage generally declining over the term of the run. First run film rental
percentages usually begin at 70% of box office receipts and gradually decline
to as low as 30% over a period of four to seven weeks. Second run film rental
percentages typically begin at 35% of box office receipts and often decline to
30% after the first week. Under the theatre admissions revenue sharing formula
(commonly known as the "90/10" clause), the distributor receives a specified
percentage (i.e., 90%) of the excess of box office receipts over a negotiated
reimbursement for theatre expenses. In general, most distributors follow an
industry practice of adjusting or renegotiating the terms of a film license
subsequent to exhibition based upon the film's success.
Concessions
Concession sales are the Company's second largest revenue source,
representing 34.2% of total revenues for 1995. The Company has devoted
considerable management effort to increasing concession sales and improving the
operating income margins from concession sales. These efforts include
implementation of the following strategies:
o Optimization of product mix. The Company's primary concession products
are various sizes of popcorn, soft drinks, candy and hot dogs, all of which the
Company sells at each of its theatres. However, different varieties and brands
of candy and soft drinks are offered at theatres based on preferences in that
particular
42
<PAGE> 44
geographic region. The Company has also implemented "combo-meals," and "movie
meals" for children and senior citizens, both of which offer a pre-selected
assortment of concession products.
o Introduction of new products. The Company continues to introduce new
concession products designed to attract additional concession purchases. New
offerings have recently included bottled water, bulk candy, frozen yogurt and
ice cream. Additionally, the Company has introduced pizza, pastries and
specialty coffee in many of its megaplexes.
o Staff training. Employees are continually trained in "cross-selling"
and "upselling" techniques. This training occurs through situational
role-playing conducted at the Company's "Customer Service University" as well as
continual on-the-job training. Individual theatre managers receive a portion of
their compensation based on concession sales at their theatres and are therefore
motivated to maximize concession purchases.
o Theatre design. Newer theatres are designed to include at least two to
three concession stands, with each stand having multiple service stations to
make it easier to serve larger numbers of customers rapidly. Strategic
placement of large concession stands within theatres heightens their
visibility, aids in reducing the length of concession lines and improves
traffic flow around the concession stands.
o Cost control. The Company negotiates prices for its concession
supplies directly with concession vendors on a bulk rate basis and distributes
its concession supplies through a national concession contract distributor. The
concession distributor provides inventory and distribution services to the
theatres, which place volume orders directly with the concession distributor.
The concession distributor is paid a fee for such service equal to a percentage
of the Company's concession supply purchases. The Company believes that
utilization of a concession distributor is more cost effective than establishing
a concession warehousing network owned by the Company.
Marketing
In order to attract customers, the Company relies principally upon
newspaper display advertisements (substantially paid for by film distributors)
and newspaper directory film schedules (generally paid for by the exhibitor) to
inform its patrons of film titles and show times. Radio and television
advertising spots (generally paid for by film distributors) are used to promote
certain motion pictures and special events. The Company also exhibits previews
in its theatres of coming attractions and films presently playing on the other
screens which it operates in the same theatre or market.
Theatre Management
Each theatre is managed by one theatre manager and a number of assistant
managers. A typical ten screen movie theatre has approximately 40 employees and
two to three assistant managers, while a 16-screen megaplex has approximately
200 employees, including eight assistant managers. The theatre manager is paid
a salary and a commission based upon concession sales. A theatre manager can
increase the profitability of the theatre and his/her own compensation by
ensuring that the staff is properly trained to encourage patrons to "trade up"
in size or purchase additional concession items. The goal of a theatre manager
is to operate a theatre in the most efficient and profitable manner in order to
be promoted from managing a smaller theatre to managing a megaplex.
The Company believes strongly in customer service and it promotes this
through employee empowerment. Each theatre employee is authorized to deal with
all customer needs and complaints in a variety of ways, including offering free
tickets or free concession items, if necessary. Prior to peak seasons, the
Company
43
<PAGE> 45
teaches its employees customer service at its Customer Service University
training program. The Customer Service University is an active training program
consisting of role-playing exercises as well as typical classroom instruction.
Management Information Systems
The Company has developed its own point of sale ("POS") management
information system to further enhance its ability to maximize revenues, control
costs and efficiently manage the Company's theatre circuit. The POS information
system provides corporate management with a detailed daily admission and
concession revenue report by the start of business the following morning. This
information allows management to make real-time adjustments to movie schedules,
prolong runs or increase the number of screens on which successful movies are
being played and substitute films when gross receipts cease to meet expected
goals. Real-time seating and box office information is available to box office
personnel, making it possible for theatre management to avoid overselling a
particular film and providing faster and more accurate response to customer
inquiries regarding showings and available seating. The POS information system
also tracks concession sales and provides weekly in-theatre inventory reports,
leading to better inventory management and control.
INTERNATIONAL
The motion picture exhibition business has become increasingly global and
rising box office receipts from international markets indicate that some
international markets are poised for rapid growth. The Company believes that
its experience in developing and operating multiplex theatres provides it with
a significant advantage in developing multiplex facilities in international
markets. The Company's strategy in these markets is to form partnerships or
joint ventures with local operators, sharing risk and obtaining valuable market
insight.
Mexico
Cinemark International, through its subsidiary Cinemark Mexico, is
developing state-of-the-art multiplex theatres comparable to theatres developed
by the Company in the U.S. Cinemark Mexico's operations are conducted through
its subsidiary Cinemark de Mexico, which has its head office in Mexico City.
Cinemark Mexico currently operates eleven theatres (114 screens), with two
theatres (25 screens) under commitment with executed leases. The Company
manages all of Cinemark Mexico's theatres pursuant to a management agreement.
Cinemark Mexico's theatres are staffed primarily with Mexican nationals who
report to the Company's regional and corporate office personnel. The Company
provides all corporate operating functions, including film booking and
accounting.
Chile
In November of 1992, Cinemark International entered into a joint venture
with Conate, S.A., a Chilean movie theatre operator, to develop
state-of-the-art multiplex theatres in Chile. The joint venture provides for
the development of at least four new multiplex theatres and provides for the
licensing of the Company's technology, trademark and name. The joint venture
conducts its business through Cinemark Chile, which is 50% owned by Inversiones
Cinemark, S.A., a subsidiary of Cinemark International, and 50% owned by
Conate, S.A. Cinemark Chile, which is based in Santiago, Chile, currently
operates two theatres (13 screens).
44
<PAGE> 46
Canada
Cinemark International, through its wholly owned subsidiary Cinemark
Holdings Canada, Inc., owns a 50% interest in Cinemark Theatres Alberta, Inc.
("Cinemark Alberta") which currently operates one first run theatre (12
screens) and one discount theatre (12 screens) managed by the Company pursuant
to a management agreement.
Argentina
In December 1995, Cinemark International entered into a joint venture
agreement with D'Alimenti S.A., an Argentinean corporation ("DASA"), and
Prodecine S.A., an Argentinean corporation ("Procine"), to develop
state-of-the-art multiplex theatres in Argentina. The joint venture agreement
provides for the development of at least ten multiplex theatres (100 screens)
by 2006. The joint venture agreement also provides for the licensing of the
Company's technology, trademark and name. The joint venture anticipates that
its business will be conducted through Cinemark Argentina, S.A., which is 50%
owned by Cinemark International and 50% owned by DASA and Procine in accordance
with their respective investments.
Brazil
In 1996, Cinemark Brazil was organized as an indirect subsidiary of
Cinemark International. Cinemark Brazil will develop state-of-the-art multiplex
theatres comparable to theatres developed by the Company in the U.S. Cinemark
Brazil's initial plans are to build approximately 200 screens by 2001. The
Company expects to begin construction of a theatre in Brazil in the fall of
1996.
COMPETITION
The Company is the fifth largest motion picture exhibitor in North America
in terms of the number of screens in operation. The Company competes against
both local and national exhibitors, some of which may have substantially
greater financial resources than the Company.
In film zones where the Company has little or no direct competition
(approximately 75% of the Company's theatres), the Company selects those
pictures it believes will be most successful in its markets from among those
offered to it by distributors. Where the Company faces competition, it usually
licenses films based on an allocation process. The Company currently operates
in approximately 89 first run film zones in the U.S. The Company believes that
no individual film zone is material to the Company. See "-- Operations -- Film
Licensing." The Company believes that the principal competitive factors with
respect to film licensing include capacity and location of an exhibitor's
theatre, theatre comfort, quality of projection and sound equipment, level of
customer service and licensing terms. The competition for customers is
dependent upon factors such as the availability of popular films, the location
of theatres, the comfort and quality of theatres and ticket prices. The Company
believes its admission prices at its first run and discount theatres are
competitive with admission prices of respective competing theatres.
The Company's theatres face competition from a number of other motion
picture exhibition delivery systems, such as network, syndicated and pay
television, pay-per-view and home video systems. The impact of such delivery
systems on the motion picture exhibition industry is difficult to determine,
and there can be no assurance that existing or future alternative delivery
systems will not have an adverse impact on attendance. The Company's theatres
also face competition from other forms of entertainment competing for the
public's leisure time and disposable income.
45
<PAGE> 47
PROPERTIES
Of the 157 theatres operated by the Company in the U.S. at June 30, 1996,
nineteen theatres (200 screens) were owned, 130 theatres (985 screens) were
leased pursuant to building leases, four theatres (27 screens) were leased
pursuant to ground leases and four theatres (54 screens) were managed. The
Company's leases are generally entered into on a long term basis with terms
(including options) generally ranging from 20 to 40 years. Approximately ten of
the Company's theatre leases (covering 40 screens) have remaining terms
(including renewal periods) of less than 5 years and approximately ninety-four
of the Company's theatre leases (covering 772 screens) have remaining terms
(including renewal periods) of more than 15 years. Rent is typically calculated
as a percentage of box office receipts or total theatre revenues, subject to an
annual minimum. The Company leases office space in Dallas, Texas for its
corporate office under a lease providing for average annual rental payments of
$367,676 and expiring on June 30, 1998. See note 9 of notes to the Consolidated
Financial Statements for information with respect to the Company's lease
commitments.
As of June 30, 1996, the Company operated fifteen theatres (151 screens)
outside the U.S., with two theatres (25 screens) under commitment with executed
leases. Of the fifteen theatres operated outside of the U.S. one theatre (12
screens) was owned and fourteen theatres (139 screens) were leased pursuant to
ground or building leases. The leases generally provide for contingent rental
based upon operating results (subject to an annual minimum). Generally, these
leases will include renewal options for various periods at stipulated rates.
The Company attempts to obtain lease terms that provide for build-to-suit
construction obligations of the landlord.
EMPLOYEES
As of June 30, 1996, the Company had approximately 7,000 employees in the
U.S., approximately 20% of whom are full time employees and 80% of whom are
part time employees. The Company is a party to collective bargaining agreements
with five unions of which approximately ten employees are members. As of June
30, 1996, Cinemark Mexico's subsidiaries employed approximately 600 employees,
approximately all of whom are full time employees. Cinemark Mexico's
subsidiaries are party to collective bargaining agreements with two unions of
which approximately 460 employees are members. The Company considers its
relations with its employees to be satisfactory.
REGULATION
The Company is subject to various general regulations applicable to its
operations including the Americans with Disabilities Act (the "ADA"). The
Company has established a program to review and evaluate the Company's existing
theatres and its specifications for new theatres and to make any changes to
such theatres and specifications required by the ADA. The Company develops new
theatres to be accessible to the disabled and believes that it is otherwise in
substantial compliance where readily achievable with current regulations
relating to accommodating the disabled. The Company believes that the cost of
complying with the ADA will not be material.
LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
arising from the ordinary course of its business operations, such as personal
injury claims, employment matters and contractual disputes. The Company
believes that its potential liability with respect to proceedings currently
pending is not material in the aggregate to the Company's consolidated
financial position or results of operations.
46
<PAGE> 48
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Lee Roy Mitchell* 59 Chairman of the Board; Chief Executive Officer; Director
Tandy Mitchell 45 Vice Chairman of the Board; Executive Vice President;
Secretary; Director
Alan W. Stock+ 36 President; Chief Operating Officer; Director
Jeffrey J. Stedman 33 Vice President; Treasurer; Chief Financial Officer;
Assistant Secretary; Director
Gary R. Gibbs 52 Vice President-General Counsel; Assistant Secretary;
Director
Margaret E. Richards 37 Vice President-Real Estate; Assistant Secretary
Rob Carmony 38 Vice President-Director of Operations
Jerry Brand 50 Vice President-Film Licensing
W. Bryce Anderson*+ 53 Director
Sheldon I. Stein*+ 42 Director
Heriberto Guerra, Jr.+ 46 Director
James A. Stern 45 Director
James L. Singleton+ 40 Director
</TABLE>
- ---------------------------
* Member Audit Committee
+ Member Compensation Committee
The Shareholders' Agreement (as defined herein) contains a voting agreement
pursuant to which Mr. Mitchell agreed to vote his share of common stock of the
Company to elect designees of CALP to the Board of Directors of the Company.
As of June 30, 1996, CALP had the right to designate two board members.
Additionally, the Shareholders' Agreement provides that the Company must obtain
the written consent of CALP for certain corporate acts. See "Certain
Transactions--Cypress Investment."
The directors of the Company are elected each year by the shareholders to
serve for a one-year term and until their successors are elected and qualified.
Directors of the Company are reimbursed for expenses actually incurred for each
Board meeting which they attend. In addition, Directors who are not employees
of the Company receive a fee of $1,000 for each meeting of the Board of
Directors attended by such person. The executive officers of the Company are
elected by the Board of Directors to serve at the discretion of the Board.
The following is a brief description of the business experience of the
directors and executive officers of the Company for at least the past five
years. All compensation of directors and officers is paid by the Company.
Lee Roy Mitchell has served as Chairman of the Board since March 1996, as
Director and Chief Executive Officer of the Company since its inception in 1987
and Vice Chairman of the Board of Directors from March 1993 to March 1996. Mr.
Mitchell was President of the Company from its inception in 1987 until March
1993. From 1985 to 1987, Mr. Mitchell served as President and Chief Executive
Officer of a
47
<PAGE> 49
predecessor corporation. Mr. Mitchell has served on the Board of Directors of
the National Association of Theatre Owners since 1991. Mr. Mitchell has been
engaged in the motion picture exhibition business for more than 35 years.
Tandy Mitchell has served as Vice Chairman of the Board since March 1996,
as Director of the Company since April 1992, as Executive Vice President of the
Company since October 1989 and as Secretary of the Company since its inception
in 1987. Mrs. Mitchell was General Manager of the theatre division of a
predecessor corporation from 1985 to 1987. From 1978 to 1985, Mrs. Mitchell
was employed by Southwest Cinemas Corporation, most recently as director of
operations. Mrs. Mitchell is the wife of Lee Roy Mitchell.
Alan W. Stock has served as President of the Company since March 1993, a
Director of the Company since April 1992 and as Chief Operating Officer of the
Company since March 1992. Mr. Stock was Vice President of the Company from
October 1989 to March 1993. Mr. Stock was General Manager of the Company from
its inception in 1987 to March 1992. Mr. Stock was employed by the theatre
division of a predecessor corporation from January 1986 to December 1987 as
Director of Operations. From 1981 to 1985, he was employed by Consolidated
Theaters, most recently as District Manager.
Jeffrey J. Stedman was elected Director of the Company in March 1996 and
has served as Vice President, Treasurer and Chief Financial Officer of the
Company since April 1993. From December 1989 to April 1993, Mr. Stedman was
Director of Finance of the Company. Prior to joining the Company in December
1989, Mr. Stedman was a Manager in the tax department of Deloitte & Touche,
where he was employed from December 1984 to December 1989. Mr. Stedman is a
certified public accountant.
Gary R. Gibbs has served as a Director of the Company since July 1995 and
has served as General Counsel to the Company since January 1990. Prior to
joining the Company, Mr. Gibbs spent the previous 17 years in the private
practice of law in Hot Springs, Arkansas, where he was the senior partner at
the law firm of Gibbs & Farnell.
Margaret E. Richards has served as a Vice President and Assistant Secretary
of the Company since October 1989 and as Vice President-Real Estate since March
1994. Ms. Richards has been Director of Leasing of the Company since its
inception in 1987 and was employed by the theatre division of a predecessor
corporation in its real estate section from August 1986 to December 1987.
Robert F. Carmony has served as Director of Operations of the Company since
June 1988. He was owner of O.C. Enterprises, a software development firm,
from 1986 to 1988. Prior to forming his own software company, Mr. Carmony
worked for Plitt-Cineplex Odeon theatres from 1985 to 1986. He worked as a
Systems Analyst for Electronic Data Systems (EDS) from 1984 to 1985. Mr.
Carmony was elected a Vice President-Director of Operations in March 1996.
Jerry Brand has served as Vice President-Film Licensing since March 1996.
Mr. Brand has over 27 years of experience in the theatre industry, beginning
his career with Paramount Pictures in 1968. Prior to joining the Company, Mr.
Brand served as Vice President and Head Film Buyer with Cobbs Theatres where
he was employed from 1983 to March 1996.
W. Bryce Anderson has served as a Director of the Company since June 1992.
Mr. Anderson has been Chairman of the Board of Directors of Ennis Steel
Industries, Inc., a steel fabricator, since 1980 and Chairman of the Board of
Directors of Reflex Glass Bead Co., Inc., a manufacturer of glass beads, since
September 1990. Mr. Anderson was Chairman of the Board of Centerline
Industries, Inc., an industrial paint manufacturer, from January 1989 to
December 1992. From 1976 to 1989, Mr. Anderson was Chairman of the Board of
Directors and Chief Executive Officer of Ennis Paint Manufacturing, Inc., an
industrial paint manufacturer.
48
<PAGE> 50
Sheldon I. Stein has served as a Director of the Company since June 1992.
Mr. Stein is a Managing Director of Bear, Stearns & Co. Inc., an investment
banking firm, and is in charge of its Southwest Corporate Finance Department.
Prior to joining Bear, Stearns & Co. Inc. in August 1986, Mr. Stein was a
partner in the Dallas law firm of Hughes & Luce. Mr. Stein is a director of
AMRE, Inc., Tandycrafts, Inc., Fresh America Corporation, Men's Wearhouse, Inc.
and RAC Financial Group, Inc.
Heriberto Guerra, Jr. has served as a Director of the Company since
December 1993. Mr. Guerra has been Managing Director-Corporate Development for
Southwestern Bell Telephone since 1995. From September 1985 to January 1987,
he was Area Manager-Marketing Operations for Southwestern Bell, and from 1987
to 1995, he was Executive Director-Government Relations for Southwestern Bell.
Prior to that, he served in an owner or manager capacity for various hotel,
restaurant and movie theatre businesses in Texas. Mr. Guerra is also a
director of Cinemark Mexico (USA), Inc. and Play by Play Toys and Novelties.
James A. Stern was elected Director of the Company in March 1996. Mr.
Stern has been Chairman of The Cypress Group L.L.C. ("Cypress Group") since its
formation in April 1994. Prior to joining Cypress Group, Mr. Stern spent his
entire career with Lehman Brothers, an investment banking firm, most recently
as head of the Merchant Banking Group. He served as head of Lehman's High
Yield and Primary Capital Markets Groups, and was co-head of Investment
Banking. In addition, Mr. Stern was a member of the firm's Operating
Committee. Mr. Stern is a director of Noel Group, Inc., Lear Corporation,
Infinity Broadcasting Corporation, R.P. Scherer Corporation and K&F Industries.
James L. Singleton was elected Director of the Company in March 1996. Mr.
Singleton has been Vice Chairman of Cypress since its formation in April 1994.
Prior to joining Cypress Group, Mr. Singleton was a Managing Director with
Lehman Brothers, an investment banking firm, where he worked in the Merchant
Banking Group, focusing much of his attention on media/communications related
investments. Mr. Singleton is a director of Infinity Broadcasting Corporation,
Able Body Corporation, and L.P. Thebault Company.
49
<PAGE> 51
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term
------------------- Compensation
Awards
------
Securities
Underlying All Other
Salary (A) Bonus Options/SARs Compensation
Name and Principal Position Year ($) ($) (#) ($)
--------------------------- ---- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Lee Roy Mitchell, Chairman of the Board 1995 $267,852 $1,733,976 - $120,828(B)
and Chief Executive Officer 1994 243,513 1,715,290 - 121,086(C)
1993 221,375 1,778,625 101,477(D)
Alan Stock, President and Chief 1995 $175,000 $80,043 - $6,930(E)
Operating 1994 125,070 71,729 - 5,541(E)
Officer 1993 121,850 111,058 - 5,677(E)
1995 $119,790 $19,980 - $21,884(F)
Tandy Mitchell, Vice Chairman of the 1994 108,900 17,450 - 22,165(G)
Board, Executive Vice President and 1993 99,000 12,004 - 22,510(H)
Secretary
1995 $110,000 $46,809 - $6,930(E)
Jeffrey J. Stedman, Vice President, 1994 82,500 44,461 100 6,746(E)
Treasurer and Chief Financial Officer 1993 70,189 30,769 400 6,935(E)
1995 $70,000 $23,700 - $2,063(E)
Margaret E. Richards, Vice President- 1994 $60,000 20,971 - 1,791(E)
Real Estate and Assistant Secretary 1993 $70,197 12,469 - 2,496(E)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------------
(A) Amounts shown include cash and non-cash compensation earned and
received by executive officers as well as amounts earned but deferred
at the election of those officers.
(B) Represents $98,844 of life insurance premiums paid by the Company for
the benefit of Mr. Mitchell, a $1,984 annual contribution to the
Company's 401(K) savings plan and $20,000 representing the value of
the use of a Company vehicle for one year.
(C) Represents $98,844 of life insurance premiums paid by the Company for
the benefit of Mr. Mitchell, a $2,242 annual contribution to the
Company's 401(k) savings plan and $20,000 representing the value of
the use of a Company vehicle for one year.
(D) Represents $98,844 of life insurance premiums paid by the Company for
the benefit of Mr. Mitchell and a $2,633 annual contribution to the
Company's 401(k) savings plan.
(E) Represents the Company's annual contribution to the Company's 401(k)
savings plan.
(F) Represents $13,880 of life insurance premiums paid by the Company for
the benefit of Mrs. Mitchell, a $2,134 annual contribution to the
Company's 401(K) savings plan and $5,870 representing the value of the
use of a Company vehicle for one year.
(G) Represents $13,880 of life insurance premiums paid by the Company for
the benefit of Mrs. Mitchell, a $2,415 annual contribution to the
Company's 401(k) savings plan and $5,870 representing the value of the
use of a Company vehicle for one year.
(H) Represents $13,880 of life insurance premiums paid by the Company for
the benefit of Mrs. Mitchell, a $2,760 annual contribution to the
Company's 401(k) savings plan and $5,870 representing the value of the
use of a Company vehicle for one year.
50
<PAGE> 52
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
There were no Options/SAR grants to the named Executive Officers for
fiscal year ended December 31, 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-The-Money
Shares Acquired on Unexercised Options/SARs at
Name Exercise (#) Value Realized ($) Options/SARs at FY-End ($)
FY-End (#) Exercisable/
Exercisable/ Unexercisable
Unexercisable
<S> <C> <C> <C> <C>
Lee Roy Mitchell -- -- -- --
Alan Stock -- -- 1710/427 (A)
Tandy Mitchell -- -- -- --
Jeffrey J. Stedman -- -- 280/220 (A)
Margaret E. Richards -- -- 427/107 (A)
</TABLE>
- ---------------
(A) The Company has the right to call the shares issuable upon exercise of
the options for terminating employees. The call price increases over
the five year vesting period of the options.
401(K) PENSION PLAN
The Company sponsors a defined contribution savings plan (the "401(k)
Plan") whereby certain employees of the Company or its subsidiaries may (under
current administrative rules) elect to contribute, in whole percentages between
1% and 15% of such employee's compensation, provided no employee's elective
contribution shall exceed the amount permitted under Section 402(g) of the
Internal Revenue Code of 1986, as amended ($9,500 in 1995). A discretionary
matching contribution is made by the Company annually ($415,121 in 1995). The
Company's matching contribution is subject to vesting and forfeitures. The
Company's contributions vest at the rate of twenty percent (20%) per year
beginning two years from the date of employment. After an employee has worked
for six years, employees have full and immediate vesting rights to all of the
Company's matching contributions. The Company's contributions to the accounts
of the named Executive Officers are included in the Summary Compensation Table.
EMPLOYMENT AGREEMENTS
Mr. and Mrs. Mitchell each have an employment agreement with the Company
which contains the terms described below.
Lee Roy Mitchell's 1995 base salary was $267,864 and will increase
thereafter at the rate of 10% per year. In addition, Mr. Mitchell (i) is
entitled to receive an annual bonus, subject to approval by the Board of
Directors, in an amount not exceeding 10% of the aggregate amount of
consolidated theatre level cash flow of the Company in excess of $25 million
for each year, which bonus was approximately $1,732,148 for the year ended
December 31, 1995, (ii) is reimbursed for expenses incurred by him in
connection with his duties, and (iii) receives the use of an automobile of his
choice to be replaced at his election every three years, a club membership of
his choice, a whole life insurance policy in the amount of $3,300,000 insuring
his life during the period of his employment and any other benefits generally
available to the executives of the Company.
51
<PAGE> 53
The maximum base salary and bonus which Mr. Mitchell is entitled to receive for
any calendar year is limited to $2 million and the payment of any bonus
requires board approval. The employment agreement terminates on the earlier of
(i) Mr. Mitchell's death or permanent disability (except with respect to
amounts payable as described in the following sentence) or (ii) December 31,
2001. In the event of Mr. Mitchell's permanent disability, he will be entitled
to receive $10,000 per month for a period of 60 months.
Tandy Mitchell's 1995 base salary was $119,790 and will increase thereafter
at the rate of 10% per year. In addition, Mrs. Mitchell (i) is reimbursed for
expenses incurred by her in connection with her duties and (ii) receives the
use of an automobile of her choice to be replaced at her election every three
years, a whole life insurance policy in the amount of $1,000,000 insuring her
life during the period of her employment and any other benefits generally
available to the executives of the Company. The employment agreement
terminates on the earlier of (i) Mrs. Mitchell's death or permanent disability
or (ii) December 31, 2001.
The employment agreements of Mr. and Mrs. Mitchell provide that their
employment may be terminated by the unanimous decision of the Board of
Directors of the Company (other than the terminated party) for cause if the
terminated party is convicted of a felony and incarcerated or willfully refuses
to perform any of the duties required under the employment agreement for a
period of 60 days after notice from the Board of Directors.
The employment of Mr. and Mrs. Mitchell will be deemed to be constructively
terminated if, among other things, there is a change of control (as defined in
Item 6(c) under Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended) of the Company, a merger or consolidation of the Company, a
sale of all or substantially all of the assets of the Company, or if certain
changes related to their respective status or compensation by the Company
occur. In the event of termination of employment by the Company without cause,
Mr. and Mrs. Mitchell will be entitled to receive the amounts that would
otherwise be paid under their respective employment agreements for the
remaining term of such agreements.
The employment agreements of Mr. and Mrs. Mitchell further provide that
they will be indemnified against certain liabilities that may arise by reason
of their status or service as executive officers of the Company. The
employment agreements of Mr. and Mrs. Mitchell do not prohibit their engaging
in activities competitive with those of the Company, including the acquisition
of theatres (subject to fiduciary duties to the Company imposed by applicable
law or contractual obligation imposed upon Mr. Mitchell by the Shareholders'
Agreement). See "Certain Transactions--Competing Businesses Owned by Mr.
Mitchell" and "--Cypress Investment."
STOCK OPTIONS
Employee Stock Option Plan
The Company has established a Nonqualified Stock Option Plan (the "Plan")
under which the Chief Executive Officer of the Company, in his sole discretion,
may grant employees of the Company options to purchase up to an aggregate of
10,685 shares of the Company's Class B Common Stock. The Chief Executive
Officer of the Company has the ability to set the exercise price and the term
(of up to ten years) of the options. All options vest at the rate of one-fifth
of the total options granted per year generally beginning one year from the
date of grant, subject to acceleration by the Chief Executive Officer of the
Company. An employee's options are forfeited if the employee is terminated for
cause. Upon termination of an employee's employment with the Company and
provided that no public market exists for any class of common stock of the
Company at such time, the Company has the option to repurchase any shares of
capital stock of the Company that were acquired by the employee pursuant to the
Plan at a specified formula price based on theatre cash flow. As of June 30,
1996 there were outstanding options to purchase 8,806 shares of the Company's
Class B Common Stock.
52
<PAGE> 54
During 1995, the Company granted options under the Plan to purchase 1,981
shares of Class B Common Stock of the Company at an exercise price of $1.00 per
share. The options expire 10 years from the date of grant. The Company
believes that the market value of a share of Class B Common Stock on the date
of grant exceeded the option price by approximately $1,150. As a result, the
Company accrued $2.3 million for unearned compensation and will amortize this
noncash expense at a rate of approximately $.5 million per year during the five
year vesting period for the options granted.
Independent Director Stock Options
The Company has granted the unaffiliated directors of the Company options
to purchase up to an aggregate of 900 shares of the Company's Class B Common
Stock at an exercise price of $833.34 per share (the "Director Options").
Effective April 1995, the Company amended the Director Options to reduce the
aggregate number of shares of Common Stock issuable pursuant to the Director
Options from 900 to 600 shares and to reduce the exercise price of the Director
Options from $833.34 per share to $1.00 per share. The options vest on June 1,
1997, subject to acceleration in certain circumstances. The options expire ten
years from the date of grant. A director's options are forfeited if the
director resigns or is removed from the Board of Directors of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In January 1995, the Board of Directors established a Compensation
Committee of the Board to study senior management compensation and make
recommendations to the Board of Directors as a whole relating to said
compensation. Messrs. Stock, Stein, Anderson, Guerra and Singleton currently
serve as members of the Compensation Committee, with Mr. Stock being the only
member who is an officer or employee of the Company or any of its subsidiaries.
53
<PAGE> 55
PRINCIPAL SHAREHOLDERS
The following table and the accompanying footnotes set forth, as of June
30, 1996, the beneficial ownership of the Company's Common Stock by (i) each
person who is known to the Company to own beneficially more than 5% of either
class of its outstanding Common Stock, (ii) each director and named executive
officer, and (iii) all directors and officers as a group:
<TABLE>
<CAPTION>
NUMBER COMBINED
TITLE OF OF PERCENT PERCENT
NAMES AND ADDRESSES(1) CLASS SHARES(2) OF CLASS OF CLASSES
---------------------- -------- --------- -------- ----------
<S> <C> <C> <C> <C>
Lee Roy Mitchell(3) Class A Common Stock 1,500 100%
7502 Greenville Avenue 42.2%
Suite 800, LB-9 Class B Common Stock 77,687 42.8%
Dallas, TX 75231
Cypress Merchant Banking Class A Common Stock - -
Partners L.P. 42.2%
65 East 55th St. Class B Common Stock 78,469 42.8%
New York, New York 10022
Cypress Pictures Ltd. Class A Common Stock - -
c/o W.S. Walker Company 2.2%
Second Floor Class B Common Stock 4,079 2.2%
Caledonian House
Mary Street, P.O. Box 265
George Town, Grand Cayman
Cayman Islands
The Mitchell Special Trust Class A Common Stock - -
7502 Greenville Avenue 7.9%
Suite 800, LB-9 Class B Common Stock 14,667 8%
Dallas, TX 75231
Tandy Mitchell(4) Class A Common Stock - -
-
Class B Common Stock - -
Alan W. Stock(5) Class A Common Stock - -
*
Class B Common Stock 1,710 *
Jeffrey J. Stedman(6) Class A Common Stock - -
*
Class B Common Stock 280 *
</TABLE>
54
<PAGE> 56
<TABLE>
<CAPTION>
NUMBER COMBINED
TITLE OF OF PERCENT PERCENT
NAMES AND ADDRESSES(1) CLASS SHARES(2) OF CLASS OF CLASSES
---------------------- -------- --------- -------- ----------
<S> <C> <C> <C> <C>
Gary R. Gibbs(7) Class A Common Stock - - *
Class B Common Stock 600 *
Margaret E. Richards(8) Class A Common Stock - - *
Class B Common Stock 427 *
W. Bryce Anderson Class A Common Stock - -
-
Class B Common Stock - -
Sheldon I. Stein Class A Common Stock - -
-
Class B Common Stock - -
Heriberto Guerra, Jr. Class A Common Stock - - -
Class B Common Stock - - -
James A. Stern Class A Common Stock - - -
Class B Common Stock - - -
James L. Singleton Class A Common Stock - - -
Class B Common Stock - - -
Directors and Officers as Class A Common Stock 1,500 100.0%
a Group (13 persons) (9) 44.6%
Class B Common Stock 81,024 44.1%
</TABLE>
- ---------------------
* Less than 1%.
(1) Unless otherwise indicated, the Company believes the beneficial owner has
both sole voting and investment powers over such shares.
(2) As of June 30, 1996, 1,500 shares of Class A Common Stock and 183,574
shares of Class B Common Stock were issued and outstanding. Includes 5,893
shares of Class B Common Stock issuable upon the exercise of options that
may be exercised within 60 days of the date of this Prospectus.
(3) Does not include 15,937 shares of Class B Common Stock held in trust for
the benefit of certain of Mr. Mitchell's grandchildren, as to which Mr.
Mitchell disclaims beneficial ownership. Mr. Mitchell is the co-trustee of
such trusts.
(4) Excludes any shares owned by Mr. Mitchell that Mrs. Mitchell may be deemed
to own as a result of community property laws.
(5) Includes 1,390 shares of Class B Common Stock issuable upon the exercise of
options that may be exercised within 60 days of the date of this
Prospectus.
(6) Includes 205 shares of Class B Common Stock issuable upon the exercise of
options that may be exercised within 60 days of the date of this
Prospectus.
55
<PAGE> 57
(7) Includes 510 shares of Class B Common Stock issuable upon the exercise of
options that may be exercised within 60 days of the date of this
Prospectus.
(8) Includes 367 shares of Class B Common Stock issuable upon the exercise of
options that may be exercised within 60 days of the date of this
Prospectus.
(9) Includes 2,472 shares of Class B Common Stock issuable upon the exercise of
options that may be exercised within 60 days of the date of this
Prospectus.
COMMON STOCK
The rights of the holders of Class A and Class B are identical except for
voting and conversion rights. Each share of Class A Common Stock is entitled
to one vote on all matters submitted to a vote of the shareholders. The Class
B Common Stock is non-voting. Subject to contractual limitations regarding
conversion of Class B Common Stock into Class A Common Stock contained in the
Shareholders' Agreement and in Stock Transfer Restriction Agreements between
the Company and certain employees, each share of Class B Common Stock is
convertible at any time, at the option of and without cost to the shareholder,
into the same number of shares of Class A Common Stock upon surrender to the
Company of the certificate or certificates evidencing the Class B Common Stock
to be converted, together with a written notice of the election of such
shareholder to convert such shares into Class A Common Stock. Holders of Class
A and Class B Common Stock are entitled to receive pro rata per share such
dividends as the Board of Directors may from time to time declare out of funds
of the Company legally available for the payment of dividends. Upon
liquidation, dissolution or winding-up of the Company, the holders of Class A
and Class B Common Stock are entitled to share ratably in all assets available
for distribution after payment in full of creditors. In a merger,
consolidation or other business combination, the consideration to be received
per share by holders of Class A and Class B Common Stock must be identical,
except that in any such transaction in which shares of common stock are
distributed, such shares may differ to the extent that voting rights differ
among existing classes of Common Stock. See "Certain Transactions--Cypress
Investment."
56
<PAGE> 58
CERTAIN TRANSACTIONS
2 DAY VIDEO, INC.
On August 21, 1995, the Company loaned 2 Day Video, Inc. ("2 Day")
$500,000, evidenced by a promissory note of even date bearing interest at an
annual percentage rate equal to the prime rate set forth in the Wall Street
Journal from time to time plus 2%, payable in eighteen consecutive monthly
installments with the final installment due on February 25, 1997. On February
7, 1996, the Company loaned 2 Day $450,000 evidenced by a promissory note of
even date bearing interest at an annual percentage rate equal to the prime rate
set forth in the Wall Street Journal from time to time plus 2%, payable in
eighteen consecutive monthly installments with the final installment due on
August 1, 1997. 2 Day utilized the proceeds of these loans for store openings.
As of June 30, 1996, 2 Day operated 21 video rental stores, 20 of which are
located in Texas and one of which is located in Georgia. The Company and Mr.
Mitchell own 83.1% and 16.9%, respectively, of the common stock of 2 Day.
MANAGEMENT AGREEMENTS
The Company currently manages seven theatres (90 screens) for affiliates
under long term management agreements. The Company provides all operating
functions, including film booking, accounting and the operation and maintenance
of the theatres, in the same manner as such functions are performed by Company
personnel for Company owned or leased theatres. The operating and maintenance
expenses of the theatres are paid by the owners of the theatres. The Company
receives a specified percentage of the gross revenues of the theatres managed
by the Company and in some cases a percentage of the theatre cash flow above
certain targeted amounts. The Company may in the future enter into additional
management agreements with affiliates and/or third parties to manage theatres.
Movie Theatre Investors
The Company manages three theatres (37 screens) for Movie Theatre
Investors, Ltd. ("Movie Theatre Investors"). Mr. Mitchell is the sole
shareholder of one of the general partners of Movie Theatre Investors. In
addition, Mr. Mitchell owns 10.1%, Mrs. Mitchell and affiliates own 7.4% and
the Company owns 1% of the limited partnership interests in Movie Theatre
Investors. The Company received $300,662 in management fees from Movie Theatre
Investors in 1995.
Laredo Joint Venture
The Company manages one theatre (12 screens) for Laredo Theatre, Ltd.
("Laredo"). Lone Star Theatres, Inc. owns 25% of the limited partnership
interests in Laredo. Cinemark International is the sole general partner and
owns the remaining limited partnership interests. Lone Star Theatres, Inc. is
owned 100% by Mr. David Roberts, who is Mr. Mitchell's son-in-law. The Company
received $196,982 in management fees from Laredo in 1995.
Cinemark Partners II
The Company manages one theatre (17 screens) for Cinemark Partners II, Ltd.
("Cinemark Partners II"). Cinemark Partners I, Inc., a wholly owned subsidiary
of the Company, is the sole general partner of Cinemark Partners II. Mr.
Mitchell owns 10% and Cinemark Partners I, Inc. owns 1% of the limited
partnership interests in Cinemark Partners II. The Company received $171,500
in management fees from Cinemark Partners II in 1995.
57
<PAGE> 59
Cinemark Alberta
The Company manages one first run theatre (12 screens) and one discount
theatre (12 screens) for Cinemark Alberta. Cinemark Holdings Canada, Inc., a
wholly owned subsidiary of Cinemark International, owns 50% of Cinemark
Alberta. The Company received $74,928 in management fees from Cinemark Alberta
in 1995.
COMPETING BUSINESSES OWNED BY MR. MITCHELL
Mr. Mitchell currently owns a 10% interest in a discount theatre chain (5
theatres) located principally in Houston, Texas, with total assets of
approximately $683,100, a 50% interest in a theatre chain (15 theatres) located
principally in Louisiana, with total assets of approximately $1.26 million, a
33% interest in one theatre located in Louisiana, with total assets of
approximately $82,511 and a 33% interest in a theatre in South Louisiana with
total assets of approximately $101,622, to each of which he devotes a minimal
portion of his business time. The Company believes that five of these 23
theatres may compete with Company-owned theatres.
STARPLEX CINEMAS, INC.
On June 21, 1994, the Company executed a ground lease on property located
in Lewisville, Texas. The Company constructed and equipped an eight screen
multiplex theatre. The Company leases the theatre and the equipment to Starplex
Cinemas, Inc. ("Starplex"). The Company has recorded only $200,000 of rental
income since the inception of this lease as the theatre is performing below
expectations and Starplex is delinquent in making its required rent payments.
Starplex is 100% owned by Mr. Mitchell's brother.
CYPRESS INVESTMENT
The Company entered into the Shareholders' Agreement dated March 12, 1996
with Mr. Mitchell, his affiliates and Cypress (the "Shareholders' Agreement").
Among other things, the Shareholders' Agreement provides that, subject to
certain conditions, the Company must obtain (with certain exceptions) the
consent of CALP for certain corporate acts including, but not limited to,
amendments to the Articles of Incorporation of the Company, approval of annual
budgets under certain circumstances, asset dispositions or acquisitions in
excess of specified amounts, merger or consolidation of the Company, incurrence
of indebtedness over specified amounts, certain stock redemptions or dividends,
transactions with affiliates over specified amounts, certain management changes
or new compensation plans, financing theatres through limited partnerships,
settlements of litigation over specified amounts and issuance of common stock
under certain conditions. The Shareholders' Agreement also provides that
Cypress may not convert its Class B Common Stock to Class A Common Stock unless
certain events occur such as a Change of Control (as defined in the
Shareholders' Agreement) or the consummation of a public offering of the
Company's common stock. The above-described provisions terminate on the earlier
of (i) the public owning 25% or more of the common stock of the Company, (ii)
the merger of the Company with and into any publicly traded company or (iii)
ten years after the date of the Shareholders' Agreement. The Shareholders'
Agreement also contains a voting agreement pursuant to which Mr. Mitchell
agrees to vote his shares of common stock to elect certain designees of CALP
to the Board of Directors of the Company.
Mr. Mitchell also agreed that in the event any corporate opportunity is
presented to Mr. Mitchell or any of his affiliates to acquire or enter into any
business transaction involving the motion picture exhibition business that
would be significant to the Company, he would submit such opportunity to the
Board of Directors of the Company before taking any action.
58
<PAGE> 60
The Shareholders' Agreement further provides that the shareholders agree to
form a new corporation as the parent corporation of the Company and to
contribute their respective shares for like shares of this new corporation. As
of June 30, 1996, neither the Company nor the shareholders have pursued plans
to create such a holding company; however, the Company can give no assurances
that the Company will not pursue such a reorganization in the future.
INDEMNIFICATION OF DIRECTORS
The Company has adopted provisions in its Articles of Incorporation and
Bylaws which provide for indemnification of its officers and directors to the
maximum extent permitted under the Texas Business Corporation Act. In addition,
the Company has entered into separate indemnification agreements with each of
its directors which requires the Company, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service
as directors to the maximum extent permitted under the Texas Business
Corporation Act. The Company has obtained an insurance policy providing for
indemnification of officers and directors of the Company and certain other
persons against liabilities and expenses incurred by any of them in certain
stated proceedings and under certain stated conditions.
DESCRIPTION OF SERIES B NOTES
The Series A Notes were issued, and the Series B Notes will be issued,
under the Indenture dated as of August 15, 1996 (the "Indenture"), among the
Company and the Trustee. The Series A Notes were issued pursuant to the
Company's Offering Memorandum dated August 12, 1996 (the "Offering
Memorandum"). The Series B Notes will be issued solely in exchange for an
equal principal amount of the outstanding Series A Notes pursuant to the
Exchange Offer. The terms of the Series B Notes will be identical in all
material respects to the form and terms of the Series A Notes except that: (i)
the Series B Notes will have been registered under the Securities Act (and will
generally be freely transferable by holders thereof who are not Restricted
Holders); and (ii) the Registration Rights and Liquidated Damages (as defined
herein) applicable to the Series A Notes are not applicable to the Series B
Notes. The Series A Notes and the Series B Notes are collectively referred to
herein as the "Notes."
The following summary of the terms of the Indenture and the Notes is based
on certain provisions of the Indenture and the form of Note attached thereto.
It does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all of the provisions of the Indenture. The
definitions of certain terms used in the following summary are set forth below
under "--Certain Definitions." Capitalized terms used herein and not otherwise
defined shall have the respective meanings assigned to them in the Indenture.
The Series B Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all present and future Senior Indebtedness
of the Company, and senior or pari passu in right of payment to all existing
and future subordinated Indebtedness of the Company. The Series B Notes will
be pari passu with the Series A Notes.
As of the date of the Indenture, all Subsidiaries of the Company will be
Restricted Subsidiaries, other than the Existing Unrestricted Subsidiaries.
However, under certain circumstances, the Company will be able to designate
additional current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to most of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate original principal amount to $200
million and will mature on August 1, 2008. Interest on the Notes will accrue
at the rate of 9-5/8% per annum and will be payable semi-annually
59
<PAGE> 61
in arrears on February 1 and August 1 of each year, commencing February 1, 1997
to Holders of record on the immediately preceding January 15 and July 15.
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of original
issuance. Interest will be computed on the basis of a 360-day year consisting
of twelve 30-day months. Principal of, and premium, if any, and interest on,
the Notes will be payable at the corporate trust office of the Trustee in New
York City or at the office of any Paying Agent in New York City appointed
pursuant to the Indenture. At the option of the Company, payment of interest
may be made by check mailed to the Holders of Notes at their respective
addresses set forth in the register of Holders of Notes; provided that all
payments with respect to Global Notes and Certificated Securities the Holders
of whom have given wire transfer instructions to the Company will be required
to be made by wire transfer of same day funds to the accounts specified by the
Holders thereof. The Notes will be issued in denominations of $1,000 and
integral multiples thereof.
The Trustee is Paying Agent and Registrar under the Indenture. The Company
may act as Paying Agent or Registrar under the Indenture, and the Company may
change the Paying Agent or Registrar without notice to the Holders of the
Notes.
SUBORDINATION
The payment of principal of, premium, if any, and interest on, and other
Obligations evidenced by, the Notes will be subordinated in right of payment,
as set forth in the Indenture, to the prior payment in full of all Senior
Indebtedness, whether outstanding on the date of the Indenture or thereafter
incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Indebtedness will be entitled to
receive payment in full in cash (or U.S. dollar-denominated Cash Equivalents)
of all Obligations due in respect of such Senior Indebtedness (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Indebtedness) before the holders of Notes will be
entitled to receive any payment of any kind or character with respect to the
Notes, and until all Obligations with respect to Senior Indebtedness are paid
in full in cash (or U.S. dollar-denominated Cash Equivalents), any distribution
to which the holders of Notes would be entitled will be made to the holders of
Senior Indebtedness; provided that, notwithstanding the foregoing, holders of
Notes may receive (i) securities that are subordinated at least to the same
extent as the Notes to Senior Indebtedness and any securities issued in
exchange for Senior Indebtedness and (ii) payments made from the trust
described under "-- Satisfaction and Discharge of Indenture."
The Company also may not make any payment of any kind or character upon or
in respect of the Notes (except in such subordinated securities or from the
trust described under "-- Satisfaction and Discharge of Indenture") if (i) a
default in the payment of the principal of, premium, if any, or interest on
Designated Senior Indebtedness occurs and is continuing or (ii) any other
default occurs and is continuing with respect to Designated Senior Indebtedness
that permits holders of the Designated Senior Indebtedness as to which such
default relates to accelerate its maturity and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from the Company or the holders of
any Designated Senior Indebtedness. Payments on the Notes may and will be
resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived and (b) in the case of a nonpayment default, upon
the earlier of (i) the date on which such nonpayment default is cured or waived
or (ii) 179 days after the date on which the applicable Payment Blockage Notice
is received by the Trustee (unless the maturity of any Designated Senior
Indebtedness has been accelerated or unless the subordination provisions of the
Indenture otherwise do not permit such payment). In no event shall more than
one period of payment blockage be made in any 360 consecutive day period. No
nonpayment default that existed or was continuing on the date of receipt by the
Trustee of any Payment Blockage Notice will be, or be made, the basis for a
subsequent Payment Blockage Notice. Following the expiration of any
60
<PAGE> 62
period during which the Company is prohibited from making payments on the Notes
pursuant to a Payment Blockage Notice, the Company will be obligated to resume
making any and all required payments in respect of the Notes, including without
limitation any missed payments.
The Indenture requires that the Company and the Trustee promptly notify
holders of Designated Senior Indebtedness if payment of the Notes is
accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Indebtedness. The Indenture
limits, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Indebtedness, that the Company and its
Restricted Subsidiaries can incur. See "-- Certain Covenants -- Limitation on
Indebtedness." As of August 31, 1996, the Company had outstanding approximately
$18.2 million of Senior Indebtedness. The Notes are effectively subordinated to
Indebtedness of the Company's subsidiaries, which aggregated $22.4 million as
of August 31, 1996.
OPTIONAL REDEMPTION
The Notes are not redeemable at the option of the Company prior to August
1, 2001. Thereafter, the Notes will be redeemable, at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 calendar
days' prior notice to each Holder of Notes to be redeemed, at the redemption
prices (expressed as percentages of the principal amount) set forth below, plus
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve month period beginning on August 1 of the years
indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001 . . . . . . . . . . 104.813%
2002 . . . . . . . . . . 102.406%
2003 and thereafter . . 100%
</TABLE>
Notwithstanding the foregoing, on and prior to August 1, 1999, the Company
may redeem up to 35% of the aggregate principal amount of the Notes originally
outstanding at a redemption price of 110% of the principal amount thereof, plus
accrued and unpaid interest thereon to the redemption date, with the net
proceeds of one or more Equity Offerings of the Company or, if applicable, a
Parent; provided that at least 65% of the aggregate principal amount of the
Notes originally issued remains outstanding immediately after the occurrence of
such redemption (but such unredeemed Notes may be redeemed pursuant to the
optional redemption procedure described in the immediately preceding
paragraph); and provided, further, that such notice of redemption shall be
given not later than 30 days, and such redemption shall occur not later than 90
days, after the date of the closing of any such Equity Offering.
Notice of redemption shall be mailed at least 30 but not more than 60
calendar days before the redemption date to each Holder of Notes to be redeemed
at such Holder's registered address. The notice of redemption shall identify
the Notes to be redeemed and shall state the redemption date; the redemption
price; the name and address of the Paying Agent; that Notes called for
redemption must be surrendered to the Paying Agent to collect the redemption
price plus accrued interest; and that, unless the Company defaults in making
such redemption payment, interest on Notes called for redemption ceases to
accrue on and after the redemption date. If less than all of the Notes are to
be redeemed, the Trustee shall select the Notes to be redeemed in compliance
with the requirements of any applicable depositary and securities exchange
requirements, or if the Notes are not so listed, on a pro rata basis, by lot or
by such other method as the Trustee may deem fair and appropriate and in such
manner as complies with any such requirements. The Trustee shall make the
selection from Notes outstanding and not previously called for redemption.
Notes and portions thereof selected by the Trustee for redemption shall be in
amounts of $1,000 or integral multiples of $1,000.
61
<PAGE> 63
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control. The Indenture provides that upon the occurrence of a
Change of Control, the Company shall be required to make an offer (a "Change of
Control Offer") to Holders to repurchase any and all of the Notes (but only in
denominations of $1,000 or integral multiples of $1,000) at a purchase price
(the "Change of Control Offer Price") equal to 101% of the aggregate principal
amount, plus accrued and unpaid interest, if any, to the date of purchase
("Change of Control Purchase Date").
Notice of a Change of Control Offer shall be mailed by the Company, with a
copy to the Trustee, or, at the Company's option, by the Trustee (at the
Company's expense) not more than 30 calendar days after the Change of Control
to each Holder of the Notes at such Holder's last registered address appearing
in the Register. In such notice, the Company shall describe the transaction
that constitutes the Change of Control and offer to repurchase Notes pursuant
to the procedures required by the Indenture and described in such notice;
provided that, prior to complying with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company will either
repay all outstanding Senior Indebtedness or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Indebtedness to permit
the repurchase of Notes required by this covenant. The notice shall contain all
instructions and materials necessary to enable Holders to tender Notes pursuant
to the Change of Control Offer. The Company will comply with the requirements
of Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Notes as a result of a Change of
Control.
On the Change of Control Purchase Date, the Company shall (i) accept for
payment Notes or portions thereof validly tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money in immediately
available funds sufficient to pay the purchase price of all Notes or portions
thereof so accepted, and (iii) deliver to the Trustee Notes so accepted
together with an Officer's Certificate stating the Notes or portions thereof
accepted for payment by the Company. If the Company complies with its
obligations set forth in the immediately preceding sentence, whether or not a
Default or Event of Default has occurred and is continuing on the Change of
Control Purchase Date, the Paying Agent shall as promptly as practicable mail
or deliver to each Holder of Notes so accepted payment in an amount equal to
the purchase price, and the Company shall execute and the Trustee shall as
promptly as practicable authenticate and mail or deliver to such Holder a new
Note equal in principal amount to any unpurchased portion of the Note
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. Any Notes not so accepted
shall be as promptly as practicable mailed or delivered by the Trustee to the
Holders thereof. The Company shall publicly announce the results of the Change
of Control Offer on or as promptly as practicable after the Change of Control
Purchase Date. For purposes of this covenant, the Trustee shall act as the
Paying Agent.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
Asset Sales. The Indenture also contains provisions in respect of offers
to purchase Notes with Net Proceeds in the event of certain Asset Dispositions.
See "-- Certain Covenants -- Limitation on Asset Sales."
62
<PAGE> 64
Credit Facility. Certain events involving a Change of Control will result
in an event of default under the Credit Facility. An event of default under the
Credit Facility could result in an acceleration of indebtedness, in which case
the subordination provisions of the Notes would require payment in full of such
Senior Indebtedness before repurchases or other payments in respect of the
Notes. Any future credit agreements or other agreements relating to Senior
Indebtedness to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs or a Net
Proceeds Offer is required by the Indenture at a time when the Company is
prohibited from purchasing Notes, the Company could seek the consent of its
lenders to the purchase of Notes or could attempt to refinance the borrowings
that contain such prohibition. If the Company does not obtain such a consent or
repay such borrowings, the Company may remain prohibited from purchasing Notes.
In such case, the Company's failure to purchase tendered Notes would constitute
an Event of Default under the Indenture which would, in turn, constitute a
default under the Credit Facility. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the holders of
the Notes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for
the full definition of all such terms as well as any other terms used herein
for which no definition is provided.
"Acquired Indebtedness" of any particular Person means Indebtedness of any
other Person existing at the time such other Person merged with or into or
became a Subsidiary of such particular Person or assumed by such particular
Person in connection with the acquisition of assets from any other Person, and
not incurred by such other Person in connection with, or in contemplation of,
such other Person merging with or into such particular Person or becoming a
Subsidiary of such particular Person or such acquisition.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Disposition" means any sale, lease, conveyance, transfer or other
disposition (or series of related sales, leases, conveyances, transfers or
dispositions) of any Capital Stock of a Restricted Subsidiary of the Company
(whether or not upon issuance), or of any Capital Stock of Cinemark
International by the Company (but not the issuance and sale of Capital Stock by
Cinemark International), or of any other property or other assets (each
referred to for the purposes of this definition as a "disposition") by the
Company or any of its Restricted Subsidiaries, whether for cash or other
consideration, other than (i) a disposition by a Restricted Subsidiary of the
Company to the Company or a Wholly Owned Subsidiary of the Company that is a
Restricted Subsidiary, (ii) a disposition by the Company to a Wholly Owned
Subsidiary of the Company that is a Restricted Subsidiary, (iii) a disposition
that is a Permitted Investment or a Restricted Payment not prohibited by the
"Limitation on Restricted Payments" covenant (to the extent such Permitted
Investment or Restricted Payment may be deemed to constitute an Asset
Disposition), (iv) dispositions of inventory in the ordinary course of
business, (v) a disposition that is governed by the "Consolidation and Merger"
covenant, (vi) exchanges of theatre properties that comply with the
requirements described in the final paragraph under "-- Certain Covenants --
Limitation on Asset Sales ," provided that payment of any Other Consideration
(as defined therein) shall, to the extent provided therein, be treated as an
Asset Disposition, (vii) a designation of a Restricted Subsidiary as an
Unrestricted Subsidiary, if the Company elects to treat such designation as an
Investment and not as an Asset Disposition, or (viii) a disposition of Capital
Stock, property or assets in a single transaction or a series of related
transactions (other than dispositions of the type described in clauses
63
<PAGE> 65
(i) through (vii) above) having a Fair Market Value of less than $2 million.
For purposes of this definition, "Fair Market Value" of any Capital Stock,
property or other assets means the fair market value of such Capital Stock,
property or other assets at the time of disposition, which in the case of any
disposition or series of related dispositions having an aggregate fair market
value of $2 million or more shall be determined in good faith (taking into
account, without limitation, any assumption of indebtedness in connection with
such disposition) by resolution of the Board of Directors of the Company.
Notwithstanding any provision of the Indenture to the contrary, the expiration
or non-renewal of any lease of theatre properties or equipment at the normal
expiration date thereof without payment to the Company or any of its Restricted
Subsidiaries of consideration therefor shall not constitute an Asset
Disposition.
"Asset Disposition Expenses" shall have the meaning assigned to such term
in the definition of the term "Net Proceeds."
"Bankruptcy Law" means Title 11, United States Code, as may be amended from
time to time, or any similar federal or state law for the relief of debtors.
"Capitalized Lease Obligations" means the capitalized amount of the rental
obligations of any Person under any lease of any property (whether real,
personal or mixed) which, in accordance with GAAP, is required to be
capitalized on the balance sheet of such Person.
"Capital Stock" of any Person means (i) any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock and any warrants, options and similar rights to acquire such
capital stock, (ii) in the case of a partnership, partnership interests
(whether general or limited) and (iii) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) direct obligations of the United States of
America or any agency thereof having maturities of not more than one year from
the date of acquisition, (ii) time deposits and certificates of deposit of any
domestic commercial bank of recognized standing having capital and surplus in
excess of $500 million, with maturities of not more than one year from the date
of acquisition, (iii) repurchase obligations issued by any bank described in
clause (ii) above with a term not to exceed 30 days; (iv) commercial paper
rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the
equivalent thereof by Moody's, in each case maturing within one year after the
date of acquisition and (v) shares of any money market mutual fund, or similar
fund, in each case having assets in excess of $500 million, which invests
predominantly in investments of the types described in clauses (i) through (iv)
above.
"Change of Control" means (i) the acquisition, including through merger,
consolidation or otherwise, by any Person or any Persons acting together which
would constitute a "group" (a "Group") for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), together with
all affiliates and associates (as defined in Rule 12b-2 under the Exchange Act)
thereof, of direct or indirect beneficial ownership (as defined in Rule 13d-3
under the Exchange Act) of more than 50% of (A) the outstanding shares of
common stock of the Company or (B) the total voting power of all classes of
Capital Stock of the Company entitled to vote generally in the election of
directors, or (ii) the election by any Person or Group, together with all
affiliates and associates thereof, of a sufficient number of its or their
nominees to the Board of Directors of the Company such that such nominees, when
added to any existing directors remaining on such Board of Directors after such
election who are affiliates or associates of such Person or Group, shall
constitute a majority of such Board of Directors; provided, however, that, for
purposes of this definition, the terms "Person" and "Group" shall be deemed
not to include (i) the Company, (ii) any Restricted Subsidiary of the Company
that is a Wholly Owned Subsidiary, (iii) Lee Roy Mitchell or Tandy Mitchell, or
any descendant of Lee Roy Mitchell or the spouse of any such descendant, the
estate of Lee Roy Mitchell, Tandy Mitchell, any descendant of Lee Roy Mitchell
or the spouse of any such descendant or any
64
<PAGE> 66
trust or other arrangement for the benefit of Lee Roy Mitchell, Tandy Mitchell,
any descendant of Lee Roy Mitchell or the spouse of any such descendant
(collectively, the "Mitchell Family"), (iv) any group which includes any member
or members of the Mitchell Family if a majority of the Capital Stock of the
Company held by such group is beneficially owned (including the power to vote
such Capital Stock of the Company) by such member or members or by one or more
affiliates at least 80% of the equity interests of which are owned by such
member or members or (v) Cypress Merchant Banking Partners L.P. or Cypress
Pictures Ltd., and provided, further, that, the term "Change of Control" shall
be deemed not to include any transaction or series of transactions that results
in the Capital Stock of the Company being held by one or more Persons if the
beneficial ownership, direct or indirect, of the Company after such transaction
or series of transactions is substantially the same as the beneficial
ownership, direct or indirect, of the Company prior to such transaction or
series of transactions.
"Consolidated EBITDA" of any Person means, for any period (without
duplication), (i) the sum of (A) Consolidated Net Income, (B) Consolidated
Interest Expense, (C) provisions for taxes based on or calculated with respect
to income, (D) depreciation expense, (E) amortization expense, and (F) all
other non-cash items reducing Consolidated Net Income, less all non-cash items
increasing Consolidated Net Income, minus (ii) any decrease in deferred lease
expenses, all as determined on a consolidated basis for such Person and its
Restricted Subsidiaries in accordance with GAAP.
"Consolidated Interest Expense" of any Person means, for any period,
without duplication, the total interest expense of such Person and its
Restricted Subsidiaries determined on a consolidated basis in accordance with
GAAP, including (i) non-cash, payable-in-kind interest, (ii) interest expense
attributable to capital leases, (iii) amortization of debt discount and debt
issue cost (excluding related legal and accounting fees), but only with respect
to transactions consummated after the Initial Issuance Date, (iv) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (v) net costs under Hedging Obligations
(including amortizations of discount), (vi) preferred stock dividends in
respect of preferred stock of Restricted Subsidiaries of such Person, other
than payable-in-kind dividends in respect of preferred stock that is not
Disqualified Stock, held by Persons other than such Person or one of its Wholly
Owned Subsidiaries that is a Restricted Subsidiary, and (vii) dividends in
respect of Disqualified Stock of such Person.
"Consolidated Net Income" of any Person means, for any period, the
aggregate of the Net Income of such Person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP,
however, including, in the case of the Company and its Restricted Subsidiaries,
only those management fees actually received by the Company from its
Unrestricted Subsidiaries, and excluding amortization of debt discount and debt
issue costs with respect to transactions consummated on or prior to the Initial
Issuance Date, provided that (i) accrued but unpaid compensation expenses
related to any stock appreciation or stock option plans shall not be deducted
until such time as such expenses result in a cash expenditure, (ii)
compensation expenses related to tax payment plans implemented by the Company
from time to time in connection with the exercise and/or repurchase of stock
options shall not be deducted from Net Income to the extent of the related tax
benefits arising therefrom, (iii) the Net Income of any Person that is not a
Restricted Subsidiary of such Person or that is accounted for by such Person by
the equity method of accounting shall not be included in such Consolidated Net
Income, except that the Company's equity in the Net Income of any such Person
for any such period or any previous period shall be so included only up to the
aggregate amount of cash dividends or distributions paid to the Company or one
of its Restricted Subsidiaries, and (iv) the Net Income (if positive) of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded. For purposes of this
definition, "Net Income" of any Person means, for any period, the net income
(or loss) of such Person determined in accordance with GAAP, excluding,
however, from the determination (i) any extraordinary loss resulting from early
extinguishment of debt on or prior to the Initial Issuance Date, (ii) any net
gain or loss from any extraordinary item (net of all related taxes, fees, costs
and expenses), (iii) any net gain or loss (net of all
65
<PAGE> 67
related taxes and Asset Disposition Expenses) realized upon the sale or other
disposition during such period (including without limitation dispositions
pursuant to sale and leaseback transactions) of any real property, equipment or
other asset of such Person, which is not sold or otherwise disposed of in the
ordinary course of business, or of any Capital Stock of such Person or a
Restricted Subsidiary of such Person, and (iv) the cumulative effect of changes
in accounting principles.
"Consolidated Net Worth" of any Person means, as of any date, the amount
which, in accordance with GAAP, would be set forth under the caption
"Shareholders' Equity" (or any like caption) on a consolidated balance sheet of
such Person and its Restricted Subsidiaries, less amounts attributable to
Disqualified Stock of such Person or any of its Restricted Subsidiaries.
"Consolidated Tangible Assets" of any Person means, as of any date, the
amount which, in accordance with GAAP, would be set forth under the caption
"Total Assets" (or any like caption) on a consolidated balance sheet of such
Person and its Restricted Subsidiaries, less all intangible assets, including,
without limitation, goodwill, organization costs, patents, trademarks,
copyrights, franchises, and research and development costs.
"Credit Facility" means that certain Credit Agreement, dated as of February
14, 1996, among the Company, the financial institutions from time to time
parties thereto, and Bank of America National Trust and Savings Association, as
agent for such financial institutions, and the various ancillary documents
provided for therein, as the same may be amended, extended, increased, renewed,
restated, supplemented or otherwise modified (in whole or in part, and without
limitation as to amount, terms, conditions, covenants and other provisions)
from time to time, and any agreement or agreements governing Indebtedness
incurred to refinance, replace, restructure or refund such agreements in whole
or in part from time to time (whether with the original agent and lenders or
other agents and lenders or otherwise, and whether provided for under the
original Credit Facility or otherwise).
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator, custodian or similar official under any Bankruptcy Law.
"Default" means any event, act or condition which is, or after notice or
passage of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Credit Facility and all
Indebtedness thereunder and (ii) any other Senior Indebtedness issued after the
Initial Issuance Date and permitted under the Indenture, the principal amount
of which is $10 million or more and that has been designated by the Company as
Designated Senior Indebtedness.
"Disqualified Stock" of any Person means any Capital Stock of such Person
that, by its terms (or by the terms of any security into which it is
convertible or for which it is exercisable, redeemable or exchangeable),
matures, or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in
part (but only to the extent of such part), on or prior to the Stated Maturity
of the Notes.
"EBITDA Ratio" of any Person means the ratio of (i) the aggregate amount of
Consolidated EBITDA of such Person for the four full fiscal quarters
immediately prior to the date of the transaction giving rise to the need to
calculate the EBITDA Ratio (the "Determination Date") to (ii) the aggregate
Consolidated Interest Expense which such Person shall accrue during the fiscal
quarter in which the Determination Date occurs and the three fiscal quarters
immediately subsequent to such fiscal quarter, assuming that the Consolidated
Interest Expense shall accrue on the amount of such Person's Indebtedness on
the Determination Date, including any Indebtedness proposed to be incurred on
such date (as though all such Indebtedness was incurred on the first
66
<PAGE> 68
day of the quarter in which the Determination Date occurred), but specifically
excluding Indebtedness proposed to be repaid or defeased (or with respect to
the defeasance of which a deposit satisfying the defeasance requirements of
such Indebtedness has irrevocably been made) on such date (as though all such
Indebtedness was repaid on the first day of the quarter in which the
Determination Date occurred); provided that if during the four-quarter period
referred to in clause (i) above, the Person for which the EBITDA Ratio is being
determined or any of its Restricted Subsidiaries shall have acquired any assets
other than assets acquired as a result of capital expenditures made in the
ordinary course of business of such Person, the EBITDA Ratio of such Person as
of such Determination Date shall be calculated on a pro forma basis, as if such
acquisition had occurred at the beginning of such four-quarter period. For
purposes of this definition, interest on Indebtedness determined on a
fluctuating basis for periods succeeding the Determination Date shall be
calculated as if the rate in effect on the Determination Date had been the
applicable rate for the entire period, taking into account any Hedging
Obligations applicable to such Indebtedness.
"Equity Offering" means either (i) a bona fide underwritten sale to the
public of Common Stock of the Company or a Parent pursuant to a registration
statement (other than a Form S-8 or any other form relating to securities
issuable under any employee benefit plan of the Company) that is declared
effective by the Commission, or (ii) a privately negotiated sale of Common
Stock of the Company or a Parent by the Company or such Parent, as the case may
be, to a Person that, immediately prior to the time of such sale, is not an
Affiliate of the Company or such Parent, in each case completed following the
Initial Issuance Date and resulting in aggregate gross proceeds to the Company
or such Parent of at least $20 million; provided , that in the case of any such
sale of Common Stock of a Parent, (x) the net proceeds of such sale shall be
contributed within 30 days by such Parent to the Company or (y) the Parent
shall use such proceeds to purchase Capital Stock of the Company that is not
Disqualified Stock.
"Existing Unrestricted Subsidiaries" means Cinemark International and its
Subsidiaries.
"50% Entity" shall have the meaning assigned to such term in the definition
of the term "Subsidiary."
"GAAP" means generally accepted accounting principles as applied in the
United States set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States, which are applicable
as of the date of determination; provided that the definitions in the Indenture
and all ratios and calculations contained in the covenants shall be determined
in accordance with GAAP as in effect and applied by the Company on the date of
the Indenture, consistently applied; provided, further, that in the event of
any such change in GAAP or in any change by the Company in GAAP applied that
would result in any change in any such ratio or calculation, the Company shall
deliver to the Trustee each time any such ratio or calculation is required to
be determined or made, an Officer's Certificate setting forth the computations
showing the effect of such change or application on such ratio or calculation.
"guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Indebtedness of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of participation
arrangements, by agreement to keep well, or to maintain financial statement
conditions or otherwise), (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling such other Person to make payment of such Indebtedness, (iii) to
supply funds to or in any other manner invest in such other Person (including
any agreement to pay for property or services irrespective of whether such
property is received or such services are rendered), or (iv) entered into for
the purpose of assuring the obligee of such Indebtedness in any other manner of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided that the term
67
<PAGE> 69
"guarantee" shall not include (i) endorsements for collection or deposit in the
ordinary course of business, and (ii) leases entered into in the ordinary
course of business.
"Hedging Obligation" means any agreement, whether or not in writing,
relating to any transaction that is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap or
option, bond, note or bill option, interest rate option, forward foreign
exchange transaction, cap, collar or floor transaction, currency swap,
cross-currency rate swap, swaption, currency option or any other, similar
transaction (including any option to enter into any of the foregoing) or any
combination of the foregoing, and, unless the context otherwise clearly
requires, any master agreement relating to or governing any or all of the
foregoing.
"Holder" or "Securityholder" means a Person in whose name a Note is
registered on the Register.
"Indebtedness" of any Person means, at any date, and without duplication,
any obligation of such Person or its Restricted Subsidiaries for or in respect
of: (i) money borrowed (whether or not for a cash consideration and whether or
not the recourse of the lender is to the whole of the assets of such Person or
only a portion thereof) and premiums (if any) and capitalized interest (if any)
in respect thereof; (ii) any debenture, bond, note or similar instrument
(whether or not issued for a cash consideration), if it would appear as a
liability on a balance sheet of such Person prepared in accordance with GAAP;
(iii) any letter of credit (other than in respect of Trade Payables), bankers'
acceptance or note purchase facility or any liability with respect to any
recourse receivables purchase, factoring or discounting arrangement; (iv)
Capitalized Lease Obligations (whether in respect of buildings, machinery,
equipment or otherwise), except any such obligation that represents a Trade
Payable; (v) any deferred purchase or conditional sale agreement or arrangement
representing the deferred and unpaid balance of the purchase price of any
property (including pursuant to financing leases), except any such balance
which represents a Trade Payable; (vi) all obligations to purchase, redeem,
retire, defease or otherwise acquire for value any Disqualified Stock of such
Person (or any warrants, rights or options to acquire such Disqualified Stock)
valued, in the case of Disqualified Stock, at the greatest amount payable in
respect thereof on a liquidation (whether voluntary or involuntary), prior to
the Stated Maturity of the Notes, plus accrued and unpaid dividends; (vii)
preferred stock of Restricted Subsidiaries of such Person held by Persons other
than such Person or one of its Wholly Owned Subsidiaries that is a Restricted
Subsidiary; (viii) direct or indirect guarantees of all Indebtedness of other
Persons referred to in clauses (i) through (vii) above; and (ix) all
Indebtedness of the types referred to in clauses (i) through (viii) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on any asset owned by such
Person or its Restricted Subsidiaries (even though such Person or its
Restricted Subsidiaries have not assumed or become liable for the payment of
such Indebtedness); provided, that the term "Indebtedness" shall not be deemed
to include any liability for federal, state, local or other taxes owed or owing
by the Company. The amount of Indebtedness of any Person or its Restricted
Subsidiaries at any date shall be (without duplication) (i) the outstanding
balance at such date of all unconditional Indebtedness obligations as described
above and the maximum liability of any such contingent Indebtedness obligations
at such date, (ii) in the case of Indebtedness of others secured by a Lien to
which the property or assets owned or held by such Person or its Restricted
Subsidiaries is subject, the lesser of the fair market value at such date of
any property and assets subject to a Lien securing the Indebtedness of others
and the amount of the Indebtedness secured, and (iii) in the case of
Indebtedness of others guaranteed by such Person as described above, the lesser
of the maximum amount of such guaranty and the amount of the Indebtedness
guaranteed. A guaranty of Indebtedness of the Company or a Restricted
Subsidiary of the Company that is permitted under the Indenture shall not
constitute a separate incurrence of Indebtedness.
"Initial Issuance Date" means the date of original issuance of the Notes.
"Investment" means any direct or indirect advance, loan or other extension
of credit or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for
68
<PAGE> 70
the account or use of others), or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities issued by, any other Person, other
than (i) loans or advances made to employees in the ordinary course of business
not in excess of $50,000 outstanding at any time to any employee, (ii) advances
to customers or suppliers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of any Person or its Subsidiaries
and any securities received in settlement thereof or as a result of a
bankruptcy or an insolvency proceeding, (iii) workers' compensation, utility,
lease and similar deposits and prepaid expenses in the ordinary course of
business, (iv) Capital Stock, bonds, notes, debentures and other assets
received as a result of Asset Dispositions not prohibited by the "Limitation on
Asset Sales" covenant, and (v) endorsements of negotiable instruments and
documents in the ordinary course of business. In addition, (i) the fair market
value of the assets (net of liabilities) of any Restricted Subsidiary at the
time that such Restricted Subsidiary is designated an Unrestricted Subsidiary
shall constitute an Investment in such Subsidiary in such amount, if the
Company has elected that such designation be deemed to be an Investment and not
an Asset Disposition, and (ii) the lesser of (A) the amount of Restricted
Payments made to any Unrestricted Subsidiary or (B) the fair market value of
the assets (net of liabilities) of such Unrestricted Subsidiary, in each case
at the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary of the Company, shall constitute a return of capital and a decrease
in the amount of the Company's Investment in such Subsidiary.
"Lien" means any mortgage, lien, pledge, security interest, conditional
sale or other title retention agreement, charge or other security interest or
encumbrance of any kind (including any agreement to give any security
interest).
"Marketable Equity Securities" means shares of Capital Stock of any Person
that are listed on the New York Stock Exchange, the American Stock Exchange or
the national market tier of The Nasdaq Stock Market and, upon receipt by the
Company or a Restricted Subsidiary, such shares are freely tradeable under the
Securities Act and applicable state securities laws and are so listed or
included for trading privileges.
"Net Proceeds" means the aggregate amount of consideration in the form of
cash, Temporary Cash Investments or Marketable Equity Securities received by
the Company or any of its Restricted Subsidiaries with respect to any Asset
Disposition, after deducting therefrom brokerage commissions, appraisal fees,
survey charges, engineering fees, title insurance premiums, legal fees,
finder's fees, loan origination and similar fees, underwriting fees, investment
banking fees and other similar commissions or fees, and any filing, recording
or registration fees, costs and expenses, recording taxes, transfer taxes,
provisions for all taxes payable as a result of such Asset Disposition, amounts
required to be paid to any Person owning a beneficial interest in the assets
subject to such Asset Disposition, and appropriate amounts to be provided as a
reserve in accordance with GAAP against any liabilities associated with such
Asset Disposition after such Asset Disposition (to the extent such reserves are
not subsequently reversed), including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Disposition ("Asset Disposition Expenses"), and also less any
amounts required to be applied to retire all or a portion of the Notes or
Indebtedness permitted under the "Limitation on Indebtedness" covenant having
the benefit of a Lien on the property or assets so transferred, to the extent,
but only to the extent, that such amounts are paid by the Company or one of its
Restricted Subsidiaries or are amounts for which the Company or one of its
Restricted Subsidiaries is directly and not contingently liable, as the case
may be, and properly attributable to the transaction in respect of which such
consideration is received or to the asset that is the subject of such
transaction.
"Obligations" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offer" means a Change of Control Offer or Net Proceeds Offer, as the case
may be.
69
<PAGE> 71
"Offer Purchase Date" means a Change of Control Purchase Date or Net
Proceeds Purchase Date, as the case may be.
"Old Notes" means the Company's 12% Notes Due June 1, 2002.
"Parent" shall mean a Person or group of Persons created to effectuate a
holding company structure for the Company and its Subsidiaries.
"Permitted Investment" means (i) an Investment in the Company or a
Wholly-Owned Subsidiary of the Company that is a Restricted Subsidiary; (ii) an
Investment in a Person, if such Person or a Subsidiary of such Person will, as
a result of the making of such Investment and all other contemporaneous related
transactions, become a Wholly-Owned Subsidiary of the Company that is a
Restricted Subsidiary or be merged or consolidated with or into or transfer or
convey all or substantially all its assets to the Company or a Wholly-Owned
Subsidiary of the Company that is a Restricted Subsidiary; (iii) a Temporary
Cash Investment; (iv) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses in accordance with GAAP; (v) stock, obligations or securities received
in settlement of debts owing to the Company or a Restricted Subsidiary of the
Company as a result of bankruptcy or insolvency proceedings or upon the
foreclosure, perfection, enforcement or agreement in lieu of foreclosure of any
Lien in favor of the Company or a Restricted Subsidiary of the Company; (vi)
refundable construction advances made with respect to the construction of
properties of a nature or type that are used in a business similar or related
to the business of the Company or its Restricted Subsidiaries in the ordinary
course of business; (vii) advances or extensions of credit on terms customary
in the industry in the form of accounts or other receivables incurred, or
pre-paid film rentals, and loans and advances made in settlement of such
accounts receivable, all in the ordinary course of business; (viii) guarantees
not prohibited by the "Limitation of Indebtedness" covenant; (ix) entry into
and Investments in joint ventures, partnerships and other Persons engaged or
proposing to engage in the indoor motion picture exhibition business, provided
that (A) the Person into which such Investment is made is either a Restricted
Subsidiary of the Company, or such Person or a Subsidiary of such Person will,
as a result of the making of such Investment and all other contemporaneous
related transactions, become a Restricted Subsidiary of the Company and (B) the
amount of such Investment, valued at the time made, together with all
Investments previously made pursuant to this clause (ix), valued at the
respective times made, shall not exceed 10% of Consolidated Tangible Assets of
the Company as of the last day of the full fiscal quarter ending immediately
prior to the date of such Investment; (x) any Investment made solely with funds
the payment or application of which is not restricted as described in "--
Certain Covenants -- Limitations on Restricted Payments"; (xi) Investments in
the Notes; (xii) any consolidation or merger of a Restricted Subsidiary that is
a Wholly Owned Subsidiary of the Company to the extent otherwise permitted
under the Indenture; (xiii) payments of up to $1.5 million annually to
repurchase Capital Stock of the Company issued under the Company's employee
stock option plans; (xiv) Hedging Obligations of the Company or any of its
Restricted Subsidiaries to the extent otherwise permitted under the Indenture;
(xv) Investments in Cinemark International not to exceed $40 million; and (xvi)
other Investments not to exceed $10 million.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, incorporated or unincorporated association,
joint-stock company, trust, unincorporated organization or government or other
agency or political subdivision thereof or other entity of any kind.
"Restricted Subsidiary" means (i) any Subsidiary of the Company in
existence on the Initial Issuance Date other than the Existing Unrestricted
Subsidiaries, (ii) any Subsidiary of the Company (other than a Subsidiary that
is also a Subsidiary of an Unrestricted Subsidiary) organized or acquired after
the Initial Issuance Date, unless such Subsidiary shall have been designated as
an Unrestricted Subsidiary by resolution of the Board of Directors as provided
in and in compliance with the definition of "Unrestricted Subsidiary," and
(iii) any Unrestricted Subsidiary which is designated as a Restricted
Subsidiary by the Board of Directors of the
70
<PAGE> 72
Company; provided that, immediately after giving effect to the designation
referred to in clause (iii), no Default or Event of Default shall have occurred
and be continuing and the Company could incur at least $1.00 of additional
Indebtedness under the first paragraph under the "Limitation on Indebtedness"
covenant. The Company shall evidence any such designation to the Trustee by
promptly filing with the Trustee an Officer's Certificate certifying that such
designation has been made and stating that such designation complies with the
requirements of the immediately preceding sentence.
"Senior Indebtedness" means (i) Indebtedness under the Credit Facility,
(ii) the Old Notes, and (iii) any other Indebtedness permitted to be incurred
by the Company under the terms of the Indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a parity
with or subordinated in right of payment to the Notes. Notwithstanding anything
to the contrary in the foregoing, Senior Indebtedness will not include (x) the
Notes, (y) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates, or (z) any Indebtedness that is incurred in violation of the
Indenture.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary of the Company that, together with its Restricted
Subsidiaries, (i) for the most recent fiscal year of the Company, accounted for
more than 5% of the consolidated revenues of the Company and its Restricted
Subsidiaries or (ii) as of the end of such fiscal year, was the owner of more
than 5% of the consolidated assets of the Company and its Restricted
Subsidiaries, all as set forth on the most recently available consolidated
financial statements of the Company for such fiscal year.
"Stated Maturity" means, when used with respect to any security, the date
specified in such security as the fixed date on which an amount equal to the
principal of such security is due and payable.
"Subsidiary" means, with respect to any Person, (i) a Person a majority of
whose Capital Stock with voting power under ordinary circumstances to elect
directors (or Persons having similar or corresponding powers and
responsibilities) is at the time, directly or indirectly, owned by such Person,
by one or more Subsidiaries of such Person or by such Person and one or more
Subsidiaries thereof or (ii) upon designation by the Company, and until
designation by the Company to the contrary, a Person, 50% of whose Capital
Stock with voting power under ordinary circumstances to elect directors (or
Persons having similar or corresponding powers and responsibilities) is at the
time, directly or indirectly, owned by such Person, by one or more Subsidiaries
of such Person or by such Person and one or more Subsidiaries thereof (a "50%
Entity"). The Company shall evidence any designation pursuant to clause (ii) of
the immediately preceding sentence to the Trustee by filing with the Trustee
within 45 days of such designation an Officer's Certificate certifying that
such designation has been made. All references within the Indenture to
designations of Unrestricted Subsidiaries as Restricted Subsidiaries or
Restricted Subsidiaries as Unrestricted Subsidiaries shall be deemed to include
designations of 50% Entities as Restricted Subsidiaries and Restricted
Subsidiaries as 50% Entities, respectively.
"Temporary Cash Investments" means any Investment in the following kinds of
instruments: (A) readily marketable obligations issued or unconditionally
guaranteed as to principal and interest by the United States of America or by
any agency or authority controlled or supervised by and acting as an
instrumentality of the United States of America if, on the date of purchase or
other acquisition of any such instrument by the Company or any Restricted
Subsidiary of the Company, the remaining term to maturity or interest rate
adjustment is not more than two years; (B) obligations (including, but not
limited to, demand or time deposits, bankers' acceptances and certificates of
deposit) issued or guaranteed by a depository institution or trust company
incorporated under the laws of the United States of America, any state thereof,
the District of Columbia, Canada or any province or territory thereof, provided
that (1) such instrument has a final maturity not more than one year from the
date of purchase thereof by the Company or any Restricted Subsidiary of the
Company and (2) such depository institution or trust company has at the time of
the Company's or such Restricted Subsidiary's Investment therein or contractual
commitment providing for such Investment, (x)
71
<PAGE> 73
capital, surplus and undivided profits (as of the date of such institution's
most recently published financial statements) in excess of $100 million and (y)
the long-term unsecured debt obligations (other than such obligations rated on
the basis of the credit of a Person other than such institution) of such
institution, at the time of the Company's or such Restricted Subsidiary's
Investment therein or contractual commitment providing for such Investment, are
rated in the highest rating category of both Standard & Poor's Ratings Group, a
division of McGraw-Hill, Inc. ("S&P"), and Moody's Investors Service, Inc.
("Moody's"); (C) commercial paper issued by any corporation, if such commercial
paper has, at the time of the Company's or any Restricted Subsidiary's
Investment therein or contractual commitment providing for such Investment,
credit ratings of at least A-1 by S&P and P-1 by Moody's; (D) money market
mutual or similar funds having assets in excess of $100 million; (E) readily
marketable debt obligations issued by any corporation, if at the time of the
Company's or any Restricted Subsidiary's Investment therein or contractual
commitment providing for such Investment (1) the remaining term to maturity is
not more than two years and (2) such debt obligations are rated in one of the
two highest rating categories of both S&P and Moody's; (F) demand or time
deposit accounts used in the ordinary course of business with commercial banks
the balances in which are at all times fully insured as to principal and
interest by the Federal Deposit Insurance Corporation or any successor thereto
or any Canadian equivalent thereof; (G) demand or time deposit accounts used in
the ordinary course of business with overseas branches of commercial banks
incorporated under the laws of the United States of America, any state thereof,
the District of Columbia, Canada or any province or territory thereof, provided
that such commercial bank has, at the time of the Company's or such Restricted
Subsidiary's Investment therein, (1) capital, surplus and undivided profits (as
of the date of such institution's most recently published financial statements)
in excess of $100 million and (2) the long-term unsecured debt obligations
(other than such obligations rated on the basis of the credit of a Person other
than such institution) of such institution, at the time of the Company's or any
Restricted Subsidiary's Investment therein, are rated in the highest rating
category of both S&P and Moody's and (H) to the extent not otherwise included
herein, Cash Equivalents. In the event that either S&P or Moody's ceases to
publish ratings of the type provided herein, a replacement rating agency shall
be selected by the Company with the consent of the Trustee, and in each case
the rating of such replacement rating agency most nearly equivalent to the
corresponding S&P or Moody's rating, as the case may be, shall be used for
purposes hereof.
"Trade Payables" of any Person means accounts payable or any other
indebtedness or monetary obligations to trade creditors created, assumed or
guaranteed by such Person or any of its Subsidiaries in the ordinary course of
business in connection with the obtaining of materials or services.
"Unrestricted Subsidiary" means, until such time as any of the following
shall be designated as a Restricted Subsidiary of the Company by the Board of
Directors of the Company as provided in and in compliance with the definition
of "Restricted Subsidiary," (i) each of the Existing Unrestricted Subsidiaries,
(ii) any Subsidiary of the Company or of a Restricted Subsidiary of the Company
organized or acquired after the Initial Issuance Date that is designated
concurrently with its organization or acquisition as an Unrestricted Subsidiary
by resolution of the Board of Directors of the Company, (iii) any Subsidiary of
any Unrestricted Subsidiary, and (iv) any Restricted Subsidiary of the Company
that is designated as an Unrestricted Subsidiary by resolution of the Board of
Directors of the Company, provided that, (A) immediately after giving effect to
such designation, no Default or Event of Default shall have occurred and be
continuing and (B) any such designation shall be deemed, at the election of the
Company at the time of such designation, to be either (but not both) (x) the
making of a Restricted Payment at the time of such designation in an amount
equal to the Investment in such Subsidiary subject to the restrictions
contained in the "Limitation on Restricted Payments" covenant or (y) the making
of an Asset Disposition at the time of such designation in an amount equal to
the Investment in such Subsidiary subject to the restrictions contained in the
"Limitation on Asset Sales" covenant. The Company shall evidence any
designation pursuant to clause (ii) or (iv) of the immediately preceding
sentence to the Trustee by filing with the Trustee within 45 days of such
designation an Officer's Certificate certifying that such designation has been
made and, in the case of clause (iv), the related election of the Company in
respect thereof.
72
<PAGE> 74
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America, the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian, with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt; provided, however, that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by
the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation evidenced
by such depository receipt.
"Weighted Average Life" means, as of any date, with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of the
number of years from such date to the dates of each successive scheduled
principal payment (including any sinking fund payment requirements) of such
debt security multiplied by the amount of such principal payment, by (ii) the
sum of all such principal payments.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person
all of whose Capital Stock with voting power under ordinary circumstances to
elect directors (or Persons having similar or corresponding powers and
responsibilities), other than directors' qualifying shares if required by
applicable law, is owned by such Person (either directly or indirectly through
Wholly Owned Subsidiaries).
CERTAIN COVENANTS
Limitation on Restricted Payments. The Indenture will provide that the
Company shall not, and shall not permit any of the Restricted Subsidiaries of
the Company to, directly or indirectly, (i) declare or pay any dividend on, or
make any distribution to the holders of, any Capital Stock of the Company or a
Restricted Subsidiary, other than dividends or distributions (A) from a
Restricted Subsidiary of the Company to the Company or to a Restricted
Subsidiary or (B) payable in Capital Stock of the Company that is not
Disqualified Stock; (ii) repay, redeem or otherwise acquire or retire for value
any Capital Stock of the Company or any of its Subsidiaries (other than Wholly
Owned Subsidiaries of the Company that are Restricted Subsidiaries), other than
a Permitted Investment; (iii) prepay, repay, redeem, defease or otherwise
acquire or retire for value prior to any scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Indebtedness of the Company
that is pari passu with or subordinated in right of payment to the Notes,
other than a Permitted Investment and except (A) as permitted pursuant to
clause (vii) under the second paragraph under "-- Limitation on Indebtedness",
(B) upon a change of control, as defined in and to the extent required by the
indenture or other agreement or instrument pursuant to which such pari passu
or subordinated Indebtedness was issued, provided the Company is then in
compliance with the covenant described under "-- Repurchase at the Option of
Holders -- Change of Control" and (C) any payment pursuant to a Pari Passu
Offer (as defined in the "Limitation on Asset Sales" covenant); or (iv) make
any Investment other than a Permitted Investment or as permitted under clauses
(ii) and (iii) above (the foregoing actions set forth in clauses (i) through
(iv) being referred to hereinafter as "Restricted Payments" ), if at the time
of any such Restricted Payment, and after giving effect thereto on a pro forma
basis, (A) a Default or an Event of Default shall have occurred and be
continuing or would result therefrom or (B) the aggregate amount of all
Restricted Payments declared or made after the Initial Issuance Date including
such Restricted Payment (the value of any such payment, if other than cash,
shall be the value determined in good faith by resolution of the Board of
Directors of the Company) shall exceed the sum of: (1) 50% of the aggregate
Consolidated Net Income (after deducting from such Consolidated Net Income
accrued but unpaid compensation expenses related to any stock appreciation or
stock option plans net of tax benefits), or, in the event such aggregate
Consolidated Net Income shall be a loss, minus 100% of such loss, of the
Company and its Restricted Subsidiaries earned
73
<PAGE> 75
subsequent to the Initial Issuance Date to the end of the fiscal quarter
immediately preceding the date of such Restricted Payment (treated as a single
accounting period), plus (2) the aggregate net proceeds received by the Company
from the issuance or sale (other than to a Subsidiary of the Company) of
Capital Stock of the Company, including any such shares issued upon exercise of
any warrants, options or similar rights (other than Disqualified Stock),
subsequent to the Initial Issuance Date, plus (3) the aggregate net proceeds
received by the Company from the issuance or sale of Indebtedness that is
convertible into Capital Stock after the Initial Issuance Date, to the extent
that such Indebtedness is actually converted into Capital Stock (other than
Disqualified Stock), plus (4) the aggregate net proceeds received after the
Initial Issuance Date by the Company as capital contributions to the Company
(other than from a Subsidiary), plus (5) an amount equal to the net reduction
in Investments resulting from payments of principal of Indebtedness, return of
capital and other transfers of assets, in each case to the Company or any
Restricted Subsidiary of the Company (but excluding any such amounts included
in Consolidated Net Income), or from designations of Unrestricted Subsidiaries
as Restricted Subsidiaries, plus (6) $15 million.
The provisions of this covenant shall not prevent (i) the payment of any
dividend within 60 calendar days after the date of its declaration if the
dividend would have been permitted on the date of declaration, (ii) the
repayment, redemption, acquisition or retirement for value of any Capital Stock
of the Company or any of its Subsidiaries in exchange for, or out of the
aggregate net proceeds of, a substantially concurrent issuance (other than to
the Company or any of its Restricted Subsidiaries) of Capital Stock of the
Company or a Restricted Subsidiary of the Company, (iii) the prepayment,
repayment, redemption, defeasance or other acquisition or retirement for value
prior to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment of any Indebtedness of the Company that is pari passu with or
subordinated in right of payment to the Notes, in exchange for, or out of the
aggregate net proceeds of, a substantially concurrent issuance (other than to
the Company or a Restricted Subsidiary) of Capital Stock of the Company or a
Restricted Subsidiary of the Company, (iv) the prepayment, repayment,
redemption, defeasance or other acquisition or retirement for value prior to
any scheduled maturity, scheduled repayment or scheduled sinking fund payment
of any Indebtedness of the Company that is pari passu with or subordinated in
right of payment to the Notes, in exchange for, or out of the aggregate net
proceeds of, a substantially concurrent issuance (other than to the Company or
a Restricted Subsidiary) of Indebtedness of the Company that is pari passu
with or subordinated in right of payment to, the Notes, but only if the
Weighted Average Life and period of time to Stated Maturity of such new
Indebtedness are each greater than the Weighted Average Life and period of time
to Stated Maturity of such retired Indebtedness, and (v) the payment of any
dividend or distribution to any holder of Capital Stock of a Restricted
Subsidiary of the Company, other than a holder that is an Affiliate of the
Company (except a holder that is an Affiliate of the Company solely by virtue
of the ownership of such Capital Stock), as part of a pro rata dividend or
distribution to all holders of such class or series of Capital Stock (but only
the amount of such dividend or distribution paid to a Person other than the
Company or a Restricted Subsidiary of the Company shall constitute a Restricted
Payment). For purposes of calculating the aggregate amount of Restricted
Payments made pursuant to the first sentence of the immediately preceding
paragraph, payments made under this paragraph (other than under clause (iv)
hereof) shall be included in such amount; provided that dividends paid within
60 calendar days of the date of declaration shall be deemed to be paid at the
date of declaration.
Limitation on Indebtedness. The Indenture provides that the Company shall
not, and shall not permit any Restricted Subsidiary of the Company to, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to, any Indebtedness (collectively,
an "incurrence"; with respect to any non-interest bearing or other discount
Indebtedness, an "incurrence" shall be deemed to have occurred only on the date
of original issuance thereof), unless, after giving effect to the incurrence of
such Indebtedness and the application of the net proceeds therefrom, the EBITDA
Ratio (as calculated on the Determination Date) is greater than 2.0 to 1.0;
provided that if the Indebtedness which is the subject of a determination under
this provision is Acquired Indebtedness, then the Consolidated EBITDA of the
Company shall be determined by giving effect (on a pro forma basis, as if the
transaction had occurred at the beginning
74
<PAGE> 76
of the immediately preceding four-quarter period) to both the incurrence or
assumption of such Acquired Indebtedness by the Company and the inclusion in
the Consolidated EBITDA of the Person whose Indebtedness would constitute
Acquired Indebtedness.
Notwithstanding the foregoing, Indebtedness may be incurred as follows: (i)
Indebtedness under the Credit Facility in an aggregate principal amount not to
exceed $195 million at any one time outstanding, less the aggregate amount of
all permanent reductions thereto pursuant to the "Limitation on Asset Sales"
covenant; (ii) Indebtedness represented by amounts due under Hedging
Obligations (provided that the obligations under such Hedging Obligations are
related to Indebtedness otherwise permitted by the terms of this covenant and
that the aggregate notional principal amount of such Hedging Obligations shall
not exceed 105% of the total amount of the related underlying Indebtedness);
(iii) Indebtedness represented by property, liability and workers' compensation
insurance, performance bonds (which may be in the form of letters of credit)
for construction contracts let by the Company and its Restricted Subsidiaries
in the ordinary course of business (provided that to the extent that such
performance bonds secure Indebtedness, such Indebtedness is otherwise permitted
under this covenant), surety bonds and appeal bonds (which, in each case, may
be in the form of letters of credit) required in the ordinary course of
business or in connection with the enforcement of rights or claims of the
Company or any Restricted Subsidiary of the Company or in connection with
judgments that do not result in a Default or an Event of Default; (iv)
Indebtedness of the Company evidenced by the Notes and the Indenture; (v)
Indebtedness owing to a Wholly Owned Subsidiary of the Company that is a
Restricted Subsidiary or to the Company; (vi) Acquired Indebtedness, provided
that such Indebtedness if incurred by the Company would be in compliance with
the first paragraph of this covenant; (vii) Indebtedness issued in exchange
for, or the proceeds of which are used to repay or refund or refinance or
discharge or otherwise retire for value, Indebtedness of the Company or any of
its Restricted Subsidiaries permitted under clauses (iv) and (vi) above, clause
(viii) below and the first paragraph under this covenant ("Refinancing
Indebtedness" ) in a principal amount not to exceed the principal amount of the
Indebtedness so refinanced plus any premium and accrued interest plus customary
fees, expenses and costs related to the incurrence of such Refinancing
Indebtedness, provided that with respect to any Refinancing Indebtedness which
refinances Indebtedness which ranks junior in right of payment to the Notes,
(A) such Refinancing Indebtedness is subordinated in right of payment at least
to the same extent as the Indebtedness to be refunded or refinanced if such
Indebtedness had remained outstanding and (B) the Refinancing Indebtedness has
a Weighted Average Life and Stated Maturity that are equal to or greater than
those of the Indebtedness to be repaid or refunded or refinanced or discharged
or otherwise retired for value at the time of such incurrence; (viii)
Indebtedness outstanding on the Initial Issuance Date; (ix) Indebtedness of the
Company or a Restricted Subsidiary of the Company to an Unrestricted Subsidiary
for money borrowed, provided that such Indebtedness is subordinated in right of
payment to the Notes and the Weighted Average Life of such Indebtedness is
greater than the Weighted Average Life of the Notes; and (x) $25 million.
Limitation on Liens. The Indenture provides that the Company shall not,
and shall not permit any of the Restricted Subsidiaries of the Company to,
create, incur, assume or suffer to exist any Lien upon any of its property or
assets (including assets acquired after the Initial Issuance Date), except for
(i) Liens incurred after the Initial Issuance Date securing Indebtedness of the
Company that ranks pari passu or junior in right of payment to the Notes, if
the Notes are secured equally and ratably with such Indebtedness, (ii) Liens
outstanding on the Initial Issuance Date, (iii) Liens for taxes, assessments,
governmental charges or claims not yet delinquent or which are being contested
in good faith by appropriate proceedings, provided, that adequate reserves with
respect thereto are maintained on the books of the Company or its Restricted
Subsidiaries, as the case may be, in conformity with GAAP, (iv) Landlords',
carriers', warehousemen's, mechanics', materialmen's, repairmen's or the like
Liens arising by contract or statute in the ordinary course of business and
with respect to amounts which are not yet delinquent or are being contested in
good faith by appropriate proceedings, (v) pledges or deposits made in the
ordinary course of business (A) in connection with leases, performance bonds
and similar obligations, or (B) in connection with workers' compensation,
unemployment insurance and other social security legislation, (vi) easements,
rights-of-way, restrictions, minor
75
<PAGE> 77
defects or irregularities in title and other similar encumbrances which, in the
aggregate, do not materially detract from the value of the property subject
thereto or materially interfere with the ordinary conduct of the business of
the Company or such Restricted Subsidiary, (vii) any attachment or judgment
Lien that does not constitute an Event of Default, (viii) Liens securing
Acquired Indebtedness, provided that such Liens attach solely to the acquired
assets or the assets of the acquired entity and do not extend to or cover any
other assets of the Company or any of its Restricted Subsidiaries, (ix) Liens
to secure Senior Indebtedness, (x) Liens in favor of the Trustee for its own
benefit and for the benefit of the Securityholders, (xi) any interest or title
of a lessor pursuant to a lease constituting a Capitalized Lease Obligation,
(xii) Liens on accounts receivable and inventory or cash deposits
collateralizing reimbursement obligations with respect to letters of credit, in
either case securing Indebtedness permitted to be incurred under clause (i)
under the second paragraph under the "Limitation on Indebtedness" covenant,
(xiii) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory or regulatory obligations, banker's acceptances, surety
and appeal bonds, government contracts, performance and return-of-money bonds
and other obligations of a similar nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money); (xiv)
Liens (including extensions and renewals thereof) upon real or personal
property acquired after the Initial Issuance Date; provided that (a) such Lien
is created solely for the purpose of securing Indebtedness incurred, in
accordance with the "Limitation on Indebtedness" covenant, (1) to finance the
cost (including the cost of improvement or construction) of the item of
property or assets subject thereto and such Lien is created prior to, at the
time of or within six months after the later of the acquisition, the completion
of construction or the commencement of full operation of such property or (2)
to refinance any Indebtedness previously so secured, (b) the principal amount
of the Indebtedness secured by such Lien does not exceed 100% of such cost and
(c) any such Lien shall not extend to or cover any property or assets other
than such item of property or assets and any improvements on such item; (xv)
leases or subleases granted to others that do not materially interfere with the
ordinary course of business of the Company and its Restricted Subsidiaries,
taken as a whole; (xvi) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets; (xvii) any
interest or title of a lessor in the property subject to any Capitalized Lease
Obligation or operating lease; (xviii) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xix) Liens on property
of, or on shares of stock or Indebtedness of, any Person existing at the time
such Person becomes, or becomes a part of, any Restricted Subsidiary, provided
that such Liens do not extend to or cover any property or assets of the Company
or any Restricted Subsidiary other than the property or assets acquired; (xx)
Liens in favor of the Company or any Restricted Subsidiary; (xxi) Liens in
favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods; (xxii)
Liens encumbering deposits securing Indebtedness under Hedging Obligations;
(xxiii) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by the Company or any
of its Restricted Subsidiaries in the ordinary course of business in accordance
with the past practices of the Company and its Restricted Subsidiaries; (xxiv)
Liens on or sales of receivables; (xxv) the rights of film distributors under
film licensing contracts entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business on a basis customary in the
movie exhibition industry; and (xxvi) any renewal of or substitution for any
Liens permitted by any of the preceding clauses, provided that the Indebtedness
secured is not increased (other than by any premium and accrued interest, plus
customary fees, expenses and costs related to such renewal or substitution of
Liens or the incurrence of any related refinancing of Indebtedness) nor the
Liens extended to any additional assets (other than proceeds and accessions).
This covenant does not authorize the incurrence of any Indebtedness not
otherwise permitted by the "Limitation on Indebtedness" covenant.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company shall not, and shall not
permit any of the Restricted Subsidiaries of the Company to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction on the ability of such Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock, or pay any Indebtedness owed to the Company or any of its Restricted
76
<PAGE> 78
Subsidiaries, (ii) make any Investment in the Company or any of its Restricted
Subsidiaries, (iii) transfer any of its properties or assets to the Company or
any of its Restricted Subsidiaries or (iv) guarantee any Indebtedness of the
Company or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (A) applicable law, (B) any
instrument governing Acquired Indebtedness permitted to be incurred under the
"Limitation on Indebtedness" covenant which encumbrances or restrictions are
not applicable to any Person or the properties or assets of any Person, other
than the Person so acquired or its Subsidiaries, or the property or assets of
the Person so acquired or its Subsidiaries, (C) any restrictions existing under
agreements in effect on the Initial Issuance Date, (D) any restrictions with
respect to a Restricted Subsidiary imposed pursuant to an agreement which has
been entered into for the sale or disposition of all or substantially all the
Capital Stock or assets of such Restricted Subsidiary, provided, that such
disposition is permitted pursuant to the "Limitation on Asset Sales" covenant,
(E) any agreement governing Indebtedness otherwise permitted under the
Indenture restricting the sale or other disposition of property securing such
Indebtedness if such agreement does not expressly restrict the ability of a
Restricted Subsidiary to pay dividends or to make distributions, loans or
advances, (F) the issuance of preferred stock by a Restricted Subsidiary or the
payment of dividends thereon in accordance with the terms thereof, provided
that issuance of such preferred stock is permitted pursuant to the "Limitation
on Indebtedness" covenant and the terms of such preferred stock do not
expressly restrict the ability of a Restricted Subsidiary to pay dividends or
make any other distributions on its Capital Stock (other than requirements to
pay dividends or liquidation preferences on such preferred stock prior to
paying any dividends or making any other distributions on such other Capital
Stock), (G) the Indenture, (H) the Credit Facility and other Senior
Indebtedness, (I) supermajority voting requirements existing under corporate
charters, bylaws, stockholders agreements and the like; (J) in the case of
clause (iii) of this covenant, agreements (1) that restrict in a customary
manner the subletting, pledging, assignment or transfer of any property or
asset that is a lease, license, conveyance or contract or similar property or
asset, or (2) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by the Indenture,
including, without limitation, transfer restrictions on any specific properties
or assets that are subject to a sale agreement otherwise permitted pursuant to
the "Limitation on Asset Sales" covenant; or (K) existing under any agreement
which refinances or replaces any of the agreements in the preceding clauses;
provided, that the terms and conditions of any such restrictions are not
materially less favorable to the Holders than those contained in the agreements
refinanced or replaced. Nothing contained in this "Limitation on Dividend and
Other Payment Restrictions Affecting Restricted Subsidiaries" covenant shall
prevent the Company or any Restricted Subsidiary from (1) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in the "Limitation
on Liens" covenant or (2) restricting the sale or other disposition of property
or assets of the Company or any of its Restricted Subsidiaries that secure
Indebtedness of the Company or any of its Restricted Subsidiaries.
Limitation on Layering Debt. The Indenture provides that the Company will
not incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Indebtedness of the Company but senior in any respect in right of payment to
the Notes.
Limitation on Transactions With Affiliates. The Indenture provides that
the Company shall not, and shall not permit any Restricted Subsidiary of the
Company to, directly of indirectly, enter into any transaction (including
without limitation the purchase, sale, lease or exchange of any property or the
rendering of any service) with a Person that, immediately prior to such
transaction, was an Affiliate (an "Affiliate Transaction"), unless such
transaction is on terms no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained in a comparable arms' length
transaction with an entity that is not an Affiliate; provided that continued
performance under agreements as in effect on the Initial Issuance Date and
described in the Offering Memorandum, or consummation, on the terms described
in the Offering Memorandum, of transactions described herein that are not
consummated prior to the Initial Issuance Date (and renewals and extensions of
such agreements and transactions on terms not materially less favorable to
77
<PAGE> 79
the Holders than the terms of such original agreements and transactions), shall
not be subject to such limitation.
In addition, the Company shall not, and shall not permit any of the
Restricted Subsidiaries of the Company to, enter into (i) an Affiliate
Transaction involving or having an expected value of more than $2 million
unless such transaction shall have been approved in good faith by resolution of
the Board of Directors of the Company and such resolution provides that such
Affiliate Transaction complies with the requirements of this covenant or (ii)
an Affiliate Transaction involving or having an expected value of more than $15
million, unless the Company has received an opinion of a nationally recognized
independent investment banking firm, accounting firm, appraisal firm or other
experts of nationally recognized standing if, in each case, such firm is
regularly engaged to render opinions of such type, to the effect that the
transaction is fair to the Company (or, if the Company is not a party to such
Affiliate Transaction, then to such Restricted Subsidiary) from a financial
point of view.
Notwithstanding anything to the contrary contained in the Indenture, the
foregoing provisions shall not apply to (i) transactions between the Company
and a Wholly Owned Subsidiary of the Company that is a Restricted Subsidiary or
between Wholly Owned Subsidiaries of the Company that are Restricted
Subsidiaries, (ii) payments required to be made to the Company by Cinemark
International or by any Subsidiary of Cinemark International under the Cinemark
International Management Agreement or under a Subsidiary management agreement,
as the case may be, (iii) payments pursuant to any tax sharing agreement or
arrangement among the Company and its Subsidiaries, (iv) transactions with any
current or former employee, officer or director of the Company or any of its
Restricted Subsidiaries pursuant to reasonable employee benefit plans or
compensation arrangements or agreements entered into in the ordinary course of
business on or prior to the Initial Issuance Date, or amended or created
thereafter with the approval of the Board of Directors of the Company, (v)
transactions with any employee of the Company pursuant to which the Company
purchases or otherwise acquires Capital Stock of the Company from such employee
as permitted under the "Limitation on Restricted Payments" covenant, or (vi)
transactions constituting (A) a Restricted Payment not prohibited by the
"Limitation on Restricted Payments" covenant and not constituting a Permitted
Investment, or (B) an investment not constituting an "Investment" by reason of
a specific exclusion from such definition.
Limitation on Asset Sales. The Indenture provides that the Company shall
not, and shall not permit any of the Restricted Subsidiaries of the Company to,
make any Asset Disposition, unless (i) the consideration received from such
Asset Disposition is at least equal to the Fair Market Value of the Capital
Stock, property or other assets sold, (ii) at least 75% of the consideration
received from such Asset Disposition is in the form of cash, Temporary Cash
Investments or Marketable Equity Securities (the "75% Test" ), provided that
the amount of any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto) of the Company
or such Restricted Subsidiary which are assumed by the transferee, cancelled or
satisfied in any Asset Disposition (other than liabilities that are incurred in
connection with or in anticipation of such Asset Disposition) as a credit
against the purchase price therefor shall be deemed to be cash to the extent of
the amount so credited for purposes of the 75% Test, and (iii) the Company
applies, or causes its Restricted Subsidiaries to apply, 100% of the Net
Proceeds from any Asset Disposition to an offer (a "Net Proceeds Offer") to
purchase Notes outstanding having a Net Proceeds Offer Price (as defined below)
at least equal to such Net Proceeds, such Net Proceeds Offer to commence on a
date not later than 360 calendar days after the date of such Asset Disposition
at a purchase price (the "Net Proceeds Offer Price") equal to 100% of the
principal amount thereof, plus accrued interest to the closing date of the Net
Proceeds Offer (the "Net Proceeds Purchase Date"), except to the extent that
such Net Proceeds have been applied either to the permanent repayment of
principal and interest on Senior Indebtedness or Indebtedness of the Restricted
Subsidiary of the Company that made such Asset Disposition or to the purchase
of assets or businesses in the same line of business as the Company and its
Restricted Subsidiaries or assets incidental thereto. Notwithstanding anything
to the contrary in this covenant, the Company will not be required to make
78
<PAGE> 80
a Net Proceeds Offer with respect to any Net Proceeds from Asset Dispositions
until the aggregate amount of Net Proceeds from Asset Dispositions in any
period of 12 consecutive months which are not applied either to the permanent
repayment of principal and interest on Indebtedness (as described above) or to
the purchase of assets or businesses as described above exceeds $10 million.
For purposes of this covenant, the principal amount of Notes for which a Net
Proceeds Offer shall be made is referred to as the "Net Proceeds Offer Amount."
To the extent required by any pari passu Indebtedness, and provided there is a
permanent reduction in the principal amount of such pari passu Indebtedness,
the Company shall simultaneously with the Net Proceeds Offer make an offer to
purchase such pari passu Indebtedness (a "Pari Passu Offer") in an amount (the
"Pari Passu Offer Amount") equal to the Net Proceeds Offer Amount, as
determined above, multiplied by a fraction, the numerator of which is the
outstanding principal amount of such pari passu Indebtedness and the
denominator of which is the sum of the outstanding principal amount of the
Notes and such pari passu Indebtedness, in which case the Net Proceeds Offer
Amount shall be correspondingly reduced by such Pari Passu Offer Amount.
The Company may credit against its obligation to make a Net Proceeds Offer
pursuant to the immediately preceding paragraph up to $2 million aggregate
principal amount of Notes, at 100% of the principal amount thereof, which have
been acquired by the Company and surrendered for cancellation after the making
of the Net Proceeds Offer and which have not been used as a credit against or
acquired pursuant to any prior obligation to make an offer to purchase Notes
pursuant to the provisions set forth under "-- Redemption at the Option of
Holders -- Change of Control" or this covenant.
Upon notice of a Net Proceeds Offer provided to the Trustee by the Company,
notice of such Net Proceeds Offer shall be mailed by the Trustee (at the
Company's expense) not less than 30 calendar days nor more than 60 calendar
days before the Net Proceeds Purchase Date to each Holder of Notes at such
Holder's last registered address appearing in the Register. The Company shall
provide the Trustee with copies of all materials to be delivered with such
notice. The notice shall contain all instructions and material necessary to
enable such Holders to tender Notes pursuant to the Net Proceeds Offer. If
Notes in a principal amount in excess of the Net Proceeds Offer Amount are
surrendered pursuant to the Net Proceeds Offer, the Company shall purchase
Notes on a pro rata basis (with such adjustments as may be deemed appropriate
by the Company so that only Notes in denominations of $1,000 or integral
multiples of $1,000 shall be acquired).
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Net Proceeds Offer.
On the Net Proceeds Purchase Date, the Company shall (i) accept for payment
Notes or portions thereof validly tendered pursuant to the Net Proceeds Offer
(on a pro rata basis if required), (ii) deposit with the Paying Agent money in
immediately available funds, sufficient to pay the purchase price of all Notes
or portions thereof so accepted, and (iii) deliver to the Trustee Notes so
accepted together with an Officer's Certificate stating the Notes or portions
thereof accepted for payment by the Company. If the Company complies with its
obligations set forth in the immediately preceding sentence, whether or not a
Default or Event of Default has occurred and is continuing on the Net Proceeds
Purchase Date, the Paying Agent shall as promptly as practicable mail to each
Holder of Notes so accepted payment in an amount equal to the purchase price,
and the Company shall execute and the Trustee shall as promptly as practicable
authenticate and mail or deliver to such Holder a new Note equal in principal
amount to any unpurchased portion of the Note surrendered. Any Notes not so
accepted shall be as promptly as practicable mailed or delivered by the Company
to the Holders thereof. The Company shall publicly announce the results of the
Net Proceeds Offer on or as promptly as practicable after the Net Proceeds
Purchase Date. For purposes of this covenant, the Trustee shall act as the
Paying Agent.
79
<PAGE> 81
Notwithstanding anything to the contrary contained in the Indenture, the
Company or any of its Restricted Subsidiaries may engage in transactions in
which theatre properties will be transferred in exchange for one or more other
theatre properties; provided that if the Fair Market Value of the theatre
properties to be transferred by the Company or such Restricted Subsidiary, plus
the Fair Market Value of any other consideration paid or credited by the
Company or such Restricted Subsidiary (the "Transaction Value") exceeds $2
million, such transaction shall require approval of the Board of Directors of
the Company. In addition, each such transaction shall be valued at an amount
equal to all consideration received by the Company or such Restricted
Subsidiary in such transaction, other than the theatre properties received
pursuant to such exchange ("Other Consideration") for purposes of determining
whether an Asset Disposition has occurred. If the Other Consideration is of an
amount and character such that such transaction constituted an Asset
Disposition, then the first paragraph of this "Limitation on Asset Sales"
covenant shall be applicable to any Net Proceeds of such Other Consideration.
Covenant with Respect to Cinemark International and its Subsidiaries. The
Indenture provides that the Company shall cause Cinemark International and its
Subsidiaries on a consolidated basis to be engaged principally in the
acquisition, construction and operation of indoor motion picture theatres and
other activities incidental thereto outside the United States and Canada.
Consolidation or Merger. The Indenture provides that the Company shall not
consolidate with or merge with or into or sell, assign or lease all or
substantially all of the properties and assets of the Company and its
Restricted Subsidiaries, taken as a whole, to any Person (other than the
Company or a Wholly Owned Subsidiary of the Company that is a Restricted
Subsidiary), or permit any Person (other than a Wholly Owned Subsidiary of the
Company that is a Restricted Subsidiary) to merge with or into the Company
unless: (i) the Company shall be the continuing Person, or the Person formed by
such consolidation or into which the Company is merged or to which the
properties and assets of the Company and its Restricted Subsidiaries taken as a
whole are transferred (the "surviving entity") shall be a corporation organized
and existing under the laws of the United States or any state thereof or the
District of Columbia and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture, and the
Indenture shall remain in full force and effect, and (ii) immediately before
and immediately after giving effect to such transaction, no Event of Default
and no Default shall have occurred and be continuing, (iii) unless the
applicable transaction involves the merger of a Restricted Subsidiary of the
Company into the Company, the Company or, in the case of a consolidation or
merger in which the Company is not the continuing Person, the surviving entity,
after giving pro forma effect to such transaction could incur $1.00 of
additional Indebtedness (assuming a market rate of interest with respect to
such additional Indebtedness) under the first paragraph under the "Limitation
on Indebtedness" covenant, and (iv) unless the applicable transaction involves
the merger of a Restricted Subsidiary of the Company into the Company,
immediately after giving effect to such transaction, the Consolidated Net Worth
of the Company, or, in the case of a consolidation or merger in which the
Company is not the continuing Person, the surviving entity, shall be equal to
or greater than the Consolidated Net Worth of the Company immediately before
such transaction.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company and its Restricted Subsidiaries taken as a
whole in accordance with the foregoing, the successor corporation formed by
such consolidation or into which the Company is merged or to which such
transfer is made, shall succeed to, and be substituted for, and may exercise
every right and power of the Company under the Indenture with the same effect
as if such successor corporation had been named as the Company therein; and
thereafter, if the Company is dissolved following a transfer of all or
substantially all of its assets in accordance with the Indenture, the Company
shall be discharged and released from all obligations and covenants under the
Indenture and the Notes. The Trustee shall enter into a supplemental indenture
to evidence the succession and substitution of such successor Person and such
discharge and release of the Company.
80
<PAGE> 82
DEFAULTS AND REMEDIES
Under the Indenture, an "Event of Default" occurs if one of the following
shall have occurred and be continuing: (i) the Company defaults in the payment
of (A) the principal of (or premium, if any, on) any Notes when the same
becomes due and payable at maturity, by acceleration or otherwise, (B) the
redemption price on any redemption date, or (C) the Change of Control Offer
Price or the Net Proceeds Offer Price on the applicable Offer Purchase Date
relating to such Offer; (ii) the Company defaults in the payment of interest on
any Note when the same becomes due and payable, which default continues for a
period of 30 calendar days; (iii) the Company or any Subsidiary of the Company
fails to comply with any of its covenants or agreements in the Notes or the
Indenture (other than those referred to in clauses (i) and (ii) above) and such
failure continues for 45 calendar days after receipt by the Company of a Notice
of Default specifying such Default; (iv) an event of default on any other
Indebtedness for borrowed money of the Company or any of its Restricted
Subsidiaries having an aggregate amount outstanding in excess of $5 million
which default (A) is caused by a failure to pay when due (after giving effect
to any grace periods) any principal, premium, if any, or interest on such
Indebtedness or (B) has caused the holders thereof to declare such Indebtedness
due and payable in advance of its scheduled maturity; (v) the Company or any
Significant Subsidiary of the Company pursuant to or within the meaning of any
Bankruptcy Law: (A) commences a voluntary case or proceeding, (B) consents to
the entry of an order for relief against it in an involuntary case or
proceeding, (C) consents to the appointment of a Custodian of it or for all or
substantially all of its property, (D) makes a general assignment for the
benefit of its creditors, or (E) admits in writing its inability to pay its
debts generally as they become due; (vi) a court of competent jurisdiction
enters an order or decree under any Bankruptcy Law that: (A) is for relief
against the Company or any Significant Subsidiary of the Company in an
involuntary case or proceeding, (B) appoints a Custodian of the Company or any
Significant Subsidiary of the Company or for all or substantially all of its
respective properties, or (C) orders the liquidation of the Company or any
Significant Subsidiary of the Company; and in each case the order or decree
remains unstayed and in effect for 60 calendar days, or (vii) final
non-appealable judgments for the payment of money which in the aggregate exceed
$5 million (net of applicable insurance coverage which is acknowledged in
writing by the insurer) shall be rendered against the Company or any
Significant Subsidiary of the Company by a court and shall remain unstayed or
undischarged for a period of 60 calendar days.
A Default under clause (iii) of the immediately preceding paragraph is not
an Event of Default until the Trustee notifies the Company, or the Holders of
at least 25% in aggregate principal amount of the Notes at the time outstanding
notify the Company and the Trustee, of the Default and the Company does not
cure such Default within the time specified in clause (iii) of the immediately
preceding paragraph after receipt of such notice. If any Event of Default under
clauses (i), (ii), (iii), (iv) or (vii) of the immediately preceding paragraph
occurs and is continuing, then the Holders of at least 25% in aggregate
principal amount of the Notes may declare principal of the Notes and accrued
interest immediately due and payable. If any Event of Default under clauses (v)
or (vi) of the immediately preceding paragraph occurs, all principal and
interest on the Notes will immediately become due and payable. If an Event of
Default occurs and is continuing, the Trustee may pursue any available remedy
by proceeding at law or in equity to collect any payment due, or to enforce the
performance of any provision, under the Notes or the Indenture. The Trustee may
withhold from holders of the Notes notice of any continuing Default or Event of
Default (except under clauses (i) or (ii) of the immediately preceding
paragraph) if it determines that withholding notice is in their interest. The
Holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Trustee and to the Company, may rescind
an acceleration (except an acceleration due to a default in payment of the
principal of or interest on any of the Notes) upon conditions provided in the
Indenture. Except to enforce the right to receive payments of principal of, or
premium and interest on, the Notes when due, no Holder of a Note may pursue any
remedy with respect to the Indenture or the Notes unless (i) the Holder has
given to the Trustee written notice of a continuing Event of Default, (ii)
Holders of at least 25% in aggregate principal amount of the Notes issued under
the Indenture then outstanding have made a written request to the Trustee to
pursue the remedy, (iii) such Holders have offered to provide the Trustee
indemnity reasonably satisfactory
81
<PAGE> 83
to the Trustee against any loss, liability or expense, (iv) the Trustee has not
complied with the request within 60 calendar days after receipt of the request
and the offer of indemnity, and (v) during such 60-day period, the Holders of a
majority in aggregate principal amount of the Notes then outstanding have not
given the Trustee a direction which, in the opinion of the Trustee, is
inconsistent with the request. The Holders of a majority in aggregate principal
amount of the Notes then outstanding under the Indenture may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on it. However, the Trustee
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines may be unduly prejudicial to the rights of another
Holder or that involves the Trustee in personal liability. The Trustee may take
any other action deemed proper by the Trustee which is not inconsistent with
such direction. Any money collected by the Trustee in respect to the Notes
shall be paid out first, to the Trustee for any amounts owed to it under the
Indenture, second, to the Holders for amounts due and unpaid on the Notes, and
finally, if there is any balance remaining, to the Company.
Notwithstanding the foregoing, if an Event of Default specified in clause
(iv) above shall have occurred and be continuing, such Event of Default and any
consequential acceleration shall be automatically rescinded if (i) the
Indebtedness that is the subject of such Event of Default has been repaid, or
(ii) if the default relating to such Indebtedness is waived or cured and if
such Indebtedness has been accelerated, then the holders thereof have rescinded
their declaration of acceleration in respect of such Indebtedness.
Under the Indenture, an officer of the Company is required to certify to
the Trustee in each fiscal quarter whether or not he knows of any Default or
Event of Default that occurred during the prior fiscal quarter and, if
applicable, describe such Default or Event of Default and the status thereof.
In addition, for each fiscal year, the Company's independent certified public
accountants are to provide a report, in connection with their audit
examination, as to compliance by the Company with certain covenants as they
relate to accounting matters.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the Trustee and the Holders of Notes (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Company were required
to file such forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that describes the financial
position and results of operations of the Company and its Subsidiaries and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the
rules and regulations of the Commission, the Company will file a copy of all
such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such information
available to prospective investors upon request.
The Company shall include an unaudited consolidating balance sheet and
related statements of income and cash flows for the Company and its
Subsidiaries, separately identifying the Restricted Group and the Unrestricted
Group, in all reports containing the consolidated financial statements (which
in the case of annual reports shall be audited) of the Company and its
consolidated Subsidiaries which are required to be delivered by the Company to
the Securityholders pursuant to the Indenture, including the Company's Annual
Reports on Form 10-K and Quarterly Reports on Form 10-Q.
82
<PAGE> 84
PAYMENTS FOR CONSENT
The Indenture prohibits the Company and any of its Subsidiaries from,
directly or indirectly, paying or causing to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any terms or provisions of
the Notes unless such consideration is offered to be paid or agreed to be paid
to all Holders of the Notes which so consent, waive or agree to amend in the
time frame set forth in solicitation documents relating to such consent, waiver
or agreement.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Indenture will be discharged and cancelled upon the delivery by the
Company to the Trustee for cancellation of all the Notes or upon irrevocable
deposit with the Trustee, within not more than one year prior to the maturity
of the Notes, or when the Notes are to be called for redemption within one year
under arrangements satisfactory to the Trustee, of funds sufficient for the
payment or redemption of all the Notes. In addition, the Indenture will provide
that the Company, subject to certain conditions specified below, may at any
time (i) defease and be discharged from its obligations in respect of the Notes
("Legal Defeasance") (except for certain obligations to register the transfer,
substitution or exchange of Notes, to replace stolen, lost or mutilated Notes
and to maintain an office or agency and the rights, obligations and immunities
of the Trustee) or (ii) defease and be discharged from its obligations with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment)
described under "-- Defaults and Remedies" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, the
Company must irrevocably deposit, or caused to be deposited, with the Trustee
(or another trustee satisfying the requirements of the Indenture), in trust for
such purpose, (i) money in an amount, (ii) U.S. Government Obligations which
through the payment of principal and interest in accordance with their terms
will provide money in an amount, or (iii) a combination thereof, sufficient in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
the principal of, premium, if any, and interest on the outstanding Notes at
maturity or upon redemption, together with all other amounts payable by the
Company under the Indenture. Such Legal Defeasance or Covenant Defeasance will
become effective 91 days after such deposit if and only if (i) no Default or
Event of Default with respect to the Notes has occurred and is continuing
immediately prior to the time of such deposit, (ii) no Default or Event of
Default under clauses (v) and (vi) of the definition of the term "Event of
Default" shall have occurred at any time in the period ending on the 91st day
after the date of such deposit and shall be continuing on such 91st day, (iii)
such defeasance does not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company is a
party or by which it is bound (and, in furtherance of such condition, no
Default or Event of Default shall result under the Indenture due to the
incurrence of Indebtedness to fund such deposit and the entering into of
customary documentation in connection therewith, even though such documentation
may contain provisions that would otherwise give rise to a Default or Event of
Default), and (iv) the Company has delivered to the Trustee (A)(1) in the case
of Legal Defeasance, an Opinion of Counsel to the effect that (x) there has
been published by the Internal Revenue Service a ruling or (y) since the date
of the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the Holders of the Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred, or (2) in the case of Covenant Defeasance, an
Opinion of Counsel to the effect that the Holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be
83
<PAGE> 85
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred; and (B) an Officers' Certificate and an Opinion of Counsel, each
stating that all conditions precedent relating to such defeasance have been
complied with. Notwithstanding the foregoing, the Company's obligations to pay
principal, premium, if any, and interest, if any, on the Notes shall continue
until the Internal Revenue Service ruling or Opinion of Counsel referred to in
clause (iv)(A) above is provided without regard to and without reliance upon
such obligations continuing to be obligations of the Company.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, neither the Registrar nor the Company is
required to transfer or exchange any Note for a period of 15 days before (i) a
selection of Notes to be redeemed, (ii) an interest payment date, or (iii) the
mailing of notice of a Net Proceeds Offer or a Change of Control Offer.
The registered Holder of a Note will be treated as the owner of such Note
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the
Notes, (iii) reduce the rate of or change the time for payment of interest on
any Note, (iv) waive a Default or Event of Default in the payment of principal
of, premium, if any, or interest on, the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration), (v) make any Note payable in money other than that
stated in the Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of, premium, if any, or interest on, the Notes,
(vii) waive a redemption payment with respect to any Note or (viii) make any
change in the foregoing amendment and waiver provisions. In addition, any
amendment to the provisions of the Indenture relating to subordination will
require the consent of the Holders of at least 66-2/3% in aggregate principal
amount of the Notes then outstanding if such amendment would adversely affect
the rights of Holders of the Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
84
<PAGE> 86
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Notes, unless such Holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
Series B Notes to be resold as set forth herein will initially be issued in
the form of one Global Note (the "Global Note"). The Global Note will be
deposited on the date of the closing of the Exchange Offer (the "Closing Date")
with, or on behalf of, The Depository Trust Company (the "Depositary") and
registered in the name of Cede & Co., as nominee of the Depositary (such
nominee being referred to herein as the "Global Note Holder"). Notes that are
issued as described below under "--Certificated Securities" will be issued in
the form of registered definitive certificates (the "Certificated Securities").
Upon the transfer of Certificated Securities, such Certificated Securities may,
unless the Global Note has previously been exchanged for Certificated
Securities, be exchanged for an interest in the Global Note representing the
principal amount of Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants ") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depositary's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants" or the "Depositary's
Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depositary only through the Depositary's Participants or the Depositary's
Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants that have tendered Series A Notes with portions of the
principal amount of the Global Note and (ii) ownership of the Series B Notes
evidenced by the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Series B Notes evidenced by the
Global Note will be limited to such extent.
85
<PAGE> 87
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole holder under the Indenture of
any Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by
the Global Note will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Accordingly,
beneficial owners of an interest in the Global Note must rely upon procedures
of the Global Note Holder, and if such Person is not a Participant, on the
procedures of the Participant through which such Person owns its interest, to
exercise any rights and fulfill any obligations of a holder under the
Indenture. No beneficial owner of a beneficial interest in the Global Note will
be able to transfer that interest except in accordance with the Global Note
Holder's procedures in addition to those provided by the Indenture. Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons
in whose names Notes, including the Global Note, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of Notes. The Company
believes, however, that it is currently the policy of the Depositary to
immediately credit the accounts of the relevant Participants with such
payments, in amounts proportionate to their respective holdings of beneficial
interests in the relevant security as shown on the records of the Depositary.
Payments by the Depositary's Participants and the Depositary's Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Depositary's Participants or the Depositary's Indirect Participants.
Certificated Securities. Subject to certain conditions, any person having
a beneficial interest in the Global Note may, upon request to the Trustee,
exchange such beneficial interest for Notes in the form of Certificated
Securities. Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of, and cause the same to be delivered to,
such person or persons (or the nominee of any thereof). All such certificated
Notes would be subject to the legend requirements described herein under
"Notice to Investors." In addition, if (i) the Company notifies the Trustee in
writing that the Depositary is no longer willing or able to act as a depositary
and the Company is unable to locate a qualified successor within 90 days or, if
at any time the Depositary ceases to be a "clearing agency" registered under
the Exchange Act, or (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Notes in the form of
Certificated Securities under the Indenture, then, upon surrender by the Global
Note Holder of its Global Note, Notes in such form will be issued to each
person that the Global Note Holder and the Depositary identify as being the
beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Same Day Settlement and Payment. The Indenture requires that payments in
respect of the Notes represented by the Global Note (including principal,
premium, if any, and interest) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note Holder. With
respect to any Certificated Securities, the Company will make all payments of
principal, premium, if any, and interest, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such Holder's registered
address. Secondary trading in long-term notes and debentures of corporate
issuers is generally settled in clearing-house or next-day funds. In
86
<PAGE> 88
contrast, the Notes represented by the Global Note are expected to be eligible
to trade in the PORTAL Market and to trade in the Depositary's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
Notes will, therefore, be required by the Depositary to be settled in
immediately available funds. The Company expects that secondary trading in any
Certificated Securities will also be settled in immediately available funds.
Exchange Offer; Registration Rights
The Company and the Initial Purchasers entered into the Registration Rights
Agreement. Pursuant to the Registration Rights Agreement, the Company agrees to
use its best efforts to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act, with
respect to the Series B Notes. The Series B Notes will be substantially
identical to the Series A Notes, except that the Series B Notes will not
contain terms with respect to transfer restrictions (other than as might be
imposed by state securities laws) or provide for the payment of Liquidated
Damages. Upon the effectiveness of the Exchange Offer Registration Statement,
the Company will offer to the Holders of Transfer Restricted Securities (as
defined below) pursuant to the Exchange Offer who are able to make certain
representations the opportunity to exchange their Transfer Restricted
Securities for an equal principal amount of Series B Notes. Interest on each
Series B Note will accrue from the most recent interest payment date on which
interest on the Series A Notes shall have been paid, or if no interest shall
yet have been paid on the Series A Notes, from the date of original issuance of
the Series A Notes. If (i) the Company is not required to file the Exchange
Offer Registration Statement or not permitted to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any Holder of Transfer Restricted Securities notifies the
Company within the specified time period that (A) it is prohibited by a change
in applicable law or Commission policy from participating in the Exchange Offer
or (B) it may not resell the Series B Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales, the Company will use its best efforts to file with
the Commission a Shelf Registration Statement to cover resales of the Series A
Notes by the Holders thereof who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
The Company will use its best efforts to cause the applicable registration
statement to be declared effective by the Commission within the period
specified below. For purposes of the foregoing, "Transfer Restricted
Securities" means each Note until (i) the date on which such Note, if a Series
A Note, has been exchanged by a person for an Series B Note in the Exchange
Offer and entitled to be resold to the public by such person without complying
with the prospectus delivery requirements of the Securities Act, (ii) following
exchange by a broker-dealer in the Exchange Offer of a Series A Note for a
Series B Note, the date on which such Series B Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, (iii)
the date on which such Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement, (iv) the date on which such Note may be distributed to the public
pursuant to Rule 144 under the Securities Act, or (v) the date such Note ceases
to be outstanding.
The Registration Rights Agreement provides that (i) the Company will use
its best efforts to file an Exchange Offer Registration Statement with the
Commission on or prior to 30 days after the Closing Date, (ii) the Company will
use its best efforts to have the Exchange Offer Registration Statement declared
effective by the Commission on or prior to 90 days after the Closing Date,
(iii) unless the Exchange Offer would not be permissible by applicable law or
Commission policy, the Company will commence the Exchange Offer and use its
best efforts to issue on or prior to 30 days after the date on which the
Exchange Offer Registration Statement was declared effective by the Commission,
Series B Notes in exchange for all Series A Notes tendered prior thereto in the
Exchange Offer and (iv) if obligated to file the Shelf Registration Statement,
the Company will use its best efforts to file the Shelf Registration Statement
with the Commission on or prior to 30 days after such filing obligation arises
(and in any event within 120 days after the Closing Date) and to
87
<PAGE> 89
cause the Shelf Registration to be declared effective by the Commission on or
prior to 90 days after such obligation arises. If applicable, the Company will
use its best efforts to keep the Shelf Registration Statement effective for a
period of three years after the Closing Date, subject to certain exceptions.
If (a) the Company fails to file any of the Registration Statements
required by the Registration Rights Agreement on or before the date specified
for such filing, (b) any of such Registration Statements is not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement
is declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement without being succeeded
immediately by a post-effective amendment to such Registration Statement that
cures such failure and that is itself immediately declared effective (each such
event, a "Registration Default"), then the Company will be required to pay
liquidated damages ("Liquidated Damages") to each Holder of Series A Notes on
each interest payment date. Liquidated Damages shall accrue from and after the
date of each Registration Default, and continuing thereafter until such
Registration Default has been cured or waived, at a rate equal to one-quarter
of one percent (0.25%) per annum of the principal amount of the Series A Notes
during the first 90-day period immediately following the occurrence of the
first such Registration Default, which rate shall increase by an additional
one-quarter of one percent (0.25%) per annum during each subsequent 90-day
period, up to a maximum rate equal to two percent (2%) per annum. Liquidated
Damages accrued as of any interest payment date will be payable on such date.
Holders of Series A Notes will be required to make certain representations
to the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer, including that (i) it is not an Affiliate of
the Company, (ii) any Series B Notes to be received by it were acquired in the
ordinary course of business, and (iii) at the time of commencement of the
Exchange Offer, it had no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Series B Notes.
Holders may also be required to make such representations as may be required to
permit offers and sales of the Series A Notes under state securities laws. Each
Holder of Series A Notes will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Series A Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of holding and disposing of the Series B Notes. This summary is based upon
provisions of the Internal Revenue Code of 1986, as amended, and regulations,
rulings and judicial decisions thereunder as of the date hereof, all of which
are subject to change (possibly on a retroactive basis). This summary does not
discuss all aspects of federal income taxation that may be relevant to
investors in light of their personal investment circumstances or to certain
types of holders subject to special treatment under the federal income tax laws
(for example, dealers in securities, tax-exempt organizations, insurance
companies, real estate trusts, regulated investment companies, individual
retirement accounts and other tax deferred accounts, and foreign taxpayers),
and does not discuss the consequences to a holder under state, local or foreign
tax laws. Prospective investors are advised to consult their own tax advisors
regarding the federal, state, local and other tax considerations of holding,
converting and disposing of the Series B Notes.
88
<PAGE> 90
EXCHANGE
An exchange of Series A Notes for Series B Notes should be treated as a
"non-event" for federal income tax purposes because the Series B Notes should
not be considered to differ materially in kind or extent from the Series A
Notes. As a result, no material federal income tax consequences should result
to holders exchanging Series A Notes for Series B Notes.
STATED INTEREST
The Series A Notes were not, and the Series B Notes will not be, issued at
an "original issue discount" for federal tax purposes. Accordingly, all
interest payments on a Note will be includible in a holder's income in
accordance with such holder's method of accounting for tax purposes. A cash
basis holder will include interest in income when received (or when made
available for receipt, if earlier). An accrual basis holder will generally
include interest in income when all events necessary to establish the right to
receive such interest have occurred.
SALE, EXCHANGE OR RETIREMENT OF NOTES
Upon the sale, exchange or retirement (including redemption) of a Series B
Note, a holder of a Series B Note generally will recognize gain or loss in an
amount equal to the difference between the amount of cash and the fair market
value of any property received on the sale, exchange or retirement of the
Series B Note (other than in respect of accrued and unpaid interest on the
Series B Note, which such amounts are treated as ordinary interest income) and
such holder's adjusted tax basis in the Series B Note. If a holder holds the
Series B Note as a capital asset, such gain or loss will be capital gain or
loss, except to the extent of any accrued market discount (see "Market
Discount" below), and will be long-term capital gain or loss if the Series B
Note has been held for more than one year at the time of sale, exchange or
retirement.
MARKET DISCOUNT
If a U.S. holder purchased a Series A Note for an amount that is less than
its stated redemption price at maturity, the amount of the difference will be
treated as "market discount" for federal income tax purposes, unless such
difference is less than a specified de minimis amount. In general, a Series A
Note in the hands of an original holder is not a market discount bond unless
the original holder's adjusted tax basis in the Series A Note is less than the
issue price. Under the de minimis exception, there is no market discount if the
excess of the stated redemption price at maturity of the Series A Note over the
holder's tax basis therein is less than 0.25% of the stated redemption price at
maturity of the Series A Note multiplied by the number of complete years after
the acquisition date to the maturity date of the Series A Note. Market discount
generally will accrue ratably during the period for the date of acquisition to
the maturity date of the Series A Note, unless the holder elects to accrue such
discount on the basis of the constant interest method.
A holder in whose hands a Series A Note is a market discount bond generally
will be required to treat as ordinary income any gain recognized on the sale,
exchange, redemption or other disposition (excluding involuntary conversion) of
the Series A Note to the extent of accrued market discount. A holder of a
Series A Note acquired at market discount also may be required to defer the
deduction of all or a portion of the interest on any indebtedness incurred or
maintained to purchase or carry the Series A Note until it is disposed of in a
taxable transaction, unless, as described more fully in the next paragraph, the
holder elects to include market discounts into income as it accrues.
A holder of a Series A Note acquired at a market discount may elect to
include market discount in income as it accrues, in which case the foregoing
rules would not apply. This election would apply to all market discount bonds
acquired by the electing holder on or after the first day of the first taxable
year to which the election applies. The election may be revoked only with the
consent of the Internal Revenue Service.
89
<PAGE> 91
AMORTIZABLE BOND PREMIUM
If a subsequent holder purchases a Series A Note for an amount that exceeds
its stated redemption price at maturity, such holder may elect to offset,
against interest income on the Series A Note, the amount of such excess
purchase price as "amortizable bond premium" (computed under a constant
interest rate method) over the remaining term of the Series A Note, with
corresponding adjustments to such holder's basis in the Series A Note. This
election would apply to all taxable debt instruments held by such holder at the
beginning of the first day of the first taxable year to which the election
applies and to all taxable debt instruments thereafter acquired. The election
may be revoked only with the consent of the Internal Revenue Service.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to interest
payments on the Series B Notes and to the proceeds of the disposition of a
Series B Note made to holders other than certain exempt recipients (such as
corporations). A 31 percent backup withholding tax will apply to such payments
only if the holder (i) fails to furnish its social security or other taxpayer
identification number ("TIN") within a reasonable time after the request
therefor, (ii) furnishes an incorrect TIN, (iii) fails to report properly
interest or dividends, or (iv) fails, under certain circumstances, to provide a
certified statement, signed under penalty of perjury, that the TIN provided is
its correct number and that it is not subject to backup withholding. Any amount
withheld from a payment to a holder under backup withholding rules is allowable
as a refund or as a credit against such holder's federal income tax liability,
provided that the required information is furnished to the Internal Revenue
Service. Holders of Series B Notes should consult their tax advisors as to
their qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
DESCRIPTION OF CERTAIN DEBT INSTRUMENTS
OLD INDENTURE
The Company is a party to an Indenture dated June 10, 1992 (the "Old
Indenture") with The Bank of New York, as successor to NationsBank of Texas,
N.A., as trustee (the "Old Trustee"), governing the Company's $125 million
principal amount of Old Notes. The Old Notes are senior obligations of the
Company and are secured by the pledge (which may not be released without the
consent of all holders of the Old Notes) of all of the capital stock of the
Restricted Subsidiaries (as defined in the Old Indenture) of the Company (the
"Pledge Agreement"). Additionally, the Old Notes have the benefit of a negative
pledge clause which requires the Company to equally and ratably secure the Old
Notes upon the incurrence by the Company of any other secured debt, subject to
certain limitations and exceptions. Interest on the Old Notes is payable
semi-annually on June 1 and December 1 of each year.
On August 15, 1996, the Company consummated an Offer to Purchase and
Consent Solicitation ("Repurchase Offer") pursuant to which the Company
purchased for cash $123,370,000 aggregate principal amount of Old Notes for a
cash purchase price equal to $1,079.33 per $1,000 principal amount of Old
Notes, plus accrued and unpaid interest through but excluding August 15, 1996.
Additionally, holders of the Old Notes repurchased consented to amending the
Old Indenture to remove certain restrictive covenants contained in the Old
Indenture (the "Amendments"). In connection therewith, the Company paid each
holder of Old Notes repurchased a cash consent fee equal to $25.00 per $1,000
principal amount of Old Notes. Holders of Old Notes that were not repurchased
pursuant to the Repurchase Offer for any reason are no longer entitled to the
benefits of certain of the restrictive covenants and other provisions in the
Old Indenture as currently in effect that were modified or eliminated by the
Amendments.
90
<PAGE> 92
CREDIT FACILITY
On February 14, 1996, the Company replaced its existing bank line of credit
with the Credit Facility, which has a final maturity of 2003 and provides for
borrowing availability of up to $175 million in the aggregate. Any amounts
borrowed by the Company under the Credit Facility prior to February 13, 1999
will be borrowed on a revolving basis. On February 13, 1999, any outstanding
revolving loans will be converted into a term loan. In addition, subject to the
conditions contained therein and to the limitation on the incurrence of
indebtedness under the Indenture and to the conditions set forth in the Credit
Facility, on February 13, 1999, the Company may borrow as a term loan the
difference between $175 million and the outstanding balance under the Credit
Facility (provided that such balance is less than $175 million). The term loan
will be payable quarterly beginning June 30, 1999, with 11.25%, 18.75%, 23.75%
and 36.25% of the initial principal amount of the term loan as of February 13,
1999 due in 1999, 2000, 2001 and 2002, respectively. Any remaining principal
amount of the term loans is due and payable February 13, 2003. Borrowings under
the Credit Facility are secured by a pledge of the issued and outstanding
capital stock of the Company owned by Mr. Mitchell and his affiliates.
Pursuant to the terms of the Credit Facility, funds borrowed bear interest
at a rate per annum equal to the Offshore Rate (as defined in the Credit
Facility) or the Base Rate (as defined in the Credit Facility), as the case may
be, plus the Applicable Amount (as defined in the Credit Facility). As of
August 31, 1996, outstanding borrowings under the Credit Facility aggregated
$16 million and the effective interest rate on such borrowings was 6.5%.
Covenants and certain other provisions contained in the Credit Facility
restrict, among other things, the Company's or any Restricted Subsidiary's
ability, with certain exceptions, (i) to create or incur any liens on any
assets, (ii) to sell assets of the business in excess of $2 million in a single
transaction or related series of transactions, or in excess of $5 million in
any 12 month period, (iii) to engage in mergers, consolidations or conveyances
of all or substantially all of its assets, (iv) to make any investment in any
other person or entity, (v) to incur additional indebtedness, (vi) to enter
into certain transactions with affiliates, (vii) to invest in margin stock,
(viii) to enter into capital leases, (ix) to declare or pay dividends or make
other distributions, (x) to prepay the Old Notes, (xi) to engage in a material
line of business substantially different from the line of business currently
conducted, (xii) to make significant changes in accounting treatment or
reporting practices or change the fiscal year of the Company or any
consolidated Restricted Subsidiary, (xiii) to restrict the ability of any
Restricted Subsidiary to make payments to the Company, or (xiv) to restrict the
ability of the Company to create or assume a lien in favor of the lender upon
its property or assets. The Credit Facility also requires the Company to
maintain specified financial ratios.
Events of default under the Credit Facility include, among other things:
(i) any failure of the Company to pay principal thereunder when due, or to pay
interest or any other amount due within two business days after the due date,
(ii) material inaccuracy of any representation or warranty given by the Company
in the Credit Facility, (iii) breach by the Company of certain terms, covenants
or agreements in the Credit Facility, (iv) the continuance of a default by the
Company in the performance of or compliance with specific terms or covenants in
the Credit Facility for a period of three days or other terms or covenants in
the Credit Facility or other loan documents for a period of twenty days after
the earlier of (A) the date an executive officer of the Company knew or should
have known of such default or (B) notice thereof, (v) default by the Company or
its Restricted Subsidiaries under any other indebtedness (other than the Old
Indenture) in the aggregate principal amount of $1 million, (vi) a default
under the Old Indenture or any indebtedness in excess of $1 million and (vii)
certain changes of control and acts of bankruptcy, insolvency or dissolution.
91
<PAGE> 93
CINEMARK MEXICO INDENTURE
On June 30, 1993, Cinemark Mexico entered into an Indenture among Cinemark
de Mexico, as guarantor, and U.S. Trust Company of New York, as trustee (the
"Cinemark Mexico Indenture"), governing Cinemark Mexico's $20.4 million 12%
Series A Senior Subordinated Notes due 2003 (the "Mexico Series A Notes"). On
March 28, 1994, Cinemark Mexico completed an exchange offer pursuant to which
the holders of $20 million principal amount of Mexico Series A Notes received
$20 million principal amount of 12% Series B Senior Subordinated Notes (the
"Mexico Series B Notes") which are registered under the Securities Act, in
exchange for their Mexico Series A Notes. On May 6, 1994, Cinemark Mexico
issued an additional $2 million of 12% Series C Senior Subordinated Notes due
2003 (the "Mexico Series C Notes") which are also governed by the terms of the
Cinemark Mexico Indenture. The Mexico Series A Notes, Mexico Series B Notes and
Mexico Series C Notes are collectively referred to elsewhere in this Prospectus
as the 12% Senior Subordinated Notes due 2003 of Cinemark Mexico. The Mexico
Series A, Mexico Series B and Mexico Series C Notes each bear interest at 12%
per annum payable semi-annually on August 1 and February 1 of each year.
Cinemark Mexico is required to make a sinking fund payment of $6,667,000 on
each of August 1, 2001 and August 1, 2002, which amounts are to be utilized on
such respective dates to retire a like face amount of the outstanding Mexico
Series A, Mexico Series B and Mexico Series C Notes. The Mexico Series A,
Mexico Series B and Mexico Series C Notes are general unsecured obligations of
Cinemark Mexico but are guaranteed by Cinemark de Mexico. Additionally, the
Cinemark Mexico Indenture permits Cinemark Mexico to incur senior debt of up to
$10 million pursuant to credit facilities. On August 30, 1995, Cinemark Mexico,
Cinemark de Mexico and U.S. Trust Company of New York entered into a Second
Supplemental Agreement which among other things extended for two years the time
period under which Cinemark Mexico must meet certain debt coverage ratios.
Covenants and certain other provisions contained in the Cinemark Mexico
Indenture restrict, with certain exceptions, among other things, the ability of
Cinemark Mexico or its subsidiaries (i) to make certain restricted payments,
(ii) to make certain investments, (iii) to incur additional indebtedness, other
than $10 million in senior debt pursuant to credit facilities, unless certain
financial tests are met, (iv) to create or incur any additional liens on any
assets, (v) to be engaged in activities other than the acquisition,
construction and operation of indoor motion picture theatres in Mexico, (vi) to
enter into certain transactions with affiliates and (vii) to enter into any
transactions involving the merger of Cinemark Mexico or the sale of all or
substantially all of its assets. The Cinemark Mexico Indenture also requires
Cinemark Mexico to maintain specified financial ratios.
Events of Default under the Cinemark Mexico Indenture include (i) any
failure of Cinemark Mexico to pay principal when due or to pay interest when
due, which failure remains unremedied for thirty days after the due date, (ii)
breach by Cinemark Mexico of certain covenants and agreements in the Cinemark
Mexico Indenture, (iii) the Cinemark de Mexico guaranty ceases to be in full
force and effect or Cinemark de Mexico denies or disaffirms its obligations
under the guaranty, (iv) a default under any other indebtedness of Cinemark
Mexico in an amount exceeding $1 million, which indebtedness is accelerated,
(v) certain acts of bankruptcy, insolvency or dissolution and (vi) final
judgments for payment of money against Cinemark Mexico or its subsidiaries
which in the aggregate exceed $1 million.
In July 1996, Cinemark Mexico reached a non-binding agreement in principle
with the institutional holder (the "Majority Holder") of $22.0 million of the
aggregate $22.4 million principal amount of Cinemark Mexico 12% Senior
Subordinated Notes pursuant to which Cinemark Mexico and the Majority Holder
agreed to the exchange of all Cinemark Mexico 12% Senior Subordinated Notes
owned by the Majority Holder, and accrued unpaid interest from February 1, 1996
to the date of such exchange, for the New Mexico Notes. The New Mexico Notes
provide that, at Cinemark Mexico's option, all accrued and unpaid interest for
each interest period through and including February 1, 2000 may be paid by
issuing additional notes of the same series on each interest payment date or
may be paid in cash. During such period, the New Mexico Notes will bear
interest at a rate of 13% per annum for each interest payment paid-in-kind or
at a rate of 12% per annum if paid in cash. The agreement in principle also
provided that Cinemark Mexico will issue approximately $1.3
92
<PAGE> 94
million of a new series of notes, on substantially similar terms as the New
Mexico Notes, in exchange for all of the issued and outstanding warrants to
purchase shares of common stock of Cinemark Mexico owned by the Majority
Holder.
Cinemark Mexico and the Majority Holder elected to pursue the exchange of
the Cinemark Mexico 12% Senior Subordinated Notes for the New Mexico Notes in
order to provide for additional cash liquidity to fund capital investments in
the Cinemark Mexico business and to take full advantage of the opportunities
Cinemark Mexico currently believes exist in the Mexican motion picture
exhibition industry. In this connection, Cinemark International has agreed to
make an additional $10 million investment in common stock of Cinemark Mexico
when the New Mexico Notes are issued.
As a result of the agreement in principle, Cinemark Mexico did not make the
approximately $1.3 million cash interest payment on the Cinemark Mexico 12%
Senior Subordinated Notes otherwise due on August 1, 1996. The Majority Holder
has agreed to postpone the interest payment date to September 30, 1996 pending
negotiation of definitive documentation to effectuate the terms of the
non-binding agreement in principle. However, there can be no assurance that any
such documentation will be successfully negotiated, approved or executed. In
such event, and if Cinemark Mexico fails to make the interest payment, an event
of default under the Cinemark Mexico Indenture could result, which event of
default would have a material adverse effect on Cinemark Mexico if the maturity
of the Cinemark Mexico Notes is accelerated. Because Cinemark Mexico is an
Unrestricted Subsidiary, acceleration of the Cinemark Mexico 12% Senior
Subordinated Notes would not be an Event of Default under the Indenture, the
Company's Credit Facility or any other of the Company's existing debt
instruments.
The Company intends to negotiate with the holders of the remaining
$400,000 principal amount of the Cinemark Mexico 12% Senior Subordinated Notes
to effectuate an exchange offer on similar terms to the agreement in principle
reached with the Majority Holder.
MEXICO CREDIT FACILITY
On December 4, 1995, Cinemark International and Cinemark Mexico entered
into a Senior Secured Credit Facility (the "Mexico Senior Credit Facility").
The Mexico Senior Credit Facility provides for loans by Cinemark International
to Cinemark Mexico of up to $10 million in the aggregate at an interest rate of
12% per annum. Any amounts borrowed by Cinemark Mexico under the Mexico Senior
Credit Facility will be borrowed on a term loan basis. The loans will be
payable as follows: (i) all accrued and unpaid interest shall be payable on the
first anniversary of the initial loan and quarterly thereafter on January 15,
April 15, July 15 and October 15 and (ii) on December 31, 2001, all unpaid
principal, accrued but unpaid interest and fees on the loans shall be paid.
Borrowing under the Mexico Senior Credit Facility is secured by a pledge of
substantially all of the assets of Cinemark Mexico.
Conditions and provisions in the Mexico Senior Credit Facility restrict,
among other things, Cinemark Mexico and Cinemark de Mexico's ability, with
certain exceptions, to (i) create, incur or assume indebtedness, (ii) create or
incur any additional liens, (iii) engage in mergers, consolidations or
acquisitions or convey all or substantially all of its assets, (iv) change the
manager operating the theatres owned by Cinemark de Mexico under present
management agreements or (v) make investments other than specified permitted
investments. The Mexico Senior Credit Facility also requires Cinemark Mexico to
maintain specified financial ratios.
Events of default under the Mexico Senior Credit Facility include, among
other things: (i) any failure of Cinemark Mexico or Cinemark de Mexico to pay
principal when due or pay interest within five days after the due date, (ii)
breach of certain covenants and agreements in the Mexico Senior Credit
Facility, (iii) material inaccuracy of any representation or warranty given by
Cinemark Mexico in the Mexico Senior Credit Facility, (iv) certain acts of
bankruptcy, insolvency or dissolution, (v) default by Cinemark Mexico or
93
<PAGE> 95
Cinemark de Mexico on any other indebtedness, (vi) Cinemark International not
having a valid first priority perfected security interest in the collateral,
(vii) change of control of Cinemark Mexico, (viii) judgments against Cinemark
Mexico or Cinemark de Mexico which in the aggregate exceed $100,000 and (ix)
default by Cinemark Mexico or Cinemark de Mexico under the Cinemark Mexico
Indenture.
The Mexico Senior Credit Facility permits Cinemark Mexico to re-lend any
funds borrowed to Cinemark de Mexico to finance construction of uncompleted
locations, the acquisition and installment of furniture, fixtures and equipment
at such locations and for general corporate purposes and working capital. Funds
borrowed by Cinemark de Mexico bear interest at the rate of 14.12% and are
secured by a pledge of all of the assets of Cinemark de Mexico.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Series B Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Series B Notes received in
exchange for Series A Notes where such Series A Notes were acquired as a result
of market-making activities or other trading activities. The Company has
agreed that, for a period of twelve months after the effective date of this
Prospectus, it will make this Prospectus, as amended or supplemented, available
to any broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of Series B Notes
by broker-dealers. Series B Notes received by broker-dealers for their own
accounts pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Series B Notes or a combination of such
methods of resale, at market prices at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Series B Notes. Any
broker-dealer that resells Series B Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Series B Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Series B Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of twelve months after the effective date of this Prospectus,
the Company will promptly send additional copies of this Prospectus and any
amendment to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed, in connection with the
Exchange Offer, to indemnify the holders of Series A Notes against certain
liabilities, including liabilities under the Securities Act.
By acceptance of the Exchange Offer, each broker-dealer that receives
Series B Notes pursuant to the Exchange Offer hereby agrees to notify the
Company prior to using the Prospectus in connection with the sale or transfer
of Series B Notes, and acknowledges and agrees that, upon receipt of notice
from the Company of the happening of any event which makes any statement in the
Prospectus untrue in any material respect or which requires the making of any
changes in the Prospectus in order to make the statements therein not
misleading (which notice the Company agrees to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of the Prospectus until the
Company has amended or supplemented the Prospectus to correct
94
<PAGE> 96
such misstatement or omission and has furnished copies of the amended or
supplemented prospectus to such broker-dealer.
LEGAL MATTERS
Certain legal matters in connection with the Series B Notes exchanged
hereby will be passed upon for the Company by Akin, Gump, Strauss, Hauer &
Feld, L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995 included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have been
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
95
<PAGE> 97
CINEMARK USA, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES:
Consolidated Balance Sheets, December 31, 1994 and 1995, and June 30, 1996 (Unaudited) . . . . . . F-4
Consolidated Statements of Income for the Years Ended December 31, 1993, 1994 and 1995,
and the Six Months Ended June 30, 1995 and 1996 (Unaudited) . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1993,
1994 and 1995, and the Six Months Ended June 30, 1996 (Unaudited) . . . . . . . . . . . . . . F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995, and the Six Months Ended June 30, 1995 and 1996 (Unaudited) . . . . . . . . . . . . . . F-8
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
SUPPLEMENTAL SCHEDULES REQUIRED BY THE INDENTURE
(SECTION 4.02) FOR THE SENIOR NOTES:
Schedule
- --------
A Consolidating Balance Sheet Information, December 31, 1995 . . . . . . . . . . . . . . . S-1
B Consolidating Statement of Operations Information for the Year Ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
C Consolidating Statement of Cash Flows Information for the Year Ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
D Consolidating Balance Sheet Information, June 30, 1996 (Unaudited) . . . . . . . . . . . S-4
E Consolidating Statement of Operations Information for the Six Months Ended
June 30, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
F Consolidating Statement of Cash Flows Information for the Six Months Ended
June 30, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
</TABLE>
F-1
<PAGE> 98
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-2
<PAGE> 99
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Cinemark USA, Inc.:
We have audited the accompanying consolidated balance sheets of Cinemark
USA, Inc. and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Cinemark USA, Inc. and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The supplemental
schedules of certain consolidating information listed in the index on page F-1
are presented for the purpose of additional analysis of the basic consolidated
financial statements rather than to present the financial position, results of
operations and cash flows of the individual companies, and are not a required
part of the basic consolidated financial statements. These schedules are the
responsibility of the Company's management. Such schedules have been subjected
to the auditing procedures applied in our audits of the basic consolidated
financial statements and, in our opinion, are fairly stated in all material
respects when considered in relation to the basic consolidated financial
statements taken as a whole.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 12, 1996
F-3
<PAGE> 100
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
------------------------------- June 30,
1994 1995 1996
--------------- -------------- ----------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . $ 26,574,074 $ 13,649,724 $ 6,840,264
Temporary cash investments . . . . . . . . . . . . . . 4,482,406 275,126 282,026
Inventories . . . . . . . . . . . . . . . . . . . . . 884,699 1,061,580 1,439,056
Co-op advertising and other receivables (Note 12) . . 3,095,170 4,095,819 4,772,575
Prepaid expenses and other . . . . . . . . . . . . . . 1,501,827 145,660 864,803
--------------- -------------- ----------------
Total current assets . . . . . . . . . . . . . . . 36,538,176 19,227,909 14,198,724
THEATER PROPERTIES AND EQUIPMENT
(Note 5):
Land . . . . . . . . . . . . . . . . . . . . . . . . 13,179,022 14,335,343 27,740,906
Buildings . . . . . . . . . . . . . . . . . . . . . . 36,168,701 62,540,849 78,624,578
Leasehold interests and improvements . . . . . . . . . 38,031,373 50,891,524 61,355,948
Theater furniture and equipment . . . . . . . . . . . 106,180,998 125,172,486 133,910,512
Videocassette rental inventory . . . . . . . . . . . . 4,518,408 5,383,873 6,094,198
Theaters under construction . . . . . . . . . . . . . 9,928,425 29,218,015 49,559,303
--------------- -------------- ----------------
Total . . . . . . . . . . . . . . . . . . . . . . 208,006,927 287,542,090 357,285,445
Less accumulated depreciation and amortization . . . . 52,208,428 63,059,873 69,722,268
--------------- -------------- ----------------
Theater properties and equipment -- net . . . . . 155,798,499 224,482,217 287,563,177
OTHER ASSETS:
Certificates of deposit (Note 9) . . . . . . . . . . . 1,499,920 1,822,954 1,821,867
Investments in and advances to affiliates (Note 12) . . 5,340,380 4,275,602 4,858,155
Intangible assets -- net (Note 3) . . . . . . . . . . . 9,834,805 7,718,292 7,227,012
Deferred charges and other -- net (Note 4) . . . . . . 8,173,082 10,220,127 10,437,528
--------------- -------------- ----------------
Total other assets . . . . . . . . . . . . . . . . 24,848,187 24,036,975 24,344,562
--------------- -------------- ----------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . $ 217,184,862 $ 267,747,101 $ 326,106,463
=============== ============== ================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 101
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
------------------------------- June 30,
1994 1995 1996
--------------- -------------- ----------------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term liabilities (Note 5) . . $ 375,359 $ 377,737 $ 379,009
Accounts payable . . . . . . . . . . . . . . . . . . . 9,101,333 14,213,239 18,571,397
Accrued film rentals . . . . . . . . . . . . . . . . . 7,193,998 6,463,548 10,758,737
Accrued interest . . . . . . . . . . . . . . . . . . . 2,635,433 2,826,262 2,594,581
Accrued payrolls . . . . . . . . . . . . . . . . . . . 1,923,868 2,139,721 3,131,091
Accrued property taxes and other liabilities . . . . . 8,821,824 10,596,595 8,962,420
Notes payable to related parties (Note 6) . . . . . . 2,051,642
Income taxes payable (Note 10) . . . . . . . . . . . . 353,555 1,648,629
--------------- -------------- ----------------
Total current liabilities . . . . . . . . . . . . 30,405,370 40,317,373 44,397,235
LONG-TERM LIABILITIES:
Long-term debt, less current portion (Note 5) . . . . 164,928,838 196,065,569 202,641,863
Deferred lease expenses (Note 9) . . . . . . . . . . . 8,759,264 9,811,038 10,513,953
Notes payable to related parties (Note 6) . . . . . . 2,419,700
Theatre development advance, less current portion
(Note 5) . . . . . . . . . . . . . . . . . . . . . 1,496,511 1,125,703 769,657
Deferred income taxes (Note 10) . . . . . . . . . . . 3,083,177 4,296,211 4,965,363
--------------- -------------- ----------------
Total long-term liabilities . . . . . . . . . . . 180,687,490 211,298,521 218,890,836
COMMITMENTS (Note 9)
MINORITY INTERESTS IN SUBSIDIARIES
(Note 8):
Common shareholders' equity . . . . . . . . . . . . . 1,259,696 1,362,033 1,315,455
Common stock warrants with mandatory redemption
requirements . . . . . . . . . . . . . . . . . . . 2,100,000 3,424,132 3,424,132
SHAREHOLDERS' EQUITY (Notes 2, 5, 7 and 14):
Class A common stock, $.01 par value; 10,000,000
shares authorized, 3,000, 3,000 and 1,500 shares
issued and outstanding at December 31, 1994 and
1995, and June 30, 1996, respectively . . . . . . . 30 30 15
Class B common stock, no par value; 1,000,000 shares
authorized, 205,570, 205,570 and 230,963 shares
issued at December 31, 1994 and 1995, and
June 30, 1996, respectively . . . . . . . . . . . . 10,967,419 10,967,419 49,529,943
Additional paid-in capital . . . . . . . . . . . . . . 4,325,887 6,604,037 7,099,320
Unearned compensation -- stock options . . . . . . . . (2,161,610) (2,848,738) (2,084,957)
Retained earnings . . . . . . . . . . . . . . . . . . 14,006,560 27,161,692 33,990,662
Treasury stock, 54,791 Class B shares at cost . . . . (20,000,000) (20,000,000) (20,000,000)
Cumulative foreign currency translation adjustment . . (4,405,980) (10,539,398) (10,456,178)
--------------- -------------- ----------------
Total shareholders' equity . . . . . . . . . . . . 2,732,306 11,345,042 58,078,805
--------------- -------------- ----------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . $ 217,184,862 $ 267,747,101 $ 326,106,463
=============== ============== ================
</TABLE>
F-5
<PAGE> 102
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------------------------- ---------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Admissions . . . . . . . . . . . . . . . . . . . . $146,959,396 $174,470,503 $183,100,626 $ 82,828,127 $ 97,408,274
Concessions . . . . . . . . . . . . . . . . . . . 83,288,842 95,159,610 102,077,542 46,376,295 53,506,210
Other (Note 11) . . . . . . . . . . . . . . . . . 9,410,654 13,446,676 13,380,589 7,009,400 7,389,162
------------ ------------ ------------ ------------ ------------
Total . . . . . . . . . . . . . . . . . . . . 239,658,892 283,076,789 298,558,757 136,213,822 158,303,646
COSTS AND EXPENSES:
Cost of operations (Note 11):
Film rentals . . . . . . . . . . . . . . . . . . 70,333,865 83,978,465 88,978,423 39,100,278 46,915,669
Concession supplies . . . . . . . . . . . . . . . 15,269,929 17,562,650 17,277,411 8,433,308 9,023,970
Salaries and wages . . . . . . . . . . . . . . . 33,980,789 39,548,147 40,653,338 20,021,665 21,263,603
Facility leases . . . . . . . . . . . . . . . . . 27,269,513 29,599,702 30,873,208 15,274,992 15,943,730
Advertising . . . . . . . . . . . . . . . . . . . 6,068,810 7,189,436 7,623,475 3,497,573 4,172,706
Utilities and other . . . . . . . . . . . . . . . 32,177,059 40,869,506 42,312,878 19,015,615 22,960,389
------------ ------------ ------------ ------------ ------------
Total cost of operations . . . . . . . . . . 185,099,965 218,747,906 227,718,733 105,343,431 120,280,067
General and administrative expenses (Note 9) . . . 12,162,112 17,094,964 19,554,615 9,140,515 11,399,523
Depreciation and amortization . . . . . . . . . . 10,938,830 15,121,120 15,924,794 7,104,874 8,671,525
------------ ------------ ------------ ------------ ------------
Total . . . . . . . . . . . . . . . . . . . . 208,200,907 250,963,990 263,198,142 121,588,820 140,351,115
------------ ------------ ------------ ------------ ------------
OPERATING INCOME . . . . . . . . . . . . . . . . . 31,457,985 32,112,799 35,360,615 14,625,002 17,952,531
OTHER INCOME (EXPENSE):
Interest expense (Note 11) . . . . . . . . . . . . (16,573,409) (18,133,438) (18,549,833) (9,906,075) (9,351,787)
Amortization of debt issue cost and discount . . . (528,724) (783,515) (824,014) (409,366) (414,824)
Interest income (Note 11) . . . . . . . . . . . . 1,317,014 1,415,026 1,779,339 931,296 307,799
Gain (loss) on sale of theatres and other . . . . (145,329) (512,329) 4,796,727 (584,200) 3,647,372
Equity in income of affiliates (Note 12) . . . . . 305,532 2,709 693,415 266,125 401,499
Minority interests in subsidiaries (Note 8) . . . 57,462 (27,306) 288 (67,941) 46,578
------------ ------------ ------------ ------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . (15,567,454) (18,038,853) (12,104,078) (9,770,161) (5,363,363)
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM . . . . . . . . . . . . . . . . 15,890,531 14,073,946 23,256,537 4,854,841 12,589,168
INCOME TAXES (Note 10) . . . . . . . . . . . . . . 6,170,477 7,068,275 10,101,405 2,217,027 5,425,513
------------ ------------ ------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM . . . . . . . . . 9,720,054 7,005,671 13,155,132 2,637,814 7,163,655
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
income tax benefit of $273,834 . . . . . . . . . . (334,685)
------------ ------------ ------------ ------------ ------------
NET INCOME . . . . . . . . . . . . . . . . . . . . $ 9,720,054 $ 7,005,671 $ 13,155,132 $ 2,637,814 $ 6,828,970
============ ============ ============ ============ ============
EARNINGS PER SHARE:
Before extraordinary item . . . . . . . . . . . . $ 60.15 $ 43.21 $ 80.32 $ 16.16 $ 40.06
============ ============ ============ ============ ============
Net income . . . . . . . . . . . . . . . . . . . . $ 60.15 $ 43.21 $ 80.32 $ 16.16 $ 38.19
============ ============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING . . . . . . . . . . . . . . . . . . . . 161,584 162,113 163,776 163,279 178,820
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 103
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
-------------------- ----------------------
Additional Unearned Retained Cumulative
Shares Shares Paid-In Compensation Earnings
Issued Amount Issued Amount Capital
---------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 . . . . . . . . . . 3,000 $ 30 205,570 $10,967,419 $ 2,931,970
Capital contributions by
minority shareholders in subsidiaries . 254,403
Net income . . . . . . . . . . . . . . . .
Unearned compensation on
stock options forfeited (Note 7) . . . . (424,436)
Unearned compensation from
stock options granted (Note 7) . . . . . 443,950
Amortization of unearned
compensation (Note 7) . . . . . . . . .
Foreign currency translation
adjustment (Note 2) . . . . . . . . . .
------- ------ ------- ----------- -----------
BALANCE, DECEMBER 31, 1993 . . . . . . . . . 3,000 30 205,570 10,967,419 3,205,887
Net income . . . . . . . . . . . . . . . .
Unearned compensation from
stock options granted (Note 7) . . . . . 1,120,000
Amortization of unearned
compensation (Note 7) . . . . . . . . .
Foreign currency translation
adjustment (Note 2) . . . . . . . . . .
------- ------ ------- ----------- -----------
BALANCE, DECEMBER 31, 1994 . . . . . . . . . 3,000 30 205,570 10,967,419 4,325,887
Net income . . . . . . . . . . . . . . . .
Unearned compensation from
stock options granted (Note 7) . . . . . 2,278,150
Amortization of unearned
compensation (Note 7) . . . . . . . . .
Foreign currency translation
adjustment (Note 2) . . . . . . . . . .
------- ------ ------- ----------- -----------
BALANCE, DECEMBER 31, 1995 . . . . . . . . . 3,000 30 205,570 10,967,419 6,604,037
Conversion of Class A to
Class B common stock . . . . . . . . . . (1,500) (15) 1,500 15
Common stock issuance . . . . . . . . . . 23,893 38,561,000
Net income . . . . . . . . . . . . . . . .
Unearned compensation from
stock options granted . . . . . . . . .
Stock options exercised . . . . . . . . . 1,509 1,509 636,106
Stock options forfeited . . . . . . . . . (140,823)
Foreign currency translation
adjustment . . . . . . . . . . . . . . .
------- ------ ------- ----------- -----------
BALANCE, JUNE 30, 1996
(UNAUDITED) . . . . . . . . . . . . . . . 1,500 $ 15 232,472 $49,529,943 $ 7,099,320
======= ====== ======= =========== ===========
<CAPTION>
Treasury Translation
Stock Options (Deficit) Stock Adjustment Total
------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 . . . . . . . . . . $(2,274,004) (2,719,165) $(20,000,000) $ $(11,093,750)
Capital contributions by
minority shareholders in subsidiaries . 254,403
Net income . . . . . . . . . . . . . . . . 9,720,054 9,720,054
Unearned compensation on
stock options forfeited (Note 7) . . . . 310,987 (113,449)
Unearned compensation from
stock options granted (Note 7) . . . . . (443,950) --
Amortization of unearned
compensation (Note 7) . . . . . . . . . 529,276 529,276
Foreign currency translation
adjustment (Note 2) . . . . . . . . . . (56,080) (56,080)
------------ ---------- ------------ ----------- ------------
BALANCE, DECEMBER 31, 1993 . . . . . . . . . (1,877,691) 7,000,889 (20,000,000) (56,080) (759,546)
Net income . . . . . . . . . . . . . . . . 7,005,671 7,005,671
Unearned compensation from
stock options granted (Note 7) . . . . . (1,120,000) --
Amortization of unearned
compensation (Note 7) . . . . . . . . . 836,081 836,081
Foreign currency translation
adjustment (Note 2) . . . . . . . . . . (4,349,900) (4,349,900)
------------ ---------- ------------ ----------- ------------
BALANCE, DECEMBER 31, 1994 . . . . . . . . . (2,161,610) 14,006,560 (20,000,000) (4,405,980) 2,732,306
Net income . . . . . . . . . . . . . . . . 13,155,132 13,155,132
Unearned compensation from
stock options granted (Note 7) . . . . . (2,278,150) --
Amortization of unearned
compensation (Note 7) . . . . . . . . . 1,591,022 1,591,022
Foreign currency translation
adjustment (Note 2) . . . . . . . . . . (6,133,418) (6,133,418)
------------ ---------- ------------ ----------- ------------
BALANCE, DECEMBER 31, 1995 . . . . . . . . . (2,848,738) 27,161,692 (20,000,000) (10,539,398) 11,345,042
Conversion of Class A to
Class B common stock . . . . . . . . . . --
Common stock issuance . . . . . . . . . . 38,561,000
Net income . . . . . . . . . . . . . . . . 6,828,970 6,828,970
Unearned compensation from
stock options granted . . . . . . . . . 651,215 651,215
Stock options exercised . . . . . . . . . 637,615
Stock options forfeited . . . . . . . . . 112,566 (28,257)
Foreign currency translation
adjustment . . . . . . . . . . . . . . . 83,220 83,220
------------ ---------- ------------ ----------- ------------
BALANCE, JUNE 30, 1996
(UNAUDITED) . . . . . . . . . . . . . . . $(2,084,957) 33,990,662 $(20,000,000) (10,456,178) $ 58,078,805
============ ========== ============ =========== ============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 104
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . $ 9,720,054 $ 7,005,671 $ 13,155,132 $ 2,637,814 $ 6,828,970
Loss on early extinguishment of debt . . . . . . . 608,519
Noncash items in net income:
Depreciation . . . . . . . . . . . . . . . . . . 9,262,986 10,860,816 12,716,099 6,425,255 7,164,166
Amortization -- intangibles and other assets . . 2,213,330 4,900,756 3,868,241 1,009,392 1,831,059
Deferred lease expenses . . . . . . . . . . . . . 1,678,763 1,366,135 1,051,774 783,510 702,915
Deferred income tax expense . . . . . . . . . . . 1,569,000 1,514,177 1,213,034 669,152
Debt issued for accrued interest . . . . . . . . 418,607 314,756 184,134 80,340 34,871
Amortization of debt discount . . . . . . . . . . 51,718 143,063 164,468 79,593 91,124
Amortized compensation -- stock options . . . . . 415,827 836,081 1,591,022 569,701 622,958
(Gain) loss on sale of assets . . . . . . . . . . 145,329 301,915 (5,196,922) 289,171
Equity in income of affiliates . . . . . . . . . (305,532) (2,709) (693,415) (266,125) (401,499)
Minority interest in income (loss) . . . . . . . (57,462) 27,306 (288) 67,941 (46,578)
Cash from (used for) operating working capital:
Inventories . . . . . . . . . . . . . . . . . . . 49,606 (16,831) (176,881) (177,131) (377,476)
Co-op advertising and other receivables . . . . . (520,965) (771,681) (1,000,649) (1,738,853) (676,756)
Prepaid expenses and other . . . . . . . . . . . (340,668) (1,007,532) 1,356,167 66,135 (719,143)
Refundable income taxes . . . . . . . . . . . . . 686,828
Accounts payable . . . . . . . . . . . . . . . . (824,034) 3,289,736 5,111,906 (1,647,674) 4,358,158
Accrued liabilities . . . . . . . . . . . . . . . 3,120,909 3,677,829 1,451,003 162,659 3,420,703
Income taxes payable . . . . . . . . . . . . . . (103,626) 225,205 1,295,074 (295,440) (1,648,629)
------------ ------------ ------------ ------------ -----------
Net cash from operating
activities . . . . . . . . . . . . . . . . . . . 27,180,670 32,664,693 36,089,899 8,046,288 22,462,514
------------ ------------ ------------ ------------ -----------
INVESTING ACTIVITIES:
Additions to theatre properties and equipment . . (30,703,810) (53,862,918) (89,287,667) (30,228,643) (70,245,126)
Sale of theatre properties and equipment . . . . . 149,794 10,500 8,022,500
Decrease (increase) in certificates of deposit . . (1,830,501) 797,933 (323,034) (287,261) 1,087
Decrease (increase) in temporary cash
investments . . . . . . . . . . . . . . . . . . . 1,529,437 (3,981,970) 4,207,280 1,169,907 (6,900)
Decrease (increase) in investments in and advances
to affiliates . . . . . . . . . . . . . . . . . . (769,029) (3,914,574) (828,065) 2,254,470 (181,054)
Proceeds of Funtime International sale . . . . . . 800,000
Increase in other assets . . . . . . . . . . . . . (3,131,114) (1,924,649) (2,859,127) (1,309,517) (2,165,699)
Purchase of additional 2 Day Video, Inc.
stock . . . . . . . . . . . . . . . . . . . . . . (804,581)
------------ ------------ ------------ ------------ -----------
Net cash used for investing activities . . . . (35,559,804) (62,875,678) (80,268,113) (28,401,044) (72,597,692)
------------ ------------ ------------ ------------ -----------
FINANCING ACTIVITIES:
Increases in long-term debt . . . . . . . . . . . 23,510,000 15,890,000 46,000,000 14,000,000 43,500,000
Reductions of long-term debt . . . . . . . . . . . (54,660) (233,184) (15,025,359) (4,012,395) (37,013,558)
Payment on notes payable to related parties . . . (1,800,000) (2,061,556) (533,563) (2,086,513)
Decrease in theatre development advance . . . . . (81,631) (321,858) (370,808) (370,808) (356,046)
Minority investment in subsidiaries, net . . . . . 1,376,961 102,625
Net proceeds from common stock issuance . . . . . 38,562,509
Increase in additional paid-in capital . . . . . . 302,625 636,106
Issuance of subsidiary common stock
warrants . . . . . . . . . . . . . . . . . . . . 2,100,000 1,324,132
------------ ------------ ------------ ------------ -----------
Net cash from financing activities . . . . . . . 25,050,670 13,273,402 32,030,590 9,385,859 43,242,498
------------ ------------ ------------ ------------ -----------
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT . . . . . . . . . . . . . . . . . . . . (56,080) (441,887) (776,726) (1,647,800) 83,220
------------ ------------ ------------ ------------ -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . 16,615,456 (17,379,470) (12,924,350) (12,616,697) (6,809,460)
CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . . . . . 27,338,088 43,953,544 26,574,074 26,574,074 13,649,724
------------ ------------ ------------ ------------ -----------
End of period . . . . . . . . . . . . . . . . . . $ 43,953,544 $ 26,574,074 $ 13,649,724 $ 13,957,377 $ 6,840,264
============ ============ ============ ============ ===========
</TABLE>
SUPPLEMENTAL INFORMATION (Note 13)
See notes to consolidated financial statements.
F-8
<PAGE> 105
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Business -- Cinemark USA, Inc. (the Company) and its subsidiaries own or
lease and operate motion picture theatres in 28 states and in Mexico at
December 31, 1995. The following summarizes theatre transactions during 1993,
1994 and 1995:
<TABLE>
<CAPTION>
Theaters Screens
--------- ----------
<S> <C> <C>
Active at January 1, 1993 . . . . . . . . . . . . . . . 147 1,006
Acquisitions--1993 . . . . . . . . . . . . . . . . . 2 10
Openings--1993 . . . . . . . . . . . . . . . . . . . 8 88
Closings/sales--1993 . . . . . . . . . . . . . . . . (4) (20)
--------- ----------
Active at December 31, 1993 . . . . . . . . . . . . . . 153 1,084
Acquisitions--1994 . . . . . . . . . . . . . . . . . 2 9
Openings--1994 . . . . . . . . . . . . . . . . . . . 7 82
Closings/sales--1994 . . . . . . . . . . . . . . . . (4) (12)
--------- ----------
Active at December 31, 1994 . . . . . . . . . . . . . . 158 1,163
Openings--1995 . . . . . . . . . . . . . . . . . . . 11 130
Sales--1995 . . . . . . . . . . . . . . . . . . . . . (10) (46)
--------- ----------
Active at December 31, 1995 . . . . . . . . . . . . . . 159 1,247
========= ==========
</TABLE>
At December 31, 1995, the Company also manages three theatres (37 screens)
for Movie Theatre Investors, Ltd., one theatre (17 screens) for Cinemark
Partners II, and one theatre (12 screens) for Cinemark Theatres Alberta, Inc.,
a Canadian corporation, all related parties (Notes 11 and 12).
Consolidated Financial Statements include the accounts of Cinemark USA,
Inc. and its wholly owned subsidiaries, which include Cinemark International,
Inc. and ENT Holdings, Inc. Cinemark International, Inc. owns 91.45% of
Cinemark Mexico (USA), Inc. (Cinemark Mexico), which owns 99.9% of Cinemark de
Mexico S.A. de C.V. (Cinemark de Mexico), a Mexican corporation, and 50%
interests in affiliates operating in Chile and Canada. ENT Holdings, Inc. owns
100% of Funtime Entertainment, Inc. The financial statements also include 2 Day
Video, Inc. (2 Day) and subsidiary, an 83.1%- owned video rental "superstore"
chain, and Entertainment Amusements, Inc., a 50%-owned holding company whose
subsidiary provides video game machines to many of the Company's theatres.
Majority-owned companies are consolidated; 50%-owned and minority investments
are accounted for under the equity method (Note 12). The results of all of
these subsidiaries and affiliates are included in the financial statements
effective with their formation or from their dates of acquisition. Significant
intercompany balances and transactions are eliminated in the consolidation.
Basis of Presentation -- In preparing the financial statements, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the financial statements and
revenues and expenses for the period. Actual results could differ significantly
from those estimates. The estimates most susceptible to significant change are
those used in determining the valuation of certain accrued liabilities and
valuation of the investments in operations located in foreign countries.
Although some variability is inherent in these estimates, management believes
the amounts provided are adequate. The devaluation of the Mexican peso and the
resultant economic uncertainties in Mexico create certain business risks for
the Company's investment in Mexico.
F-9
<PAGE> 106
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues are recognized when admissions and concessions sales are received
at the theatres. Film rental costs are accrued based on the applicable box
office receipts and the terms of the film licenses.
Cash and Cash Equivalents consist of operating funds held in financial
institutions, petty cash held by the theatres and highly liquid investments
with original maturities of three months or less when purchased.
Temporary Cash Investments consist primarily of time deposits and
government securities which are classified as available for sale and are stated
at amortized cost which approximates market.
Inventories of concession products are stated at the lower of cost
(first-in, first-out method) or market.
Theatre Properties and Equipment are stated at cost less accumulated
depreciation and amortization. Property additions include $565,610 and
$1,745,721 of interest, which was incurred during development and construction,
and capitalized in 1994 and 1995, respectively. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets as
follows: buildings -- 18 to 40 years, theatre furniture and equipment -- 5 to
15 years and videocassette rental inventory -- one to two years. Leasehold
interests and improvements are amortized using the straight-line method over
the lesser of the lease period or the estimated useful lives of the leasehold
improvements.
Intangible Assets represent primarily the excess of cost over the fair
values of the net assets of theatre businesses acquired, less accumulated
amortization ($7,873,970 and $8,853,793 at December 31, 1994 and 1995,
respectively). For financial reporting purposes, these goodwill amounts are
being amortized primarily over 10 to 20 years, which approximate the remaining
lease terms of the businesses acquired.
Deferred Charges and Other Assets, as applicable, are amortized using the
straight-line method over the primary financing terms ended June 2000 to August
2003, for debt issue costs, and over the three- to eight-year terms of the
noncompete agreements.
Deferred Income Taxes are provided under the liability method for temporary
differences between revenue and expenses recognized for tax return and
financial reporting purposes.
Earnings Per Share are computed using the weighted average number of shares
of Class A common stock and common stock equivalents outstanding during each
period, including, as applicable, the Class B common shares and options for
Class B common shares (Note 7).
Fair Values of Financial Instruments are estimated by the Company using
available market information and other valuation methodologies in accordance
with Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
About Fair Value of Financial Instruments." The estimated fair value amounts
for specific groups of financial instruments are presented in Note 5. Values
are based on available market quotes or on estimates using a discounted cash
flow approach based on the interest rates currently available for similar debt.
The fair value of financial instruments for which estimated fair value amounts
are not specifically presented are estimated to approximate the related book
value.
Accounting for Stock-Based Compensation -- In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company beginning January 1,
1996. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based
F-10
<PAGE> 107
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on the fair value of the equity instrument awarded. Companies are permitted,
however, to continue to apply APB Opinion No. 25, which recognizes compensation
cost based on the intrinsic value of the equity instrument awarded. The Company
will continue to apply APB Opinion No. 25 to its stock-based compensation
awards to employees and will disclose the required pro forma effect on net
income and earnings per share.
Unaudited Interim Financial Information as of June 30, 1996, and for the
six months ended June 30, 1995 and 1996, reflect, in the opinion of the
management of the Company, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation. Operating results for the six
months ended June 30, 1995 and 1996, are not necessarily indicative of the
results to be achieved for the full year.
Reclassifications have been made to certain 1993 and 1994 amounts to
conform to 1995 presentation.
2. FOREIGN CURRENCY TRANSLATION
Cumulative foreign currency translation adjustment in shareholders' equity
of $4,405,980 and $10,539,398 at December 31, 1994 and 1995, respectively,
reflects the unrealized adjustments resulting from translating the financial
statements of Cinemark de Mexico, the Company's only consolidated subsidiary
with foreign operations. The functional currency of Cinemark de Mexico is the
peso. Accordingly, assets and liabilities of Cinemark de Mexico are translated
to U.S. dollars at year-end exchange rates. Income and expense items are
translated at the average rates prevailing during the year. Changes in
exchange rates which affect cash flows and the related payables are recognized
as realized transaction gains and losses in the determination of net income. At
December 31, 1995, the total assets of Cinemark de Mexico were $23,850,156.
3. ACQUISITIONS AND INVESTMENT ACTIVITY
In May 1995, ENT Holdings, Inc. sold its 50% ownership in Funtime
International, Inc., an international pizza and video arcade restaurant
developer, to the other shareholders of Funtime International, Inc. In
connection with this sale, a $2,000,000 note and related interest due to ENT
Holdings, Inc. was canceled, a $500,000 note payable by ENT Holdings, Inc. was
canceled, and Funtime International, Inc. paid $800,000 cash and issued notes
payable of $200,000 and $600,000 to ENT Holdings, Inc. (Note 4). Also in
connection with the sale, ENT Holdings, Inc. granted Funtime International,
Inc. a 12-month option to purchase the assets of the Company's remaining
Funtime Pizza restaurant and other related equipment for $400,000. As a result
of this transaction, ENT Holdings, Inc. incurred a loss of approximately
$294,000.
In connection with a litigation settlement in 1994 with former owners of
Funtime Pizza and current shareholders of Funtime International, Inc., ENT
Holdings, Inc. purchased the remaining 20% (resulting in 100% total) interest
in the outstanding shares of Funtime Entertainment, Inc. (successor to Funtime
Pizza), a pizza and video arcade restaurant operation in the United States.
Also, in 1994 and 1995, the Company wrote off, as amortization expense,
$1,507,217 and $323,249, respectively, of goodwill and $351,361 and $92,389,
respectively, of noncompete agreements related to the closing of certain
Funtime Pizza restaurants acquired in 1992.
In August 1995, Cinemark Inversions, Inc., a 100%-owned subsidiary of
Cinemark International and 50% owner of Cinemark Chile, contributed an
additional $500,000 to Cinemark Chile to fund theatre construction. The other
50% owner of Cinemark Chile also contributed an equal amount.
F-11
<PAGE> 108
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1994, the Company converted a note receivable due from 2 Day Video, Inc.
with an unpaid balance of $490,000, into equity of 2 Day, increasing the
Company's total interest to 83.1%. This acquisition was accounted for by the
purchase method, with the total acquisition costs allocated to the identifiable
assets acquired and liabilities assumed at their fair values.
4. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1994 1995
------------ -------------
<S> <C> <C>
Debt issue costs (Note 5) . . . . . . . . . . . . . . . $ 6,119,523 $ 6,149,523
Noncompete agreements (Note 3) . . . . . . . . . . . . . 835,564 835,564
------------ -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 6,955,087 6,985,087
Less accumulated amortization . . . . . . . . . . . . . 1,876,171 2,662,939
------------ -------------
Net . . . . . . . . . . . . . . . . . . . . . . . . . 5,078,916 4,322,148
Equipment, lease and other deposits . . . . . . . . . . 665,018 1,089,166
Funtime International, Inc. (Note 3):
Note receivable, 10% interest, due 1996,
discussed below . . . . . . . . . . . . . . . . . . 200,000
$600,000 convertible note receivable -- net, due
2005, discussed below . . . . . . . . . . . . . . . 445,224
Construction advances and other . . . . . . . . . . . . 2,429,148 4,163,589
------------ -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 8,173,082 $ 10,220,127
============ =============
</TABLE>
The $200,000 note receivable from Funtime International, Inc., due in May
1996 and bearing interest at 10%, is personally guaranteed by shareholders of
Funtime International, Inc. (Note 3).
The $600,000 convertible note receivable from Funtime International, Inc.,
discounted to $445,224 for imputed interest, is non-interest-bearing through
May 2000 and bears interest at 10% from June 2000 through May 2005 (maturity
date). In addition, ENT Holdings, Inc. has granted Funtime International, Inc.
the option to pay off this note receivable in May 1996 for $391,706, and
Funtime International, Inc. has granted ENT Holdings, Inc. the option anytime
after May 16, 2000, to convert the entire unpaid principal of this note
receivable and any unpaid interest into a 15% interest in Funtime
International, Inc. (Note 3).
5. LONG-TERM DEBT AND THEATRE DEVELOPMENT ADVANCE
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
Senior Notes due 2002, discussed below . . . . . . . . . . . $ 125,000,000 $ 125,000,000
Senior Subordinated Notes of Cinemark Mexico due 2003 --
less unamortized discount of $2,015,219 and $1,850,751,
respectively, discussed below . . . . . . . . . . . . . . 20,384,781 20,549,249
Revolving credit line of $75,000,000, discussed below . . . 19,000,000 50,000,000
Note payable, bearing interest at 9%, payable in monthly
installments of principal and interest of $6,298,
with the balance due in 1997, collateralized by
certain equipment, land and building . . . . . . . . . . 569,416 544,057
-------------- --------------
Total long-term debt . . . . . . . . . . . . . . . . . 164,954,197 196,093,306
Less current portion . . . . . . . . . . . . . . . . . 25,359 27,737
-------------- --------------
Long-term debt, less current portion . . . . . . . . . $ 164,928,838 $ 196,065,569
============== ==============
</TABLE>
F-12
<PAGE> 109
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Senior Notes -- In June 1992, the Company completed a public offering (the
Offering) of $125,000,000 senior notes payable (Senior Notes), which are
collateralized by the outstanding common stock of certain "restricted"
subsidiaries of the Company. The Company is required to equally and ratably
secure the Senior Notes upon incurrence by the Company of other secured debt,
subject to limitations and exceptions. The Senior Notes require the Company to
maintain a specified interest expense coverage ratio; restrict the payment of
dividends, payment of subordinated debt prior to maturity and issuance of
preferred stock and other indebtedness; and have other restrictive covenants.
The Senior Notes are redeemable at the option of the Company, in whole or
in part, beginning June 1, 1997, ranging in redemption price of 106% in 1997 to
100% in 2000 and thereafter. A sinking fund requirement provides for the
redemption of $31,250,000 on each of June 1, 2000, and June 1, 2001. The final
payment of $62,500,000 is due June 1, 2002. The Senior Notes bear interest at
the rate of 12% per annum, payable semiannually on June 1 and December 1 of
each year.
Senior Subordinated Notes -- In 1993, Cinemark Mexico issued $20,400,000 of
12% Senior Subordinated Notes due 2003 (the Subordinated Notes), with
detachable warrants (the Warrants) (Note 8). Cinemark de Mexico guarantees the
notes on a senior subordinated basis. The Subordinated Notes were issued at a
discount of $102.94 per $1,000 note, totaling $2,100,000, and bear interest at
12% (effective rate 13.93%) per annum payable semiannually on August 1 and
February 1.
In 1994, Cinemark Mexico issued an additional $2,000,000 of Subordinated
Notes due 2003 with the terms governed by the indenture from the initial
offering of Subordinated Notes. These notes were issued at a discount of $55
per $1,000 note, totaling $110,000, and bear interest at 12% (effective rate
13.03%) per annum payable semiannually on August 1 and February 1.
A sinking fund payment of $6,667,000 is required on each of August 1, 2001,
and August 1, 2002, which amounts are to be utilized on such respective dates
to retire a like face amount of the outstanding Subordinated Notes. The
indenture governing the Subordinated Notes restricts the ability of Cinemark
Mexico and Cinemark de Mexico to, among other things, pay dividends; make
investments; incur additional indebtedness; redeem stock; use proceeds of asset
disposals; create liens; engage in transactions with affiliates; and to merge,
consolidate or sell all or substantially all the assets of the companies.
Revolving Credit Line -- On February 14, 1996, the Company replaced the
Revolving Credit Line with a revolving and term credit agreement (the "Credit
Facility") with a group of banks. The Credit Facility provides for loans to the
Company of up to $175,000,000 in the aggregate and bears interest at a defined
floating rate, adjusted in accordance with certain financial ratios. The
effective interest rate at December 31, 1995, was 7%. Any amounts borrowed by
the Company under the Credit Facility prior to February 13, 1999, will be
borrowed on a revolving loan basis. On February 13, 1999, any outstanding
revolving loans will be
F-13
<PAGE> 110
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
converted into term loans. In addition, subject to the limitation on the
occurrence of indebtedness under the Indenture, on February 13, 1999, the
Company may borrow as a term loan the difference between $175,000,000 and the
outstanding revolving loans. The term loans will be payable quarterly beginning
June 30, 1999, with 11.25%, 18.75%, 23.75% and 36.25% of the initial principal
amount of the term loans due in 1999, 2000, 2001 and 2002, respectively. Any
remaining principal amount of the term loans is due and payable February 13,
2003. The Credit Facility is secured by a pledge of all of the issued and
outstanding capital stock of the Company owned by the majority shareholder and
affiliates; requires the Company to maintain certain financial ratios;
restricts the payment of dividends, payment of subordinated debt prior to
maturity and issuance of preferred stock and other indebtedness; and has other
restricting covenants.
Long-term debt at December 31, 1995, matures as follows: $27,737 in 1996,
$516,320 in 1997, $0 in 1998, $5,625,000 in 1999, $9,375,000 in 2000 and
$180,549,249 thereafter. Also see Note 14.
The estimated fair value of the Company's long-term debt of $196.1 million
book value at December 31, 1995, was approximately $208.6 million. Such amounts
do not include prepayment penalties which would be incurred upon the early
extinguishment of certain debt issues. The weighted average interest rate on
long-term debt at December 31, 1995, was 11.1%.
Debt Issue Costs -- Debt issue costs of $6,119,523 and $6,149,523, net of
accumulated amortization of $1,350,723 and $2,010,268, related to the Senior
Notes, Senior Subordinated Notes and Revolving Credit Line, are included in
deferred charges at December 31, 1994 and 1995, respectively (Note 4).
Theatre Development Advance -- The current portion of long-term liabilities
also includes $350,000 at December 31, 1994 and 1995, for the estimated amount
to be payable in the following year on a theatre development advance. The
remaining long-term portion of this advance of $1,125,703 at December 31, 1995,
will be repayable based on the future operations of a theatre opened in 1992.
6. NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties at December 31 consist of the following:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Note payable to The Peble Corp. (a shareholder
of the Company) bearing interest at 8.5% . . . . . . . . $ 957,158 $ 1,041,147
Note payable to an officer and shareholder,
bearing interest at 8.5% . . . . . . . . . . . . . . . . 928,980 1,010,495
Note payable to former owners of Funtime Pizza,
bearing interest at 10%, canceled in 1995 (Note 3) . . . 533,562
------------ ------------
$ 2,419,700 $ 2,051,642
============ ============
</TABLE>
The Company expects to prepay in March 1996 the note payable to The Peble
Corp. and the note payable to an officer and shareholder. The notes are
classified as current liabilities at December 31, 1995.
F-14
<PAGE> 111
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, these notes are subordinated to the Senior Notes and
include $565,633 and $697,575 of accrued interest at December 31, 1994 and
1995, respectively.
7. CAPITAL STOCK
Common and Preferred Stocks -- Class A common shareholders have exclusive
voting rights. Class B common shareholders have no voting rights, except upon
any proposed amendments to the articles of incorporation, but may convert at
their option to Class A common stock. In the event of any liquidation, the
Class A and Class B shareholders will be entitled to their pro rata share of
assets remaining after any preferred shareholders have received their
preferential amounts based on their respective shares held.
At December 31, 1995, the Company has reserved Class A common stock in the
amount of 150,779 shares for potential conversions of outstanding Class B
common stock and 10,485 shares for potential conversion of Class B common stock
issuable under the stock option plan. The Company has 1,000,000 shares of
preferred stock, $1.00 par value, authorized with none issued or outstanding.
Stock Option Plan -- In 1991, the Company adopted a nonqualified stock
option plan under which key employees may be granted options to purchase up to
10,685 shares of the Company's Class B common stock. In 1991, the Company
granted options to purchase 8,276 shares of the Class B common stock at an
exercise price of $1.00 per share. In 1993, 1,201 of these options were
forfeited, and the Company granted additional options to purchase 533 shares of
the Class B common stock at an exercise price of $1.00 per share. The amortized
portion of unearned compensation of $113,449 relating to options which were
forfeited in 1993 was accounted for as a reduction of 1993 compensation
expense.
In 1993, the Company also granted options to purchase 900 shares of Class B
common stock at an exercise price equal to fair value at the date of grant
($833.34 per share) to three directors of the Company. In April 1995, the
Company canceled these options and granted options to purchase 600 shares of
Class B common stock at an exercise price of $1.00 per share to the same
directors, resulting in unearned compensation of $690,000. Total compensation
expense of $414,000 was immediately recognized upon this exchange, with
compensation expense of $276,000 to be recognized over the remaining vesting
period of 15 months.
The total options granted in 1994 and 1995, including the 600 options
described above, were 896 and 1,981 shares, respectively, of the Class B common
stock at an exercise price of $1.00 per share. All options vest and are
exercisable over a period of five years from the date of grant and expire ten
years from date of grant (also see Note 14). At December 31, 1995, 6,383
options are exercisable out of a total of 10,485 outstanding.
The excess of the estimated fair market value of the stock at the dates of
the grant over the exercise price of the options are accounted for as
additional paid-in capital and as unearned compensation, which is amortized to
operations over the vesting period. Compensation expense under this stock
option plan was $415,827, $836,081 and $1,591,022 in 1993, 1994 and 1995,
respectively.
F-15
<PAGE> 112
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. MINORITY INTERESTS IN SUBSIDIARIES
Common Shareholders' Equity -- Minority ownership interests in subsidiaries
and affiliates of the Company are as follows at December 31:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Cinemark Mexico -- 8.55% interest . . . . . . . . . . . $ 318,654 $ 405,634
Laredo Theater Joint Venture -- 25% interest (owned by a
relative of the majority shareholder) . . . . . . . . 586,958 574,448
2 Day Video -- 16.9% interest . . . . . . . . . . . . . 354,084 381,951
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 1,259,696 $ 1,362,033
============ ============
</TABLE>
In 1993, Cinemark Mexico issued 83,251 shares of common stock for
$1,000,000 to an unaffiliated Aruba corporation controlled by Mexican
nationals. In June 1995, Cinemark Mexico issued an additional 34,793 shares of
common stock for $302,625 to the same corporation for a cumulative 8.55% (6.7%
on a fully diluted basis) interest in Cinemark Mexico at December 31, 1995.
Common Stock Warrants -- In connection with the issuance of the
Subordinated Notes (Note 5), Cinemark Mexico issued warrants for $2.1 million,
which are exercisable into 226,662 shares of Cinemark Mexico's common stock. In
August 1995, Cinemark Mexico sold additional warrants for $1,324,132, which are
exercisable into 152,411 shares, which when aggregated with the previously
purchased warrants convert to 20% of the ownership on a fully diluted basis at
December 31, 1995, of Cinemark Mexico's common stock. The warrants are
exercisable at $.001 per share subject to the following terms and expire on
August 1, 2003. At any time after January 31, 1998, Cinemark Mexico may redeem
the warrants in whole or in part at their appraised value. If the warrants have
not been redeemed by August 1, 1998, Cinemark Mexico must offer to purchase
one-third of the warrants on each July 31, 1998, 1999 and 2000, utilizing the
appraised value on such dates. At December 31, 1995, Cinemark Mexico has
reserved 379,073 shares of common stock for the potential conversion of the
warrants.
Stock Options Plan -- Cinemark Mexico has a nonqualified stock option plan
under which key employees may be granted options to purchase up to 100,000
shares of Cinemark Mexico's common stock. The exercise price and terms of the
options are discretionary and determined when the options are granted. In 1994,
Cinemark Mexico granted options to purchase 16,704 shares of common stock at an
exercise price of $.10 per share to certain employees, resulting in unearned
compensation of $183,292. In 1995, 12,528 of these options were canceled due to
termination of the option holders. The remaining options vest over a period of
five years from the date of grant and expire ten years from the date of grant.
At December 31, 1995, no options were exercisable.
9. LEASES AND OTHER COMMITMENTS
Leases -- The Company conducts a significant part of its theatre operations
in leased premises under noncancelable operating leases with terms of 5 to 30
years. In addition to the minimum annual lease payment, most of these leases
provide for contingent rentals based on operating results and require the
payment of taxes, insurance and other costs applicable to the property.
Generally, these leases include renewal options for various periods at
stipulated rates. Some leases also provide for escalating rent payments
throughout the lease
F-16
<PAGE> 113
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
term. Deferred lease expenses of $8,759,264 and $9,811,038 at December 31, 1994
and 1995, respectively, have been provided to account for lease expenses on a
straight-line basis, where lease payments are not made on such basis. Rent
expense for the years ended December 31, 1993, 1994 and 1995, totaled
$27,600,313, $29,916,187 and $31,273,367, respectively.
Future minimum payments under noncancelable operating leases with initial
or remaining terms in excess of one year at December 31, 1995, are due as
follows:
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . $ 30,186,726
1997 . . . . . . . . . . . . . . . . . . . . . . . 29,831,403
1998 . . . . . . . . . . . . . . . . . . . . . . . 29,130,629
1999 . . . . . . . . . . . . . . . . . . . . . . . 28,911,474
2000 . . . . . . . . . . . . . . . . . . . . . . . 27,930,207
Thereafter . . . . . . . . . . . . . . . . . . . . 287,005,711
--------------
Total . . . . . . . . . . . . . . . . . . . . . . $ 432,996,150
==============
</TABLE>
As of March 12, 1996, the Company had entered into other lease agreements
that are contingent on the lessors' obtaining financing and completing
construction of theatre facilities. Upon satisfaction of the contingency, the
agreements will require future minimum lease payments over 15 to 25 years
estimated to be $106 million for 12 theatre facilities in the United States and
$9 million for two theatres in Mexico.
Employment Agreements -- As of December 31, 1995, the Company has
employment agreements with certain principal officers and a shareholder
providing for total minimum future annual payments as follows:
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . $ 426,419
1997 . . . . . . . . . . . . . . . . . . . . . . . 469,061
1998 . . . . . . . . . . . . . . . . . . . . . . . 515,967
1999 . . . . . . . . . . . . . . . . . . . . . . . 567,564
2000 . . . . . . . . . . . . . . . . . . . . . . . 624,320
Thereafter . . . . . . . . . . . . . . . . . . . . 686,752
--------------
Total . . . . . . . . . . . . . . . . . . . . . . $ 3,290,083
==============
</TABLE>
These employment agreements terminate on the earlier of death, permanent
disability or December 31, 2001.
Retirement Savings Plan -- The Company has a 401(k) profit sharing plan for
the benefit of all employees and makes contributions as determined annually by
the Board of Directors. Contributions of $432,141, $427,963 and $415,121 were
made in 1993, 1994 and 1995, respectively.
Letters of Credit and Collateral -- At December 31, 1995, the Company has
outstanding letters of credit of $1,822,954 in connection with property and
liability insurance coverage and certain lease matters. Certificates of deposit
of $1,822,954 are pledged as collateral on the letters of credit.
F-17
<PAGE> 114
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
Current:
Federal -- before utilization of credits $ 4,965,865 $ 5,543,239 $ 8,927,814
Utilization of tax credits . . . . . . . (1,049,000) (987,000) (1,908,821)
State . . . . . . . . . . . . . . . . . . 684,612 997,859 1,869,378
-------------- -------------- ---------------
Total current expense . . . . . . . . . 4,601,477 5,554,098 8,888,371
Deferred:
Current temporary differences . . . . . . 757,000 787,177 (466,356)
Reestablished from utilization of
tax credits . . . . . . . . . . . . . . 1,049,000 727,000 1,679,390
Jobs tax credits . . . . . . . . . . . . (237,000)
-------------- -------------- ---------------
Total deferred expense . . . . . . . . 1,569,000 1,514,177 1,213,034
-------------- -------------- ---------------
Income tax expense . . . . . . . . . . $ 6,170,477 $ 7,068,275 $ 10,101,405
============== ============== ===============
</TABLE>
A reconciliation between income tax expense and taxes computed by applying
the applicable statutory federal income tax rate to income before income taxes
follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
Computed normal tax expense . . . . . . . . $ 5,541,574 $ 4,925,882 $ 8,139,788
Goodwill amortization, not deductible for
tax purposes . . . . . . . . . . . . . . 443,213 934,044 361,647
State and local income taxes, net of federal
income tax benefit . . . . . . . . . . . 444,997 711,226 1,151,411
Foreign subsidiaries losses not utilized
currently . . . . . . . . . . . . . . . . 445,872 874,897
Benefit of net operating loss carryforwards
utilized currently . . . . . . . . . . . (165,329)
Jobs tax credits . . . . . . . . . . . . . . (237,000) (260,000) (127,267)
Other -- net . . . . . . . . . . . . . . . . (22,307) 476,580 (299,071)
-------------- -------------- ---------------
$ 6,170,477 $ 7,068,275 $ 10,101,405
============== ============== ===============
</TABLE>
F-18
<PAGE> 115
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant temporary differences and carryforwards
comprising the net long-term deferred income tax liability at December 31, 1994
and 1995, consist of the following:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Deferred liabilities:
Accelerated tax depreciation . . . . . . . . . . . . . $ 9,407,993 $ 11,293,935
Basis difference of assets acquired . . . . . . . . . . 660,624 324,878
Other . . . . . . . . . . . . . . . . . . . . . . . . . 556,299 944,740
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 10,624,916 12,563,553
Deferred assets:
Deferred lease expense . . . . . . . . . . . . . . . . 3,458,268 3,799,182
Section 263(a) inventory adjustment . . . . . . . . . . 654,028 715,632
Amortization of unearned compensation . . . . . . . . . 742,175 1,372,454
Self-insurance accruals . . . . . . . . . . . . . . . . 244,070 1,118,393
Deferred gain on sale of interest rate swap . . . . . . 220,028 117,909
Tax net operating loss carryforward for
foreign subsidiaries . . . . . . . . . . . . . . . . 445,872 1,320,769
Valuation allowance -- operating loss carryforward . . (445,872) (1,320,769)
Other expenses, not currently deductible for
tax purposes . . . . . . . . . . . . . . . . . . . . 814,994 1,143,772
------------- -------------
Total . . . . . . . . . . . . . . . . . . . . . . 6,133,563 8,267,342
------------- -------------
Net deferred tax liability . . . . . . . . . . . . . . 4,491,353 4,296,211
AMT credit carryforwards . . . . . . . . . . . . . . . (1,408,176)
------------- -------------
Net long-term deferred income tax liability . . . . . . $ 3,083,177 $ 4,296,211
============= =============
</TABLE>
F-19
<PAGE> 116
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. OTHER RELATED PARTY TRANSACTIONS
Transactions with related companies are included in the Company's financial
statements as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------- ------------
<S> <C> <C> <C>
Facility lease expense -- for theatre and
equipment leases with shareholder affiliates . . . $ 359,755 $ 347,917 $ 306,937
Interest expense to The Peble Corp.
(Note 6) . . . . . . . . . . . . . . . . . . . . . 275,550 118,094 83,989
Interest expense -- to an officer and
shareholder of the Company (Note 6) . . . . . . . . 143,056 115,149 81,515
Interest expense -- to former owners of
Funtime Pizza and current shareholders
of Funtime International, Inc. (Note 3) . . . . . . 33,562 18,630
Interest income -- from Funtime International,
Inc. (Notes 3, 4 and 12) . . . . . . . . . . . . . 165,388 96,870
Video game machine income -- from a subsidiary
of Entertainment Amusements, Inc.
(Note 12) . . . . . . . . . . . . . . . . . . . . . 1,131,460 1,157,105 1,394,467
Management fees -- from Movie Theatre Investors,
Ltd. (Note 12) for property and theater
management services . . . . . . . . . . . . . . . . 371,540 274,304 300,662
Management fees -- from Cinemark Theatres Alberta,
Inc. (Note 12) for property and theater
management services . . . . . . . . . . . . . . . . 64,426 74,928
Management fees -- from Cinemark Partners II, Ltd.
(Note 12) for property and theater management
services . . . . . . . . . . . . . . . . . . . . . 171,500
</TABLE>
In 1994, Cinemark Properties, Inc. purchased land in Indiana from an
officer and shareholder of the Company for $550,000. This land was previously
leased, as the Company owns and maintains an operating theatre on the site.
The majority shareholder and certain employees of the Company own a
minority portion of both Cinemark Partners II, Ltd. and Movie Theatre
Investors, Ltd.
The Company leases a theatre facility to a relative of the Company's
majority shareholder.
12. INVESTMENTS IN AND ADVANCES TO AFFILIATES
The Company has the following investments and advances to affiliates at
December 31:
F-20
<PAGE> 117
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Cinemark Chile, S.A. -- investment, at equity
(Note 3) . . . . . . . . . . . . . . . . . . . . . . . . $ 1,020,758 $ 1,775,435
Entertainment Amusements, Inc. -- investment,
at equity . . . . . . . . . . . . . . . . . . . . . . . . 586,472 831,381
Movie Theater Investors, Ltd. -- partnership interest . . . 55,869 55,869
Cinemark Theatres Alberta, Inc. -- investment,
at equity . . . . . . . . . . . . . . . . . . . . . . . . 1,321,380 1,408,228
Cinemark Partners II, Ltd. -- partnership interest . . . . . 83,000 83,000
Beaumont Cinema Ventures, Ltd. -- partnership interest . . . 82,665 121,689
Funtime International Inc. (Note 3):
Investment, at equity . . . . . . . . . . . . . . . . . . 24,848
Note and interest receivable, 12% interest . . . . . . . 2,165,388
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,340,380 $ 4,275,602
============ ============
</TABLE>
Other receivables at December 31 include amounts due from the following:
<TABLE>
<CAPTION>
1994 1995
------------- ------------
<S> <C> <C>
A subsidiary of Entertainment Amusements, Inc. . . . . . . . $ 175,284 $ 155,137
Movie Theater Investors, Ltd. . . . . . . . . . . . . . . . 268,573 394,345
Cinemark Chile, S.A. . . . . . . . . . . . . . . . . . . . . 149,761 62,549
Cinemark Partners II, Ltd. . . . . . . . . . . . . . . . . . 453,466 614,620
Related party rent receivable (Note 11) . . . . . . . . . . 199,967
</TABLE>
13. SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statement of cash flows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------- -------------
<S> <C> <C> <C>
Interest paid . . . . . . . . . . . . . . . . . . $ 15,082,112 $ 17,477,121 $ 19,864,594
============ ============= =============
Income taxes paid . . . . . . . . . . . . . . . . $ 4,018,275 $ 5,520,885 $ 7,195,765
============ ============= =============
Noncash investing and financing activities:
Note issued for stock of Funtime
Entertainment, Inc. . . . . . . . . . . . . . $ -- $ 500,000 $ --
Canceled note payable and accrued interest due to
former owners of Funtime Pizza
(Notes 3 and 6) . . . . . . . . . . . . . . . . 552,192
Canceled investment, note receivable and accrued
interest due from Funtime International, Inc.
(Notes 3 and 4) . . . . . . . . . . . . . . . . 2,291,837
Issued note receivable due from Funtime
International, Inc. (Notes 3 and 4) . . . . . . 445,224
</TABLE>
F-21
<PAGE> 118
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. CYPRESS INVESTMENT TRANSACTION
On February 20, 1996, the Company entered into a Securities Purchase
Agreement (the "Purchase Agreement") pursuant to which the Company issued to
Cypress Merchant Banking Partners L.P. and Cypress Pictures Ltd. (collectively,
"Cypress") an aggregate 23,893 shares of Class B Common Stock for an aggregate
purchase price of $41.0 million. As part of the Purchase Agreement, existing
shareholders sold an additional 58,655 shares to Cypress for a total purchase
price of approximately $98.2 million. The closing of the issuance and sale of
common stock of the Company to Cypress occurred on March 12, 1996. The net
proceeds from the issuance of stock by the Company will be used to continue the
Company's expansion program and for general corporate purposes.
15. SUBSEQUENT EVENT (UNAUDITED)
Effective April 19, 1996, the Company entered into a Settlement Agreement
and Release ending litigation that the Company filed against the City of Dallas
for rejecting the development plan of a proposed theatre. The City of Dallas
paid the Company $5 million in monetary damages, and the Company agreed to
dismiss all claims against the defendants. An Agreed Final Order of the
District Court was issued on April 23, 1996, dismissing the litigation with
prejudice. As a result of the settlement, the Company will recognize a gain of
approximately $2.0 million, net of taxes and attorney's fee, in the second
quarter of 1996.
In April 1996, the Company incurred additional compensation expense of
$1.8 million resulting from the payment of a cash bonus to key employees to
reimburse them for the taxes due upon the exercise of nonqualified stock
options. The Company will receive a current tax benefit approximately equal to
the total cash bonus paid, as a result of being allowed a tax deduction for the
value of the bonus and the difference between the value and exercise price of
the nonqualified options. For generally accepted accounting principles purposes
the Company will recognize the tax benefit for the deduction arising from the
difference in value between the option and its exercise price as additional
paid-in capital (rather than as a reduction of tax expense).
On July 15, 1996, the Company commenced an offer to purchase and consent
solicitation (the "Repurchase Offer") to repurchase all of the $125,000,000
principal amount of the Company's 12% Senior Notes due 2001 (the "Old Notes")
and amend the indenture pursuant to which the Old Notes were issued. The
holders of an aggregate principal amount of $123,370,000 of Old Notes tendered
their Old notes and delivered consents pursuant to the Repurchase Offer. On
August 15, 1996, the Company issued $200 million aggregate principal amount of
Series A Notes pursuant to the Series A Offering with covenants and provisions
similar to the Old Notes. The net proceeds of the Series A Offering were used
by the Company to (i) repurchase an aggregate of $123,370,000 principal amount
of Old Notes and pay premium and consents payments related thereto pursuant to
the Repurchase Offer and (ii) reduce the Company's indebtedness under the
Credit Facility.
F-22
<PAGE> 119
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE A
CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
RESTRICTED UNRESTRICTED
GROUP GROUP ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents . . . . . . . . . . . $ 4,964,706 $ 8,685,018 $ -- $ 13,649,724
Temporary cash investments . . . . . . . . 275,126 275,126
Other current assets . . . . . . . . . . . 4,695,109 1,246,104 (638,154) 5,303,059
------------ ------------ ------------ ------------
Total current assets . . . . . . . . 9,659,815 10,206,248 (638,154) 19,227,909
THEATRE PROPERTIES AND
EQUIPMENT -- Net . . . . . . . . . . . . . 206,029,811 18,452,406 224,482,217
OTHER ASSETS:
Certificate of deposit . . . . . . . . . . 1,822,954 1,822,954
Investments in and advances
to affiliate . . . . . . . . . . . . . 6,550,979 3,305,352 (5,580,729) 4,275,602
Intangible assets -- net . . . . . . . . . 10,170,510 (2,452,218) 7,718,292
Deferred charges and other -- net . . . . 5,904,340 4,315,787 10,220,127
------------ ------------ ------------ ------------
Total other assets . . . . . . . . . 24,448,783 7,621,139 (8,032,947) 24,036,975
------------ ------------ ------------ ------------
TOTAL . . . . . . . . . . . . . . . . . . . . $240,138,409 $ 36,279,793 $ (8,671,101) $267,747,101
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
liabilities . . . . . . . . . . . . . . $ 377,737 $ -- $ -- $ 377,737
Accounts payable and accrued
liabilities . . . . . . . . . . . . . . 33,296,603 2,942,762 36,239,365
Notes payable to related parties . . . . . 2,051,642 2,051,642
Income taxes payable . . . . . . . . . . . 1,563,629 85,000 1,648,629
------------ ------------ ------------ ------------
Total current liabilities . . . . . . 37,289,611 3,027,762 -- 40,317,373
LONG TERM LIABILITIES:
Long-term debt, less current portion . . . 175,516,320 21,187,403 (638,154) 196,065,569
Deferred lease expenses . . . . . . . . . 9,609,123 201,915 9,811,038
Other long-term liabilities . . . . . . . 1,125,703 1,125,703
Deferred income taxes . . . . . . . . . . 4,296,211 4,296,211
------------ ------------ ------------ ------------
Total long-term liabilities . . . . . 190,547,357 21,389,318 (638,154) 211,298,521
MINORITY INTERESTS IN
SUBSIDIARIES . . . . . . . . . . . . . . . 956,399 3,829,766 4,786,165
SHAREHOLDERS' EQUITY:
Common stock . . . . . . . . . . . . . . . 10,967,449 1,000 (1,000) 10,967,449
Additional paid-in capital . . . . . . . . 6,604,037 20,244,000 (20,244,000) 6,604,037
Unearned compensation -- stock options . . (2,848,738) (2,848,738)
Retained earnings . . . . . . . . . . . . 27,161,692 (1,646,431) 1,646,431 27,161,692
Treasury stock . . . . . . . . . . . . . . (20,000,000) (20,000,000)
Cumulative foreign currency translation
adjustment . . . . . . . . . . . . . . (10,539,398) (10,565,622) 10,565,622 (10,539,398)
------------ ------------ ------------ ------------
Total shareholders' equity . . . . . 11,345,042 8,032,947 (8,032,947) 11,345,042
------------ ------------ ------------ ------------
TOTAL . . . . . . . . . . . . . . . . . . . . $240,138,409 $ 36,279,793 $ (8,671,101) $267,747,101
============ ============ ============ ============
</TABLE>
- ---------------
Note: "Restricted Group" means the Company and its Restricted Subsidiaries
(as defined in the Indenture) and "Unrestricted Group" means the
Unrestricted Subsidiaries of the Company (as defined in the Indenture).
S-1
<PAGE> 120
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE B
CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
RESTRICTED UNRESTRICTED
GROUP GROUP ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . $286,872,540 $ 12,264,616 $ (578,399) $298,558,757
COSTS AND EXPENSES:
Cost of operations . . . . . . . . . . . . 217,256,785 10,461,948 227,718,733
General and administrative expenses . . . 18,221,118 1,911,896 (578,399) 19,554,615
Depreciation and amortization . . . . . . 15,329,030 732,632 (136,868) 15,924,794
------------ ------------ ------------ ------------
Total . . . . . . . . . . . . . . . . 250,806,933 13,106,476 (715,267) 263,198,142
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) . . . . . . . . . . . 36,065,607 (841,860) 136,868 35,360,615
OTHER INCOME (EXPENSE):
Interest expense . . . . . . . . . . . . . ( 16,028,856) ( 2,520,977) (18,549,833)
Amortization of debt issue cost and debt
discount . . . . . . . . . . . . . . . (560,304) (263,710) (824,014)
Equity in income (loss) of affiliates . . ( 1,681,075) 438,389 1,936,101 693,415
Other income, net . . . . . . . . . . . . 5,252,926 1,323,140 6,576,066
Minority interest in (income) loss . . . . (215,357) 215,645 288
------------ ------------ ------------ ------------
Total . . . . . . . . . . . . . . . . (13,232,666) (807,513) 1,936,101 (12,104,078)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME
TAXES . . . . . . . . . . . . . . . . . . 22,832,941 (1,649,373) 2,072,969 23,256,537
INCOME TAXES EXPENSE . . . . . . . . . . . . 9,677,809 423,596 10,101,405
------------ ------------ ------------ ------------
NET INCOME (LOSS) . . . . . . . . . . . . . . $ 13,155,132 $ (2,072,969) $ 2,072,969 $ 13,155,132
============ ============ ============ ============
</TABLE>
- ---------------
Note: "Restricted Group" means the Company and its Restricted Subsidiaries
(as defined in the Indenture) and "Unrestricted Group" means the
Unrestricted Subsidiaries of the Company (as defined in the Indenture).
S-2
<PAGE> 121
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE C
CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
RESTRICTED UNRESTRICTED
GROUP GROUP ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net income (loss) . . . . . . . . . . . . $ 13,155,132 $ (2,072,969) $ 2,072,969 $ 13,155,132
Noncash items in net income (loss):
Depreciation . . . . . . . . . . . . . 11,995,363 720,736 12,716,099
Amortization--intangibles and
other assets . . . . . . . . . . . . 3,893,971 111,138 (136,868) 3,868,241
Deferred lease expenses . . . . . . . . 932,436 119,338 1,051,774
Deferred income tax expense . . . . . . 1,213,034 1,213,034
Debt issued for accrued interest . . . 184,134 184,134
Amortization of debt discount . . . . . 164,468 164,468
Amortized compensation--
stock options . . . . . . . . . . . . 1,591,022 1,591,022
Gain on sale of assets . . . . . . . . (5,196,922) (5,196,922)
Equity in (income) loss of affiliate . 1,817,943 (438,389) (2,072,969) (693,415)
Minority interest in income (loss) . . 215,357 (215,645) (288)
Cash from operating working capital . . . 4,149,971 3,248,495 638,154 8,036,620
------------ ------------ ------------ ------------
Net cash from operations . . . . . . 33,951,441 1,637,172 501,286 36,089,899
------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Additions to theatre properties and
equipment . . . . . . . . . . . . . . . (72,911,361) (16,376,306) (89,287,667)
Sale of theatre properties and
equipment . . . . . . . . . . . . . . . 8,022,500 8,022,500
Increase in certificate of deposit . . . . (323,034) (323,034)
Decrease (increase) in temporary cash
investments . . . . . . . . . . . . . . (100,000) 4,307,280 4,207,280
Decrease in advances to affiliate . . . . (385,906) (442,159) (828,065)
Proceeds of Funtime International sale . . 800,000 800,000
Increase in other assets . . . . . . . . . (1,527,637) (1,468,358) 136,868 (2,859,127)
------------ ------------ ------------ ------------
Net cash used for investing
activities . . . . . . . . . . . . . (66,425,438) (13,979,543) 136,868 (80,268,113)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Increases in long-term debt . . . . . . . 46,000,000 46,000,000
Reductions of long-term debt . . . . . . . (15,025,359) (15,025,359)
Increase in related party notes payable . 638,154 (638,154) --
Payment on theatre development
advance . . . . . . . . . . . . . . . . (370,808) (370,808)
Minority investment in subsidiaries . . . (200,000) 302,625 102,625
Issuance of subsidiary common stock
warrants . . . . . . . . . . . . . . . 1,324,132 1,324,132
------------ ------------ ------------ ------------
Net cash from financing
activities . . . . . . . . . . . . . 30,403,833 2,264,911 (638,154) 32,030,590
------------ ------------ ------------ ------------
FOREIGN CURRENCY
TRANSLATION ADJUSTMENT . . . . . . . . . . (776,726) (776,726)
------------ ------------ ------------ ------------
DECREASE IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . (2,070,164) (10,854,186) (12,924,350)
CASH AND CASH EQUIVALENTS:
Beginning of year . . . . . . . . . . . . 7,034,870 19,539,204 26,574,074
------------ ------------ ------------ ------------
End of year . . . . . . . . . . . . . . . $ 4,964,706 $ 8,685,018 $ $ 13,649,724
============ ============ ============ ============
</TABLE>
- ---------------
Note: "Restricted Group" means the Company and its Restricted Subsidiaries
(as defined in the Indenture) and "Unrestricted Group" means the
Unrestricted Subsidiaries of the Company (as defined in the Indenture).
S-3
<PAGE> 122
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE D
CONSOLIDATING BALANCE SHEET INFORMATION
JUNE 30, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
RESTRICTED UNRESTRICTED
GROUP GROUP ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents . . . . . . . . . . . $ 5,510,176 $ 1,330,088 $ -- $ 6,840,264
Temporary cash investments . . . . . . . . 282,026 282,026
Other current assets . . . . . . . . . . . 6,191,084 2,340,581 (1,455,231) 7,076,434
------------ ------------ ------------ ------------
Total current assets . . . . . . . . . 11,701,260 3,952,695 (1,455,231) 14,198,724
THEATER PROPERTIES AND
EQUIPMENT -- Net . . . . . . . . . . . . . 263,876,466 23,686,711 287,563,177
OTHER ASSETS:
Certificates of deposit . . . . . . . . . 1,821,867 1,821,867
Investments in and advances
to affiliates . . . . . . . . . . . . . 5,654,477 3,812,905 (4,609,227) 4,858,155
Intangible assets -- net . . . . . . . . . 9,610,796 (2,383,784) 7,227,012
Deferred charges and
other -- net . . . . . . . . . . . . . 5,487,381 4,950,147 10,437,528
------------ ------------ ------------ ------------
Total other assets . . . . . . . . . 22,574,521 8,763,052 (6,993,011) 24,344,562
------------ ------------ ------------ ------------
TOTAL . . . . . . . . . . . . . . . . . $298,152,247 $ 36,402,458 $ (8,448,242) $326,106,463
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
liabilities . . . . . . . . . . . . . . $ 379,009 $ -- $ -- $ 379,009
Accounts payable and accrued . . . . . . . 40,622,753 3,395,473 44,018,226
liabilities . . . . . . . . . . . . . . 292,346 (292,346)
------------ ------------ ------------ ------------
Income taxes payable
Total current liabilities . . . . . . 41,001,762 3,687,819 (292,346) 44,397,235
LONG-TERM LIABILITIES:
Long-term debt, less
current portion . . . . . . . . . . . . 182,001,490 20,640,373 202,641,863
Deferred lease expenses . . . . . . . . . 10,273,418 240,535 10,513,953
Other long-term liabilities . . . . . . . 769,657 1,162,885 (1,162,885) 769,657
Deferred income taxes . . . . . . . . . . 4,965,363 4,965,363
------------ ------------ ------------ ------------
Total long-term liabilities . . . . . 198,009,928 22,043,793 (1,162,885) 218,890,836
MINORITY INTERESTS IN
SUBSIDIARIES . . . . . . . . . . . . . . . 1,061,752 3,677,835 4,739,587
SHAREHOLDERS' EQUITY:
Common stock . . . . . . . . . . . . . . . 49,529,958 1,000 (1,000) 49,529,958
Additional paid-in capital . . . . . . . . 7,099,320 20,244,000 (20,244,000) 7,099,320
Unearned compensation --
stock options . . . . . . . . . . . . . (2,084,957) (2,084,957)
Retained earnings . . . . . . . . . . . . 33,990,662 (2,769,587) 2,769,587 33,990,662
Treasury stock . . . . . . . . . . . . . . (20,000,000) (20,000,000)
Cumulative foreign currency translation
adjustment . . . . . . . . . . . . . . (10,456,178) (10,482,402) 10,482,402 (10,456,178)
------------ ------------ ------------ ------------
Total shareholders' equity . . . . . 58,078,805 6,993,011 (6,993,011) 58,078,805
------------ ------------ ------------ ------------
TOTAL . . . . . . . . . . . . . . . . . . . . $298,152,247 $ 36,402,458 $ (8,448,242) $326,106,463
============ ============ ============ ============
</TABLE>
- ---------------
Note: "Restricted Group" means the Company and its Restricted Subsidiaries
(as defined in the Indenture) and "Unrestricted Group" means the
Unrestricted Subsidiaries of the Company (as defined in the Indenture).
S-4
<PAGE> 123
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE E
CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
RESTRICTED UNRESTRICTED
GROUP GROUP ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . $149,648,165 $ 9,100,414 $ (444,933) $158,303,646
COSTS AND EXPENSES:
Cost of operations . . . . . . . . . . . . 112,682,565 7,597,502 120,280,067
General and administrative expenses . . . 10,909,555 934,901 (444,933) 11,399,523
Depreciation and amortization . . . . . . 8,239,896 500,063 (68,434) 8,671,525
------------ ------------ ------------ ------------
Total . . . . . . . . . . . . . . . . 131,832,016 9,032,466 (513,367) 140,351,115
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) . . . . . . . . . . . 17,816,149 67,948 68,434 17,952,531
OTHER INCOME (EXPENSE):
Interest expense . . . . . . . . . . . . . (8,007,787) (1,344,000) (9,351,787)
Amortization of debt issue cost
and debt discount . . . . . . . . . . . (274,079) (140,745) (414,824)
Equity in income (loss) of affiliates . . (910,776) 257,553 1,054,722 401,499
Other income, net . . . . . . . . . . . . 3,863,668 91,503 3,955,171
Minority interest in (income) loss . . . . (105,353) 151,931 46,578
------------ ------------ ------------ ------------
Total . . . . . . . . . . . . . . . . (5,434,327) (983,758) 1,054,722 (5,363,363)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM . . . . . . . . . . 12,381,822 (915,810) 1,123,156 12,589,168
INCOME TAXES EXPENSE . . . . . . . . . . . . 5,218,167 207,346 5,425,513
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM . . . . . . . . . . . . 7,163,655 (1,123,156) 1,123,156 7,163,655
EXTRAORDINARY ITEM:
Loss on early extinguishment of
debt, net of income tax
benefit of $273,834 . . . . . . . . . . (334,685) (334,685)
------------ ------------ ------------ ------------
NET INCOME (LOSS) . . . . . . . . . . . . . . $ 6,828,970 $ (1,123,156) $ 1,123,156 $ 6,828,970
============ ============ ============ ============
</TABLE>
- ---------------
Note: "Restricted Group" means the Company and its Restricted Subsidiaries
(as defined in the Indenture) and "Unrestricted Group" means the
Unrestricted Subsidiaries of the Company (as defined in the Indenture).
S-5
<PAGE> 124
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE F
CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
RESTRICTED UNRESTRICTED
GROUP GROUP ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net income (loss) . . . . . . . . . . . . $ 6,828,970 $ (1,123,156) $ 1,123,156 $ 6,828,970
Loss on early extinguishment of debt . . . 608,519 608,519
Noncash items in net income (loss):
Depreciation . . . . . . . . . . . . . 6,665,319 498,847 7,164,166
Amortization -- intangibles and
other assets . . . . . . . . . . . . 1,848,656 50,837 (68,434) 1,831,059
Deferred lease expenses . . . . . . . . 664,295 38,620 702,915
Deferred income tax expense . . . . . . 669,152 669,152
Debt issued for accrued interest . . . 34,871 34,871
Amortization of debt discount . . . . . 91,124 91,124
Amortized compensation --
stock options . . . . . . . . . . . . 622,958 622,958
Equity in (income) loss
of affiliate . . . . . . . . . . . . 979,210 (257,553) (1,123,156) (401,499)
Minority interest in
income (loss) . . . . . . . . . . . . 105,353 (151,931) (46,578)
Cash used for operating working
capital . . . . . . . . . . . . . . . . 4,266,546 (434,420) 524,731 4,356,857
------------ ------------ ------------ ------------
Net cash from (used for)
operations . . . . . . . . . . . 23,293,849 (1,287,632) 456,297 22,462,514
============ ============ ============ ============
INVESTING ACTIVITIES:
Additions to theater properties
and equipment . . . . . . . . . . . . . (64,511,974) (5,733,152) (70,245,126)
Decrease in certificate of deposit . . . . 1,087 1,087
Increase in temporary cash
investments . . . . . . . . . . . . . . (6,900) (6,900)
Decrease (increase) in advances
to affiliate . . . . . . . . . . . . . 68,946 (250,000) (181,054)
Increase in other assets . . . . . . . . . (1,548,936) (685,197) 68,434 (2,165,699)
------------ ------------ ------------ ------------
Net cash used for investing
activities . . . . . . . . . . . (65,990,877) (6,675,249) 68,434 (72,597,692)
============ ============ ============ ============
FINANCING ACTIVITIES:
Increases in long-term debt . . . . . . . 43,500,000 43,500,000
Reductions of long-term debt . . . . . . . (37,013,558) (37,013,558)
Increase (decrease) in related party
notes payable . . . . . . . . . . . . . (2,086,513) 524,731 (524,731) (2,086,513)
Payment on theater development
advance . . . . . . . . . . . . . . . . (356,046) (356,046)
Net proceeds from common stock
issuance . . . . . . . . . . . . . . . 38,562,509 38,562,509
Decrease in additional paid-in
capital . . . . . . . . . . . . . . . . 636,106 636,106
------------ ------------ ------------ ------------
Net cash from financing
activities . . . . . . . . . . . 43,242,498 524,731 (524,731) 43,242,498
============ ============ ============ ============
FOREIGN CURRENCY
TRANSLATION ADJUSTMENT . . . . . . . . . . 83,220 83,220
------------ ------------ ------------ ------------
DECREASE IN CASH AND
CASH EQUIVALENTS: . . . . . . . . . . . . 545,470 (7,354,930) 0 (6,809,460)
CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . 4,964,706 8,685,018 13,649,724
------------ ------------ ------------ ------------
End of period . . . . . . . . . . . . . . $ 5,510,176 $ 1,330,088 $ 6,840,264
============ ============ ============ ============
</TABLE>
- ---------------
Note: "Restricted Group" means the Company and its Restricted Subsidiaries
(as defined in the Indenture) and "Unrestricted Group" means the
Unrestricted Subsidiaries of the Company (as defined in the Indenture).
S-6
<PAGE> 125
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Company is empowered by Art. 2.02-1 of the Texas Business Corporation
Act, subject to the procedures and limitations stated therein, to indemnify any
person who was, is or is threatened to be made a named defendant or respondent
in a proceeding because the person is or was a director or officer against
judgments, penalties (including excise and similar taxes), fines, settlements
and reasonable expenses (including court costs and attorneys' fees) actually
incurred by the person in connection with the proceeding. The Company is
required by Art. 2.02-1 to indemnify a director or officer against reasonable
expenses (including court costs and attorneys' fees) incurred by him in
connection with a proceeding in which he is a named defendant or respondent
because he is or was a director or officer if he has been wholly successful, on
the merits or otherwise, in the defense of the proceeding. The statute
provides that indemnification pursuant to its provisions is not exclusive of
other rights of indemnification to which a person may be entitled under any
bylaw, agreement, vote of shareholders or disinterested directors, or
otherwise. The articles and bylaws of the Company provide for indemnification
by the Company of its directors and officers to the fullest extent permitted by
the Texas Business Corporation Act. In addition, the Company has, pursuant to
Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act, provided in
its articles of incorporation that, to the fullest extent permitted by
applicable law, a director of the Company shall not be liable to the Company or
its shareholders for monetary damages for an act or omission in a director's
capacity as director of the Company.
The Company has obtained an insurance policy providing for indemnification
of officers and directors of the Company and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions. The Company has entered into separate
indemnification agreements with each of its directors which may require the
Company, among other things, to indemnify such directors against certain
liabilities that may arise by reason of their status or service as directors to
the maximum extent permitted under Texas law.
Section 9 of Mr. Mitchell's Employment Agreement and Section 7 of Mrs.
Mitchell's Employment Agreement with the Company provide that the Company shall
indemnify and hold harmless Mr. and Mrs. Mitchell from and against any claims,
damages, expenses (including, but not limited to, attorneys' fees and other
expenses), judgments, fines and amounts paid in settlement incurred by either
of them in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
any action by or in the right of the Company) to which either of them is a
party or is threatened to be made a party by reason of or arising out of the
performance by them or the Company of any provision of their respective
Employment Agreement, provided that they acted in good faith and in a manner
they reasonably believed to be in, or not opposed to, the best interest of the
Company. Mr. and Mrs. Mitchell are entitled to select counsel of their own
choosing to defend any such action or proceeding and the Company shall pay all
fees and expenses in connection with such defense. Such expenses shall be paid
by the Company in advance of the final disposition of any such action or
proceeding if so requested by them.
II-1
<PAGE> 126
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
*1 Purchase Agreement dated August 12, 1996 between the Company and
Bear, Stearns & Co. Inc., Goldman Sachs & Co. Inc. and Morgan
Stanley & Co. Incorporated
**3.1(a) Amended and Restated Articles of Incorporation of the Company
filed with the Texas Secretary of State on June 3, 1992
**3.1(b) Articles of Merger filed with the Texas Secretary of State on
June 27, 1988 merging Gulf Drive-In Theatres, Inc. and Cinemark
of Louisiana, Inc. into the Company
**3.1(c) Articles of Merger filed with the Texas Secretary of State dated
October 27, 1989 merging Premiere Cinemas Corp. into the Company
**3.1(d) Articles of Merger filed with the Texas Secretary of State dated
October 27, 1989 merging Tri-State Entertainment Incorporated
into the Company
**3.1(e) Articles of Merger filed with the Texas Secretary of State on
December 27, 1990 merging Cinema 4, Inc. into the Company
**3.1(f) Articles of Merger filed with the Texas Secretary of State on
December 27, 1990 merging Cinema 4, Inc. into the Company
**3.2(a) Bylaws of the Company, as amended
*3.2(b) Amendment to Bylaws of the Company dated March 12, 1996
*4.1 Indenture dated August 15, 1996 between the Company and U.S.
Trust Company of Texas, N.A. governing the Notes, with a form
of Old Note attached
*4.2 Exchange Registration Rights Agreement dated August 15, 1996
between the Company and Bear, Stearns & Co. Inc., Goldman Sachs
& Co. Inc. and Morgan Stanley & Co. Incorporated
***5 Opinion of the Company concerning the legality of the New Notes
**10.1(a) Indenture for Old Notes, with form of Old Note attached.
**10.1(b) Stock Pledge Agreement.
**10.1(c) Amendment to Stock Pledge Agreement dated June 28, 1993 in favor
of the Trustee pledging the shares of capital stock of ENT
Holdings, Inc.
**10.1(d) Amendment to Stock Pledge Agreement dated July 12, 1993 in favor
of Trustee pledging the shares of capital stock of 2 Day Video,
Inc.
**10.1(e) Amendment to Stock Pledge Agreement dated October 14, 1993 in
favor of Trustee pledging the shares of capital stock of Cinema
Management Group, Inc.
**10.1(f) Amendment to Stock Pledge Agreement dated September 13, 1993 in
favor of Trustee pledging the limited partnership interests of
Tinseltown Equities, Inc.
</TABLE>
II-2
<PAGE> 127
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
**10.1(g) Amendment to Stock Pledge Agreement dated February 8, 1994 in
favor of Trustee pledging the shares of capital stock of
Sunnymead Cinema Corp.
**10.1(h) Amendment to Stock Pledge Agreement dated February 8, 1994 in
favor of Trustee pledging shares of the capital stock of
Sunnymead Cinema Corp.
**10.1(i) Amendment to Stock Pledge Agreement dated July 26, 1994 in favor
of Trustee pledging shares of the capital stock of Cinemark
Partners I, Inc.
**10.1(j) Amendment to Stock Pledge Agreement dated August 4, 1994 in
favor of Trustee pledging shares of the capital stock of 2 Day
Video, Inc.
**10.1(k) Amendment to Stock Pledge Agreement dated September 12, 1994 in
favor of Trustee pledging the general and limited partnership
interests in Laredo Theatre, Ltd.
*10.2 Promissory Note of 2 Day Video, Inc. dated August 21, 1995 in
the original principal amount of $500,000 payable to the Company
*10.3 Promissory Note of 2 Day Video dated February 7, 1996 in the
original principal amount of $450,000 payable to the Company
**10.4 Promissory Note dated September 4, 1987 executed by The Pebble
Group, Ltd. in the original principal amount of $700,000 payable
to Citizens Savings and Loan, and assumed by the Company.
**10.5 Management Agreement dated as of March 1, 1991 between Movie
Theatre Investors, Ltd. and the Company.
**10.6(a) Management Agreement dated as of March 1, 1991 between Movie
Theatre Investors, Ltd. and the Company.
**10.6(b) Management Agreement between the Company and Cinemark II, Inc.
("Cinemark II") dated as of June 10, 1992.
**10.6(c) First Amendment to Management Agreement effective as of December
2, 1991 among the Company, Movie Theatre Holdings, Inc. and E.
William Savage
**10.6(d) Management Agreement, dated as of July 28, 1993, between the
Company and Cinemark Mexico (USA).
**10.6(e) Management Agreement, dated as of September 10, 1992, between
the Company and Cinemark de Mexico.
**10.6(f) Management Agreement dated December 10, 1993 between Laredo
Joint Venture and the Company.
**10.6(g) Management Agreement dated September 1, 1994 between Cinemark
Partners II, Ltd. and the Company.
**10.7 Agreement Regarding Right of First Refusal dated March 28, 1991
between the Company and Movie Theatre Investors, Ltd.
</TABLE>
II-3
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
**10.8(a) Employment Agreement dated as of October 17, 1991 between the
Company and Lee Roy Mitchell.
**10.8(b) First Amendment to Employment Agreement dated as of April 7,
1992 between the Company and Lee Roy Mitchell.
**10.8(c) Employment Agreement dated as of October 17, 1991 between the
Company and Tandy Mitchell.
**10.8(d) First Amendment to Employment Agreement dated as of April 7,
1992 between the Company and Tandy Mitchell.
**10.8(e) Second Amendment to Employment Agreement between the Company and
Lee Roy Mitchell dated as of June 10, 1992.
**10.9(a) 1991 Nonqualified Stock Option Plan of Cinemark USA, Inc.
**10.9(b) Cinemark Mexico Nonqualified Stock Option Plan.
**10.10 Cinemark USA, Inc. 401(k) Profit Sharing Plan and Trust
established January 1, 1989.
**10.11(a) License Agreement as of July 23, 1990 between the Company and
Movie Theatre Investors, Ltd.
**10.11(b) License Agreement dated December 10, 1993 between Laredo Joint
Venture and the Company.
**10.12(a) Tax Sharing Agreement between the Company and Cinemark II dated
as of June 10, 1992.
**10.12(b) Tax Sharing Agreement dated as of July 28, 1993, between the
Company and Cinemark Mexico (USA).
**10.12(c) License Agreement dated September 1, 1994 between Cinemark
Partners II, Ltd. and the Company.
**10.13(a) Indemnification Agreement between the Company and Lee Roy
Mitchell dated as of July 13, 1992.
**10.13(b) Indemnification Agreement between the Company and Tandy Mitchell
dated as of July 13, 1992.
**10.13(d) Indemnification Agreement between the Company and Alan W. Stock
dated as of July 13, 1992.
**10.13(f) Indemnification Agreement between the Company and W. Bryce
Anderson dated as of July 13, 1992.
**10.13(g) Indemnification Agreement between the Company and Sheldon I.
Stein dated as of July 13, 1992.
*10.13(h) Indemnification Agreement between the Company and Heriberto
Guerra dated as of December 3, 1993
</TABLE>
II-4
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
*10.13(i) Indemnification Agreement between the Company and Gary R. Gibbs
dated as of July 19, 1995.
**10.14(a) Credit Agreement dated as of February 14, 1996 among the Banks
and the Agent.
**10.14(b) Pledge Agreement dated as of February 14, 1996 executed by the
pledgors listed on the signature page thereto for the benefit of
the Agent and the Banks.
*10.14(c) First Amendment to Pledge Agreement dated as of March 29, 1996
executed by the pledgors listed on the signature page thereto
for the benefit of the Agent and the Banks
**10.14(d) Note of the Company dated as of February 14, 1996 in the
original principal amount of $35,000,000 payable to the order of
NationsBank of Texas, N.A.
**10.14(e) Note of the Company dated as of February 14, 1996 in the
original principal amount of $25,000,000 payable to the order of
CIBC, Inc.
**10.14(f) Note of the Company dated as of February 14, 1996 in the
original principal amount of $25,000,000 payable to the order of
The Bank of New York.
**10.14(g) Note of the Company dated as of February 14, 1996 in the
original principal amount of $10,000,000 payable to the order of
Comerica Bank-Texas
**10.14(h) Note of the Company dated as of February 14, 1996 in the
original principal amount of $20,000,000 payable to the order of
First National Bank of Boston
**10.14(i) Note of the Company dated as of February 14, 1996 in the
original principal amount of $15,000,000 payable to the order of
Natwest Bank
**10.15(a) Letter Agreements with directors of the Company regarding stock
options.
**10.15(b) Letter Agreements with directors of the Company amending stock
options
**10.16(a) Indenture, dated as of July 30, 1993, among Cinemark Mexico
(USA), Cinemark de Mexico, as Guarantor, and United States Trust
Company of New York, as trustee, relating to the Senior
Subordinated Notes.
**10.16(b) First Supplemental Indenture dated May 2, 1994 among Cinemark
Mexico (USA), Cinemark de Mexico and United States Trust Company
of New York, as Trustee.
**10.16(c) Second Supplemental Indenture dated August 30, 1995 among
Cinemark Mexico (USA), Cinemark de Mexico and United States
Trust Company of New York, as Trustee
**10.16(d) Purchase Agreement, dated as of July 30, 1993, among Cinemark
Mexico (USA), Cinemark de Mexico and each of the purchasers of
the Series A Notes named on the signature pages thereof (the
"Purchasers").
**10.16(e) Registration Rights Agreement, dated as of July 30, 1993, among
Cinemark Mexico (USA), Cinemark de Mexico and the Purchasers of
the Series A Notes.
**10.16(f) Warrant Registration Rights Agreement, dated as of July 30,
1993, among Cinemark Mexico (USA), Cinemark II, New Wave
Investments A.V.V. ("New Wave") and the purchasers of the
warrants named on the signature pages thereof.
</TABLE>
II-5
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
**10.16(g) Warrant Certificates.
**10.16(h) Purchase Agreement dated May 6, 1994 among Cinemark Mexico
(USA), Cinemark de Mexico and each of the purchasers of the
Series C Notes named on the registration pages thereto.
**10.16(i) Subscription Agreement dated as of December 31, 1994 between the
Company and Cinemark International.
**10.16(j) Subscription Agreement dated June 1, 1995 among Cinemark Mexico
(USA) and Cinemark International
**10.16(k) Purchase Agreement dated August 30, 1995 among Cinemark Mexico
(USA) and the purchasers thereto
**10.16(l) Warrant Certificates
**10.17 Senior Secured Credit Agreement dated December 4, 1995 among
Cinemark II, Cinemark Mexico (USA) and Cinemark de Mexico
**10.18(a) Security Purchase Agreement dated February 20, 1996 among the
Company, Cypress Merchant Banking Partners L.P., Cypress
Pictures Ltd., The Broadhead Limited Partnership and T&LRM
Family Limited Partnership
**10.18(b) Shareholders' Agreement dated March 12, 1996 among the Company,
Mr. Mitchell, Cypress Merchant Banking Partners L.P., Cypress
Pictures Ltd. and Mr. Mitchell and Mr. Don Hart as Co-Trustees
of certain trusts signatory thereto
10.19 Joint Venture Agreement dated December 31, 1995 among Cinemark
II, Inc., D'Alimenti S.A. and Prodecine S.A.
*12 Calculation of Earnings to Fixed Charges.
*21 Subsidiaries of the Registrant
*23.1 Consent of Deloitte & Touche LLP, Independent Auditors
***23.2 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included
in Exhibit 5.1)
24 Power of Attorney (set forth on page II-14)
***25 T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of United States Trust Company of Texas,
N.A. relating to the Series B Notes
</TABLE>
- ---------------
*Filed herewith
**Incorporated by Reference
***To be filed by amendment
(b) Financial Statement Schedules
All of the Financial Statement Schedules have been omitted because they
are not applicable or not required or the required information is
included in the Financial Statements or notes thereto.
II-6
<PAGE> 131
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
Company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE> 132
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registration has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Dallas,
State of Texas, on September 13, 1996.
CINEMARK USA, INC.
By: /s/ ALAN W. STOCK
------------------------------------
Name: Alan W. Stock
----------------------------------
Title: President
---------------------------------
The undersigned directors and officers of Cinemark USA, Inc. hereby
constitute Lee Roy Mitchell and Jeffrey J. Stedman and each of them, with full
power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full power to
execute in our name and behalf in the capacities indicated below any and all
amendments (including post-effective amendments and amendments thereto) to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith with the Securities and Exchange
Commission and hereby ratify and confirm all that such attorneys-in-fact, or
either of them, or their substitutes shall lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ LEE ROY MITCHELL Chairman of the September 13, 1996
- --------------------------------------- Board of Directors
Lee Roy Mitchell and Chief Executive Officer
(Principal Executive Officer)
/s/ TANDY MITCHELL Director, Executive Vice September 13, 1996
- --------------------------------------- President and Secretary
Tandy Mitchell
/s/ ALAN W. STOCK
- ---------------------------------------
Alan W. Stock Director September 13, 1996
/s/ JEFFREY J. STEDMAN Vice President (Principal September 13, 1996
- --------------------------------------- Financial Officer)
Jeffrey J. Stedman
</TABLE>
II-8
<PAGE> 133
<TABLE>
<S> <C> <C>
/s/ GARY R. GIBBS Director September 13, 1996
- ----------------------------------------
Gary R. Gibbs
/s/ W. BRYCE ANDERSON Director September 13, 1996
- ----------------------------------------
W. Bryce Anderson
/s/ SHELDON I. STEIN Director September 13, 1996
- ----------------------------------------
Sheldon I. Stein
/s/ HERIBERTO GUERRA, JR. Director September 13, 1996
---------------------------------------
Heriberto Guerra, Jr.
/s/ JAMES L. SINGLETON Director September 13, 1996
- ----------------------------------------
James L. Singleton
/s/ JAMES A. STERN Director September 13, 1996
- ----------------------------------------
James A. Stern
</TABLE>
II-9
<PAGE> 134
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION TO OR MAKE ANY
REPRESENTATIONS NOT IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CINEMARK
USA, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE SERIES B NOTES
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SERIES B NOTES TO ANYONE IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN A CHANGE IN THE INFORMATION SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . 3
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
The Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Selected Consolidated Financial
and Operating Data . . . . . . . . . . . . . . . . . . . . . . . . 28
Management's Discussion
and Analysis of Financial
Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . 54
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 57
Description of Series B Notes . . . . . . . . . . . . . . . . . . . . . 59
Federal Income Tax
Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Description of Certain
Debt Instruments . . . . . . . . . . . . . . . . . . . . . . . . . 90
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 94
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . F-1
Independent Auditors Report . . . . . . . . . . . . . . . . . . . . . . F-3
</TABLE>
$200,000,000
[CINEMARK USA, INC. LOGO] Cinemark USA, Inc.
Offer to Exchange its 9-5/8% Series B Senior Subordinated Notes Due 2008 which
have been registered under the Securities Act for any and all of its outstanding
9-5/8% Series A Senior Subordinated Notes due 2008
. . . . .
--------------
PROSPECTUS
--------------
,1996
--------
<PAGE> 135
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION
NUMBER DESCRIPTION BY REFERENCE TO
- ------ ----------- ---------------
<S> <C> <C>
1 Purchase Agreement dated August 12, 1996 between the Company and Page ______
Bear, Stearns & Co. Inc., Goldman Sachs & Co. Inc. and Morgan
Stanley & Co. Incorporated
3.1(a) Amended and Restated Articles of Incorporation of the Company filed Exhibit 3.1(a) to the
with the Texas Secretary of State on June 3, 1992 Company's Annual Report (file
33-47040) on Form 10-K filed
March 31, 1993
3.1(b) Articles of Merger filed with the Texas Secretary of State on June Exhibit 3.1(b) to the
27, 1988 merging Gulf Drive-In Theatres, Inc. and Cinemark of Company's Registration
Louisiana, Inc. into the Company Statement (file 33-47040) on
Form S-1 filed on April 9,
1992
3.1(c) Articles of Merger filed with the Texas Secretary of State dated Exhibit 3.1(d) to the
October 27, 1989 merging Premiere Cinemas Corp. into the Company Company's Registration
Statement (file 33-47040) on
Form S-1 filed on April 9,
1992
3.1(d) Articles of Merger filed with the Texas Secretary of State dated Exhibit 3.1(e) to the
October 27, 1989 merging Tri-State Entertainment Incorporated into Company's Registration
the Company Statement (file 33-47040) on
Form S-1 filed on April 9,
1992
3.1(e) Articles of Merger filed with the Texas Secretary of State on Exhibit 3.1(f) to the Company
December 27, 1990 merging Cinema 4, Inc. into the Company s Registration Statement
(file 33-47040) on form S-1
filed on April 9, 1992
3.1(f) Articles of Merger filed with the Texas Secretary of State on Exhibit 3.1(f) to the
December 27, 1990 merging Cinema 4, Inc. into the Company Company's Annual Report (file
33-47040) on Form 10-K filed
March 31, 1993
3.2(a) Bylaws of the Company, as amended Exhibit 3.2 to the Company's
Registration Statement (file
33-47040) on Form S-1 filed
on April 9, 1992
</TABLE>
E-1
<PAGE> 136
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION
NUMBER DESCRIPTION BY REFERENCE TO
- ------ ----------- ---------------
<S> <C> <C>
3.2(b) Amendment to Bylaws of the Company dated March 12, 1996 Page ______
4.2 Indenture dated August 15, 1996 between the Company and U.S. Trust Page ______
Company of Texas, N.A. governing the Notes, with a form of Old Note
attached
4.3 Exchange Registration Rights Agreement dated August 15, 1996 between Page ______
the Company and Bear, Stearns & Co. Inc., Goldman Sachs & Co. Inc.
and Morgan Stanley & Co. Incorporated
***5 Opinion of the Company concerning the legality of the New Notes Page ______
10.1(a) Indenture for Old Notes, with form of Old Note attached. Exhibit 4.1 to the Company's
Annual Report (file 33-47040)
on Form 10-K filed March 31,
1993.
10.1(b) Stock Pledge Agreement. Exhibit 4.1(b) to the
Company's Annual Report (file
33-47040) on Form 10-K filed
March 31, 1993.
10.1(c) Amendment to Stock Pledge Agreement dated June 28, 1993 in favor of Exhibit 4.1(c) to the
the Trustee pledging the shares of capital stock of ENT Holdings, Company's Annual Report (file
Inc. 33-47040) on Form 10-K filed
March 31, 1994
10.1(d) Amendment to Stock Pledge Agreement dated July 12, 1993 in favor of Exhibit 4.1(d) to the
Trustee pledging the shares of capital stock of 2 Day Video, Inc. Company's Annual Report (file
33-47040) on Form 10-K filed
March 31, 1994
10.1(e) Amendment to Stock Pledge Agreement dated October 14, 1993 in favor Exhibit 4.1(e) to the
of Trustee pledging the shares of capital stock of Cinema Management Company's Annual Report (file
Group, Inc. 33-47040) on Form 10-K filed
March 31, 1994
10.1(f) Amendment to Stock Pledge Agreement dated September 13, 1993 in Exhibit 4.1(f) to the
favor of Trustee pledging the limited partnership interests of Company's Annual Report (file
Tinseltown Equities, Inc. 33-47040) on Form 10-K filed
March 31, 1994
</TABLE>
E-2
<PAGE> 137
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION
NUMBER DESCRIPTION BY REFERENCE TO
- ------ ----------- ---------------
<S> <C> <C>
10.1(g) Amendment to Stock Pledge Agreement dated February 8, 1994 in favor Exhibit 4.1(g) to the
of Trustee pledging the shares of capital stock of Sunnymead Cinema Company's Annual Report (file
Corp. 33-47040) on Form 10-K filed
March 31, 1994
10.1(h) Amendment to Stock Pledge Agreement dated February 8, 1994 in favor Exhibit 4.1(h) to the
of Trustee pledging shares of the capital stock of Sunnymead Cinema Company's Annual Report (file
Corp. 33-47040) on Form 10-K filed
March 29, 1995
10.1(i) Amendment to Stock Pledge Agreement dated July 26, 1994 in favor of Exhibit 4.1(i) to the
Trustee pledging shares of the capital stock of Cinemark Partners I, Company's Annual Report (file
Inc. 33-47040) on Form 10-K filed
March 29, 1995
10.1(j) Amendment to Stock Pledge Agreement dated August 4, 1994 in favor of Exhibit 4.1(j) to the
Trustee pledging shares of the capital stock of 2 Day Video, Inc. Company's Annual Report (file
33-47040) on Form 10-K filed
March 29, 1995
10.1(k) Amendment to Stock Pledge Agreement dated September 12, 1994 in Exhibit 4.1(k) to the
favor of Trustee pledging the general and limited partnership Company's Annual Report (file
interests in Laredo Theatre, Ltd. 33-47040) on Form 10-K filed
March 29, 1995
10.2 Promissory Note of 2 Day Video, Inc. dated August 21, 1995 in the Page ______
original principal amount of $500,000 payable to the Company
10.3 Promissory Note of 2 Day Video dated February 7, 1996 in the Page ______
original principal amount of $450,000 payable to the Company
10.4 Promissory Note dated September 4, 1987 executed by The Pebble Exhibit 10.5 to the Company's
Group, Ltd. in the original principal amount of $700,000 payable to Registration Statement (file
Citizens Savings and Loan, and assumed by the Company. 33-47040) on Form S-1 filed
on April 9, 1992.
10.5 Management Agreement dated as of March 1, 1991 between Movie Theatre Exhibit 10.6(a) to the
Investors, Ltd. and the Company. Company's Registration
Statement (file 33-47040) on
Form S-1 filed on April 9,
1992.
</TABLE>
E-3
<PAGE> 138
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION
NUMBER DESCRIPTION BY REFERENCE TO
- ------ ----------- ---------------
<S> <C> <C>
10.6(a) Management Agreement dated as of March 1, 1991 between Movie Theatre Exhibit 10.6(b) to the
Investors, Ltd. and the Company. Company's Registration
Statement (file 33-47040) on
Form S-1 filed on April 9,
1992.
10.6(b) Management Agreement between the Company and Cinemark II, Inc. Exhibit 10.6(c) to the
("Cinemark II") dated as of June 10, 1992. Company's Annual Report (file
33-47040) on Form 10-K filed
March 31, 1993.
10.6(c) First Amendment to Management Agreement effective as of December 2, Exhibit 10.6(e) to the
1991 among the Company, Movie Theatre Holdings, Inc. and E. William Company's Registration
Savage Statement (file 33-47040) on
Form S-1 filed on April 9,
1992
10.6(d) Management Agreement, dated as of July 28, 1993, between the Company Exhibit 10.7 to Cinemark
and Cinemark Mexico (USA). Mexico (USA)'s Registration
Statement (file 33-72114) on
Form S-4 filed on November
24, 1994.
10.6(e) Management Agreement, dated as of September 10, 1992, between the Exhibit 10.8 to Cinemark
Company and Cinemark de Mexico. Mexico (USA)'s Registration
Statement (file 33-72114) on
Form S-4 filed on November
24, 1994.
10.6(f) Management Agreement dated December 10, 1993 between Laredo Joint Exhibit 10.14(b) to the
Venture and the Company. Company's Annual Report (file
33-47040) on form 10-K filed
March 31, 1994.
10.6(g) Management Agreement dated September 1, 1994 between Cinemark Exhibit 10.4(i) to the
Partners II, Ltd. and the Company. Company's Annual Report (file
33-47040) on Form 10-K filed
March 29, 1995.
</TABLE>
E-4
<PAGE> 139
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION
NUMBER DESCRIPTION BY REFERENCE TO
- ------ ----------- ---------------
<S> <C> <C>
10.7 Agreement Regarding Right of First Refusal dated March 28, 1991 Exhibit 10.10 to CUSA's
between the Company and Movie Theatre Investors, Ltd. Registration Statement (file
33-47040) on Form S-1 filed
on April 9, 1992.
10.8(a) Employment Agreement dated as of October 17, 1991 between the Exhibit 10.11(a) to the
Company and Lee Roy Mitchell. Company's Registration
Statement (file 33-47040) on
Form S-1 filed on April 9,
1992.
10.8(b) First Amendment to Employment Agreement dated as of April 7, 1992 Exhibit 10.11(b) to the
between the Company and Lee Roy Mitchell. Company's Registration
Statement (file 33-47040) on
Form S-1 filed on April 9,
1992.
10.8(c) Employment Agreement dated as of October 17, 1991 between the Exhibit 10.11(c) to the
Company and Tandy Mitchell. Company's Registration
Statement (file 33-47040) on
Form S-1 filed on April 9,
1992.
10.8(d) First Amendment to Employment Agreement dated as of April 7, 1992 Exhibit 10.11(d) to the
between the Company and Tandy Mitchell. Company's Registration
Statement (file 33-47040) on
Form S-1 filed on April 9,
1992.
10.8(e) Second Amendment to Employment Agreement between the Company and Lee Exhibit 10.11(e) to the
Roy Mitchell dated as of June 10, 1992. Company's Annual Report (file
33-47040) on Form 10-K filed
March 31, 1993.
10.9(a) 1991 Nonqualified Stock Option Plan of Cinemark USA, Inc. Exhibit 10.14 to the
Company's Registration
Statement (file 33-47040) on
Form S-1 filed on April 9,
1992.
</TABLE>
E-5
<PAGE> 140
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION
NUMBER DESCRIPTION BY REFERENCE TO
- ------ ----------- ---------------
<S> <C> <C>
10.9(b) Cinemark Mexico Nonqualified Stock Option Plan. Exhibit 10.9 to Cinemark
Mexico (USA)'s Registration
Statement (file 33-72114) on
Form S-4 filed on November
24, 1994.
10.10 Cinemark USA, Inc. 401(k) Profit Sharing Plan and Trust established Exhibit 10.15 to Amendment
January 1, 1989. No. 1 to the Company's
Registration Statement (file
33-47040) on Form S-1 filed
on May 13, 1992.
10.11(a) License Agreement dated as of July 23, 1990 between the Company and Exhibit 10.18(a) to the
Movie Theatre Investors, Ltd. Company's Registration
Statement (file 33-47040) on
Form S-1 filed on April 9,
1992.
10.11(b) License Agreement dated December 10, 1993 between Laredo Joint Exhibit 10.14(c) to the
Venture and the Company. Company's Annual Report (file
33-47040) on Form 10-K filed
March 31, 1994
10.11(c) License Agreement dated September 1, 1994 between Cinemark Partners Exhibit 10.10(c) to the
II, Ltd. and the Company. Company's Annual Report (file
33-47040) on Form 10-K filed
March 29, 1995.
10.12(a) Tax Sharing Agreement between the Company and Cinemark II dated as Exhibit 10.22 to the
of June 10, 1992. Company's Annual Report (file
33-47040) on Form 10-K filed
March 31, 1993.
10.12(b) Tax Sharing Agreement dated as of July 28, 1993, between the Company Exhibit 10.10 to Cinemark
and Cinemark Mexico (USA). Mexico (USA)'s Registration
Statement (33-72114) on Form
S-4 filed on November 24,
1994.
</TABLE>
E-6
<PAGE> 141
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION
NUMBER DESCRIPTION BY REFERENCE TO
- ------ ----------- ---------------
<S> <C> <C>
10.13(a) Indemnification Agreement between the Company and Lee Roy Mitchell Exhibit 10.23(a) to the
dated as of July 13, 1992. Company's Annual Report (file
33-47040) on Form 10-K filed
March 31, 1993.
10.13(b) Indemnification Agreement between the Company and Tandy Mitchell Exhibit 10.23(b) to the
dated as of July 13, 1992. Company's Annual Report (file
33-47040) on Form 10-K filed
March 31, 1993.
10.13(c) Indemnification Agreement between the Company and Alan W. Stock Exhibit 10.23(d) to the
dated as of July 13, 1992. Company's Annual Report (file
33-47040) on Form 10-K filed
March 31, 1993.
10.13(d) Indemnification Agreement between the Company and W. Bryce Anderson Exhibit 10.23(f) to the
dated as of July 13, 1992. Company's Annual Report (file
33-47040) on Form 10-K filed
March 31, 1993.
10.13(e) Indemnification Agreement between the Company and Sheldon I. Stein Exhibit 10.23(g) to the
dated as of July 13, 1992. Company's Annual Report (file
33-47040) on Form 10-K filed
March 31, 1993.
10.13(f) Indemnification Agreement between the Company and Heriberto Guerra Page ______
dated as of December 3, 1993
10.13(g) Indemnification Agreement between the Company and Gary R. Gibbs Page ______
dated as of July 19, 1995.
10.14(a) Credit Agreement dated as of February 14, 1996 among the Banks and Exhibit 10.13(a) to Company's
the Agent. Annual Report (file 33-47040)
on Form 10-K filed April 1,
1996
10.14(b) Pledge Agreement dated as of February 14, 1996 executed by the Exhibit 10.13(b) to Company's
pledgors listed on the signature page thereto for the benefit of the Annual Report (file 33-47040)
Agent and the Banks. on Form 10-K filed April 1,
1996
10.14(c) First Amendment to Pledge Agreement dated as of March 29, 1996 Page ______
executed by the pledgors listed on the signature page thereto for
the benefit of the Agent and the Banks
</TABLE>
E-7
<PAGE> 142
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION
NUMBER DESCRIPTION BY REFERENCE TO
- ------ ----------- ---------------
<S> <C> <C>
10.14(d) Note of the Company dated as of February 14, 1996 in the original Exhibit 10.13(c) to Company's
principal amount of $35,000,000 payable to the order of NationsBank Annual Report (file 33-47040)
of Texas, N.A. on Form 10-K filed April 1,
1996
10.14(e) Note of the Company dated as of February 14, 1996 in the original Exhibit 10.13(d) to Company's
principal amount of $25,000,000 payable to the order of CIBC, Inc. Annual Report (file 33-47040)
on Form 10-K filed April 1,
1996
10.14(f) Note of the Company dated as of February 14, 1996 in the original Exhibit 10.13(e) to Company's
principal amount of $25,000,000 payable to the order of The Bank of Annual Report (file 33-47040)
New York. on Form 10-K filed April 1,
1996
10.14(g) Note of the Company dated as of February 14, 1996 in the original Exhibit 10.13(f) to Company's
principal amount of $10,000,000 payable to the order of Comerica Annual Report (file 33-47040)
Bank-Texas on Form 10-K filed April 1,
1996
10.14(h) Note of the Company dated as of February 14, 1996 in the original Exhibit 10.13(g) to Company's
principal amount of $20,000,000 payable to the order of First Annual Report (file 33-47040)
National Bank of Boston on Form 10-K filed April 1,
1996
10.14(i) Note of the Company dated as of February 14, 1996 in the original Exhibit 10.13(h) to Company's
principal amount of $15,000,000 payable to the order of Natwest Bank Annual Report (file 33-47040)
on Form 10-K filed April 1,
1996
10.15(a) Letter Agreements with directors of the Company regarding stock Exhibit 10.15 to the
options. Company's Annual Report (file
33-47040) on Form 10-K filed
March 31, 1993.
10.15(b) Letter Agreements with directors of the Company amending stock Page ______
options
10.16(a) Indenture, dated as of July 30, 1993, among Cinemark Mexico (USA), Exhibit 4.1 to Cinemark
Cinemark de Mexico, as Guarantor, and United States Trust Company of Mexico (USA)'s Registration
New York, as trustee, relating to the Senior Subordinated Notes. Statement (file 33-72114) on
Form S-4 filed on November
24, 1994.
</TABLE>
E-8
<PAGE> 143
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION
NUMBER DESCRIPTION BY REFERENCE TO
- ------ ----------- ---------------
<S> <C> <C>
10.16(b) First Supplemental Indenture dated May 2, 1994 among Cinemark Mexico Exhibit 4.4 to Cinemark
(USA), Cinemark de Mexico and United States Trust Company of New Mexico (USA)'s Annual Report
York, as Trustee. (file 33-72114) on Form 10-K
filed March 31, 1994.
10.16(c) Second Supplemental Indenture dated August 30, 1995 among Cinemark Page ______
Mexico (USA), Cinemark de Mexico and United States Trust Company of
New York, as Trustee
10.16(d) Purchase Agreement, dated as of July 30, 1993, among Cinemark Mexico Exhibit 4.2 to Cinemark
(USA), Cinemark de Mexico and each of the purchasers of the Series A Mexico (USA)'s Registration
Notes named on the signature pages thereof (the "Purchasers"). Statement (file 33-72114) on
Form S-4 filed on November
24, 1994.
10.16(e) Registration Rights Agreement, dated as of July 30, 1993, among Exhibit 4.3 to Cinemark
Cinemark Mexico (USA), Cinemark de Mexico and the Purchasers of the Mexico (USA)'s Registration
Series A Notes. Statement (file 33-72114) on
Form S-4 filed on November
24, 1994.
10.16(f) Warrant Registration Rights Agreement, dated as of July 30, 1993, Exhibit 10.1 to Cinemark
among Cinemark Mexico (USA), Cinemark II, New Wave Investments Mexico (USA)'s Registration
A.V.V. ("New Wave") and the purchasers of the warrants named on the Statement (file 33-72114) on
signature pages thereof. Form S-4 filed on November
24, 1994.
10.16(g) Warrant Certificates. Exhibit 10.2 to Cinemark
Mexico (USA)'s Registration
Statement (file 33-72114) on
Form S-4 filed on November
24, 1994.
10.16(h) Purchase Agreement dated May 6, 1994 among Cinemark Mexico (USA), Exhibit 4.5 to Cinemark
Cinemark de Mexico and each of the purchasers of the Series C Notes Mexico (USA)'s Annual Report
named on the registration pages thereto. (file 33-72114) on Form 10-K
filed on March 31, 1995
</TABLE>
E-9
<PAGE> 144
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION
NUMBER DESCRIPTION BY REFERENCE TO
- ------ ----------- ---------------
<S> <C> <C>
10.16(i) Subscription Agreement dated as of December 31, 1994 between the Exhibit 10.4(a) to Cinemark
Company and Cinemark International. Mexico (USA)'s Annual Report
(file 33-72114) on Form 10-K
filed March 31, 1995
10.16(j) Subscription Agreement dated June 1, 1995 among Cinemark Mexico Page _____
(USA) and Cinemark International
10.16(k) Purchase Agreement dated August 30, 1995 among Cinemark Mexico (USA) Page _____
and the purchasers thereto
10.16(l) Warrant Certificates Page ______
10.17 Senior Secured Credit Agreement dated December 4, 1995 among Exhibit 10.18 to the
Cinemark II, Cinemark Mexico (USA) and Cinemark de Mexico Company's Annual Report (file
33-47040) on Form 10-K filed
April 1, 1996
10.18(a) Security Purchase Agreement dated February 20, 1996 among the Exhibit 10.19(a) to the
Company, Cypress Merchant Banking Partners L.P., Cypress Pictures Company's Annual Report (file
Ltd., The Broadhead Limited Partnership and T&LRM Family Limited 33-47040) on Form 10-K filed
Partnership April 1, 1996
10.18(b) Shareholders' Agreement dated March 12, 1996 among the Company, Mr. Exhibit 10.19(b) to the
Mitchell, Cypress Merchant Banking Partners L.P., Cypress Pictures Company's Annual Report (file
Ltd. and Mr. Mitchell and Mr. Don Hart as Co-Trustees of certain 33-47040) on Form 10-K filed
trusts signatory thereto April 1, 1996
10.19 Joint Venture Agreement dated December 31, 1995 among Cinemark II, Exhibit 10.20 to the
Inc., D'Alimenti S.A. and Prodecine S.A. Company's Annual Report (file
33-47040) on Form 10-K filed
April 1, 1996
12 Calculation of Earnings to Fixed Charges. Page ______
21 Subsidiaries of the Registrant Page ______
23.1 Consent of Deloitte & Touche LLP, Independent Auditors
***23.2 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in
Exhibit 5.1)
24 Power of Attorney (set forth on page II-14)
</TABLE>
E-10
<PAGE> 145
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION
NUMBER DESCRIPTION BY REFERENCE TO
- ------ ----------- ---------------
<S> <C>
***25 Form of T-1 Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939 of United States Trust Company of Texas,
N.A. relating to the Series B Notes
</TABLE>
- ----------------------
***To be filed by amendment
E-11
<PAGE> 1
EXHIBIT 1
================================================================================
CINEMARK USA, INC.
$200,000,000
9-5/8% Senior Subordinated Notes due 2008
PURCHASE AGREEMENT
August 12, 1996
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO. INCORPORATED
<PAGE> 2
CINEMARK USA, INC.
================================================================================
$200,000,000
9-5/8% Senior Subordinated Notes due 2008
PURCHASE AGREEMENT
August 12, 1996
New York, New York
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO. INCORPORATED
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies & Gentlemen:
Cinemark USA, Inc., a Texas corporation ("Cinemark"), proposes
to issue and sell to Bear, Stearns & Co. Inc. ("Bear Stearns"), Goldman, Sachs
& Co. ("Goldman Sachs") and Morgan Stanley & Co. Incorporated ("Morgan Stanley"
and together with Bear Stearns and Goldman Sachs, the "Initial Purchasers") an
aggregate of $200,000,000 principal amount of 9-5/8% Senior Subordinated Notes
due 2008 (the "Series A Notes"), subject to the terms and conditions set forth
herein. The Series A Notes will be issued pursuant to an indenture (the
"Indenture"), to be dated the Closing Date (as defined below), between Cinemark
and U.S. Trust Company of Texas, N.A., as trustee (the "Trustee").
1. ISSUANCE OF SECURITIES.
Cinemark proposes, upon the terms and subject to the
conditions set forth herein, to issue and sell to the Initial Purchasers an
aggregate of $200,000,000 principal amount of Series A Notes. The Series A
Notes and the Series B Notes (as defined below) issuable in exchange therefor
are collectively referred to herein as the "Securities." The proceeds to
Cinemark from the sale to the Initial Purchasers of the Series A Notes will be
used as described under "Use of Proceeds" in the Offering Memorandum (as
defined below).
Upon original issuance thereof, and until such time as the
same is no longer required under the applicable requirements of the Securities
Act of 1933, as amended (the "Act"), the Series A Notes (and all securities
issued in exchange therefor or in substitution thereof) shall bear the
following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD TO, OR FOR THE ACCOUNT OR BENEFIT
OF, ANY PERSON EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE.
BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A)
IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) OR (B) IT IS AN "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER
THE SECURITIES ACT) WHO IS AN INSTITUTION (AN "INSTITUTIONAL
ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT PRIOR TO
THE DATE WHICH IS THREE YEARS AFTER THE LATER OF THE DATE OF
ORIGINAL ISSUANCE OF THIS SECURITY AND THE LAST DATE ON WHICH
CINEMARK OR ANY AFFILIATE OF CINEMARK WAS THE OWNER OF THIS
SECURITY (THE "RESALE RESTRICTION TERMINATION DATE") RESELL,
PLEDGE OR OTHERWISE TRANSFER THIS
1
<PAGE> 3
SECURITY, EXCEPT (A) TO CINEMARK, (B) TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH THE RESALE
PROVISIONS OF RULE 144A UNDER THE SECURITIES ACT, (C) TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE TRUSTEE A WRITTEN CERTIFICATION
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D) PURSUANT
TO THE RESALE LIMITATIONS PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (F)
PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (BASED UPON
AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO CINEMARK IF
CINEMARK SO REQUESTS) SUBJECT IN EACH OF THE FOREGOING CASES
TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY
OR THE PROPERTY OF SUCH ACCOUNT BE AT ALL TIMES WITHIN ITS
CONTROL AND TO COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE TRUSTEE AND CINEMARK SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER
OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER
IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT. THE FOREGOING RESTRICTIONS ON RESALE WILL
NOT APPLY SUBSEQUENT TO THE RESALE RESTRICTION TERMINATION
DATE.
2. OFFERING.
The Series A Notes will be offered and sold to the Initial
Purchasers pursuant to an exemption from the registration requirements under
the Act. Cinemark has prepared a preliminary offering memorandum, dated July
19, 1996 (the "Preliminary Offering Memorandum"), and a final offering
memorandum, dated August 12, 1996 (the "Offering Memorandum"), relating to
Cinemark and its subsidiaries and the issuance of the Series A Notes.
The Initial Purchasers have advised Cinemark that the Initial
Purchasers will make offers of the Series A Notes on the terms set forth in the
Offering Memorandum, as amended or supplemented, solely to persons whom the
Initial Purchasers reasonably believe to be "qualified institutional buyers,"
as defined in Rule 144A under the Act ("QIBs") and to a limited number of
institutional "Accredited Investors" referred to in Rule 501(a)(1), (2), (3) or
(7) under the Act (each an "Institutional Accredited Investor"). The QIBs and
the Institutional Accredited Investors are referred to herein as the "Eligible
Purchasers." Sales to Eligible Purchasers under this Agreement are referred to
herein as "Exempt Resales" The Initial Purchasers will offer the Series A Notes
to such Eligible Purchasers initially at a price equal to 99.553% of the
principal amount thereof. Such price may be changed at any time without
notice.
Holders (including subsequent transferees) of the Series A
Notes will have the registration rights set forth in the exchange registration
rights agreement relating thereto (the "Registration Rights Agreement"), to be
dated the Closing Date, in substantially the form of Exhibit A hereto, for so
long as such Series A Notes constitute "Transfer Restricted Securities" (as
defined in the Registration Rights Agreement). Pursuant to terms and
conditions contained in the Registration Rights Agreement, Cinemark will agree
to use its best
2
<PAGE> 4
efforts to file with the Securities and Exchange Commission (the "Commission"),
under the circumstances set forth therein, (i) a registration statement under
the Act (the "Exchange Offer Registration Statement") relating to the 9-5/8%
Senior Subordinated Notes due 2008 (the "Series B Notes") to be offered in
exchange for the Series A Notes (the "Exchange Offer") and (ii) a shelf
registration statement pursuant to Rule 415 under the Act (the "Shelf
Registration Statement") relating to the resale by certain holders of the
Series A Notes, and to use its best efforts to cause such Registration
Statements to be declared effective and to consummate the Exchange Offer. This
Purchase Agreement (this "Agreement"), the Securities, the Indenture and the
Registration Rights Agreement are hereinafter sometimes referred to
collectively as the "Operative Documents."
3. PURCHASE, SALE AND DELIVERY.
(a) On the basis of the representations, warranties and
covenants contained in this Agreement, and subject to its terms and conditions,
Cinemark agrees to issue and sell to each Initial Purchaser, and each Initial
Purchaser agrees, severally and not jointly, to purchase from Cinemark, that
aggregate principal amount of Series A Notes set forth opposite its name on
Schedule I hereto. The Initial Purchasers shall pay a purchase price equal to
96.803% of the principal amount of the Series A Notes.
(b) Delivery of, and payment of the purchase price for, the
Notes shall be made at the offices of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., 1700 Pacific Avenue, Suite 4100, Dallas, Texas 75201 or such other
location as may be mutually acceptable. Such delivery and payment shall be
made at 9:30 a.m. New York City time on August 15, 1996 or at such other date
and time as shall be agreed upon by the Initial Purchasers and Cinemark. The
time and date of such delivery and the payment of the purchase price are herein
called the "Closing Date."
(c) On the Closing Date, one or more of the Series A Notes in
definitive form, registered in such names and in such denominations as
specified by the Initial Purchasers at least two business days prior to such
date, having an aggregate principal amount of $200,000,000 shall be delivered
by Cinemark to the Initial Purchasers (or as the Initial Purchasers direct),
against payment by the Initial Purchasers of the purchase price therefor by
wire transfer of same day funds to an account or accounts designated by
Cinemark, provided that Cinemark shall give at least two business days' prior
written notice to the Initial Purchasers of the information required to effect
such wire transfer. The Series A Notes shall be made available to the Initial
Purchasers for inspection not later than 9:30 a.m. New York City time on the
business day immediately preceding the Closing Date.
4. AGREEMENTS OF CINEMARK.
Cinemark covenants and agrees with the Initial Purchasers as
follows:
(a) To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing,
of (i) the issuance by any state securities commission of any stop
order suspending the qualification or exemption from qualification of
any of the Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purpose by any state securities
commission or other regulatory authority and (ii) the happening of any
event that makes any statement of a material fact made in the
Preliminary Offering Memorandum or the Offering Memorandum untrue or
that requires the making of any additions to or changes in the
Preliminary Offering Memorandum or the Offering Memorandum in order to
make the statements therein, in the light of the circumstances under
which they are made, not misleading. Cinemark shall use its best
efforts to prevent the issuance of any stop order or order suspending
the qualification or exemption of any of the Securities under any
state securities or Blue Sky laws and, if at any time any state
securities commission or other regulatory authority shall issue an
order suspending the qualification or exemption of any of the
Securities under any state securities or
3
<PAGE> 5
Blue Sky laws, Cinemark shall use its best efforts to obtain the
withdrawal or lifting of such order at the earliest practicable time.
(b) To furnish the Initial Purchasers and those persons
identified by the Initial Purchasers to Cinemark, without charge, as
many copies of the Preliminary Offering Memorandum and the Offering
Memorandum, and any amendments or supplements thereto, as the Initial
Purchasers may reasonably request. Cinemark consents to the use of
the Preliminary Offering Memorandum and the Offering Memorandum, and
any amendments and supplements thereto required pursuant hereto, by
the Initial Purchasers in connection with Exempt Resales.
(c) Not to amend or supplement the Preliminary Offering
Memorandum or the Offering Memorandum prior to the Closing Date unless
the Initial Purchasers shall previously have been advised thereof and
shall have consented to, or not have reasonably objected thereto, in
writing within a reasonable time after being furnished a copy thereof.
Cinemark shall promptly prepare, upon the Initial Purchasers' request,
any amendment or supplement to the Preliminary Offering Memorandum or
the Offering Memorandum that the Initial Purchasers or Cinemark
believe may be necessary or advisable in connection with Exempt
Resales.
(d) If, after the date hereof and prior to consummation of
any Exempt Resale, any event shall occur as a result of which, in the
judgment of Cinemark or in the opinion of counsel for Cinemark or
counsel for the Initial Purchasers, it becomes necessary or advisable
to amend or supplement the Preliminary Offering Memorandum or the
Offering Memorandum in order to make the statements therein, in the
light of the circumstances when such Offering Memorandum is delivered
to an Eligible Purchaser which is a prospective purchaser, not
misleading, or if it is necessary or advisable to amend or supplement
the Preliminary Offering Memorandum or the Offering Memorandum to
comply with applicable law, (i) to notify the Initial Purchasers and
(ii) forthwith to prepare an appropriate amendment or supplement to
such Preliminary Offering Memorandum or Offering Memorandum so that
the statements therein as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or
so that such Preliminary Offering Memorandum or Offering Memorandum
will comply with applicable law.
(e) To cooperate with the Initial Purchasers and counsel for
the Initial Purchasers in connection with the qualification or
registration of the Series A Notes under the securities or Blue Sky
laws of such jurisdictions as the Initial Purchasers may reasonably
request and to continue such qualification in effect so long as
required for the Exempt Resales; provided, however that Cinemark shall
not be required in connection therewith to register or qualify as a
foreign corporation where it is not now so qualified or to take any
action that would subject it to service of process in suits or
taxation, in each case, except as to matters and transactions relating
to Exempt Resales, in any jurisdiction where it is not now so subject.
(f) To use the proceeds from the sale of the Series A Notes
in the manner described in the Offering Memorandum under the caption
"Use of Proceeds."
(g) Not to claim voluntarily, and to resist actively any
attempts to claim, the benefit of any usury laws against the holders
of any Securities.
(h) To do and perform all things required to be done and
performed under this Agreement by it prior to the Closing Date and use
its best efforts to satisfy all conditions precedent on its part to
the delivery of the Series A Notes.
(i) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act)
that would be integrated with the sale of the Series A Notes in a
manner that would require the registration under the Act of the sale
to the Initial Purchasers, the QIBs or the Institutional
4
<PAGE> 6
Accredited Investors of the Series A Notes or to take any other action
that would result in the Exempt Resales not being exempt from
registration under the Act.
(j) For so long as any of the Securities remain outstanding
and during any period in which Cinemark is not subject to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to make available to any holder of Series A Notes in
connection with any sale thereof and any prospective purchaser of such
Series A Notes designated by such holder, the information required by
Rule 144A(d)(4) under the Act.
(k) To use its best efforts to cause the Exchange Offer to be
made in accordance with and subject to the terms set forth in the
Registration Rights Agreement in the appropriate form to permit
registered Series B Notes to be offered in exchange for the Series A
Notes and to comply with all applicable federal and state securities
laws in connection with the Exchange Offer.
(l) To comply in all material respects with all of the
agreements set forth in the Operative Documents and in the
representation letter of Cinemark to The Depository Trust Company
("DTC") relating to the approval of the Securities by DTC for
"book-entry" transfer.
(m) To cooperate with the Initial Purchasers to effect the
inclusion of the Securities in the National Association of Securities
Dealers, Inc. ("NASD") Private Offering, Resales and Trading through
Automated Linkages ("PORTAL") market and to obtain approval of the
Securities by DTC for "book-entry" transfer.
(n) During a period of two years following the Closing Date,
to deliver without charge to the Initial Purchasers promptly upon
their becoming available, copies of (i) all reports or other publicly
available information that Cinemark shall mail or otherwise make
available to its stockholders and (ii) all reports, financial
statements and proxy or information statements filed by Cinemark with
the Commission or any national securities exchange and such other
publicly available information concerning Cinemark and its
subsidiaries including without limitation, press releases, as the
Initial Purchasers may reasonably request.
(o) Not to, and to cause its affiliates not to, offer, sell,
contract to sell or grant any option to purchase or otherwise transfer
or dispose of any Securities or any other debt security issued by
Cinemark (other than a private loan, credit or financing agreement
with a bank or similar financing institution) or any security
convertible into or exchangeable or exercisable for any such debt
security, for a period of 90 days after the Closing Date, without the
Initial Purchasers' prior written consent, except for (i) sales or
transfers between affiliates of Cinemark and (ii) the issue and
exchange of Series B Notes for Series A Notes in the Exchange Offer.
(p) Prior to the Closing Date, to furnish to the Initial
Purchasers, as soon as they have been prepared by Cinemark, a copy of
any unaudited interim financial statements for any period subsequent
to the periods covered by the financial statements appearing in the
Offering Memorandum.
(q) Not to and not to permit any of its subsidiaries to take,
directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of Cinemark to facilitate
the sale or resale of either the Series A Notes or the Series B Notes.
Except as permitted by the Act, Cinemark will not distribute any (i)
preliminary offering memorandum, including, without limitation, the
Preliminary Offering Memorandum, (ii) offering memorandum, including,
without limitation, the Offering Memorandum or (iii) other offering
material, in connection with the offering and sale of the Securities.
5
<PAGE> 7
(r) To the extent that any offer to exchange any of the
outstanding 12% Senior Subordinated Notes due 2003 of Cinemark Mexico
(USA), Inc. is effectuated, to extend such offer on identical terms to
all holders of such notes.
5. REPRESENTATIONS AND WARRANTIES.
(a) Cinemark represents and warrants to the Initial
Purchasers that as of the date hereof (except as otherwise expressly provided):
(i) The Preliminary Offering Memorandum and the Offering
Memorandum have been prepared in connection with the Exempt Resales.
The Preliminary Offering Memorandum and the Offering Memorandum do
not, and any supplement or amendment to them will not, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and
warranties contained in this paragraph shall not apply to statements
in or omissions from the Preliminary Offering Memorandum and the
Offering Memorandum (or any supplement or amendment thereto) made in
reliance upon and in conformity with information relating to the
Initial Purchasers furnished to Cinemark in writing by the Initial
Purchasers expressly for use therein. No stop order preventing the
use of the Preliminary Offering Memorandum or the Offering Memorandum,
or any amendment or supplement thereto, or any order asserting that
any of the transactions contemplated by this Agreement are subject to
the registration requirements of the Act, has been issued.
(ii) Cinemark (x) has been duly organized and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, (y) has all requisite corporate power
and authority to carry on its business as it is being conducted
currently and as described in the Offering Memorandum and to own,
lease and operate its properties, and (z) is duly qualified and in
good standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its ownership
or leasing of property requires such qualification, except where the
failure to be so qualified (a) could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on
the properties, business, results of operations or financial condition
of Cinemark and its subsidiaries taken as a whole or (b) could not,
individually or in the aggregate, reasonably be expected to materially
interfere with or materially adversely affect the issuance of the
Securities pursuant hereto, or (c) could not in any manner interfere
with Cinemark's ability to perform its obligations under this
Agreement or any other Operative Document or any of the transactions
described in the Offering Memorandum under the caption "Use of
Proceeds" (any of the events set forth in clauses (a), (b) or (c), a
"Material Adverse Effect").
(iii) Each of Cinemark International, Inc. and Cinemark
Properties, Inc. (collectively, the "Material Subsidiaries") (A) has
been duly organized or incorporated, as applicable, and is validly
existing and in good standing under the laws of its jurisdiction of
organization or incorporation, (B) has all requisite power (corporate
or other) and authority to carry on its business as it is currently
being conducted and as described in the Offering Memorandum and to
own, lease and operate its properties, and (C) is duly qualified and
in good standing as a foreign organization or corporation, as
applicable, authorized to do business in each jurisdiction in which
the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so
qualified could not reasonably be expected to have a Material Adverse
Effect.
(iv) All of the issued and outstanding shares of capital
stock of Cinemark's subsidiaries have been duly authorized, validly
issued and are fully paid and nonassessable and were not issued in
violation of any preemptive or similar rights. Cinemark owns,
directly or indirectly, shares of capital stock of each of its
subsidiaries, as listed on Schedule 5(a)(iv). Except as set forth in
the Offering Memorandum, all such
6
<PAGE> 8
shares of capital stock of its subsidiaries are owned, directly or
indirectly, by Cinemark free and clear of any material lien,
encumbrance, claim, security interest, restriction on transfer,
stockholders' agreement, voting trust or other restrictions. Cinemark
does not directly or indirectly own any shares of capital stock or any
other securities or any corporation or have any equity interest in any
firm, partnership, association or other entity except as described on
Schedule 5(a)(iv).
(v) All of the outstanding shares of capital stock of
Cinemark have been duly authorized, validly issued, and are fully paid
and nonassessable and were not issued in violation of any preemptive
or similar rights. On March 31, 1996, after giving pro forma effect
to the issuance and sale of the Series A Notes pursuant hereto and the
other transactions described therein, Cinemark would have had an
authorized and outstanding capitalization as set forth in the Offering
Memorandum under the caption "Capitalization," subject to the notes
and assumptions included therein.
(vi) Except as set forth in the Offering Memorandum, there
are not currently any outstanding material subscriptions, rights,
warrants, calls, commitments of sale or options to acquire, or
instruments convertible into or exchangeable for, capital stock or
other equity interests of Cinemark or any of its subsidiaries.
(vii) Cinemark has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
Operative Documents and to consummate the transactions contemplated
hereby and thereby, including, without limitation, the corporate power
and authority to issue, sell and deliver the Securities as provided
herein and therein.
(viii) When the Series A Notes are issued and delivered
pursuant to this Agreement, no Series A Note will be of the same class
(within the meaning of Rule 144A under the Act) as securities of
Cinemark that are listed on a national securities exchange under
Section 6 of the Exchange Act or that are quoted in a United States
automated inter-dealer quotation system.
(ix) This Agreement has been duly and validly authorized,
executed and delivered by Cinemark and (assuming the due
authorization, execution and delivery of this Agreement by the Initial
Purchasers) is the legal, valid and binding agreement of Cinemark,
enforceable against Cinemark in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity (regardless of
whether such enforcement is sought in a proceeding in equity or at
law) (the "Enforceability Exceptions").
(x) The Indenture has been duly and validly authorized by
Cinemark and, when duly executed and delivered by Cinemark, will be
the legal, valid and binding obligation of Cinemark, enforceable
against Cinemark in accordance with its terms, subject to the
Enforceability Exceptions. The Offering Memorandum contains an
accurate summary of the material terms of the Indenture.
(xi) The Registration Rights Agreement has been duly and
validly authorized by Cinemark and, when duly executed and delivered
by Cinemark, will be the legal, valid and binding obligation of
Cinemark, enforceable against Cinemark in accordance with its terms,
subject to the Enforceability Exceptions. The Offering Memorandum
contains an accurate summary of the material terms of the Registration
Rights Agreement.
(xii) The Series A Notes have been duly and validly
authorized by Cinemark for issuance and sale to the Initial Purchasers
pursuant to this Agreement and, when issued and authenticated in
accordance with the terms of the Indenture and delivered against
payment therefor in accordance with the terms hereof and thereof, will
be the legal, valid and binding obligations of Cinemark, enforceable
against Cinemark in accordance with their terms and entitled to the
benefits of the Indenture, subject to the Enforceability
7
<PAGE> 9
Exceptions. The Offering Memorandum contains an accurate summary of
the material terms of the Series A Notes.
(xiii) When the Series B Notes have been duly and validly
authorized for issuance by Cinemark and, when issued and authenticated
in accordance with the terms of the Exchange Offer and the Indenture,
the Series B Notes will be the legal, valid and binding obligations of
Cinemark, enforceable against Cinemark in accordance with their terms
and entitled to the benefits of the Indenture, subject to the
Enforceability Exceptions.
(xiv) Neither Cinemark nor any of its subsidiaries is (A)
in violation of its charter or bylaws or equivalent documents, (B),
except as disclosed in the Offering Memorandum, in default in the
performance of any bond, debenture, note, indenture, mortgage, deed of
trust or other agreement or instrument to which it is a party or by
which it is bound or to which any of its properties is subject, or (C)
in violation of any local, state, federal or foreign law, statute,
ordinance, rule, regulation, judgment or court decree applicable to it
or any of its assets or properties (whether owned or leased), except,
in the case of clauses (A) (with respect to subsidiaries other than
the Material Subsidiaries), (B) and (C), for any such violation or
default that could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect. To the best knowledge
of Cinemark, there exists no condition that, with notice or the
passage of time or both, would constitute such a default under any
such document or instrument except for any such default that could
not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.
(xv) None of (A) the execution, delivery or performance by
Cinemark of this Agreement and the other Operative Documents, (B) the
issuance and sale of the Securities, nor (C) the consummation by
Cinemark of the transactions described in the Offering Memorandum
under the caption "Use of Proceeds", violates, conflicts with or
constitutes a breach of any of the terms or provisions of, or a
default under (or an event that with notice or the lapse of time, or
both, would constitute a default), or requires consent (other than
those consents that have been obtained or will be obtained prior to
the Closing Date) under, or results in the imposition of a lien or
encumbrance on any properties of Cinemark or its subsidiaries, or an
acceleration of any indebtedness of Cinemark or its subsidiaries
pursuant to, (i) the charter or bylaws (or equivalent documents) of
Cinemark or any of its subsidiaries, (ii) any bond, debenture, note,
indenture, mortgage, deed of trust or other agreement or instrument to
which Cinemark or any of its subsidiaries is a party or by which
Cinemark or any of its subsidiaries is bound or to which any of their
respective properties is subject, (iii) any statute, rule or
regulation applicable to Cinemark or any of its subsidiaries or their
respective assets or properties or (iv) any judgment, order or decree
of any court or governmental agency or authority having jurisdiction
over Cinemark or any of its subsidiaries or their respective assets or
properties, except in the case of clauses (ii), (iii) and (iv), for
any such violation, default, consent, imposition of a lien or
acceleration that could not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect. Except as may
be required under applicable state securities or Blue Sky laws, and
except for any NASD filings and the filing of a registration statement
under the Act and qualification of the Indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act") in
connection with the Registration Rights Agreement, no consent,
approval, authorization or order of, or filing, registration,
qualification, license or permit of or with, any court or governmental
agency, body or administrative agency or any other person is required
for (1) the execution, delivery and performance by Cinemark of this
Agreement and the other Operative Documents or (2) the issuance and
sale of the Securities and the transactions contemplated thereby,
except such as have been obtained and made and except where the
failure to obtain such consents or waivers would not, individually or
in the aggregate, have a Material Adverse Effect.
(xvi) There is (i) no action, suit, investigation or
proceeding before or by any court, arbitrator or governmental agency,
body or official, domestic or foreign, now pending or, to the
knowledge of Cinemark, threatened or contemplated to which Cinemark or
any of its subsidiaries is or may be a party
8
<PAGE> 10
or to which the business or property of Cinemark or any of its
subsidiaries is or may be subject, (ii) no statute, rule, regulation
or order that has been enacted, adopted or issued by any governmental
agency or, to the knowledge of Cinemark, that has been proposed by any
governmental body, and (iii) no injunction, restraining order or order
of any nature by a federal or state court or foreign court of
competent jurisdiction to which Cinemark or any of its subsidiaries is
or may be subject or to which the business, assets, or property of
Cinemark or any of its subsidiaries is or may be subject, that, in the
case of clauses (i), (ii) and (iii) above, (A) is required to be
disclosed in the Preliminary Offering Memorandum and the Offering
Memorandum and that is not so disclosed or (B) could, individually or
in the aggregate, reasonably be expected to have a Material Adverse
Effect.
(xvii) No action has been taken and no statute, rule,
regulation or order has been enacted, adopted or issued by any
governmental agency that prevents the issuance of the Securities or
prevents or suspends the use of the Offering Memorandum; no
injunction, restraining order or order of any nature by a federal or
state court of competent jurisdiction has been issued that prevents
the issuance of the Securities or prevents or suspends the sale of the
Securities in any jurisdiction referred to in Section 4(e) hereof; and
every request of any securities authority or agency of any
jurisdiction for additional information has been complied with in all
material respects.
(xviii) There is (i) no significant unfair labor practice
complaint pending against Cinemark or any of its subsidiaries, nor, to
the knowledge of Cinemark, threatened against any of them, before the
National Labor Relations Board, any state or local labor relations
board or any foreign labor relations board, and no significant
grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against
Cinemark or any of its subsidiaries or, to the knowledge of Cinemark,
threatened against any of them, (ii) no significant strike, labor
dispute, slowdown or stoppage pending against Cinemark or any of its
subsidiaries nor, to the knowledge of Cinemark, threatened against any
of them and (iii) no union organizing or union representation question
existing with respect to the employees of Cinemark or any of its
subsidiaries. No claim has been filed against Cinemark or any of its
subsidiaries alleging violation of (A) any federal, state or local law
or foreign law relating to discrimination in hiring, promotion or pay
of employees, (B) any applicable wage or hour laws or (C) any
provision of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the rules and regulations thereunder, except as
could not reasonably be expected to have a Material Adverse Effect.
(xix) Neither Cinemark nor any of its subsidiaries, nor any
of their respective officers, directors, employees, agents or
affiliates or any other person acting on their behalf has, directly or
indirectly, given or agreed to give any money, gift or similar benefit
to any customer, supplier, employee or agent of a customer or
supplier, official or employee of any governmental agency,
instrumentality of any government or any political party or candidate
for office (domestic or foreign) or other person who was, at the time,
in a position to help or hinder the business of Cinemark or its
subsidiaries (or assist Cinemark or its subsidiaries in connection
with any actual or proposed transaction) which would at the time have
been reasonably likely to subject Cinemark or its subsidiaries to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign) except for such damages or penalties,
either individually or in the aggregate, that could not reasonably be
expected to have a Material Adverse Effect.
(xx) Each of Cinemark and its subsidiaries has (A) good
and indefeasible title to all of the properties and assets material to
the business of Cinemark and its subsidiaries taken as a whole as
owned by it, free and clear of all liens, charges, encumbrances and
restrictions (except (i) liens constituting Permitted Liens under the
Indenture and (ii) liens, charges, encumbrances and restrictions that
do not in the aggregate materially detract from the value of such
properties and assets or materially impair the use thereof in the
operation of the business of Cinemark and its subsidiaries, taken as a
whole), (B) peaceful and undisturbed possession under all material
leases to which any of them is a party as lessee and each of which
lease is valid and binding and no default which would have a Material
Adverse Effect exists thereunder, (C) all licenses, certificates,
permits, authorizations, approvals, franchises and other rights from,
and has made
9
<PAGE> 11
all declarations and filings with, all federal, state and local
authorities, all self-regulatory authorities and all courts and other
tribunals (each, an "Authorization") necessary to engage in the
business conducted by any of them in the manner described in the
Offering Memorandum, except as could not reasonably be expected to
have a Material Adverse Effect and (D) no reason to believe that any
governmental body or agency is considering limiting, suspending or
revoking any such Authorization. All such Authorizations are valid
and in full force and effect and each of Cinemark and its subsidiaries
is in compliance in all material respects with the terms and
conditions of all such Authorizations and with the rules and
regulations of the regulatory authorities having jurisdiction with
respect thereto. All leases to which Cinemark or any of its
subsidiaries is a party are valid and binding and no default by
Cinemark or any such subsidiary, as the case may be, has occurred and
is continuing thereunder and no material defaults by the landlord are
existing under any such lease, except in each case as could not
reasonably be expected to have a Material Adverse Effect.
(xxi) All Federal and other material tax returns required
to be filed by Cinemark or any of its subsidiaries in all
jurisdictions have been so filed. All Federal and other material
taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due or claimed to be due from such
entities or that are due and payable have been paid, other than those
being contested in good faith and for which adequate reserves have
been provided. There are no material proposed additional tax
assessments against Cinemark or any of its subsidiaries, or the assets
or property of Cinemark or any of its subsidiaries which could
reasonably be expected to, if the assessments were made, have a
Material Adverse Effect.
(xxii) To the knowledge of Cinemark and without independent
verification, the properties of Cinemark and its subsidiaries, taken
as a whole, are structurally sound with no known defects which would
have a Material Adverse Effect, are in operating condition and good
repair (reasonable wear and tear excepted) and are adequate for their
uses.
(xxiii) Neither Cinemark nor any of its subsidiaries is an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended (the "Investment Company Act"), or analogous foreign laws and
regulations.
(xxiv) There are no holders of securities of Cinemark or any
of its subsidiaries who, by reason of the execution by Cinemark of
this Agreement or any other Operative Document or the consummation by
Cinemark of the transactions contemplated hereby and thereby, have the
right to request or demand that Cinemark or any of its subsidiaries
register under the Act or analogous foreign laws and regulations
securities held by them.
(xxv) Cinemark believes that it and each of its
subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurance that: (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect
thereto.
(xxvi) Cinemark and each of its subsidiaries maintains, or
Cinemark maintains on behalf of its subsidiaries, insurance covering
its or their material properties, operations, personnel and
businesses. Cinemark believes that such insurance insures against
such losses and risks as are adequate in accordance with customary
industry practice to protect Cinemark and its subsidiaries and their
respective businesses. Neither Cinemark nor any of its subsidiaries
has received notice from any insurer or agent of such insurer that
substantial capital improvements or other material expenditures will
have to be made in order to continue such insurance. All such
insurance is outstanding and duly in force on the date hereof and will
10
<PAGE> 12
be outstanding and duly in force on the terms in effect on the date
hereof on commercially reasonable terms.
(xxvii) Neither Cinemark nor any of its subsidiaries has (i)
taken, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of Cinemark or any of its
subsidiaries to facilitate the sale or resale of the Series A Notes or
(ii) since the date of the Preliminary Offering Memorandum sold, bid
for, purchased or paid any person any compensation for soliciting
purchases of the Series A Notes or paid or agreed to pay to any person
any compensation for soliciting another to purchase any other
securities of Cinemark or any of its subsidiaries (other than in
connection with the Repurchase Offer and the Consent Solicitation
described in the Offering Memorandum).
(xxviii) No registration under the Act of the Series A Notes
is required for the sale of the Series A Notes to the Initial
Purchasers as contemplated hereby or for the Exempt Resales assuming
(i) that the purchasers who buy the Series A Notes in the Exempt
Resales are either QIBs or Institutional Accredited Investors and (ii)
the accuracy of the Initial Purchasers' representations regarding the
absence of general solicitation in connection with the sale of Series
A Notes to the Initial Purchasers and the Exempt Resales contained
herein. No form of general solicitation or general advertising was
used by Cinemark or any of its subsidiaries or any of their
representatives (although no representation or warranty is made as to
actions taken by the Initial Purchasers and their representatives) in
connection with the offer and sale of any of the Series A Notes or in
connection with Exempt Resales, including, but not limited to,
articles, notices or other communications published in any newspaper,
magazine, or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising. No securities of the
same class as the Series A Notes have been issued and sold by Cinemark
or any of its subsidiaries within the six-month period immediately
prior to the date hereof.
(xxix) The execution and delivery of this Agreement, the
other Operative Documents and the sale of the Series A Notes to be
purchased by the QIBs and the Institutional Accredited Investors will
not involve any prohibited transaction within the meaning of Section
406 of ERISA or Section 4975 of the Internal Revenue Code of 1986.
The representations made in the preceding sentence are made in
reliance upon and subject to the accuracy of, and compliance with, the
representations and covenants made or deemed made by the QIBs and the
Institutional Accredited Investors as set forth in the Offering
Memorandum under the caption "Notice to Investors."
(xxx) Each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its date, and each amendment or supplement
thereto, as of its date, contains the information specified in, and
meets the requirements of, Rule 144A(d)(4) under the Act.
(xxxi) Subsequent to the respective dates as of which
information is given in the Offering Memorandum and up to the Closing
Date, except as set forth in the Offering Memorandum, (A) neither
Cinemark nor any of its subsidiaries has incurred any liabilities or
obligations, direct or contingent, which are material, individually or
in the aggregate, to Cinemark and its subsidiaries, taken as a whole,
nor entered into any material transaction not in the ordinary course
of business, (B) there has not been, individually or in the aggregate,
any change or development of which Cinemark is aware which could
reasonably be expected to result in a Material Adverse Effect of the
type described in clause (a) of such definition and (C) there has been
no dividend or distribution of any kind declared, paid or made by
Cinemark or any of its subsidiaries on any class of their capital
stock.
(xxxii) None of the execution, delivery and performance of
this Agreement, the issuance and sale of the Securities, the
application of the proceeds from the issuance and sale of the
Securities and the consummation of the transactions contemplated
thereby as set forth in the Offering Memorandum, will
11
<PAGE> 13
violate Regulations G, T, U or X promulgated by the Board of Governors
of the Federal Reserve System or analogous foreign laws and
regulations.
(xxxiii) The accountants who have certified or will certify
the financial statements included or to be included as part of the
Offering Memorandum are independent accountants. The annual
historical financial statements of Cinemark included in the Offering
Memorandum comply as to form in all material respects with the
requirements applicable to registration statements on Form S-1 under
the Act and present fairly in all material respects the financial
position and results of operations of Cinemark at the respective dates
and for the respective periods indicated. Such financial statements
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods
presented. The pro forma adjustments and as adjusted information
included in the Offering Memorandum give effect to assumptions made on
a reasonable basis and present fairly in all material respects the
historical and proposed transactions contemplated by the Offering
Memorandum and this Agreement. The other financial and statistical
information and data included in the Offering Memorandum, historical,
as adjusted and pro forma, are accurately presented on a basis
consistent with the financial statements, included in the Offering
Memorandum and the books and records of Cinemark.
(xxxiv) Except pursuant to this Agreement, there are no
contracts, agreements or understandings between or among Cinemark or
any of its subsidiaries and any other person that would reasonably be
expected to give rise to a valid claim against Cinemark or any of its
subsidiaries or the Initial Purchasers for a brokerage commission,
finder's fee or like payment in connection with the issuance, purchase
and sale of the Securities.
(xxxv) After giving effect to the transactions contemplated
by the Offering Memorandum, the Company shall be solvent as determined
in accordance with the applicable provisions of the Texas Business
Corporation Act.
(xxxvi) There exist no conditions that would constitute a
default by Cinemark (or an event which with notice or the lapse of
time, or both, would constitute a default) under any of the Operative
Documents.
(xxxvii) Each of Cinemark and its subsidiaries has complied
with all of the provisions of Florida H.B. 1771, codified as Section
517.075 of the Florida statutes, and all regulations promulgated
thereunder relating to doing business with the Government of Cuba or
with any person or any affiliate located in Cuba.
(xxxviii) Each certificate signed by any officer of Cinemark
and delivered to the Initial Purchasers or counsel for the Initial
Purchasers shall be deemed to be a representation and warranty by
Cinemark to the Initial Purchasers as to the matters covered hereby.
Cinemark acknowledges that the Initial Purchasers and, for
purposes of the opinions to be delivered to the Initial Purchasers
pursuant to Section 8 hereof, counsel to Cinemark and counsel to the
Initial Purchasers will rely upon the accuracy and truth of the
foregoing representations and hereby consents to such reliance.
(b) Each of the Initial Purchasers represents, warrants and
covenants to Cinemark and agrees that:
(i) Such Initial Purchaser is a QIB, with such knowledge
and experience in financial and business matters as are necessary in
order to evaluate the merits and risks of an investment in the Series
A Notes.
(ii) Such Initial Purchaser (A) is not acquiring the
Series A Notes with a view to any distribution thereof that would
violate the Act or the securities laws of any state of the United
States or any other applicable jurisdiction and (B) will be reoffering
and reselling the Series A Notes only to QIBs in reliance
12
<PAGE> 14
on the exemption from the registration requirements of the Act
provided by Rule 144A and to Institutional Accredited Investors in a
private placement exempt from the registration requirements of the
Act.
(iii) No form of general solicitation or general
advertising has been or will be used by such Initial Purchaser or any
of its representatives in connection with the Exempt Resales,
including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium
or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising.
(iv) Such Initial Purchaser agrees that, in connection
with the Exempt Resales, it will solicit offers to buy the Series A
Notes only from, and will offer to sell the Series A Notes only to,
QIBs and Institutional Accredited Investors. Such Initial Purchaser
further agrees (A) that it will offer to sell the Series A Notes only
to, and will solicit offers to buy the Series A Notes only from (1)
QIB's who in purchasing such Series A Notes will be deemed to have
represented and agreed that they are purchasing the Series A Notes for
their own accounts or accounts with respect to which they exercise
sole investment discretion and that they or such accounts are QIBs and
(2) Institutional Accredited Investors who make the representations
contained in, and execute and return to such Initial Purchaser, a
certificate in the form of Annex A attached to the Offering Memorandum
and (B) that, in the case of such QIBs and Institutional Accredited
Investors, such Series A Notes will not have been registered under the
Act and may be resold, pledged or otherwise transferred only (x)(I) to
a person who the seller reasonably believes is a QIB in a transaction
meeting the requirements of Rule 144A, (II) in a transaction meeting
the requirements of Rule 144, (III) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904
under the Act or (IV) in accordance with another exemption from the
registration requirements of the Act (and based upon an opinion of
counsel reasonably acceptable to Cinemark if Cinemark so requests),
(y) to Cinemark, (z) pursuant to an effective registration statement
under the Act and, in each case, in accordance with any applicable
securities laws of any state of the United States or any other
applicable jurisdiction and (C) that the holder will, and each
subsequent holder is required to, notify any purchaser from it of the
security evidenced thereby of the resale restrictions set forth in (B)
above.
Such Initial Purchaser understands that Cinemark and, for
purposes of the opinions to be delivered to the Initial Purchasers
pursuant to Section 8 hereof, counsel to Cinemark and counsel to the
Initial Purchasers will rely upon the accuracy and truth of the
foregoing representations and hereby consents to such reliance.
6. INDEMNIFICATION.
(a) Cinemark agrees to indemnify and hold harmless, to the
fullest extent permitted by applicable law, the Initial Purchasers,
each person, if any, who controls the Initial Purchasers within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
and the respective officers, directors, partners, employees,
representatives and agents of the Initial Purchasers or any
controlling persons, against any and all losses, liabilities, claims,
damages and expenses whatsoever (including but not limited to
reasonable attorneys' fees and any and all reasonable expenses
whatsoever incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation
(collectively, "Losses")), joint or several, to which they or any of
them may become subject under the Act, the Exchange Act or otherwise,
insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in
the Preliminary Offering Memorandum or the Offering Memorandum, or in
any supplement thereto or amendment thereof, or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that Cinemark will not
be liable in any such case to the extent, but only to the extent, that
any such loss, liability, claim,
13
<PAGE> 15
damage or expense arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in
the Preliminary Offering Memorandum or the Offering Memorandum (i) in
reliance upon and in conformity with written information furnished to
Cinemark by or on behalf of the Initial Purchasers expressly for use
therein or (ii) in the Preliminary Offering Memorandum or the Offering
Memorandum, as the case may be, if a copy of the Offering Memorandum
(as then amended or supplemented) was not sent or given by or on
behalf of such Initial Purchasers to the person asserting any such
loss, claim, damage, liability or expense, at or prior to the written
confirmation of the sale of the Series A Notes and the Offering
Memorandum (as then amended or supplemented) could have corrected such
untrue or alleged untrue statement or such omission or alleged
omission. This indemnity agreement will be in addition to any
liability which Cinemark may otherwise have, including under this
Agreement.
(b) The Initial Purchasers agree to indemnify and hold
harmless Cinemark, each person, if any, who controls Cinemark within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act and the respective officers, directors, partners, employees,
representatives and agents of Cinemark or any controlling persons,
against any and all Losses to which they may become subject under the
Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the
Preliminary Offering Memorandum or the Offering Memorandum, or in any
amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, in each case to the extent, but only to the extent,
that any such loss, liability, claim, damage or expense arises out of
or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to Cinemark by or on
behalf of the Initial Purchasers expressly for use therein; provided,
however, that in no case shall the Initial Purchasers be liable or
responsible for any amount in excess of the discounts and commissions
received by the Initial Purchasers, as set forth on the cover page of
the Offering Memorandum unless such Losses are a result of the gross
negligence or willful misconduct of the Initial Purchasers. This
indemnity will be in addition to any liability which the Initial
Purchasers may otherwise have, including under this Agreement.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such subsection,
notify each party against whom indemnification is to be sought in
writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it
may have under this Section 6, except to the extent that it has been
prejudiced in any material respect by such failure, or from any
liability which it may otherwise have). In case any such action is
brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent it may elect by
written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume
the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified
party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless
(i) the employment of such counsel shall have been authorized in
writing by the indemnifying parties in connection with the defense of
such action and the indemnifying party has agreed in writing to pay
the fees and expenses of such counsel, (ii) the indemnifying parties
shall not have employed counsel to take charge of the defense of such
action within a reasonable time after notice of commencement of the
action, or (iii) such indemnified party or parties shall have
concluded, upon the advice of counsel, that there may be defenses
available to it or them which are different from or additional to
those available to one or all of the indemnifying parties (in which
case the indemnifying parties shall not have the right to direct the
defense of such action
14
<PAGE> 16
on behalf of the indemnified party or parties), in any of which events
such fees and expenses of counsel shall be borne by the indemnifying
parties; provided, however, that the indemnifying party under
subsection (a) or (b) above, shall only be liable for the legal
expenses of one counsel (in addition to any local counsel) for all
indemnified parties in each jurisdiction in which any claim or action
is brought. Anything in this subsection to the contrary
notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its prior written
consent; provided, however, that such consent was not unreasonably
withheld.
7. CONTRIBUTION.
In order to provide for contribution in circumstances in which
the indemnification provided for in Section 6 is for any reason held to be
unavailable or is insufficient to hold harmless a party indemnified thereunder,
Cinemark, on the one hand, and the Initial Purchasers, on the other hand, shall
contribute to the aggregate losses, claims, damages, liabilities and expenses
of the nature contemplated by such indemnification provision (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by Cinemark, any contribution received by
Cinemark from persons, other than the Initial Purchasers, who may also be
liable for contribution, including persons who control Cinemark within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act) to which
Cinemark and the Initial Purchasers may be subject, in such proportion as is
appropriate to reflect the relative benefits received by Cinemark, on the one
hand, and the Initial Purchasers, on the other hand, from the offering of the
Series A Notes or, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in Section 6, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but
also the relative fault of Cinemark, on the one hand, and the Initial
Purchasers, on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The relative benefits
received by Cinemark, on the one hand, and the Initial Purchasers, on the other
hand, shall be deemed to be in the same proportion as (x) the total proceeds
from the offering of Series A Notes (net of discounts and commissions but
before deducting expenses) received by Cinemark, and (y) the discounts and
commissions received by the Initial Purchasers, respectively, in each case as
set forth in the table on the cover page of the Offering Memorandum. The
relative fault of Cinemark, on the one hand, and of the Initial Purchasers, on
the other hand, shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by Cinemark, on the one hand, or the Initial Purchasers, on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Cinemark and the
Initial Purchasers agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 7, (i) in no case shall the Initial Purchasers be required to
contribute any amount in excess of the amount by which the discounts and
commissions applicable to the Series A Notes purchased by the Initial
Purchasers pursuant to this Agreement exceeds the amount of any damages which
the Initial Purchasers have otherwise been required to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 7,
each person, if any, who controls the Initial Purchasers within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and the respective
officers, directors, partners, employees, representatives and agents of the
Initial Purchasers or any controlling persons shall have the same rights to
contribution as the Initial Purchasers, and each person, if any, who controls
Cinemark, within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and the respective officers, directors, partners, employees,
representatives and agents of Cinemark or any controlling persons shall have
the same rights to contribution as Cinemark, subject in each case to clauses
(i) and (ii) of this Section 7. Any party entitled to
15
<PAGE> 17
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section 7,
notify such party or parties from whom contribution may be sought, but the
failure to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 7 or otherwise.
8. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS.
The obligations of the Initial Purchasers to purchase and pay
for the Series A Notes, as provided herein, shall be subject to the following
conditions:
(a) All of the representations and warranties of Cinemark
contained in this Agreement shall be true and correct on the date
hereof and on the Closing Date with the same force and effect as if
made on and as of the date hereof and the Closing Date, respectively.
Cinemark shall have performed or complied with all of the agreements
herein contained and required to be performed or complied with by it
at or prior to the Closing Date.
(b) The Offering Memorandum shall have been printed and
copies distributed to the Initial Purchasers in New York as soon as
practicable after the date of this Agreement but not later than 9:30
a.m., New York City time, on the day following the date of this
Agreement or at such later date and time as to which the Initial
Purchasers may agree, and no stop order suspending the qualification
or exemption from qualification of the Series A Notes in any
jurisdiction referred to in Section 4(e) shall have been issued and no
proceeding for that purpose shall have been commenced or shall be
pending or threatened.
(c) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which could, as of the Closing Date, reasonably be
expected to have a Material Adverse Effect; no action, suit or
proceeding shall have been commenced and be pending against or
affecting or threatened against, Cinemark or any of its subsidiaries
before any court or arbitrator or any governmental body, agency or
official that, if adversely determined, could reasonably be expected
to result in a Material Adverse Effect; and no stop order shall have
been issued preventing the use of the Offering Memorandum, or any
amendment or supplement thereto, or which could reasonably be expected
to have a Material Adverse Effect.
(d) Since the dates as of which information is given in the
Offering Memorandum and other than as set forth in the Offering
Memorandum, (i) there shall not have been any material and adverse
change or any development that is reasonably likely to result in a
material and adverse change in the long-term debt, or material
increase in the short-term debt, of Cinemark or any of its
subsidiaries from that set forth in the Offering Memorandum, (ii) no
dividend or distribution of any kind shall have been declared, paid or
made by Cinemark or any of its subsidiaries on any class of its
capital stock, and (iii) neither Cinemark nor any of its subsidiaries
shall have incurred any liabilities or obligations other than
contracts entered into in the ordinary course of business, direct or
contingent, that individually or in the aggregate could have a
Material Adverse Effect and that are required to be disclosed on a
balance sheet or notes thereto in accordance with generally accepted
accounting principles and are not disclosed on the latest balance
sheet or notes thereto included in the Offering Memorandum. Since the
date hereof and since the dates as of which information is given in
the Offering Memorandum, there shall not have occurred any material
adverse change in the properties, business, results of operations,
condition (financial or otherwise), affairs or prospects of Cinemark
and its subsidiaries taken as a whole.
(e) The Initial Purchasers shall have received a certificate,
dated the Closing Date, signed on behalf of Cinemark by its president
and chief operating officer and its chief financial officer (i)
confirming as of the Closing Date, the matters set forth in paragraphs
(a), (b), (c) and (d) of this Section 8, (ii) stating that on the
Closing Date, Cinemark will use the proceeds of the offering and sale
of the Series A Notes
16
<PAGE> 18
to repurchase at least $120,000,000 outstanding aggregate principal
amount of its 12% Senior Notes due 2002 (the "Old Notes"), which
repurchased Old Notes will be delivered to the trustee for the Old
Notes for cancellation and (iii) stating that as of the Closing Date,
no facts have come to such officers' attention that would cause such
officers to believe that the Offering Memorandum, as of its date or
the Closing Date, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(f) The Initial Purchasers shall have received on the Closing
Date (i) the opinion, dated the Closing Date, of Akin, Gump, Strauss,
Hauer & Feld, L.L.P., Dallas, Texas, counsel to Cinemark,
substantially to the effect set forth in Exhibit B hereto and (ii) a
statement of Michael D. Cavalier, Associate General Counsel of
Cinemark, to the effect set forth in Exhibit C hereto. In providing
such opinion, Akin, Gump, Strauss, Hauer & Feld, L.L.P., shall opine
as to the federal laws of the United States, the laws of the State of
Texas and, to the extent set forth therein, the laws of the State of
New York.
(g) The Initial Purchasers shall have received on the Closing
Date the opinion, dated the Closing Date, of Haynes & Boone, counsel
to the Trustee, to the effect that (i) the Trustee is a national
banking association or state chartered bank or trust company and is
duly incorporated and validly existing in good standing under the laws
of the jurisdiction in which it is incorporated, (ii) the Trustee has
the corporate power and authority necessary to enter into the
Indenture and authenticate the Securities as Trustee thereunder, (iii)
the Indenture has been duly and validly authorized, executed and
delivered by the Trustee and is the legal, valid and binding agreement
of the Trustee enforceable against the Trustee in accordance with its
terms and (iv) the Series A Notes have been duly authenticated and
delivered by the Trustee pursuant to the terms of this Agreement and
the Indenture.
(h) The Initial Purchasers shall have received on the Closing
Date the opinion, dated the Closing Date, of Simpson Thacher &
Bartlett (a partnership which includes professional corporations),
counsel to the Initial Purchasers, covering such matters as are
customarily covered in such opinions.
(i) At the time this Agreement is executed and at the Closing
Date the Initial Purchasers shall have received from Deloitte &
Touche, L.L.P., independent public accountants for Cinemark, dated as
of the date of this Agreement and as of the Closing Date, customary
comfort letters addressed to the Initial Purchasers and in form and
substance previously agreed upon by the Initial Purchasers and counsel
to the Initial Purchasers with respect to the financial statements and
certain financial information of Cinemark and its subsidiaries
contained in the Offering Memorandum.
(j) Cinemark and the Trustee shall have entered into the
Indenture and the Initial Purchasers shall have received counterparts,
conformed as executed, thereof.
(k) Cinemark shall have entered into the Registration Rights
Agreement and the Initial Purchasers shall have received counterparts,
conformed as executed, thereof.
(l) Cinemark and the trustee for the Old Notes shall have
entered into the supplemental indenture contemplated by the Repurchase
Offer and Consent Solicitation described in the Offering Memorandum
and the Initial Purchasers shall have received counterparts, conformed
as executed, thereof.
(m) Simpson Thacher & Bartlett shall have been furnished with
such documents, in addition to those set forth above, as they may
reasonably require for the purpose of enabling them to review or pass
upon the matters referred to in this Section 8 and in order to
evidence the accuracy, completeness or satisfaction in all material
respects of any of the representations, warranties or conditions
herein contained.
17
<PAGE> 19
(n) Prior to the Closing Date, Cinemark shall have furnished
to the Initial Purchasers such further information, certificates and
documents as the Initial Purchasers may reasonably request.
All opinions, certificates, letters and other documents
required by this Section 8 to be delivered by Cinemark will be in compliance
with the provisions hereof only if they are reasonably satisfactory in form and
substance to the Initial Purchasers and their counsel. Cinemark will furnish
the Initial Purchasers with such conformed copies of such opinions,
certificates, letters and other documents as they shall reasonably request.
9. INITIAL PURCHASERS' INFORMATION.
Cinemark and the Initial Purchasers severally acknowledge that
the statements with respect to the offering of the Series A Notes set forth in
(i) the last paragraph of the cover page, (ii) the first paragraph, the third
paragraph, the fifth and sixth sentences of the fourth paragraph and the fifth
paragraph under the caption "Plan of Distribution" and (iii) the second
sentence under the caption "Legal Matters" in such Offering Memorandum
constitute the only information furnished in writing by the Initial Purchasers
expressly for use in the Offering Memorandum.
10. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS.
All representations and warranties, covenants and agreements
of the Initial Purchasers and Cinemark contained in this Agreement, including
without limitation, the agreements contained in Sections 11(d) and 13, the
indemnity agreements contained in Section 6 and the contribution agreements
contained in Section 7, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Initial Purchasers,
any controlling person thereof or by or on behalf of Cinemark or any
controlling person thereof, and shall survive delivery of and payment for the
Series A Notes to and by the Initial Purchasers. The representations contained
in Section 5 and the agreements contained in Sections 6, 7 and 11(d) and 13
shall survive the termination of this Agreement, including any termination
pursuant to Section 11.
11. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
(a) This Agreement shall become effective upon execution and
delivery of a counterpart hereof by each of the parties hereto.
(b) The Initial Purchasers shall have the right to terminate
this Agreement at any time prior to the Closing Date by notice to Cinemark from
the Initial Purchasers, without liability (other than with respect to Sections
6 and 7) on the Initial Purchasers' part to Cinemark if, on or prior to such
date, (i) Cinemark shall have failed, refused or been unable to perform in any
material respect any agreement on its part to be performed hereunder, (ii) any
other condition to the obligations of the Initial Purchasers hereunder as
provided in Section 8 is not fulfilled when and as required in any material
respect, (iii) in the reasonable judgment of the Initial Purchasers, any
material adverse change shall have occurred since the respective dates as of
which information is given in the Offering Memorandum in the condition
(financial or otherwise), business, properties, assets, liabilities, prospects,
net worth, results of operations or cash flows of Cinemark and its
subsidiaries, taken as a whole, other than as set forth in the Offering
Memorandum, or (iv)(A) any domestic or international event or act or occurrence
has materially disrupted, or in the reasonable opinion of the Initial
Purchasers will in the immediate future materially disrupt, the market for
Cinemark's securities or for securities in general; or (B) trading in
securities generally on either of the New York or American Stock Exchanges
shall have been suspended or materially limited, or minimum or maximum prices
for trading shall have been established, or maximum ranges for prices for
securities shall have been required, on such exchange, or by such exchange or
other regulatory body or governmental authority having jurisdiction; or (C) a
banking moratorium shall have been declared by federal or state authorities, or
a moratorium in foreign exchange trading by major international banks or
persons shall have been declared; or (D) there is an outbreak
18
<PAGE> 20
or escalation of armed hostilities involving the United States on or after the
date hereof, or if there has been a declaration by the United States of a
national emergency or war, the effect of which shall be, in the Initial
Purchasers' judgment, to make it inadvisable or impracticable to proceed with
the offering or delivery of the Series A Notes on the terms and in the manner
contemplated in the Offering Memorandum; or (E) there shall have been such a
material adverse change in general economic, political or financial conditions
or if the effect of international conditions on the financial markets in the
United States shall be such as, in the Initial Purchasers' judgment, makes it
inadvisable or impracticable to proceed with the offering or delivery of the
Series A Notes as contemplated thereby; or (F) (1) there shall have occurred a
downgrading in the rating accorded the Series A Notes by any "nationally
recognized statistical rating organization" as that term is defined by the
Commission for purposes of Rule 436(g)(2) of the rules and regulations of the
Commission under the Act or (2) any such organization shall have publicly
announced that it has under surveillance or review (other than an announcement
with positive implications of a possible upgrading), its rating of the Series A
Notes.
(c) Any notice of termination pursuant to this Section 11
shall be by telephone, telex, telephonic facsimile, or telegraph, confirmed in
writing by letter within three days thereof.
(d) Except as otherwise provided in Section 12 hereof, if
this Agreement shall be terminated pursuant to any of the provisions hereof
(other than a termination pursuant to Section 11(b)(iv)) or if the sale of the
Series A Notes provided for herein is not consummated because any condition to
the obligations of the Initial Purchasers set forth herein is not satisfied or
because of any refusal, inability or failure on the part of Cinemark to perform
any agreement herein or comply with any provision hereof, Cinemark will,
subject to demand by the Initial Purchasers, reimburse the Initial Purchasers
for all reasonable out-of-pocket expenses (including the reasonable fees and
expenses of Initial Purchasers' counsel), incurred by the Initial Purchasers in
connection herewith.
12. DEFAULTING INITIAL PURCHASERS.
(a) If, on the Closing Date, any Initial Purchaser defaults
in the performance of its obligations under this Agreement, the remaining
non-defaulting Initial Purchasers may make arrangements for the purchase of the
Series A Notes by other persons satisfactory to Cinemark and the non-defaulting
Initial Purchasers, but if no such arrangements are made within 36 hours after
such default, this Agreement shall terminate without liability on the part of
the non-defaulting Initial Purchasers or Cinemark, except that Cinemark will
continue to be liable for the payment of expenses only to the extent set forth
in Sections 11(d) and 13(a) and except that the provisions of Sections 6 and 7
shall not terminate and shall remain in effect. As used in this Agreement, the
term "Initial Purchaser" includes, for all purposes of this Agreement unless
the context otherwise requires, any party not listed in Schedule I hereto who,
pursuant to this Section 12, purchases Series A Notes which a defaulting
Initial Purchaser agreed but failed to purchase.
(b) Nothing contained herein shall relieve a defaulting
Initial Purchaser of any liability it may have to Cinemark or the
non-defaulting Initial Purchasers for damages caused by its default. If other
persons are obligated or agree to purchase the Series A Notes of a defaulting
Initial Purchaser, either the non-defaulting Initial Purchasers or Cinemark may
postpone the Closing Date for up to seven full business days in order to effect
any changes that in the opinion of counsel for Cinemark or counsel for the
Initial Purchasers may be necessary in the Offering Memorandum or in any other
document or arrangement and Cinemark agrees to promptly make any amendment or
supplement to the Offering Memorandum that effects any such changes.
13. FEES AND EXPENSES.
(a) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is terminated,
Cinemark agrees to pay all costs, expenses, fees and taxes in connection with
this Agreement and the transactions contemplated hereby and by the other
Operative
19
<PAGE> 21
Documents, including without limitation all costs, expenses, fees and taxes
relating to: (i) the preparation, printing, filing and distribution of the
Preliminary Offering Memorandum and the Offering Memorandum (including, without
limitation, financial statements) and all amendments and supplements thereto
required pursuant hereto, (ii) the preparation (including, without limitation,
duplication costs) and delivery of this Agreement, the other Operative
Documents, all preliminary and final Blue Sky memoranda and all other
agreements, memoranda, correspondence and other documents prepared and
delivered in connection herewith and with the Exempt Resales, (iii) the
issuance, transfer and delivery by Cinemark of the Securities to the Initial
Purchasers, (iv) the qualification or registration of the Securities for offer
and sale under the securities or Blue Sky laws of the jurisdictions referred to
in paragraph (e) above (including, without limitation, the cost of printing and
mailing a preliminary and final Blue Sky Memorandum and the reasonable fees and
disbursements of counsel to the Initial Purchasers relating thereto), (v)
furnishing such copies of the Preliminary Offering Memorandum and the Offering
Memorandum, and all amendments and supplements thereto, as may be reasonably
requested for use in connection with Exempt Resales, (vi) the preparation of
certificates for the Securities (including, without limitation, printing and
engraving thereof), (vii) the fees, disbursements and expenses of counsel to
Cinemark and its independent public accountants, (viii) all expenses and
listing fees in connection with the application for quotation of the Series A
Notes in the PORTAL market, (ix) all fees and expenses (including fees and
expenses of counsel to Cinemark) of Cinemark in connection with the approval of
the Securities by DTC for "book-entry" transfer, (x) rating the Securities by
rating agencies, (xi) the fees and expenses of the Trustee and its counsel in
connection with the Indenture and the Securities, (xii) the performance by
Cinemark of its other obligations under this Agreement and the other Operative
Documents and (xiii) "roadshow" travel and other expenses incurred by Cinemark
(including 50% of the expense of a chartered aircraft) in connection with the
marketing and sale of the Securities.
(b) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is terminated,
and except as otherwise provided in Section 11(d) and Section 12 hereof, each
Initial Purchaser agrees to pay all of its out-of-pocket expenses not
specifically provided for in Section 13(a) hereof, including its portion of the
fees and expenses of Initial Purchasers' counsel.
14. NOTICE.
All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to the Initial
Purchasers shall be mailed, delivered, or telexed, telegraphed or telecopied
and confirmed in writing to Bear, Stearns & Co. Inc., 245 Park Avenue, New
York, New York 10167, Attention: Corporate Finance Department, telecopy
number: (212) 272-3092; and if sent to Cinemark, shall be mailed, delivered or
telexed, telegraphed or telecopied and confirmed in writing to Cinemark USA,
Inc., 7502 Greenville Avenue, Suite 800, Dallas, Texas 75231, Attention:
Jeffrey J. Stedman and Michael Cavalier, telecopy number: (214) 369-9972, with
a copy to Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1700 Pacific Avenue, Suite
4100, Dallas, Texas 75201, Attention: Terry M. Schpok, P.C., telecopy number:
(214) 969-4343; provided, however, that any notice pursuant to Sections 6 or 7
shall be mailed, delivered or telexed, telegraphed or telecopied and confirmed
in writing within three days thereof.
15. PARTIES.
This Agreement shall inure solely to the benefit of, and shall
be binding upon, the Initial Purchasers, Cinemark and the controlling persons
and agents referred to in Sections 6 and 7, and their respective successors and
assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provision herein contained. The term "successors and assigns"
shall not include a purchaser, in its capacity as such, of Series A Notes from
the Initial Purchasers.
20
<PAGE> 22
16. CONSTRUCTION.
This Agreement shall be construed in accordance with the
internal laws of the State of New York. Time is of the essence in this
Agreement.
17. CAPTIONS.
The captions included in this Agreement are included solely
for convenience of reference and are not to be considered a part of this
Agreement.
21
<PAGE> 23
18. COUNTERPARTS.
This Agreement may be executed in various counterparts which
together shall constitute one and the same instrument.
Very truly yours,
Cinemark USA, Inc.
By: /s/ Jeff Stedman
--------------------------
Name: Jeff Stedman
Title: Vice President
Accepted and agreed to as of
the date first above written:
Bear, Stearns & Co. Inc.
By: /s/ Eric D. Karp
--------------------------------
Name: Eric D. Karp
Title: Senior Managing Director
Goldman, Sachs & Co.
Goldman, Sachs & Co.
--------------
Morgan Stanley & Co. Incorporated
By: /s/ Beatrice Cassou
------------------------------
Name: Beatrice Cassou
Title: Principal
22
<PAGE> 24
Schedule I
<TABLE>
<CAPTION>
Aggregate Principal
Initial Purchaser Amount of Series A Notes
- ----------------- ------------------------
<S> <C>
Bear, Stearns & Co. Inc. $106,666,668
Goldman, Sachs & Co. $ 46,666,666
Morgan Stanley & Co. Incorporated $ 46,666,666
------------
Total $200,000,000
</TABLE>
<PAGE> 25
Exhibit A
Form of Registration Rights Agreement
<PAGE> 26
Exhibit B
Form of Opinion of Akin, Gump, Strauss, Hauer & Feld L.L.P.
1. Cinemark (A) is duly incorporated and is validly existing
as a corporation in good standing under the laws of its jurisdiction
of incorporation, (B) has the corporate power to own and operate its
property, to lease the property it operates as lessee and to conduct
its business as described in the Offering Memorandum, and (C) based
solely on the Good Standing Certificates is qualified or licensed as a
foreign corporation in the jurisdictions listed on a schedule to such
opinion to the extent noted therein as of the dates noted therein.
2. Each of Cinemark's subsidiaries listed on a schedule to
such opinion (the "Subsidiaries") (A) is duly incorporated and is
validly existing and in good standing under the laws of its
jurisdiction of incorporation, (B) has the corporate power and
authority to own and operate its properties, to lease the property it
operates as lessee and to conduct its business as described in the
Offering Memorandum, and (C) based solely on the Good Standing
Certificates is qualified or licensed as a foreign corporation in the
jurisdictions listed on a schedule to such opinion to the extent noted
therein as of the dates noted therein.
3. All of the issued and outstanding shares of common stock
of each of Cinemark and the Subsidiaries have been duly authorized and
issued and are fully paid and nonassessable. All of the issued and
outstanding capital stock of the Subsidiaries, to such counsel's
knowledge, is owned by Cinemark, directly or through subsidiaries,
free and clear of any lien, encumbrance, claim or equity other than as
described in the Offering Memorandum or except as otherwise disclosed
in the Purchase Agreement.
4. Cinemark has all requisite corporate power and authority
to execute and deliver the Operative Documents and to consummate the
transactions contemplated thereby.
5. The Purchase Agreement has been duly authorized, executed
and delivered by Cinemark. The Registration Rights Agreement has been
duly authorized, executed and delivered by Cinemark and, assuming due
authorization, execution and delivery thereof by the Initial
Purchasers, constitutes a legal, valid and binding agreement of
Cinemark, enforceable against Cinemark in accordance with its terms.
6. The Indenture has been duly and validly authorized,
executed and delivered by Cinemark and, assuming due authorization,
execution and delivery thereof by the Trustee, constitutes a legal,
valid and binding obligation of Cinemark, enforceable against Cinemark
in accordance with its terms.
7. The Series A Notes have been duly and validly authorized
by Cinemark and, when executed by Cinemark and authenticated by the
Trustee in the manner provided in the Indenture and delivered to and
paid for by the Initial Purchasers in accordance with the Purchase
Agreement, will constitute valid and binding obligations of Cinemark,
enforceable against Cinemark in accordance with their terms and
entitled to the benefits of the Indenture.
8. None of (A) the execution, delivery or performance by
Cinemark of the Operative Documents, (B) the issuance and sale of the
Series A Notes, nor (C) the consummation by Cinemark of the
transactions described in the Offering Memorandum under the caption
"Use of Proceeds", will (a) violate any provision of the charter or
bylaws (or equivalent documents) of Cinemark, or (b) to such counsel's
knowledge, (i) violate, or be in conflict with, or constitute a
default (or an event that with notice or the lapse of time, or both,
would constitute a default) under, or breach of, (ii) result in the
termination of, or accelerate the performance required by, or cause
the acceleration of the maturity of any liability or obligation, or
(iii) result in the creation or imposition of any lien (except
pursuant to the Indenture) upon any of the assets of Cinemark under,
in each case, any note, bond, mortgage, indenture, deed of trust,
agreement or instrument to which Cinemark or any of the Subsidiaries
is a party or by which Cinemark or any of the Subsidiaries is bound or
affected or to which any of their respective assets is subject; or (c)
to such counsel's knowledge, violate any statute, rule, regulation,
judgment, order or decree of any court
<PAGE> 27
or governmental agency or authority having jurisdiction over Cinemark
or any of the Subsidiaries or their respective assets or properties,
except in the case of clauses (b) and (c), for any such violation,
default, consent, imposition of a lien or acceleration that could not,
individually or in the aggregate, be reasonably expected to have a
Material Adverse Effect.
9. Except as may be required under applicable state
securities laws and except for the filing of a registration statement
under the Act and the qualification of the Indenture under the Trust
Indenture in connection with the Registration Rights Agreement, no
authorization, approval, filing, notice, registration or other action
of any court or governmental agency or commission or public or
quasi-public body or authority is necessary for the execution and
delivery by Cinemark of the Operative Documents, the validity or
enforceability against Cinemark of the Operative Documents, the
issuance or delivery of the Series A Notes by Cinemark to the Initial
Purchasers or the validity, payment or enforceability of the Series A
Notes,against Cinemark, except such as have been obtained and made and
except where the failure to obtain such consents or waivers would not,
individually or in the aggregate, have a Material Adverse Effect.
10. To such counsel's knowledge, (i) there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to in the Offering
Memorandum other than those described or referred to therein; (ii) the
descriptions thereof or references thereto are correct in all material
respects; and (iii) except as disclosed in the Offering Memorandum, no
default exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument so described, which default would have a Material Adverse
Effect.
11. The Series A Notes are eligible for resale pursuant to
Rule 144A.
12. To such counsel's knowledge, as of such date, no action
has been taken and no statute, rule, regulation, injunction or order
has been enacted, adopted or issued by any federal or Texas court of
competent jurisdiction or by any governmental agency that prevents or
suspends the issuance or sale of the Series A Notes or the use of the
Offering Memorandum.
13. Prior to the Exchange Offer or effectiveness of the Shelf
Registration Statement, the offer, issuance, sale and delivery of the
Series A Notes in the manner contemplated by the Purchase Agreement
and the Offering Memorandum do not require registration under the
Securities Act or qualification of the Indenture under the Trust
Indenture Act.
14. Neither Cinemark nor any of the Subsidiaries is, or upon
the consummation of the transactions contemplated by the Purchase
Agreement will be, subject to registration as an "investment company"
under the Investment Company Act.
15. The descriptions of sections of the Series A Notes, the
Indenture and the Registration Rights Agreement contained in the
Offering Memorandum provide fair summaries in all material respects of
the applicable sections of such documents. The statements made in the
Offering Memorandum under the caption "Certain Federal Income Tax
Considerations", insofar as they purport to describe the material tax
consequences of an investment in the Series A Notes, fairly present
the matters therein described in all material respects.
In addition, such counsel shall also have furnished to the Initial
Purchasers a written statement, in form and substance satisfactory to the
Initial Purchasers, to the effect that it has participated in conferences with
officers and other representatives of Cinemark, representatives of the
independent certified public accountants of Cinemark and the Initial Purchasers
and their representatives and counsel at which the contents of the Preliminary
Offering Memorandum and the Offering Memorandum and related matters were
discussed, although it has not undertaken to investigate or verify
independently, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Offering
Memorandum; and such
<PAGE> 28
counsel advises the Initial Purchasers that, on the basis of the foregoing
(relying as to materiality to a large extent upon the opinion of officers and
other representatives of Cinemark), no facts have come to its attention that
caused such counsel to believe that the Offering Memorandum, as of its date or
the Closing Date, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (except as to financial statements and related notes and
other financial data included therein, as to which no opinion need be
expressed).
In rendering such opinion, such counsel shall opine as to the laws of
the State of Texas and the federal laws of the United States and, to the extent
set forth therein, the laws of the State of New York. Such counsel will be
permitted to except from its opinions with respect to enforceability: (A) the
effect of bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting the rights and remedies of creditors; (B) the
effect of general equitable principles, whether such enforceability is
considered in a proceeding in equity or at law, and the discretion of the court
before which any proceeding therefor may be brought; and (C) the enforceability
of any indemnification or contribution provisions or obligations.
<PAGE> 29
Exhibit C
Form of Opinion of Michael D. Cavalier
Such counsel shall furnish to the Initial Purchasers a written
statement, in form and substance satisfactory to the Initial Purchasers, to the
effect that on the basis of such counsel's participation in the preparation of
the Preliminary Offering Memorandum and the Offering Memorandum, no facts have
come to such counsel's attention that caused such counsel to believe that the
Offering Memorandum, as of its date or the Closing Date, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (except as to
financial statements and related notes and other financial data included
therein, as to which no statement need be expressed).
<PAGE> 1
EXHIBIT 3.2(b)
AMENDMENT TO BYLAWS OF
CINEMARK USA, INC.
Article III, Section 2 is hereby amended and restated to read in its
entirety as follows:
ARTICLE III
DIRECTORS
Section 2. Number and Qualifications. The Board of Directors shall
consist of ten (10) members, none of whom need be shareholders or residents of
the State of Texas. The directors shall be elected at the annual meeting of
the shareholders, except as hereinafter provided, and each director elected
shall hold office until his successor shall be elected and qualify.
CERTIFICATION
I, the undersigned officer, hereby certify that the foregoing Article
III, Section 2 was duly adopted as an amendment to the Bylaws of Cinemark USA,
Inc. by Unanimous Consent in Lieu of Special Meeting of the Shareholders of
Cinemark USA, Inc. dated March 12, 1996 to certify which witness my hand as of
the 12th day of March, 1996.
/s/ Tandy Mitchell
--------------------------
Name: Tandy Mitchell
Title: Secretary
<PAGE> 1
EXHIBIT 4.2
================================================================================
CINEMARK USA, INC.
9-5/8% SENIOR SUBORDINATED NOTES DUE 2008
-----------------
INDENTURE
Dated as of August 15, 1996
-----------------
U.S. TRUST COMPANY OF TEXAS, N.A.
as Trustee
-----------------
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
- ----------------- -----------------
<S> <C>
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3,7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6,7.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6,11.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3,11.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5, 11.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . 2.9
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1
N.A. means not applicable.
</TABLE>
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.3. Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1.4. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 2
THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.2. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.3. Trustee, Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.4. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.5. Holder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.7. Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.8. Outstanding Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.9. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.10. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.13. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.14. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 3
REDEMPTION AND PREPAYMENT . . . . . . . . . . . . . . . . . . . . . 27
Section 3.1. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.2. Selection of Notes to Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.3. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.4. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.5. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.6. Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.7. Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.8. Mandatory Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 4
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.1. Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.3. Provisions of Reports and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.4. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.6. Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.7. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 4.8. Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.9. Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 4.10. Limitation on Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.11. Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.12. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 4.13. Limitation on Layering Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 4.14. Offer to Repurchase Upon Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 4.15. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.16. Covenant with Respect to Cinemark International and its Subsidiaries . . . . . . . . . . . . . . 43
ARTICLE 5
SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 5.1. Merger, Consolidation, or Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 5.2. Successor Company Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE 6
DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.7. Rights of Holders of Notes to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 7
TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.5. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.6. Reports by Trustee to Holders of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.9. Successor Trustee by Merger, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 7.11. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE 8
DEFEASANCE AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . 54
Section 8.2. Legal Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.3. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.4. Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 8.5. Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 8.6. Deposited Money and Government Securities to be Held in Trust; Other
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C> <C>
Miscellaneous Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 8.7. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 8.8. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . . . . . . . . . . 57
Section 9.1. Without Consent of Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.2. With Consent of Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 9.3. Compliance with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.4. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.5. Notation on or Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.6. Trustee to Sign Amendments, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.7. Payments for Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE 10
SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 10.1. Agreement to Subordinate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 10.2. Liquidation; Dissolution; Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 10.3. Default on Designated Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.4. Acceleration of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.5. When Distribution Must Be Paid Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.6. Notice by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.7. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.8. Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 10.9. Subordination May Not Be Impaired by the Company . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 10.10. Distribution or Notice to Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 10.11. Rights of Trustee and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 10.12. Authorization to Effect Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE 11
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 11.1. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 11.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 11.3. Communication by Holders of Notes with Other Holders of Notes . . . . . . . . . . . . . . . . . 66
Section 11.4. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.5. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.6. Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.7. No Personal Liability of Directors, Officers, Employees and Others. . . . . . . . . . . . . . . 66
Section 11.8. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 11.9. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 11.10. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 11.11. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 11.12. Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 11.13. Table of Contents, Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 11.14. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
</TABLE>
iii
<PAGE> 6
<TABLE>
EXHIBITS
<S> <C> <C> <C>
Exhibit A FORM OF NOTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B CERTIFICATE OF TRANSFEROR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>
iv
<PAGE> 7
This INDENTURE, dated as of August 15, 1996, is by and between
Cinemark USA, Inc., a Texas corporation (the "Company"), and U.S. Trust Company
of Texas, N.A., as trustee (the "Trustee").
The parties listed above agree as follows for the benefit of
each other and for the equal and ratable benefit of the Holders of the 9-5/8%
Senior Subordinated Notes due 2008, Series A (the "Series A Notes") and the
9-5/8% Senior Subordinated Notes due 2008, Series B (the "Series B Notes" and,
together with the Series A Notes, the "Notes").
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1. Definitions.
"Acquired Indebtedness" of any particular Person means
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such particular Person or assumed by
such particular Person in connection with the acquisition of assets from any
other Person, and not incurred by such other Person in connection with, or in
contemplation of, such other Person merging with or into such particular Person
or becoming a Subsidiary of such particular Person or such acquisition.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means any Registrar or Paying Agent.
"Applicable Law", except as the context may otherwise require,
means all applicable laws, rules, regulations, ordinances, judgments, decrees,
injunctions, writs and orders of any court or governmental or congressional
agency or authority and rules, regulations, orders, licenses and permits of any
United States federal, state, municipal, regional, or other governmental body,
instrumentality, agency or authority.
"Asset Disposition" means any sale, lease, conveyance,
transfer or other disposition (or series of related sales, leases, conveyances,
transfers or dispositions) of any Capital Stock of a Restricted Subsidiary of
the Company (whether or not upon issuance), or of any Capital Stock of Cinemark
International by the Company (but not the issuance and sale of Capital Stock by
Cinemark International), or of any other property or other assets (each
referred to for the purposes of this definition as a "disposition") by the
Company or any of its Restricted Subsidiaries, whether for cash or other
consideration, other than (i) a disposition by a Restricted Subsidiary of the
Company to the Company or a Wholly Owned Subsidiary of the Company that is a
Restricted Subsidiary, (ii) a disposition by the Company to a Wholly Owned
Subsidiary of the Company that is a Restricted Subsidiary, (iii) a disposition
that is a Permitted Investment or a Restricted Payment not prohibited by
Section 4.7 (to the extent such Permitted Investment or Restricted Payment may
be deemed to constitute an Asset Disposition), (iv) dispositions of inventory
in the ordinary course of business, (v) a disposition pursuant to Section 5.1,
(vi) exchanges of theatre properties that comply with the requirements
described in Section 4.10(f), provided that payment of any Other Consideration
shall, to the extent provided therein, be treated as an Asset Disposition,
(vii) a designation of a Restricted Subsidiary as an Unrestricted Subsidiary,
if the Company elects to treat such designation as an Investment and not as an
Asset Disposition, or (viii) a disposition of Capital Stock, property or assets
in a single transaction or a series of related
1
<PAGE> 8
transactions (other than dispositions of the type described in clauses (i)
through (vii) above) having a Fair Market Value of less than $2 million. For
purposes of this definition, "Fair Market Value" of any Capital Stock, property
or other assets means the fair market value of such Capital Stock, property or
other assets at the time of disposition, which in the case of any disposition
or series of related dispositions having an aggregate fair market value of $2
million or more shall be determined in good faith (taking into account, without
limitation, any assumption of indebtedness in connection with such disposition)
by resolution of the Board of Directors. Notwithstanding any provision of this
Indenture to the contrary, the expiration or non-renewal of any lease of
theatre properties or equipment at the normal expiration date thereof without
payment to the Company or any of its Restricted Subsidiaries of consideration
therefor shall not constitute an Asset Disposition.
"Asset Disposition Expenses" shall have the meaning assigned
to such term in the definition of the term "Net Proceeds."
"Bankruptcy Law" means Title 11, United States Code, as may be
amended from time to time, or any similar federal or state law for the relief
of debtors.
"Board of Directors" means the Board of Directors of the
Company, or any authorized committee of the Board of Directors.
"Business Day" means any day other than a Saturday, Sunday,
public holiday or day on which banking institutions in New York (or, with
respect to any payments or transfers to be made by the Trustee or any Agent, as
applicable, in the city where such Trustee or Agent is located) are authorized
or obligated by law or executive order to close.
"Capitalized Lease Obligations" means the capitalized amount
of the rental obligations of any Person under any lease of any property
(whether real, personal or mixed) which, in accordance with GAAP, is required
to be capitalized on the balance sheet of such Person.
"Capital Stock" of any Person means (i) any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock and any warrants, options and similar rights to acquire
such capital stock, (ii) in the case of a partnership, partnership interests
(whether general or limited) and (iii) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash" means money or currency or a credit balance in a
Deposit Account.
"Cash Equivalents" means (i) direct obligations of the United
States of America or any agency thereof having maturities of not more than one
year from the date of acquisition, (ii) time deposits and certificates of
deposit of any domestic commercial bank of recognized standing having capital
and surplus in excess of $500 million, with maturities of not more than one
year from the date of acquisition, (iii) repurchase obligations issued by any
bank described in clause (ii) above with a term not to exceed 30 days; (iv)
commercial paper rated at least A-1 or the equivalent thereof by S&P or at
least P-1 or the equivalent thereof by Moody's, in each case maturing within
one year after the date of acquisition and (v) shares of any money market
mutual fund, or similar fund, in each case having assets in excess of $500
million, which invests predominantly in investments of the types described in
clauses (i) through (iv) above.
"Change of Control" means (i) the acquisition, including
through merger, consolidation or otherwise, by any Person or any Persons acting
together which would constitute a "group" (a "Group") for purposes of Section
13(d) of the Exchange Act, together with all affiliates and associates (as
defined in Rule 12b-2 under the Exchange Act) thereof, of direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of more
than 50% of (A) the outstanding shares of Common Stock of the Company or (B)
2
<PAGE> 9
the total voting power of all classes of Capital Stock of the Company entitled
to vote generally in the election of directors, or (ii) the election by any
Person or Group, together with all affiliates and associates thereof, of a
sufficient number of its or their nominees to the Board of Directors such that
such nominees, when added to any existing directors remaining on such Board of
Directors after such election who are affiliates or associates of such Person
or Group, shall constitute a majority of such Board of Directors; provided,
however, that, for purposes of this definition, the terms "Person" and "Group"
shall be deemed not to include (i) the Company, (ii) any Restricted Subsidiary
of the Company that is a Wholly Owned Subsidiary, (iii) Lee Roy Mitchell or
Tandy Mitchell, or any descendant of Lee Roy Mitchell or the spouse of any such
descendant, the estate of Lee Roy Mitchell, Tandy Mitchell, any descendant of
Lee Roy Mitchell or the spouse of any such descendant or any trust or other
arrangement for the benefit of Lee Roy Mitchell, Tandy Mitchell, any descendant
of Lee Roy Mitchell or the spouse of any such descendant (collectively, the
"Mitchell Family"), (iv) any group which includes any member or members of the
Mitchell Family if a majority of the Capital Stock of the Company held by such
group is beneficially owned (including the power to vote such Capital Stock of
the Company) by such member or members or by one or more affiliates at least
80% of the equity interests of which are owned by such member or members or (v)
Cypress Merchant Banking Partners L.P. or Cypress Pictures Ltd., and provided,
further, that, the term "Change of Control" shall be deemed not to include any
transaction or series of transactions that results in the Capital Stock of the
Company being held by one or more Persons if the beneficial ownership, direct
or indirect, of the Company after such transaction or series of transactions is
substantially the same as the beneficial ownership, direct or indirect, of the
Company prior to such transaction or series of transactions.
"Cinemark International" means Cinemark International, Inc., a
Texas corporation.
"Cinemark International Management Agreement" means the
Management Agreement, dated as of June 10, 1992, between the Company and
Cinemark International, as such agreement may be amended, supplemented or
otherwise modified from time to time in accordance with the terms hereof and
thereof.
"Commission" or "SEC" means the Securities and Exchange
Commission, and any successor thereto.
"Common Stock" of any Person means Capital Stock of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Consolidated EBITDA" of any Person means, for any period
(without duplication), (i) the sum of (A) Consolidated Net Income, (B)
Consolidated Interest Expense, (C) provisions for taxes based on or calculated
with respect to income, (D) depreciation expense, (E) amortization expense, and
(F) all other non-cash items reducing Consolidated Net Income, less all
non-cash items increasing Consolidated Net Income, minus (ii) any decrease in
deferred lease expenses, all as determined on a consolidated basis for such
Person and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated Interest Expense" of any Person means, for any
period, without duplication, the total interest expense of such Person and its
Restricted Subsidiaries determined on a consolidated basis in accordance with
GAAP, including (i) non-cash, payable-in-kind interest, (ii) interest expense
attributable to capital leases, (iii) amortization of debt discount and debt
issue cost (excluding related legal and accounting fees), but only with respect
to transactions consummated after the Initial Issuance Date, (iv) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (v) net costs under Hedging Obligations
(including amortizations of discount), (vi) preferred stock dividends in
respect of preferred stock of Restricted Subsidiaries of such Person, other
than payable-in-kind dividends in respect of preferred stock that is not
Disqualified Stock, held by Persons other than such Person or one of its Wholly
Owned Subsidiaries that is a Restricted Subsidiary, and (vii) dividends in
respect of Disqualified Stock of such Person.
3
<PAGE> 10
"Consolidated Net Income" of any Person means, for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP,
however, including, in the case of the Company and its Restricted Subsidiaries,
only those management fees actually received by the Company from its
Unrestricted Subsidiaries, and excluding amortization of debt discount and debt
issue costs with respect to transactions consummated on or prior to the Initial
Issuance Date, provided that (i) accrued but unpaid compensation expenses
related to any stock appreciation or stock option plans shall not be deducted
until such time as such expenses result in a cash expenditure, (ii)
compensation expenses related to tax payment plans implemented by the Company
from time to time in connection with the exercise and/or repurchase of stock
options shall not be deducted from Net Income to the extent of the related tax
benefits arising therefrom, (iii) the Net Income of any Person that is not a
Restricted Subsidiary of such Person or that is accounted for by such Person by
the equity method of accounting shall not be included in such Consolidated Net
Income, except that the Company's equity in the Net Income of any such Person
for any such period or any previous period shall be so included only up to the
aggregate amount of cash dividends or distributions paid to the Company or one
of its Restricted Subsidiaries, and (iv) the Net Income (if positive) of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded. For purposes of this
definition, "Net Income" of any Person means, for any period, the net income
(or loss) of such Person determined in accordance with GAAP, excluding,
however, from the determination (i) any extraordinary loss resulting from early
extinguishment of debt on or prior to the Initial Issuance Date, (ii) any net
gain or loss from any extraordinary item (net of all related taxes, fees, costs
and expenses), (iii) any net gain or loss (net of all related taxes and Asset
Disposition Expenses) realized upon the sale or other disposition during such
period (including without limitation dispositions pursuant to sale and
leaseback transactions) of any real property, equipment or other asset of such
Person, which is not sold or otherwise disposed of in the ordinary course of
business, or of any Capital Stock of such Person or a Restricted Subsidiary of
such Person, and (iv) the cumulative effect of changes in accounting
principles.
"Consolidated Net Worth" of any Person means, as of any date,
the amount which, in accordance with GAAP, would be set forth under the caption
"Shareholders' Equity" (or any like caption) on a consolidated balance sheet
of such Person and its Restricted Subsidiaries, less amounts attributable to
Disqualified Stock of such Person or any of its Restricted Subsidiaries.
"Consolidated Tangible Assets" of any Person means, as of any
date, the amount which, in accordance with GAAP, would be set forth under the
caption "Total Assets" (or any like caption) on a consolidated balance sheet
of such Person and its Restricted Subsidiaries, less all intangible assets,
including, without limitation, goodwill, organization costs, patents,
trademarks, copyrights, franchises, and research and development costs.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 11.2 hereof or such other address
as to which the Trustee may give notice to the Company.
"Credit Facility" means that certain Credit Agreement, dated
as of February 14, 1996, among the Company, the financial institutions from
time to time parties thereto, and Bank of America National Trust and Savings
Association, as agent for such financial institutions, and the various
ancillary documents provided for therein, as the same may be amended, extended,
increased, renewed, restated, supplemented or otherwise modified (in whole or
in part, and without limitation as to amount, terms, conditions, covenants and
other provisions) from time to time, and any agreement or agreements governing
Indebtedness incurred to refinance, replace, restructure or refund such
agreements in whole or in part from time to time (whether with the original
agent and lenders or other agents and lenders or otherwise, and whether
provided for under the original Credit Facility or otherwise).
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator, custodian or similar official under any Bankruptcy Law.
4
<PAGE> 11
"Default" means any event, act or condition which is, or after
notice or passage of time or both would be, an Event of Default.
"Definitive Notes" means Notes that are in the form of the
Notes attached hereto as Exhibit A that do not include the paragraph called for
by footnote 1 or the schedule called for by footnote 3 thereof.
"Deposit Account" means a demand, savings, passbook, money
market or like account with a commercial bank, savings and loan association or
like organization or a government securities dealer, other than an account
evidenced by a negotiable certificate of deposit.
"Depositary" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section 2.3
hereof as the Depositary with respect to the Notes, until a successor shall
have been appointed and become such pursuant to the applicable provision of
this Indenture, and, thereafter, "Depositary" shall mean or include such
successor.
"Designated Senior Indebtedness" means (i) the Credit Facility
and all Indebtedness thereunder and (ii) any other Senior Indebtedness issued
after the Initial Issuance Date and permitted under the terms of this
Indenture, the principal amount of which is $10 million or more and that has
been designated by the Company as Designated Senior Indebtedness.
"Disqualified Stock" of any Person means any Capital Stock of
such Person that, by its terms (or by the terms of any security into which it
is convertible or for which it is exercisable, redeemable or exchangeable),
matures, or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in
part (but only to the extent of such part), on or prior to the Stated Maturity
of the Notes.
"EBITDA Ratio" of any Person means the ratio of (i) the
aggregate amount of Consolidated EBITDA of such Person for the four full fiscal
quarters immediately prior to the date of the transaction giving rise to the
need to calculate the EBITDA Ratio (the "Determination Date") to (ii) the
aggregate Consolidated Interest Expense which such Person shall accrue during
the fiscal quarter in which the Determination Date occurs and the three fiscal
quarters immediately subsequent to such fiscal quarter, assuming that the
Consolidated Interest Expense shall accrue on the amount of such Person's
Indebtedness on the Determination Date, including any Indebtedness proposed to
be incurred on such date (as though all such Indebtedness was incurred on the
first day of the quarter in which the Determination Date occurred), but
specifically excluding Indebtedness proposed to be repaid or defeased (or with
respect to the defeasance of which a deposit satisfying the defeasance
requirements of such Indebtedness has irrevocably been made) on such date (as
though all such Indebtedness was repaid on the first day of the quarter in
which the Determination Date occurred); provided that if during the
four-quarter period referred to in clause (i) above, the Person for which the
EBITDA Ratio is being determined or any of its Restricted Subsidiaries shall
have acquired any assets other than assets acquired as a result of capital
expenditures made in the ordinary course of business of such Person, the EBITDA
Ratio of such Person as of such Determination Date shall be calculated on a pro
forma basis, as if such acquisition had occurred at the beginning of such
four-quarter period. For purposes of this definition, interest on Indebtedness
determined on a fluctuating basis for periods succeeding the Determination Date
shall be calculated as if the rate in effect on the Determination Date had been
the applicable rate for the entire period, taking into account any Hedging
Obligations applicable to such Indebtedness.
"Equity Offering" means either (i) a bona fide underwritten
sale to the public of Common Stock of the Company or a Parent pursuant to a
registration statement (other than a Form S-8 or any other form relating to
securities issuable under any employee benefit plan of the Company) that is
declared effective by the Commission, or (ii) a privately negotiated sale of
Common Stock of the Company or a Parent by the Company or such Parent, as the
case may be, to a Person that, immediately prior to the time of such sale, is
not an Affiliate of the Company or such Parent, in each case completed
following the Initial Issuance Date
5
<PAGE> 12
and resulting in aggregate gross proceeds to the Company or such Parent of at
least $20 million; provided, that in the case of any such sale of Common Stock
of a Parent, (x) the net proceeds of such sale shall be contributed within 30
days by such Parent to the Company or (y) the Parent shall use such proceeds to
purchase Capital Stock of the Company that is not Disqualified Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Exchange Notes" means the Series B Notes to be issued by the
Company upon the expiration of the Exchange Offer pursuant to the terms of the
Registration Rights Agreement, containing terms identical in all material
respects to the Series A Notes (except that (i) the transfer restrictions
thereon shall be eliminated (other than as may be imposed by state securities
laws) and (ii) there will be no provision for the payment of Liquidated
Damages).
"Exchange Offer" means, subject to the terms of the
Registration Rights Agreement, the offer by the Company to the Holders of the
opportunity to exchange their Series A Notes for Exchange Notes pursuant to a
registration statement filed with the Commission.
"Existing Unrestricted Subsidiaries" means Cinemark
International and its Subsidiaries.
"50% Entity" shall have the meaning assigned to such term in
the definition of the term "Subsidiary."
"GAAP" means generally accepted accounting principles as
applied in the United States set forth in the opinions and pronouncements of
the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States, which are applicable as of the date of determination; provided that the
definitions contained in this Indenture and all ratios and calculations
contained in the covenants contained herein shall be determined in accordance
with GAAP as in effect and applied by the Company on the date of this
Indenture, consistently applied; provided, further, that in the event of any
such change in GAAP or in any change by the Company in GAAP applied that would
result in any change in any such ratio or calculation, the Company shall
deliver to the Trustee each time any such ratio or calculation is required to
be determined or made, an Officer's Certificate setting forth the computations
showing the effect of such change or application on such ratio or calculation.
"Global Note" means a Note that contains the paragraph called
for by footnote 1 and the schedule referred to in footnote 3 to the form of the
Note attached hereto as Exhibit A.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America or any agency or
instrumentality thereof for the payment of which guarantee or obligations the
full faith and credit of the United States is pledged.
"guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such other Person (whether arising by virtue of
participation arrangements, by agreement to keep well, or to maintain financial
statement conditions or otherwise), (ii) to purchase, sell or lease (as lessee
or lessor) property, or to purchase or sell services, primarily for the purpose
of enabling such other Person to make payment of such Indebtedness, (iii) to
supply funds to or in any other manner invest in such other Person (including
any agreement to pay for property or services irrespective of whether such
property is received or such services are rendered), or (iv) entered into for
the purpose of assuring the obligee of such Indebtedness in any other manner of
the payment
6
<PAGE> 13
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "guarantee" shall not include (i) endorsements
for collection or deposit in the ordinary course of business, and (ii) leases
entered into in the ordinary course of business.
"Hedging Obligation" means any agreement, whether or not in
writing, relating to any transaction that is a rate swap, basis swap, forward
rate transaction, commodity swap, commodity option, equity or equity index swap
or option, bond, note or bill option, interest rate option, forward foreign
exchange transaction, cap, collar or floor transaction, currency swap,
cross-currency rate swap, swaption, currency option or any other, similar
transaction (including any option to enter into any of the foregoing) or any
combination of the foregoing, and, unless the context otherwise clearly
requires, any master agreement relating to or governing any or all of the
foregoing.
"Holder" or "Securityholder" means a Person in whose name a
Note is registered on the Register.
"Indebtedness" of any Person means, at any date, and without
duplication, any obligation of such Person or its Restricted Subsidiaries for
or in respect of: (i) money borrowed (whether or not for a cash consideration
and whether or not the recourse of the lender is to the whole of the assets of
such Person or only a portion thereof) and premiums (if any) and capitalized
interest (if any) in respect thereof; (ii) any debenture, bond, note or similar
instrument (whether or not issued for a cash consideration), if it would appear
as a liability on a balance sheet of such Person prepared in accordance with
GAAP; (iii) any letter of credit (other than in respect of Trade Payables),
bankers' acceptance or note purchase facility or any liability with respect to
any recourse receivables purchase, factoring or discounting arrangement; (iv)
Capitalized Lease Obligations (whether in respect of buildings, machinery,
equipment or otherwise), except any such obligation that represents a Trade
Payable; (v) any deferred purchase or conditional sale agreement or arrangement
representing the deferred and unpaid balance of the purchase price of any
property (including pursuant to financing leases), except any such balance
which represents a Trade Payable; (vi) all obligations to purchase, redeem,
retire, defease or otherwise acquire for value any Disqualified Stock of such
Person (or any warrants, rights or options to acquire such Disqualified Stock)
valued, in the case of Disqualified Stock, at the greatest amount payable in
respect thereof on a liquidation (whether voluntary or involuntary), prior to
the Stated Maturity of the Notes, plus accrued and unpaid dividends; (vii)
preferred stock of Restricted Subsidiaries of such Person held by Persons other
than such Person or one of its Wholly Owned Subsidiaries that is a Restricted
Subsidiary; (viii) direct or indirect guarantees of all Indebtedness of other
Persons referred to in clauses (i) through (vii) above; and (ix) all
Indebtedness of the types referred to in clauses (i) through (viii) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on any asset owned by such
Person or its Restricted Subsidiaries (even though such Person or its
Restricted Subsidiaries have not assumed or become liable for the payment of
such Indebtedness); provided, that the term "Indebtedness" shall not be deemed
to include any liability for federal, state, local or other taxes owed or owing
by the Company. The amount of Indebtedness of any Person or its Restricted
Subsidiaries at any date shall be (without duplication) (i) the outstanding
balance at such date of all unconditional Indebtedness obligations as described
above and the maximum liability of any such contingent Indebtedness obligations
at such date, (ii) in the case of Indebtedness of others secured by a Lien to
which the property or assets owned or held by such Person or its Restricted
Subsidiaries is subject, the lesser of the fair market value at such date of
any property and assets subject to a Lien securing the Indebtedness of others
and the amount of the Indebtedness secured, and (iii) in the case of
Indebtedness of others guaranteed by such Person as described above, the lesser
of the maximum amount of such guaranty and the amount of the Indebtedness
guaranteed. A guaranty of Indebtedness of the Company or a Restricted
Subsidiary of the Company that is permitted under the Indenture shall not
constitute a separate incurrence of Indebtedness.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Initial Issuance Date" means the date of original issuance of
the Series A Notes.
7
<PAGE> 14
"Interest Payment Date" means each of February 1 and August 1.
"Investment" means any direct or indirect advance, loan or
other extension of credit or capital contribution to (by means of any transfer
of cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities issued by, any other Person, other
than (i) loans or advances made to employees in the ordinary course of business
not in excess of $50,000 outstanding at any time to any employee, (ii) advances
to customers or suppliers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of any Person or its Subsidiaries
and any securities received in settlement thereof or as a result of a
bankruptcy or an insolvency proceeding, (iii) workers' compensation, utility,
lease and similar deposits and prepaid expenses in the ordinary course of
business, (iv) Capital Stock, bonds, notes, debentures and other assets
received as a result of Asset Dispositions not prohibited by Section 4.10, and
(v) endorsements of negotiable instruments and documents in the ordinary course
of business. In addition, (i) the fair market value of the assets (net of
liabilities) of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary shall constitute an
Investment in such Subsidiary in such amount, if the Company has elected that
such designation be deemed to be an Investment and not an Asset Disposition,
and (ii) the lesser of (A) the amount of Restricted Payments made to any
Unrestricted Subsidiary or (B) the fair market value of the assets (net of
liabilities) of such Unrestricted Subsidiary, in each case at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary of the
Company, shall constitute a return of capital and a decrease in the amount of
the Company's Investment in such Subsidiary.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the Company's principal place of business, the City of
New York or at a place of payment are authorized by law, regulation or
executive order to remain closed. If a payment date is a Legal Holiday at a
place of payment, payment may be made at that place on the next succeeding day
that is not a Legal Holiday, and no interest shall accrue for the intervening
period.
"Lien" means any mortgage, lien, pledge, security interest,
conditional sale or other title retention agreement, charge or other security
interest or encumbrance of any kind (including any agreement to give any
security interest).
"Liquidated Damages" means liquidated damages as defined in
Section 5 of the Registration Rights Agreement.
"Marketable Equity Securities" means shares of Capital Stock
of any Person that are listed on the New York Stock Exchange, the American
Stock Exchange or the national market tier of The Nasdaq Stock Market and, upon
receipt by the Company or a Restricted Subsidiary, such shares are freely
tradeable under the Securities Act and applicable state securities laws and are
so listed or included for trading privileges.
"Moody's" means Moody's Investors Service, Inc.
"Net Proceeds" means the aggregate amount of consideration in
the form of Cash, Temporary Cash Investments or Marketable Equity Securities
received by the Company or any of its Restricted Subsidiaries with respect to
any Asset Disposition, after deducting therefrom brokerage commissions,
appraisal fees, survey charges, engineering fees, title insurance premiums,
legal fees, finder's fees, loan origination and similar fees, underwriting
fees, investment banking fees and other similar commissions or fees, and any
filing, recording or registration fees, costs and expenses, recording taxes,
transfer taxes, provisions for all taxes payable as a result of such Asset
Disposition, amounts required to be paid to any Person owning a beneficial
interest in the assets subject to such Asset Disposition, and appropriate
amounts to be provided as a reserve in accordance with GAAP against any
liabilities associated with such Asset Disposition after such Asset Disposition
(to the extent such reserves are not subsequently reversed), including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any
8
<PAGE> 15
indemnification obligations associated with such Asset Disposition ("Asset
Disposition Expenses"), and also less any amounts required to be applied to
retire all or a portion of the Notes or Indebtedness permitted under Section
4.9 having the benefit of a Lien on the property or assets so transferred, to
the extent, but only to the extent, that such amounts are paid by the Company
or one of its Restricted Subsidiaries or are amounts for which the Company or
one of its Restricted Subsidiaries is directly and not contingently liable, as
the case may be, and properly attributable to the transaction in respect of
which such consideration is received or to the asset that is the subject of
such transaction.
"Note Custodian" means the Trustee, as custodian with respect
to the Notes in global form, or any successor entity thereto.
"Obligations" means any principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Offer" means a Change of Control Offer or Net Proceeds Offer,
as the case may be.
"Offer Purchase Date" means a Change of Control Purchase Date
or Net Proceeds Purchase Date, as the case may be.
"Offering Memorandum" means the Offering Memorandum, dated
August 12, 1996, relating to the offering of the Series A Notes.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Secretary, any Assistant Secretary, or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the Chairman
of the Board, the President or the Chief Financial Officer of the Company, that
meets the requirements of Section 11.5 hereof.
"Old Notes" means the Company's 12% Senior Notes due June 1,
2002.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
11.5 hereof. The counsel may be counsel to the Company, any Subsidiary of the
Company or the Trustee.
"Parent" shall mean a Person or group of Persons created to
effectuate a holding company structure for the Company and its Subsidiaries.
"Permitted Investment" means (i) an Investment in the Company
or a Wholly-Owned Subsidiary of the Company that is a Restricted Subsidiary;
(ii) an Investment in a Person, if such Person or a Subsidiary of such Person
will, as a result of the making of such Investment and all other
contemporaneous related transactions, become a Wholly- Owned Subsidiary of the
Company that is a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to the Company
or a Wholly-Owned Subsidiary of the Company that is a Restricted Subsidiary;
(iii) a Temporary Cash Investment; (iv) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses in accordance with GAAP; (v) stock, obligations or
securities received in settlement of debts owing to the Company or a Restricted
Subsidiary of the Company as a result of bankruptcy or insolvency proceedings
or upon the foreclosure, perfection, enforcement or agreement in lieu of
foreclosure of any Lien in favor of the Company or a Restricted Subsidiary of
the Company; (vi) refundable construction advances made with respect to the
construction of properties of a nature or type that are used in a business
similar or related to the business of the Company or its Restricted
Subsidiaries in the ordinary
9
<PAGE> 16
course of business; (vii) advances or extensions of credit on terms customary
in the industry in the form of accounts or other receivables incurred, or
pre-paid film rentals, and loans and advances made in settlement of such
accounts receivable, all in the ordinary course of business; (viii) guarantees
not prohibited by Section 4.9; (ix) entry into and Investments in joint
ventures, partnerships and other Persons engaged or proposing to engage in the
indoor motion picture exhibition business, provided that (A) the Person into
which such Investment is made is either a Restricted Subsidiary of the Company,
or such Person or a Subsidiary of such Person will, as a result of the making
of such Investment and all other contemporaneous related transactions, become a
Restricted Subsidiary of the Company and (B) the amount of such Investment,
valued at the time made, together with all Investments previously made pursuant
to this clause (ix), valued at the respective times made, shall not exceed 10%
of Consolidated Tangible Assets of the Company as of the last day of the full
fiscal quarter ending immediately prior to the date of such Investment; (x) any
Investment made solely with funds the payment or application of which is not
restricted pursuant to Section 4.7; (xi) Investments in the Notes; (xii) any
consolidation or merger of a Restricted Subsidiary that is a Wholly Owned
Subsidiary of the Company to the extent otherwise permitted under the
Indenture; (xiii) payments of up to $1.5 million annually to repurchase Capital
Stock of the Company issued under the Company's employee stock option plans;
(xiv) Hedging Obligations of the Company or any of its Restricted Subsidiaries
to the extent otherwise permitted under the Indenture; (xv) Investments in
Cinemark International not to exceed $40 million; and (xvi) other Investments
not to exceed $10 million.
"Person" means any individual, corporation, partnership,
joint venture, limited liability company, incorporated or unincorporated
association, joint-stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof or other entity of
any kind.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, by and among the Company and the other
parties thereto, as such agreement may be amended, modified or supplemented
from time to time.
"Representative" means, for any Senior Indebtedness, the
trustee, agent or representative with respect to such Senior Indebtedness.
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Administration of the Trustee (or
any successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Subsidiary" means (i) any Subsidiary of the
Company in existence on the Initial Issuance Date other than the Existing
Unrestricted Subsidiaries, (ii) any Subsidiary of the Company (other than a
Subsidiary that is also a Subsidiary of an Unrestricted Subsidiary) organized
or acquired after the Initial Issuance Date, unless such Subsidiary shall have
been designated as an Unrestricted Subsidiary by resolution of the Board of
Directors as provided in and in compliance with the definition of "Unrestricted
Subsidiary," and (iii) any Unrestricted Subsidiary which is designated as a
Restricted Subsidiary by the Board of Directors; provided that, immediately
after giving effect to the designation referred to in clause (iii), no Default
or Event of Default shall have occurred and be continuing and the Company could
incur at least $1.00 of additional Indebtedness under Section 4.9(a). The
Company shall evidence any such designation to the Trustee by promptly filing
with the Trustee an Officer's Certificate certifying that such designation has
been made and stating that such designation complies with the requirements of
the immediately preceding sentence.
"S&P" means Standard and Poor's Ratings Group, a division of
McGraw-Hill, Inc.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
10
<PAGE> 17
"Senior Indebtedness" means (i) Indebtedness under the Credit
Facility, (ii) the Old Notes, and (iii) any other Indebtedness permitted to be
incurred by the Company under the terms of this Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is on a parity with or subordinated in right of payment to the Notes.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
will not include (x) the Notes, (y) any Indebtedness of the Company to any of
its Subsidiaries or other Affiliates, or (z) any Indebtedness that is incurred
in violation of the terms of this Indenture.
"Significant Subsidiary" means, at any date of determination,
any Restricted Subsidiary of the Company that, together with its Restricted
Subsidiaries, (i) for the most recent fiscal year of the Company, accounted for
more than 5% of the consolidated revenues of the Company and its Restricted
Subsidiaries or (ii) as of the end of such fiscal year, was the owner of more
than 5% of the consolidated assets of the Company and its Restricted
Subsidiaries, all as set forth on the most recently available consolidated
financial statements of the Company for such fiscal year.
"Stated Maturity" means, when used with respect to any
security, the date specified in such security as the fixed date on which an
amount equal to the principal of such security is due and payable.
"Subsidiary" means, with respect to any Person, (i) a Person a
majority of whose Capital Stock with voting power under ordinary circumstances
to elect directors (or Persons having similar or corresponding powers and
responsibilities) is at the time, directly or indirectly, owned by such Person,
by one or more Subsidiaries of such Person or by such Person and one or more
Subsidiaries thereof or (ii) upon designation by the Company, and until
designation by the Company to the contrary, a Person, 50% of whose Capital
Stock with voting power under ordinary circumstances to elect directors (or
Persons having similar or corresponding powers and responsibilities) is at the
time, directly or indirectly, owned by such Person, by one or more Subsidiaries
of such Person or by such Person and one or more Subsidiaries thereof (a "50%
Entity"). The Company shall evidence any designation pursuant to clause (ii) of
the immediately preceding sentence to the Trustee by filing with the Trustee
within 45 days of such designation an Officer's Certificate certifying that
such designation has been made. All references within the Indenture to
designations of Unrestricted Subsidiaries as Restricted Subsidiaries or
Restricted Subsidiaries as Unrestricted Subsidiaries shall be deemed to include
designations of 50% Entities as Restricted Subsidiaries and Restricted
Subsidiaries as 50% Entities, respectively.
"Temporary Cash Investments" means any Investment in the
following kinds of instruments: (A) readily marketable obligations issued or
unconditionally guaranteed as to principal and interest by the United States of
America or by any agency or authority controlled or supervised by and acting as
an instrumentality of the United States of America if, on the date of purchase
or other acquisition of any such instrument by the Company or any Restricted
Subsidiary of the Company, the remaining term to maturity or interest rate
adjustment is not more than two years; (B) obligations (including, but not
limited to, demand or time deposits, bankers' acceptances and certificates of
deposit) issued or guaranteed by a depository institution or trust company
incorporated under the laws of the United States of America, any state thereof,
the District of Columbia, Canada or any province or territory thereof, provided
that (1) such instrument has a final maturity not more than one year from the
date of purchase thereof by the Company or any Restricted Subsidiary of the
Company and (2) such depository institution or trust company has at the time of
the Company's or such Restricted Subsidiary's Investment therein or contractual
commitment providing for such Investment, (x) capital, surplus and undivided
profits (as of the date of such institution's most recently published financial
statements) in excess of $100 million and (y) the long-term unsecured debt
obligations (other than such obligations rated on the basis of the credit of a
Person other than such institution) of such institution, at the time of the
Company's or such Restricted Subsidiary's Investment therein or contractual
commitment providing for such Investment, are rated in the highest rating
category of both S&P and Moody's; (C) commercial paper issued by any
corporation, if such commercial paper has, at the time of the Company's or any
Restricted Subsidiary's Investment therein or contractual commitment providing
for such Investment,
11
<PAGE> 18
credit ratings of at least A-1 by S&P and P-1 by Moody's; (D) money market
mutual or similar funds having assets in excess of $100 million; (E) readily
marketable debt obligations issued by any corporation, if at the time of the
Company's or any Restricted Subsidiary's Investment therein or contractual
commitment providing for such Investment (1) the remaining term to maturity is
not more than two years and (2) such debt obligations are rated in one of the
two highest rating categories of both S&P and Moody's; (F) demand or time
deposit accounts used in the ordinary course of business with commercial banks
the balances in which are at all times fully insured as to principal and
interest by the Federal Deposit Insurance Corporation or any successor thereto
or any Canadian equivalent thereof; (G) demand or time deposit accounts used in
the ordinary course of business with overseas branches of commercial banks
incorporated under the laws of the United States of America, any state thereof,
the District of Columbia, Canada or any province or territory thereof, provided
that such commercial bank has, at the time of the Company's or such Restricted
Subsidiary's Investment therein, (1) capital, surplus and undivided profits (as
of the date of such institution's most recently published financial statements)
in excess of $100 million and (2) the long-term unsecured debt obligations
(other than such obligations rated on the basis of the credit of a Person other
than such institution) of such institution, at the time of the Company's or any
Restricted Subsidiary's Investment therein, are rated in the highest rating
category of both S&P and Moody's; and (H) to the extent not otherwise included
herein, Cash Equivalents. In the event that either S&P or Moody's ceases to
publish ratings of the type provided herein, a replacement rating agency shall
be selected by the Company with the consent of the Trustee, and in each case
the rating of such replacement rating agency most nearly equivalent to the
corresponding S&P or Moody's rating, as the case may be, shall be used for
purposes hereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) and the rules and regulations thereunder, as in effect
on the date on which this Indenture is qualified under the TIA (except as
provided in Sections 9.1(e) and 9.3 hereof).
"Trade Payables" of any Person means accounts payable or any
other indebtedness or monetary obligations to trade creditors created, assumed
or guaranteed by such Person or any of its Subsidiaries in the ordinary course
of business in connection with the obtaining of materials or services.
"Transfer Restricted Securities" means securities that bear or
are required to bear the legend set forth in Section 2.6 hereof.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means, until such time as any of the
following shall be designated as a Restricted Subsidiary of the Company by the
Board of Directors as provided in and in compliance with the definition of
"Restricted Subsidiary," (i) each of the Existing Unrestricted Subsidiaries,
(ii) any Subsidiary of the Company or of a Restricted Subsidiary of the Company
organized or acquired after the Initial Issuance Date that is designated
concurrently with its organization or acquisition as an Unrestricted Subsidiary
by resolution of the Board of Directors, (iii) any Subsidiary of any
Unrestricted Subsidiary, and (iv) any Restricted Subsidiary of the Company that
is designated as an Unrestricted Subsidiary by resolution of the Board of
Directors, provided that, (A) immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing and (B) any such designation shall be deemed, at the election of the
Company at the time of such designation, to be either (but not both) (x) the
making of a Restricted Payment at the time of such designation in an amount
equal to the Investment in such Subsidiary subject to the restrictions
contained in Section 4.7 or (y) the making of an Asset Disposition at the time
of such designation in an amount equal to the Investment in such Subsidiary
subject to the restrictions contained in Section 4.10. The Company shall
evidence any designation pursuant to clause (ii) or (iv) of the immediately
preceding sentence to the Trustee by filing with the Trustee within 45 days of
such designation an Officer's Certificate certifying that such designation has
been made and, in the case of clause (iv), the related election of the Company
in respect thereof.
12
<PAGE> 19
"U.S. Government Obligations" means securities that are (i)
direct obligations of the United States of America for the timely payment of
which its full faith and credit is pledged or (ii) obligations of a Person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America, the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America which, in either case, are not callable or redeemable at the option of
the issuer thereof, and shall also include a depository receipt issued by a
bank (as defined in Section 3(a)(2) of the Securities Act), as custodian, with
respect to any such U.S. Government Obligation or a specific payment of
principal of or interest on any such U.S. Government Obligation held by such
custodian for the account of the holder of such depository receipt; provided,
however, that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to 'the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal of or interest on
the U.S. Government Obligation evidenced by such depository receipt.
"Weighted Average Life" means, as of any date, with respect to
any debt security, the quotient obtained by dividing (i) the sum of the
products of the number of years from such date to the dates of each successive
scheduled principal payment (including any sinking fund payment requirements)
of such debt security multiplied by the amount of such principal payment, by
(ii) the sum of all such principal payments.
"Wholly Owned Subsidiary" of any Person means any Subsidiary
of such Person all of whose Capital Stock with voting power under ordinary
circumstances to elect directors (or Persons having similar or corresponding
powers and responsibilities), other than directors' qualifying shares if
required by applicable law, is owned by such Person (either directly or
indirectly through Wholly Owned Subsidiaries).
Section 1.2. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
--------------------------------------------------------- ----------
<S> <C>
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . . . 4.11
"Change of Control Offer" . . . . . . . . . . . . . . . . . . . 4.14(a)
"Change of Control Offer Price" . . . . . . . . . . . . . . . . 4.14(a)
"Change of Control Purchase Date" . . . . . . . . . . . . . . . 4.14(a)
"Covenant Defeasance" . . . . . . . . . . . . . . . . . . . . . 8.3
"Discharge" . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5
"DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
"DTC Participants" . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . 6.1
"Incurrence" . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9(a)
"Legal Defeasance" . . . . . . . . . . . . . . . . . . . . . . . 8.2
"Net Proceeds Offer" . . . . . . . . . . . . . . . . . . . . . . 4.10(a)
"Net Proceeds Offer Price" . . . . . . . . . . . . . . . . . . . 4.10(a)
"Net Proceeds Purchase Date" . . . . . . . . . . . . . . . . . . 4.10(a)
"Net Proceeds Offer Amount" . . . . . . . . . . . . . . . . . . 4.10(a)
"Other Consideration" . . . . . . . . . . . . . . . . . . . . . 4.10(f)
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Pari Passu Offer" . . . . . . . . . . . . . . . . . . . . . . . 4.10(b)
"Pari Passu Offer Amount" . . . . . . . . . . . . . . . . . . . 4.10(b)
"Payment Blockage Notice" . . . . . . . . . . . . . . . . . . . 10.3
"Refinancing Indebtedness" . . . . . . . . . . . . . . . . . . . 4.9(a)
"Register" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Restricted Payments" . . . . . . . . . . . . . . . . . . . . . 4.7(a)
"SEC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 ("Commission")
</TABLE>
13
<PAGE> 20
<TABLE>
<S> <C>
"75% Test" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10(a)
"Surviving Entity" . . . . . . . . . . . . . . . . . . . . . . . 5.1
"Transaction Value" . . . . . . . . . . . . . . . . . . . . . . 4.10(f)
</TABLE>
Section 1.3. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company and any successor obligor
upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings so assigned to them.
Section 1.4. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural
include the singular;
(e) provisions apply to successive events and transactions;
(f) references to sections of or rules under the Exchange Act or the
Securities Act shall be deemed to include substitute, replacement of
successor sections or rules adopted by the SEC from time to time; and
(g) "herein," "hereof" and other words or similar import refer to
this Indenture as a whole (as amended or supplemented from time to time)
and not to any particular Article, Section or other subdivision.
14
<PAGE> 21
ARTICLE 2
THE NOTES
Section 2.1. Form and Dating.
(a) General Form of Notes. The Notes and the Trustee's certificate
of authentication shall be substantially in the form of Exhibit A hereto, which
Exhibit is part of this Indenture. The Notes may have notations, legends or
endorsements required by law, stock exchange rule or usage. Each Note shall be
dated the date of its authentication. The Notes shall be in minimum
denominations of $1000 and integral multiples thereof. The terms and
provisions contained in the Notes shall constitute, and are hereby expressly
made, a part of this Indenture and the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby. Notes offered and sold in reliance on Rule
144A under the Securities Act will initially be issued only in the form of one
or more Global Notes. Notes offered and sold in reliance on any other
exemption from registration under the Securities Act will be issued only in the
form of Definitive Notes. Global Notes shall be substantially in the form of
Exhibit A attached hereto (including the text and schedule called for by
footnotes 1 and 3 thereto). Definitive Notes shall be substantially in the
form of Exhibit A attached hereto (excluding the text and schedule called for
by footnotes 1 and 3 thereto). Global Notes or Definitive Notes issued as
Exchange Notes will not include the legend called for by footnote 2 of Exhibit
A.
(b) Form of Global Notes. Each Global Note (i) shall represent such
portion of the outstanding Notes as shall be specified therein, (ii) shall
provide that it shall represent the aggregate amount of outstanding Notes from
time to time endorsed thereon and that the aggregate amount of outstanding
Notes represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions, (iii) shall be registered in
the name of the Depositary or its nominee, duly executed by the Company and
authenticated by the Trustee as provided herein, for credit to the respective
accounts of the Holders (or such accounts as they may direct) at the
Depositary, (iv) shall be delivered by the Trustee or its Agent to the
Depositary or a Note Custodian pursuant to the Depositary's instructions and
(v) shall bear a legend substantially to the following effect:
"Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to
the Company or its agent for registration of transfer, exchange or
payment, and any certificate issued is registered in the name of Cede
& Co. or such other name as is required by an authorized
representative of DTC (and any payment hereon is made to Cede & Co or
to such other entity as is requested by an authorized representative
of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein."
Members of, or participants in, the Depositary ("DTC Participants") shall have
no rights under this Indenture with respect to any Global Note held on their
behalf by the Depositary, and the Depositary may be treated by the Company, the
Trustee, and any agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee, or any agent of the
Company or the Trustee from giving effect to any written certification, proxy
or other authorization furnished to the Depositary or impair, as between the
Depositary and its agent members, the operation of customary practices
governing the exercise of the rights of a Holder of any Note.
15
<PAGE> 22
Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the amount of outstanding Notes represented thereby
shall be made by the Trustee or the Note Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.6 hereof.
(c) Form of Definitive Notes. Definitive Notes may be produced in
any manner determined by the Officers of the Company executing such Notes, as
evidenced by their execution of such Notes. The Trustee must register
Definitive Notes so issued in the name of, and cause the same to be delivered
to, such Person (or its nominee). Subject to the provisions of Section 2.6,
any Person having a beneficial interest in the Global Note may exchange such
beneficial interest, upon request to the Trustee, for fully certificated
Definitive Notes in duly registered form.
(d) Provisions Applicable to Forms of Notes. The Notes may also
have such additional provisions, omissions, variations or substitutions as are
not inconsistent with the provisions of this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with this Indenture,
any Applicable Law or with any rules made pursuant thereto or with the rules of
any securities exchange or governmental agency or as may be determined
consistently herewith by the Officer of the Company executing such Notes, as
conclusively evidenced by their execution of such Notes. All Notes shall be
otherwise substantially identical except as provided herein.
Subject to the provisions of this Article 2, a registered Holder of a
beneficial interest in a Global Note may grant proxies and otherwise authorize
any Person to take any action that a Holder is entitled to take under this
Indenture or the Notes.
Section 2.2. Execution and Authentication.
An Officer shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal may be reproduced on the Notes and may
be in facsimile form.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid or obligatory for any purpose or entitled
to the benefits of the Indenture until authenticated by the manual signature of
the Trustee or its authenticating agent. The signature shall be conclusive
evidence that the Note has been authenticated under this Indenture.
The Trustee shall, upon the delivery to the Trustee of a written
order of the Company signed by two Officers, from time to time, authenticate
Notes for original issue up to an aggregate principal amount of $200,000,000.
The aggregate principal amount of Notes outstanding at any time may not exceed
such amount except as provided in Section 2.7 hereof.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or an Affiliate of the Company.
Section 2.3. Trustee, Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent").
The Registrar shall keep a register ("Register") of the Notes and of their
transfer and exchange. The Company may also from time to time appoint one or
more co-registrars and one or more additional paying agents. The term
"Registrar" includes any co-registrar and the term "Paying Agent"
16
<PAGE> 23
includes any additional paying agent. The Company may change any Paying Agent
or Registrar upon notice to the Holders. The Company shall notify the Trustee
in writing of the name and address of any Agent not a party to this Indenture.
If the Company fails to appoint or maintain another entity as Registrar or
Paying Agent, the Trustee shall act, subject to the last paragraph of this
Section 2.3, as such. The Company or any of its Subsidiaries may act as Paying
Agent or Registrar; provided, however, that none of the Company, its
Subsidiaries or the Affiliates of the foregoing shall act (i) as Paying Agent
in connection with redemptions, offers to purchase, discharges and defeasance,
as otherwise specified in this Indenture, and (ii) as Paying Agent or Registrar
if a Default or Event of Default has occurred and is continuing.
The Company hereby appoints U.S. Trust Company of Texas, N.A., at its
Corporate Trust Office, as the Trustee hereunder and U.S. Trust Company of
Texas, N.A. hereby accepts such appointment. The Trustee shall have the powers
and authority granted to and conferred upon it in the Notes and hereby and such
further powers and authority to act on behalf of the Company as may be mutually
agreed upon by the Company and the Trustee, and the Trustee shall keep a copy
of this Indenture available for inspection during normal business hours at its
Corporate Trust Office.
The Company initially appoints DTC to act as Depositary with respect
to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar
and Paying Agent and to act as Note Custodian with respect to the Global Notes.
All of the terms and provisions with respect to such powers and
authority contained in the Notes are subject to and governed by the terms and
provisions hereof.
The Trustee may resign as Registrar or Paying Agent upon 30 days
prior written notice to the Company.
Section 2.4. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, or premium, if any, or interest on, the Notes, and shall notify
the Trustee of any default by the Company in making any such payment. While
any such default continues, the Trustee may require a Paying Agent to pay all
money held by it to the Trustee. The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee. Upon payment of all such
money over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Holders all money held by it as Paying Agent.
Upon any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
Section 2.5. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable to it the most recent list available to it of the names and
addresses of all Holders and, after the consummation of the Exchange Offer,
shall otherwise strictly comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each Interest Payment Date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may require of the names and addresses of the Holders of Notes and,
after the consummation of the Exchange Offer, the Company shall otherwise
strictly comply with TIA Section 312(a).
17
<PAGE> 24
Section 2.6. Transfer and Exchange.
(a) Transfer and Exchange of Definitive Notes. If Definitive Notes
are presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Definitive Notes; or
(y) to exchange such Definitive Notes for an equal principal amount
of Definitive Notes of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Notes presented or surrendered for register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the
Registrar duly executed by such Holder or by such Holder's
attorney, duly authorized in writing; and
(ii) in the case of a Definitive Note that is a Transfer
Restricted Security, such request shall be accompanied by
the following additional information and documents, as
applicable:
(A) if such Transfer Restricted Security is being
delivered to the Registrar by a Holder for
registration in the name of such Holder, without
transfer, a certification to that effect from such
Holder (in substantially the form of Exhibit B
hereto); or
(B) if such Transfer Restricted Security is being
transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act or
pursuant to an exemption from registration in
accordance with Rule 144 or Rule 904 under the
Securities Act or pursuant to an effective
registration statement under the Securities Act, a
certification to that effect from such Holder (in
substantially the form of Exhibit B hereto); or
(C) if such Transfer Restricted Security is being
transferred in reliance on another exemption from the
registration requirements of the Securities Act, a
certification to that effect from such Holder (in
substantially the form of Exhibit B hereto) and an
Opinion of Counsel from such Holder or the transferee
reasonably acceptable to the Company and to the
Registrar to the effect that such transfer is in
compliance with the Securities Act.
(b) Restrictions on Transfer of a Definitive Note for a Beneficial
Interest in a Global Note. A Definitive Note may not be exchanged for a
beneficial interest in a Global Note except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Definitive
Note, duly endorsed or accompanied by appropriate instruments of transfer, in
form satisfactory to the Trustee, together with:
(i) if such Definitive Note is a Transfer Restricted Security,
a certification from the Holder thereof (in substantially
the form of Exhibit B hereto) to the effect that such
beneficial interest is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the
Securities Act or pursuant to an exemption from
registration in accordance with Rule 144 or Rule 904 under
the Securities Act; and
18
<PAGE> 25
(ii) whether or not such Definitive Note is a Transfer
Restricted Security, written instructions from the Holder
thereof directing the Trustee to make, or to direct the
Note Custodian to make, an endorsement on the Global Note
to reflect an increase in the aggregate principal amount of
the Notes represented by the Global Note,
in which case the Trustee or its agent shall cancel such Definitive Note in
accordance with Section 2.11 hereof and cause, or direct the Note Custodian to
cause, in accordance with the standing instructions and procedures existing
between the Depositary and the Note Custodian, the aggregate principal amount
of Notes represented by the Global Note to be increased accordingly. If no
Global Notes are then outstanding, the Company shall issue and, upon receipt of
an authentication order in accordance with Section 2.2 hereof, the Trustee
shall authenticate a new Global Note in the appropriate principal amount.
(c) Transfer and Exchange of a Beneficial Interest in a Global Note.
The transfer and exchange of beneficial interests in Global Notes shall be
effected through the Depositary, in accordance with this Indenture and the
procedures of the Depositary therefor, which shall include restrictions on
transfer comparable to those set forth herein to the extent required by the
Securities Act. Notwithstanding the foregoing, in the case of a Transfer
Restricted Security, a beneficial interest in a Global Note being transferred
in reliance on an exemption from the registration requirements of the
Securities Act (other than in accordance with Rule 144A, Rule 144 or Rule 904
under the Securities Act) may only be transferred for a Definitive Note and
pursuant to the provisions of Section 2.6(d) below.
(d) Transfer and Exchange of a Beneficial Interest in a Global Note
for a Definitive Note.
(i) Any Person having a beneficial interest in a Global
Note may upon request exchange such beneficial
interest for a Definitive Note. Upon receipt by the
Trustee of written instructions or such other form of
instructions as is customary for the Depositary, from
the Depositary or its nominee on behalf of any Person
having a beneficial interest in a Global Note, and,
in the case of a Transfer Restricted Security, the
following additional information and documents (all
of which may be submitted by facsimile):
(A) if such beneficial interest is being transferred to
the Person designated by the Depositary as being the
beneficial owner, a certification to that effect from
such Person (in substantially the form of Exhibit B
hereto); or
(B) if such beneficial interest is being transferred to a
"qualified institutional buyer" (as defined in Rule
144A under the Securities Act) in accordance with
Rule 144A under the Securities Act or pursuant to an
exemption from registration in accordance with Rule
144 or Rule 904 under the Securities Act or pursuant
to an effective registration statement under the
Securities Act, a certification to that effect from
the transferor (in substantially the form of Exhibit
B hereto); or
(C) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification
to that effect from the transferor (in substantially
the form of Exhibit B hereto) and an Opinion of
Counsel from the transferee or transferor reasonably
acceptable to the Company and to the Registrar to the
effect that such transfer is in compliance with the
Securities Act,
in which case the Trustee or the Note Custodian, at the
direction of the Trustee, shall, in accordance with the
standing instructions and procedures existing between the
Depositary and the Note Custodian, cause the aggregate
principal amount of Global Notes to be
19
<PAGE> 26
reduced accordingly and, following such reduction, the
Company shall execute and, upon receipt of an
authentication order in accordance with Section 2.2 hereof,
the Trustee shall authenticate and deliver to the
transferee a Definitive Note in the appropriate principal
amount.
(ii) Definitive Notes issued in exchange for a beneficial
interest in a Global Note pursuant to this Section 2.6(d)
shall be registered in such names and in such authorized
denominations as the Depositary, pursuant to instructions
from its direct or indirect participants or otherwise,
shall instruct the Trustee. The Trustee shall deliver such
Definitive Notes to the Persons in whose names such Notes
are so registered.
(e) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.6), a Global Note may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Notes in Absence of Depositary. If
at any time:
(i) the Depositary for the Notes notifies the Company that the
Depositary is unwilling or unable to continue as Depositary
for the Global Notes or, if at any time such Depositary
ceases to be a "clearing agency" registered under the
Exchange Act, and a successor Depositary for the Global
Notes is not appointed by the Company within 90 days after
delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of
Definitive Notes under this Indenture in exchange for all
or any part of the Notes represented by a Global Note or
Global Notes,
the Depositary or the Note Custodian shall surrender such Global Note to the
Trustee, without charge, and then the Company shall execute, and the Trustee
shall, upon receipt of an authentication order in accordance with Section 2.2
hereof, authenticate and deliver in exchange for such Global Notes, Definitive
Notes in an aggregate principal amount equal to the principal amount of such
Global Notes. Such Definitive Notes shall be registered in such names as the
Depositary shall direct in writing.
(g) Legends.
(i) Except as permitted by the following paragraphs (ii), and
(iii), each Note certificate evidencing Global Notes and
Definitive Notes (and all Notes issued in exchange therefor
or substitution thereof) shall bear legends in
substantially the following form:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD TO, OR FOR THE
ACCOUNT OR BENEFIT OF, ANY PERSON EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT) WHO IS AN INSTITUTION (AN "INSTITUTIONAL
ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT PRIOR TO
THE DATE WHICH IS THREE YEARS AFTER THE LATER OF THE DATE
OF ORIGINAL ISSUANCE OF THIS NOTE AND THE LAST DATE ON
WHICH THE ISSUER OR ANY AFFILIATE OF
20
<PAGE> 27
THE ISSUER WAS THE OWNER OF THIS NOTE (THE "RESALE
RESTRICTION TERMINATION DATE") RESELL, PLEDGE OR OTHERWISE
TRANSFER THIS NOTE, EXCEPT (A) TO THE ISSUER, (B) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER PURCHASING FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF ANOTHER QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH THE RESALE PROVISIONS OF RULE 144A UNDER
THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRUSTEE A WRITTEN CERTIFICATION CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE), (D) PURSUANT TO THE RESALE
LIMITATIONS PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE), (E) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR (F) PURSUANT TO ANY
OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, (BASED UPON AN OPINION
OF COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER IF THE
ISSUER SO REQUESTS) SUBJECT IN EACH OF THE FOREGOING CASES
TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS
PROPERTY OR THE PROPERTY OF SUCH ACCOUNT BE AT ALL TIMES
WITHIN ITS CONTROL AND TO COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE
PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH
TO THE TRUSTEE AND THE ISSUER SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE FOREGOING RESTRICTIONS ON RESALE WILL NOT APPLY
SUBSEQUENT TO THE RESALE RESTRICTION TERMINATION DATE.
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by
a Global Note) pursuant to Rule 144 under the Securities
Act or pursuant to an effective registration statement
under the Securities Act:
(A) in the case of any Transfer Restricted Security that
is a Definitive Note, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted
Security for a Definitive Note that does not bear the
legend set forth in (i) above and rescind any
restriction on the transfer of such Transfer
Restricted Security; and
(B) in the case of any Transfer Restricted Security
represented by a Global Note, such Transfer
Restricted Security shall not be required to bear the
legend set forth in (i) above, but shall continue to
be subject to the provisions of Section 2.6(c)
hereof; provided, however, that with respect to any
request for an exchange of a Transfer Restricted
Security that is represented by a Global Note for a
Definitive Note that does not bear the legend set
forth in (i) above, which request is made in reliance
upon Rule 144, the Holder thereof shall certify in
21
<PAGE> 28
writing to the Registrar that such request is being
made pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit B hereto).
(iii) Notwithstanding the foregoing, upon consummation of the
Exchange Offer, the Company shall issue and, upon receipt
of an authentication order in accordance with Section 2.2
hereof, the Trustee shall authenticate Series B Notes in
exchange for Series A Notes accepted for exchange in the
Exchange Offer, which Series B Notes shall not bear the
legend set forth in (i) above, and the Registrar shall
rescind any restriction on the transfer of such Notes, in
each case unless the Holder of such Series A Notes is
either (A) a broker-dealer, (B) a Person participating in
the distribution of the Series A Notes or (C) a Person who
is an affiliate (as defined in Rule 144A) of the Company.
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in Global Notes have been exchanged for Definitive
Notes, redeemed, repurchased or cancelled, all Global Notes shall be returned
to or retained and cancelled by the Trustee or its agent in accordance with
Section 2.11 hereof. At any time prior to such cancellation, if any beneficial
interest in a Global Note is exchanged for Definitive Notes, redeemed,
repurchased or cancelled, the principal amount of Notes represented by such
Global Note shall be reduced accordingly and an endorsement shall be made on
such Global Note, by the Trustee or the Notes Custodian, at the direction of
the Trustee, to reflect such reduction.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall
authenticate Definitive Notes and Global Notes at
the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the
Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental
charge payable in connection therewith (other than
any such transfer taxes or similar governmental
charge payable upon exchange or transfer pursuant to
Sections 2.2, 2.10, 3.6, 3.7, 4.10, 4.14 and 9.5
hereto).
(iii) All Definitive Notes and Global Notes issued upon
any registration of transfer or exchange of
Definitive Notes or Global Notes shall be the valid
obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this
Indenture, as the Definitive Notes or Global Notes
surrendered upon such registration of transfer or
exchange.
(iv) Neither the Registrar nor the Company shall be
required:
(A) to issue, to register the transfer of or to
exchange Notes during a period beginning at
the opening of business 15 Business Days
before the day of any selection of Notes for
redemption under Section 3.2 hereof and ending
at the close of business on the day of
selection; or
(B) to register the transfer of or to exchange any
Note so selected for redemption in whole or in
part, except the unredeemed portion of any
Note being redeemed in part; or
22
<PAGE> 29
(C) to register the transfer of or to exchange a
Note between a record date and the next
succeeding Interest Payment Date.
(v) The Trustee shall authenticate Definitive Notes and
Global Notes in accordance with the provisions of
Section 2.2 hereof.
(j) Certain Transfers in Connection with and after the Exchange
Offer. Notwithstanding any other provision of this
Indenture: (i) no Series B Note may be exchanged by the
Holder thereof for a Series A Note; (ii) accrued and unpaid
interest on the Series A Notes being exchanged in the
Exchange Offer shall be due and payable on the next Interest
Payment Date for the Series B Notes following the Exchange
Offer; and (iii) interest on the Series B Notes to be issued
in the Exchange Offer shall accrue from the date of the
Exchange Offer.
Section 2.7. Replacement Notes.
If any mutilated Note is surrendered to the Trustee, or the Company
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any Note, the Company shall, upon the written request of the Holder
thereof, issue and the Trustee, upon the written order of the Company signed by
two Officers of the Company, shall authenticate a replacement Note if the
Trustee's requirements are met. If required by the Trustee or the Company, an
indemnity bond must be supplied by such Holder that is sufficient in the
judgment of the Trustee and the Company to protect the Company, the Trustee,
any Agent and any authenticating agent from any loss that any of them may
suffer if a Note is replaced. The Company may charge for its expenses in
replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
The provisions of this Section 2.7 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 2.8. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it (or its agent), those delivered to
it (or its agent) for cancellation, those reductions in the interest in a
Global Note effected by the Trustee in accordance with the provisions hereof,
and those described in this Section as not outstanding. Except as set forth in
Section 2.9 hereof, a Note does not cease to be outstanding because the Company
or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note (other than a mutilated Note surrendered for replacement) is held
by a bona fide purchaser (as such term is defined in Section 8-302 of the
Uniform Commercial Code as in effect in the State of New York).
If the principal amount of any Note is considered paid under Section
4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, Cash or
Cash Equivalents sufficient to pay Notes payable on that
23
<PAGE> 30
date, then on and after that date such Notes shall be deemed to be no longer
outstanding and shall cease to accrue interest.
Section 2.9. Treasury Notes.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company, shall be
considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that a Responsible Officer of the
Trustee has actual knowledge are so owned shall be so disregarded.
Section 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon a written order
of the Company signed by two Officers of the Company. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall
prepare and the Trustee shall authenticate definitive Notes in exchange for
temporary Notes.
Until such exchange, Holders of temporary Notes shall be entitled to
all of the benefits of this Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee or its Agent
for cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Notes surrendered to them for registration of transfer, exchange or
payment. The Trustee (or its Agent) and no one else shall cancel all Notes
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall destroy cancelled Notes (subject to the record retention
requirement of the Exchange Act). Certification of the destruction of all
cancelled Notes shall be delivered to the Company from time to time. The
Company may not issue new Notes to replace Notes that it has paid or that have
been delivered to the Trustee (or its Agent) for cancellation. If the Company
acquires any of the Notes, such acquisition shall not operate as a redemption
or satisfaction of the indebtedness represented by such Notes unless and until
the same are surrendered to the Trustee (or its Agent) for cancellation
pursuant to this Section 2.11.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.1 hereof. The Company shall notify the Trustee
in writing of the amount of defaulted interest proposed to be paid on each Note
and the date of the proposed payment. The Company shall fix or cause to be
fixed each such special record date and payment date, provided that no such
special record date shall be less than 10 days prior to the related payment
date for such defaulted interest. At least 15 days before the special record
date, the Company (or, upon the written request of the Company, the Trustee in
the name and at the expense of the Company) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such defaulted interest to be paid.
24
<PAGE> 31
Section 2.13. Persons Deemed Owners.
Prior to due presentment for the registration of a transfer of any
Note, the Trustee, any Agent, the Company and any agent of the foregoing shall
deem and treat the Person in whose name any Note is registered as the absolute
owner of such Note for all purposes (including the purpose of receiving payment
of principal of and interest on such Notes; provided that defaulted interest
shall be paid as set forth in Section 2.12), and none of the Trustee, any
Agent, the Company or any agent of the foregoing shall be affected by notice to
the contrary.
Section 2.14. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will print CUSIP numbers on the
Notes, and the Trustee may use CUSIP numbers in notices of redemption and
purchase as a convenience to Holders; provided, however, that any such notices
may state that no representation is made as to the correctness of such numbers
as printed on the Notes and that reliance may be placed only on the other
identification numbers printed on the Notes, and any such redemption or
purchase shall not affected by any defect or omission in such numbers.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.1. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date (unless a
shorter period is acceptable to the Trustee), an Officers' Certificate setting
forth (i) the clause of Section 3.7 pursuant to which the redemption shall
occur, (ii) the redemption date, (iii) the principal amount of Notes to be
redeemed, (iv) the redemption price and accrued and unpaid interest and (v)
whether it requests the Trustee to give notice of such redemption. Any such
notice may be cancelled at any time prior to the mailing of notice of such
redemption to any Holder and shall thereby be void and of no effect.
Section 3.2. Selection of Notes to Be Redeemed.
If fewer than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed among the Holders of the Notes
in compliance with the requirements of any applicable Depositary and securities
exchange requirements or, if the Notes are not so listed, on a pro rata basis,
by lot or in accordance with any other method the Trustee considers fair and
appropriate and in such manner as complies with any such requirements and any
applicable legal requirements; provided that no Notes of $1,000 principal
amount or less shall be redeemed in part. In the event of partial redemption
by lot, the particular Notes to be redeemed shall be selected, unless otherwise
provided herein, not less than 30 nor more than 60 days prior to the redemption
date by the Trustee from the outstanding Notes not previously called for
redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding
25
<PAGE> 32
sentence, provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
Section 3.3. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed at such Holder's
registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price and accrued and unpaid interest;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date and the only remaining right of the Holders of
such Notes is to receive payment of the redemption price upon surrender to
the Paying Agent of the Notes redeemed;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that
the Company shall have delivered to the Trustee, at least 40 days prior to the
redemption date (unless a shorter period is acceptable to the Trustee), an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.
Section 3.4. Effect of Notice of Redemption.
Unless otherwise stated therein, once notice of redemption is mailed
in accordance with Section 3.3 hereof, Notes called for redemption become
irrevocably due and payable on the redemption date at the redemption price.
26
<PAGE> 33
Section 3.5. Deposit of Redemption Price.
On or prior to the redemption date, the Company shall deposit with
the Paying Agent (other than the Company or any of its Subsidiaries) money
sufficient in same day funds to pay the redemption price of and accrued
interest on all Notes to be redeemed on that date. The Paying Agent shall
promptly return to the Company any money deposited with the Paying Agent by the
Company in excess of the amounts necessary to pay the redemption price of, and
accrued interest on, all Notes to be redeemed. If the money is deposited on
the redemption date, such deposit shall be made by 10:00 a.m. Dallas, Texas
time.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption whether or not such
Notes are presented for payment, and the only remaining right of the Holders of
such Notes shall be to receive payment of the redemption price upon surrender
to the Paying Agent of the Notes redeemed. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid principal from the redemption date until
such principal is paid and to the extent lawful, on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.1 hereof.
Section 3.6. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
Section 3.7. Optional Redemption.
(a) Except as set forth in clause (b) of this Section 3.7, the
Company shall not have the option to redeem the Notes pursuant to this Section
3.7 prior to August 1, 2001. Thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve month period beginning on August 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- -----------
<S> <C>
2001 104.813%
2002 102.406%
2003 and thereafter 100.000%
</TABLE>
(b) Notwithstanding the foregoing, on and prior to August 1, 1999,
the Company may redeem up to 35% of the aggregate principal amount of the Notes
originally outstanding at a redemption price of 110% of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, with
the net proceeds of one or more Equity Offerings of the Company or, if
applicable, a Parent; provided that at least 65% of the aggregate principal
amount of the Notes originally issued remains outstanding immediately after the
occurrence of such redemption (but such unredeemed Notes may be redeemed
pursuant to the optional redemption procedure described in Section 3.7(a)); and
provided,
27
<PAGE> 34
further, that such notice of redemption shall be given not later than 30 days,
and such redemption shall occur not later than 90 days, after the date of the
closing of any such Equity Offering.
(c) Any redemption pursuant to this Section 3.7 shall be made
pursuant to the provisions of Sections 3.1 through 3.6 hereof.
Section 3.8. Mandatory Redemption.
Except as set forth under Sections 4.10 and 4.14 hereof, the Company
shall not be required to make mandatory redemption payments with respect to the
Notes.
ARTICLE 4
COVENANTS
Section 4.1. Payment of Notes.
The Company shall pay or cause to be paid in New York, New York the
principal of, premium, if any, and interest on the Notes on the dates and in
the manner provided in the Notes. Principal, premium, if any, and interest
shall be considered paid on the date due if the Paying Agent, if other than the
Company or a Subsidiary thereof, holds as of 10:00 a.m. New York City time on
the due date money deposited by the Company in same day funds and designated
for and sufficient to pay all principal, premium, if any, and interest then
due. The Paying Agent shall return to the Company, no later than three
Business Days following the date of payment, any money (including accrued
interest) in excess of the amounts paid on the Notes.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at a rate equal
to 1% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law to the extent that such interest is an
allowed claim against the debtor under such Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace period) at the
same rate to the extent lawful.
Section 4.2. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may
be served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or
agency.
28
<PAGE> 35
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.3.
Section 4.3. Provisions of Reports and Other Information.
(a) Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company will furnish to
the Trustee and the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial position and results of
operations of the Company and its Subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports. In addition, whether or not required by the rules and regulations of
the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to prospective
investors upon request. The Company shall include an unaudited consolidating
balance sheet and related statements of income and cash flows for the Company
and its Subsidiaries, separately identifying the Company and its Restricted
Subsidiaries as one group and the Company's Unrestricted Subsidiaries as a
separate group, in all reports containing the consolidated financial statements
(which in the case of annual reports shall be audited) of the Company and its
consolidated Subsidiaries which are required to be delivered by the Company to
the Securityholders pursuant to this Section 4.3, including the Company's
Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. If required by
the terms thereof, the Company shall also comply with the provisions of TIA
Section 314(a).
(b) So long as any of the Transfer Restricted Securities remain
outstanding, the Company shall furnish to the Holders of the Transfer
Restricted Securities and to prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
(c) If the Company instructs the Trustee to distribute any of the
documents described in Section 4.3(a) to the Holders, the Company shall provide
the Trustee with a sufficient number of copies of all such documents that the
Company may be required to deliver to such Holders.
Section 4.4. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 45 days after
the end of each fiscal quarter, an Officers' Certificate stating that a review
of the activities of the Company and its Subsidiaries during the preceding
fiscal quarter has been made under the supervision of the signing Officers with
a view to determining whether the Company has kept, observed, performed and
fulfilled its obligations under this Indenture, and further stating, as to each
such Officer signing such certificate, that to the best of his or her knowledge
the Company has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions of this Indenture
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of, or
interest on, the Notes are prohibited or, if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.
29
<PAGE> 36
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.3 above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default
or Event of Default and what action the Company is taking or proposes to take
with respect thereto.
Section 4.5. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except (i) such as are contested in good faith and by appropriate
proceedings or (ii) such as for which reserve or other appropriate provision,
if any, as shall be required to be in conformity with GAAP, has been made
therefor, or (iii) where the failure to effect such payment is not adverse in
any material respect to the Holders of the Notes.
Section 4.6. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any
such law, and covenants that it shall not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Trustee, but
shall suffer and permit the execution of every such power as though no such law
has been enacted.
Section 4.7. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend on, or
make any distribution to the holders of, any Capital Stock of the Company or a
Restricted Subsidiary, other than dividends or distributions (A) from a
Restricted Subsidiary of the Company to the Company or to a Restricted
Subsidiary or (B) payable in Capital Stock of the Company that is not
Disqualified Stock; (ii) repay, redeem or otherwise acquire or retire for value
any Capital Stock of the Company or any of its Subsidiaries (other than Wholly
Owned Subsidiaries of the Company that are Restricted Subsidiaries), other than
a Permitted Investment; (iii) prepay, repay, redeem, defease or otherwise
acquire or retire for value prior to any scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Indebtedness of the Company
that is pari passu with or subordinated in right of payment to the Notes, other
than a Permitted Investment and except (A) as permitted pursuant to clause
(vii) of Section 4.9(b), (B) upon a change of control, as defined in and to the
extent required by the indenture or other agreement or instrument pursuant to
which such pari passu or subordinated Indebtedness was issued, provided the
Company is then in compliance with the provisions of Section 4.14 and (C) any
payment pursuant to a Pari Passu Offer; or (iv) make any Investment other than
a Permitted Investment or as permitted under clauses (ii) and (iii) above (the
30
<PAGE> 37
foregoing actions set forth in clauses (i) through (iv) being referred to
hereinafter as "Restricted Payments"), if at the time of any such Restricted
Payment, and after giving effect thereto on a pro forma basis:
(A) a Default or Event of Default shall have occurred and be
continuing or would result therefrom; or
(B) the aggregate amount of all Restricted Payments declared or made
after the Initial Issuance Date including such Restricted Payment (the
value of any such payment, if other than cash, shall be the value
determined in good faith by resolution of the Board of Directors) shall
exceed the sum of: (1) 50% of the aggregate Consolidated Net Income (after
deducting from such Consolidated Net Income accrued but unpaid
compensation expenses related to any stock appreciation or stock option
plans net of tax benefits), or, in the event such aggregate Consolidated
Net Income shall be a loss, minus 100% of such loss, of the Company and
its Restricted Subsidiaries earned subsequent to the Initial Issuance Date
to the end of the fiscal quarter immediately preceding the date of such
Restricted Payment (treated as a single accounting period), plus (2) the
aggregate net proceeds received by the Company from the issuance or sale
(other than to a Subsidiary of the Company) of Capital Stock of the
Company, including any such shares issued upon exercise of any warrants,
options or similar rights (other than Disqualified Stock), subsequent to
the Initial Issuance Date, plus (3) the aggregate net proceeds received by
the Company from the issuance or sale of Indebtedness that is convertible
into Capital Stock after the Initial Issuance Date, to the extent that
such Indebtedness is actually converted into Capital Stock (other than
Disqualified Stock), plus (4) the aggregate net proceeds received after
the Initial Issuance Date by the Company as capital contributions to the
Company (other than from a Subsidiary), plus (5) an amount equal to the
net reduction in Investments resulting from payments of principal of
Indebtedness, return of capital and other transfers of assets, in each
case to the Company or any Restricted Subsidiary of the Company (but
excluding any such amounts included in Consolidated Net Income), or from
designations of Unrestricted Subsidiaries as Restricted Subsidiaries, plus
(6) $15 million.
(b) The foregoing provisions of this Section 4.7 shall not prohibit:
(i) the payment of any dividend within 60 calendar days after the
date of declaration thereof, if at the date of declaration such
dividend would have complied with the provisions of this
Indenture;
(ii) the repayment, redemption, acquisition or retirement for value
of any Capital Stock of the Company or any of its Subsidiaries
in exchange for, or out of the aggregate net proceeds of, a
substantially concurrent issuance (other than to the Company or
any of its Restricted Subsidiaries) of Capital Stock of the
Company or a Restricted Subsidiary of the Company;
(iii) the prepayment, repayment, redemption, defeasance or other
acquisition or retirement for value prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund payment
of any Indebtedness of the Company that is pari passu with or
subordinated in right of payment to the Notes, in exchange for,
or out of the aggregate net proceeds of, a substantially
concurrent issuance (other than to the Company or a Restricted
Subsidiary) of Capital Stock of the Company or a Restricted
Subsidiary of the Company;
(iv) the prepayment, repayment, redemption, defeasance or other
acquisition or retirement for value prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund payment
of any Indebtedness of the Company that is pari passu with or
subordinated in right of payment to the Notes, in exchange for,
or out of the aggregate net proceeds of, a substantially
concurrent issuance (other than to the Company or a Restricted
Subsidiary) of Indebtedness of the Company that is pari passu
with or subordinated in
31
<PAGE> 38
right of payment to, the Notes, but only if the Weighted Average
Life and period of time to Stated Maturity of such new
Indebtedness are each greater than the Weighted Average Life and
period of time to Stated Maturity of such retired Indebtedness;
and
(v) the payment of any dividend or distribution to any holder of
Capital Stock of a Restricted Subsidiary of the Company, other
than a holder that is an Affiliate of the Company (except a
holder that is an Affiliate of the Company solely by virtue of
the ownership of such Capital Stock), as part of a pro rata
dividend or distribution to all holders of such class or series
of Capital Stock (but only the amount of such dividend or
distribution paid to a Person other than the Company or a
Restricted Subsidiary of the Company shall constitute a
Restricted Payment).
For purposes of calculating the aggregate amount of Restricted
Payments made pursuant to Section 4.7(a)(B) above, payments made under this
Section 4.7(b) (other than under clause (iv) hereof) shall be included in such
amount; provided that dividends paid within 60 calendar days of the date of
declaration shall be deemed to be paid at the date of declaration.
Section 4.8. Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries.
The Company shall not, and shall not permit any of the Restricted
Subsidiaries of the Company to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of such Restricted Subsidiary to (i) pay dividends
or make any other distributions on its Capital Stock, or pay any Indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make any
Investment in the Company or any of its Restricted Subsidiaries, (iii) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries or (iv) guarantee any Indebtedness of the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (A) applicable law, (B) any instrument governing Acquired
Indebtedness permitted to be incurred under Section 4.9 which encumbrances or
restrictions are not applicable to any Person or the properties or assets of
any Person, other than the Person so acquired or its Subsidiaries, or the
property or assets of the Person so acquired or its Subsidiaries, (C) any
restrictions existing under agreements in effect on the Initial Issuance Date,
(D) any restrictions with respect to a Restricted Subsidiary imposed pursuant
to an agreement which has been entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted Subsidiary,
provided, that such disposition is permitted pursuant to Section 4.10, (E) any
agreement governing Indebtedness otherwise permitted under the Indenture
restricting the sale or other disposition of property securing such
Indebtedness if such agreement does not expressly restrict the ability of a
Restricted Subsidiary to pay dividends or to make distributions, loans or
advances, (F) the issuance of preferred stock by a Restricted Subsidiary or the
payment of dividends thereon in accordance with the terms thereof, provided
that issuance of such preferred stock is permitted pursuant to Section 4.9 and
the terms of such preferred stock do not expressly restrict the ability of a
Restricted Subsidiary to pay dividends or make any other distributions on its
Capital Stock (other than requirements to pay dividends or liquidation
preferences on such preferred stock prior to paying any dividends or making any
other distributions on such other Capital Stock), (G) this Indenture, (H) the
Credit Facility and other Senior Indebtedness, (I) supermajority voting
requirements existing under corporate charters, bylaws, stockholders agreements
and the like, (J) in the case of clause (iii) above, agreements (1) that
restrict in a customary manner the subletting, pledging, assignment or transfer
of any property or asset that is a
32
<PAGE> 39
lease, license, conveyance or contract or similar property or asset, or (2)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by this Indenture, including,
without limitation, transfer restrictions on any specific properties or assets
that are subject to a sale agreement otherwise permitted pursuant Section 4.10,
or (K) existing under any agreement which refinances or replaces any of the
agreements in the preceding clauses; provided, that the terms and conditions of
any such restrictions are not materially less favorable to the Holders than
those contained in the agreements refinanced or replaced. Nothing contained in
this Section 4.8 shall prevent the Company or any Restricted Subsidiary from
(1) creating, incurring, assuming or suffering to exist any Liens otherwise
permitted under Section 4.12 or (2) restricting the sale or other disposition
of property or assets of the Company or any of its Restricted Subsidiaries that
secure Indebtedness of the Company or any of its Restricted Subsidiaries.
Section 4.9. Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary of the Company to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with
respect to, any Indebtedness (collectively, an "incurrence"; with respect to
any non-interest bearing or other discount Indebtedness, an "incurrence" shall
be deemed to have occurred only on the date of original issuance thereof),
unless, after giving effect to the incurrence of such Indebtedness and the
application of the net proceeds therefrom, the EBITDA Ratio (as calculated on
the Determination Date) is greater than 2.0 to 1.0; provided that if the
Indebtedness which is the subject of a determination under this provision is
Acquired Indebtedness, then the Consolidated EBITDA of the Company shall be
determined by giving effect (on a pro forma basis, as if the transaction had
occurred at the beginning of the immediately preceding four-quarter period) to
both the incurrence or assumption of such Acquired Indebtedness by the Company
and the inclusion in the Consolidated EBITDA of the Person whose Indebtedness
would constitute Acquired Indebtedness.
(b) Notwithstanding the foregoing, Indebtedness may be incurred
as follows:
(i) Indebtedness under the Credit Facility in an aggregate
principal amount not to exceed $195 million at any one time
outstanding, less the aggregate amount of all permanent
reductions thereto pursuant to Section 4.10;
(ii) Indebtedness represented by amounts due under Hedging
Obligations (provided that the obligations under such Hedging
Obligations are related to Indebtedness otherwise permitted
by the terms of this Section 4.9 and that the aggregate
notional principal amount of such Hedging Obligations shall
not exceed 105% of the total amount of the related underlying
Indebtedness);
(iii) Indebtedness represented by property, liability and workers'
compensation insurance, performance bonds (which may be in
the form of letters of credit) for construction contracts let
by the Company and its Restricted Subsidiaries in the
ordinary course of business (provided that to the extent that
such performance bonds secure Indebtedness, such Indebtedness
is otherwise permitted under this Section 4.9), surety bonds
and appeal bonds (which, in each case, may be in the form of
letters of credit) required in the ordinary course of
business or in connection with the enforcement of rights or
claims of the Company or any Restricted Subsidiary of the
Company or in connection with judgments that do not result in
a Default or an Event of Default;
33
<PAGE> 40
(iv) Indebtedness of the Company evidenced by the Notes and this
Indenture;
(v) Indebtedness owing to a Wholly Owned Subsidiary of the
Company that is a Restricted Subsidiary or to the Company;
(vi) Acquired Indebtedness, provided that such Indebtedness if
incurred by the Company would be in compliance with the first
paragraph of this covenant;
(vii) Indebtedness issued in exchange for, or the proceeds of
which are used to repay or refund or refinance or discharge
or otherwise retire for value, Indebtedness of the Company or
any of its Restricted Subsidiaries permitted under clauses
(iv) and (vi) above, clause (viii) below and Section 4.9(a)
("Refinancing Indebtedness") in a principal amount not to
exceed the principal amount of the Indebtedness so refinanced
plus any premium and accrued interest plus customary fees,
expenses and costs related to the incurrence of such
Refinancing Indebtedness, provided that with respect to any
Refinancing Indebtedness which refinances Indebtedness which
ranks junior in right of payment to the Notes, (A) such
Refinancing Indebtedness is subordinated in right of payment
at least to the same extent as the Indebtedness to be
refunded or refinanced if such Indebtedness had remained
outstanding and (B) the Refinancing Indebtedness has a
Weighted Average Life and Stated Maturity that are equal to
or greater than those of the Indebtedness to be repaid or
refunded or refinanced or discharged or otherwise retired for
value at the time of such incurrence;
(viii) Indebtedness outstanding on the Initial Issuance Date;
(ix) Indebtedness of the Company or a Restricted Subsidiary of
the Company to an Unrestricted Subsidiary for money borrowed,
provided, that such Indebtedness is subordinated in right of
payment to the Notes and the Weighted Average Life of such
Indebtedness is greater than the Weighted Average Life of the
Notes; and
(x) other Indebtedness not to exceed $25 million.
Section 4.10. Limitation on Asset Sales.
(a) The Company shall not, and shall not permit any of the
Restricted Subsidiaries of the Company to, make any Asset Disposition, unless
(i) the consideration received from such Asset Disposition is at least equal to
the Fair Market Value of the Capital Stock, property or other assets sold, (ii)
at least 75% of the consideration received from such Asset Disposition is in
the form of Cash, Temporary Cash Investments or Marketable Equity Securities
(the "75% Test"), provided that the amount of any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto) of the Company or such Restricted Subsidiary which are assumed
by the transferee, cancelled or satisfied in any Asset Disposition (other than
liabilities that are incurred in connection with or in anticipation of such
Asset Disposition) as a credit against the purchase price therefor shall be
deemed to be Cash to the extent of the amount so credited for purposes of the
75% Test, and (iii) the Company applies, or causes its Restricted Subsidiaries
to apply, 100% of the Net Proceeds from any Asset Disposition to an offer (a
"Net Proceeds Offer") to purchase Notes outstanding having a Net Proceeds Offer
Price at least equal to such Net Proceeds, such Net Proceeds Offer to commence
on a date not later than 360 calendar days after the date of such Asset
Disposition at a purchase price (the "Net Proceeds Offer Price") equal to 100%
of the principal amount thereof, plus accrued interest thereon to the closing
date of the Net Proceeds Offer (the "Net Proceeds Purchase Date"), except to
the extent
34
<PAGE> 41
that such Net Proceeds have been applied either to the permanent repayment of
principal and interest on Senior Indebtedness or Indebtedness of the Restricted
Subsidiary of the Company that made such Asset Disposition or to the purchase
of assets or businesses in the same line of business as the Company and its
Restricted Subsidiaries or assets incidental thereto. Notwithstanding anything
to the contrary in this Section 4.10, the Company will not be required to make
a Net Proceeds Offer with respect to any Net Proceeds from Asset Dispositions
until the aggregate amount of Net Proceeds from Asset Dispositions in any
period of 12 consecutive months which are not applied either to the permanent
repayment of principal and interest on Indebtedness (as described above) or to
the purchase of assets or businesses (as described above) exceeds $10 million.
For purposes of this Section 4.10, the principal amount of Notes for which a
Net Proceeds Offer shall be made is referred to as the "Net Proceeds Offer
Amount."
(b) To the extent required by any pari passu Indebtedness, and
provided there is a permanent reduction in the principal amount of such pari
passu Indebtedness, the Company shall simultaneously with the Net Proceeds
Offer make an offer to purchase such pari passu Indebtedness (a "Pari Passu
Offer") in an amount (the "Pari Passu Offer Amount") equal to the Net Proceeds
Offer Amount, as determined above, multiplied by a fraction, the numerator of
which is the outstanding principal amount of such pari passu Indebtedness and
the denominator of which is the sum of the outstanding principal amount of the
Notes and such pari passu Indebtedness, in which case the Net Proceeds Offer
Amount shall be correspondingly reduced by such Pari Passu Offer Amount.
(c) The Company may credit against its obligation to make a Net
Proceeds Offer pursuant to this Section 4.10 up to $2 million aggregate
principal amount of Notes, at 100% of the principal amount thereof, which have
been acquired by the Company and surrendered for cancellation after the making
of the Net Proceeds Offer and which have not been used as a credit against or
acquired pursuant to any prior obligation to make an offer to purchase Notes
pursuant to the provisions set forth under Section 4.14 or this Section 4.10.
(d) Upon notice of a Net Proceeds Offer provided to the Trustee
by the Company, notice of such Net Proceeds Offer shall be mailed by the
Trustee (at the Company's expense) not less than 30 calendar days nor more than
60 calendar days before the Net Proceeds Purchase Date to each Holder of Notes
at such Holder's last registered address appearing in the Register. The
Company shall provide the Trustee with copies of all materials to be delivered
with such notice. The notice shall contain all instructions and material
necessary to enable such Holders to tender Notes pursuant to the Net Proceeds
Offer. In such notice, the Company shall state: (1) that the Net Proceeds
Offer is being made pursuant to this Section 4.10 and that it will purchase the
principal amount of Notes equal to the Net Proceeds Offer Amount; (2) the Net
Proceeds Offer Price and the Net Proceeds Purchase Date; (3) that any Note not
tendered will continue to accrue interest; (4) that, unless the Company
defaults in the payment of the Net Proceeds Offer Price, all Notes accepted for
payment pursuant to the Net Proceeds Offer shall cease to accrue interest after
the Net Proceeds Purchase Date; (5) that Holders electing to have any Notes
purchased pursuant to such Net Proceeds Offer will be required to surrender the
Notes, and complete the section entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes or transfer beneficial ownership of such Notes by
book-entry transfer, to the Company, the Depositary (if appointed by the
Company), or the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Net Proceeds
Purchase Date; (6) that Holders will be entitled to withdraw their election if
the Company, the Depositary or the Paying Agent, as the case may be, receives,
not later than the close of business on the third Business Day preceding the
Net Proceeds Purchase Date, a telegram, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Notes delivered
for purchase, and a statement that such Holder is withdrawing his election to
have the Notes purchased; and (7) that Holders whose Notes are being purchased
only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered
35
<PAGE> 42
(or transferred by book-entry transfer), provided that the principal amount of
such unpurchased portion must be equal to $1,000 or an integral multiple
thereof. If Notes in a principal amount in excess of the Net Proceeds Offer
Amount are surrendered pursuant to the Net Proceeds Offer, the Company shall
purchase Notes on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000 or
integral multiples of $1,000 shall be acquired). The Company will comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a Net
Proceeds Offer.
(e) On the Net Proceeds Purchase Date, the Company shall (i)
accept for payment Notes or portions thereof validly tendered pursuant to the
Net Proceeds Offer (on a pro rata basis if required), (ii) deposit with the
Paying Agent money in immediately available funds, sufficient to pay the
purchase price of all Notes or portions thereof so accepted, and (iii) deliver
to the Trustee Notes so accepted together with an Officer's Certificate stating
the Notes or portions thereof accepted for payment by the Company. If the
Company complies with its obligations set forth in the immediately preceding
sentence, whether or not a Default or Event of Default has occurred and is
continuing on the Net Proceeds Purchase Date, the Paying Agent shall as
promptly as practicable mail to each Holder of Notes so accepted payment in an
amount equal to the purchase price, and the Company shall execute and the
Trustee shall as promptly as practicable authenticate and mail or deliver to
such Holder a new Note equal in principal amount to any unpurchased portion of
the Note surrendered. Any Notes not so accepted shall be as promptly as
practicable mailed or delivered by the Company to the Holders thereof. The
Company shall publicly announce the results of the Net Proceeds Offer on or as
promptly as practicable after the Net Proceeds Purchase Date. For purposes of
this covenant, the Trustee shall act as the Paying Agent.
(f) Notwithstanding anything to the contrary contained in this
Indenture, the Company or any of its Restricted Subsidiaries may engage in
transactions in which theatre properties will be transferred in exchange for
one or more other theatre properties; provided that if the Fair Market Value of
the theatre properties to be transferred by the Company or such Restricted
Subsidiary, plus the Fair Market Value of any other consideration paid or
credited by the Company or such Restricted Subsidiary (the "Transaction Value")
exceeds $2 million, such transaction shall require approval of the Board of
Directors. In addition, each such transaction shall be valued at an amount
equal to all consideration received by the Company or such Restricted
Subsidiary in such transaction, other than the theatre properties received
pursuant to such exchange ("Other Consideration"), for purposes of determining
whether an Asset Disposition has occurred. If the Other Consideration is of an
amount and character such that such transaction constitutes an Asset
Disposition, then Section 4.10(a) shall be applicable to any Net Proceeds of
such Other Consideration.
Section 4.11. Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit any Restricted Subsidiary
of the Company to, directly or indirectly, enter into any transaction
(including without limitation the purchase, sale, lease or exchange of any
property or the rendering of any service) with a Person that, immediately prior
to such transaction, was an Affiliate (an "Affiliate Transaction"), unless such
transaction is on terms no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained in a comparable arms' length
transaction with an entity that is not an Affiliate; provided that continued
performance under agreements as in effect on the Initial Issuance Date and
described in the Offering Memorandum, or consummation, on the terms described
in the Offering Memorandum, of transactions described therein that are not
consummated prior to the Initial Issuance Date (and renewals and extensions of
such agreements and transactions on terms not materially less favorable to the
Holders than the terms of such original agreements and transactions), shall not
be subject to such limitation.
36
<PAGE> 43
In addition, the Company shall not, and shall not permit any of the
Restricted Subsidiaries of the Company to, enter into (i) an Affiliate
Transaction involving or having an expected value of more than $2 million
unless such transaction shall have been approved in good faith by resolution of
the Board of Directors and such resolution provides that such Affiliate
Transaction complies with the requirements of this Section 4.11 or (ii) an
Affiliate Transaction involving or having an expected value of more than $15
million, unless the Company has received an opinion of a nationally recognized
independent investment banking firm, accounting firm, appraisal firm or other
experts of nationally recognized standing if, in each case, such firm is
regularly engaged to render opinions of such type, to the effect that the
transaction is fair to the Company (or, if the Company is not a party to such
Affiliate Transaction, then to such Restricted Subsidiary) from a financial
point of view.
Notwithstanding anything to the contrary contained in this Indenture,
the foregoing provisions shall not apply to (i) transactions between the
Company and a Wholly Owned Subsidiary of the Company that is a Restricted
Subsidiary or between Wholly Owned Subsidiaries of the Company that are
Restricted Subsidiaries, (ii) payments required to be made to the Company by
Cinemark International or by any Subsidiary of Cinemark International under the
Cinemark International Management Agreement or under a Subsidiary management
agreement, as the case may be, (iii) payments pursuant to any tax sharing
agreement or arrangement among the Company and its Subsidiaries, (iv)
transactions with any current or former employee, officer or director of the
Company or any of its Restricted Subsidiaries pursuant to reasonable employee
benefit plans or compensation arrangements or agreements entered into in the
ordinary course of business on or prior to the Initial Issuance Date, or
amended or created thereafter with the approval of the Board of Directors, (v)
transactions with any employee of the Company pursuant to which the Company
purchases or otherwise acquires Capital Stock of the Company from such employee
as permitted under Section 4.7, or (vi) transactions constituting (A) a
Restricted Payment not prohibited by Section 4.7 and not constituting a
Permitted Investment, or (B) an investment not constituting an "Investment" by
reason of a specific exclusion from such definition.
Section 4.12. Limitation on Liens.
The Company shall not, and shall not permit any of the Restricted
Subsidiaries of the Company to, create, incur, assume or suffer to exist any
Lien upon any of its property or assets (including assets acquired after the
Initial Issuance Date), except for:
(i) Liens incurred after the Initial Issuance Date securing
Indebtedness of the Company that ranks pari passu or junior
in right of payment to the Notes, if the Notes are secured
equally and ratably with such Indebtedness;
(ii) Liens outstanding on the Initial Issuance Date;
(iii) Liens for taxes, assessments, governmental charges or claims
not yet delinquent or which are being contested in good
faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of
the Company or its Restricted Subsidiaries, as the case may
be, in conformity with GAAP;
(iv) Landlords', carriers', warehousemen's, mechanics',
materialmen's, repairmen's or the like Liens arising by
contract or statute in the ordinary course of business and
with respect to amounts which are not yet delinquent or are
being contested in good faith by appropriate proceedings;
37
<PAGE> 44
(v) pledges or deposits made in the ordinary course of business
(A) in connection with leases, performance bonds and similar
obligations, or (B) in connection with workers'
compensation, unemployment insurance and other social
security legislation;
(vi) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar encumbrances
which, in the aggregate, do not materially detract from the
value of the property subject thereto or materially
interfere with the ordinary conduct of the business of the
Company or such Restricted Subsidiary;
(vii) any attachment or judgment Lien that does not constitute an
Event of Default;
(viii) Liens securing Acquired Indebtedness, provided that such
Liens attach solely to the acquired assets or the assets of
the acquired entity and do not extend to or cover any other
assets of the Company or any of its Restricted Subsidiaries;
(ix) Liens to secure Senior Indebtedness;
(x) Liens in favor of the Trustee for its own benefit and for
the benefit of the Securityholders;
(xi) any interest or title of a lessor pursuant to a lease
constituting a Capitalized Lease Obligation;
(xii) Liens on accounts receivable and inventory or cash deposits
collateralizing reimbursement obligations with respect to
letters of credit, in either case securing Indebtedness
permitted to be incurred under clause (i) of Section 4.9(b);
(xiii) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations,
banker's acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other
obligations of a similar nature incurred in the ordinary
course of business (exclusive of obligations for the payment
of borrowed money);
(xiv) Liens (including extensions and renewals thereof) upon real
or personal property acquired after the Initial Issuance
Date; provided that (a) such Lien is created solely for the
purpose of securing Indebtedness incurred, in accordance
with Section 4.9, (1) to finance the cost (including the
cost of improvement or construction) of the item of property
or assets subject thereto and such Lien is created prior to,
at the time of or within six months after the later of the
acquisition, the completion of construction or the
commencement of full operation of such property or (2) to
refinance any Indebtedness previously so secured, (b) the
principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost and (c) any such Lien
shall not extend to or cover any property or assets other
than such item of property or assets and any improvements on
such item;
(xv) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the
Company and its Restricted Subsidiaries, taken as a whole;
(xvi) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of
the Company or its Restricted Subsidiaries relating to such
property or assets;
38
<PAGE> 45
(xvii) any interest or title of a lessor in the property subject to
any Capitalized Lease Obligation or operating lease;
(xviii) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xix) Liens on property of, or on shares of stock or Indebtedness
of, any Person existing at the time such Person becomes, or
becomes a part of, any Restricted Subsidiary, provided that
such Liens do not extend to or cover any property or assets
of the Company or any Restricted Subsidiary other than the
property or assets acquired;
(xx) Liens in favor of the Company or any Restricted Subsidiary;
(xxi) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payment of customs duties in
connection with the importation of goods;
(xxii) Liens encumbering deposits securing Indebtedness under
Hedging Obligations;
(xxiii) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods
entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business in
accordance with the past practices of the Company and its
Restricted Subsidiaries;
(xxiv) Liens on or sales of receivables;
(xxv) the rights of film distributors under film licensing
contracts entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business
on a basis customary in the movie exhibition industry; and
(xxvi) any renewal of or substitution for any Liens permitted by
any of the preceding clauses, provided that the Indebtedness
secured is not increased (other than by any premium and
accrued interest, plus customary fees, expenses and costs
related to such renewal or substitution of Liens or the
incurrence of any related refinancing of Indebtedness) nor
the Liens extended to any additional assets (other than
proceeds and accessions).
The provisions of this Section 4.12 do not authorize the
incurrence of any Indebtedness not otherwise permitted by Section 4.9.
Section 4.13. Limitation on Layering Debt.
The Company will not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Indebtedness of the Company but senior in any
respect in right of payment to the Notes.
Section 4.14. Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, the Company shall
be required to make an offer (a "Change of Control Offer") to Holders to
repurchase any and all of the Notes (but only in denominations of $1,000 or
integral multiples of $1,000) at a purchase price (the "Change of Control
39
<PAGE> 46
Offer Price") equal to 101% of the aggregate principal amount, plus accrued and
unpaid interest thereon to the date of purchase ("Change of Control Purchase
Date").
(b) Notice of a Change of Control Offer shall be mailed by the
Company, with a copy to the Trustee, or, at the Company's option, by the
Trustee (at the Company's expense) not more than 30 calendar days after the
Change of Control to each Holder of the Notes at such Holder's last registered
address appearing in the Register. In such notice, the Company shall describe
the transaction that constitutes the Change of Control and offer to repurchase
Notes pursuant to the procedures required by this Section 4.14 and described in
such notice. The notice shall contain all instructions and materials necessary
to enable Holders to tender Notes pursuant to the Change of Control Offer. In
addition, the notice shall state: (1) that the Change of Control Offer is
being made pursuant to this Section 4.14 and that all Notes tendered will be
accepted for payment; (2) the Change of Control Offer Price and the Change of
Control Purchase Date, which shall be no sooner than 60 nor later than 90 days
after the Change of Control; (3) that any Note not tendered will continue to
accrue interest; (4) that, unless the Company defaults in the payment of the
Change of Control Offer Price, all Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Purchase Date; (5) that Holders electing to have any Notes purchased
pursuant to a Change of Control Offer will be required to deliver the Notes,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Notes completed, or transfer by book-entry transfer, to the Company, the
Depositary (if appointed by the Company), or the Paying Agent at the address
specified in the notice prior to the close of business on the third Business
Day preceding the Change of Control Purchase Date; (6) that Holders will be
entitled to withdraw their election if the Company, the Depositary or the
Paying Agent, as the case may be, receives, not later than the close of
business on the third Business Day preceding the Change of Control Purchase
Date, a telegram, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have the Notes
purchased; and (7) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered (or transferred by book-entry transfer), which
unpurchased portion must be equal to at least $1,000 in principal amount or an
integral multiple thereof. The Company will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control.
(c) On the Change of Control Purchase Date, the Company shall (i)
accept for payment Notes or portions thereof validly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent money in
immediately available funds sufficient to pay the purchase price of all Notes
or portions thereof so accepted, and (iii) deliver to the Trustee Notes so
accepted together with an Officer's Certificate stating the Notes or portions
thereof accepted for payment by the Company. If the Company complies with its
obligations set forth in the immediately preceding sentence, whether or not a
Default or Event of Default has occurred and is continuing on the Change of
Control Purchase Date, the Paying Agent shall as promptly as practicable mail
or deliver to each Holder of Notes so accepted payment in an amount equal to
the purchase price, and the Company shall execute and the Trustee shall as
promptly as practicable authenticate and mail or deliver to such Holder a new
Note equal in principal amount to any unpurchased portion of the Note
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. Any Notes not so accepted
shall be as promptly as practicable mailed or delivered by the Trustee to the
Holders thereof. The Company shall publicly announce the results of the Change
of Control Offer on or as promptly as practicable after the Change of Control
Purchase Date. For purposes of this Section 4.14, the Trustee shall act as the
Paying Agent.
40
<PAGE> 47
(d) Prior to complying with the other provisions of this Section
4.14, but in any event within 90 days following a Change of Control, the
Company shall either repay all outstanding Senior Indebtedness or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Indebtedness to permit the repurchase of Notes required by this Section 4.14.
Section 4.15. Corporate Existence.
Except as otherwise permitted pursuant to the terms hereof, the
Company shall do or cause to be done all things necessary to preserve and keep
in full force and effect (i) its corporate existence, and the corporate,
partnership or other existence of each of its Significant Subsidiaries, in
accordance with their respective organizational documents (as the same may be
amended from time to time), and (ii) the material rights (charter and
statutory), licenses and franchises of the Company and its Significant
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise of itself or any of its
Significant Subsidiaries, or the corporate, partnership or other existence of
any of its Significant Subsidiaries, if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries, taken as a whole, and that the
loss thereof is not adverse in any material respect to the Holders of the
Notes.
Section 4.16. Covenant with Respect to Cinemark International and its
Subsidiaries.
The Company shall cause Cinemark International and its
Subsidiaries on a consolidated basis to be engaged principally in the
acquisition, construction and operation of indoor motion picture theatres and
other activities incidental thereto outside the United States and Canada.
ARTICLE 5
SUCCESSORS
Section 5.1. Merger, Consolidation, or Sale of Assets.
The Company shall not consolidate with or merge with or into, or
sell, assign or lease all or substantially all of the properties and assets of
the Company and its Restricted Subsidiaries, taken as a whole, to any Person
(other than the Company or a Wholly Owned Subsidiary of the Company that is a
Restricted Subsidiary), or permit any Person (other than a Wholly Owned
Subsidiary of the Company that is a Restricted Subsidiary) to merge with or
into the Company unless:
(i) the Company shall be the continuing Person, or the Person
formed by such consolidation or into which the Company is
merged or to which the properties and assets of the Company
and its Restricted Subsidiaries taken as a whole are
transferred (the "surviving entity") shall be a corporation
organized and existing under the laws of the United States
or any state thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes
and the Indenture, and the Indenture shall remain in full
force and effect;
(ii) immediately before and immediately after giving effect to
such transaction, no Event of Default and no Default shall
have occurred and be continuing;
41
<PAGE> 48
(iii) unless the applicable transaction involves the merger of a
Restricted Subsidiary of the Company into the Company, the
Company or, in the case of a consolidation or merger in
which the Company is not the continuing Person, the
surviving entity, after giving pro forma effect to such
transaction, could incur $1.00 of additional Indebtedness
(assuming a market rate of interest with respect to such
additional Indebtedness) pursuant to Section 4.9(a); and
(iv) unless the applicable transaction involves the merger of a
Restricted Subsidiary of the Company into the Company,
immediately after giving effect to such transaction, the
Consolidated Net Worth of the Company, or, in the case of a
consolidation or merger in which the Company is not the
continuing Person, the surviving entity, shall be equal to
or greater than the Consolidated Net Worth of the Company
immediately before such transaction.
Section 5.2. Successor Company Substituted.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole in accordance with Section 5.1 hereof, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such transfer is made, shall succeed to, and be substituted for, and
may exercise every right and power of the Company under the Indenture with the
same effect as if such successor corporation had been named as the Company
therein; and thereafter, if the Company is dissolved following a transfer of
all or substantially all of its assets in accordance with this Indenture, the
Company shall be discharged and released from all obligations and covenants
under this Indenture and the Notes. The Trustee shall enter into a
supplemental indenture to evidence the succession and substitution of such
successor Person and such discharge and release of the Company.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
An "Event of Default" occurs if one of the following shall have
occurred and be continuing:
(a) the Company defaults in the payment of (i) the principal of
(or premium, if any, on) any Notes when the same becomes due and payable
at maturity, by acceleration or otherwise, (ii) the redemption price on
any redemption date, or (iii) the Change of Control Offer Price or the Net
Proceeds Offer Price on the applicable Offer Purchase Date relating to
such Offer;
(b) the Company defaults in the payment of interest on any Note
when the same becomes due and payable, which default continues for a
period of 30 calendar days;
(c) the Company or any Subsidiary of the Company fails to comply
with any of its covenants or agreements in the Notes or this Indenture
(other than those referred to in clauses (a) and (b) above) and such
failure continues for 45 calendar days after receipt by the Company of a
Notice of Default specifying such Default;
42
<PAGE> 49
(d) an event of default on any other Indebtedness for borrowed
money of the Company or any of its Restricted Subsidiaries having an
aggregate amount outstanding in excess of $5 million which default (i) is
caused by a failure to pay when due (after giving effect to any grace
periods) any principal, premium, if any, or interest on such Indebtedness
or (ii) has caused the holders thereof to declare such Indebtedness due
and payable in advance of its scheduled maturity;
(e) the Company or any Significant Subsidiary of the Company
pursuant to or within the meaning of any Bankruptcy Law: (i) commences a
voluntary case or proceeding, (ii) consents to the entry of an order for
relief against it in an involuntary case or proceeding, (iii) consents to
the appointment of a Custodian of it or for all or substantially all of
its property, (iv) makes a general assignment for the benefit of its
creditors, or (v) admits in writing its inability to pay its debts
generally as they become due;
(f) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (i) is for relief against the Company or
any Significant Subsidiary of the Company in an involuntary case or
proceeding, (ii) appoints a Custodian of the Company or any Significant
Subsidiary of the Company or for all or substantially all of its
respective properties, or (iii) orders the liquidation of the Company or
any Significant Subsidiary of the Company; and in each case the order or
decree remains unstayed and in effect for 60 calendar days; or
(g) final non-appealable judgments for the payment of money
which in the aggregate exceed $5 million (net of applicable insurance
coverage which is acknowledged in writing by the insurer) shall be
rendered against the Company or any Significant Subsidiary of the Company
by a court and shall remain unstayed or undischarged for a period of 60
calendar days.
A Default under clause (c) above is not an Event of Default until
the Trustee notifies the Company, or the Holders of at least 25% in aggregate
principal amount of the Notes at the time outstanding notify the Company and
the Trustee, of the Default and the Company does not cure such Default within
45 days after receipt of such notice. Such notice must be in writing and
specify the Default, demand that it be remedied and state that the notice is a
"Notice of Default."
Notwithstanding the foregoing, if an Event of Default specified in
clause (d) above occurs and is continuing, such Event of Default and all
consequences thereof (including, without limitation, any acceleration or
resulting payment default) shall be annulled and rescinded, automatically and
without any action by the Trustee or the holders of the Notes, if (i) the
Indebtedness that is the subject of such Event of Default has been repaid, or
(ii) the default relating to such Indebtedness is waived or cured (and if such
Indebtedness has been accelerated, then the holders thereof have rescinded
their declaration of acceleration in respect of such Indebtedness).
Section 6.2. Acceleration.
If any Event of Default specified in clauses (a), (b), (c), (d) or
(g) of Section 6.1 hereof occurs and is continuing, then the Holders of at
least 25% in aggregate principal amount of the then outstanding Notes by
written notice to the Company and the Trustee may declare the unpaid principal
of, and any accrued interest on, all the Notes to be due and payable
immediately. If any Event of Default with respect to the Company specified in
clauses (e) or (f) of Section 6.1 hereof occurs, all outstanding principal and
interest on the Notes shall be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder. The Holders
of a majority in aggregate principal amount of the Notes then outstanding, by
written notice to the Trustee and to the Company, may rescind an acceleration
(except an acceleration due to a default in payment of the principal of, or
premium or interest
43
<PAGE> 50
on, any of the Notes) if the rescission would not conflict with any judgment or
decree and if all existing Events of Default (except nonpayment of principal,
premium or interest that have become due solely because of the acceleration)
have been cured or waived.
Section 6.3. Other Remedies.
Subject to Section 6.2, if an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect any payment due on the Notes or to enforce the performance
of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
Section 6.4. Waiver of Past Defaults.
Subject to Section 9.2, Holders of a majority in aggregate
principal amount of the then outstanding Notes by notice to the Trustee may, on
behalf of the Holders of all of the Notes, waive an existing Default or Event
of Default and its consequences hereunder (including without limitation
acceleration and its consequences, including any related payment default that
resulted from such acceleration). Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
Section 6.5. Control by Majority.
The Holders of a majority in aggregate principal amount of the
Notes then outstanding may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture or that the Trustee determines may be
unduly prejudicial to the rights of another Holder or that involves the Trustee
in personal liability. The Trustee may take any other action deemed proper by
the Trustee that is not inconsistent with such direction.
Section 6.6. Limitation on Suits.
Subject to the provisions of Section 6.7 hereof, no Holder of a
Note may pursue any remedy with respect to this Indenture or the Notes
(including without limitation the institution of any proceeding, judicial or
otherwise, with respect to the Notes or this Indenture or for the appointment
of a receiver or trustee for the Company and/or any of its Subsidiaries)
unless:
(a) the Holder has given to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in aggregate principal amount of
the Notes then outstanding have made a written request to the Trustee to
pursue the remedy;
(c) such Holders have offered to provide to the Trustee
indemnity reasonably satisfactory to the Trustee against any loss,
liability or expense;
44
<PAGE> 51
(d) the Trustee has not complied with the request within 60
calendar days after receipt of the request and the offer of indemnity; and
(e) during such 60-day period, the Holders of a majority in
aggregate principal amount of the Notes then outstanding have not given
the Trustee a direction which, in the opinion of the Trustee, is
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
Section 6.7. Rights of Holders of Notes to Receive Payment.
The right of any Holder of a Note to receive payment of principal
of, and premium, if any, and interest on, the Note, on or after the respective
due dates expressed in the Note (including in connection with an offer to
purchase), or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
Section 6.8. Collection Suit by Trustee.
If an Event of Default specified in Section 6.1(a) or (b) occurs
and is continuing, the Trustee is authorized to recover judgment in its own
name and as trustee of an express trust against the Company for principal of,
and premium, if any, and interest on, the Notes and interest on overdue
principal and, to the extent lawful, interest, and such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
Section 6.9. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Notes allowed in any judicial proceedings relative to
the Company (or any other obligor upon the Notes), its creditors or its
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.7 hereof. To the extent that the
payment of any such reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.7 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf
of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
45
<PAGE> 52
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article 6, it
shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.7 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium, if any, and interest ratably, without preference
or priority of any kind, according to the amounts due and payable on the Notes
for principal, premium, if any, and interest, respectively; and
Third: the remainder to the Company or to such party as a court
of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment
to Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, each party to this Indenture agrees, and each Holder by its
acceptance of its Notes shall be deemed to have agreed, that any court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any
party litigant in the suit, having due regard to the merits and good faith of
the claims or defenses made by the party litigant. This Section does not apply
to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.7
hereof, or a suit by Holders of more than 10% in principal amount of the then
outstanding Notes.
ARTICLE 7
TRUSTEE
Section 7.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent Person would exercise or use under the circumstances in the conduct of
its own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee shall not be liable hereunder except for such
duties of the Trustee which shall be determined solely by the
express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this
Indenture and no others, and no implied covenants or obligations
shall be read into this Indenture against the Trustee; and
46
<PAGE> 53
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall
examine the certificates and opinions to determine whether or not
such documents conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b), and (c) of this Section 7.1.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability whatsoever in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers hereunder. The Trustee shall be under no obligation to
exercise any of its rights and powers under this Indenture at the request of
any Holders, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it in its sole subjective discretion (which
discretion shall be exercised in good faith) against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.2. Rights of Trustee.
(a) Subject to Section 7.1, the Trustee may conclusively rely
upon any document believed by it to be genuine and to have been signed or
presented by the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and require an Officers' Certificate or an Opinion of
Counsel or both. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such Officers' Certificate or
Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes in its sole subjective discretion
(which discretion shall be exercised in good faith) to be authorized or within
the rights or powers conferred upon it by this Indenture.
(e) The permissive right of the Trustee to act hereunder shall
not be construed as a duty.
47
<PAGE> 54
(f) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company shall be sufficient
if signed by an Officer of the Company.
(g) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Trustee
security or indemnity satisfactory to the Trustee in its sole subjective
discretion (which discretion shall be exercised in good faith) against the
costs, expenses and liabilities that might be incurred by it in compliance with
such request or direction.
(h) The Trustee shall not be required to take notice or deemed
to have notice of any Event of Default hereunder, except failure by the Company
to make any of the payments to the Trustee pursuant to Section 6.1(a) or
Section 6.1(b) hereof, unless the Trustee shall be specifically notified in
writing of such Event of Default by the Company or by one or more of the
Holders.
Section 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest (as such term is defined in TIA Section 310(b)), it must eliminate
such conflict within 90 days, apply to the SEC for permission to continue as
trustee (to the extent permitted under TIA Section 310(b)) or resign. Any
Agent may do the same with like rights and duties. The Trustee is also subject
to Sections 7.10 and 7.11 hereof. Section 7.4. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes,
it shall not be accountable for the Company's use of the proceeds from the
Notes or any money paid to the Company or upon the Company's direction under
any provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
Section 7.5. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if
it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice
of the Default or Event of Default within 90 days after such event occurs.
Except in the case of a Default or Event of Default under Section 6.1(a) or
(b), the Trustee may withhold such notice if it determines that withholding the
notice is in the interests of the Holders of the Notes.
Section 7.6. Reports by Trustee to Holders of the Notes.
Within 60 days after each July 31 beginning with the July 31
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if
no event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by
mail all reports as required by TIA Section 313(c).
48
<PAGE> 55
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange, if any, on which the Notes are listed in accordance with and to the
extent required by TIA Section 313(d). The Company shall promptly notify the
Trustee if the Notes become listed on any stock exchange or automatic quotation
system.
Section 7.7. Compensation and Indemnity.
Absent any other agreement to the contrary, the Company shall pay
to the Trustee from time to time compensation as shall be agreed upon between
the Company and the Trustee for its acceptance of this Indenture and services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture against the
Company (including this Section 7.7) and defending itself against any claim
(whether asserted by the Company or any Holder or any other Person) or
liability in connection with the exercise or performance of any of its powers
or duties hereunder, except to the extent any such loss, liability or expense
may be attributable to its negligence or bad faith. The Trustee shall promptly
notify the Company of any claim for which it may seek indemnity. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel; provided that the Company will not be required to
pay such fees and expenses if it assumes the Trustee's defense with counsel
acceptable to and approved by the Trustee (such approval not to be unreasonably
withheld) and there is no conflict of interest between the Company and the
Trustee in connection with such defense. The Company need not pay for any
settlement made without its written consent, which consent shall not be
unreasonably withheld. The Company need not reimburse the Trustee for any
expense or indemnity against any liability or loss of the Trustee to the extent
such expense, liability or loss is attributable to the negligence, bad faith or
willful misconduct of the Trustee.
The obligations of the Company under this Section 7.7 shall
survive the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(e) or (f) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section
313(b)(2).
49
<PAGE> 56
Section 7.8. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing upon 60 days notice and be
discharged from the trust hereby created by so notifying the Company in
writing. The Holders of Notes of a majority in principal amount of the then
outstanding Notes may remove the Trustee by so notifying the Trustee and the
Company in writing and may appoint a successor trustee with the consent of the
Company. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a receiver, Custodian or public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint or request
the Trustee to appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount
of the then outstanding Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company,
or the Holders of Notes of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who
has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.7 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.8, the Company's obligations under Section 7.7
hereof shall continue for the benefit of the retiring Trustee.
Section 7.9. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
50
<PAGE> 57
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $100 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE 8
DEFEASANCE AND DISCHARGE
Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced
by a resolution set forth in an Officers' Certificate, at any time, elect to
have either Section 8.2 or 8.3 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
Section 8.2. Legal Defeasance.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.4 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by
the outstanding Notes, which shall thereafter be deemed to be "outstanding"
only for the purposes of Section 8.6 hereof and the other Sections of this
Indenture referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall
survive until otherwise terminated or discharged pursuant to this Indenture:
(a) the rights of Holders of outstanding Notes to receive solely from the trust
fund described in Section 8.4 hereof, and as more fully set forth in such
Section, payments in respect of the principal of, and premium, if any, and
interest on, such Notes when such payments are due, (b) the Company's
obligations with respect to such Notes under Article 2 and Section 4.2 hereof,
(c) the rights, powers, trusts, duties and immunities of the Trustee hereunder
and the Company's obligations in connection therewith and (d) this Article 8.
Subject to compliance with this Article 8, the Company may exercise its option
under this Section 8.2 notwithstanding the prior exercise of its option under
Section 8.3 hereof.
51
<PAGE> 58
Section 8.3. Covenant Defeasance.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, and subject to the satisfaction of the
conditions set forth in Section 8.4 hereof, the Company shall be released from
its obligations under the covenants contained in Sections 4.4, 4.5, 4.7, 4.8,
4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 5.1, and 5.2 with respect to the
outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter
be deemed not "outstanding" for the purposes of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 6.1 hereof, but, except as
specified above, the remainder of this Indenture and such Notes shall be
unaffected thereby. In addition, upon the Company's exercise under Section 8.1
hereof of the option applicable to this Section 8.3 hereof, subject to the
satisfaction of the conditions set forth in Section 8.4 hereof, Sections 6.1(c)
through 6.1(g) hereof shall not constitute Events of Default.
Section 8.4. Conditions to Legal or Covenant Defeasance.
In order to exercise either Legal Defeasance or Covenant
Defeasance, the Company must irrevocably deposit, or caused to be deposited,
with the Trustee (or another trustee satisfying the requirements of this
Indenture), in trust for such purpose, (1) money in an amount, (2) U.S.
Government Obligations which through the payment of principal and interest in
accordance with their terms will provide money in an amount, or (3) a
combination thereof, sufficient in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay the principal of, and premium, if any, and
interest on, the outstanding Notes at maturity or upon redemption, together
with all other amounts payable by the Company under the Indenture. Such Legal
Defeasance or Covenant Defeasance will become effective 91 days after such
deposit if and only if:
(i) no Default or Event of Default with respect to the
Notes shall have occurred and be continuing immediately prior to
the time of such deposit;
(ii) no Default or Event of Default pursuant to Sections
6.1(e) or 6.1(f) shall have occurred at any time in the period
ending on the 91st day after the date of such deposit and shall be
continuing on such 91st day;
(iii) such defeasance does not result in a breach or
violation of, or constitute a default under, any other agreement
or instrument to which the Company is a party or by which it is
bound (and, in furtherance of such condition, no Default or Event
of Default shall result under this Indenture due to the incurrence
of Indebtedness to fund such deposit and the entering into of
customary documentation in connection therewith, even though such
documentation may contain provisions that would otherwise give
rise to a Default or Event of Default); and
(iv) the Company has delivered to the Trustee (A)(1) in
the case of Legal Defeasance, an Opinion of Counsel to the effect
that (x) there has been published by the Internal Revenue
52
<PAGE> 59
Service a ruling or (y) since the date of this Indenture, there
has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the Holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as
a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not
occurred, or (2) in the case of Covenant Defeasance, an Opinion of
Counsel to the effect that the Holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to
federal income tax on the same amount, in the same manner and at
the same times as would have been the case if such Covenant
Defeasance had not occurred; and (B) an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent
relating to such Legal Defeasance or Covenant Defeasance have been
complied with.
Section 8.5. Discharge.
If (i) the Company shall deliver to the Trustee for cancellation
all Notes theretofore authenticated and delivered (other than any Notes which
shall have been destroyed, lost or stolen and in lieu of or in substitution for
which other Notes shall have been authenticated and delivered) and not
theretofore cancelled, or (ii) all Notes not theretofore surrendered or
delivered to the Trustee for cancellation shall have become due and payable, or
are by their terms to become due and payable within one year or are to be
called for redemption within one year under arrangements satisfactory to the
Trustee, and the Company shall irrevocably deposit with the Trustee, as trust
funds solely for the benefit of the Holders for that purpose, an amount
sufficient to pay at maturity or upon redemption all of the Notes (other than
any Notes which shall have been destroyed, lost or stolen and in lieu of or in
substitution for which other Notes shall have been authenticated and delivered)
not theretofore surrendered or delivered to the Trustee for cancellation,
including principal, premium, if any, and interest due or to become due to such
date of maturity or redemption date, as the case may be, then this Indenture
shall cease to be of further force or effect (except as to rights of
registration of transfer or exchange of the Notes provided in this Indenture)
and, at the written request of the Company, accompanied by an Officer's
Certificate and Opinion of Counsel, each stating that all conditions precedent
provided for herein relating to the satisfaction and discharge of this
Indenture have been complied with, and upon payment of the costs, charges and
expenses incurred or to be incurred by the Trustee in relation thereto or in
carrying out the provisions of this Indenture, the Trustee shall satisfy and
discharge this Indenture ("Discharge"); provided that the Company's obligations
with respect to the payment of principal, premium, if any, and interest will
not terminate until the same shall apply the moneys so deposited to the payment
to the Holders of Notes of all sums due and to become due thereon.
Section 8.6. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.7 hereof, all money and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.6, the
"Trustee") pursuant to Section 8.4 or 8.5 hereof in respect of the outstanding
Notes shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company or any of its Subsidiaries or
Affiliates acting as Paying Agent) as the Trustee may determine, to the Holders
of such Notes of all sums due and to become due thereon in respect of
principal, premium, if any, and interest but such money need not be segregated
from other funds except to the extent required by law.
53
<PAGE> 60
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the cash or U.S. Government
Obligations deposited pursuant to this Section 8.6 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or U.S. Government Obligations held by it as provided
in this Section 8.6 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section 8.4
hereof), are in excess of the amount thereof that would then be required to be
deposited to effect an equivalent Legal Defeasance, Covenant Defeasance or
Discharge.
Section 8.7. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company or any of its Subsidiaries or Affiliates, in trust for the
payment of the principal of, or premium, if any, or interest on, any Note and
remaining unclaimed for one year after such principal, premium, if any, or
interest has become due and payable shall be paid to the Company on its request
or (if then held by the Company or any of its Subsidiaries or Affiliates) shall
be discharged from such trust; and the Holder of such Note shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such
trust money, and all liability of the Company or any of its Subsidiaries or
Affiliates as trustee thereof, shall thereupon cease; provided, however, that
the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in the
New York Times and The Wall Street Journal (national edition), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
Section 8.8. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United
States dollars or U.S. Government Obligations in accordance with Section 8.2,
8.3 or 8.5 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit
had occurred pursuant to Section 8.2, 8.3 or 8.5 hereof until such time as the
Trustee or Paying Agent is permitted to apply all such assets in accordance
with Section 8.2, 8.3 or 8.5 hereof, as the case may be; provided, however,
that, if the Company makes any payment of principal of, or premium, if any, or
interest on, any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.1. Without Consent of Holders of Notes.
Notwithstanding Section 9.2 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder:
54
<PAGE> 61
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(c) to provide for the assumption of the Company's obligations
to the Holders of Notes in the case of a merger or consolidation pursuant
to Article 5 hereof;
(d) to make any change that would provide any additional rights
or benefits to the Holders of the Notes or that does not adversely affect
the legal rights hereunder of any such Holder; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA as then in
effect.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.2 hereof, the Trustee shall join with the Company in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained.
Section 9.2. With Consent of Holders of Notes.
Except as provided below in this Section 9.2, the Indenture or the
Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and, subject to Sections 6.4 and
6.7 and the last sentence of Section 6.1 hereof, any existing Default or Event
of Default (other than a Default or Event of Default in the payment of
principal of, premium, if any, or interest on, the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture or the Notes may be waived with the
consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of the documents described in
Section 7.2 hereof, the Trustee shall join with the Company in the execution of
such amended or supplemental Indenture and to make any further appropriate
agreements and stipulations that may be therein contained, but the Trustee
shall not be obligated to enter into such amended or supplemental Indenture
that adversely affects its own rights, duties, liabilities or immunities under
this Indenture or otherwise.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.2 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.2
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.4 and 6.7 hereof, the
Holders of a majority in principal amount of the
55
<PAGE> 62
Notes then outstanding may waive compliance in a particular instance by the
Company with any provision of this Indenture or the Notes. However, without
the consent of each Holder affected, an amendment or waiver may not (with
respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Note or alter the provisions with respect to the redemption of the Notes;
(c) reduce the rate of or change the time for payment of interest
on any Note;
(d) waive a Default or Event of Default in the payment of
principal of, or premium, if any, or interest on, the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating
to waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of, premium, if any, or interest on, the Notes;
(g) waive a redemption payment with respect to any Note; or
(h) make any change in the foregoing amendment and waiver
provisions.
In addition, any amendment to the provisions of Article 10 of this
Indenture requires the consent of the Holders of at least 66-2/3% in aggregate
principal amount of the Notes then outstanding if such amendment would
adversely affect the rights of Holders of the Notes.
Section 9.3. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall
be set forth in an amended or supplemental Indenture that complies with the TIA
as then in effect.
Section 9.4. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent
Holder of a Note may revoke the consent as to its Note if the Trustee receives
written notice of revocation before the date the waiver, supplement or
amendment has been approved by the requisite Holders. An amendment, supplement
or waiver becomes effective when approved by the requisite Holders and executed
by the Trustee (or, if otherwise provided in such waiver, supplement or
amendment, in accordance with its terms) and thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver. If a record date
56
<PAGE> 63
is fixed, then notwithstanding the last sentence of the immediately preceding
paragraph, those Persons who were Holders at such record date (or their duly
designated proxies), and only those Persons, shall be entitled to consent to
such amendment or waiver or revoke any consent previously given, whether or not
such Persons continue to be Holders after such record date. No consent shall
be valid or effective for more than 90 days after such record date except to
the extent that the requisite number of consents to the amendment, supplement
or waiver have been obtained within such 90- day period or as set forth in the
next paragraph of this Section 9.4.
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder, unless it makes a change described in any of clauses
(a) through (h) of Section 9.2, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Note who has consented to it and every
subsequent Holder of a Note or portion of a Note that evidences the same
indebtedness as the consenting Holder's Note.
Section 9.5. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue, and the Trustee shall authenticate, new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.
Section 9.6. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
In executing any amended or supplemental indenture, the Trustee shall be
entitled to receive and (subject to Section 7.1) shall be fully protected in
relying upon, an Officer's Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental indenture is authorized or
permitted by this Indenture.
Section 9.7. Payments for Consent.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any
terms or provisions of the Notes unless such consideration is offered to be
paid or agreed to be paid to all Holders of the Notes which so consent, waive
or agree to amend in the time frame set forth in solicitation documents
relating to such consent, waiver or agreement.
ARTICLE 10
SUBORDINATION
Section 10.1. Agreement to Subordinate.
The Company agrees, and each Holder by accepting a Note agrees,
that the payment of principal of, and premium, if any, and interest on, and
other Obligations evidenced by, the Notes is subordinated in right of payment,
to the extent and in the manner provided in this Article 10, to the prior
payment in
57
<PAGE> 64
full of all Senior Indebtedness (whether outstanding on the date hereof or
hereafter incurred), and that the subordination is for the benefit of the
holders of Senior Indebtedness.
Section 10.2. Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in a liquidation
or dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities:
(1) holders of Senior Indebtedness shall be entitled to receive
payment in full in Cash (or U.S. dollar- denominated Cash Equivalents) of
all Obligations due in respect of such Senior Indebtedness (including
interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Indebtedness) before the Holders of
Notes shall be entitled to receive any payment of any kind or character
with respect to the Notes; and
(2) until all Obligations with respect to Senior Indebtedness
are paid in full in Cash (or U.S. dollar- denominated Cash Equivalents),
any distribution to which the Holders of Notes would be entitled but for
this Article 10 shall be made to the holders of such Senior Indebtedness.
Notwithstanding the foregoing, Holders of Notes may receive (i)
securities that are subordinated at least to the same extent as the Notes to
Senior Indebtedness and any securities issued in exchange for Senior
Indebtedness and (ii) payments made from the trusts described in Sections 8.4
and 8.5 hereof.
Section 10.3. Default on Designated Senior Indebtedness.
The Company may not make any payment of any kind or character upon
or in respect of the Notes (other than in (i) securities that are subordinated
to the same extent as the Notes to Senior Indebtedness and any securities
issued in exchange for Senior Indebtedness and (ii) payments made from the
trusts described in Sections 8.4 and 8.5 hereof) if:
(i) a default in the payment of the principal of, premium, if any,
or interest on Designated Senior Indebtedness occurs and is continuing; or
(ii) any other default occurs and is continuing with respect to
Designated Senior Indebtedness that permits holders of the Designated
Senior Indebtedness as to which such default relates to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Company or the holders of any Designated Senior
Indebtedness.
Payments on the Notes may and shall be resumed:
(a) in the case of default referred to in Section 10.3(i), upon
the date on which such default is cured or waived, and
(b) in case of a default referred to in Section 10.3(ii), upon the
earlier of (i) the date on which such default is cured or waived or (ii)
179 days after the date on which the applicable Payment Blockage Notice is
received by the Trustee (unless the maturity of any Designated Senior
Indebtedness has been accelerated or unless the provisions of this Article
10 otherwise do not permit such payment).
58
<PAGE> 65
In no event shall more than one period of payment blockage be made
in any 360 consecutive day period. No nonpayment default that existed or was
continuing on the date of receipt by the Trustee of any Payment Blockage Notice
shall be, or be made, the basis for a subsequent Payment Blockage Notice.
Following the expiration of any period during which the Company is prohibited
from making payments on the Notes pursuant to a Payment Blockage Notice, the
Company will be obligated to resume making any and all required payments in
respect of the Notes, including without limitation any missed payments.
Section 10.4. Acceleration of Notes.
The Company and the Trustee shall promptly notify holders of
Designated Senior Indebtedness if payment on the Notes is accelerated because
of an Event of Default.
Section 10.5. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder receives any payment
of any Obligations with respect to the Notes at a time when the Trustee or such
Holder, as applicable, has actual knowledge that such payment is prohibited by
Section 10.3 hereof, such payment shall be held by the Trustee or such Holder,
in trust for the benefit of and, upon written request, shall be paid forthwith
over and delivered to, the holders of Senior Indebtedness as their interests
may appear or their Representative under the indenture or other agreement (if
any) pursuant to which Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations with respect to Senior Indebtedness remaining unpaid to the extent
necessary to pay such Obligations in full in accordance with their terms, after
giving effect to any concurrent payment or distribution to or for the holders
of Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of Senior Indebtedness, and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or on
behalf of Holders or the Company or any other Person money or assets to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
10, except if such payment is made as a result of the willful misconduct or
gross negligence of the Trustee.
Section 10.6. Notice by the Company.
The Company shall promptly notify the Trustee and the Paying Agent
of any facts known to the Company that would cause a payment of any Obligations
with respect to the Notes to violate this Article 10, but failure to give such
notice shall not affect the subordination of the Notes to the Senior
Indebtedness as provided in this Article.
Section 10.7. Subrogation.
After all Senior Indebtedness is irrevocably paid in full in Cash
or U.S. dollar-denominated Cash Equivalents reasonably satisfactory to the
holders thereof and until the Notes are paid in full, Holders shall be
subrogated (equally and ratably with all other Indebtedness pari passu with the
Notes) to the rights of holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness to the extent that distributions otherwise
payable to the Holders have been applied to the payment of Senior Indebtedness.
A distribution made under this Article to holders of Senior Indebtedness that
59
<PAGE> 66
otherwise would have been made to Holders is not, as between the Company and
Holders, a payment by the Company on the Notes.
Section 10.8. Relative Rights.
This Article defines the relative rights of Holders and holders of
Senior Indebtedness. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders, the obligation
of the Company, which is absolute and unconditional, to pay principal of
and interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders and creditors of the
Company other than their rights in relation to holders of Senior
Indebtedness; or
(3) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Indebtedness to receive
distributions and payments otherwise payable to Holders.
If the Company fails because of this Article 10 to pay principal
of or interest on a Note on the due date, the failure is still a Default or
Event of Default.
Section 10.9. Subordination May Not Be Impaired by the Company.
No right of any holder of Senior Indebtedness to enforce the
subordination of the Indebtedness evidenced by the Notes shall be impaired by
any act or failure to act by the Company or any Holder or by the failure of the
Company or any Holder to comply with this Indenture.
Section 10.10. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders
of Senior Indebtedness, the distribution may be made and the notice given to
their Representative.
Upon any payment or distribution of assets of the Company referred
to in this Article 10, the Trustee and the Holders shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction or upon
any certificate of such Representative or of the liquidating trustee or agent
or other Person making any distribution to the Trustee or to the Holders for
the purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of Senior Indebtedness and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
10.
Section 10.11. Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Notes to violate this Article. Only the Company or a
60
<PAGE> 67
Representative may give the notice. Nothing in this Article 10 shall impair
the claims of, or payments to, the Trustee under or pursuant to Section 7.7
hereof.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness (or a Representative of such holder) to establish that such notice
has been given by a holder of Senior Indebtedness (or a Representative of any
such holder). In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article 10, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article 10, and if such
evidence is not furnished, the Trustee may defer any payment which it may be
required to make for the benefit of such Person pursuant to the terms of this
Indenture pending judicial determination as to the rights of such Person to
receive such payment.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness with the same rights it would have if it were not Trustee.
Any Agent may do the same with like rights.
Section 10.12. Authorization to Effect Subordination.
Each Holder of a Note by the Holder's acceptance thereof
authorizes and directs the Trustee on the Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination as provided
in this Article 10, and appoints the Trustee to act as the Holder's
attorney-in-fact for any and all such purposes.
ARTICLE 11
MISCELLANEOUS
Section 11.1. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA Section 318(c), such TIA-imposed duties shall
control.
Section 11.2. Notices.
Any notice or communication by the Company or the Trustee to the
other is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
61
<PAGE> 68
If to the Company:
Cinemark USA, Inc.
7502 Greenville Avenue
Suite 800
Dallas, Texas 75231
Phone No.: (214) 696-1644
Telecopier No.: (214) 369-9972
Attention: General Counsel
With a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201
Phone No.: (214) 969-2800
Telecopier No.: (214) 969-4343
Attention: Terry M. Schpok, P.C.
If to the Trustee:
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Suite 2700
Dallas, Texas 75201
Phone No.: (214) 754-1255
Telecopier No.: (214) 754-1303
Attention: Corporate Trust Department
With a copy to:
Haynes and Boone, L.L.P.
1300 Burnett Plaza
801 Cherry Street
Fort Worth, Texas 76102-6866
Phone No.: (817) 347-6600
Telecopier No.: (817) 347-6650
Attention: William Greenhill, Esq.
The Company or the Trustee, by notice to the other, may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery, in each case to the address shown
above. Notwithstanding the foregoing, notices to the Trustee shall only be
effective upon actual receipt thereof by the Trustee at the Corporate Trust
Office of the Trustee.
62
<PAGE> 69
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
Section 11.3. Communication by Holders of Notes with Other Holders of
Notes.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection
of TIA Section 312(c).
Section 11.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 11.5 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 11.5 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
Section 11.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions
of TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) the opinion of such Person, that he or she has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(c) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
63
<PAGE> 70
Section 11.6. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules
and set reasonable requirements for its functions.
Section 11.7. No Personal Liability of Directors, Officers, Employees and
Others.
No past, present or future director, officer, employee, agent,
manager, incorporator, stockholder or other Affiliate of the Company, as such,
shall have any liability for any obligations of the Company under any of the
Notes, this Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
Section 11.8. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE THIS INDENTURE AND THE NOTES.
Section 11.9. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture,
loan or debt agreement of the Company or its Subsidiaries or of any other
Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
Section 11.10. Successors.
This Indenture shall inure to the benefit of and be binding upon
the parties hereto and each of their respective successors and assigns, except
that the Company may not assign this Indenture or its obligations hereunder
except as expressly permitted by Sections 5.1 and 5.2. Without limiting the
generality of the foregoing, this Indenture shall inure to the benefit of all
Holders from time to time. Except as set forth in Article 10, nothing
expressed or mentioned in this Indenture is intended or shall be construed to
give any Person, other than the parties hereto, their respective successors and
assigns, and the Holders, any legal or equitable right, remedy or claim under
or in respect of this Indenture or any provision herein contained.
Section 11.11. Severability.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.12. Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
64
<PAGE> 71
Section 11.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
Section 11.14. Counterparts.
This Indenture may be signed in counterparts and by the different
parties hereto in separate counterparts, each of which shall constitute an
original and all of which together shall constitute one and the same
instrument.
[Signatures on following page]
65
<PAGE> 72
IN WITNESS WHEREOF, the parties hereto have executed this Indenture
this August 15, 1996.
CINEMARK USA, INC.
By: /s/ Jeff Stedman
------------------------------------
Name: Jeff Stedman
Title: Vice President
U.S. TRUST COMPANY OF TEXAS, N.A.
as Trustee
By: /s/ Bill Barber
------------------------------------
Name: Bill Barber
Title: Vice President
66
<PAGE> 73
Exhibit A
(Face of Note)
Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the Company or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.1/
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) WHO IS AN INSTITUTION (AN
"INSTITUTIONAL ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT PRIOR TO THE
DATE WHICH IS THREE YEARS AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE OF
THIS NOTE AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER
WAS THE OWNER OF THIS NOTE (THE "RESALE RESTRICTION TERMINATION DATE") RESELL,
PLEDGE OR OTHERWISE TRANSFER THIS NOTE, EXCEPT (A) TO THE ISSUER, (B) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH THE RESALE PROVISIONS OF RULE 144A UNDER
THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO THE TRUSTEE A WRITTEN CERTIFICATION CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D)
PURSUANT TO THE RESALE LIMITATIONS PROVIDED BY RULE 144 UNDER THE SECURITIES
ACT (IF AVAILABLE), (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (BASED UPON AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER IF THE ISSUER SO REQUESTS) SUBJECT
IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION
OF ITS PROPERTY OR THE PROPERTY OF SUCH ACCOUNT BE AT ALL TIMES WITHIN ITS
CONTROL AND TO COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS AND (3) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRUSTEE AND THE ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE
- ----------------------------------
1. This paragraph should be included only if the Note is issued in global
form.
1
<PAGE> 74
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE FOREGOING RESTRICTIONS ON
RESALE WILL NOT APPLY SUBSEQUENT TO THE RESALE RESTRICTION TERMINATION DATE.2/
- ----------------------------------
2. This legend not required in the case of (1) a Note issued pursuant
to Section 2.6(g)(ii) of the Indenture or (2) a Series B Note issued
pursuant to Section 2.6(g)(iii) of the Indenture.
2
<PAGE> 75
CINEMARK USA, INC.
9-5/8% Senior Notes due 2008 [, Series A][, Series B]
No. $__________
CUSIP #__________
Cinemark USA, Inc., a Texas corporation (the "Company")
promises to pay to
or registered assigns,
the principal sum of $__________________________Dollars on August 1,
2008
Interest Payment Dates: February 1 and August 1, commencing on
February 1, 1997.
Record Dates: January 15 and July 15
Dated: ______________, 1996
CINEMARK USA, INC.
By:
------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
This is one of the
Notes referred to in the
within-mentioned Indenture:
U.S. TRUST COMPANY OF TEXAS, N.A.
as Trustee
By:
----------------------------------
Authorized Signatory
Dated:
-------------------------------
3
<PAGE> 76
(Back of Note)
9-5/8% Senior Notes due 2008[, Series A] [,Series B]
Capitalized terms used herein but not defined shall have the meanings
assigned to them in the Indenture referred to below unless otherwise indicated.
1. Interest. The Notes will be limited in aggregate principal
amount to $200 million and will mature on August 1, 2008. The Company promises
to pay interest on the principal amount of this Note from August 15, 1996 until
maturity. The Company will pay interest semi-annually on February 1 and August
1 of each year, commencing February 1, 1997, or if any such day is not a
Business Day, on the next succeeding Business Day (each an "Interest Payment
Date"). Interest on the Notes will accrue at the rate of 9-5/8% per annum from
the most recent date to which interest has been paid or, if no interest has
been paid, from the Initial Issuance Date. The Company shall pay interest
(including post- petition interest in any proceeding under any Bankruptcy Law
to the extent that such interest is an allowed claim enforceable against the
debtor under such Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at the rate equal to 1% per annum in excess of the
rate then in effect; it shall pay interest (including post- petition interest
in any proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of
a 360-day year of twelve 30-day months. Notwithstanding any other provision of
the Indenture or this Note: (i) accrued and unpaid interest on the Series A
Notes being exchanged in the Exchange Offer shall be due and payable on the
next Interest Payment Date for the Series B Notes following the Exchange Offer,
(ii) interest on the Series B Notes to be issued in the Exchange Offer shall
accrue from the date the Exchange Offer is consummated and (iii) the Series B
Notes shall have no provisions for Liquidated Damages.
2. Method of Payment. The Company shall pay the principal of,
and premium and interest on, the Notes on the dates and in the manner provided
herein and in the Indenture. Principal of, and premium and interest on,
Definitive Notes will be payable, and Definitive Notes may be presented for
registration of transfer or exchange, at the office or agency of the Company
maintained for such purpose. Principal of, and premium and interest on, Global
Notes will be payable by the Company through the Trustee to the Depository in
immediately available funds. Holders of Definitive Notes will be entitled to
receive interest payments by wire transfer in immediately available funds if
appropriate wire transfer instructions have been received in writing by the
Trustee not less than 15 days prior to the applicable Interest Payment Date.
Such wire instructions, upon receipt by the Trustee, shall remain in effect
until revoked by such Holder. If wire instructions have not been received by
the Trustee with respect to any Holder of a Definitive Note, payment of
interest may be made by check in immediately available funds mailed to such
Holder at the address set forth upon the Register maintained by the Registrar.
3. Paying Agent and Registrar. Initially, U.S. Trust Company of
Texas, N.A., the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity, except that none of the Company, its Subsidiaries or their Affiliates
shall act (i) as Paying Agent in connection with any redemption, offer to
purchase, discharge or defeasance, as otherwise specified in the Indenture, and
(ii) as Paying Agent or Registrar if a Default or Event of Default has occurred
and is continuing.
4. Indenture. The Company issued the Notes under an Indenture
dated as of August 15, 1996 (as such may be amended, supplemented or restated
from time to time, the "Indenture") between
4
<PAGE> 77
the Company and the Trustee. The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The
Notes are subject to all such terms, and Holders are referred to the Indenture
and such Act for a statement of such terms. The Notes are senior unsecured
obligations of the Company limited to $200 million in aggregate principal
amount.
5. Optional Redemption.
The Notes will not be redeemable at the Company's option prior to
August 1, 2001, except as provided below. Thereafter, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice to the Holders, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest thereon to the applicable redemption
date, if redeemed during the twelve month period beginning on August 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 104.813%
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 102.406%
2003 and thereafter . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, on and prior to August 1, 1999, the
Company may redeem up to 35% of the aggregate principal amount of the Notes
originally outstanding at a redemption price of 110% of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, with
the net proceeds of one or more Equity Offerings of the Company or, if
applicable, a Parent, as described in Section 3.7 of the Indenture; provided
that at least 65% of the aggregate principal amount of the Notes originally
issued remains outstanding immediately after the occurrence of such redemption
(but such unredeemed Notes may be redeemed pursuant to the optional redemption
procedure described in the immediately preceding paragraph; and provided,
further, that such notice of redemption shall be given not later than 30 days,
and such redemption shall occur not later than 90 days, after the date of the
closing of any such Equity Offering. On and after the redemption date,
interest ceases to accrue on the Notes or portions thereof called for
redemption.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.
7. Repurchase at Option of Holder.
(a) Upon a Change of Control, the Company shall be required to make
an offer to Holders to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of each Holder's Notes at a purchase price equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon to the date of purchase as provided in, and subject to the
terms of, the Indenture.
(b) If the Company or any Restricted Subsidiary consummates any
Asset Disposition, the Company may be required, subject to the terms and
conditions of the Indenture, to utilize a certain portion of the proceeds
received from such Asset Disposition to repurchase Notes at a purchase price
equal to 100% of the principal amount thereof, plus accrued interest thereon to
the date of purchase.
5
<PAGE> 78
8. Denominations, Transfer, Exchange. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date
and the corresponding Interest Payment Date.
9. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
10. Unclaimed Money . If money for the payment of principal,
premium or interest remains unclaimed for one year, the Trustee and the Paying
Agent will pay the money back to the Company at its request. After that, all
liability of the Trustee and such Paying Agent with respect to such money shall
cease.
11. Defeasance Prior to Redemption or Maturity. Subject to certain
conditions contained in the Indenture, the Company at any time may terminate
some or all of its obligations under the Notes and the Indenture if the Company
deposits with the Trustee money or U.S. Government Obligations sufficient to
pay the principal of, and premium and interest on, the Notes to redemption or
maturity, as the case may be.
12. Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding, and any existing Default or Event or Default or compliance
with any provision of the Indenture or the Notes may be waived with the consent
of the Holders of a majority in principal amount of the then outstanding Notes.
Without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
Notes in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the TIA as then in effect.
13. Defaults and Remedies. Events of Default include: (i) default
by the Company in the payment of (A) the principal of (or premium, if any, on)
any Notes when the same becomes due and payable at maturity, by acceleration or
otherwise, (B) the redemption price on any redemption date, or (C) the Change
of Control Offer Price or the Net Proceeds Offer Price on the applicable Offer
Purchase Date relating to such Offer; (ii) default by the Company in the
payment of interest on any Note when the same becomes due and payable, which
default continues for a period of 30 calendar days; (iii) failure by the
Company or any Subsidiary of the Company to comply with any of its covenants or
agreements in the Notes or the Indenture (other than those referred to in
clauses (i) and (ii) above), which failure continues for 45 calendar days after
receipt by the Company of a Notice of Default specifying such Default; (iv) an
event of default on any other Indebtedness for borrowed money of the Company or
any of its Restricted Subsidiaries having an aggregate amount outstanding in
excess of $5 million which default (A) is caused by a failure to pay when due
(after giving effect to any grace periods) any principal of, or premium, if
any, or interest on, such Indebtedness or (B) has caused the holders thereof to
declare
6
<PAGE> 79
such Indebtedness due and payable in advance of its scheduled maturity; (v)
certain events of bankruptcy or insolvency with respect to the Company or any
Significant Subsidiary of the Company; or (vi) the rendering of final
non-appealable judgments for the payment of money which in the aggregate exceed
$5 million (net of applicable insurance coverage which is acknowledged in
writing by the insurer) against the Company or any Significant Subsidiary of
the Company by a court and which remain unstayed or undischarged for a period
of 60 calendar days.
A Default under clause (iii) of the immediately preceding paragraph
is not an Event of Default until the Trustee notifies the Company, or the
Holders of at least 25% in principal amount of the Notes at the time
outstanding notify the Company and the Trustee, of the Default and the Company
does not cure such Default within 45 days after receipt of such notice.
Notwithstanding the foregoing, if an Event of Default specified in clause (iv)
of the immediately preceding paragraph occurs and is continuing, such Event of
Default and all consequences thereof (including, without limitation, any
acceleration or resulting payment default) shall be annulled and rescinded,
automatically and without any action by the Trustee or the holders of the
Notes, if (i) the Indebtedness that is the subject of such Event of Default has
been repaid, or (ii) the default relating to such Indebtedness is waived or
cured (and if such Indebtedness has been accelerated, then the holders thereof
have rescinded their declaration of acceleration in respect of such
Indebtedness). If any Event of Default under clauses (i), (ii), (iii), (iv) or
(vi) of the immediately preceding paragraph occurs and is continuing, then the
Holders of at least 25% in aggregate principal amount of the then outstanding
Notes by written notice to the Company and the Trustee may declare the unpaid
principal of, and any accrued interest on, all the Notes to be due and payable
immediately. If any Event of Default with respect to the Company specified in
clause (v) of the immediately preceding paragraph occurs, all outstanding
principal and interest on the Notes shall be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Trustee and to the Company, may rescind
an acceleration (except an acceleration due to a default in payment of the
principal of, or premium or interest on, any of the Notes) if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default (except nonpayment of principal, premium or interest that have become
due solely because of the acceleration) have been cured or waived.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect any
payment due, or to enforce the performance of any provision, under the Notes or
the Indenture. The Trustee may refuse to enforce the Indenture or the Notes
unless it receives reasonable indemnity or security. Holders of Notes may not
enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of
the Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the Notes notice of any continuing Default
or Event of Default (except under clauses (i) or (ii) above) if it determines
that withholding notice is in their interest.
14. Trustee's Dealings with Company. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee, subject to the
provisions of TIA Section 310.
15. No Recourse Against Others. A director, officer, employee,
agent, manager, incorporator, stockholder or other Affiliate of the Company, as
such, shall not have any liability for any obligations of the Company under any
of the Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
7
<PAGE> 80
16. Authentication. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
17. Abbreviations. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
18. Additional Rights of Holders of Transfer Restricted Securities.
In addition to the rights provided to Holders under the Indenture, Holders of
Transfer Restricted Securities shall have all the rights set forth in the
Registration Rights Agreement.
19. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is
made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
20. Governing Law. THE INDENTURE AND THIS NOTE SHALL BE GOVERNED
AND CONSTRUED BY THE INTERNAL LAW OF THE STATE OF NEW YORK.
21. Successor Corporation. In the event a successor corporation
assumes all the obligations of the Company under the Notes and the Indenture,
pursuant to the terms thereof, the Company will be released from all such
obligations.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Cinemark USA, Inc.
7502 Greenville Avenue
Suite 800
Dallas, Texas 75231
Phone No.: (214) 696-1644
Telecopier No.: (214) 369-9972
Attention: General Counsel
8
<PAGE> 81
Assignment Form
To assign this Note, fill in the form below and have your signature
guaranteed: (I) or (we) assign and transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date: Your Name:
------------------------- -------------------------
(Print your name exactly as it
appears on the face of this Note)
Your Signature:
--------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee*:
--------------
- ------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
9
<PAGE> 82
Option of Holder to Elect Purchase
If you elect to have this Note purchased by the Company pursuant to
Section 4.10 or Section 4.14 of the Indenture, check the appropriate box below:
[ ] Section 4.10 [ ] Section 4.14
If you elect to have only part of this Note purchased by the Company
pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount (in
minimum denominations of $1000 or integral multiples thereof) you elect to have
purchased: $___________
Date: Your Name:
----------------------- ------------------------------
(Print your name exactly as it appears
on the face of this Note)
Your Signature:
-------------------------
(Sign exactly as your name appears on
the Note)
Social Security or Tax Identification
No.:
------------------------------------
Signature Guarantee*:
-------------------
- -----------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
10
<PAGE> 83
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTE3/
The following exchanges of a part of this Global Note for Definitive Notes have
been made:
<TABLE>
<CAPTION>
Principal Amount of Signature of
this Global Note authorized officer
Amount of decrease in Amount of increase in following such authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
------------------- --------------------- --------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
- ----------------------------------
3. This schedule should be included only if the Note is issued in global
form.
11
<PAGE> 84
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES
Re: 9-5/8% Senior Subordinated Notes due 2008 of Cinemark USA, Inc.
This Certificate relates to $_____ principal amount of Notes held in
* [ ] global or * [ ] definitive form by ________________ (the "Transferor").
The Transferor*:
[ ] has requested the Trustee by written order to deliver, in exchange
for its beneficial interest in the Global Note held by the Depositary, a Note
or Notes in definitive, registered form or a beneficial interest in the Series
B Global Note issued pursuant to the Exchange Offer, in both cases in the
authorized denominations in an aggregate principal amount equal to its
beneficial interest in such Global Note (or the portion thereof indicated
above); or
[ ] has requested the Trustee by written order to exchange or register
the transfer of a Note or Notes.
[ ] In connection with such request and in respect of each such Note, the
Transferor does hereby certify that it is familiar with the Indenture relating
to the above captioned Notes, and the transfer of this Note does not require
registration under the Securities Act of 1933, as amended (the "Securities
Act") because such Note*:
[ ] is being acquired for the Transferor's own account, without transfer;
[ ] is being transferred pursuant to an effective registration statement;
[ ] is being transferred to a "qualified institutional buyer" (as defined
in Rule 144A under the Securities Act), in reliance on such Rule
144A;
[ ] is being transferred pursuant to an exemption from registration in
accordance with Rule 904 under the Securities Act;**
[ ] is being transferred pursuant to Rule 144 under the Securities Act; or
- ----------------------------------
* Check applicable box.
** If this box is checked, this certificate must be accompanied by an
opinion of counsel to the effect that such transfer is in compliance
with the Securities Act.
1
<PAGE> 85
[ ] is being transferred pursuant to another exemption from the
registration requirements of the Securities Act (explain: ------------
----------------------------------------------------------------------
)***
--------------
Date: Your Name:
----------------------- ------------------------------
(Print your name exactly as it appears
on the face of this Note)
Your Signature:
-------------------------
(Sign exactly as your name appears on
the Note)
Social Security or Tax Identification
No.:
------------------------------------
Signature Guarantee*:
-------------------
- ----------------------------------
*** If this box is checked, this certificate must be accompanied by a
opinion of counsel to the effect that such transfer is in compliance
with the Securities Act.
**** Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
2
<PAGE> 1
EXHIBIT 4.3
================================================================================
EXCHANGE REGISTRATION RIGHTS AGREEMENT
Dated as of August 15, 1996
by and among
CINEMARK USA, INC.,
BEAR, STEARNS & CO. INC.,
GOLDMAN, SACHS & CO.
and
MORGAN STANLEY & CO. INCORPORATED
================================================================================
<PAGE> 2
This Exchange and Registration Rights Agreement (this "Agreement") is
made and entered into as of August 15, 1996 by and among Cinemark USA, Inc., a
Texas corporation ("Cinemark"), Bear, Stearns & Co. Inc. ("Bear Stearns"),
Goldman, Sachs & Co. ("Goldman Sachs"), and Morgan Stanley & Co. Incorporated
("Morgan Stanley"). Bear Stearns, Goldman Sachs and Morgan Stanley are
hereafter referred to collectively as the "Purchasers".
Pursuant to the Purchase Agreement, dated August 12, 1996 (the
"Purchase Agreement"), by and among Cinemark and the Purchasers, the Purchasers
have agreed to purchase the aggregate principal amount of Cinemark's 9- 5/8%
Senior Subordinated Notes due 2008 (the "Series A Notes") set forth on Schedule
I thereto.
In order to induce the Purchasers to purchase the Series A Notes,
Cinemark has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Purchasers set forth in Section 3 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Business Day: Any day except a Saturday, Sunday or other day in the
City of New York on which banks are authorized to close.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummate: A Registered Exchange Offer shall be deemed
"Consummated" for purposes of this Agreement upon the occurrence of (i) the
filing and effectiveness under the Act of the Exchange Offer Registration
Statement relating to the Series B Notes to be issued in the Exchange Offer,
(ii) the maintenance of such Registration Statement continuously effective and
the keeping of the Exchange Offer open for a period not less than the minimum
period required pursuant to Section 3(b) hereof, and (iii) the delivery by
Cinemark to the Trustee under the Indenture of Series B Notes in the same
aggregate principal amount as the aggregate principal amount of Series A Notes
that were validly tendered by Holders thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Series A Notes, each
Interest Payment Date.
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by Cinemark under the Act of the
Series B Notes pursuant to an Exchange Offer Registration Statement pursuant to
which Cinemark offers the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities held by such Holders for Series B Notes in an aggregate principal
amount equal to the aggregate principal amount of the Transfer Restricted
Securities validly tendered in such exchange offer by such Holders.
1
<PAGE> 3
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Purchasers propose to
sell the Series A Notes to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act, and to certain institutional
"accredited investors," as such term is defined in Rule 501(a)(1), (2), (3) and
(7) of Regulation D under the Act ("Accredited Institutions").
Holders: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of August 15, 1996, between
Cinemark and U.S. Trust Company of Texas, N.A., as trustee (the "Trustee"),
pursuant to which the Securities are to be issued, as such Indenture is amended
or supplemented from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the
Securities.
Liquidated Damages: As defined in Section 5 hereof.
NASD: National Association of Securities Dealers, Inc.
Person: An individual, partnership, corporation, limited liability
company, joint venture, association, trust or other organization whether or not
a legal entity, or a government or agency or political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other
amendments thereto, including post-effective amendments, and all material
incorporated by reference into such Prospectus.
Purchasers: As defined in the preamble hereto.
Record Holder: With respect to any Damages Payment Date relating to
the Securities, each Person who is a Holder of the Securities on the record
date with respect to the Interest Payment Date on which such Damages Payment
Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of Cinemark
relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the provisions of
this Agreement, in each case, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.
Securities: The Series A Notes and the Series B Notes.
Series B Notes: Cinemark's 9-5/8% Senior Subordinated Notes due 2008
to be issued pursuant to the Indenture in the Exchange Offer.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration: A registration effected by the filing of a Shelf
Registration Statement pursuant to Section 4 hereof.
2
<PAGE> 4
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 as in effect on the date of the
Indenture.
Transfer Restricted Securities: Each of the Securities, until the
earliest to occur, with respect to a particular Security, of (a) the date on
which such Security is exchanged in the Exchange Offer and entitled to be
resold to the public by the Holder thereof without complying with the
prospectus delivery requirements of the Act, (b) the date on which such
Security has been effectively registered under the Act and disposed of in
accordance with a Shelf Registration Statement, (c) the date on which such
Security may be distributed to the public pursuant to Rule 144 under the Act or
by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (d) the date such Security ceases to be outstanding.
Underwritten Registration or Underwritten Offering: A registration
in which securities of Cinemark are sold to an underwriter for reoffering to
the public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The Securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed
to be a holder of Transfer Restricted Securities (each, a "Holder") whenever
such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under
applicable law or Commission policy (so long as the procedures set forth in
Section 6(a) below are being or have been complied with), Cinemark shall (i)
use its best efforts to cause to be filed with the Commission, not later than
30 days after the Closing Date, the Exchange Offer Registration Statement under
the Act relating to the Series B Notes and the Exchange Offer, (ii) use its
best efforts to cause such Exchange Offer Registration Statement to be declared
effective by the Commission at the earliest practicable time, but not later
than 90 days after the Closing Date, (iii) in connection with the foregoing,
file (A) all pre-effective amendments to such Exchange Offer Registration
Statement as may be necessary in order to cause such Exchange Offer
Registration Statement to become effective, (B) if applicable, a post-effective
amendment to such Exchange Offer Registration Statement pursuant to Rule 430A
under the Act and (C) cause all necessary filings in connection with the
registration and qualification of the Series B Notes to be made under the Blue
Sky laws of such jurisdictions as are necessary to permit Consummation of the
Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer
Registration Statement, commence and Consummate the Exchange Offer. The
Exchange Offer shall be on an appropriate form permitting registration of the
Series B Notes to be offered in exchange for the Transfer Restricted Securities
and to permit resales of Securities held by Broker- Dealers as contemplated by
Section 3(c) below. If, after such Exchange Offer Registration Statement
initially is declared effective by the Commission, the Exchange Offer or the
issuance of Series B Notes thereunder or the sale of Transfer Restricted
Securities pursuant thereto as contemplated by Section 3(c) below is interfered
with by any stop order, injunction or other order or requirement of the
Commission or any other governmental agency or court, such Exchange Offer
Registration Statement shall be deemed not to have become effective for
purposes of this Agreement during the period that such stop order, injunction
or other similar order or requirement shall remain in effect.
(b) Cinemark shall use its best efforts to cause the Exchange Offer
Registration Statement to be effective continuously and shall keep the Exchange
Offer open for a period of not less than the minimum period required under
applicable federal and state securities laws to Consummate the Exchange Offer;
provided, however, that in no event shall such period be less than 20 Business
Days. Cinemark shall cause the Exchange Offer to
3
<PAGE> 5
comply with all applicable federal and state securities laws. No securities
other than the Securities shall be included in the Exchange Offer Registration
Statement. Cinemark shall use its best efforts to cause the Exchange Offer to
be Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but not later than 30 days
thereafter.
(c) Cinemark shall indicate in a "Plan of Distribution" section
contained in the Prospectus included in the Exchange Offer Registration
Statement that any Broker-Dealer who holds Series A Notes that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from Cinemark), may exchange such
Series A Notes pursuant to the Exchange Offer; provided, however, such
Broker-Dealer may be deemed to be an "underwriter" within the meaning of the
Act and must, therefore, deliver a prospectus meeting the requirements of the
Act in connection with any resales of the Series B Notes received by such
Broker-Dealer in the Exchange Offer, which prospectus delivery requirement may
be satisfied by the delivery by such Broker-Dealer of the Prospectus contained
in the Exchange Offer Registration Statement. Such "Plan of Distribution"
section shall also contain all other information with respect to such resales
by Broker-Dealers that the Commission may require in order to permit such
resales pursuant thereto, but such "Plan of Distribution" shall not name any
such Broker-Dealer or disclose the amount of Securities held by any such
Broker-Dealer except to the extent required by the Commission.
Cinemark shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for resales of Securities acquired by
Broker-Dealers for their own accounts as a result of market-making activities
or other trading activities, and to ensure that it conforms with the
requirements of this Agreement, the Act and the policies, rules and regulations
of the Commission as announced from time to time, for a period of twelve months
from the date on which the Exchange Offer Registration Statement is declared
effective.
Cinemark shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time during such
period in order to facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) Cinemark is not required to file an
Exchange Offer Registration Statement or consummate the Exchange Offer because
the Exchange Offer is not permitted by applicable law or Commission policy (so
long as the procedures set forth in Section 6(a) below are being or have been
complied with) or (ii) any Holder of Transfer Restricted Securities shall
notify Cinemark on or prior to the 20th Business Day following the Consummation
of the Exchange Offer that (A) such Holder is prohibited by a change in
applicable law or Commission policy from participating in the Exchange Offer,
or (B) such Holder may not resell the Series B Notes to be acquired by it in
the Exchange Offer to the public without delivering a prospectus and that the
Prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder, then Cinemark shall:
(x) use its best efforts to cause to be filed a shelf
registration statement pursuant to Rule 415 under the Act, which may be an
amendment to the Exchange Offer Registration Statement (in either event,
the "Shelf Registration Statement"), on or prior to the 30th day after the
obligation to file such Shelf Registration Statement arises (the "Shelf
Filing Deadline"), which Shelf Registration Statement shall provide for
resales of all Transfer Restricted Securities, the Holders of which shall
have provided the information required pursuant to Section 4(b) hereof;
and
(y) use its best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission on or before the 90th
day after the obligation to file such Shelf Registration Statement arises
(but in any event within 120 days after the Closing Date).
4
<PAGE> 6
Cinemark shall use its best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is
available for resales of Securities by the Holders of Transfer Restricted
Securities entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least three years following the Closing Date.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
Cinemark in writing, within 20 Business Days after receipt of a request
therefor, such information as Cinemark may reasonably request specified in Item
507 and Item 508 of Regulation S-K under the Act for use in connection with any
Shelf Registration Statement or Prospectus or preliminary Prospectus included
therein. Each Holder as to which any Shelf Registration Statement is being
effected agrees to furnish promptly to Cinemark all information required to be
disclosed in order to make the information previously furnished to Cinemark by
such Holder not materially misleading. No Holder of Transfer Restricted
Securities shall be entitled to Liquidated Damages pursuant to Section 5 hereof
unless and until such Holder shall have used its best efforts to provide all
such reasonably requested information.
SECTION 5. LIQUIDATED DAMAGES
If (i) any of the Registration Statements required by this Agreement
is not filed with the Commission on or prior to the date specified for such
filing in this Agreement, (ii) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the
Exchange Offer has not been Consummated within 30 business days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) any Registration Statement required by this Agreement is
filed and declared effective but shall thereafter cease to be effective or fail
to be usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself immediately declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), Cinemark hereby agrees
to pay liquidated damages ("Liquidated Damages") to each Holder of Transfer
Restricted Securities on each Interest Payment Date. Liquidated Damages shall
accrue from and after the date of each Registration Default, and continuing
thereafter until such Registration Default has been cured or waived, at a rate
equal to one-quarter of one percent (0.25%) per annum of the principal amount
of the Series A Notes during the first 90-day period immediately following the
occurrence of the first such Registration Default, which rate shall increase by
an additional one-quarter of one percent (0.25%) per annum during each
subsequent 90-day period, up to a maximum rate equal to two percent (2%) per
annum. Cinemark shall notify the Trustee within one business day after (i)
each and every Registration Default and (ii) the date the Registration Default
has been so cured. All accrued Liquidated Damages shall be paid to Record
Holders by Cinemark in New York, New York by wire transfer of immediately
available funds or by federal funds check on each Interest Payment Date.
Following the cure or waiver of all Registration Defaults relating to any
particular Transfer Restricted Securities, the accrual of Liquidated Damages
with respect to such Transfer Restricted Securities will cease.
All obligations of Cinemark set forth in the preceding paragraph that
are outstanding with respect to any Transfer Restricted Security at the time
such security ceases to be a Transfer Restricted Security shall survive until
such time as all such obligations with respect to such Security shall have been
satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, Cinemark shall comply with all of the provisions of Section
6(c) below, shall use its best efforts to effect such exchange to permit
5
<PAGE> 7
the sale of Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof, and shall comply with all
of the following provisions:
(i) If in the reasonable opinion of counsel to Cinemark there
is a question as to whether the Exchange Offer is permitted by applicable
law, Cinemark hereby agrees to seek a no-action letter or other favorable
decision from the Commission, including oral advice from the staff of the
Commission, allowing Cinemark to Consummate an Exchange Offer for such
Series A Notes. Cinemark hereby agrees to pursue the issuance of such a
decision to the Commission staff level but shall not be required to take
commercially unreasonable action to effect a change of Commission policy.
In connection with the foregoing, Cinemark hereby agrees, however, to (A)
participate in telephonic conferences with the Commission, (B) deliver to
the Commission staff an analysis prepared by counsel to Cinemark setting
forth the legal bases, if any, upon which such counsel has concluded that
such an Exchange Offer should be permitted and (C) diligently pursue a
resolution (which need not be favorable) by the Commission staff of such
submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of Cinemark, prior
to the Consummation thereof, a written representation to Cinemark (which
may be contained in the letter of transmittal contemplated by the Exchange
Offer Registration Statement) to the effect that (A) it is not an
affiliate of Cinemark, (B) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Series B Notes to be issued in the
Exchange Offer and (C) it is acquiring the Series B Notes in its ordinary
course of business. Each Holder hereby acknowledges and agrees that any
Broker-Dealer who acquired Series A Notes directly from Cinemark or any
affiliate of Cinemark and any such Holder intending to use the Exchange
Offer to participate in a distribution of the securities to be acquired in
the Exchange Offer (1) could not under Commission policy as in effect on
the date of this Agreement rely on the position of the Commission
enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and
Exxon Capital Holdings Corporation (available May 13, 1988), as
interpreted in the Commission's letter to Shearman & Sterling dated July
2, 1993, and similar no-action letters (including any no-action letter
obtained pursuant to clause (i) above), and (2) must comply with the
registration and prospectus delivery requirements of the Act in connection
with a secondary resale transaction and that such a secondary resale
transaction should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
508, as applicable, of Regulation S-K if the resales are of Series B Notes
obtained by such Holder in exchange for Series A Notes acquired by such
Holders directly from Cinemark.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, Cinemark shall provide a supplemental letter to the Commission
(A) stating that Cinemark is registering the Exchange Offer in reliance on
the position of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) and, if applicable, any no-action letter obtained
pursuant to clause (i) above, (B) including a representation that Cinemark
has not entered into any arrangement or understanding with any Person to
distribute the Series B Notes to be received in the Exchange Offer and
that, to the best of Cinemark's information and belief, each Holder
participating in the Exchange Offer is acquiring the Series B Notes in its
ordinary course of business and has no arrangement or understanding with
any Person to participate in the distribution of the Series B Notes
received in the Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, Cinemark shall comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
pursuant thereto Cinemark will as expeditiously as practicable prepare and file
with the Commission a Registration Statement relating to the registration on
any appropriate form under the Act, which form shall be available for the sale
of the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof.
6
<PAGE> 8
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement to permit the
sale or resale of Transfer Restricted Securities (including, without
limitation, any Registration Statement and the related Prospectus required to
permit resales of Securities by Broker-Dealers), Cinemark shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for
the period specified in Section 3 or 4 of this Agreement, as applicable;
upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and usable for resale
of Transfer Restricted Securities during the period required by this
Agreement, Cinemark shall file promptly an appropriate amendment to such
Registration Statement, in the case of clause (A), correcting any such
misstatement or omission, and, in the case of either clause (A) or (B),
use its best efforts to cause such amendment to be declared effective and
such Registration Statement and the related Prospectus to become usable
for their intended purpose(s) as soon as reasonably practicable
thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as applicable, or such shorter
period as will terminate when all Transfer Restricted Securities covered
by such Registration Statement have been exchanged or sold or until such
Transfer Restricted Securities no longer constitute Transfer Restricted
Securities or are no longer outstanding; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Act, and to comply fully with
the applicable provisions of Rules 424 and 430A under the Act in a timely
manner; and comply with the provisions of the Act with respect to the
disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise promptly the underwriter(s), if any, and selling
Holders and, if requested by such Persons, to confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to any Registration
Statement or any post-effective amendment thereto, when the same has
become effective, (B) of any request by the Commission for amendments to
the Registration Statement or amendments or supplements to the Prospectus
or for additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation of
any proceeding for any of the preceding purposes or (D) of the existence
of any fact or the happening of any event that makes any statement of a
material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto, or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes
in the Registration Statement or the Prospectus in order to make the
statements therein not misleading. If at any time the Commission shall
issue any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption
from qualification of the Transfer Restricted Securities under state
securities or Blue Sky laws, Cinemark shall use its best efforts to obtain
the withdrawal or lifting of such order at the earliest practicable time;
(iv) furnish to the Purchasers, each selling Holder named in
any Registration Statement or Prospectus and each of the underwriter(s) in
connection with such sale, if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included therein or
any amendments or supplements to any such Registration Statement or
Prospectus if requested by such person, which documents will be subject to
the review of such Holders and underwriter(s) in connection with such
sale, if any, for a period of at least five Business Days, and Cinemark
will not file any such Registration Statement or Prospectus or any
amendment or supplement to any such Registration Statement or Prospectus
if requested by such person to which a selling Holder of Transfer
Restricted Securities covered by such Registration Statement or the
underwriter(s) in connection with such sale, if any, shall reasonably
object
7
<PAGE> 9
within five Business Days after the receipt thereof. A selling Holder or
underwriter, if any, shall be deemed to have reasonably objected to such
filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission or fails to comply with the applicable
requirements of the Act.
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus, if
requested by any selling Holders or the underwriter(s), if any, within
five business days after receipt of notification thereof from Cinemark,
provide copies of such document to the selling Holders and to the
underwriter(s), if any, make Cinemark's representatives available for
discussion of such document and other customary due diligence matters, and
include such information in such document prior to the filing thereof as
such selling Holders or underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the
selling Holders, any underwriter participating in any disposition pursuant
to such Registration Statement, and any attorney or accountant retained by
such selling Holders or any of the underwriter(s), all financial and other
records, pertinent corporate documents and properties of Cinemark and
cause Cinemark' officers, directors and employees to supply all
information reasonably requested by any such Holder, underwriter, attorney
or accountant in connection with such Registration Statement subsequent to
the filing thereof and prior to its effectiveness;
(vii) if requested by any selling Holders or the underwriter(s)
in connection with such sale, if any, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and such
underwriter(s), if any, may reasonably request to have included therein,
including, without limitation, information relating to the "Plan of
Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being
sold to such underwriter(s), the purchase price being paid therefor and
any other terms of the offering of the Transfer Restricted Securities to
be sold in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after
Cinemark is notified of the matters to be included in such Prospectus
supplement or post-effective amendment;
(viii) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be rated with the
appropriate rating agencies, if so requested by the Holders of a majority
in aggregate principal amount of Notes covered thereby or the
underwriter(s), if any;
(ix) furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits if so requested by such person;
(x) deliver to each selling Holder and each of the
underwriter(s) in connection with such sale, if any, without charge, as
many copies of the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such Persons reasonably may
request; Cinemark hereby consents to the use of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and each of
the underwriter(s), if any, in connection with the offering and the sale
of the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(xi) enter into such agreements (including an underwriting
agreement), and make such representations and warranties, and take all
such other actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities pursuant
to any Registration Statement contemplated by this Agreement, all to such
extent as may be reasonably acceptable to Cinemark and reasonably
requested by the Purchasers or by any Holder of Transfer Restricted
Securities or any underwriter in connection with any sale or resale
pursuant to any Registration Statement contemplated by this Agreement; and
whether or not an underwriting agreement is entered into and whether or
not the registration is an Underwritten Registration, Cinemark shall:
8
<PAGE> 10
(A) furnish to each Purchaser, each selling Holder and each
underwriter, in such substance and scope as they may reasonably
request and as are customarily made by issuers to underwriters in
primary underwritten offerings, upon the date of the Consummation of
the Exchange Offer and, if applicable, upon the effectiveness of the
Shelf Registration Statement:
(1) a certificate, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, signed by (x) the
President or any Vice President and (y) a principal financial or
accounting officer of Cinemark, confirming, as the date thereof,
the matters set forth in paragraphs (a), (b), (c) and (d) of
Section 8 of the Purchase Agreement and such other matters as
such parties may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for
Cinemark, covering the matters set forth in paragraph (f) of
Section 8 of the Purchase Agreement and such other matters as
such parties may reasonably request, and in any event including
a statement to the effect that such counsel has participated in
conferences with officers and other representatives of Cinemark,
representatives of the independent public accountants for
Cinemark, the Purchasers' representatives and the Purchasers'
counsel at which the contents of such Registration Statement and
the related Prospectus were discussed, although such counsel has
not undertaken to investigate or independently verify and does
not assume any responsibility for, the accuracy, completeness or
fairness of such statements; and that such counsel advises that,
on the basis of the foregoing (relying as to materiality to a
large extent upon facts provided to such counsel by officers and
other representatives of Cinemark and without independent check
or verification), no facts came to such counsel's attention that
caused such counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective, and, in the
case of the Exchange Offer Registration Statement, as of the
date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the
opinion dated the date of Consummation of the Exchange Offer, as
of the date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Without limiting the foregoing, such counsel may state further
that such counsel makes no comment with respect to, assumes no
responsibility for, and has not independently verified, the
accuracy, completeness or fairness of the financial statements,
notes and schedules and other financial and statistical data
included in any Registration Statement contemplated by this
Agreement or the related Prospectus; and
(3) a customary comfort letter, dated as of the date of
Consummation of the Exchange Offer or the date of effectiveness
of the Shelf Registration Statement, as the case may be, from
Cinemark's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters by underwriters in connection with primary underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 8(h) of the Purchase
Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section;
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by Cinemark
pursuant to this clause (xi), if any; and
9
<PAGE> 11
(D) if at any time the representations and warranties of
Cinemark contemplated in clause (A)(1) above cease to be true and
correct, Cinemark shall so advise the Purchasers and the
underwriter(s), if any, and each Holder promptly and, if requested by
such Persons, shall confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if
any, and their respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the securities
or Blue Sky laws of such jurisdictions as the selling Holders or
underwriter(s), if any, may reasonably request and do any and all other
acts or things necessary or advisable (including, without limitation, the
imposition of such restrictions on offers or sales of the Securities as
are referred to in paragraph 3(b) of this Agreement) to enable the
disposition in such jurisdictions of the Transfer Restricted Securities
covered by the applicable Registration Statement; provided, however, that
Cinemark shall not be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that
would subject it to the service of process in suits or to taxation, except
as to matters and transactions relating to the Registration Statement, in
any jurisdiction where it is not now so subject;
(xiii) shall issue, upon the request of any Holder of Series A
Notes covered by the Shelf Registration Statement, Series B Notes, having
an aggregate principal amount equal to the aggregate principal amount of
Series A Notes surrendered to Cinemark by such Holder in exchange therefor
or being sold by such Holder; such Series B Notes to be registered in the
name of such Holder or in the name of the purchaser(s) of such Series B
Notes, as the case may be; in return, the Series A Notes held by such
Holder shall be surrendered to Cinemark for cancellation;
(xiv) cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and delivery
of certificates representing Transfer Restricted Securities to be sold and
not bearing any restrictive legends; and to register such Transfer
Restricted Securities in such denominations (which denominations shall be
of $1,000 and integral multiples thereof) and such names as the Holders or
the underwriter(s), if any, may request at least two Business Days prior
to such sale of Transfer Restricted Securities made by such
underwriter(s);
(xv) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriter(s),
if any, to consummate the disposition of such Transfer Restricted
Securities;
(xvi) if any fact or event contemplated by Section 6(c)(iii)(D)
above shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an untrue statement
of a material fact or omit to state any material fact necessary to make
the statements therein not misleading;
(xvii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration Statement
covering such Transfer Restricted Securities and provide the Trustee under
the Indenture with printed certificates for the Transfer Restricted
Securities which are in a form eligible for deposit with the Depository
Trust Company;
(xviii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter") that
is required to be retained in accordance with the rules and regulations of
the NASD, and use its best efforts to cause such Registration Statement to
become effective and approved by such governmental agencies or authorities
as may be necessary to enable the Holders selling Transfer Restricted
Securities to consummate the disposition of such Transfer Restricted
Securities;
10
<PAGE> 12
(xix) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to Holders, as soon as reasonably practicable, a consolidated
earnings statement meeting the requirements of Rule 158 under the Act
(which need not be audited) covering a twelve-month period (A) beginning
at the end of any fiscal quarter in which Transfer Restricted Securities
are sold to underwriters in a firm or best efforts Underwritten Offering
or (B) if not sold to underwriters in such an offering, commencing with
the first month of Cinemark's first fiscal quarter commencing after the
effective date of the Registration Statement;
(xx) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement required
by this Agreement, and, in connection therewith, cooperate, with the
Trustee and the Holders of Securities to effect such changes to the
Indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute, and use its best
efforts to cause the Trustee to execute, all documents that may be
required to effect such changes and all other forms and documents required
to be filed with the Commission to enable such Indenture to be so
qualified in a timely manner;
(xxi) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of Section
13 or Section 15 of the Exchange Act; and
(xxii) use its best efforts to cause all Transfer Restricted
Securities covered by the Registration Statement to be listed on each
securities exchange on which similar securities issued by Cinemark are
then listed if requested by the Holders of a majority in aggregate
principal amount of Series A Notes covered by such Registration Statement
or the managing underwriter(s), if any.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of any notice from Cinemark of
the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof,
such Holder will forthwith discontinue disposition of Transfer Restricted
Securities pursuant to the applicable Registration Statement until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(xvi) hereof, or until it is advised in writing
(the "Advice") by Cinemark that the use of the Prospectus may be resumed, and
has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus. If so directed by Cinemark, each
Holder will deliver to Cinemark (at Cinemark's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of such notice. In the event Cinemark shall give any such notice, the
time period regarding the effectiveness of such Registration Statement set
forth in Section 3 or 4 hereof, as applicable, shall be extended by the number
of days during the period from and including the date of the giving of such
notice pursuant to Section 6(c)(iii)(D) hereof to and including the date when
each selling Holder covered by such Registration Statement shall have received
the copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xvi) hereof or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to Cinemark's performance of or compliance
with this Agreement will be borne by Cinemark, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made by any
Purchaser or Holder with the NASD (and, if applicable, the reasonable fees and
expenses of any "qualified independent underwriter" and its counsel that may be
required by the rules and regulations of the NASD)); (ii) all fees and expenses
incurred in connection with compliance with federal securities and state Blue
Sky or securities laws; (iii) all expenses of printing (including printing
certificates for the Series B Notes to be issued in the Exchange Offer and
printing of Prospectuses), messenger and delivery services and telephone; (iv)
all fees and disbursements of counsel for Cinemark[, and in accordance with
Section 7(b) below, the Holders of Transfer Restricted Securities]; (v) if
applicable, all application and filing fees in connection with listing
Securities on a national securities exchange or automated quotation system
pursuant to the requirements hereof; and (vi) all fees and disbursements of
11
<PAGE> 13
independent certified public accountants of Cinemark (including the expenses of
any special audit and comfort letters required by or incident to such
performance).
Cinemark will bear its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expenses of any annual audit and the fees and
expenses of any Person, including special experts, retained by Cinemark.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), Cinemark will reimburse the
Purchasers and the Holders of Transfer Restricted Securities being tendered in
the Exchange Offer and/or resold pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or registered pursuant
to the Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, which shall be Simpson Thacher &
Bartlett (a partnership which includes professional corporations) or such other
counsel as may be chosen by the Holders of a majority in principal amount of
the Transfer Restricted Securities for whose benefit such Registration
Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) Cinemark agrees to indemnify and hold harmless, to the fullest
extent permitted by applicable law, each of the Holders, each person, if any,
who controls any Holder within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and the respective officers, directors, partners,
employees, representatives and agents of each Holder or any controlling person,
against any and all losses, liabilities, claims, damages and expenses
whatsoever (including but not limited to reasonable attorneys' fees and any and
all reasonable expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation) (collectively, "Losses"), joint or several, to which they or any of
them may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus, or in any supplement thereto or amendment thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, that Cinemark will not be liable in any such case to the
extent, but only to the extent, that any such Loss arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to Cinemark by or on behalf of any Holders expressly for
use therein. This indemnity will be in addition to any liability which
Cinemark may otherwise have, including, under this Agreement.
(b) Each of the Holders agrees, severally and not jointly, to
indemnify and hold harmless Cinemark, each person, if any, who controls
Cinemark within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and the respective officers, directors, partners, employees,
representatives and agents of Cinemark or any controlling person, against any
and all Losses, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or Prospectus, or in any
amendment thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to Cinemark by or on behalf of
such Holder expressly for use therein; provided, however, that in no case shall
any Holder be liable or responsible for any amount in excess of the dollar
amount of the proceeds received by such Holder upon the sale of the Securities
giving rise to such indemnification obligation,
12
<PAGE> 14
unless such Losses are a result of the gross negligence or willful misconduct
of such Holder. This indemnity will be in addition to any liability which any
Holder may otherwise have, including under this Agreement.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may otherwise have). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action and the indemnifying party has
agreed in writing to pay the fees and expenses of such counsel, (ii) the
indemnifying parties shall not have employed counsel to take charge of the
defense of such action within a reasonable time after notice of commencement of
the action, or (iii) such indemnified party or parties shall have concluded,
upon the advice of counsel, that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties), in any of which events such fees and expenses of counsel shall be
borne by the indemnifying parties; provided, however, that the indemnifying
party under subsection (a) or (b) above, shall only be liable for the legal
expenses of one counsel (in addition to any local counsel) for all indemnified
parties in each jurisdiction in which any claim or action is brought. Anything
in this subsection to the contrary notwithstanding, an indemnifying party shall
not be liable for any settlement of any claim or action effected without its
written consent; provided, however, that such consent was not unreasonably
withheld.
(d) In order to provide for contribution in circumstances in which
the indemnification provided for in this Section 8 is for any reason held to be
unavailable or is insufficient to hold harmless a party indemnified hereunder,
Cinemark, on the one hand, and each Holder, on the other hand, shall contribute
to the aggregate losses, claims, damages, liabilities and expenses of the
nature contemplated by such indemnification provision (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by Cinemark any contribution received by
Cinemark from persons, other than the Holders, who may also be liable for
contribution, including persons who control Cinemark within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act) to which Cinemark
and any Holder may be subject, in such proportion as is appropriate to reflect
the relative benefits received by Cinemark, on the one hand, and any such
Holder, on the other hand, or, if such allocation is not permitted by
applicable law or if indemnification is not available as a result of the
indemnifying party not having received notice as provided in this Section 8, in
such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of Cinemark, on the one hand, and
the Holders, on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The relative benefits
received by Cinemark, on the one hand, and any Holder, on the other hand, shall
be deemed to be in the same proportion as (x) the total proceeds from the
offering of the Securities (net of discounts and commissions but before
deducting expenses) received by Cinemark and (y) the total proceeds received by
such Holder upon its sale of Securities which would otherwise give rise to the
indemnification obligation, respectively. The relative fault of Cinemark, on
the one hand, and of the Holders, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by Cinemark or the Holders and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. Cinemark and each Holder
agree that it would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation or by
13
<PAGE> 15
any other method of allocation which does not take into account the equitable
considerations referred to above. Notwithstanding the provisions of this
Section 8, (i) no Holder shall be required to contribute, in the aggregate, any
amount in excess of the dollar amount by which the proceeds received by such
Holder with respect to the sale of its Securities exceeds the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person, if any, who controls a Holder within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act and the respective officers,
directors, partners, employees, representatives and agents of a Holder or any
controlling person shall have the same rights to contribution as such Holder,
and each person, if any, who controls Cinemark within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act and the respective officers,
directors, partners, employees, representatives and agents of Cinemark or any
controlling person shall have the same rights to contribution as Cinemark,
subject in each case to clauses (i) and (ii) of this Section 8(d). Any party
entitled to contribution will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a
claim for contribution may be made against another party or parties under this
Section 8, notify such party or parties from whom contribution may be sought,
but the failure to so notify such party or parties shall not relieve the party
or parties from whom contribution may be sought from any obligation it or they
may have under this Section 8 or otherwise.
SECTION 9. RULE 144A
Cinemark hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding, to make available to any Holder or
beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
from such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to Cinemark (it being understood that Bear Stearns,
Goldman Sachs and Morgan Stanley are reasonably satisfactory); such investment
bankers and manager or managers are referred to herein as the "underwriters".
SECTION 12. MISCELLANEOUS
(a) Remedies. Cinemark agrees that monetary damages (including the
Liquidated Damages contemplated hereby) would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
14
<PAGE> 16
(b) No Inconsistent Agreements. Cinemark will not on or after the
date of this Agreement enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement
or otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of Cinemark's securities under any agreement
in effect on the date hereof.
(c) Adjustments Affecting the Securities. Cinemark will not take
any action, or permit any change to occur, with respect to the Securities that
would materially and adversely affect the ability of the Holders to Consummate
any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless Cinemark has
obtained the written consent of Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of Holders whose securities are being
tendered pursuant to the Exchange Offer or registered pursuant to the Shelf
Registration and that does not affect directly or indirectly the rights of
other Holders whose securities are not being tendered pursuant to such Exchange
Offer or registered pursuant to the Shelf Registration may be given by the
Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities being tendered or registered, as applicable.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to Cinemark:
Cinemark USA, Inc.
7502 Greenville Avenue
Suite 800
Dallas, Texas 75231
Phone No.: (214) 696-1644
Telecopier No.: (214) 569-9972
Attention: Jeffrey J. Stedman
With copies to:
Cinemark USA, Inc.
7502 Greenville Avenue
Suite 800
Dallas, Texas 75231
Phone No.: (214) 696-1644
Telecopier No.: (214) 569-9972
Attention: Michael Cavalier
and
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201
Phone No.: (214) 969-2800
15
<PAGE> 17
Telecopier No.: (214) 969-4343
Attention: Terry M. Schpok, P.C.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next Business Day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(k) Entire Agreement. This Agreement together with the other
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the registration rights granted by
Cinemark with respect to the Transfer Restricted Securities. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
16
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
CINEMARK USA, INC.
By: /s/ Jeff Stedman
--------------------------------------
Name: Jeff Stedman
Title: Vice President
BEAR, STEARNS & CO. INC.
By: /s/ Eric D. Karp
--------------------------------
Name: Eric D. Karp
Title: Senior Managing Director
GOLDMAN, SACHS & CO.
Goldman, Sachs & Co.
- -------------------------------------
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Beatrice Cassou
--------------------------------
Name: Beatrice M. Cassou
Title: Principal
17
<PAGE> 1
EXHIBIT 10.2
PROMISSORY NOTE
$500,000.00 Dallas, Texas August 21, 1995
For value received, the undersigned, 2 DAY VIDEO, INC., a Texas
corporation (the "Maker"), hereby promises to pay to the order of CINEMARK USA,
INC., a Texas corporation (the "Lender"), at Suite 800 - LB 9, 7502 Greenville
Avenue, Dallas, Texas 75231, or at such other place as from time to time may
be designated by the holder of this Note, in lawful money of the United States
of America, the principal sum of FIVE HUNDRED THOUSAND DOLLARS AND NO CENTS
($500,000.00), with interest on the principal balance from time to time
remaining unpaid from the date hereof until default or maturity at a varying
rate per annum equal to the lesser of (a) the Maximum Rate (as hereinafter
defined) or (b) a rate per annum, calculated on the basis of the actual number
of calendar days elapsed but computed as if each year consisted of 365 days,
equal to the Base Rate (as hereinafter defined). Principal amounts borrowed
hereunder may be prepaid, but may not be reborrowed. Each change in the
interest rate to be charged hereunder shall become effective without notice to
the Maker on the effective date of each change in the Maximum Rate or the Base
Rate, as the case may be. Notwithstanding the foregoing, if, at any time, the
Base Rate shall exceed the Maximum Rate, thereby causing the interest hereon to
be limited to the Maximum Rate as provided for in clause (a) preceding, then
any subsequent reductions in the Base Rate shall not reduce the rate of
interest charged hereunder below the Maximum Rate until the total amount of
interest accrued hereon equals the amount of interest which would have accrued
hereon if the Base Rate had been in effect at all times in the period during
which the rate charged hereon was limited to the Maximum Rate. All past due
principal and interest shall bear interest from maturity until paid at a
varying rate per annum equal to the lesser of (a) the Maximum Rate or (b) a
rate per annum, calculated on the basis of the actual number of calendar days
elapsed but computed as if each year consisted of 365 days, equal to the
Default Rate from the date of such nonpayment until paid in full (both before
and after judgment).
As used herein the term "Base Rate" means the rate of interest equal to
the sum of the rate of interest designated in The Wall Street Journal from time
to time as the Prime Rate, which rate is merely a reference rate and is not
intended to be the lowest rate of interest charged by banks in connection with
extensions of credit to debtors, plus two percent (2%); the term "Default Rate"
means the rate of interest equal to the sum of (i) the Base Rate and (ii) five
percent (5%); the term "Maximum Rate" means the maximum interest rate permitted
under applicable law; and the term "applicable law" means the applicable laws
of the State of Texas or applicable laws of the United States, whichever laws
allow the greater rate of interest, as such laws now exist or may be changed or
amended or come into effect in the future.
1
<PAGE> 2
This Note is due and payable in eighteen (18) consecutive monthly
installments beginning September 25, 1995 and on or before the twenty-fifth
(25th) day of each month thereafter until the whole amount of principal and
accrued interest is paid. The first seventeen (17) installments shall be in
the amount of Thirty Thousand and No/100 Dollars ($30,000.00) each, which
amount shall include both principal and interest accrued thereon to the date of
such installment. The final installment on February 25, 1997 shall be in an
amount equal to the entire unpaid principal balance hereof plus all accrued,
unpaid interest thereon.
In the event that at maturity or final payment of this Note, whether
arising by acceleration, prepayment, the passage of time or otherwise, the
total amount of interest paid or accrued hereon is less than the total amount
of interest that would have accrued hereon if a varying rate per annum equal to
the Base Rate had at all times been in effect, then on such date of maturity or
final payment, to the fullest extent permitted by applicable law, the Maker
shall pay a final interest payment hereon equal to the amount by which the
amount of interest actually accrued or paid hereon through such date is less
than the lesser of (a) the amount of interest which would have accrued hereon
if the highest lawful rate had at all times been in effect, or (b) the amount
of interest which would have accrued hereon if the Base Rate had at all times
been in effect.
Each payment received by the Lender shall be applied first to late charges
and collection expenses, if any, then to the payment of accrued but unpaid
interest due hereunder, and then to the reduction of the unpaid principal
balance hereof.
Should default be made in the payment of any installment of principal or
interest and continue without cure for ten (10) days after the same installment
is herein permitted to be paid, the Lender may, at the Lender's option,
exercise any or all of the rights, remedies, powers and privileges afforded it
under applicable law, including, without limitation, the right to declare the
unpaid principal balance of this Note, together with all accrued but unpaid
interest on such principal balance, immediately due and payable without demand
or notice and to offset against amounts then due and owing on this Note and
sums deposited by the Maker with the Lender or otherwise owed to the Maker by
the Lender. In the event this note, or any part hereof, is collected through
bankruptcy or other judicial proceedings by an attorney or is placed in the
hands of an attorney for collection after maturity, then the Maker agrees and
promises to pay a reasonable attorney's fee for collection.
No failure or delay on the part of the Lender in exercising any right,
power or privilege hereunder and no course of dealing between the Maker and the
Lender shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power
or privilege.
Except as may be otherwise provided herein, the makers, signers, sureties,
guarantors and endorsers of this Note severally waive demand, presentment,
notice of dishonor, notice of intent to demand or accelerate payment hereof,
notice of acceleration, diligence in collecting, grace, notice, and protest,
and agree to one or more extensions for any period or periods of time and
partial payments, before or after maturity, without prejudice to the holder.
If this Note shall be collected by legal proceedings or through a probate or
bankruptcy court, or shall be placed in
2
<PAGE> 3
the hands of an attorney for collection after default or maturity, the Maker
agrees to pay all costs of collection, including reasonable attorney's fees.
All agreements between the Maker and the Lender, whether now existing or
hereafter arising, and whether written or oral, are hereby limited so that in
no contingency or event whatsoever, whether by reason of demand or otherwise,
shall the amount contracted for, charged, received, paid or agreed to be paid
to the Lender for the use, forbearance or detention of the funds evidenced
hereby or otherwise or for the performance or payment of any covenant or
obligation contained in any instrument securing the payment hereof exceed the
maximum amount permissible under applicable law. If from any circumstance
whatsoever interest would otherwise be payable to the Lender in excess of the
maximum lawful amount, the interest payable to the Lender shall be reduced to
the maximum amount permitted under applicable law; and if from any circumstance
the Lender shall ever receive anything of value deemed interest by applicable
law in excess of the maximum lawful amount, an amount equal to any excessive
interest shall be applied to the reduction of the principal hereof and not to
the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal hereof such excess shall be refunded to the Maker. All
interest paid or agreed to be paid to the Lender shall, to the extent permitted
by applicable law, be amortized, pro rated, allocated and spread throughout the
full period of the loan evidenced hereby until payment in full of the principal
(including the period of any renewal or extension hereof) so that the interest
hereon for such full period shall not exceed the maximum amount permitted by
applicable law. This paragraph shall control all agreements between the Maker
and the Lender relating to the indebtedness evidenced hereby:
THIS PROMISSORY NOTE SHALL BE GOVERNED BY CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW OR CONFLICT OF LAWS RULES THEREOF.
EXECUTED as of the date first set forth above.
THE MAKER
2 DAY VIDEO, INC.
By: /s/ Alan W. Stock
--------------------------
Alan W. Stock
3
<PAGE> 1
EXHIBIT 10.3
PROMISSORY NOTE
$450,000.00 Dallas, Texas February 7, 1996
For value received, the undersigned, 2 DAY VIDEO, INC., a Texas
corporation (the "Maker"), hereby promises to pay to the order of CINEMARK USA,
INC., a Texas corporation (the "Lender"), at Suite 800 - LB 9, 7502 Greenville
Avenue, Dallas, Texas 75231, or at such other place as from time to time may
be designated by the holder of this Note, in lawful money of the United States
of America, the principal sum of FOUR HUNDRED FIFTY THOUSAND DOLLARS AND NO
CENTS ($450,000.00), with interest on the principal balance from time to time
remaining unpaid from the date hereof until default or maturity at a varying
rate per annum equal to the lesser of (a) the Maximum Rate (as hereinafter
defined) or (b) a rate per annum, calculated on the basis of the actual number
of calendar days elapsed but computed as if each year consisted of 365 days,
equal to the Base Rate (as hereinafter defined). Principal amounts borrowed
hereunder may be prepaid, but may not be reborrowed. Each change in the
interest rate to be charged hereunder shall become effective without notice to
the Maker on the effective date of each change in the Maximum Rate or the Base
Rate, as the case may be. Notwithstanding the foregoing, if, at any time, the
Base Rate shall exceed the Maximum Rate, thereby causing the interest hereon to
be limited to the Maximum Rate as provided for in clause (a) preceding, then
any subsequent reductions in the Base Rate shall not reduce the rate of
interest charged hereunder below the Maximum Rate until the total amount of
interest accrued hereon equals the amount of interest which would have accrued
hereon if the Base Rate had been in effect at all times in the period during
which the rate charged hereon was limited to the Maximum Rate. All past due
principal and interest shall bear interest from maturity until paid at a
varying rate per annum equal to the lesser of (a) the Maximum Rate or (b) a
rate per annum, calculated on the basis of the actual number of calendar days
elapsed but computed as if each year consisted of 365 days, equal to the
Default Rate from the date of such nonpayment until paid in full (both before
and after judgment).
As used herein the term "Base Rate" means the rate of interest equal to
the sum of the rate of interest designated in The Wall Street Journal from time
to time as the Prime Rate, which rate is merely a reference rate and is not
intended to be the lowest rate of interest charged by banks in connection with
extensions of credit to debtors, plus two percent (2%); the term "Default Rate"
means the rate of interest equal to the sum of (i) the Base Rate and (ii) five
percent (5%); the term "Maximum Rate" means the maximum interest rate permitted
under applicable law; and the term "applicable law" means the applicable laws
of the State of Texas or applicable laws of the United States, whichever laws
allow the greater rate of interest, as such laws now exist or may be changed or
amended or come into effect in the future.
1
<PAGE> 2
This Note is due and payable in eighteen (18) consecutive monthly
installments beginning March 1, 1996 and on or before the first day of each
month thereafter until the whole amount of principal and accrued interest is
paid. The first seventeen (17) installments shall be in the amount of
Twenty-seven Thousand and No/100 Dollars ($27,000.00) each, which amount shall
include both principal and interest accrued thereon to the date of such
installment. The final installment on August 1, 1997 shall be in an amount
equal to the entire unpaid principal balance hereof plus all accrued, unpaid
interest thereon.
In the event that at maturity or final payment of this Note, whether
arising by acceleration, prepayment, the passage of time or otherwise, the
total amount of interest paid or accrued hereon is less than the total amount
of interest that would have accrued hereon if a varying rate per annum equal to
the Base Rate had at all times been in effect, then on such date of maturity or
final payment, to the fullest extent permitted by applicable law, the Maker
shall pay a final interest payment hereon equal to the amount by which the
amount of interest actually accrued or paid hereon through such date is less
than the lesser of (a) the amount of interest which would have accrued hereon
if the highest lawful rate had at all times been in effect, or (b) the amount
of interest which would have accrued hereon if the Base Rate had at all times
been in effect.
Each payment received by the Lender shall be applied first to late charges
and collection expenses, if any, then to the payment of accrued but unpaid
interest due hereunder, and then to the reduction of the unpaid principal
balance hereof.
Should default be made in the payment of any installment of principal or
interest and continue without cure for ten (10) days after the same installment
is herein permitted to be paid, the Lender may, at the Lender's option,
exercise any or all of the rights, remedies, powers and privileges afforded it
under applicable law, including, without limitation, the right to declare the
unpaid principal balance of this Note, together with all accrued but unpaid
interest on such principal balance, immediately due and payable without demand
or notice and to offset against amounts then due and owing on this Note and
sums deposited by the Maker with the Lender or otherwise owed to the Maker by
the Lender. In the event this note, or any part hereof, is collected through
bankruptcy or other judicial proceedings by an attorney or is placed in the
hands of an attorney for collection after maturity, then the Maker agrees and
promises to pay a reasonable attorney's fee for collection.
No failure or delay on the part of the Lender in exercising any right,
power or privilege hereunder and no course of dealing between the Maker and the
Lender shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power
or privilege.
Except as may be otherwise provided herein, the makers, signers, sureties,
guarantors and endorsers of this Note severally waive demand, presentment,
notice of dishonor, notice of intent to demand or accelerate payment hereof,
notice of acceleration, diligence in collecting, grace, notice, and protest,
and agree to one or more extensions for any period or periods of time and
partial payments, before or after maturity, without prejudice to the holder.
If this Note shall be collected by legal proceedings or through a probate or
bankruptcy court, or shall be placed in
2
<PAGE> 3
the hands of an attorney for collection after default or maturity, the Maker
agrees to pay all costs of collection, including reasonable attorney's fees.
All agreements between the Maker and the Lender, whether now existing or
hereafter arising, and whether written or oral, are hereby limited so that in
no contingency or event whatsoever, whether by reason of demand or otherwise,
shall the amount contracted for, charged, received, paid or agreed to be paid
to the Lender for the use, forbearance or detention of the funds evidenced
hereby or otherwise or for the performance or payment of any covenant or
obligation contained in any instrument securing the payment hereof exceed the
maximum amount permissible under applicable law. If from any circumstance
whatsoever interest would otherwise be payable to the Lender in excess of the
maximum lawful amount, the interest payable to the Lender shall be reduced to
the maximum amount permitted under applicable law; and if from any circumstance
the Lender shall ever receive anything of value deemed interest by applicable
law in excess of the maximum lawful amount, an amount equal to any excessive
interest shall be applied to the reduction of the principal hereof and not to
the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal hereof such excess shall be refunded to the Maker. All
interest paid or agreed to be paid to the Lender shall, to the extent permitted
by applicable law, be amortized, pro rated, allocated and spread throughout the
full period of the loan evidenced hereby until payment in full of the principal
(including the period of any renewal or extension hereof) so that the interest
hereon for such full period shall not exceed the maximum amount permitted by
applicable law. This paragraph shall control all agreements between the Maker
and the Lender relating to the indebtedness evidenced hereby:
THIS PROMISSORY NOTE SHALL BE GOVERNED BY CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW OR CONFLICT OF LAWS RULES THEREOF.
EXECUTED as of the date first set forth above.
THE MAKER
2 DAY VIDEO, INC.
By: /s/ Walter J. Hebert
----------------------------------------
Walter J. Hebert
President
3
<PAGE> 1
EXHIBIT 10.13(f)
INDEMNIFICATION AGREEMENT
BETWEEN CINEMARK USA, INC. AND
A DIRECTOR OF CINEMARK USA, INC.
THIS INDEMNIFICATION AGREEMENT (the "Agreement") dated as of December 3,
1993, is by and between Cinemark USA, Inc., a Texas corporation (the
"Company"), and Heriberto Guerra, Jr. ("Director").
RECITALS
A. Director is a member of the Board of Directors of the Company and in
such capacity is performing a valuable service to the Company.
B. The Company's Amended and Restated Articles of Incorporation (the
"Articles of Incorporation") provide for the indemnification of the directors,
officers, employees and agents of the Company to the extent set forth in
Articles VIII and IX of the Articles of Incorporation.
C. The Company's Bylaws (the "Bylaws") provide for the indemnification
of the directors, officers, employees and agents of the Company to the extent
set forth in Article IX, Section 8 of the Bylaws.
D. The Texas Business Corporation Act (the "Corporation Law") provides
that indemnification and advancement of expenses provided in such statute shall
not be exclusive of any other rights under any agreement, and thereby
contemplates that agreements may be entered into between the Company and
members of the Board of Directors of the Company with respect to the
indemnification of such employees.
E. In order to induce Director to serve as a member of the Board of
Directors of the Company for the current term and for any subsequent term to
which he is elected by the shareholders of the Company, the Company has deemed
it to be in its best interest to enter into this Agreement with Director.
NOW, THEREFORE, in consideration of Director's agreement to serve as a
member of the Board of Directors of the Company after the date hereof, the
parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
a. Change in Control. A "Change in Control" shall be deemed to
have occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Act"), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company, is or becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company
1
<PAGE> 2
representing 25% or more of the combined voting power of the outstanding
securities of the Company, or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's shareholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for the election was previously so approved, cease for any reason,
to constitute a majority thereof, or (iii) the shareholders of the Company
approve (x) a merger or consolidation of the Company with any other entity
(other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation), (y) a plan of complete
liquidation of the Company or (z) an agreement or agreements for the sale or
disposition, in a single transaction or series of related transactions, by the
Company of all or substantially all of the property and assets of the Company.
Notwithstanding the foregoing, events otherwise constituting a Change in
Control in accordance with the foregoing shall not constitute a Change in
Control if such events are solicited by the Company and are approved,
recommended or supported by the Board of Directors of the Company in actions
taken prior to, and with respect to, such events.
b. Reviewing Party. A "Reviewing Party" means (i) a quorum of the
Board of Directors consisting of directors who at the time of the vote are not
named defendants or respondents in the proceeding; (ii) if such quorum cannot
be obtained, a committee of the board of directors, designated to act in the
matter by a majority vote of all directors, consisting solely of two or more
directors who at the time of the vote are not named defendants or respondents
in the proceeding; or (iii) special legal counsel selected by the board of
directors or a committee of the board by vote as set forth in (i) or (ii)
above, or, if such a quorum cannot be obtained and such a committee cannot be
established, by a majority vote of all directors.
2. Indemnification of Director. The Company hereby agrees that it shall
hold harmless and indemnify Director to the fullest extent authorized and
permitted by the provisions of the Articles of Incorporation and Bylaws and
the provisions of the Corporation Law, or by any amendment thereof, but in the
case of any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than the Articles of
Incorporation, Bylaws or Corporation Law permitted the Company to provide prior
to such amendment, or other statutory provisions authorizing or permitting such
indemnification which is adopted after the date hereof.
3. Limitations on Indemnification. No indemnification pursuant to this
Agreement shall be paid by the Company unless required conditions set forth in
Article 2.02-1 of the Corporation Law (or any similar provisions of any
successor statute) are present, as determined by the Reviewing Party or a court
having jurisdiction in the matter.
4. Advancement of Expenses. In the event of any threatened or pending
action, suit or proceeding in which Director is a party or is involved and
which may give rise to a right of indemnification under this Agreement,
following written request to the Company by Director,
2
<PAGE> 3
the Company shall promptly pay to Director amounts to cover expenses incurred
by Director in such proceeding in advance of its final disposition upon the
receipt by the Company of certain written undertakings as required by Article
2.02-1, sections K, L, and M, of the Corporation Law (or any similar provisions
of any successor statute). The advancement of expenses by the Company shall
include the payment of an advance retainer if required by counsel to Director
in connection with the investigation or defense of any matter for which
indemnification is provided hereunder. The Company further agrees that
statements for fees and expenses of counsel or other costs incurred by Director
for which indemnification is provided hereunder may be rendered directly to the
Company for payment.
5. Determination of Indemnification; Burden of Proof. With respect to
all matters concerning the rights of Director to indemnification and payment of
expenses under this Agreement or under the provisions of the Articles of
Incorporation and Bylaws now or hereafter in effect, the Company shall appoint
a Reviewing Party and any determination by the Reviewing Party shall be
conclusive and binding on the Company and Director. If under applicable law,
the entitlement of Director to be indemnified under this Agreement depends on
whether a standard of conduct has been met, the burden of proof of establishing
that Director did not act in accordance with a standard of conduct shall rest
with the Company. Director shall be presumed to have acted in accordance with
such standard and entitled to indemnification or advancement of expenses
hereunder, as the case may be, unless, based upon a preponderance of the
evidence, it shall be determined by the Reviewing Party that Director did not
meet such standard. For purposes of this Agreement, unless otherwise expressly
stated herein, the termination of any action, suit or proceeding by judgment,
order, settlement, whether with or without court approval, or conviction, or
upon a plea of nolo contendere or its equivalent shall not create a presumption
that Director did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.
6. Effect of Change in Control. If there has not been a Change in
Control after the date of this Agreement, the determination of (i) the rights
of Director to indemnification and payment of expenses under this Agreement or
under the provisions of the Articles of Incorporation and the Bylaws, (ii)
standard of conduct and (iii) evaluation of the reasonableness of amounts
claimed by Director shall be made by the Reviewing Party or such other body or
persons as may be permitted by the Corporation Law. If there has been a Change
in Control after the date of this Agreement, such determination and evaluation
shall be made by a special, independent counsel who is selected by Director and
approved by the Company, which approval shall not be unreasonably withheld, and
who has not otherwise performed services for Director or the Company.
7. Continuation of Indemnification. All agreements and obligations of
the Company contained herein shall continue during the period that Director is
a director, officer, employee or agent of the Company, or is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, and shall
continue thereafter so long as Director shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that Director
was a director of the Company or serving in any other capacity referred to
herein.
3
<PAGE> 4
8. Notification and Defense of Claim. Promptly after receipt by
Director of notice of the commencement of any action, suit or proceeding,
Director shall, if a claim in respect hereof is to be made against the Company
under this Agreement, notify the Company of the commencement thereof; provided,
however, that delay in so notifying the Company shall not constitute a waiver
or release by Director of rights hereunder and that omission by Director to so
notify the Company shall not relieve the Company from any liability which it
may have to Director otherwise than under this Agreement. With respect to any
such action, suit or proceeding as to which Director notifies the Company of
the commencement thereof:
a. The Company shall be entitled to participate therein at its own
expense; and
b. Except as otherwise provided below, to the extent that it may
wish, the Company, jointly with any other indemnifying party similarly
notified, shall be entitled to assume the defense thereof and to employ counsel
reasonably satisfactory to Director. After notice from the Company to Director
of its election to so assume the defense thereof, the Company shall not be
liable to Director under this Agreement for any legal or other expenses
subsequently incurred by Director in connection with the defense thereof other
than reasonable costs of investigation, expenses payable pursuant to Section 4
of this Agreement, or as otherwise provided below. Director shall have the
right to employ counsel of his own choosing in such action, suit or proceeding
but the fees and expenses of such counsel incurred after notice from the
Company of assumption by the Company of the defense thereof shall be at the
expense of Director unless (i) the employment of counsel by Director has been
specifically authorized by the Company, such authorization to be conclusively
established by action by disinterested members of the Board of Directors though
less than a quorum; (ii) representation by the same counsel of both Director
and the Company would, in the reasonable judgment of both Director and the
Company, be inappropriate due to an actual or potential conflict of interest
between the Company and Director in the conduct of the defense of such action,
such conflict of interest to be conclusively established by an opinion of
counsel to the Company to such effect; (iii) the counsel employed by the
Company and reasonably satisfactory to Director has advised Director in writing
that such counsel's representation of Director would likely involve such
counsel in representing differing interests which could adversely affect the
judgment or loyalty of such counsel to Director, whether it be a conflicting,
inconsistent, diverse or other interest; or (iv) the Company shall not in fact
have employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of counsel shall be paid by the Company. The
Company shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Company or as to which a conflict of
interest has been established as provided in (ii) hereof. Notwithstanding the
foregoing, if an insurance company has supplied directors' and officers'
liability insurance covering an action, suit or proceeding, then such insurance
company shall employ counsel to conduct the defense of such action, suit or
proceeding unless Director and the Company reasonably concur in writing that
such counsel is unacceptable.
c. The Company shall not be liable to indemnify Director under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. The Company shall not settle any action or claim
in any manner which would impose any liability or penalty on Director without
Director's written consent. Neither the Company nor Director shall
unreasonably withhold consent to any proposed settlement.
4
<PAGE> 5
9. Enforcement.
a. The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on the Company hereby
in order to induce Director to serve as a director of the Company and
acknowledges that Director is relying upon this Agreement in continuing in such
capacity.
b. If a claim for indemnification or advancement of expenses is not
paid in full by the Company within thirty (30) days after a written claim by
Director has been received by the Company, Director may at any time assert the
claim and bring suit against the Company to recover the unpaid amount of the
claim. In the event Director is required to bring any action to enforce rights
or to collect moneys due under this Agreement and is successful in such action,
the Company shall reimburse Director for all of Director's reasonable
attorneys' fees and expenses in bringing and pursuing such action.
10. Proceedings by Director. The Company shall not be liable to make any
payment under this Agreement in connection with any action, suit or proceeding,
or any part thereof, initiated by Director unless such action, suit or
proceeding, or part thereof, (i) was authorized by the Company, such
authorization to be conclusively established by action by disinterested members
of the Board of Directors though less than a quorum or (ii) was brought by
Director pursuant to Section 9(b) hereof.
11. Effectiveness. This Agreement is effective for, and shall apply to,
(i) any claim which is asserted or threatened before, on or after the date of
this Agreement but for which no action, suit or proceeding has been brought
prior to the date hereof and (ii) any action, suit or proceeding which is
threatened before, on or after the date of this Agreement but which is not
pending prior the date hereof. This Agreement shall not apply to any action,
suit or proceeding which was brought before the date of this Agreement. So
long as the foregoing is satisfied, this Agreement shall be effective for, and
be applicable to, acts or omissions occurring prior to, on or after the date
hereof.
12. Non-exclusivity. The rights of Director under this Agreement shall
not be deemed exclusive, or in limitation of, any rights to which Director may
be entitled under any applicable common or statutory law, or pursuant to the
Articles of Incorporation, the Bylaws, vote of shareholders or otherwise.
13. Other Payments. The Company shall not be liable to make any payment
under this Agreement in connection with any action, suit or proceeding against
Director to the extent Director has otherwise received payment of the amounts
otherwise payable by the Company hereunder.
14. Subrogation. In the event the Company makes any payment under this
Agreement, the Company shall be subrogated, to the extent of such payment, to
all rights of recovery of Director with respect thereto, and Director shall
execute all agreements, instruments, certificates or other documents and do or
cause to be done all things necessary or appropriate to secure such
5
<PAGE> 6
recovery rights to the Company including, without limitation, executing such
documents as shall enable the Company to bring an action or suit to enforce
such recovery rights.
15. Survival; Continuation. The rights of Director under this Agreement
shall inure to the benefit of Director, his heirs, executors, administrators,
personal representatives and assigns, and this Agreement shall be binding upon
the Company, its successors and assigns. The rights of Director under this
Agreement shall continue so long as Director may be subject to any action, suit
or proceeding because of the fact that Director is or was an employee or agent
of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. If the Company, in a single transaction or
series of related transactions, sells, leases, exchanges, or otherwise disposes
of all or substantially all of its property and assets, the Company shall, as a
condition precedent to any such transaction, cause effective provision to be
made so that the persons or entitles acquiring such property and assets shall
become bound by and replace the Company under this Agreement.
16. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless made in writing
signed by both parties hereto.
17. Headings. Section headings of the sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
18. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally,
mailed by certified mail (return receipt requested) or sent by overnight
delivery service, cable, telegram, facsimile transmission or telex to the
parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
a. if to the Company;
Cinemark USA, Inc.
7502 Greenville Avenue
Suite 800, LB-9
Dallas, Texas 75231
Attn: Lee Roy Mitchell
b. if to the Director, to the address of Director set forth on the
signature page hereof.
Notice so given shall, in the case of notice so given by mail, be deemed to be
given and received on the fourth calendar day after posting, in the case of
notice so given by overnight delivery service, on the date of actual delivery
and, in the case of notice so given by cable, telegram, facsimile transmission,
telex or personal delivery, on the date of actual transmission or, as the case
may be, personal delivery.
19. Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable under any applicable law, then such
contravention or invalidity shall not invalidate the entire Agreement. Such
provision shall be deemed to be modified to the extent necessary
6
<PAGE> 7
to render it legal, valid and enforceable, and if no such modification shall
render it legal, valid and enforceable, then this Agreement shall be construed
as if not containing the provision held to be invalid, and the rights and
obligations of the parties shall be construed and enforced accordingly.
20. Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the
complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof
in any way.
21. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
22. CHOICE OF LAW. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
CINEMARK USA, INC.
By: /s/ Lee Roy Mitchell
---------------------------------
Name: Lee Roy Mitchell
Title: Chief Executive Officer
DIRECTOR
/s/ Heriberto Guerra, Jr.
----------------------------------
Heriberto Guerra, Jr.
Address:
175 E. Houston, Room 11B80
San Antonio, Texas 78205
7
<PAGE> 1
EXHIBIT 10.13(g)
INDEMNIFICATION AGREEMENT
BETWEEN CINEMARK USA, INC. AND
A DIRECTOR OF CINEMARK USA, INC.
THIS INDEMNIFICATION AGREEMENT (the "Agreement") dated as of July 19,
1995, is by and between Cinemark USA, Inc., a Texas corporation (the
"Company"), and Gary R. Gibbs ("Director").
RECITALS
A. Director is a member of the Board of Directors of the Company and in
such capacity is performing a valuable service to the Company.
B. The Company's Amended and Restated Articles of Incorporation (the
"Articles of Incorporation") provide for the indemnification of the directors,
officers, employees and agents of the Company to the extent set forth in
Articles VIII and IX of the Articles of Incorporation.
C. The Company's Bylaws (the "Bylaws") provide for the indemnification
of the directors, officers, employees and agents of the Company to the extent
set forth in Article IX, Section 8 of the Bylaws.
D. The Texas Business Corporation Act (the "Corporation Law") provides
that indemnification and advancement of expenses provided in such statute shall
not be exclusive of any other rights under any agreement, and thereby
contemplates that agreements may be entered into between the Company and
members of the Board of Directors of the Company with respect to the
indemnification of such employees.
E. In order to induce Director to serve as a member of the Board of
Directors of the Company for the current term and for any subsequent term to
which he is elected by the shareholders of the Company, the Company has deemed
it to be in its best interest to enter into this Agreement with Director.
NOW, THEREFORE, in consideration of Director's agreement to serve as a
member of the Board of Directors of the Company after the date hereof, the
parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
a. Change in Control. A "Change in Control" shall be deemed to
have occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Act"), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company, is or becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company
1
<PAGE> 2
representing 25% or more of the combined voting power of the outstanding
securities of the Company, or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's shareholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for the election was previously so approved, cease for any reason,
to constitute a majority thereof, or (iii) the shareholders of the Company
approve (x) a merger or consolidation of the Company with any other entity
(other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation), (y) a plan of complete
liquidation of the Company or (z) an agreement or agreements for the sale or
disposition, in a single transaction or series of related transactions, by the
Company of all or substantially all of the property and assets of the Company.
Notwithstanding the foregoing, events otherwise constituting a Change in
Control in accordance with the foregoing shall not constitute a Change in
Control if such events are solicited by the Company and are approved,
recommended or supported by the Board of Directors of the Company in actions
taken prior to, and with respect to, such events.
b. Reviewing Party. A "Reviewing Party" means (i) a quorum of the
Board of Directors consisting of directors who at the time of the vote are not
named defendants or respondents in the proceeding; (ii) if such quorum cannot
be obtained, a committee of the board of directors, designated to act in the
matter by a majority vote of all directors, consisting solely of two or more
directors who at the time of the vote are not named defendants or respondents
in the proceeding; or (iii) special legal counsel selected by the board of
directors or a committee of the board by vote as set forth in (i) or (ii)
above, or, if such a quorum cannot be obtained and such a committee cannot be
established, by a majority vote of all directors.
2. Indemnification of Director. The Company hereby agrees that it shall
hold harmless and indemnify Director to the fullest extent authorized and
permitted by the provisions of the Articles of Incorporation and Bylaws and
the provisions of the Corporation Law, or by any amendment thereof, but in the
case of any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than the Articles of
Incorporation, Bylaws or Corporation Law permitted the Company to provide prior
to such amendment, or other statutory provisions authorizing or permitting such
indemnification which is adopted after the date hereof.
3. Limitations on Indemnification. No indemnification pursuant to this
Agreement shall be paid by the Company unless required conditions set forth in
Article 2.02-1 of the Corporation Law (or any similar provisions of any
successor statute) are present, as determined by the Reviewing Party or a court
having jurisdiction in the matter.
4. Advancement of Expenses. In the event of any threatened or pending
action, suit or proceeding in which Director is a party or is involved and
which may give rise to a right of indemnification under this Agreement,
following written request to the Company by Director,
2
<PAGE> 3
the Company shall promptly pay to Director amounts to cover expenses incurred
by Director in such proceeding in advance of its final disposition upon the
receipt by the Company of certain written undertakings as required by Article
2.02-1, sections K, L, and M, of the Corporation Law (or any similar provisions
of any successor statute). The advancement of expenses by the Company shall
include the payment of an advance retainer if required by counsel to Director
in connection with the investigation or defense of any matter for which
indemnification is provided hereunder. The Company further agrees that
statements for fees and expenses of counsel or other costs incurred by Director
for which indemnification is provided hereunder may be rendered directly to the
Company for payment.
5. Determination of Indemnification; Burden of Proof. With respect to
all matters concerning the rights of Director to indemnification and payment of
expenses under this Agreement or under the provisions of the Articles of
Incorporation and Bylaws now or hereafter in effect, the Company shall appoint
a Reviewing Party and any determination by the Reviewing Party shall be
conclusive and binding on the Company and Director. If under applicable law,
the entitlement of Director to be indemnified under this Agreement depends on
whether a standard of conduct has been met, the burden of proof of establishing
that Director did not act in accordance with a standard of conduct shall rest
with the Company. Director shall be presumed to have acted in accordance with
such standard and entitled to indemnification or advancement of expenses
hereunder, as the case may be, unless, based upon a preponderance of the
evidence, it shall be determined by the Reviewing Party that Director did not
meet such standard. For purposes of this Agreement, unless otherwise expressly
stated herein, the termination of any action, suit or proceeding by judgment,
order, settlement, whether with or without court approval, or conviction, or
upon a plea of nolo contendere or its equivalent shall not create a presumption
that Director did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.
6. Effect of Change in Control. If there has not been a Change in
Control after the date of this Agreement, the determination of (i) the rights
of Director to indemnification and payment of expenses under this Agreement or
under the provisions of the Articles of Incorporation and the Bylaws, (ii)
standard of conduct and (iii) evaluation of the reasonableness of amounts
claimed by Director shall be made by the Reviewing Party or such other body or
persons as may be permitted by the Corporation Law. If there has been a Change
in Control after the date of this Agreement, such determination and evaluation
shall be made by a special, independent counsel who is selected by Director and
approved by the Company, which approval shall not be unreasonably withheld, and
who has not otherwise performed services for Director or the Company.
7. Continuation of Indemnification. All agreements and obligations of
the Company contained herein shall continue during the period that Director is
a director, officer, employee or agent of the Company, or is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, and shall
continue thereafter so long as Director shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that Director
was a director of the Company or serving in any other capacity referred to
herein.
3
<PAGE> 4
8. Notification and Defense of Claim. Promptly after receipt by
Director of notice of the commencement of any action, suit or proceeding,
Director shall, if a claim in respect hereof is to be made against the Company
under this Agreement, notify the Company of the commencement thereof; provided,
however, that delay in so notifying the Company shall not constitute a waiver
or release by Director of rights hereunder and that omission by Director to so
notify the Company shall not relieve the Company from any liability which it
may have to Director otherwise than under this Agreement. With respect to any
such action, suit or proceeding as to which Director notifies the Company of
the commencement thereof:
a. The Company shall be entitled to participate therein at its own
expense; and
b. Except as otherwise provided below, to the extent that it may
wish, the Company, jointly with any other indemnifying party similarly
notified, shall be entitled to assume the defense thereof and to employ counsel
reasonably satisfactory to Director. After notice from the Company to Director
of its election to so assume the defense thereof, the Company shall not be
liable to Director under this Agreement for any legal or other expenses
subsequently incurred by Director in connection with the defense thereof other
than reasonable costs of investigation, expenses payable pursuant to Section 4
of this Agreement, or as otherwise provided below. Director shall have the
right to employ counsel of his own choosing in such action, suit or proceeding
but the fees and expenses of such counsel incurred after notice from the
Company of assumption by the Company of the defense thereof shall be at the
expense of Director unless (i) the employment of counsel by Director has been
specifically authorized by the Company, such authorization to be conclusively
established by action by disinterested members of the Board of Directors though
less than a quorum; (ii) representation by the same counsel of both Director
and the Company would, in the reasonable judgment of both Director and the
Company, be inappropriate due to an actual or potential conflict of interest
between the Company and Director in the conduct of the defense of such action,
such conflict of interest to be conclusively established by an opinion of
counsel to the Company to such effect; (iii) the counsel employed by the
Company and reasonably satisfactory to Director has advised Director in writing
that such counsel's representation of Director would likely involve such
counsel in representing differing interests which could adversely affect the
judgment or loyalty of such counsel to Director, whether it be a conflicting,
inconsistent, diverse or other interest; or (iv) the Company shall not in fact
have employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of counsel shall be paid by the Company. The
Company shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Company or as to which a conflict of
interest has been established as provided in (ii) hereof. Notwithstanding the
foregoing, if an insurance company has supplied directors' and officers'
liability insurance covering an action, suit or proceeding, then such insurance
company shall employ counsel to conduct the defense of such action, suit or
proceeding unless Director and the Company reasonably concur in writing that
such counsel is unacceptable.
c. The Company shall not be liable to indemnify Director under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. The Company shall not settle any action or claim
in any manner which would impose any liability or penalty on Director without
Director's written consent. Neither the Company nor Director shall
unreasonably withhold consent to any proposed settlement.
4
<PAGE> 5
9. Enforcement.
a. The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on the Company hereby
in order to induce Director to serve as a director of the Company and
acknowledges that Director is relying upon this Agreement in continuing in such
capacity.
b. If a claim for indemnification or advancement of expenses is not
paid in full by the Company within thirty (30) days after a written claim by
Director has been received by the Company, Director may at any time assert the
claim and bring suit against the Company to recover the unpaid amount of the
claim. In the event Director is required to bring any action to enforce rights
or to collect moneys due under this Agreement and is successful in such action,
the Company shall reimburse Director for all of Director's reasonable
attorneys' fees and expenses in bringing and pursuing such action.
10. Proceedings by Director. The Company shall not be liable to make any
payment under this Agreement in connection with any action, suit or proceeding,
or any part thereof, initiated by Director unless such action, suit or
proceeding, or part thereof, (i) was authorized by the Company, such
authorization to be conclusively established by action by disinterested members
of the Board of Directors though less than a quorum or (ii) was brought by
Director pursuant to Section 9(b) hereof.
11. Effectiveness. This Agreement is effective for, and shall apply to,
(i) any claim which is asserted or threatened before, on or after the date of
this Agreement but for which no action, suit or proceeding has been brought
prior to the date hereof and (ii) any action, suit or proceeding which is
threatened before, on or after the date of this Agreement but which is not
pending prior the date hereof. This Agreement shall not apply to any action,
suit or proceeding which was brought before the date of this Agreement. So
long as the foregoing is satisfied, this Agreement shall be effective for, and
be applicable to, acts or omissions occurring prior to, on or after the date
hereof.
12. Non-exclusivity. The rights of Director under this Agreement shall
not be deemed exclusive, or in limitation of, any rights to which Director may
be entitled under any applicable common or statutory law, or pursuant to the
Articles of Incorporation, the Bylaws, vote of shareholders or otherwise.
13. Other Payments. The Company shall not be liable to make any payment
under this Agreement in connection with any action, suit or proceeding against
Director to the extent Director has otherwise received payment of the amounts
otherwise payable by the Company hereunder.
14. Subrogation. In the event the Company makes any payment under this
Agreement, the Company shall be subrogated, to the extent of such payment, to
all rights of recovery of Director with respect thereto, and Director shall
execute all agreements, instruments, certificates or other documents and do or
cause to be done all things necessary or appropriate to secure such
5
<PAGE> 6
recovery rights to the Company including, without limitation, executing such
documents as shall enable the Company to bring an action or suit to enforce
such recovery rights.
15. Survival; Continuation. The rights of Director under this Agreement
shall inure to the benefit of Director, his heirs, executors, administrators,
personal representatives and assigns, and this Agreement shall be binding upon
the Company, its successors and assigns. The rights of Director under this
Agreement shall continue so long as Director may be subject to any action, suit
or proceeding because of the fact that Director is or was an employee or agent
of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. If the Company, in a single transaction or
series of related transactions, sells, leases, exchanges, or otherwise disposes
of all or substantially all of its property and assets, the Company shall, as a
condition precedent to any such transaction, cause effective provision to be
made so that the persons or entitles acquiring such property and assets shall
become bound by and replace the Company under this Agreement.
16. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless made in writing
signed by both parties hereto.
17. Headings. Section headings of the sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
18. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally,
mailed by certified mail (return receipt requested) or sent by overnight
delivery service, cable, telegram, facsimile transmission or telex to the
parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
a. if to the Company;
Cinemark USA, Inc.
7502 Greenville Avenue
Suite 800, LB-9
Dallas, Texas 75231
Attn: Lee Roy Mitchell
b. if to the Director, to the address of Director set forth on the
signature page hereof.
Notice so given shall, in the case of notice so given by mail, be deemed to be
given and received on the fourth calendar day after posting, in the case of
notice so given by overnight delivery service, on the date of actual delivery
and, in the case of notice so given by cable, telegram, facsimile transmission,
telex or personal delivery, on the date of actual transmission or, as the case
may be, personal delivery.
19. Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable under any applicable law, then such
contravention or invalidity shall not invalidate the entire Agreement. Such
provision shall be deemed to be modified to the extent necessary
6
<PAGE> 7
to render it legal, valid and enforceable, and if no such modification shall
render it legal, valid and enforceable, then this Agreement shall be construed
as if not containing the provision held to be invalid, and the rights and
obligations of the parties shall be construed and enforced accordingly.
20. Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the
complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof
in any way.
21. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
22. CHOICE OF LAW. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
CINEMARK USA, INC.
By: /s/ Lee Roy Mitchell
---------------------------------
Name: Lee Roy Mitchell
Title: Chief Executive Officer
DIRECTOR
/s/ Gary R. Gibbs
-----------------------------------
Gary R. Gibbs
Address:
1169 Rock Creek Rd.
Hot Springs, Arkansas 71913
7
<PAGE> 1
EXHIBIT 10.14(c)
FIRST AMENDMENT TO PLEDGE AGREEMENT
THIS FIRST AMENDMENT TO PLEDGE AGREEMENT (this "Amendment") is made
and dated as of March 29, 1996 is executed by CINEMARK USA, INC., a Texas
corporation (the "Company") and the undersigned pledgors (each a "Pledgor" and
collectively, the "Pledgors") for the benefit of BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION as collateral agent ("Agent"), and amends that certain
Pledge Agreement dated as of February 14, 1996, among the Company, the Pledgors
and the Agent (the "Pledge Agreement").
RECITALS
The parties to the Pledge Agreement desire to amend Schedule 1
thereto to reflect the current amount and ownership of the Pledged Shares.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Terms. All terms used herein shall have the same meanings as in
the Pledge Agreement unless otherwise defined herein. All references to the
Pledge Agreement shall mean the Pledge Agreement as hereby amended.
2. Amendments to Pledge Agreement. Schedule 1 to the Pledge
Agreement is hereby deleted and a new Schedule 1 in the form attached to this
Amendment is inserted in lieu thereof.
3. Representations and Warranties. The Company and each Pledgor
severally represents and warrants as to himself or itself as follows:
3.1 Binding Obligation. This Amendment is a legal, valid and
binding agreement of the Company and such Pledgor, enforceable against the
Company and such Pledgor in accordance with its terms, except where
enforceability thereof may be limited by applicable law relating to bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
generally or by the application of general principles of equity.
3.2 Due Authorization. The execution, delivery and performance of
this Amendment are within the corporate or trust power of, as applicable, the
Company and each Pledgor which is not a natural person, have been duly
authorized by, and are not in conflict with the terms of any charter, by-laws,
trust instrument or other organization papers, as applicable, of, the Company
and such Pledgor.
3.3 No Approvals. No approval, consent, exemption or other action
by, or notice to or filing with, any governmental authority is necessary in
connection with the execution, delivery, performance or enforcement by the
Company or such Pledgor of this Amendment.
1
<PAGE> 2
3.4 Incorporation of Certain Representations. The representations
and warranties of the Company set forth in Section 3 of the Pledge Agreement
are true and correct in all respects on and as of the date hereof as though
made on and as of the date hereof, except as to such representations made as of
an earlier specified date.
3.5 Stock Ownership. Schedule 1 hereto constitute a complete
listing of all stock constituting Pledged Shares.
3.6 Default. No default under the Pledge Agreement has occurred and
is continuing.
4. Miscellaneous.
4.1 Effectiveness of the Pledge Agreement. Except as hereby
expressly amended, the Pledge Agreement shall remain in full force and effect,
and is hereby ratified and confirmed in all respects on and as of the date
hereof.
4.2 Waivers. This Amendment is specific in time and in intent and
does not constitute, nor should it be construed as, a waiver of any other
right, power or privilege under the Pledge Agreement, or under any agreement,
contract, indenture, document or instrument mentioned in the Pledge Agreement;
nor does it preclude any exercise thereof or the exercise of any other right,
power or privilege, nor shall any future waiver of any right, power, privilege
or default hereunder, or under the Pledge Agreement or any agreement, contract,
indenture, document or instrument mentioned in the Pledge Agreement, constitute
a waiver of any other default of the same or of any other term or provision.
4.3 Counterparts. This Amendment may be executed in any number of
counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument. This Amendment shall not become
effective until the Company, the Pledgors and the Agent shall have signed a
copy hereof, and the Banks shall have executed the consent, whether the same or
counterparts, and the same shall have been delivered to the Agent.
4.4 Jurisdiction. This Amendment shall be governed by and construed
under the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto, by their officers duly
authorized, have caused this Amendment to be duly executed and delivered as of
the day and year first above written.
CINEMARK USA, INC.
By: /s/ Jeffrey J. Stedman
-----------------------------
Title: Vice President
2
<PAGE> 3
PLEDGORS:
/s/ Lee Roy Mitchell
-------------------------------------
Lee Roy Mitchell
/s/ Tandy Mitchell
-------------------------------------
Tandy Mitchell, Spouse of
Lee Roy Mitchell
MITCHELL SPECIAL TRUST
MITCHELL GRANDCHILDREN TRUST
FOR LASEY MARIE LEE
MITCHELL GRANDCHILDREN TRUST
FOR ASHLEY ANN LEE
MITCHELL GRANDCHILDREN TRUST
FOR CRYSTAL LEE ROBERTS
MITCHELL GRANDCHILDREN TRUST
FOR CASSIE ANN ROBERTS
MITCHELL GRANDCHILDREN TRUST
FOR SKYLER KAYE MITCHELL
By: /s/ Lee Roy Mitchell
--------------------------------
Trustee
By: /s/ Don Hart
--------------------------------
Trustee
3
<PAGE> 4
Agreed to:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By: /s/ David Price
-------------------------------
David Price
Vice President
4
<PAGE> 5
CONSENT OF BANKS TO
FIRST AMENDMENT TO PLEDGE AGREEMENT
The undersigned Banks party to that certain Credit Agreement dated as of
February 14, 1996 among the Company, the Banks and Bank of America National
Trust and Savings Association, as agent for such Banks, hereby consent to the
foregoing First Amendment to Pledge Agreement dated as of March 29, 1996
amending that certain Pledge Agreement dated as of February 14, 1996, among the
parties thereto.
Dated: March 29, 1996
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By: /s/ Scott Faber
-----------------------------
Scott Faber
Vice President
NATIONSBANK OF TEXAS, N.A.
By: /s/ Jay Tweed
-----------------------------
Title: Vice President
CIBC INC.
By: /s/ D. Strek
-----------------------------
Title: Vice President
5
<PAGE> 6
THE BANK OF NEW YORK
By: /s/ Juyh Matteo
-----------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Matthew Murphy
-----------------------------
Name: Matthew Murphy
Title: Vice President
COMERICA BANK - TEXAS
By: /s/ Susan Raher
-----------------------------
Name: Susan Raher
Title: Vice President
NATWEST BANK N.A.
By: /s/ Eric Meyer
-----------------------------
Name: Eric Meyer
Title: Vice President
6
<PAGE> 7
AMENDED SCHEDULE 1
TO
PLEDGE AGREEMENT
Attached to and forming a part of that certain Pledge Agreement dated as of
February 14, 1996 made by the Company and the Pledgors named therein to Bank of
America National Trust and Savings Association, as Agent
<TABLE>
<CAPTION>
% of Total
Outstanding
No. of Capital Stock
Pledgors Cert. No. Class Shares in Class
<S> <C> <C> <C> <C>
Lee Roy Mitchell 38 A 1,500 100.000%
Lee Roy Mitchell 31 B 3,854 2.188%
Mitchell Special Trust 32 B 14,667 8.325%
Mitchell Grandchildren
Trust for Crystal Lee
Roberts 33 B 254 .144%
Mitchell Grandchildren
Trust for Cassie Ann
Roberts 34 B 254 .144%
Mitchell Grandchildren
Trust for Lasey Marie Lee 35 B 254 .144%
Mitchell Grandchildren
Trust for Ashley Ann Lee 36 B 254 .144%
Mitchell Grandchildren
Trust for Skyler Kaye
Mitchell 37 B 254 .144%
Lee Roy Mitchell 43 B 73,833 41.910%
</TABLE>
TOTAL CLASS A COMMON STOCK PLEDGED: 1,500
TOTAL CLASS B COMMON STOCK PLEDGED: 93,624
7
<PAGE> 1
EXHIBIT 10.15(b)
January 29, 1996
Mr. Bryce Anderson
P.O. Box 247
Ennis, Texas
RE: Stock Options
Dear Bryce:
Reference is made to that certain letter to you dated December 23, 1993 (the
"Option Letter") from Cinemark USA, Inc. (the "Company") pursuant to which the
Company granted you options (the "Options") to purchase 300 shares of the Class
B Common Stock of the Company (the "Common Stock") at an exercise price of
$833.34 per share and subject to the other terms and conditions set forth in
the Option Letter.
We have mutually agreed that the Option Letter is hereby amended to reduce the
number of shares of Common Stock covered by the Option Letter from 300 shares
to 200 shares and to reduce the exercise price of the Options from $833.34 per
share to $1.00 per share. Except as expressly amended hereby, all other terms
and conditions of the Option Letter shall remain in full force and effect. The
undersigned option holder acknowledges and agrees that this amendment of the
Option Letter is made by the Option holder in consideration for the reduction
of the exercise price of the Options as stated above.
CINEMARK USA, INC.
By: /s/ Alan W. Stock
----------------------------------
Alan W. Stock
President
Acknowledged and agreed:
/s/ Bryce Anderson
- ----------------------------
Bryce Anderson
<PAGE> 2
January 29, 1996
Mr. Heriberto Guerra, Jr.
175 E. Houston, Suite 18-B-80
San Antonio, Texas 78205
RE: Stock Options
Dear Berto:
Reference is made to that certain letter to you dated December 23, 1993 (the
"Option Letter") from Cinemark USA, Inc. (the "Company") pursuant to which the
Company granted you options (the "Options") to purchase 300 shares of the Class
B Common Stock of the Company (the "Common Stock") at an exercise price of
$833.34 per share and subject to the other terms and conditions set forth in
the Option Letter.
We have mutually agreed that the Option Letter is hereby amended to reduce the
number of shares of Common Stock covered by the Option Letter from 300 shares
to 200 shares and to reduce the exercise price of the Options from $833.34 per
share to $1.00 per share. Except as expressly amended hereby, all other terms
and conditions of the Option Letter shall remain in full force and effect. The
undersigned option holder acknowledges and agrees that this amendment of the
Option Letter is made by the Option holder in consideration for the reduction
of the exercise price of the Options as stated above.
CINEMARK USA, INC.
By: /s/ Alan W. Stock
------------------------------
Alan W. Stock
President
Acknowledged and agreed:
/s/ Heriberto Guerra, Jr.
- -------------------------------
Heriberto Guerra, Jr.
<PAGE> 3
January 29, 1996
Mr. Sheldon I. Stein
Bear, Stearns & Co. Inc.
300 Crescent Court, Suite 200
Dallas, Texas 75201
RE: Stock Options
Dear Shelly:
Reference is made to that certain letter to you dated December 23, 1993 (the
"Option Letter") from Cinemark USA, Inc. (the "Company") pursuant to which the
Company granted you options (the "Options") to purchase 300 shares of the Class
B Common Stock of the Company (the "Common Stock") at an exercise price of
$833.34 per share and subject to the other terms and conditions set forth in
the Option Letter.
We have mutually agreed that the Option Letter is hereby amended to reduce the
number of shares of Common Stock covered by the Option Letter from 300 shares
to 200 shares and to reduce the exercise price of the Options from $833.34 per
share to $1.00 per share. Except as expressly amended hereby, all other terms
and conditions of the Option Letter shall remain in full force and effect. The
undersigned option holder acknowledges and agrees that this amendment of the
Option Letter is made by the Option holder in consideration for the reduction
of the exercise price of the Options as stated above.
CINEMARK USA, INC.
By: /s/ Alan W. Stock
---------------------------
Alan W. Stock
President
Acknowledged and agreed:
/s/ Sheldon I. Stein
- -------------------------------
Sheldon I. Stein
<PAGE> 1
EXHIBIT 10.16(c)
SECOND SUPPLEMENTAL INDENTURE
This Second Supplemental Indenture (the "Second Supplemental Indenture"),
dated as of August 30, 1995, among Cinemark Mexico (USA), Inc. a Texas
corporation (the "Issuer"), Cinemark de Mexico, S.A. de C.V., a Mexican
corporation (the "Guarantor"), and United States Trust Company of New York, as
Trustee (the "Trustee").
RECITALS
A. Issuer, Guarantor and the Trustee executed an indenture, dated as of
July 30, 1993 (the "Original Indenture"), relating to the Issuer's 12% Senior
Subordinated Notes due 2003 (the "Notes"), which was amended by a First
Supplemental Indenture dated as of May 2, 1994 (the "First Supplemental
Indenture") (the Original Indenture as amended by the First Supplemental
Indenture referred to herein as the "Indenture").
B. Issuer has entered into that certain Purchase Agreement dated August
30, 1995 (the "Second Purchase Agreement"), relating to the sale of warrants to
purchase Common Stock of Cinemark Mexico (USA), Inc. (the "Sale").
C. Issuer and Guarantor, with the consent of holders of more than fifty
percent (50%) of the aggregate principal amount of the Notes now outstanding,
exclusive of any Notes owned by Issuer, Guarantor or their respective
affiliates, desire to amend and/or restate certain sections of the Indenture in
connection with the Sale.
D. All conditions precedent provided for in the Indenture relating to
this Second Supplemental Indenture have been complied with.
NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH that for and
in consideration of the premises and of the covenants contained herein, the
Issuer and Guarantor hereby covenant and agree with the Trustee, for the equal
benefit of all the present and future holders of the Notes without preference,
priority or distinction of any of the Notes over any of the others by reason of
priority in time of issuance, negotiation or maturity thereof or otherwise, and
for the benefit of the Trustee and its successors and assigns, as follows:
ARTICLE I
AMENDMENTS TO INDENTURE
1.1 Amendments to Section 1.1.
(a) Definition of "Additional Warrants". Section 1.1 of the Indenture is
hereby amended to add the following definition:
"Additional Warrants" shall mean those (x) those warrants to purchase
shares of the Company's Common Stock referenced in Section 2.1 to
that certain Purchase
1
<PAGE> 2
Agreement dated August 30, 1995 between the Company and the
Purchasers which are signatories thereto and (y) any other warrants
issued from time to time by the Company pursuant to subsequent
purchase agreements between the Company and the Purchasers which are
signatories thereto.
(b) Definition of "Consolidated Net Worth". The definition of
Consolidated Net Worth contained in Section 1.1 of the Indenture is
hereby amended and restated to read in its entirety as follows:
"Consolidated Net Worth" of any Person as of any date of
determination means, at any date, the stockholder's equity of such
Person and its Subsidiaries at such date determined in accordance
with generally accepted accounting principles on a Consolidated
basis, adjusted (x) to exclude (i) the effects, as disclosed in a
separate line item of the consolidated financial statements of such
Person, relating to foreign currency fluctuations, and (ii) any
reduction in stockholders' equity attributable to any redemption,
retirement or repurchase by the Company of the Warrants in excess of
the purchase price attributed to the Initial Warrants and the
Additional Warrants and (y) to include the respective purchase price
attributable to the Initial Warrants and the Additional Warrants.
(c) Definition of "Initial Warrants". Section 1.1 of the Indenture is
hereby amended to add the following definition:
"Initial Warrants" shall mean those warrants to purchase shares of
the Company's Common Stock referenced in Section 2.1.2 of the
Purchase Agreement dated July 30, 1993 among the Company, the
Guarantors and the Purchasers which are signatories thereto which
provides for the sale to the Purchaser thereto of the Securities and
the Initial Warrants.
(d) Definition of "Purchase Agreement". The definition of "Purchase
Agreement" contained in Section 1.1 of the Indenture is hereby
amended and restated in its entirety to read as follows:
"Purchase Agreement" shall mean (i) the Purchase Agreement dated July
30, 1993 among the Company, the Guarantor and the Purchasers which
are signatories thereto which provides for the sale to the Purchasers
thereto of the Securities and the Initial Warrants and (ii) the
Purchase Agreement among the Company and the Purchaser thereto dated
August 30, 1995, which provides for the sale to the Purchaser thereto
of the Additional Warrants.
(e) Definition of "Warrants". The definition of "Warrants" contained in
Section 1.1 of the Indenture is hereby amended and restated in its
entirety as follows:
"Warrants" shall mean the Initial Warrants and the Additional
Warrants.
1.2 Amendment to Section 10.8(b). Section 10.8(b) is hereby amended and
restated to read in its entirety as follows:
2
<PAGE> 3
Limitation on Consolidated Debt.
(b) After September 30, 1995, the Company and its Subsidiaries
may Incur Debt, if, at the date of and giving effect to the
incurrence of such Debt, the Pro Forma Cash Flow Coverage Ratio is
equal to or greater than:
<TABLE>
<CAPTION>
Period Coverage Ratio
------ --------------
<S> <C>
September 30, 1995 to March 30, 1998 2.25 to 1.0
March 31, 1998 to March 30, 1999 2.75 to 1.0
After March 30, 1999 3.25 to 1.0
</TABLE>
Notwithstanding the foregoing sentence, the Company or any Subsidiary
may Incur Permitted Debt without regard to the foregoing limitation.
1.3 Amendment to Section 10.13. The first paragraph of Section 10.13 is
hereby amended and restated in its entirety to read as follows:
"At the end of any two consecutive fiscal quarters during each of the
periods specified in the table below, the Cash Flow Coverage of the
Company for such two fiscal quarters then ending shall equal or
exceed the ratio set opposite that period:
<TABLE>
<CAPTION>
Period Coverage Ratio
------ --------------
<S> <C>
September 30, 1997 to March 30, 1999 2.0 to 1.0
After March 30, 1999 2.5 to 1.0
</TABLE>
ARTICLE II
MISCELLANEOUS PROVISIONS
2.1 Counterparts. This Second Supplemental Indenture may be executed in
counterparts, each of which when so executed shall be deemed to be an
original, but all such counterparts shall together constitute one and
the same instrument.
2.2 Severability. In the event that any provision in this Second
Supplemental Indenture shall be held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired
thereby.
2.3 Headings. The article and section headings are for convenience only
and shall not affect the construction hereof.
3
<PAGE> 4
2.4 Successors and Assigns. Any covenants and agreements in this Second
Supplemental Indenture by Issuer shall bind its successors and
assigns, whether so expressed or not.
2.5 GOVERNING LAW. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED IN THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
2.6 Effect of Second Supplemental Indenture. Except as amended by this
Second Supplemental Indenture, the terms and provisions of the
Indenture shall remain in full force and effect.
2.7 Trustee. The Trustee accepts the modifications of the Trust effected
by this Second Supplemental Indenture, but only upon the terms and
conditions set forth in the Indenture. Without limiting the
generality of the foregoing, the Trustee assumes no responsibility
for the correctness of the recitals herein contained, which shall be
taken as the statements of Issuer, and the Trustee shall not be
responsible or accountable in any way whatsoever for or with respect
to the validity or execution or sufficiency of this Second
Supplemental Indenture and the Trustee makes no representation with
respect thereto.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be executed by their duly authorized representative
as of the date hereof.
ATTEST: CINEMARK MEXICO (USA), INC.
/s/ Margaret E. Richards By: /s/ Jeffrey J. Stedman
- ------------------------------ ----------------------------------
Printed Name: Jeffrey J. Stedman
Title: Vice President
ATTEST: CINEMARK DE MEXICO, S.A. de C.V.
/s/ Jeffrey J. Stedman By: /s/ Ken D. Higgins
- ------------------------------ ----------------------------------
Printed Name: Ken D. Higgins
Title: President
4
<PAGE> 5
ATTEST: UNITED STATES TRUST COMPANY OF
NEW YORK
/s/ Susan Jane Chaps By: /s/ Collette E. Neuner
- ------------------------------ ----------------------------------
Printed Name: Collette E. Neuner
Title: Assistant Vice President
The undersigned hereby ratifies and affirms the guaranty contained in Article
XV of the Original Indenture and acknowledges and agrees that such guaranty
constitutes a guaranty of obligations of the Company under the Original
Indenture, as amended by the First Supplemental Indenture and this Second
Supplemental Indenture.
CINEMARK DE MEXICO, S.A. de C.V.
By: /s/ Ken D. Higgins
Printed Name: Ken D. Higgins
Title: President
5
<PAGE> 6
STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned Notary Public in and for said State and
County, on this day personally appeared Jeffrey J. Stedman, Vice President of
Cinemark Mexico (USA), Inc., known to me to be the person and officer whose
name is subscribed to the foregoing instrument, and acknowledged to me that the
same was the act of the said Cinemark Mexico (USA), Inc., and that he executed
the same as the act of such corporation for the purposes and consideration
therein expressed and in the capacity therein stated.
/s/ Carol Waldman
-----------------------------------
Notary Public, State of Texas
Printed Name: Carol Waldman
My Commission Expires:
6/7/96
STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned Notary Public in and for said State and
County, on this day personally appeared Ken D. Higgins, President of Cinemark
de Mexico, S.A. de C.V., known to me to be the person and officer whose name is
subscribed to the foregoing instrument, and acknowledged to me that the same
was the act of the said Cinemark de Mexico, S.A. de C.V., and that he executed
the same as the act of such corporation for the purposes and consideration
therein expressed and in the capacity therein stated.
/s/ Carol Waldman
------------------------------------
Notary Public, State of Texas
Printed Name: Carol Waldman
My Commission Expires:
6/7/96
6
<PAGE> 7
STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned Notary Public in and for said State and
County, on this day personally appeared Collette E. Nuener, Assistant Vice
President of United States Trust Company of New York, known to me to be the
person and officer whose name is subscribed to the foregoing instrument, and
acknowledged to me that the same was the act of the said United States Trust
Company of New York, and that he executed the same as the act of such
corporation for the purposes and consideration therein expressed and in the
capacity therein stated.
/s/ A.M. Hayes
-------------------------------
Notary Public, State of Texas
Printed Name: A.M. Hayes
My Commission Expires:
12/31/97
7
<PAGE> 1
EXHIBIT 10.16(j)
SUBSCRIPTION AGREEMENT
December 30, 1994
Cinemark Mexico (USA), Inc.
7502 Greenville Avenue
Suite 800-LB9
Dallas, Texas 75231
Attention: Lee Roy Mitchell, Vice Chairman
Re: Subscription for Common Stock of Cinemark Mexico (USA), Inc.
1. Subscription. Subject to the terms and conditions hereof, the
undersigned (the "Subscriber") hereby irrevocably subscribes for and agrees to
purchase 574,851 shares (the "Shares") of the common stock, par value $.001 per
share (the "Common Stock"), of Cinemark Mexico (USA), Inc., a Texas corporation
(the "Company"), for which the Subscriber agrees to pay a total purchase price
of $5,000,000 (the "Purchase Price"). Unless otherwise specifically noted,
"dollars" or "$" shall mean United States dollars.
2. Conditions to the Subscription. The Subscriber understands and agrees
that this subscription is made subject to the following terms and conditions.
(a) The Company reserves the absolute right to reject any or all tenders
of the Purchase Price that are not in proper form or the acceptance of which
would, in the opinion of the Company's counsel, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender as to
all or any part of the Purchase Price.
(b) This subscription will terminate on January 31, 1995 unless accepted
by the Company before such date. The Subscriber agrees to close the
transaction contemplated by this subscription agreement (the "Closing") on
December 30, 1994, or on such other date on or before January 31, 1995,
specified by the Company (the "Closing Date"). Upon acceptance of this
subscription by the Company, the Company will deliver to the Subscriber a copy
of this subscription agreement duly executed by the Company.
3. Payment for the Shares. Upon acceptance of this subscription by the
Company, the Subscriber shall be irrevocably and unconditionally obligated to
pay to the Company the full amount of the Purchase Price set forth above.
1
<PAGE> 2
4. Representations and Warranties of the Subscriber. The Subscriber
understands that this subscription is being conducted pursuant to exemptions
from registration provided for in the Securities Act of 1933, as amended (the
"Securities Act"), and state securities laws, that it is entering into this
subscription agreement without being furnished any offering literature or
prospectus, that this transaction has not been approved or disapproved by the
Texas State Securities Board or the United States Securities and Exchange
Commission or by any administrative agency charged with the administration of
the securities laws of any state because of the nature of and the small number
of persons solicited and the private aspects of the offering, that all
documents, records and books pertaining to this investment have been made
available to the undersigned and his representatives, including his attorney
and/or his accountant, and that the books and records of the Company will be
available upon reasonable notice for inspection by investors during reasonable
business hours at its principal place of business, and the Subscriber hereby
represents and warrants as follows:
(a) The Subscriber confirms that (i) it is duly organized, validly
existing and in good standing under the laws of the State of Texas; (ii) it has
the corporate power and authority to execute, deliver and perform this
subscription agreement; (iii) it is able (A) to bear the economic risk of its
investment, (B) to hold the Shares for an indefinite period of time; and (C) to
afford a complete loss of its investment, and (iv) it is currently a
shareholder of the Company.
(b) The Subscriber confirms that it is an "accredited investor" as
defined in Rule 501 under the Securities Act of 1933.
(c) The Subscriber confirms that, in making this subscription it has
relied solely upon independent investigations made by its representative(s),
including counsel and other advisors and that it and such representatives and
advisors have been given the opportunity to ask questions of, and to receive
answers from, persons acting on behalf of the Company concerning the terms and
conditions of this subscription.
(d) The Subscriber accepts this subscription and the Shares issued
hereunder solely for its own personal account, for investment purposes only,
and the Shares are not being accepted with a view to or for the resale,
distribution, subdivision or fractionalization thereof; the undersigned has no
contract, undertaking, understanding, agreement or arrangement, formal or
informal, with any person to sell, transfer or pledge to any person the Shares;
the undersigned has no present plans to enter into any such contract,
undertaking, agreement or arrangement; and the undersigned understands the
legal consequences of the foregoing representations and warranties to mean that
it must bear the economic risk of the investment for an indefinite period of
time because the Shares have not been registered under the Securities Act and,
therefore, cannot be sold unless they are subsequently registered under the
Securities Act (which the Company is not obligated to do) or an exemption form
such registration is available.
2
<PAGE> 3
(e) The Subscriber understands that no federal or state agency has passed
on or made any recommendation or endorsement of the Common Stock and that the
Company is relying on the truth and accuracy of the representations,
declarations and warranties herein made by the Subscriber in offering the
Common Stock without having first registered the same under the Securities Act.
(f) The Subscriber confirms that it has been advised to consult with its
own attorney regarding legal matters concerning the Company and to consult with
independent tax advisors regarding the tax consequences of investing in the
Company.
(g) The Subscriber has not authorized any broker, dealer, agent or finder
to act on his behalf nor does the Subscriber have any knowledge of any broker,
dealer, agent or finder purporting to act on its behalf with respect to this
transaction.
(h) The Subscriber consents to the placement of a legend on the Shares
and any other document evidencing its acceptance of the subscription, which
legend shall be in form substantially as follows:
"THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED,
OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER THE ACT OR UNLESS
COUNSEL TO THE COMPANY SHALL HAVE RENDERED AN OPINION SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(i) The Subscriber represents and warrants that it has full legal right,
power and authority to enter into this subscription agreement and to purchase
the Shares.
5. Representations and Warranties of the Company. The Company represents
and warrants to the Subscriber as of the date of the Company's acceptance
hereof as follows:
(a) The Company is duly organized, validly existing and in good standing
under the laws of the State of Texas and has the corporate power and authority
to own, lease and operate its property and to carry on its business as proposed
to be conducted. The Company has delivered to the Subscriber, or made
available for Subscriber's inspection, true, complete and correct copies of its
Articles of Incorporation and its By-laws, in full force and effect as of the
date of the Company's acceptance hereof, which will not be further amended
prior to the Closing Date. The Company is duly qualified to do business and is
in good standing in all jurisdictions where the nature of its business or the
ownership or leasing of property by it requires such qualification.
(b) Neither the execution and delivery of this subscription agreement,
nor the offering, issuance and sale of the Shares, nor the fulfillment of or
compliance with the terms and
3
<PAGE> 4
provisions of this subscription agreement and the Common Stock will conflict
with, or result in a breach of the terms, conditions or provisions of, or
constitute a default under, or result in any violation of, or require any
consent, approval or other action by any court or administrative or
governmental body or any other person pursuant to, the Articles of
Incorporation or By-laws of the Company, any award of any arbitrator or any
agreement (including any agreement with shareholders), instrument, order,
judgment, decree, statute, law, rule or regulation to which the Company is
subject. The Company is not a party to, or otherwise subject to any provision
contained in, any instrument evidencing indebtedness of the Company, any
agreement relating thereto or any other contract or agreement (including its
Articles of Incorporation) which restricts or otherwise limits the issuance and
sale of the Shares.
6. Transferability. The Subscriber agrees not to transfer or assign this
subscription agreement, or any interest herein, and further agrees that the
assignment and transfer of the Shares acquired pursuant to this subscription
shall be made only in accordance with all applicable laws and shall be
restricted by the Shareholders' Agreement.
7. Miscellaneous.
(a) All notices or other communications given or made hereunder shall be
in writing and shall be delivered or mailed by registered or certified mail,
return receipt requested, postage prepaid, to the undersigned at the address
set forth below or to the Company at the address set forth above.
(b) THIS SUBSCRIPTION AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
(c) This subscription agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof and may be amended
only by a writing executed by all parties hereto.
8. Effect of Representations, Warranties and Acknowledgments. The
representations, warranties and acknowledgments of Paragraphs 4 and 5 are true
and accurate as of the date of this subscription agreement and shall be true
and accurate as of the date of delivery of the Shares. Each party hereto
acknowledges that the other party is relying upon such representations,
warranties and acknowledgments in the sale and delivery of the Shares.
4
<PAGE> 5
9. Fees and Expenses. Each party hereto shall be responsible for all
fees and expenses incurred by such party in connection with the preparation,
execution, delivery and performance of this subscription agreement.
CINEMARK II, INC.
By: /s/ Jeffrey J. Stedman
-------------------------------------
Name: Jeffrey J. Stedman
Title: Vice President
Address for Notices:
Cinemark II, Inc.
7502 Greenville Ave.
Suite 800, LB-9
Dallas, Texas 75231
This subscription agreement is hereby accepted as of December 30, 1994.
CINEMARK MEXICO (USA), INC.
By: /s/ Alan W. Stock
-------------------------------------
Name: Alan W. Stock
Title: President
5
<PAGE> 1
EXHIBIT 10.16(k)
PURCHASE AGREEMENT
Warrants to Purchase Common Stock
of
CINEMARK MEXICO (USA), INC.
August 30, 1995
<PAGE> 2
Cinemark Mexico (USA), Inc.
7502 Greenville Avenue, Suite 800
Dallas, Texas 75231
August 30, 1995
To Each of the Purchasers
Who Are Signatories Hereto
Ladies and Gentlemen:
Cinemark Mexico (USA), Inc., a Texas corporation (the "Company"), hereby
agrees with each of you as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"accredited investor" shall have the meaning specified in Section 2.3.4
hereof.
"accumulated funding deficiency" shall have the meaning specified in
Section 4.6 hereof.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this
definition, "control", when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" means any Person authorized to act and who acts on behalf of the
Purchaser with respect to the transactions contemplated by this Agreement and
the other Documents.
"Agreement" means this Purchase Agreement, as the same may be amended,
supplemented or modified from time to time in accordance with the terms hereof.
"Applicable Law" means any Federal, state, local or foreign statute, law,
ordinance, governmental rule or regulation or any judgment, decree, rule or
order of any court or governmental agency or authority applicable to the
Company or any of its Subsidiaries or any of their respective properties,
assets or operations.
"Business Day" means a day that is not a Saturday, a Sunday or a day on
which banking institutions in the State of New York and the State of Texas are
not required to be open.
<PAGE> 3
"Capital Stock" means any capital stock of any Person and shares,
interests, participations or other ownership interests (however designated), of
any Person and any rights (other than debt securities convertible into capital
stock), warrants or options to purchase any thereof.
"Charter Documents" means the Articles or Certificate of Incorporation and
By-Laws or similar organizational documents, as amended to the Closing Date, of
the applicable Person.
"Cinemark de Mexico" means Cinemark de Mexico, S.A. de C.V., a Mexican
corporation.
"Closing" shall have the meaning specified in Section 2.2.2 hereof.
"Closing Date" shall have the meaning specified in Section 2.2.2 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Shares" shall have the meaning specified in Section 2.1 hereof.
"Common Stock" shall mean the Common Stock, $0.001 par value per share, of
the Company.
"Company" shall mean Cinemark Mexico (USA), Inc., a Texas corporation, and
any successor thereto.
"Default" means any event, act or condition that is, or after notice or
passage of time or both would, constitute an Event of Default.
"disqualified person" shall have the meaning specified in Section 2.3.3
hereof.
"Documents" means all documents delivered in connection with the
transactions contemplated hereby, including without limitation, this Agreement,
the Warrant Registration Rights Agreement, the Second Supplemental Indenture
and the Warrant Certificates collectively, or each of such documents
singularly, and any documents or instruments contemplated by or executed in
connection with any of them or any of the transactions contemplated hereby or
thereby.
"employee benefit plan" shall have the meaning specified in Section 2.3.3
hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any "employee benefit plan" maintained or
contributed to by the Company or any of its "affiliates" (as defined in section
4.07(d)(7) of ERISA).
"Event of Default" shall mean any event defined as an Event of Default in
the Indenture.
2
<PAGE> 4
"First Amendment to Warrant Registration Rights Agreement" means the First
Amendment to Warrant Registration Agreement dated as of August 30, 1995 by and
between the Company, Cinemark II, Inc., New Wave Investments A.V.V. and the
Purchasers who are signatories hereto.
"Indemnified Parties" shall have the meaning specified in Section 2.6.1
hereof.
"Indenture" means the Indenture, dated as of July 30, 1993, by and among
the Company, Cinemark de Mexico, S.A. de C.V. and United States Trust Company
of New York, as Trustee, as the same may be amended from time to time, in
accordance with the terms thereof.
"Intellectual Property" shall have the meaning specified in Section 4.11
hereof.
"June 30, 1995 Quarterly Report" shall have the meaning specified in
Section 4.6.1 hereof.
"Lien" shall have the meaning specified in the Indenture.
"Losses" shall have the meaning specified in Section 2.6.1 hereof.
"Notes" shall mean those certain 12% Series A, 12% Series B and 12% Series
C Senior Subordinated Notes due 2003.
"party in interest" shall have the meaning specified in Section 2.3.3
hereof.
"Pension Plan" shall have the meaning specified in Section 4.9 hereof.
"Permitted Investments" shall have the meaning specified in the Indenture.
"Person" shall mean any individual, partnership, corporation, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof, or other entity.
"Proceeding" shall mean an action, claim, suit or proceeding (including,
without limitation, an investigation or partial proceeding, such as a
deposition), whether commenced or to the knowledge of the Company threatened.
"Purchasers" shall mean those Persons who have executed a counterpart of
this Agreement on any one of the signature pages hereto who are to be
purchasers of the Securities.
"qualified trust" shall have the meaning specified in Section 2.3.3
hereof.
"Rule 144" means Rule 144 as promulgated by the Commission pursuant to the
Securities Act, and any successor rule or regulation thereto.
"Rule 144A" means Rule 144A as promulgated by the Commission pursuant to
the Securities Act, and any successor rule or regulation thereto.
3
<PAGE> 5
"Second Supplemental Indenture" means the Second Supplemental Indenture
dated as of August 30, 1995 by and among the Company, Cinemark de Mexico and
United States Trust Company of New York, as Trustee.
"Securities" means the Warrants.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated by the Commission pursuant thereto.
"Subsidiary" means with respect to any Person, (i) a corporation a
majority of whose capital stock with voting power, under ordinary
circumstances, to elect directors is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person, or by such Person
and one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"Trustee" means United States Trust Company of New York, as trustee under
the terms of the Indenture.
"Warrant" shall have the meaning specified in Section 2.1 hereof.
"Warrant Certificate" shall have the meaning specified in Section 2.2
hereof.
"Warrant Registration Rights Agreement" shall mean the Warrant
Registration Rights Agreement dated July 30, 1993, by and among the Company,
New Wave Investments A.V.V., Cinemark II, Inc. and each of the purchasers which
were signatories thereto, as amended, modified or supplemented to the date
hereof relating to the registration of the Warrants and the Common Shares
pursuant to the Securities Act.
SECTION 2. PURCHASE AND SALE OF SECURITIES
2.1 Issuance of Securities.
The Company has taken all necessary corporate action to authorize the
issuance and sale to the Purchasers of warrants (the "Warrants") to purchase
152,411 shares (the "Common Shares") of its Common Stock, and the issuance of
the Common Shares issuable upon exercise of the Warrants. The Company has
offered to the Purchasers the right to purchase the Warrants for an amount
negotiated by the Company and the Purchasers, which amount the board of
directors of the Company has determined to be the fair market value of the
Warrants.
2.2 Sale and Purchase of the Securities; the Closing
2.2.1. Sale and Purchase of Warrants
Subject to the terms and conditions set forth herein, the Company hereby
agrees to sell to each Purchaser that number of Warrants set forth opposite the
name of such Purchaser on the execution page hereof. The Warrants shall be
sold at a price of $8.6879 per Warrant, for an aggregate purchase price of
$1,324,131.53 for all the Warrants. The
4
<PAGE> 6
Company agrees (i) to cause to be authorized and to reserve and keep available
at all times during which any Warrants remain outstanding, free from preemptive
rights, out of its treasury stock or authorized but unissued shares of Common
Stock, par value $0.001 per share solely for the purpose of effecting the
exercise of the Warrants pursuant to the terms of the certificate evidencing
each Warrant (the "Warrant Certificate"), sufficient shares of its Common Stock
to provide for the exercise of 1.1 times the number of outstanding Warrants,
(ii) to issue and cause the Company to deliver such shares of Common Stock as
required upon each exercise of the Warrants, in accordance with the terms of
each Warrant Certificate, and (iii) to take all actions necessary to ensure
that all such shares of Common Stock will, when issued, be duly and validly
issued, fully paid and nonassessable. The Company further agrees that if any
such shares of its Common Stock to be reserved for the purpose of exercise of
the Warrants require registration with or approval of any governmental
authority under any Federal, state or local law before such shares of Common
Stock may legally be issued or delivered upon exercise of the Warrants, then it
shall secure such registration or approval, as the case may be, and maintain
such registration or approval in effect so long as any Warrants remain
outstanding.
In reliance upon the representations and warranties of the Company
contained herein and in the other Documents, and subject to the terms and
conditions set forth herein and therein, each Purchaser hereby agrees,
severally and not jointly, to purchase the Warrants at the purchase price set
forth in this Section. Each Purchaser shall, severally and not jointly, be
liable for only the purchase of that portion of such Warrants indicated on the
execution page hereof that relates to such Purchaser.
2.2.2. Closing
The sale and purchase of the Securities shall take place at a closing (the
"Closing") at the offices of the Company at 7502 Greenville Avenue, Suite 800,
Dallas, Texas 75231, commencing at 10:00 A.M. Dallas, Texas, time, on August
30, 1995, or such other place, Business Day and time as may be agreed upon by
the Purchasers and the Company (such time and date being referred to as the
"Closing Date"). At the Closing, the Company will deliver to each of you one
or more Warrant Certificates in the aggregate principal or other amount or
amounts to be purchased by each of you, registered in each of your names or in
the name(s) of such nominee(s) or designee(s) as each of you may request,
against payment of the purchase price therefor by delivery of a check payable
in immediately available funds made payable to the Company or to its order, or
by Federal funds bank wire transfer to such bank account as the Company shall
designate at least two Business Days prior to the Closing Date.
2.3 Purchaser's Representations
2.3.1. Authorization and Authority.
You represent to the Company that you are authorized to enter into
this Agreement, to perform your obligations hereunder and to consummate the
transactions contemplated hereby. You further represent that, when executed,
this Agreement will be a legal, valid and binding obligation of you,
enforceable against you in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors, rights and remedies
5
<PAGE> 7
generally and subject, as to enforceability, to general principles of equity
(regardless of whether such enforcement is sought in a proceeding in equity or
at law).
2.3.2. Investment Intent; Transfer of Securities.
You further represent to the Company that you are purchasing the
Securities being purchased by you hereunder for your own account, and with no
intention of distributing or reselling said Securities or any part thereof in
any transaction that would be in violation of the securities laws of the United
States of America or any state thereof, without prejudice, however, to your
right at all times to sell or otherwise dispose of all or any part of said
Securities pursuant to an effective registration statement under the Securities
Act and in compliance with applicable state securities laws, or under an
exemption from such registration available under the Securities Act and other
applicable state securities laws and subject, nevertheless, to the disposition
of your property being at all times within your control.
If you desire to offer, sell or otherwise transfer, pledge or hypothecate
all or any part of the Securities (other than pursuant to an effective
registration statement under the Securities Act or pursuant to Rule 144 or Rule
144A) you shall deliver to the Company a written opinion of counsel (who may be
in-house or special counsel), reasonably satisfactory in form and substance to
the Company, that there is available therefor an exemption from the
registration requirements of the Securities Act. Upon original issuance
thereof, and until such time as no longer required by law, each Warrant
Certificate evidencing the Securities (and all securities issued in exchange
therefor or substitution thereof) shall bear a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED, EXCEPT PURSUANT TO (i) A REGISTRATION
STATEMENT WITH RESPECT TO SUCH SECURITIES THAT IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY
OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES, AND IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE LAWS OF ANY STATE OF THE UNITED STATES.
At such time that any such legend is no longer required by law to be borne
by such certificate, the Company shall, at the request of the holder thereof,
cause such legend to be removed or replace such certificate with an unlegended
security.
2.3.3. ERISA.
You further represent that either (i) no part of the funds used to
purchase the Securities to be purchased by you constitutes assets allocated to
any qualified trust that contains the assets of any employee benefit plan with
respect to which the Company or any ERISA Affiliates is a party in interest or
disqualified person or (ii) the use of such assets would not constitute a
non-exempt prohibited transaction. The representations made by you in the
preceding clauses are made solely in reliance upon your review of the list (a
copy of which is set forth as Schedule 2.3.3 hereto), previously furnished to
you by the Company, which sets forth the employee benefit plans with respect to
which the Company or any ERISA Affiliates is a party in interest or a
disqualified person. The terms "employee benefit plan" and "party in
interest" shall have the meanings
6
<PAGE> 8
assigned to such terms in Section 3 of ERISA, the term "disqualified person"
shall have the meaning assigned to such term in section 4975 of the Code, and
the term "qualified trust" shall mean any trust qualified under section 401(a)
of the Code in which is held the assets of any employee benefit plan.
2.3.4. Accredited Investor; Individual Purchasers
You further represent that (i) you have received a copy of the Company's
most recent quarterly report, (ii) no oral or written representations have been
made to you concerning the Securities, the Company, its business or prospects,
tax consequences or other matters, and (iii) you have had an opportunity to
investigate the business and financial condition of the Company, and to obtain
such information as you require from the Company's officers and directors, as
applicable. In addition, each Purchaser represents that it is and any of its
managed accounts, if applicable, are "accredited investors" within the meaning
of Rule 501 under the Securities Act.
2.3.5. Securities Not Registered.
You further represent that you understand that (i) the Securities have not
been registered under the Securities Act and are being offered and sold under
an exemption from registration thereunder, (ii) you must bear the economic risk
of your investment in the Securities for an indefinite period of time because
it is not anticipated that there will be any market for the Securities and
because the Securities cannot be resold unless subsequently registered under
the Securities Act or unless an exemption from such registration is available,
and (iii) no federal or state agency has passed on or made any recommendations
or endorsements of the Securities.
2.3.6. Terms of Warrants.
Each Purchaser agrees to be bound by the terms and provisions of the Warrant
Certificate substantially in the form attached hereto as Exhibit A.
2.4 No Closing
Notwithstanding anything to the contrary contained in this Agreement, this
Agreement may be terminated and the transactions contemplated hereby may be
abandoned at any time prior to the Closing:
(i) By the mutual consent of all of the parties;
(ii) By the Purchasers at any time in the event of a breach or
default by the Company in the observance or in the timely performance of
any of its obligations hereunder which is not waived by Purchasers and
which remains uncured for fifteen (15) days after receipt of notice in
writing of such breach or default;
(iii) By the Company at any time in the event of a breach or default
by the Purchasers in the observance or in the timely performance of any of
their obligations hereunder which is not waived by the Company and remains
uncured for fifteen (15) days after receipt of notice in writing of such
breach or default;
7
<PAGE> 9
(iv) If the Closing shall not have occurred on or before August 31,
1995, at anytime thereafter by the Purchasers if the Purchasers are not on
said date in default in the observance or in the due and timely
performance of any of their obligations hereunder; or
(v) If the Closing shall not have occurred on August 31, 1995, at
anytime thereafter by the Company if the Company is not on said date in
default in the observance or in the due and timely performance of any of
its obligations thereunder.
No termination under this section shall be effective unless and until the
terminating party gives written notice of such termination to the other party.
2.5 Expenses
Whether or not the Securities are sold, the Company shall pay all
reasonable expenses relating to this Agreement and the other Documents,
including, but not limited to:
(a) the cost of printing, reproducing and filing this Agreement, the
other Documents and any other documents contemplated hereby or thereby;
(b) the reasonable fees and charges and disbursements of Ropes & Gray,
your special counsel, or such other counsel as you may employ on your behalf
with the consent of the Company;
(c) the cost of delivering to your home office or the office of your
designee the Securities purchased by you at the Closing upon the issuance
thereof;
(d) all reasonable out-of-pocket expenses relating to any amendment to,
or modification of, or any waiver, or consent or preservation of rights under,
this Agreement or any of the Documents;
(e) all reasonable fees and out-of-pocket expenses (including reasonable
fees and out-of-pocket expenses of one special counsel to be selected by the
Purchasers) in connection with any registration or qualification of the
Securities for offer and sale hereunder under the securities or "blue sky" laws
of any jurisdiction requiring such registration or qualification or in
connection with obtaining any exemptions from such requirements.
2.6 Indemnification
2.6.1. Scope of Indemnification.
In addition to all other sums due hereunder or provided for in this
Agreement or any of the other Documents and any and all obligations of the
Company to indemnify you hereunder or under any of the other Documents, the
Company shall, without limitation as to time, indemnify and hold harmless you,
your Affiliates, and the employees, officers, directors, and Agents of you and
your Affiliates, including attorneys and consultants (individually, an
"Indemnified Party" and collectively, the "Indemnified Parties"), to the
fullest extent lawful, from and against any and all losses,
8
<PAGE> 10
claims, damages, liabilities, costs (including, without limitation, reasonable
costs of preparation and reasonable attorneys' fees) and expenses, including
expense of investigation (collectively, "Losses"), incurred by any Indemnified
Party, as a consequence of any claim by or obligation to a third party which
arises out of or in connection with this Agreement or the other Documents or
the transactions contemplated hereby or thereby (or any other document or
instrument executed herewith or pursuant hereto or thereto), whether or not the
transactions contemplated by this Agreement are consummated and whether or not
any Indemnified Party is a formal party to any Proceeding; provided, however,
that the Company shall not be liable to any Indemnified Party for any Losses
(i) resulting from a violation by such Indemnified Party of a legal restriction
on its investment powers, (ii) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or review) that such Losses arose from the negligence or
willful misconduct of such Indemnified Party, (iii) arising out of or based
upon any untrue statement of a material fact furnished to the Company in
writing by any Indemnified Party, or upon any omission of a material fact in
such writing required to make the statements therein not misleading, and such
writing is stated to be specifically for use in any registration statement,
prospectus or form of prospectus or in any amendment or supplement thereto or
in any preliminary prospectus, or (iv) resulting from any diminution in the
value of the Warrants, in each case on account of economic conditions generally
or an adverse, change in the financial condition of the Company. Subject to
the provisions of the last sentence of Section 2.6.2, the Company agrees
promptly to reimburse any Indemnified Party for all such Losses as they are
incurred and disclosed to the Company in writing by such Indemnified Party.
The obligations of the Company to each Indemnified Party hereunder shall be
separate obligations, and the liability of the Company to any Indemnified Party
hereunder shall not be extinguished solely because any other Indemnified Party
is not entitled to indemnity hereunder.
2.6.2. Indemnification Procedures.
If any proceeding shall be brought or asserted against any Indemnified
Party in respect of which indemnity may be sought from the Company hereunder,
such Indemnified Party promptly shall notify the Company in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment
of counsel reasonably satisfactory to the Indemnified Party and the payment of
all reasonable fees and expenses incurred in connection with the defense
thereof; provided, that the failure of any Indemnified Party to give such
notice shall not relieve the Company of its obligations pursuant to this
Agreement, except to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
review) that such failure shall have materially prejudiced the Company.
Any such Indemnified Party shall have the right to employ separate counsel
in any such action, claim or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party or Parties unless: (1) the Company has agreed to pay
such fees and expenses; or (2) the Company shall have failed promptly to assume
the defense of such action, claim or proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such action, claim or
proceeding; or (3) the named parties to any such action, claim or proceeding
(including any impleaded parties) include both such Indemnified Party and the
Company, and such Indemnified Party shall have been advised by counsel that a
conflict of interest may exist if such counsel represents such Indemnified
Party and the
9
<PAGE> 11
Indemnifying Party (and in the case of any of (1), (2) or (3), if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense thereof and the reasonable fees and expenses of
such counsel shall be at the expense of the Company), it being understood,
however, that, the Company shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) at any time
for all such Indemnified Parties, which firm shall be designated in writing by
such Indemnified Parties. The Company shall have the right to employ separate
counsel in, and to participate in the defense of, any action or proceeding with
respect to which it has no right to assume the defense, but the fees and
expenses of such counsel shall be at the expense of the Company. No
Indemnified Party will be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). The
Company shall not consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release, in form and
substance satisfactory to the Indemnified Party, from all liability in respect
of such action, claim or proceeding for which such Indemnified Party would be
entitled to indemnification hereunder (whether or not any Indemnified Party is
a party thereto). All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such action or proceeding in a manner not
inconsistent with this Section 2.6) shall be paid to the Indemnified Party, as
incurred, upon written notice thereof to the Company; provided, that the
Company may require such Indemnified Party to undertake to reimburse all such
fees and expenses to the extent it is finally judicially determined by a court
of competent jurisdiction (which determination is not subject to appeal or
review) that such Indemnified Party is not entitled to indemnification
hereunder.
2.7 Contribution
2.7.1. Indemnification Provisions Unenforceable.
If a claim by an Indemnified Party for indemnification under Section 2.6
is found unenforceable in a final judgment by a court of competent jurisdiction
(not subject to further appeal or review) even though the express provisions
hereof provide for indemnification in such case, then the Company, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses in such proportion
as is appropriate to reflect the relative fault of the Company, on the one
hand, and such Indemnified Party, on the other hand, in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of the Company, on
the one hand, and any Indemnified Party, on the other hand, shall be determined
by reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact, has been taken by, or relates to
information supplied by the Company on the one hand or such Indemnified Party
on the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent any such action, statement or
omission. The amount paid or payable by a party as a result of any Losses
shall be deemed to include any legal or other fees or expenses incurred by such
party in connection with any proceeding.
10
<PAGE> 12
2.7.2. No Pro Rata Allocation.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 2.7 were determined by pro rata
allocation or by any other method of allocation that does not account for the
equitable considerations referred to in Section 2.7.1 hereof. Notwithstanding
the provisions of this Section 2.7, no Indemnified Party shall be required to
contribute any amount in excess of the amount by which the price at which the
Securities sold by such Indemnified Party and distributed to the public exceeds
the amount of any damages that such Indemnified Party has otherwise been
required to pay by reason of such statement or omission. No Person guilty of
fraudulent misrepresentation within the meaning of Section 11(f) of the
Securities Act shall be entitled to contribution from any Person who is not
guilty of such fraudulent misrepresentation.
2.7.3. Survival of Obligations.
The obligations of the Company under Section 2.6 and this Section 2.7
shall survive the redemption of the Securities, any transfer of the Securities
by you, or exercise of the Warrants, and any termination of this Agreement or
the other Documents.
2.8 Further Actions.
During the period from the date hereof to the Closing Date, the Company
shall take all actions reasonably necessary or appropriate to cause their
representations and warranties contained in Section 5 hereof to be true and
correct in all material respects as of the Closing Date, after giving effect to
the transactions contemplated by this Agreement, as if made on and as of such
date.
SECTION 3. CLOSING CONDITIONS
3.1 Conditions to Your Obligations.
Your obligation to purchase and pay for the Securities to be delivered to
you at the Closing shall be subject to the satisfaction of the following
conditions as of the Closing Date.
3.1.1 (a) a favorable opinion, dated the Closing Date and addressed
to you, from counsel for the Company, in form and substance reasonably
satisfactory to you and substantially in the form set forth in Exhibit B
hereto; and
(b) a favorable opinion, dated the Closing Date and addressed to you,
from Creel, Garcia-Cuellar y Muggenburg, Mexican counsel for Cinemark de
Mexico, in form and substance reasonably satisfactory to you and substantially
in the form set forth in Exhibit C hereto.
3.1.2. Officers' Certificates.
(a) You shall have received a certificate or certificates, dated the
Closing Date and signed by the President or a Vice President of the Company
certifying (i) that the conditions set forth in Sections 3.1.4 through 3.1.6,
and Sections 3.1.8, 3.1.10 and 3.1.11 hereof have been satisfied on and as of
such date and (ii) as to such other matters as you may reasonably request.
11
<PAGE> 13
(b) You shall have received a certificate, dated the Closing Date and
signed by the Secretary or an Assistant Secretary of the Company, certifying
such matters as such Purchaser may reasonably request.
3.1.3. Issue of Securities.
Simultaneously with the sale to you of the Securities to be purchased by
you at the Closing, the Company shall have issued Warrant Certificates and
received payment for the Securities.
3.1.4. Representations and Warranties True; No Event of Default.
The representations and warranties of the Company contained herein and in
each of the other Documents shall be true and correct in all material respects
at and as of the Closing Date, after giving effect to the transactions
contemplated by this Agreement and the other Documents, as if made on and as of
such date. There shall exist at and as of the Closing Date (after giving
effect to the transactions contemplated by this Agreement and the other
Documents) no Default or Event of Default.
3.1.5. Compliance with Agreements.
The Company shall have performed and complied in all material respects
with all agreements, covenants and conditions contained herein and in the other
Documents that are required to be performed or complied with by the Company on
or before the Closing Date.
3.1.6. Your Purchase Permitted by Applicable Laws; Legal Investment.
Your purchase of and payment for the Securities to be purchased by you (a)
shall not be prohibited by any applicable law or governmental regulation,
release, interpretation or opinion and (b) shall be permitted by the laws and
regulations of the jurisdictions to which you are subject.
3.1.7. The First Amendment to Warrant Registration Rights Agreement,
the Warrant Certificates and the Second Supplemental Indenture.
(a) The Company shall have executed the Warrant Certificates, and you
shall have received an original, duly executed by the Company, of the Warrant
Certificates.
(b) The Company shall have duly executed and delivered to you the First
Amendment to Warrant Registration Rights Agreement incorporating the Warrants.
(c) The Company, Cinemark de Mexico and United States Trust Company of
New York, as Trustee, shall have duly entered into the Second Supplemental
Indenture and you shall have received counterparts, conformed and executed, of
the Second Supplemental Indenture.
3.1.8. Consents and Permits.
12
<PAGE> 14
The Company shall have received all consents, permits and other
authorizations, and made all such filings and declarations, as may be required
pursuant to any law, statute, regulation or rule (Federal, state, local and
foreign), contemplated by this Agreement and the other Documents, including the
issuance and sale of the Securities to the Purchasers, and pursuant to all
other agreements, orders and decrees to which any of them is a party or to
which any of them is subject, in connection with the transactions to be
consummated on or prior to the Closing Date contemplated by this Agreement and
the other Documents.
3.1.9. Proceedings Satisfactory.
All corporate proceedings taken in connection with the sale of the
Securities and all documents relating thereto, shall be reasonably satisfactory
in form and substance to you. You shall have received copies of such documents
as you or they may reasonably request in connection with the Closing, all in
form and substance reasonably satisfactory to you. Each Document shall be
reasonably satisfactory in form and substance to you.
3.1.10 No Material Adverse Change
There shall have not occurred any material adverse change in the
operations, business, properties, prospects, condition (financial or otherwise)
or results of operations of the Company, and its subsidiaries, taken as a
whole, subsequent to June 30, 1995, other than the failure to make an interest
payment due on August 1, 1995 as required by the Indenture.
3.1.11. No Material Judgment or Order.
There shall not be on the Closing Date any judgment or order of a court of
competent jurisdiction or any ruling of any agency of the Federal, state or
local government that, in the reasonable judgment of you or your special
counsel, would prohibit the sale or issuance of the Securities hereunder or
subject the Company to any material penalty if the Securities were to be issued
and sold hereunder.
3.1.12. Payment of Interest on the Notes.
On the Closing Date, the Company shall have deposited with the Trustee
pursuant to Section 3.7(1) of the Indenture an amount of money equal to the
aggregate amount due with respect to the August 1, 1995 interest payment under
the terms of the Notes.
3.2 Conditions to the Obligations of the Company.
The obligations of the Company to sell the Securities to be delivered to
you at the Closing shall be subject to the satisfaction of the following
conditions:
3.2.1. Sale of Securities
The Purchasers shall have delivered payment to the Company, in respect of
the several purchases of the Securities, in an aggregate amount of
$1,324,131.53.
3.2.2. Purchasers' Representations and Warranties.
Each Purchaser's payment of the purchase price for the Securities
purchased by him or it at the Closing shall constitute a certification by that
Purchaser that all of his or its representations and warranties made herein and
in the other Documents shall be true and correct in all material respects at
and as of the Closing Date, after giving effect to the transactions
contemplated by this Agreement and the other Documents, as if made at and as of
such date.
13
<PAGE> 15
3.2.3. No Material Judgment or Order.
There shall not be on the Closing Date any judgment or order of a court of
competent jurisdiction or any ruling of any agency of the Federal, state or
local government that, in the reasonable judgment of the Company, would
prohibit the sale or issuance of the Securities hereunder or subject the
Company to any material penalty if the Securities were to be issued and sold
hereunder.
3.2.4. The Sale by the Company Permitted by Applicable Laws.
The sale by the Company and your payment for the Securities to be
purchased by you (a) shall not be prohibited by any applicable law or
governmental regulation, release, interpretation or opinion, (b) shall not
subject the Company to any penalty under or pursuant to any applicable law or
governmental regulation, and (c) shall be permitted by the laws and regulations
of the jurisdictions to which the Company is subject.
3.2.5. Consents and Permits.
Each Purchaser shall have received all consents, permits and other
authorizations, and made all such filings and declarations, as may be required
pursuant to any law, statute, regulation or rule (Federal, state, local and
foreign), contemplated by this Agreement and the other Documents, including the
purchase of the Securities by such Purchaser, and pursuant to all other
agreements, orders and decrees to which such Purchaser is a party or to which
such Purchaser is subject, in connection with the transactions to be
consummated on or prior to the Closing Date contemplated by this Agreement and
the other Documents.
SECTION 4. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to each of you as follows:
4.1 Organization, Standing and Qualification.
4.1.1 Organization; Standing.
The Company and Cinemark de Mexico are corporations duly incorporated,
validly existing and in good standing under the laws of their respective
jurisdictions of incorporation; have all requisite corporate power and
authority to own or lease, and operate their respective properties and assets,
and to carry on their respective businesses as now conducted and as proposed to
be conducted; and are duly qualified or licensed to do business and are in good
standing as foreign corporations in all jurisdictions in which such companies
own or lease property or in which the conduct of their respective businesses
requires them so to qualify or be licensed, except where the failure so to
qualify would not, singly or in the aggregate, have a Material Adverse Effect.
4.1.2 Authority.
14
<PAGE> 16
The Company and Cinemark de Mexico have all requisite corporate power and
authority to enter into and perform all of their respective obligations under
this Agreement and the other Documents to which each is a party, to issue, sell
and deliver the Securities to be issued by it, and to carry out the
transactions contemplated by this Agreement or any other Document.
4.2 Capitalization.
The total authorized Capital Stock of the Company on the Closing Date will
consist of 100,000,000 shares of Common Stock, 1,382,982 shares of which will
be issued and outstanding. On the Closing Date, each share of the Company's
Capital Stock that is issued and outstanding will have been duly authorized and
validly issued, and will be fully paid and nonassessable. There are no
outstanding (i) securities convertible into or exchangeable for any Capital
Stock of the Company, (ii) except as disclosed in Schedule 4.2 attached hereto,
options, warrants or other rights to purchase or subscribe to Capital Stock of
the Company, or securities convertible into or exchangeable for Capital Stock
of the Company, (iii) contracts, commitments, agreements, understandings,
arrangements, calls or claims of any kind relating to the issuance of any
Capital Stock of the Company, any such convertible or exchangeable securities
or any such options, warrants or rights or (iv) any voting trust, agreement,
contract, commitment, understanding or arrangement with respect to the voting
of any Capital Stock of the Company, except (a) preemptive rights contained in
the Articles of Incorporation of the Company and (b) the Shareholders Agreement
dated as of July 30, 1993 among the Company, Cinemark II, Inc. and New Wave
Investments A.V.V.
4.3 Authorization of Agreement and Other Documents.
The Company and Cinemark de Mexico have taken all corporate actions
necessary to authorize each to enter into and perform their respective
obligations under each of this Agreement and the other Documents to which each
is a party and to consummate the transactions contemplated hereby and thereby
(including, without limitation, the issuance and sale of the Securities).
This Agreement is, and, as of the Closing Date (assuming payment of the
purchase price for the Securities by the Purchasers), each of the Documents to
which the Company or Cinemark de Mexico is a party will be, a legal, valid and
binding obligation of the Company and Cinemark de Mexico, respectively,
enforceable against the Company and, in accordance with its terms, except as
such enforcement may be subject to (i) applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws now or
hereafter affecting creditors' rights and remedies generally and (ii) general
principles of equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law).
4.4 No Violation
4.4.1 Existing Violations.
Neither the Company nor Cinemark de Mexico is (i) in violation of its
respective Charter Documents or (ii) in default in the performance of any
obligation, agreement or condition contained in any bond, debenture, note or
any other evidence of indebtedness or in any indenture, mortgage, deed of trust
or any other agreement or instrument to which any of them is a party other than
such defaults that could not, singly or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
15
<PAGE> 17
There exists no condition that, with the passage of time or otherwise, would
constitute a violation of such Charter Documents or a default under any such
document or instrument or result in the imposition of any penalty or the
acceleration of any indebtedness or other obligation other than such defaults
that would not, singly or in the aggregate, result in a Material Adverse
Effect.
4.4.2 Execution of Agreement.
Neither the execution or delivery by the Company or Cinemark de Mexico of
this Agreement or the other Documents to which any of them is a party, the
issuance, sale or delivery of the Securities, the performance by the Company or
Cinemark de Mexico of any of their obligations pursuant to this Agreement and
the other Documents, nor the consummation of the transactions contemplated
hereby or thereby will conflict with, violate, constitute a breach of or a
default (with the passage of time or otherwise) under, require the consent of
any Person (other than consents already obtained) under, result in the
imposition of any penalty, or result in the imposition of a lien on any
properties of the Company or Cinemark de Mexico or an acceleration of
indebtedness or other obligation pursuant to, (i) the Charter Documents of the
Company or Cinemark de Mexico, (ii) any bond, debenture, note or any other
evidence of indebtedness or any indenture, mortgage, deed of trust or any other
agreement or instrument to which the Company or Cinemark de Mexico is a party
or by which either of them is bound or to which any of the property or assets
of the Company or Cinemark de Mexico is subject, or (iii) any Applicable Law,
except in any case where such violation, default, breach or conflict, or the
absence of such consent or the creation of such lien, would not, singly or in
the aggregate, result in a Material Adverse Effect.
4.5 Use of Proceeds.
The proceeds from the sale of the Securities shall be used by the Company
to acquire, construct and operate indoor motion picture theatres in Mexico, and
other businesses incidental thereto and to make Permitted Investments as such
term is defined in the Indenture.
4.6 Financial Statements
4.6.1 No Material Adverse Change
Since June 30, 1995, there has been no material adverse change in the
properties, business, prospects, operations, earnings, assets, liabilities or
condition (financial or otherwise) of the Company or Cinemark de Mexico from
that set forth in the Company's quarterly report on Form 10-Q for the quarterly
period ended June 30, 1995 (the "June 30, 1995 Quarterly Report"), other than
the failure to make an interest payment due on August 1, 1995 as required by
the Indenture.
4.6.2 Liabilities
On a consolidated basis, the Company and Cinemark de Mexico have no
liability or obligation (absolute, accrued, contingent or otherwise), except
(i) liabilities reflected in the June 30, 1995 Quarterly Report, and (ii) other
liabilities incurred in the ordinary course of business, consistent with past
practices (and in any case not in excess of $250,000), since June 30, 1995.
The Company and Cinemark de Mexico have no material,
16
<PAGE> 18
long-term commitments other than the Notes or material unrealized losses or
anticipated losses from any unfavorable commitments, except as reflected in the
June 30, 1995 Quarterly Report.
4.6.3 No Untrue Statement
None of the June 30, 1995 Quarterly Report or any of the Documents
contains as of its respective date and the date hereof any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
4.7 Litigation.
4.7.1 No Material Proceedings.
There is no Proceeding against or affecting the Company or Cinemark de
Mexico or any of their properties or assets except for such Proceedings that,
if finally determined adversely to the Company or Cinemark de Mexico, would
not, singly or in the aggregate, have a Material Adverse Effect.
4.7.2 No Material Judgments.
Neither the Company nor Cinemark de Mexico is subject to any judgment,
order, decree, rule or regulation of any court, governmental authority or
arbitration board or tribunal that would, singly or in the aggregate, have a
Material Adverse Effect.
4.8 Taxes
All material tax returns required to be filed by the Company or Cinemark
de Mexico in any jurisdiction (including foreign jurisdictions) have been
timely so filed, and all material taxes, assessments, fees and other charges
(including, without limitation, withholding taxes, penalties, and interest) due
or claimed to be due from the Company or Cinemark de Mexico that are due and
payable have been paid, other than those (i) being contested in good faith and
for which an adequate reserve or accrual has been established or (ii) those
currently payable without penalty or interest and for which an adequate reserve
or accrual has been established or extensions duly filed. The Company and
Cinemark de Mexico know of no actual or proposed additional tax assessments for
any fiscal period against the Company or Cinemark de Mexico that would, singly
or in the aggregate, have a Material Adverse Effect. Neither the Company's nor
Cinemark de Mexico's income or franchise tax returns are under audit and no
waivers of the statute of limitations or extensions of time with respect to any
tax returns have been granted by the Company or Cinemark de Mexico.
4.9 ERISA
The execution and delivery of this Agreement, the other Documents and the
sale of the Securities to be purchased by you will not, to the Company's
knowledge, involve any "prohibited transaction." To the Company's knowledge,
none of the Company, Cinemark de Mexico, or any of their ERISA Affiliates is a
"party in interest" or a "disqualified person" except as to those employee
benefit plans set forth on Schedule 2.3.3. To the Company's knowledge, no
condition exists or event or transaction has occurred in
17
<PAGE> 19
connection with any "employee benefit plan" maintained or contributed to by the
Company or Cinemark de Mexico or any ERISA Affiliate of the Company or Cinemark
de Mexico any plan being herein referred to as the "Pension Plan") that could
result in the Company or Cinemark de Mexico or any such ERISA Affiliate
incurring any liability, fine or penalty which would, singly or in the
aggregate, have a Material Adverse Effect. With respect to any Pension Plan
that is subject to Title IV of ERISA, (a) the fair market value of the assets
of such Pension Plan equals or exceeds (and will equal or exceed immediately
subsequent to the consummation of the transactions contemplated hereby) the
present value of the liabilities of such Pension Plan (as determined in
accordance with the actuarial methods and assumptions set forth in the latest
actuarial report for such Pension Plan), except (i) as set forth on Schedule
4.9 hereto, or (ii) where the failure so to equal or exceed would not, singly
or in the aggregate, have a Material Adverse Effect and (b) there exists (and
will exists immediately subsequent to the consummation of the transactions
contemplated hereby) no accumulated funding deficiency.
4.10 Compliance with Laws.
The Company and Cinemark de Mexico are not in violation of any Applicable
Law, except such violations as may not, singly or in the aggregate, have a
Material Adverse Effect. Neither the Company nor Cinemark de Mexico has failed
to obtain any licenses, permits, franchises or other governmental
authorizations necessary to the ownership or operation of their respective
properties or the conduct of their business as currently conducted, except such
failures as could not, singly or in the aggregate, have a Material Adverse
Effect.
4.11 Governmental Consents.
No consent, approval or authorization of, or filing, registration or
qualification with, any governmental or regulatory authority or body is
required in connection with or as a condition to the execution and delivery of
this Agreement or any of the other Documents or the consummation of
transactions contemplated hereby or thereby (including, without limitation, the
offer, issuance, sale or delivery of the Securities at the Closing), except for
such consents, approvals, authorizations, filings, registrations or
qualifications as have been made or obtained on or before the Closing Date (and
copies of which will be delivered to you upon your request) or are not required
to be made or obtained prior to the Closing Date and except to the extent that
the failure to obtain any such consents, approvals, authorizations or
qualifications or to make any such filings or registrations could not, singly
or in the aggregate, have a Material Adverse Effect.
4.12 Private 0ffering.
4.12.1 Sale Exempt.
Based in part on representations made by the Purchasers, and assuming the
correctness of such representations, the sale of the Securities hereunder is
exempt from the registration and prospectus delivery requirements of the
Securities Act.
4.12.2 No General Solicitation.
18
<PAGE> 20
In the case of each offer or sale of the Securities, no form of general
solicitation or general advertising was used by the Company or any of its
officers, directors or employees including, but not limited to, advertisements,
articles, notices or other communications published in any newspaper, magazine
or similar medium or broadcast over television or radio, or any seminar or
meeting whose attendees had been invited by any general solicitation or general
advertising. No offers were made by the Company or any of its officers,
directors or employees other than to persons whom the offeror reasonably
believed to be accredited investors or sophisticated purchasers as those terms
have been construed under Section 4(2) of the Securities Act. The Purchasers
are the sole purchasers of the Securities. No securities of the same class as
any of the Securities have been issued and sold by the Company within the
six-month period immediately prior to the date hereof. The Company agrees that
neither it nor anyone acting on its behalf, will, with the Company's knowledge,
offer any Securities so as to bring the issuance and sale of any of the
Securities within the provisions of Section 5 of the Securities Act nor offer
any similar securities for issuance or sale to, or solicit any offer to acquire
any of the same from, or otherwise approach or negotiate with respect thereto
with anyone if the sale of any of the Securities and any such securities could
be integrated as a single offering for purposes of the Securities Act.
4.13 Brokers.
The Company has not dealt with any broker, finder, commission agent or
other Person in connection with the sale of the Securities and the transactions
contemplated by this Agreement and the other Documents. The Company is under no
obligation to pay any broker's fee or commission in connection with such
transactions.
4.14 Patents, Trademarks, etc.
The Company and Cinemark de Mexico own, or are licensed under, and have
the right to use, all material patents, trademarks, trade names, copyrights,
technology, know-how and processes (collectively, "Intellectual Property")
necessary for the conduct of their respective businesses. The consummation of
the transactions contemplated by this Agreement and the other Documents will
not alter or impair any such rights, except to the extent that any such
alterations or impairments would not, singly or in the aggregate, have a
Material Adverse Effect. No claims have been asserted by any person to the use
of any Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto and the use of such
Intellectual Property by the Company or Cinemark de Mexico does not infringe on
the rights of any person, except to the extent that any such claims or
infringements would not, singly or in the aggregate, have a Material Adverse
Effect.
4.15 Title to and Condition of Properties.
The Company and Cinemark de Mexico (a) have good and marketable title to
all the real or personal properties and other assets (tangible, intangible or
mixed) each purports to own, free and clear of all liens, except for liens
permitted under the Indenture and (b) enjoy peaceful and undisturbed possession
under all leases to which each is a party as lessee. To the Company's
knowledge, all leases and other agreements to which the Company or Cinemark de
Mexico is a party are valid and binding and in full force and effect. To the
Company's knowledge, no default has occurred or is continuing under such leases
and other agreements, and no consent need be obtained (other than
19
<PAGE> 21
consents that will be obtained prior to the Closing Date), from any Person in
respect of any such lease or agreement in connection with the transactions
contemplated by this Agreement and the other Documents, except to the extent
that any such defaults, or the failure to obtain any such consents, could not,
singly or in the aggregate, have a Material Adverse Effect. The properties
used or useful to the conduct of the business of the Company and Cinemark de
Mexico are in good repair and working order, except to such extent as could
not, singly or in the aggregate, have a Material Adverse Effect. The Company
and Cinemark de Mexico maintain with reputable insurers such insurance as may
be required by law and such other insurance, to such extent and against such
hazards and liabilities, as is customarily maintained by companies similarly
situated (which may include self-insurance in the same form as is customarily
maintained by companies similarly situated).
4.16 Burdensome Agreements
To the knowledge of the Company, no agreement or instrument to which the
Company or Cinemark de Mexico is a party or by which either of them may be
bound or to which any of their properties may be subject contains any unusual
or burdensome provisions that would have a Material Adverse Effect on the
Company or Cinemark de Mexico.
4.17 Cinemark II, Inc. Investment
On December 30, 1994, Cinemark II, Inc. purchased 574,851 shares of common
stock of the Company at a price of $8.6979 per share.
4.18 Survival of Indemnification and Contribution and Representations and
Warranties.
All of the representations and warranties of the Company in this Agreement
and the other Documents and in any other document, financial statement or other
instrument or certificate delivered to you by or on behalf of the Company in
connection with this Agreement and the Documents and the transactions
contemplated hereby and thereby shall be deemed to constitute representations
and warranties hereunder and shall be true in all material respects at and as
of the Closing Date, after giving effect to the transactions contemplated
hereby.
All of the obligations to indemnify you and contribute to your losses
contained in this Agreement and the other Documents and in any other document,
financial statement or other instrument or certificate delivered to you by or
on behalf of the Company in connection with this Agreement and the Documents
and the transactions contemplated hereby and thereby and all of the
representations and warranties of the Company shall survive the execution and
delivery of this Agreement and the other Documents, any investigation by you
and the issuance of the Securities.
SECTION 5. MISCELLANEOUS
5.1 Notices.
Prior to the Closing, and thereafter with respect to matters pertaining to
this Agreement only, all notices and other communications provided for or
permitted
20
<PAGE> 22
hereunder shall be made in writing by hand-delivery, next-day air courier,
certified first-class mail return receipt requested, telex, or facsimile:
(a) if to you, at your address set forth below your signature on the
signature page hereto with a copy to Ropes & Gray, One International Place,
Boston, Massachusetts 02110, Attention: Don S. De Amicis, Esq.; and
(b) if to the Company, at its address set forth on the first page of this
Agreement with a copy to Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1700
Pacific Avenue, Suite 4100, Dallas, Texas 75201-4618, Attention: Terry Schpok,
Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day after
being timely delivered to a next-day air courier; five business days after
being deposited in the mail, postage prepaid, if mailed; when answered back if
telexed; and when receipt is acknowledged by the recipient's telecopier
machine, if telecopied.
From and after the Closing, the foregoing notice provisions shall be
superseded by the notice provisions of the Document under which notice is
given.
5.2 Successors and Assigns
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties, and to the extent set forth in
Sections 2.6 and 2.7 hereof, the Indemnified Parties and their respective
heirs, personal representatives, successors and assigns and no other persons
shall acquire or have any right under or by virtue of this Agreement.
5.3 Amendment and Waiver
This Agreement and the other Documents may be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may be given, provided that the same are in writing and signed by you and the
Company.
5.4 Counterparts.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute
one and the same agreement.
5.5 Headings.
The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
5.6 Governing Law
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED
WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
21
<PAGE> 23
THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK
STATE COURT SITTING IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE
CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PURCHASER TO
SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS
OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION.
5.7 Entire Agreement.
This Agreement, together with the other Documents and the Securities are
intended by the parties as a final expression of their agreement and intended
to, be a complete and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained herein and
therein. There are no restrictions, promises, warranties or undertakings,
other than those set forth or referred to herein and therein. This Agreement,
together with the other Documents and the Securities, supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
5.8 Severability
If any term, provision, covenant or restriction of this Agreement is held
by a court of competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties hereto shall
use their best efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to
be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such
that may be hereafter declared invalid, illegal, void or unenforceable.
If this Agreement is satisfactory to you, please so indicate by signing
the acceptance at the foot of a counterpart of this Agreement and return such
counterpart to the Company whereupon this Agreement will become binding between
us in accordance with its terms.
Very truly yours,
CINEMARK MEXICO (USA), INC.
By: /s/ Jeffrey J. Stedman
-----------------------
Name: Jeffrey J. Stedman
Title: Vice President
22
<PAGE> 1
EXHIBIT 10.16(l)
LIST OF WARRANT CERTIFICATES
<TABLE>
<CAPTION>
Certificate Registered Number of
Number Holder Shares
<S> <C> <C>
A-33 Muico & Co. 9,022
A-34 Muico & Co. 1,646
A-35 Muico & Co. 3,932
A-36 Muico & Co. 5,715
A-37 Muico & Co. 5,806
A-38 Muico & Co. 17,739
A-39 Muico & Co. 91,864
A-40 Muico & Co. 14,142
A-41 Muico & Co. 2,545
-------
Total 152,411
</TABLE>
<PAGE> 2
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN OPTION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144(K)
OR RULE 144A UNDER SUCH ACT.
No. A-41
CINEMARK MEXICO (USA), INC.
COMMON STOCK WARRANT CERTIFICATE
Warrant to purchase 2,545 shares of Common Stock
THIS CERTIFIES that, for value received, Muico & Co., or its registered
successors and assigns, is the owner of 2,545 Warrants, each of which permits
the owner thereof to purchase from CINEMARK MEXICO (USA), INC., a Texas
corporation (herein called the "Company"), at any time or from time to time
immediately preceding the occurrence of a Triggering Event, as that term is
defined in the Indenture dated as of July 30, 1993 among the Company, Cinemark
de Mexico, S.A. de C.V., a corporation organized under the laws of the United
Mexican States (the "Guarantor"), and United States Trust Company of New York,
as Trustee, but in any event no later than 5:00 p.m., New York time on the
Expiration Date (as defined below), one share of common stock, par value $.OO1
per share, of the Company (the "Common Stock") at an initial exercise price per
share equal to one cent ($0.01), subject to adjustment from time to time
pursuant to the provisions of Section 2 hereof (the "Exercise Price"). For
purposes of this Warrant Certificate, the term "Common Shares" shall mean the
class of capital stock of the Company designated as Common Stock in the
Company's Articles of Incorporation, as in effect on the date hereof, and any
other class of capital stock of the Company resulting from successive changes
or reclassification of the Common Stock.
1. Exercise of Warrants.
1.1 Cash Exercise. The Warrants evidenced hereby may be exercised at any
time after a Triggering Event and before February 1, 2005 (the "Expiration
Date") by the registered holder hereof, in whole or in increments of no less
than 1,000 Warrants, by the surrender of this Warrant Certificate, duly
endorsed (unless endorsement is waived by the Company), at the principal office
of the Company (or at such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at such holder's
last address appearing on the books of the Company) and upon payment to the
Company by a check payable to the order of the Company for the Exercise Price
for each Warrant exercised. The certificate(s) for such Common Shares shall be
delivered to the registered holder hereof within a reasonable time, not
exceeding ten (10) days, after Warrants evidenced hereby shall have been so
exercised and a new Warrant Certificate
1
<PAGE> 3
evidencing the number of Warrants, if any, remaining unexercised shall also be
issued to the registered holder within such time unless such Warrants have
expired. The holder of the Warrants evidenced by this certificate shall have
all the rights of a holder of Common Shares to be issued upon exercise of the
Warrants when such Warrant holder tenders payment of the Exercise Price to the
Company along with this Warrant Certificate duly endorsed in accordance with
this Section 1. No fractional Common Shares of the Company, or scrip for any
such fractional shares, shall be issued upon the exercise of any Warrants; but
the holder hereof shall be entitled to cash equal to such fraction multiplied
by the then effective Exercise Price.
1.2 Net Issue Exercise.
(a) In lieu of exercising this Warrant, the holder hereof may elect
to receive shares of Common Stock equal to the value of this Warrant (or the
portion thereof being cancelled) by surrender of this Warrant at the principal
office of the Company together with notice of such election in which event the
Company shall issue to the holder hereof a number of shares of the Company's
Common Stock computed using the following formula:
X = Y (A - B)
---------
A
Where X - The number of shares of Common Stock to be issued to holder.
Y - The number of shares of Common Stock purchasable under this
Warrant.
A - The fair market value of one share of the Company's Common
Stock.
B - Exercise Price (as adjusted to the date of such calculations).
(b) For purposes of this Section, fair market value of the Company's
Common Stock shall mean the average of the closing bid and asked prices of the
Company's Common Stock quoted in the over-the-counter market summary or the
closing price quoted on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Eastern Edition of The Wall Street
Journal for the ten trading days prior to the date of determination of fair
market value. If the Common Stock is not traded over-the-counter or on an
exchange, the fair market value shall be determined in good faith by the Board
of Directors of the Company with the approval of the holder of this
Certificate, which approval shall not be unreasonably withheld or delayed. If
the fair market value of the Common Stock is to be determined on a date
preceding, but in contemplation of, a public offering of shares of the Common
Stock, the fair market value shall be the price at which such shares of Common
Stock are sold to the public in such public offering.
2. Adjustment in Exercise Price and Number of Shares. The Exercise Price per
Warrant shall be subject to adjustment from time to time as hereinafter
provided. Upon each adjustment of the Exercise Price pursuant to Sections 2.2
or 2.3 hereof, the holder of this Warrant shall thereafter be entitled to
purchase at the Exercise Price resulting from such
2
<PAGE> 4
adjustment, the number of shares obtained by dividing (1) the product of (x)
the number of shares purchasable pursuant hereto immediately prior to such
adjustment and (y) the Exercise Price immediately preceding such adjustment by
(2) the Exercise Price resulting from such adjustment.
2.1 Issuance of Additional Shares.
(a) Special Definitions. For purposes of this Section 2.1, the
following definitions shall apply:
(i) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(ii) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities convertible into or exchangeable for
Common Stock or convertible into or exchangeable for securities convertible
into or exchangeable for Common Stock.
(iii) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued (or, pursuant to subsection 2.1(c), deemed to be issued)
by the Company after the date hereof other than shares of Common Stock issued
or issuable at any time:
(A) Pursuant to any Warrants issued and sold pursuant to
the Purchase Agreement dated as of July 30, 1993, among the Company, the
Guarantor and said Purchasers (the "Original Purchase Agreement");
(B) Pursuant to any Warrants issued to the purchaser of
up to $2,000,000 in aggregate principal amount of the Company's 12% Series A
Senior Subordinated Notes due 2003 as provided for in Section 2.1.3 of the
Original Purchase Agreement;
(C) Pursuant to any Warrants issued and sold pursuant to
the Purchase Agreement dated as of August 30, 1995, among the Company and said
Purchasers (the "Second Purchase Agreement");
(D) Pursuant to a stock option, stock bonus or other
employee or nonqualified stock plan or plans approved by the Board of Directors
of the Company, for up to 10% of the Common Stock of the Company; or
(E) As the result of any event for which adjustment is
provided pursuant to Sections 2.2 or 2.3 hereof.
(b) No Adjustment of Exercise Price. No adjustment in the
applicable Exercise Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the Company
is less than the applicable Exercise Price in effect on the date of, and
immediately prior to, such issue.
3
<PAGE> 5
(c) Deemed Issue of Additional Shares of Common Stock - Options and
Convertible Securities. Except as provided in Sections 2.1(a) or 2.1(b)
hereof, in the event the Company at any time or from time to time after the
date hereof shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent adjustment
of such number) of Common Stock issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be the number of
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 2.1(f) hereof) of such Additional Shares of Common Stock
would be less than the applicable Exercise Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued,
(A) no further adjustment in the applicable Exercise
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
applicable Exercise Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not
have been exercised, the applicable Exercise Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if,
(1) in the case of Convertible Securities or Options
for Common Stock, the only Additional Shares of Common Stock issued were shares
of Common Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Company for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the Company upon such exercise, or for the issue of all
such Convertible Securities whether or not converted or exchanged, plus the
additional consideration, if any, actually received by the Company upon such
conversion or exchange, and
4
<PAGE> 6
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Company for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received by the
corporation for the issue of all such Options, whether or not exercised, plus
the consideration deemed to have been received by the Company upon the issue of
the Convertible Securities with respect to which such Options were actually
exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the applicable Exercise Price to an amount
which exceeds the lower of (i) the applicable Exercise Price immediately prior
to the original adjustment, or (ii) the applicable Exercise Price that would
have resulted from any issuance of Additional Shares of Common Stock between
the original adjustment date and such readjustment date.
(d) Adjustment of Exercise Price Upon Issuance of Additional Shares
of Common Stock. In the event the Company shall issue Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 2.1(c)) for a consideration per share less than the
applicable Exercise Price of the Warrant in effect on the date of and
immediately prior to such issue, then and in such event, the applicable
Exercise Price shall be reduced, concurrently with such issue, to the price
(calculated to the nearest cent) at which such Additional Shares of Common
Stock are issued.
(e) Alternative Adjustment of Exercise Price. Notwithstanding the
provisions of Section 2.1(d) above, if the preferences, voting powers,
qualifications and special or relative rights or privileges of any other class
or series of the Company's capital stock provide that the conversion rate for
such other class or series of the Company's capital stock shall be adjusted in
accordance with a method or formula which, if applied to the adjustment of the
Exercise Price, would result in a lower Exercise Price, then the Exercise Price
shall be adjusted in accordance with such other method or formula, rather than
in accordance with Section 2.1(d).
(f) Determination of Consideration. For purposes of this Section
2.1, the consideration received by the Company for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(i) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Company excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as determined
in good faith by the Board of Directors of the Company; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the Company
for consideration which covers
5
<PAGE> 7
both, be the proportion of such consideration so received, computed as provided
in clauses (A) and (B) above, as determined in good faith by the Board of
Directors.
(ii) Options and Convertible Securities. The consideration per
share received by the Company for Additional Shares of Common Stock deemed to
have been issued pursuant to Section 2.1(c), relating to Options and
Convertible Securities, shall be determined by dividing
(A) the total amount, if any, received or receivable by
the Company as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Company upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(B) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such options or the conversion or exchange of such Convertible
Securities.
2.2 Stock Dividends. If and whenever at any time the Company shall
declare a dividend or make any other distribution upon any class or series of
stock of the Company payable in Common Shares or securities convertible into or
exercisable for Common Stock, the number of Common Shares to be obtained upon
exercise of this Warrant shall be proportionately adjusted to reflect the
issuance of any such securities issuable in payment of such dividend or
distribution.
2.3 Subdivision or Combination of Stock. If and whenever the Company
shall at any time subdivide its outstanding Common Shares into a greater number
of shares, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the outstanding
Common Shares of the Company shall be combined into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall be
proportionately increased.
2.4 Recapitalizations. If at any time or from time to time there shall be
any capital reorganization or reclassification of the capital stock of the
Company, consolidation or merger of the Company with another corporation, or
sale, transfer or other disposition of all or substantially all of the
Company's property to another corporation (any such event being referred to
herein as a "recapitalization") provision shall be made so that the holders of
the Warrants shall thereafter be entitled to receive upon exercise of the
Warrants the number of shares of stock or other securities or property of the
Corporation or otherwise, to which a holder of Common Shares deliverable upon
exercise would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 2 with respect to the rights of the holders of the Warrants after
the recapitalization to the end that the provisions of this Subsection 2
(including adjustment
6
<PAGE> 8
of the Exercise Price then in effect and the number of shares for which the
Warrants may be exercised) shall be applicable after that event in as nearly an
equivalent manner as may be practicable.
3. Company to Provide Stock. The Company covenants and agrees that all the
Common Shares which may be issued upon the exercise of the Warrants evidenced
hereby upon the due exercise, including the receipt by the Company of the
aggregate Exercise Price for all Warrants exercised, will be duly authorized,
validly issued and fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issue thereof to the registered holder hereof
other than those which the Company shall promptly pay or discharge. The
Company further covenants and agrees that during the period within which the
Warrants evidenced hereby may be exercised, the Company will at all times
reserve such number of shares of Common Stock as may be sufficient to permit
the exercise in full of the Warrants hereby.
4. Other Notices. If any time prior to the Expiration of the Warrants
evidenced hereby:
(a) The Company shall declare any dividend on the Common Shares
payable in shares of capital stock of the Company; or
(b) The Company shall authorize the issue of any options, warrants
or rights pro rata to all holders of Common Shares entitling them to subscribe
for or purchase any shares of stock of the Company or to receive any other
rights; or
(c) The Company shall authorize the distribution pro rata to all
holders of Common Shares of evidences of its indebtedness or assets (including
cash dividends or distributions paid out of retained earnings or retained
surplus); or
(d) There shall occur any reclassification of the Common Shares, or
any consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification of the Common
Stock) or a sale or transfer to another corporation of all or substantially all
of the properties of the Company; or
(e) There shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company;
then, and in each of such cases, the Company shall mail to the registered
holder hereof at its last address appearing on the books of the Company, as
promptly as practicable but in any event at least twenty days prior to the
applicable record date (or determination date) mentioned below, a notice
stating, to the extent such information is available, (i) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights,
or, if a record is not to be taken, the date as of which the holders of Common
Shares of record to be entitled to such dividend, distribution or rights are to
be determined, or (ii) the date on which such liquidation, dissolution or
winding up is expected to become effective and the date as of which it is
expected that holders of Common Shares of record shall be entitled to exchange
7
<PAGE> 9
their Common Shares for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution or winding up.
5. Replacement of Warrants. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of any Warrant, and
in the case of any such loss, theft or destruction of any Warrant, on delivery
of an indemnity agreement or security reasonably satisfactory in form and
amount to the Company or, in the case of any such mutilation, on surrender and
cancellation of such Warrant, unless the Company has received notice that any
such Warrant has been acquired by a bona fide purchaser, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor;
provided, however, if any Warrant of which the original holder of this Warrant,
its nominee, or any of its affiliates is the registered holder (but not any
transferee of such original holder) is lost, stolen or destroyed, the affidavit
of the President, Vice President, Treasurer, Secretary, or Clerk, of the
registered holder setting forth the circumstances with respect to such loss,
theft or destruction shall be accepted as satisfactory evidence thereof, and no
indemnity bond or other security shall be required as a condition to the
execution and delivery by the Company of a new Warrant in replacement of such
lost, stolen or destroyed Warrant other than the registered holder's written
agreement to indemnify the Company.
6. Registered Holder. The registered holder of this Warrant Certificate, (the
"Holder"), shall be deemed the owner hereof and of the Warrants evidenced
hereby for all purposes. The registered holder of this Warrant Certificate
shall not be entitled by virtue of ownership of this Warrant Certificate to any
rights whatsoever as a shareholder of the Company.
7. Amendments and Waivers. Any provision in this Warrant Certificate to the
contrary notwithstanding, changes in or additions to this Warrant Certificate
may be made and compliance with any covenant or provision herein set forth may
be omitted or waived if the Company shall obtain consent thereto in writing
from persons holding or having the right to acquire an aggregate of at least a
majority of the aggregate of the Warrants issued and then outstanding pursuant
to the Purchase Agreement dated as of August 30, 1995 among the Company and the
Purchasers and shall, in each such case, deliver copies of such consent in
writing to any holders who did not execute the same.
8. Transfer. (a) This Warrant Certificate and the Warrants evidenced hereby
may not be sold, transferred, pledged, hypothecated or otherwise disposed of
unless and until:
(i) There is then in effect a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), covering such
proposed disposition and such disposition is made in accordance with such
registration statement and all applicable state securities laws; or
(ii) (A) The transferor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition, and (B) if reasonably
requested by the Company, such transferor shall have furnished the Company with
an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares
8
<PAGE> 10
under the Securities Act and that all requisite action has been or will, on a
timely basis, be taken under any applicable state securities laws in connection
with such disposition; and
(iii) The proposed transferee shall have agreed in writing to
be bound by the terms and provisions of this Section 8.
(b) Notwithstanding the provisions of paragraphs (i) and (ii) above,
no such registration statement or opinion of counsel shall be necessary for a
transfer to a partner, former partner, subsidiary, shareholder or affiliate of
such transferor if the transferee agrees in writing to be subject to the terms
hereof to the same extent as if such transferee were an original holder of this
Warrant Certificate or for transfers pursuant to Rule 144 or 144A promulgated
under the Securities Act.
9. Offer to Purchase Warrants By Company.
(a) If no Triggering Event, as defined in the Indenture, has
occurred prior to August 1, 1998, on that date the Company shall:
(i) offer to repurchase for cash all Warrants at the
Redemption Price (as defined in Section 10 hereof); or
(ii) on the last business day of each of January, 2000,
January, 2001 and January, 2002 offer to repurchase for cash one-third of the
aggregate number of Warrants outstanding on the last business day of January,
2000, January, 2001 and January, 2002 at the Redemption Price in effect on each
of January, 2000, January, 2001 and January 2002.
(b) Written notice of the Company's offer to purchase the Warrants
pursuant to Section 9(a)(i) or (ii) shall be sent by first-class U.S. mail,
postage-prepaid, certified or registered mail, return receipt requested, to
each Holder at its address as the same shall appear on the warrant register of
the Company within twenty days of the relevant offer date (the "Call Notice").
On or before the acceptance date indicated in the Call Notice, the Holder shall
deliver the Warrant to the Company. Such Warrant, if required, shall be
properly stamped for transfer and accompanied by proper instruments of
assignment and transfer duly executed in blank, with all signatures
appropriately guaranteed by a national bank or a firm which is a member of the
New York Stock Exchange, Inc. The Redemption Price shall be paid to the Holder
on the later to occur of (i) the date fixed as the acceptance date or (ii) the
fifth day following the determination of the Redemption Price pursuant to
Section 10(d).
(c) If no Triggering Event, as defined in the Indenture, has
occurred prior to February 1, 2000, and either (i) there exists a Default in
the payment of interest or principal on the Notes, all as defined in the
Indenture, or (ii) the Company is prohibited by law or by agreement from
repurchasing the Warrants pursuant to Section 9(a) hereof, the Warrants shall
be immediately exercisable and, pursuant to the Warrant Registration Rights
Agreement dated as of July 30, 1993, as amended, among the Company and the
Purchasers, the Company shall use its reasonable efforts to cause a
Registration Statement to be filed and
9
<PAGE> 11
declared effective in respect of the Common Shares to be issued upon exercise
of the Warrants.
10. Redemption of Warrants.
(a) Subject to the limitations set forth below, at any time and from
time to time after January 31, 1998 the Company shall have the right to redeem
in whole or in part outstanding Warrants at their fair market value (the
"Redemption Price") as determined pursuant to Section 10(d) hereof.
(b) The right of redemption set forth in Section 10(a) shall be
exercisable upon not less than ninety (90) days prior written notice (the
"Redemption Notice") sent by first-class U.S. mail, postage-prepaid, certified
or registered mail, return receipt requested, to the Holder at its address as
the same shall appear on the warrant register of the Company. After the
sixtieth day following the receipt by any Holder of a Redemption Notice, all
rights of the Holder in the Warrant, except the right to receive the Redemption
Price, shall cease and terminate and the Warrant shall no longer be deemed
outstanding, and, in such event, the Holder shall, on or before the redemption
date, deliver to the Company the Warrant Certificate. Such Warrant Certificate,
if required, shall be properly stamped for transfer and accompanied by proper
instruments of assignment and transfer duly executed in blank, with all
signatures appropriately guaranteed by a national bank or a firm which is a
member of the New York Stock Exchange, Inc. If the Holder shall fail to tender
its Warrant Certificate as provided in this subsection, the Company shall have
the right to cancel such Warrant Certificate upon its books and, upon receipt
of a reasonable and customary indemnity, pay to the Holder the Redemption Price
for such Warrant Certificate. The Warrant Certificate so cancelled shall for
all purposes be considered to have been redeemed as provided herein. The
Redemption Price shall be paid in cash on the later to occur of (i) the date
fixed in the Redemption Notice as the redemption date by the Company (which
shall be not earlier than the ninetieth nor later than the one hundred
twentieth day following the date of such Redemption Notice) or (ii) the fifth
business day following the determination of the Redemption Price pursuant to
Section 10(d).
(c) Up to the sixtieth day following the receipt by any Holder of a
Redemption Notice, the Holder may exercise the Warrant or transfer the Warrant
to a third party.
(d) The Redemption Price shall be determined by an independent
appraiser mutually acceptable to the Holders of 66 2/3% of the Warrants that
are the subject of the Redemption Notice or Call Notice, as the case may be
(the "Majority Holders"), and the Company. In the event the Majority Holders
and the Company cannot agree upon an independent appraiser within sixty-five
(65) days after receipt of the Redemption Notice or Call Notice, as the case
may be, by the Majority Holders, the Majority Holders and the Company each
shall, within seventy (70) days after the Majority Holders have received the
Redemption Notice or Call Notice, as the case may be, appoint an appraiser to
determine the Redemption Price. Each party shall furnish the other party hereto
with written notice of the name, address and telephone number of such
appraiser. The failure of any party entitled to appoint an appraiser to make
such appointment within such five (5) day period shall constitute a waiver of
such party's right to appoint an appraiser and the determination of the other
party's appraiser shall
10
<PAGE> 12
be deemed to be the Redemption Price. If within fifteen (15) days after the
date on which last appraiser was appointed, the two appraisers are able to
agree upon the Redemption Price, or arrive at appraisals which do not differ
from one another by more than 5% of the greater of those appraisals, the
Redemption Price shall be the amount agreed upon or the average of the two
appraisals. If within such fifteen (15) day period the two appraisers are
unable so to agree upon the Redemption Price or so to arrive at appraisals to
be averaged, a third independent appraiser shall, within five (5) days after
the expiration of such fifteen (15) day period, be chosen by the mutual consent
of such first two appraisers or, if such first two appraisers fail to agree
upon the appointment of a third appraiser, such appointment shall be made by
the New York City office of the following firms (or their successor firms),
which shall choose the third appraiser in the following order of priority,
provided that such firm has not, for the prior three years, rendered
professional services to either the Company or the Holder:
(1) Arthur Andersen & Co.
(2) Coopers & Lybrand
(3) Ernst & Young
(4) Price Waterhouse & Co.
(5) Deloitte & Touche
(6) KPMG Peat Marwick
The appraisal by such third appraiser of the Redemption Price shall be
announced within twenty (20) days after the selection of such third appraiser
and shall be the Redemption Price, binding and conclusive on the Company and
the holders of all Warrants subject to the Redemption Notice or Call Notice, as
the case may be. If the Company and the Majority Holders agree as to one
independent appraiser, the fees and other costs of such appraiser shall be paid
one-half by the Company and one-half by the Majority Holders of all Warrants
subject to the Redemption Notice or the Call Notice, as the case may be. If the
Company and the Majority Holders cannot agree as to one independent appraiser,
the fees and other costs of each of the first two (2) appraisers shall be borne
by the party appointing such appraiser, and the fees and other costs of the
third appraiser shall be paid one-half by the Company and one- half by the
Majority Holders of all Warrants subject to the Redemption Notice or the Call
Notice, as the case may be. No discount for any lack of liquidity of the Common
Stock underlying the Warrants will be applied by any appraiser in determination
of the Redemption Price.
IN WITNESS WHEREOF, CINEMARK MEXICO (USA), INC. has caused this Warrant
Certificate to be signed by a duly authorized officer under its corporate seal,
and this Warrant Certificate to be dated August 30, 1995.
CINEMARK MEXICO (USA), INC.
By: /s/ Jeffrey J. Stedman
----------------------- -
Name: Jeffrey J. Stedman
Title: Vice President
11
<PAGE> 1
EXHIBIT 12
Cinemark Usa, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Computation of Earnings to Fixed Charges
Pro Forma TTM Pro Forma June June Pro Forma
TTM 6/1996 June 1996 June 1996 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computation of Earnings:
Registrant's Pretax Income from
Continuing Operations 30,010,560 30,990,864 12,099,016 12,589,168 4,854,841 22,276,232
Capitalized Interest (3,073,226) (3,073,226) (1,337,289) (1,337,289) 9,783 (1,726,155)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL EARNINGS 26,937,333 27,917,638 10,761,727 11,251,879 4,864,624 20,550,078
Computation of Fixed Charges:
Interest Expense 18,898,645 17,995,545 9,803,337 9,351,787 9,906,075 19,452,933
Capitalized Interest 1,368,893 3,114,613 1,368,893 1,368,893 0 1,745,720
Amortization of Debt Issue Cost 906,676 829,472 453,426 414,824 409,366 901,218
Interest Factor in Rental Expense (1/3 Rent 10,513,982 10,513,982 5,314,577 5,314,577 5,091,664 10,291,069
Expense) ---------- ---------- ---------- ---------- ---------- ----------
TOTAL FIXED CHARGES 31,688,197 32,453,612 16,940,233 16,450,081 15,407,105 32,390,941
TOTAL EARNINGS AND FIXED CHARGES 58,625,530 60,371,250 27,701,960 27,701,960 20,271,729 52,941,018
---------- ---------- ---------- ---------- ---------- ----------
Ratio of Earnings to Fixed Charges 1.85 1.86 1.64 1.68 1.32 1.63
========== ========== ========== ========== ========== ==========
Insufficient Earnings to Cover Fixed Charges
========== ========== ========== ========== ========== ==========
<CAPTION>
Computation of Earnings to Fixed Charges
December December December December December
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Computation of Earnings:
Registrant's Pretax Income from
Continuing Operations 23,256,537 14,073,947 15,890,531 8,700,634 6,870,335
Capitalized Interest (1,726,155) (560,185) 5,425 5,425 5,425
---------- ---------- ---------- ---------- ----------
TOTAL EARNINGS 21,530,382 13,513,762 15,895,956 8,706,059 6,875,760
Computation of Fixed Charges:
Interest Expense 18,549,833 18,133,438 16,573,409 11,888,863 6,988,313
Capitalized Interest 1,745,720 565,610
Amortization of Debt Issue Cost 824,014 783,515 528,724 369,140 664,849
Interest Factor in Rental Expense (1/3 Rent 10,291,069 9,866,567 9,089,838 7,922,237 7,144,915
Expense) ---------- ---------- ---------- ---------- ----------
TOTAL FIXED CHARGES 31,410,636 29,349,130 26,191,971 20,180,240 14,798,077
TOTAL EARNINGS AND FIXED CHARGES 52,941,018 42,862,892 42,087,927 28,886,299 21,673,837
---------- ---------- ---------- ---------- ----------
Ratio of Earnings to Fixed Charges 1.69 1.46 1.61 1.43 1.46
========== ========== ========== ========== ==========
Insufficient Earnings to Cover Fixed Charges
========== ========== ========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF CINEMARK USA, INC.
Cinemark Corporation, a Texas corporation
Sunnymead Cinema Corp., a California corporation
Cinemark Properties, Inc., a Texas corporation
Cinemark Transportation, Inc., a Texas corporation
Trans Texas Cinema, Inc., a Texas corporation
Missouri City Central 6, Inc., a Texas corporation
Cinemark II, Inc., a Texas corporation
2 Day Video, Inc., a Texas corporation
2 Day Video of Georgia, Inc., a Georgia corporation
ENT Holdings, Inc., a Texas corporation
Funtime Entertainment, Inc., a Texas corporation
Funtime Pizza Two Corporation, a Texas corporation
Funtime Pizza Three Corporation, a Texas corporation
Funtime Pizza Four Corporation, a Texas corporation
Cinemark Mexico (USA), Inc., a Texas corporation
Cinemark de Mexico, S.A. de C.V., a Mexican corporation
Inversiones Cinemark, S.A., a Chilean corporation
Cinemark Chile, S.A., a Chilean corporation
Tinseltown Equities, Inc., a Texas corporation
Cinema Management Group, Inc., a Texas corporation
Cinemark Theatres Ontario, Inc., a Canadian corporation
Entertainment Amusement Enterprises, Inc., a Texas corporation
Cinemark Partners I, Inc., a Texas corporation
Melody Music, Inc., a Texas corporation
Cinemark Holdings Canada, Inc., a Canadian corporation
1
<PAGE> 2
Cinemark Alberta, Inc., a Canadian corporation
Laredo Theatre, Ltd., a Texas limited partnership
Skillman Cinema, Ltd., a Texas limited partnership
Cinemark Argentina, S.A., an Argentine corporation
Cinemark LTDA, a Brazilian corporation
Cinemark Empreendimentos e. Participacoes LTDA, a Brazilian corporation
Servicios Cinemark, S.A. de C.V., a Mexican corporation
Cinemark del Norte, S.A. de C.V., a Mexican corporation
2
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Cinemark USA, Inc. on
Form S-4 of our report dated March 12, 1996 appearing in the Prospectus for
$200,000,000 9-5/8% Series B Senior Subordinated Notes due 2008, which is part
of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
registration statement.
DELOITTE & TOUCHE LLP
Dallas, Texas
September 12, 1996
