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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1997.
REGISTRATION NO. 333-32959
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Amendment No. 1 to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CINEMARK USA, INC.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
TEXAS 8932 75-2206284
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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, (214) 696-1644
AND 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)
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COPIES TO:
Michael D. Cavalier Terry M. Schpok, P.C.
General Counsel Akin, Gump, Strauss, Hauer &
Cinemark USA, Inc. Feld, L.L.P.
7502 Greenville Avenue 1700 Pacific Avenue
Suite 800 Suite 4100
Dallas, Texas 75231-3830 Dallas, Texas 75201-4618
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
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Subject to Completion, Dated , 1997
PROSPECTUS
[GRAPHIC LOGO]
CINEMARK USA, INC.
OFFER TO EXCHANGE ITS
9-5/8% SERIES D SENIOR SUBORDINATED NOTES
DUE 2008
FOR ANY AND ALL OF ITS OUTSTANDING
9-5/8% SERIES C SENIOR SUBORDINATED NOTES
DUE 2008
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THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 p.m., NEW YORK CITY TIME,
ON OCTOBER 22, 1997, 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 D Senior
Subordinated Notes due 2008 (the "Series D 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 C
Senior Subordinated Notes due 2008 (the "Series C Notes"), of the Company of
which $75,000,000 principal amount is outstanding. The Series D Notes and the
Series C Notes are together referred to herein as the "Notes." The terms of the
Series D Notes are identical in all material respects to the terms of the
Series C Notes except that the registration and other rights relating to the
exchange of Series C Notes for Series D Notes and the restrictions on transfer
set forth on the face of the Series C Notes will not appear on the Series B
Notes. See "The Exchange Offer." The Series D Notes are being offered hereunder
in order to satisfy certain obligations of the Company under a Registration
Rights Agreement dated as of June 26, 1997 (the "Registration Rights
Agreement"). Based on an interpretation by the staff of the Securities and
Exchange Commission (the "Commission"), Series D Notes issued pursuant to the
Exchange Offer in exchange for Series C 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 D 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 D Notes.
Each broker-dealer that receives Series D 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 D 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 D Notes received in exchange for Series C Notes where
such Series C 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)
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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 C 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 C Notes, it will promptly return the Series C
Notes to the holders thereof. See "The Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the
Series C Notes or the Series D Notes. To the extent that Series C Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Series C Notes could be adversely affected. If a market for the
Series D Notes should develop, the Series D Notes could trade at a discount
from their principal amount. The Company does not currently intend to list the
Series D 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 D Notes will develop.
The Exchange Agent for the Exchange Offer is United States Trust Company
of Texas, N.A.
SEE "RISK FACTORS" ON PAGE 16 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN
THE NOTES.
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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 September 18, 1997
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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 D 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 D 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 June 26, 1997 (the "Indenture"),
among the Company and United States Trust Company of Texas, N.A., as trustee
(the "Trustee"), pursuant to which the Series C Notes were, and the Series D
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 C Notes, the Company will
furnish upon the request of a holder of a Series C 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).
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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 Prospectus 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. ("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 September 12, 1997,
the Company operated 1,665 screens in 183 theatres located in 29 states,
Canada, Chile, Mexico, Brazil, Argentina, Peru, El Salvador, Japan and Ecuador
consisting of 1,323 screens in 139 "first run" theatres and 342 screens in 44
"discount" theatres. Of the Company's 1,665 screens, 1,162 (or 70%) 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 93% of the
Company's screens located in theatres of six or more screens. The Company
believes that its ratio of screens to theatres (9 to 1 at September 12, 1997)
is the highest of the five largest theatre circuits in the U.S. and is more
than 50% higher than the industry average. From its fiscal year ended December
31, 1991 through the twelve months ended June 30, 1997, the Company has
increased consolidated revenues approximately 137% from $164.4 million to
$389.2 million and has increased EBITDA (as defined herein) approximately 189%
from $26 million to $75.2 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 permit major film production companies to
create "event" films such as Jurassic Park, Twister, Independence Day and The
Lost World 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,
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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 32.4% in 1996. 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, Sense and Sensibility, The
English Patient and Shine.
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 24 months, the Company has developed eight 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.
Continue to exploit discount theatre niche. The Company intends to
maintain its discount theatre operations (admission of $1 to $2 per ticket) 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's multiplex discount
theatres offer 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 July 31,
1997, approximately 21% of the Company's screens were housed in its 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 primarily 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
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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 begun developing multiplex theatres directly or through joint
venture arrangements with local partners in Argentina, Brazil, Peru, Ecuador
and Japan.
The Offering (as hereinafter defined) extended the average maturity of the
Company's indebtedness. The Company believes that this 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.
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THE EXCHANGE OFFER
REGISTRATION RIGHTS
AGREEMENT............... The Series C Notes were issued by the Company on
June 26, 1997 to qualified institutional
buyers (the "Offering"). In connection therewith,
the Company executed and delivered for the
benefit of the holders of the Series C 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 D Notes in exchange for each
$1,000 principal amount of Series C Notes validly
tendered pursuant to the Exchange Offer. As of
the date hereof, $75,000,000 in aggregate
principal amount of Series C Notes are
outstanding. The Company will issue the Series D
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 D Notes issued pursuant to the Exchange
Offer in exchange for Series C 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
D 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 D 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
C Notes acquired for its own account as a result
of market-making or other trading activities, and
who receives Series D Notes in the exchange for
such Series C 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 D 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 D
Notes issued pursuant to the Exchange Offer in
exchange for Series C 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 D 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 D 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).
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Any broker dealer who holds Series C Notes
acquired for its own account as a result of
market-making or other trading activities, and
who receives Series D Notes in the exchange for
such Series C 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 D 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 C 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 October 22,
1997 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 C 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 C Notes
to be exchanged and any other required
documentation, to the Exchange Agent (as defined
herein) at the address set forth herein and
therein. Series C Notes may be physically
delivered but physical delivery is not required
if a confirmation of a book-entry of such Series
C 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
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Company that, among other things, the Series D
Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business
of the person receiving such Series D 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 D
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 D Notes for its own account in
exchange for Series C Notes, where such Series C
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 D 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 C 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 C
Notes, either make appropriate arrangements to
register ownership of the Series C 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 C Notes who wish to tender their
Series C Notes and whose Series C Notes are not
immediately available or who cannot deliver their
Series C 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 C Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.............Tenders of Series C 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 C 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 D Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
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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 NOTES
SECURITIES OFFERED............$75,000,000 aggregate principal amount of 9-5/8%
Series D Senior Subordinated Notes due 2008.
MATURITY DATE.................August 1, 2008.
INTEREST......................Interest on the 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 August 1, 1997.
OPTIONAL REDEMPTION...........The 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 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 Notes remain outstanding following each such
redemption. See "Description of 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 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
Notes--Repurchase at the Option of
Holders--Change of Control."
RANKING.......................The 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
4, 1997, the Company had outstanding $68 million
of Senior Indebtedness. The Series D Notes will be
effectively subordinated to the indebtedness of
the Company's subsidiaries ($28.6 million at
August 4, 1997). See "Description of
Notes--Subordination."
CERTAIN COVENANTS.............The Indenture pursuant to which the Notes will be
issued (the
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"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
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 C Notes for Series D Notes in the Exchange Offer, see "Risk
Factors."
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<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, 1996, for the twelve months ended
June 30, 1997 and for the six months ended June 30, 1996 and 1997. 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, 1997 and
for the six months ended June 30, 1996 and 1997 are derived from the unaudited
financial statements of the Company. The Company believes the financial data
for the twelve months ended June 30, 1997 and for the six months ended June 30,
1996 and 1997 reflect all adjustments (which include only normal recurring
adjustments other than an adjustment required by SFAS 121 as discussed in Note
1 to the Consolidated Financial Statements appearing elsewhere in this
Prospectus) necessary for a fair presentation of such data. Operating results
for the twelve months ended June 30, 1997 and for the six months ended June 30,
1996 and 1997 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,
------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
(In thousands, except theatre, screen and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (CONSOLIDATED):
Revenues ................................. $194,652 $239,659 $283,077 $298,559 $341,731 $389,200 $158,304 $205,773
Theatre operating costs ................. 154,825 185,100 218,748 227,719 262,138 295,254 120,280 153,396
General and administrative expenses ..... 10,119 12,162 17,095 19,555 23,486 25,353 11,400 13,267
Depreciation and amortization ........... 9,830 10,939 15,121 15,925 21,799 23,409 8,672 10,282
Operating income ........................ 19,878 31,458 32,113 35,361 34,308 45,184 17,952 28,828
Interest expense(1) ..................... 12,258 17,102 18,917 19,374 20,376 25,377 9,767 14,768
Income before extraordinary items ....... 5,726 9,720 7,006 13,155 14,616 15,641 7,164 8,189
Net income(2) ........................... 5,829 9,720 7,006 13,155 5,230 6,535 6,829 8,134
OTHER FINANCIAL DATA (CONSOLIDATED):
Cash flow from (used for) operations ..... $ 23,376 $ 27,181 $ 32,665 $ 36,090 $ 58,754 $ 49,261 $ 22,463 $ 12,970
Theatre level cash flow(3) ............... 39,827 54,559 64,329 70,840 79,593 93,946 38,024 52,377
EBITDA(4) ................................ 32,117 45,808 50,851 55,708 62,579 75,162 28,258 40,841
Ratio of earnings to fixed charges(5) .... 1.43x 1.61x 1.46x 1.69x 1.65x 1.63x 1.68x 1.65x
Pro forma ratio of earnings to
fixed charges(6) ...................... 1.60x 1.60x 1.62x
SUPPLEMENTAL FINANCIAL DATA (RESTRICTED
GROUP):(7)
EBITDA(4) ................................ $ 32,089 $ 45,433 $ 49,408 $ 54,319 $ 61,093 $ 73,749 $ 27,511 $ 40,167
Pro forma interest expense(8) ............ 26,600 30,191 15,095
Ratio of EBITDA to pro forma
interest expense ...................... 2.30x 2.44x 2.66x
Pro forma long-term debt, including
current maturities (at period end)(5) 333,639 333,639
Ratio of pro forma long-term debt
(at period end)to EBITDA(9) ........... 4.52x N/A
OPERATING DATA:
United States (Restricted Group)
Theatres owned (at period end)(10) .... 147 153 154 150 158 162 153 162
Screens owned (at period end)(10) ... 1,010 1,084 1,121 1,155 1,339 1,432 1,212 1,432
Total attendance ...................... 51,087 59,632 63,401 61,006 63,774 69,655 30,256 36,136
Outside United States (Unrestricted Group)
Theatres owned (at period end)(11) .... -- -- 4 9 11 19 11 19
Screens owned (at period end)(11) ..... -- -- 42 92 114 193 114 193
Total attendance ...................... -- -- 1,407 4,210 8,675 10,013 3,669 5,007
</TABLE>
(footnotes on next page)
13
<PAGE> 14
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (CONSOLIDATED):
Cash and temporary cash investments $ 29,368 $ 44,454 $ 31,056 $ 13,925 $ 14,383 $ 7,122 $ 11,060
Theatre properties and equipment-net 93,952 117,017 155,798 224,482 377,421 287,563 430,792
Total assets ....................... 147,661 189,361 217,185 267,747 432,905 326,106 499,971
Total long-term debt, including
current portion .................. 130,662 152,787 167,374 198,145 297,196 202,760 361,884
Shareholders' equity (deficiency) (11,094) (760) 2,732 11,345 57,363 58,079 62,530
</TABLE>
- ----------------------
(1) Includes amortization of debt issue cost and debt discount.
(2) In 1996, an extraordinary loss of $9 million (net of related tax benefit)
was recognized in connection with the premium paid and the write-off of the
unamortized debt issue costs associated with the Senior Notes repurchased.
(3) 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.
(4) 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.
(5) For the purpose of calculating the ratio of earnings to fixed charges, (i)
earnings consist of income 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.
(6) Gives effect to the Offering as if the Offering had occurred at the
beginning of the period. See "Use of Proceeds" and "Capitalization."
(7) 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.
(8) Calculated based on debt outstanding at the end of the period for the
subsequent four quarter period. Gives effect to the Offering as if the
Offering had occurred at the end of such period and does not include
amortization of debt issue cost for the Notes.
(9) Gives effect to the Offering as if the Offering had occurred at the end of
such period. For purposes of calculating total long-term debt, amounts for
the Notes and the Series D Notes are based on the stated principal amount
at maturity. See "Use of Proceeds" and "Capitalization."
14
<PAGE> 15
(10)The data as of period end 1992, 1993, 1994, 1995 (and June 1996) and 1996
(and June 1997) exclude two theatres (23 screens), two theatres (23
screens), three theatres (33 screens), four theatres (54 screens) and four
theatres (54 screens), respectively, operated by the Company pursuant to
management agreements.
(11)The data as of period end 1993, 1994, 1995 (and June 1996) and 1996 (and
June 1997) exclude two theatres (18 screens), two theatres (18 screens),
three theatres (25 screens) four theatres (37 screens) and five theatres
(44 screens) respectively, operated through affiliates of the Company in
Canada, Chile and Japan.
15
<PAGE> 16
RISK FACTORS
Holders of Series C Notes should carefully consider the specific risk
factors as set forth below as well as the other information contained in this
Prospectus before deciding to tender their Series C Notes in the Exchange Offer
in evaluating an investment in the Notes offered hereby.
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 September 12, 1997, the Company had total outstanding indebtedness
of $406.3 million. The Company's leveraged financial position poses substantial
risks to holders of the 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 Notes and the payment of principal of and interest
on borrowings under the Credit Facility, the Series B Notes 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 Notes," and "Description of Certain Debt
Instruments."
SUBORDINATION OF NOTES
The Notes will be general unsecured obligations of the Company and will
rank senior or pari passu in right of payment with all other general unsecured
subordinated obligations of the Company. The Notes will rank pari passu with the
Series B Notes. The Notes will be subordinated in right of payment to all
existing and future Senior Indebtedness of the Company, including obligations
under the Credit Facility. As of September 12, 1997, the Company had outstanding
$101 million of Senior Indebtedness. Subject to certain limitations, the
Indenture will permit the Company to incur additional Senior Indebtedness. See
"Description of Notes--Certain Covenants--Limitation on Indebtedness." In
addition, the Notes will be effectively subordinated to indebtedness of the
Company's subsidiaries ($28.6 million as of September 12, 1997). The
indebtedness under the Credit Facility will also become due prior to the time
the principal obligations under the 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 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 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 Notes" and "Description of Certain Debt Instruments."
SUBSTANTIAL CAPITAL EXPENDITURES; UNCERTAINTIES RELATING TO FUTURE EXPANSION
PLANS
The Company plans to open a total of approximately 180 and 320 screens in
the U.S. in 1997 and 1998, respectively. From January 1, 1997 to July 31, 1997,
the Company has opened six theatres (73 screens), and has 11 theatres (142
screens) under construction. In addition, as of July 31, 1997, the Company has
approximately 26 theatres (285 screens) scheduled to begin construction within
the next year with scheduled completion by the end of 1998. The Company
estimates that capital expenditures in connection with the development of these
500 screens in 1997 and 1998 will be approximately $325 million. As of September
12, 1997, the Company had expended approximately $95.9 million toward the
development of these screens. See "Management's Discussion and Analysis of
Financial Condition and
16
<PAGE> 17
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 expansion outside
of the U.S. and Canada will be conducted through Cinemark International, an
Unrestricted Subsidiary under the Indenture. As of July 31, 1997, the Company,
through Cinemark Mexico (USA), Inc. ("Cinemark Mexico"), a subsidiary of
Cinemark International, operated twelve 12 (129 screens) in Mexico.
Additionally, the Company operates and owns interests in theatres in Chile,
Brazil, Japan, Argentina and Peru. See "Business--International." 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 typically utilize union labor unlike U.S. 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, 1995, 1996 and the six month period ended June 30, 1997 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 $50 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 Notes."
In September 1996, Cinemark Mexico completed an Exchange Offer and
Consent Solicitation (the "Mexico Exchange Offer") to restructure the
outstanding Cinemark Mexico Notes (as hereinafter defined) and to issue New
Mexico Notes (as hereinafter defined) in exchange for outstanding warrants to
purchase common stock of Cinemark Mexico. In connection with the Mexico
Exchange Offer (i) Cinemark Mexico issued Additional Notes (as defined herein)
in payment of a past due payment of interest on the Cinemark Mexico Notes in
the amount of $1.3 million which was due on August 1, 1996 and (ii) Cinemark
International contributed an additional $10 million of capital to Cinemark
Mexico to enable Cinemark Mexico to pursue additional development
opportunities. In connection with the Mexico Exchange Offer, Cinemark
International also amended certain terms of the Mexico Senior Credit Facility.
See "Management's Discussion and Analysis of Financial Conditions and Results
of Operation--Liquidity and Capital Resources" and "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
Indebtedness to Annualized 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
17
<PAGE> 18
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 July 31, 1997, the Company's Chief Executive Officer, Lee Roy
Mitchell and his affiliates beneficially owned an aggregate of 53.1% and
Cypress Merchant Banking Partners L.P. and Cypress Pictures Ltd. (collectively,
"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."
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 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 Notes and 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 the
Series B Indenture (as hereinafter defined) 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 Notes and the Series B Notes would
require payment in full of such Senior Indebtedness before repurchase of the
Notes and the Series B Notes. See "Description of Notes--Repurchase at the
Option of Holders--Change of Control," "--Subordination" and "Description of
Certain Debt Instruments -- Series B Indenture" and "--Credit Facility." There
can be no assurance that the Company would have sufficient resources to
repurchase the Notes or 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 Notes and 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 D 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 D 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 D Notes will exist. If a market were to
exist, the Series D Notes could trade at prices that may be lower than the
initial offering price of the Series C 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 D Notes -- Exchange
Offer; Registration Rights."
18
<PAGE> 19
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Series C Notes who do not exchange their Series C Notes for
Series D Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Series C Notes as set forth in the legend
thereon as a consequence of the issuance of the Series C 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 C Notes
under the Securities Act. Series D Notes issued pursuant to the Exchange Offer
in exchange for Series C 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
D 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 Notes. Each broker-dealer that receives Series D 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 D 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 D Notes received in exchange for Series C Notes where
such Series C 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 D 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 C
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Series C Notes will be adversely
affected.
19
<PAGE> 20
THE EXCHANGE OFFER
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The Series C Notes were sold by the Company on June 26, 1997 to initial
purchasers (the "Initial Purchasers"), who resold the Series C Notes to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act). In connection with the sale of the Series C 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 C Notes for Series D Notes within 30
days following the issuance of the Series C 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
D 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 C
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 C 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 C Notes. Holders of Series C Notes who do not
tender their Series C Notes or whose Series C 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 C Notes.
Based on an interpretation by the staff of the Commission, the Company
believes that Series D Notes issued pursuant to the Exchange Offer in exchange
for Series C 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 D 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 D 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 C Notes acquired for its own
account as a result of market-making or other trading activities, and who
receives Series D Notes in the exchange for such Series C 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 D 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.
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, holders of Series C 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 D 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 D Notes.
20
<PAGE> 21
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 C Notes validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date. The exchange of Series D Notes for Series C Notes will be made
with respect to all Series C Notes validly tendered and not withdrawn on or
prior to the Expiration Date, within two business days following the Expiration
Date. The Series D 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 D Notes in exchange for each $1,000 principal amount
of outstanding Series C Notes accepted in the Exchange Offer. Holders may
tender some or all of their Series C 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 D Notes will be the same in all material
respects as the form and terms of the Series C Notes, except that the Series D
Notes will be registered under the Securities Act and hence will not bear
legends restricting the transfer thereof.
Holders of Series C 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 C
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 C
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 C Notes for the purpose of receiving Series D Notes from the
Company and delivering Series D Notes to such holders.
If any tendered Series C 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 C 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 C Notes pursuant to
the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City time, on
October 22, 1997, 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 C Notes for Series D Notes, to extend the Exchange Offer or terminate
the Exchange Offer and to refuse to accept for exchange Series C Notes for
Series D 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 C 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
21
<PAGE> 22
disclosure to the holders of the Series D 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 C Notes may tender such Series C Notes in the
Exchange Offer. The term "holder" with respect to the Exchange Offer means any
person in whose name Series C 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 C 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 C 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
C Notes by the Depository to transfer such Series C Notes into the Exchange
Agent's account in accordance with the Depository's procedure for such
transfer. Although delivery of Series C 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 C 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 C 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 C 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 C 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 C Notes will be
determined by the Company in its sole discretion, which determination will be
22
<PAGE> 23
final and binding. The Company reserves the absolute right to reject any and
all Series C Notes not properly tendered or any Series C 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 C 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 C 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 C 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 C Notes nor shall any of them
incur any liability for failure to give such notification. Tenders of Series C
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Series C 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 D Notes to be issued
in the Exchange Offer and (iii) it is acquiring the Series D Notes in its
ordinary course of business. If the holder is a broker-dealer that will receive
Series D Notes for its own account in exchange for Series C Notes that 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 D Notes.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Series C Notes and (i) whose Series C
Notes are not immediately available, or (ii) who cannot deliver their Series C
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 C Notes, the
certificate number or numbers of such Series C Notes (if available) and the
principal amount of Series C 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 C 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 C
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 C 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 C 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 C Notes according to the
guaranteed delivery procedures set forth above.
23
<PAGE> 24
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series C 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 C 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 C Notes to be withdrawn (the "Depositor"), (ii)
identify the Series C Notes to be withdrawn (including the certificate number
or numbers and principal amount of such Series C Notes), (iii) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Series C Notes were tendered (including required
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Trustee with respect to the Series C Notes to register the transfer
of such Series C Notes into the name of the Depositor withdrawing the tender
and (iv) specify the name in which any such Series C 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 determination shall be final
and binding on all parties. Any Series C Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no Series
D Notes will be issued with respect thereto unless the Series C Notes so
withdrawn are validly re-tendered. Any Series C 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 C 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 C Notes for
Series D Notes tendered and may terminate or amend the Exchange Offer as
provided herein before the acceptance of such Series C 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
24
<PAGE> 25
(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, (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 C 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 C Notes pursuant to the Exchange Offer. If, however,
certificates representing Series D Notes or Series C Notes for principal
amounts not
25
<PAGE> 26
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered
holder of the Series C Notes tendered, or if tendered Series C 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 C 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 D Notes under
generally accepted accounting principles.
26
<PAGE> 27
CAPITALIZATION
The following table sets forth the actual unaudited consolidated
capitalization of the Company at June 30, 1997 and the consolidated
capitalization of the Company as adjusted to give effect to the 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, 1997
-------------
ACTUAL AS ADJUSTED
------ -----------
(In thousands)
<S> <C> <C>
Cash and temporary cash investments .............................. $ 11,060 $ 11,060
======== ========
Long-term debt, including current maturities:
Credit Facility(1) ............................................. $ 58,000 $ 58,000
12% Senior Subordinated PIK Notes of Cinemark Mexico due 2003(2) 26,821 26,821
9-5/8% Series B Senior Subordinated Notes due 2008(3) .......... 199,174 199,174
9-5/8% Series C Senior Subordinated Notes due 2008 ............. 77,250(4) --
9-5/8% Series D Senior Subordinated Notes due 2008 ............. -- 77,250(5)
Other indebtedness ............................................. 639 639
-------- --------
Total long-term debt ......................................... 361,884 361,884
Minority interest in subsidiaries ................................ 1,465 1,465
Shareholders' equity ............................................. 62,530 62,530
-------- --------
Total capitalization .................................... $425,879 $425,879
======== ========
</TABLE>
- --------------------
(1) A total of $225 million is available to the Company under the Credit
Facility, subject to compliance with the terms thereof. As of August 4,
1997, the actual amount outstanding under the Credit Facility was $101
million and the effective interest rate on such borrowing was 6.7%. See
"Description of Certain Debt Instruments -- Credit Facility."
(2) The 12% Senior Subordinated PIK Notes were issued by Cinemark Mexico, a
subsidiary of Cinemark International and an Unrestricted Subsidiary.
(3) The amount shown is net of an unamortized debt discount of approximately
$.8 million associated with the issuance of the Series B Notes.
(4) The amount shown reflects a premium of approximately $2.3 million
associated with the issuances of the Series C Notes.
(5) Gives effect to the Exchange Offer (assuming 100% participation by the
holders of the Series C Notes).
27
<PAGE> 28
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, 1996, for the twelve months ended
June 30, 1997 and for the six months ended June 30, 1996 and 1997. 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, 1997 and
for the six months ended June 30, 1996 and 1997 are derived from the unaudited
financial statements of the Company. The Company believes the financial data
for the twelve months ended June 30, 1997 and for the six months ended June 30,
1996 and 1997 reflect all adjustments (which include only normal recurring
adjustments other than an adjustment required by SFAS 121 as discussed in Note
1 to the Consolidated Financial Statements appearing elsewhere in this
Prospectus) necessary for a fair presentation of such data. Operating results
for the twelve months ended June 30, 1997 and for the six months ended June 30,
1996 and 1997 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,
------------------------------------------------------ ------------ ---------------------
1992 1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
(In thousands, except theatre, screen and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (CONSOLIDATED):
Revenues .......................... $194,652 $ 239,659 $ 283,077 $ 298,559 $ 341,731 $ 389,200 $ 158,304 $ 205,773
Theatre operating costs ........... 154,825 185,100 218,748 227,719 262,138 295,254 120,280 153,396
General and administrative
expenses ........................ 10,119 12,162 17,095 19,555 23,486 25,353 11,400 13,267
Depreciation and amortization ..... 9,830 10,939 15,121 15,925 21,799 23,409 8,672 10,282
Operating income .................. 19,878 31,458 32,113 35,361 34,308 45,184 17,953 28,828
Interest expense(1) ............... 12,258 17,102 18,917 19,374 20,376 25,377 9,767 14,768
Income before extraordinary items . 5,726 9,720 7,006 13,155 14,616 15,641 7,164 8,189
Net income(2) ..................... 5,829 9,720 7,006 13,155 5,230 6,535 6,829 8,134
OTHER FINANCIAL DATA (CONSOLIDATED):
Cash flow from (used for)
Operations ..................... $ 23,376 $ 27,181 $ 32,665 $ 36,090 $ 58,754 $ 49,261 $ 22,463 $ 12,970
Investing activities ........... (35,432) (35,560) (62,876) (80,268) (177,423) (181,444) (72,598) (76,619)
Financing activities ........... 35,509 25,051 13,273 32,031 119,690 136,800 43,242 60,352
Theatre level cash flow(3) ........ 39,827 54,559 64,329 70,840 79,593 93,946 38,024 52,377
EBITDA(4) ......................... 32,117 45,808 50,851 55,708 62,579 75,162 28,258 40,841
Ratio of earnings to
fixed charges(5) ............ 1.43x 1.61x 1.46x 1.69x 1.65x 1.63x 1.68x 1.65x
Pro forma ratio of earnings to
fixed charges(6) ............... 1.60x 1.60x 1.62x
SUPPLEMENTAL FINANCIAL DATA
(RESTRICTED GROUP):(7)
EBITDA(4) ......................... $ 32,089 $ 45,433 $ 49,408 $ 54,319 $ 61,093 $ 73,749 $ 27,511 $ 40,167
Pro forma interest expense(8) ..... 26,600 30,191 15,095
Ratio of EBITDA to pro forma
interest expense ............... 2.30x 2.44x 2.66x
Pro forma long-term debt,
including current maturities
(at period end)(9) ............ 333,639 333,639
Ratio of pro forma long-term debt
to EBITDA (at period end)(9) ... 4.52x N/A
OPERATING DATA:
United States (Restricted Group)
Theatres owned (at
period end)(10) .............. 147 153 154 150 158 162 153 162
Screens owned (at
period end)(10) .............. 1,010 1,084 1,121 1,155 1,339 1.432 1,212 1,432
Total attendance ............... 51,087 59,632 63,401 61,006 63,774 69,655 30,256 36,136
Outside United States
(Unrestricted Group)
Theatres owned (at
period end)(11) .............. -- -- 4 9 11 19 11 19
Screens owned (at 114
period end)(11) .............. -- -- 42 92 114 193 114 193
Total attendance ............... -- -- 1,407 4,210 8,675 10,013 3,669 5,007
</TABLE>
(footnotes on next page)
28
<PAGE> 29
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997
------ ---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (CONSOLIDATED):
Cash and temporary cash
investments ...................... $ 29,368 $ 44,454 $ 31,056 $ 13,925 $ 14,383 $ 7,122 $ 11,060
Theatre properties and equipment-net 93,952 117,017 155,798 224,482 377,42 289,563 430,792
Total assets ....................... 147,661 189,361 217,185 267,747 432,905 326,106 499,971
Total long-term debt, including
current portion .................. 130,662 152,787 167,374 198,145 297,206 202,260 361,884
Shareholders' equity (deficiency) .. (11,094) (760) 2,732 11,345 57,363 58,079 62,530
</TABLE>
- ----------------------
(1) Includes amortization of debt issue cost and debt discount.
(2) In 1996, an extraordinary loss of $9 million (net of related tax
benefit) was recognized in connection with the premium paid and the
write-off of the unamortized debt issue costs associated with the
Senior Notes repurchased.
(3) 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.
(4) 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.
(5) 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.
(6) Gives effect to the Offering as if the Offering had occurred at the
beginning of the period. See "Use of Proceeds" and "Capitalization."
(7) 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.
(8) Calculated based on debt outstanding at the end of the period for the
subsequent four quarter period. Gives effect to the Offering as if the
Offering had occurred at the end of such period and does not include
amortization of debt issue cost for the Notes.
(9) Gives effect to the Offering as if the Offering had occurred at the
end of such period. For purposes of calculating total long-term debt,
amounts for the Notes and the Series B Notes are based on the stated
principal amount at maturity. See "Use of Proceeds" and
"Capitalization."
29
<PAGE> 30
(10) The data as of period end 1992, 1993, 1994, 1995 (and June 1996) and
1996 (and June 1997) exclude two theatres (23 screens), two theatres
(23 screens), three theatres (33 screens), four theatres (54 screens)
and four theatres (54 screens), respectively, operated by the Company
pursuant to management agreements.
(11) The data as of period end 1993, 1994, 1995 (and June 1996) and 1996
(and June 1997) exclude two theatres (23 screens), two theatres (18
screens), three theatres (25 screens), four theatres (37 screens) and
five theatres (44 screens), respectively, operated through affiliates
of the Company in Canada, Chile and Japan.
30
<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 the 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 acquisitions 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, 1994, 1995, and 1996 are not directly comparable due to the
effects of new theatre openings, acquired theatres and the impact of the debt
service associated with financing incurred. 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.
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, 1996 and the six months ended June 30, 1996 and 1997.
31
<PAGE> 32
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------- -------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA
(In millions):
Revenues
Admissions ..................................... $ 174.5 $ 183.1 $ 211.6 $ 97.4 $ 129.5
Concessions .................................... 95.2 102.1 116.9 53.5 71.1
Other .......................................... 13.4 13.4 13.2 7.4 5.2
-------- -------- -------- -------- --------
Total revenues ............................. $ 283.1 $ 298.6 $ 341.7 $ 158.3 $ 205.8
======== ======== ======== ======== ========
Cost of operations
Film rentals ................................... $ 84.0 $ 89.0 $ 104.1 $ 46.9 $ 63.9
Concession supplies ............................ 17.5 17.3 18.4 9.0 10.2
Salaries and wages ............................. 39.5 40.6 46.9 21.3 26.9
Facility leases ................................ 29.6 30.9 34.4 15.9 18.4
Advertising .................................... 7.2 7.6 8.5 4.2 5.2
Utilities and other ............................ 40.9 42.3 49.8 23.0 28.8
-------- -------- -------- -------- --------
Total cost of operations ................... $ 218.7 $ 227.7 $ 262.1 $ 120.3 $ 153.4
======== ======== ======== ======== ========
OPERATING DATA AS A PERCENTAGE OF TOTAL REVENUES(1):
Revenues
Admissions ..................................... 61.6% 61.3% 61.9% 61.5% 62.9%
Concessions .................................... 33.6 34.2 34.2 33.8 34.6%
Other .......................................... 4.8 4.5 3.9 4.7 2.5%
-------- -------- -------- -------- --------
Total revenues ............................. 100.0 100.0 100.0 100.0 100.0
Cost of operations
Film rentals(1) ................................ 48.1 48.6 49.2 48.2 49.3%
Concession supplies(1) ......................... 18.4 16.9 15.8 16.9 14.3%
Salaries and wages ............................. 14.0 13.6 13.7 13.5 13.1%
Facility leases ................................ 10.5 10.3 10.1 10.1 8.9%
Advertising .................................... 2.5 2.5 2.5 2.6 2.5%
Utilities and other ............................ 14.4 14.2 14.6 14.5 14.0%
Total cost of operations ....................... 77.3 76.3 76.7 76.0 74.5%
General and administrative
expenses ....................................... 6.0 6.6 6.9 7.2 6.5%
Depreciation and amortization ...................... 5.3 5.3 6.4 5.5 5.0%
Operating income ................................... 11.4 11.8 10.0 11.4 14.0%
Interest expense ................................... 6.7 6.4 6.0 6.2 7.2%
Income before income taxes ......................... 5.0 7.8 7.9 8.0 7.3%
Net income ......................................... 2.5 4.4 1.5 4.3 3.9%
</TABLE>
- ------------------------
(1) All costs are expressed as a percentage of total revenues, except film
rentals, which are expressed as a percentage of admissions revenue, and
concession supplies, which are expressed as a percentage of concessions
revenue.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------- -------------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average screen count
(month end average).... 1,131 1,195 1,322 1,276 1,477
======== ======== ======== ======== ========
Revenues per average
screen count .......... $250,289 $249,840 $258,495 $124,062 $139,318
======== ======== ======== ======== ========
</TABLE>
COMPARISON OF SIX MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results to be achieved for the full year.
Revenues. Revenues for the quarter ended June 30, 1997 increased to $102.8
million from $84.6 million for the quarter ended June 30, 1996, an 21.5%
increase. The Company generated revenues for the six months ended June 30, 1997
(the "1997 period") of $205.8 million compared to $158.3 million for the six
months ended June 30, 1996 (the "1996 period), a 30.0% increase. The increase
in revenues for the second quarter and the 1997 period is primarily
attributable to a 18.2% increase in attendance as the result of the net
addition of 156 screens since the second quarter of 1996 and strong industry
performance during the first quarter of 1997. Revenues were also positively
affected by a combined increase of 9.4% in admissions and concessions per
patron. Revenues per average screen increased 12.3% to $139,318 in the 1997
period from $124,062 in the 1996 period.
Cost of Operations. Cost of operations, as a percentage of revenues,
decreased to 75.3% in the second quarter of 1997 from 76.5% in the second
quarter of 1996. The decrease as a percentage of revenues resulted from
decreases during the quarter in concession supplies as a percentage of
concession revenues to 13.3% in 1997 from 16.3% in 1996 and a decrease in
facility leases as a percentage of revenues to 9.0% in 1997 from 9.4% in 1996.
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<PAGE> 33
Cost of operations, as a percentage of revenues, decreased to 74.6% in the
1997 period from 76.0% in the 1996 period. The decrease as a percentage of
revenues resulted from a decrease in concession supplies as a percentage of
concession revenues to 14.3% in 1997 from 16.9% in 1996, and a decrease in
facility leases as a percentage of revenues to 8.9% in 1997 from 10.1% in 1996.
These decreases were partially offset by an increase during the period in film
rentals as a percentage of admission revenues to 49.4% in 1997 from 48.2% in
1996.
General and Administrative Expenses. General and administrative expenses,
as a percentage of revenues, decreased to 7.9% in the second quarter of 1997
from 8.5% in the second quarter of 1996. For the 1997 period, general and
administrative costs decreased as a percentage of revenues to 6.5% from 7.2%
for the 1996 period. The absolute level of general and administrative expenses
increased to $8.1 million in the second quarter of 1997 from $7.1 million in
the second quarter of 1996 and to $13.3 million for the 1997 period from $11.4
million for the 1996 period. The decrease, as a percentage of revenues, is
attributed to a larger revenue base resulting from screen additions and a
strong slate of films in the first quarter. The increase in general and
administrative expenses is attributed to costs (primarily salaries and wages)
associated with the Company's expansion program and compensation costs
associated with the repurchase of non-qualified stock options.
Depreciation and Amortization. Depreciation and amortization increased
15.0% to $5.0 million in the second quarter of 1997 from $4.3 million in the
second quarter of 1996. For the 1997 period, depreciation and amortization
increased 18.6% to $10.3 million from $8.7 million in 1996. The increase is a
result of the net addition of $143.2 million in theatre property and equipment
since the second quarter of 1996, a 49.8% 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 42.0% during the second quarter of 1997
to $7.8 million (including capitalized interest to properties under
construction) from $5.5 million in the second quarter of 1996 (including
capitalized interest). Interest costs for the 1997 period, including
amortization of debt issue cost and debt discount, increased 39.8% to $15.6
million (including capitalized interest) from $11.1 million in the 1996 period.
The increase in interest costs incurred for the first quarter of 1997 was due
principally to an increase in average debt outstanding resulting from
borrowings under the Company's Credit Facility and Senior Subordinated Notes.
Income Taxes. Income taxes decreased to $2.4 million for the second
quarter of 1997 from $3.5 million in the second quarter of 1996 and increased
to $6.9 million for the 1997 period from $5.4 million in the 1996 period. The
Company's effective tax rate for the second quarter of 1997 was 43.6% compared
to 45.1% for the second quarter of 1996. The effective tax rate for the 1997
period increased to 45.6% from 43.1% in 1996. The change in the effective tax
rate was primarily a result of the relative level of goodwill amortization and
foreign losses. The effective tax rates reflect the full reserve of the
potential tax benefit associated with the loss incurred by Cinemark Mexico.
Other Gains and Losses. Other gains and losses for the second quarter of
1996 and the 1996 period of $3.7 million is primarily attributable to a gain
from the settlement of litigation.
Net Income. Net income of $3.0 million for the second quarter of 1997 and
net income of $4.3 million for the second quarter of 1996 included the
consolidated losses of Cinemark International of $.5 million (net of minority
33
<PAGE> 34
interest). Net income of $8.1 million for the 1997 period and $6.8 million for
the 1996 period includes the consolidated losses of Cinemark International of
$1.2 million (net of minority interest) and $1.1 million (net of minority
interest), respectively.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
Revenues. Revenues in 1996 increased to $341.7 million from $298.6
million, a 14.5% increase. The increase in revenues is primarily attributable
to a 11.1% increase in attendance resulting from strong industry performance,
the first full year of operations of 130 screens opened in 1995 and the net
addition of 206 screens since 1995. The contribution from the new screens
opened in 1996 is not fully reflected in the Company's operations as a majority
of the new screens were not opened until late 1996. Revenues were also
positively affected by an increase in admission and concession revenues per
patron of 6.2%. The strong industry performance and new screen openings
contributed to an increase of 3.5% in the revenues per average screen to
$258,495 for 1996 from $249,840 for 1995.
Cost of Operations. Cost of operations, as a percentage of revenue,
increased slightly to 76.7% in 1996 from 76.3% in 1995. The increase as
percentage of revenues resulted from increases during the period in film
rentals as a percentage of admission revenues to 49.2% in 1996 from 48.6% in
1995 and an increase in utilities and other as a percentage of revenues to
14.6% in 1996 from 14.2% in 1995. This increase was partially offset by a
decrease in concession supplies as a percentage of concession revenues to 15.8%
in 1996 from 16.9% in 1995.
General and Administrative Expenses. General and administrative
expenses, as a percentage of revenues, increased to 6.9% in 1996 from 6.6% in
1995. General and administrative expenses in absolute terms increased to $23.5
million in 1996 from $19.6 million in 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 and increases in salaries and wages, travel, and miscellaneous expenses
associated with the Company's international expansion.
Depreciation and Amortization. Depreciation and amortization increased
$5.9 million in 1996 to $21.8 million in 1995. The increase includes a $2.4
million charge pursuant to Statement of Financial Accounting Standards No. 121
(SFAS 121). In accordance with SFAS 121, the Company wrote down the assets of
certain theatres to their realizable value which exceeded their carrying value.
Depreciation and amortization before the affect of SFAS 121 increased $3.5
million for 1996. The increase is a result of the net addition of $163.3
million in theatre property and equipment during 1996, a 56.8% increase over
1995. 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 15.1% to $24.3 million (including
the capitalization of $3.9 million of interest to properties under
construction) from $21.1 million in 1995 (including capitalized interest of
$1.7 million) . The increase in interest costs incurred during 1996 was due
principally to an increase in average debt outstanding resulting from
borrowings under the Credit Facility and the Series B Notes.
Income Taxes. Income taxes increased to $12.3 million in 1996 compared
to $10.1 million in 1995, a 22.2% increase, resulting primarily from the
increase in income before taxes and permanent differences associated with the
sale of certain assets. The Company's effective rate for 1996 increased to
45.8% from 43.4% in 1995. The effective tax rates reflect the full reserve of
the potential tax benefit associated with the loss incurred by Cinemark Mexico.
Other Gains and Losses. Other gains and losses for 1996 of $11.1
million is primarily attributable to a gain from the settlement of litigation
and the sale of 2 Day Video, Inc., an 84.4% subsidiary of the Company.
Extraordinary Items. In the third quarter of 1996, the Company issued
the Series B Notes. A portion of the proceeds of $193.2 million (net of
discount, fees and expenses) was used to repurchase 98.7% of the Senior Notes
at a price of $1,098.33 per $1,000 principal amount. As a result, an
extraordinary loss of $9 million (net of related tax benefit) was recognized in
connection with the premium paid and the write-off of the unamortized debt
issue costs associated with the Senior Notes repurchased. The remaining loss is
attributable to the refinancing of the Company's bank line of credit during
1996.
34
<PAGE> 35
Net Income. Net income before extraordinary items of $14.6 million for
1996 and net income of $13.2 million for 1995 included the consolidated losses
of Cinemark Mexico of $2.6 million (net of minority interest) and $2.7 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 net 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 38.5% 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.
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 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 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.
35
<PAGE> 36
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, the majority 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 $11.1 million cumulative
unrealized currency translation loss adjustment in shareholders' equity as of
March 31, 1997. 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 a reduction in the rate
of expansion initially anticipated by Cinemark Mexico.
Beginning in 1997, generally accepted accounting principles require
that the U.S. dollar be used as the functional currency of the Company's
Mexican subsidiary for U.S. reporting purposes. As a result, fluctuations in
the peso during 1997 affecting the Company's investment in Mexico will be
charged to exchange gain or loss rather than to cumulative foreign currency
translation adjustment included in shareholders equity. The exchange rate
during 1997 through July 31, 1997 has remained stable at approximately N$7.8 to
$1.00.
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 $58.8 million in 1996 compared to $36.1 million
in 1995 and $32.7 million in 1994.
The Company's theatres are typically equipped with modern projection
and sound equipment, with approximately 68% of the screens operated by the
Company having been built in the past six years. Maintenance capital
expenditures for all theatres operated by the Company for 1996 were $6 million
or approximately 1.8% 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 $177.4 million, $80.3 million, and $62.9
million in 1996, 1995 and 1994, 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 $119.7 million, $32
million and $13.3 million in 1996, 1995 and 1994, respectively. From January 1,
1997 to August 31, 1997, the Company opened in the U.S. seven theatres (93
screens) and has 13 theatres (217 screens) under construction. In addition, as
of September 12, 1997, the Company has 11 theatres (190 screens) scheduled to
begin construction within the next year for scheduled completion by the end of
1998. 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 500 screens in the U.S. in 1997 and
1998 will be approximately $325 million. As of September 12, 1997 the Company
had expended approximately $95.9 million toward the development of these
screens. The Company plans to fund capital expenditures for its development
from cash flow from operations and borrowings under the Credit Facility. Actual
expenditures for theatre development and acquisitions during 1997 and 1998 are
subject to change based upon the availability of attractive opportunities for
expansion of the Company's theatre circuit.
On August 15, 1996, the Company issued the Series B Notes which bear
interest at a rate of 9-5/8% per annum, payable semi-annually on February 1 and
August 1 of each year. The Series B Notes were issued at 99.553% of the
principal face amount (a discount of $4.47 per $1,000 principal amount). The
net proceeds to the Company from the issuance of the Series B Notes (net of
discount, fees and expenses) were approximately $193.2
36
<PAGE> 37
million. The proceeds from the Series B Notes were used to repurchase 98.7% of
the Company's $125 million Senior Notes pursuant to a tender offer which
expired on August 15, 1996. The Senior Notes were purchased at a premium of
$1,098.33 (including a consent fee of $25) per $1,000 principal amount, plus
accrued and unpaid interest up to the date of repurchase. Excess proceeds were
utilized to reduce borrowings under the Company's Credit Facility and for
general corporate purposes.
On June 2, 1997 the Company redeemed the remaining outstanding Senior
Notes ($1.6 million). The Senior Notes were redeemed at a premium of $1,060 per
$1,000 principal amount, plus accrued and unpaid interest up to the date of
redemption.
On December 12, 1996, the Company replaced its existing credit
facility with the new credit facility ("Credit Facility") through a group of
banks for which Bank of America National Trust and Savings Association acts as
Administrative Agent. The Credit Facility provides for loans to the Company of
up to $225 million in the aggregate. The Credit Facility is a reducing
revolving credit facility with reductions in the aggregate commitment at the
end of each quarter during the calendar years 2000, 2001, 2002 and 2003, in the
amount of $8,437,500, $11,250,000, $14,062,500 and $22,500,000, respectively.
The Company is required to prepay all loans outstanding in excess of the
aggregate commitment from time to time. The Credit Facility is secured by a
pledge of a majority of the issued and outstanding capital stock of the
Company. Pursuant to the terms of the Credit Facility, funds borrowed currently
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 4, 1997, the Company had borrowed $68 million under the Credit
Facility and the effective interest rate on such borrowings was 6.6% per annum.
See "Description of Certain Debt Instruments -- Credit Facility."
In 1992, the Company formed Cinemark International to develop and
acquire theatres in international markets. As of July 31, 1997, Cinemark
International operated 17 theatres (169 screens) principally in Latin America.
The Company has contributed to the capital of Cinemark International $17.3,
$1.6 and $3.1 in 1996, 1995 and 1994, respectively, to fund its international
theatre development. Cinemark International plans to invest up to an additional
$50 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 or by
debt or equity financing to be provided by third parties directly to Cinemark
International or its subsidiaries.
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. As of August 4, 1997, Cinemark
International and New Wave Investments AVV, an unaffiliated Aruba corporation
owned by Mexican citizens ("New Wave"), own 95.6% (95% on a fully diluted
basis, including the exercise of outstanding warrants) and 4.4% (4.4% on a
fully diluted basis, including the exercise of outstanding warrants),
respectively, of the common stock of Cinemark Mexico. As of September 12, 1997,
the Company operated twelve theatres (129 screens) and by the end of 1997
intends to begin construction on two additional theatres (18 screens). 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 hereinafter
defined).
As of September 30, 1996, Cinemark Mexico had outstanding (i) $22.4
million aggregate principal amount of Cinemark Mexico Notes and (ii) warrants
to purchase 379,073 shares of common stock of Cinemark Mexico (the "Warrants").
On September 30, 1996, Cinemark Mexico completed the Mexico Exchange Offer (as
hereinafter defined) pursuant to which (a) Cinemark Mexico and the holders of
all of the Cinemark Mexico Notes exchanged all of the Cinemark Mexico Notes for
identical principal amount and series of 12% Senior Subordinated PIK Notes due
2003 and (b) Cinemark Mexico and holders of Warrants to purchase 356,851 shares
of Cinemark Mexico exchanged such Warrants for an aggregate of $1.2 million
original principal amount of 12% Series D Senior Subordinated PIK Notes due
2003 ("Series D Notes") (the new Cinemark Mexico Notes and Series D Notes are
collectively referred to as the "New Mexico Notes"). The form and terms of the
New Mexico Notes are identical in all material respects to the Cinemark Mexico
Notes except that interest on the New Mexico Notes may, on each interest
payment date from February 1, 1997 through and including February 1, 2000, be
paid at the option of Cinemark Mexico in cash or through the issuance of
additional notes of the same series (the "Additional
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Notes"). If Cinemark Mexico elects to pay accrued interest on the New Mexico
Notes in Additional Notes in lieu of cash, interest during the relevant
interest period shall accrue at the rate of 13% per annum. Holders of Warrants
to purchase 22,222 shares of Common Stock of Cinemark Mexico elected not to
participate in the Exchange Offer. The purpose of the Mexico Exchange Offer was
to exchange New Mexico Notes for all outstanding Cinemark Mexico Notes in order
to improve Cinemark Mexico's and Cinemark de Mexico's financial and operating
flexibility. Cinemark Mexico exercised its option to pay interest accrued on
the New Mexico Notes through the issuance of Additional Notes for the interest
period ended February 1, 1997 and the interest period ended August 1, 1997.
In connection with the Mexico Exchange Offer (i) Cinemark Mexico
issued Additional Notes in payment of a past due interest payment on the
Cinemark Mexico Notes in the amount of $1.3 million which was due on August 1,
1996 and (ii) Cinemark International contributed an additional $10 million of
capital to Cinemark Mexico to enable Cinemark Mexico to pursue additional
development opportunities. Cinemark Mexico also obtained the consent of the
holders of the Cinemark Mexico Notes to amend the Cinemark Mexico Indenture (as
hereinafter defined). Cinemark Mexico executed that certain Third Supplemental
Indenture dated September 30, 1996 (the "Third Supplemental Indenture") which,
among other things, (i) provided for the issuance of the New Mexico Notes and
the Additional Notes and (ii) amended certain restrictions relating to
financial ratios with which Cinemark Mexico must comply. The Indenture requires
Cinemark Mexico to maintain a Cash Flow Coverage Ratio (as defined in the
Indenture) of 2 to 1 beginning after December 31, 1999.
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 Senior Credit Facility (as hereinafter
defined), allowing it to borrow $10 million from Cinemark International. As of
August 4, 1997, Cinemark Mexico had fully drawn the $10 million under the Mexico
Senior Credit Facility.
Cinemark International entered into a joint venture agreement in
November 1992 with a Chilean theatre operator. Cinemark Chile, S.A. currently
operates two theatres (13 screens), and as of August 4, 1997, has one theatre
(12 screens) under construction and plans to begin construction on two theatres
(20 screens) during the remainder of 1997. In December 1995, Cinemark entered
into a joint venture agreement with Argentine theatre operators to develop
state-of-the-art multiplex theatres in Argentina. The joint venture's business
is conducted through Cinemark Argentina, S.A., which is owned by Cinemark
Argentina Holdings, S.A. Cinemark International owns 50% of Cinemark Argentina
Holdings, S.A. Cinemark Argentina opened its first theatre (8 screens) during
1997 and by the end of 1997 intends to begin construction on two additional
theatres (21 screens). In January 1997, Cinemark International and its Chilean
partner entered into a joint venture agreement to develop state-of-the-art
multiplex theatres in Peru. The joint venture conducts its business through
Cinemark del Peru, S.A., which is 50% owned by Cinemark International and 50%
owned by Cinemark's Chilean partner. Cinemark del Peru, S.A. opened its first
theatre (12 screens) in July 1997.
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 opened its
first theatre (12 screens) in June 1997. Additionally, Cinemark Brazil has
begun or expects to begin construction on six theatres (64 screens) during
1997.
In February 1997, Cinemark International entered into a joint venture
agreement with Shochiku Co., Ltd., a Japanese distributor, exhibitor and
producer of movies ("Shochiku") and several other Japanese companies to develop
state-of-the-art multiplex theatres in Japan. The joint venture will conduct
its business through Shochiku Cinemark Theatres, which is 26.7% owned by
Cinemark International, 26.7% owned by Shochiku, and the remaining 46.6% owned
by a consortium of prominent Japanese companies. Shochiku Cinemark Theatres
opened its first theatre (seven screens) in March 1997.
In September, 1996, Cinemark International, Inc. entered into a Joint
Venture Agreement and Wright Soto & Asociados Cia. Ltda., an Ecuadoran limited
liability company, and certain members of the Wright family. The joint venture,
which conducts business through Cinemark del Ecuador, S.A., currently operates
one theatre (7 screens) and plans to begin construction on one theatre (9
screens) during the remainder of 1997.
In April 1997, the Company repurchased an aggregate of 1,242 shares of
Class B Common Stock issued to optionholders upon the exercise of options in
April 1996. The aggregate purchase price for such shares was $2.2 million. In
May and June 1997 options to acquire an aggregate of 737 shares of Class B
Common Stock were repurchased by the Company for an aggregate purchase price of
$1.3 million.
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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 July 31, 1997, the
Company operated 1,665 screens in 183 theatres located in 29 states, Canada,
Chile, Mexico, Brazil, Argentina Peru, El Salvador, Japan and Ecuador,
consisting of 1,323 screens in 139 "first run" theatres and 342 screens in 44
"discount" theatres. Of the Company's 1,665 screens, 1,162 (or 70%) 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 93% of the
Company's screens located in theatres of six or more screens. The Company
believes that its ratio of screens to theatres (9 to 1 at July 31, 1997) is the
highest of the five largest theatre circuits in the U.S. and is more than 50%
higher than the industry average. From its fiscal year ended December 31, 1991
through the twelve months ended June 30, 1997, the Company has increased
consolidated revenues approximately 137% from $164.4 million to $389.2 million
and has increased EBITDA (as defined herein) approximately 189% from $26
million to $75.2 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.
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 1996, the 10 largest exhibitors (in terms of number of
screens) operated approximately 55% of the total screens, with no one exhibitor
operating more than 10% of the total screens.
U.S. box office sales of approximately $5.9 billion in 1996 was a
record for the industry. Overall attendance has remained stable during this
decade with no single year varying more than 8% 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 Association of Theatre
Owners outlining the historical trends in U.S. theatre attendance, average
ticket prices and box office sales for the last seven years.
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<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
1996 1,339 $4.416 $5,912
</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 10 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,
Independence Day and The Lost World 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 1996 was 50% up from
30.4% in 1985. Since 1985, international box office receipts have grown at a
11.9% 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 audience has more than
doubled from approximately 14% in 1986 to approximately 33% in 1996. The
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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, Sense and Sensibility, The English Patient and Shine.
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 24 months, the Company has developed eighT 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.
Continue to exploit discount theatre niche. The Company intends to maintain
its discount theatre operations (admission of $1 to $2 per ticket) 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's multiplex discount
theatres offer 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 July 31,
1997, approximately 21% of the Company's screens were housed in its 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 primarily 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 begun
developing multiplex theatres directly or through joint venture arrangements
with local partners in Argentina, Brazil, Peru, Ecuador and Japan.
OPERATIONS
The Company's corporate office, which employed approximately 160
individuals as of July 31, 1997 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 10 years experience in the movie theatre industry
and each is responsible for supervising approximately 15% of the Company's
theatre managers. Theatre managers are
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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 1997 will have digital soundtracks available as an alternative to
the standard stereo soundtrack. More than 65% 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 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 102 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.
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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 1996. 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 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
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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 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.
Cinemark International is introducing state-of-the-art multiplex theatres
to "under-screened" international markets. Currently, Cinemark International
operates 19 first-run theatres (183 screens) in Mexico, Chile, Brazil,
Argentina, Peru, El Salvador and Japan, with an aggregate of 15 theatres (151
screens) scheduled to open or begin construction in these seven countries as
well as Ecuador during the remainder of 1997. Additionally,
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Cinemark International operates two discount theatres (24 screens) in Alberta,
Canada. Due to the enormous potential of the international market, Cinemark
International is expanding beyond the Latin American market into Asia. In
February 1997, Cinemark International entered into a strategic joint venture
with a Japanese motion picture company to build state-of-the-art multiplex
theatres throughout Japan and surrounding Asian markets. Cinemark
International's strategy will be to continue to form strategic partnerships or
joint ventures with local partners, thereby 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. Cinemark Mexico currently operates 12
theatres (129 screens) and by the end of 1997 intends to begin construction on
two additional theatres (18 screens). 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
agreement with Conate, S.A., a Chilean movie theatre operator ("Conate"), to
develop state-of-the-art multiplex theatres in Chile. The joint venture
provides for the development of 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. Cinemark Chile, which is based in Santiago, Chile, currently operates
two theatres (13 screens), has one theatre (12 screens) under construction and
plans to begin construction on two additional theatres (20 screens) during the
remainder of 1997.
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 two discount theatres (24
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 ("Prodecine"), to develop
state-of-the-art multiplex theatres in Argentina. The joint venture agreement
also provides for the licensing of the Company's technology, trademark and
name. The joint venture's business is conducted through Cinemark Argentina,
S.A., which is 50% owned by Cinemark Argentina Holdings, S.A. The remaining 50%
is owned equally by DASA and Prodecine. Cinemark International and Conate each
own 50% of Cinemark Argentina Holdings, S.A. Cinemark Argentina opened its
first theatre (eight screens) in May 1997, and intends to begin construction by
the end of 1997 on two additional theatres (21 screens).
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 opened its first theatre (12 screens) in June 1997. Additionally,
Cinemark Brazil has begun or expects to begin construction on six theatres (64
screens) during 1997.
Peru
In December 1996, Cinemark International and Conate entered into a joint
venture agreement to develop state-of the-art multiplex theatres in Peru. The
joint venture provides for the licensing of the Company's technology,
45
<PAGE> 46
trademark and name. The joint venture conducts its business through Cinemark
del Peru, S.A., which is 50% owned by Cinemark International and 50% owned by
Conate. Cinemark del Peru, S.A. opened its first theatre (12 screens) in July
1997.
Ecuador
In September 1996, Cinemark International entered into a joint venture
agreement with The Wright Group, a group of prominent Ecuadorian individuals
and companies, to develop state-of-the-art multiplex theatres in Ecuador. The
joint venture agreement provides for the licensing of the Company's technology,
trademark and name. The joint venture conducts its business through Cinemark
del Ecuador, S.A. ("Cinemark Ecuador") which is 60% owned by Cinemark
International and 40% owned by The Wright Group. Cinemark Ecuador expects to
open two theatres (16 screens) during 1997.
Japan
In February 1997, Cinemark International entered into a joint venture
agreement with Shochiku Co., Ltd., a Japanese distributor, exhibitor and
producer of movies ("Shochiku") and several other Japanese companies to develop
state-of-the-art multiplex theatres in Japan. The joint venture will conduct
its business through Shochiku Cinemark Theatres, which is 26.7% owned by
Cinemark International, 26.7% owned by Shochiku, and the remaining 46.6% owned
by a consortium of prominent Japanese companies. Shochiku Cinemark Theatres
opened its first theatre (seven screens) in March 1997.
Central America
In July, 1997, Cinemark International entered into a joint venture
agreement with Cines de Centroamerica, S.A. de C.V., a Salvadoran corporation,
the shareholders of which are prominent Salvadoran companies, to develop
state-of-the-art multiplex theatres in Central America. The joint venture
agreement provides for the licensing of the Company's technology, trademark and
name. The joint venture is owned 50.1% by Cinemark International and 49.9%
by Cines de Centroamerica, S.A. de C.V. This joint venture opened one theatre
(2 screens) in El Salvador in July 1997 and expects to begin construction on
two additional theatres (18 screens) during the remainder of 1997.
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 70% 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 102 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.
PROPERTIES
Of the 1,451 screens operated by the Company in the U.S. at September 12,
1997, 28 theatres (348 screens) were owned, 125 theatres (1,025 screens) were
leased pursuant to building leases, two theatres (14 screens) were leased
pursuant to ground leases and four theatres (64 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 27 of
the Company's theatre leases (covering 135 screens) have remaining terms
(including renewal periods) of less than five years and approximately 40 of the
Company's theatre leases (covering 418
46
<PAGE> 47
screens) have remaining terms (including renewal periods) 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 which expires on June 30, 1998. See
note 9 of the Company's Notes to the Consolidated Financial Statements for
information with respect to the Company's lease commitments.
As of September 12, 1997, the Company operated 22 theatres (214 screens)
outside of the U.S. with nine theatres (100 screens) under commitment with
executed leases. Of the 22 theatres operated outside of the U.S., 21 theatres
(202 screens) were leased pursuant to ground or building leases and one theatre
(12 screens) was fee owned. 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 July 31, 1997, the Company had approximately 7,300 employees in the
U.S., approximately 15% of whom are full time employees in the U.S. and 85% of
whom are part time employees. The Company is a party to collective bargaining
agreements with five unions of which approximately 10 employees are members.
The Company's international operations typically utilize union labor. 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.
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* 60 Chairman of the Board; Chief Executive Officer;
Director
Tandy Mitchell 46 Vice Chairman of the Board; Executive Vice
President; Secretary; Director
Alan W. Stock+ 37 President; Chief Operating Officer; Director
Jeffrey J. Stedman 34 Senior Vice President; Treasurer; Chief Financial
Officer; Assistant Secretary; Director
Rob Carmony 39 Senior Vice President-Director of Operations
Margaret E. Richards 38 Vice President-Real Estate; Assistant Secretary
Jerry Brand 51 Vice President-Film Licensing
Don Harton 40 Vice President-Construction
Randy Hester 45 Vice President-Marketing
Philip Wood 33 Vice President
W. Bryce Anderson*+ 54 Director
Heriberto Guerra, Jr.+ 47 Director
James A. Stern 46 Director
James L. Singleton+ 41 Director
Denny Rydberg 52 Director
</TABLE>
- ---------------------------
* Member Audit Committee
+ Member Compensation Committee
47
<PAGE> 48
The Shareholders' Agreement (as defined herein) contains a voting
agreement pursuant to which Mr. Mitchell agreed to vote his shares to elect
designees of CALP to the Board of Directors of the Company. As of August 31,
1997, 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 or 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 and
as Chief Executive Officer and a Director of the Company since its inception in
1987. Mr. Mitchell was Vice Chairman of the Board of Directors from March 1993
to March 1996 and 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 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 36 years.
Tandy Mitchell has served as Vice Chairman of the Board since March 1996,
as a 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, as
a Director of the Company since April 1992 and as Chief Operating Officer of
the Company since March 1992. Mr. Stock was Senior 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 has served as a Director of the Company since March
1996, as Senior Vice President since July 1997 and 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 LLP, where he was employed from December 1984 to
December 1989. Mr. Stedman is a certified public accountant.
Robert F. Carmony has served as Senior Vice President-Director of
Operations since July 14, 1997, as Vice President-Director of Operations since
March 1996 and has served as Director of Operations of the Company since June
1988. Prior to joining the Company. Mr. Carmony was an 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. Mr. Carmony also worked as a Systems Analyst for Electronic
Data Systems from 1984 to 1985.
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.
48
<PAGE> 49
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 Senior Vice President and Head Film Buyer with Cobbs Theatres
where he was employed from 1983 to March 1996.
Don Harton has served as Vice President-Construction since July 1997. From
August 1996 to July 1997, Mr. Harton was Director of Construction of the
Company. Prior to joining the Company in August 1996, Mr. Harton was an
architect with Urban Architecture, where he was employed from October 1983
until July 1996.
Randy Hester has served as Vice President-Marketing since July 1997. From
January 1989 to July 1997, Mr. Hester was Director of Corporate Development of
the Company. Prior to joining the Company in January 1989, Mr. Hester was Chief
Financial Officer of Presidio Theatres in Austin, Texas, where he was employed
from 1986 to 1989.
Philip Wood has served as Vice President since July 1997. From February
1988 to July 1997 Mr. Wood was MIS Director of the Company. Prior to joining
the Company in February 1988, Mr. Wood was a systems organizer with Electronic
Data Systems where he was employed from 1986 to 1988.
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.
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, 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 Able Body Corporation and
L.P.Thebault Company.
Denny Rydberg was elected Director of the Company in July 1997. Mr.
Rydberg has been President of Young Life since July 1993. Prior to joining
Young Life, Mr. Rydberg was Director of University Ministries at University
Presbyterian Church, Vice President of Youth Specialties and Director of
Operations for Inspirational Films.
49
<PAGE> 50
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>
Lee Roy Mitchell, Chairman of the Board 1996 $ 294,632 $1,703,357 $120,794(B)
and Chief Executive Officer 1995 267,852 1,733,976 -- 120,828(C)
1994 243,513 1,715,290 -- 121,086(D)
Alan Stock, President and Chief Operating 1996 $ 192,500 $ 83,739 $921,623(F)
Officer 1995 175,000 80,043 -- 6,930(E)
1994 125,070 71,729 -- 5,541(E)
Jeffrey J. Stedman, Senior Vice President, Treasurer 1996 $ 125,000 $ 102,160 $221,311(G)
and Chief Financial Officer 1995 110,000 46,809 -- 6,930(E)
1994 82,500 44,461 100 6,746(E)
Margaret E. Richards, Vice President-Real 1996 $ 100,000 $ 23,000 -- $238,640(H)
Estate and Assistant Secretary 1995 70,000 23,700 -- 2,063(E)
1994 60,000 2,971 1,791(E)
Gary R. Gibbs, Vice President 1996 $ 110,000 $ 24,136 $264,188(I)
and General Counsel (J) 1995 100,000 26,153 600 6,930(E)
1994 75,000 1,531 5,649(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 $1,950 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 $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.
(D) 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.
(E) Represents the Company's annual contribution to the Company's 401(k)
savings plan.
(F) Represents a $6,930 annual contribution by the Company to the Company's
401(k) savings plan, $535,402 of compensation relating to the value of
stock options exercised over the exercise price of $1.00 per share,
and $379,291 reimbursement for estimated tax obligations incurred upon
exercise of stock options.
(G) Represents a $6,930 annual contribution by the Company to the
Company's 401(k) savings plan, $125,485 of compensation relating to
the value of stock options exercised over the exercise price of $1.00
per share, and $88,896 reimbursement for estimated tax obligations
incurred upon exercise of stock options.
(H) Represents a $7,108 annual contribution by the Company to the
Company's 401(k) savings plan, $135,524 of compensation relating to
the value of stock options exercised over the exercise price of $1.00
per share, and $96,008 reimbursement for estimated tax obligations
incurred upon exercise of stock options.
50
<PAGE> 51
(I) Represents a $6,930 annual contribution by the Company to the
Company's 401(k) savings plan, $150,582 of compensation relating to
the value of stock options exercised over the exercise price of $1.00
per share and $106,676 reimbursement for estimated tax obligations
incurred upon exercise of stock options.
(J) Mr. Gibbs retired from the Company as Vice President-General Counsel
effective June 27, 1997.
51
<PAGE> 52
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
There were no Options/SAR grants to the named Executive Officers for
fiscal year ended December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised In-The-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
---- ----------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Lee Roy Mitchell -- -- -- --
Alan Stock 320 $535,722 1817/0 (A)
Jeffrey J. Stedman 75 125,560 305/120 (A)
Margaret E. Richards 81 135,605 453/0 (A)
Gary R. Gibbs 90 150,672 510/0 (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 1996). A discretionary
matching contribution is made by the Company annually (with contributions
totaling $613,213 in 1996). 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 1996 base salary was $294,632 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 $1.7 million for the year ended
December 31, 1996, (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. 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
52
<PAGE> 53
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 1996 base salary was $131,769 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 Exchange
Act (as defined herein) 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 (as defined herein)). See "Certain Transactions--Cypress Investment."
STOCK OPTIONS
Employee Stock Option Plan
The Company has 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 July 31, 1997 there
were outstanding options to purchase 7,365 shares of the Company's Class B
Common Stock.
During 1996, the Company granted options under the Plan to purchase 600
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 $1,673. As a result, the Company
accrued $1 million for unearned compensation
53
<PAGE> 54
and will amortize this noncash expense at a rate of approximately $200,000 per
year during the five year vesting period for the options granted.
In April 1996, employees exercised options to purchase 1,509 shares of
Class B Common Stock of the Company. The Company incurred 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 received a current tax benefit 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 GAAP purposes, the Company will recognize the tax
benefit for the deduction arising from the differences in value between the
option and its exercise price as additional paid-in capital(rather than as a
reduction of tax expense).
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 vested on June 1,
1997. 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, 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.
54
<PAGE> 55
PRINCIPAL SHAREHOLDERS
The following table and the accompanying footnotes set forth, as of July
31, 1997, 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>
Combined
Number of Percent
Names and Addresses(1) Title of Class Shares (2) Percent of Class of Classes
- ---------------------- -------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Lee Roy Mitchell(3) Class A Common Stock 1,500 100.0%
7502 Greenville Ave. 42.8%
Suite 800 Class B Common Stock 77,687 42.4%
Dallas, TX 75231
Cypress Merchant Class A Common Stock -- --
Banking Partners, L.P. 42.5%
65 East 55th St. Class B Common Stock 78,469 42.8%
New York, NY 10022
Cypress Pictures Ltd. Class A Common Stock -- --
c/o W.S. Walker Co. 2.2%
Second Floor Class B Common Stock 4,079 2.2%
Caledonian House
Mary St., P.O. Box 265
George Town, Grand
Cayman
Cayman Islands
The Mitchell Special Class A Common Stock -- --
Trust 7.9%
7502 Greenville Ave. Class B Common Stock 14,667 8%
Suite 800
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 1,817 *
Jeffrey J. Stedman(6) Class A Common Stock -- --
*
Class B Common Stock 305 *
</TABLE>
55
<PAGE> 56
<TABLE>
<CAPTION>
Combined
Number of Percent
Names and Addresses(1) Title of Class Shares (2) Percent of Class of Classes
- ---------------------- -------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Margaret E. Richards(7) Class A Common Stock -- --
*
Class B Common Stock 453 *
Gary R. Gibbs(8) Class A Common Stock -- --
*
Class B Common Stock -- *
W. Bryce Anderson 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 -- --
Denny Rydberg Class A Common Stock -- --
--
Class B Common Stock -- --
Directors and Officers as Class A Common Stock 1,500 100.0%
a Group (11 persons) (9) 45.1%
Class B Common Stock 81,696 44.6%
</TABLE>
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<PAGE> 57
- ---------------------
* 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 July 31, 1997, 1,500 shares of Class A Common Stock and 183,114
shares of Class B Common Stock were issued and outstanding. Includes 6,412
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 1,817 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 305 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.
(7) Includes 453 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) Mr. Gibbs retired as Vice President - General Counsel effective June 27,
1997. The Company repurchased Mr. Gibbs' options to repurchase 510 shares
of Class B Common Stock on June 27, 1997.
(9) Includes 4,009 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. 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.
COMMON STOCK
The rights of the holders of Class A and Class B common stock 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
Company's shareholders. 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 former 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."
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<PAGE> 58
CERTAIN TRANSACTIONS
SALE OF 2 DAY VIDEO
On October 17, 1996, the Company and an affiliate of Mr. Mitchell
completed the sale to an unrelated purchaser of their interests in 2 Day Video,
Inc., a 21 store video rental business that was owned 84.4% by the Company and
15.6% by an affiliate of Mr. Mitchell for an aggregate purchase price of $12.4
million. The Company received a net purchase price of $10.1 million for its
interest in 2 Day Video, Inc. The net proceeds from the sale of the Company's
stock of 2 Day Video, Inc. were used to continue the Company's expansion
program and for general corporate purposes.
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 1.1% of the limited partnership interests in Movie Theatre
Investors. The Company received $257,360 in management fees from Movie Theatre
Investors in 1996.
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 $179,821 in management fees from Laredo in 1996.
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 $59,467 in
management fees from Cinemark Partners II in 1996.
Cinemark Alberta
The Company manages two discount theatres (24 screens) for Cinemark
Alberta. Cinemark Holdings Canada, Inc., a wholly owned subsidiary of Cinemark
International, owns 50% of Cinemark Alberta. The Company received $97,073 in
management fees from Cinemark Alberta in 1996.
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<PAGE> 59
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 $450,000 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) 10
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.
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 August 31, 1997, 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.
EMPLOYEE STOCK TRANSACTIONS
In April 1996, employees exercised options to purchase 1,509 shares of
Class B Common Stock of the Company. The Company incurred 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 received a current tax benefit 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 GAAP purposes, the Company will recognize the tax
benefit for the deduction arising from the differences in value between the
option and its exercise price as additional paid-in capital(rather than as a
reduction of tax expense). In April 1997, the Company repurchased an aggregate
of 1,242 shares of Class B Common Stock issued to employees upon exercise of
options in April 1996. The aggregate purchase price for such shares was
$2.2 million.
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<PAGE> 60
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.
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<PAGE> 61
DESCRIPTION OF SERIES D NOTES
The Series C Notes were issued, and the Series D Notes will be issued,
under the Indenture dated as of June 26, 1997 (the "Indenture'), among the
Company and U.S. Trust Company of Texas, N.A., as Trustee (the "Trustee"). The
Series C Notes were issued pursuant to the Company's Offering Memorandum dated
June 20, 1997 (the "Offering Memorandum"). The Series D 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 D Notes will be
identical in all material respects to the form and terms of the Series C Notes
except that: (i) the Series D 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 C Notes are not
applicable to the Series D Notes. The Series C Notes and the Series D 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.
Copies of the proposed forms of Indenture and Registration Rights Agreement
will be made available as set forth below under "--Additional Information."
The Notes will be general unsecured obligations of the Company and will
rank senior or pari passu in right of payment with all other general unsecured
subordinated obligations of the Company. The Notes will rank pari passu with
the Series B Notes. The Notes will be subordinated in right of payment to all
present and future Senior Indebtedness of the Company.
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 $75
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 in arrears on
February 1 and August 1 of each year, commencing August 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.
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<PAGE> 62
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 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 September 12, 1997, the Company had outstanding
approximately $101 million of Senior Indebtedness. The Notes are effectively
subordinated to Indebtedness of the Company's subsidiaries, which aggregated
$28.6 million as of September 12, 1997.
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
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<PAGE> 63
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.
Notwithstanding the two preceding paragraphs, the Company will not
optionally redeem the Notes unless, substantially concurrent with such
redemption, the Company redeems an aggregate principal amount of the Series B
Notes (rounded to the nearest integral multiple of $1,000) equal to the product
of (i) a fraction, the numerator of which is the aggregate principal amount of
the Notes to be so redeemed and the denominator of which is the aggregate
principal amount of the Notes outstanding immediately prior to such proposed
redemption and (ii) the aggregate principal amount of the Series B Notes
outstanding immediately prior to such proposed redemption. The Company will not
optionally redeem the Series B Notes unless, substantially concurrently with
such redemption, the Company redeems an aggregate principal amount of the Notes
(rounded to the nearest integral multiple of $1,000) equal to the product of
(i) a fraction, the numerator of which is the aggregate principal amount of the
Series B Notes to be so redeemed and the denominator of which is the aggregate
principal amount of the Series B Notes outstanding immediately prior to such
proposed redemption and (ii) the aggregate principal amount of the Notes
outstanding immediately prior to such proposed redemption.
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 and any accrued and unpaid interest; 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 fewer 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.
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.
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<PAGE> 64
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."
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
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<PAGE> 65
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.
Series B Notes. The Indenture governing the Series B Notes provides that
upon the occurrence of a Change of Control (as defined therein), the Company
shall be required to make an offer to the holders of the Series B Notes to
repurchase any or all of the Series B Notes at a purchase price equal to 101%
of the aggregate principal amount thereof, plus accrued and unpaid interest, if
any, to the date of purchase. Such event would result in an event of default
under the Credit Facility.
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 (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
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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 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,
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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 Start 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 Start
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.
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"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 First Amended and Restated Reducing
Revolving Credit Agreement, dated as of December 12, 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
Start 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 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.
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"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
Start 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 as of the Start
Date, 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 "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
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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 Series
C 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 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.
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"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.
"Offer Purchase Date" means a Change of Control Purchase Date or Net
Proceeds Purchase Date, as the case may be.
"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
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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) and
clause (ix of the corresponding provision of the indenture governing the Series
B Notes, without duplication, 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 and Series B
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 Start 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 Start
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 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 and
(ii) 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 and the Series B
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.
"Start Date" means August 15, 1996.
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"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 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
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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 Start 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.
"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).
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CERTAIN COVENANTS
Limitation on Restricted Payments. The Indenture provides 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" , (C) any payment pursuant to a Pari Passu Offer
(as defined in the "Limitation on Asset Sales" covenant) and (D) any
prepayment, repayment, redemption, defeasance or other acquisition or
retirement for value of (1) the Series B Notes or (2) other Indebtedness of the
Company that is pari passu with the Notes and has the same interest rate and
maturity date as the Notes, in each case if such prepayment, repayment,
redemption, defeasance or other acquisition or retirement for value of such
other Indebtedness is made contemporaneously with (and prorata with) a
prepayment, repayment, redemption, defeasance or other acquisition or
retirement for value of the Notes ; 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 Start 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 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
Start 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 Start 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 Start 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
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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 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, provided that the aggregate principal amount of Indebtedness deemed
to be incurred under the Credit Facility will be the same amount as is deemed
incurred under the Credit Facility pursuant to the indenture governing the
Series B Notes; (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 and the
Series B Notes and the indenture governing the Series B Notes; (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
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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 Start 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 Start Date), except for (i) Liens
incurred after the Start 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 Start
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 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 Start 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
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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
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 Start 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; (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
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in the agreements refinanced or replaced; or (L) any instrument governing
Indebtedness of the Company that is (1) pari passu with the Notes and (2)
otherwise permitted under the Indenture; provided that the terms and conditions
of any such restrictions are not materially more restrictive than those
contained in the Indenture. 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 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 Start Date and described in
the Prospectus, or consummation, on the terms described in the Prospectus, of
transactions described herein that are not consummated prior to the Start 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.
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 Start 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
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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 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.
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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.
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.
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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.
Limitation on Restrictive Covenants. The Indenture provides that
notwithstanding any other provision of the Indenture, the restrictive covenants
set forth in the Indenture, including, without limitation, those described
under "Limitation on Restricted payments," "Limitation on Indebtedness,"
"Limitation on Transactions with Affiliates" and "Limitation on Asset Sales,"
shall be deemed limited to the extent necessary so that the creation, existence
and effectiveness of such restrictive covenants shall not result in a breach of
Section 4.8 of the indenture that governs the Series B Notes.
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), (vi) 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
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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 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.
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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.
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
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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 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
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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.
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.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
and the Registration Rights Agreement without charge by writing to Cinemark
USA, Inc., 7502 Greenville Avenue, Suite 800, Dallas, Texas 75231, Attention:
Jeffrey J. Stedman.
BOOK-ENTRY, DELIVERY AND FORM
Series D Notes to be resold as set forth herein will initially be
issued in the form of one or more Global Notes (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"). 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 Purchaser), 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 C Notes with portions of the
principal amount of the Global Note and (ii) ownership of the 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
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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 Notes evidenced by the Global Note will be limited to
such extent.
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, interest and Liquidated Damages, if any) 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, interest and Liquidated Damages, if
any, 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 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
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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 Purchaser 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 D Notes. The Series D Notes will be substantially
identical to the Series C Notes, except that the Series D 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 D Notes. Interest on each
Series D Note will accrue from the most recent interest payment date on which
interest on the Series C Notes shall have been paid, or if no interest shall
yet have been paid on the Series D Notes, from the date of original issuance of
the Series C 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) that it may not resell the Series D 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 or (C) that it is a broker-dealer and owns Series C
Notes acquired directly from the Company or an affiliate of the Company, the
Company will file with the Commission a Shelf Registration Statement to cover
resales of the Series C 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 Series C Note until (i) the date on
which such Series C Note has been exchanged by a person for a Series D 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 Note
for a Series D Note, the date on which such Series D 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 Series C 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 Series C Note may be
distributed to the public pursuant to Rule 144 under the Securities Act, or (v)
the date such Series C Note ceases to be outstanding.
Under current Commission staff interpretations, the Series D Notes
would in general be freely transferable after the Exchange Offer without
further registration under the Securities Act, provided that broker-dealers
("Participating Broker-Dealers") receiving Series D Notes in the Exchange Offer
will have a prospectus delivery requirement with respect to resales of such
Series D Notes. The Commission staff has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirement with respect
to the Series D Notes (other than a resale of an unsold original allotment from
the original sale of the Series C Notes) with the prospectus contained in the
Exchange Offer Registration Statement. However, any purchaser of Series C Notes
who is an "affiliate" of the Company or who intends to participate in the
Exchange Offer for the purpose of distributing the Series D Notes (i) will not
be able to rely on the interpretation by the staff of the Commission; (ii) will
not be able to tender its Series C Notes in the Exchange Offer, and (iii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Series C Notes
unless such sale or transfer is made pursuant to an exemption from such
requirements.
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
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on or prior to 30 days after the date on which the Exchange Offer Registration
Statement was declared effective by the Commission, Series D Notes in exchange
for all Series C 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 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 it 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 Notes, accruing 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 C 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.
Holders of Series C 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 D 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 D Notes. Holders may also be required to make such representations
as may be required to permit offers and sales of the Series C Notes under state
securities laws. Each Holder of Series C 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 Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax consequences
of holding and disposing of the Series D 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, financial
institutions, persons holding Notes as part of a hedging or conversion
transaction or a straddle, 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 D Notes.
STATED INTEREST AND LIQUIDATED DAMAGES
The Series C Notes were not, and the Series D 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.
The Company is obligated to pay Liquidated Damages (in the form of
additional interest on the Notes) to the holders of Notes under certain
circumstances described under "Description of Notes--Exchange Offer;
Registration Rights." Under the Treasury Regulations regarding contingent
payment debt instruments, any payment subject to a remote or incidental
contingency (i.e., there is a remote likelihood that the payment will be
required or the potential amount of the payment is insignificant relative to
the remaining payments on the debt instrument) is not considered a contingent
payment and is ignored for purposes of computing original issue discount
accruals. The Company intends to take the position that the Liquidated Damages
payments are subject to either a remote or incidental contingency. Accordingly,
a holder of a Note should be required to report any Liquidated Damages as
interest income for federal income tax purposes in accordance with such
holder's method of accounting.
EXCHANGE OFFER
The exchange of Series C Notes for Series D Notes pursuant to the Exchange
Offer should not constitute a taxable event for federal income tax purposes.
Accordingly, such exchange should have no federal income tax consequences to
holders of Series C Notes and the holding period of the Series D Notes will
include the holding period of the Series C Notes and the basis of the Series D
Notes will be the same as the basis of the Series C Notes immediately before
the exchange.
SALE, EXCHANGE OR RETIREMENT OF NOTES
Upon the sale, exchange or retirement (including a redemption at the
option of a holder upon a Change of Control) of a Series D Note, a holder of a
Series D 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 D Note (other than
in respect of accrued and unpaid interest on the Series D Note)) which amounts
are treated as ordinary interest income, and such holder's adjusted tax basis
in the Series D Note. If a holder holds the Series D 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 D Note has been held for more than one year
at the time of sale, exchange or retirement. Under current law, net capital
gains of individuals are, under certain circumstances, taxed at lower rates
than items of ordinary income. The deductibility of capital losses is subject
to limitations.
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MARKET DISCOUNT
If a holder purchased a Series C 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. Market discount
generally will accrue ratably during the period for the date of acquisition to
the maturity date of the Note, unless the holder elects to accrue such discount
on the basis of the constant interest method.
A holder in whose hands a Series C 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 C Note to the extent of accrued market discount. A
holder of a Series C 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 C 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 C Note acquired at a market discount may elect to
include market discount in income as it accrues, in which case the rule
regarding deferral of interest deductions 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.
AMORTIZABLE BOND PREMIUM
If a holder purchases a Series C Note for an amount that exceeds its
stated redemption price at maturity (including any excess arising upon original
issue of a Note), such holder may elect to offset, against interest income on
the Series C 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 C Note, with corresponding adjustments to such
holder's basis in the Series C Note. Amortizable bond premium on a Series C
Note held by a holder that does not state such an election will decrease the
gain or increase the loss otherwise recognized on disposition of the Series C
Note. This election would apply to all 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 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 Notes and to the proceeds of the disposition of a Series D 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 D Notes should consult their tax advisors as to
their qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
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DESCRIPTION OF CERTAIN DEBT INSTRUMENTS
SERIES B INDENTURE
The Company is a party to an Indenture (the "Series B Indenture") dated
August 15, 1996 with United States Trust Company of Texas, N.A. as trustee (the
"Trustee"), governing the Company's Series B Notes. The Series B Indenture is
substantially similar to the Indenture, and (unless the context requires
otherwise) defined terms in the Series B Indenture have the same meanings
ascribed to such terms in the Indenture. See "Description of Notes."
The Series B Notes are not redeemable at the option of the Company prior
to August 1, 2001. Thereafter, the Series B 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 Series B 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 12 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 Series B 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 Series B Notes originally issued remains outstanding immediately
after the occurrence of such redemption (but such unredeemed Series B 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.
Covenants and provisions contained in the Series B Indenture restrict, to
substantially the same extent as set forth in the Indenture, among other
things, the Company's or any Restricted Subsidiary's ability, with certain
exceptions, (i) to make certain restricted payments, (ii) to make certain
investments, (iii) to incur additional indebtedness unless certain financial
tests are met, (iv) to create or incur any additional liens on any assets, (v)
to encumber or restrict dividends or other payments to the Company, (vi) to
issue preferred stock of a Restricted Subsidiary other than to the Company or
to a Restricted Subsidiary, (vii) to enter into certain transactions with
affiliates and (viii) to sell assets of the business.
Events of default under the Series B Indenture are substantially similar
to corresponding events of default in the Indenture and include (i) any failure
of the Company to pay principal, or any sinking fund or redemption or
repurchase payment, when due, or to pay interest when due, which failure to pay
interest remains unremedied for 30 days after the due date, (ii) breach of
certain other covenants and agreements in the Series B Indenture, (iii) a
default under any other indebtedness of the Company or a Restricted Subsidiary
in an amount exceeding $5 million, which default is either a payment default or
which default has become the basis for the acceleration of such indebtedness,
(iv) certain acts of bankruptcy, insolvency or dissolution and (v) final
judgments for payment of money which in the aggregate exceed $5 million
rendered against the Company or any significant Subsidiary.
CREDIT FACILITY
On December 12, 1996, the Company replaced its existing credit
facility with a reducing revolving credit agreement (the "Credit Facility")
through a group of banks for which Bank of America National Trust and Savings
Association acts as administrative agent (the "Administrative Agent"). The
Credit Facility provides for loans to the Company of up to $225 million in the
aggregate. The Credit Facility is a reducing revolving credit facility;
therefore, at the end of each quarter during the calendar years 2000, 2001,
2002 and 2003, the aggregate commitment shall automatically be reduced by
$8,437,500, $11,250,000, $14,062,500 and $22,500,000
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respectively. The Company is required to prepay all loans outstanding in excess
of the aggregate commitment as reduced pursuant to the terms of the Credit
Facility. Borrowings under the Credit Facility are secured by a pledge of a
majority of the issued and outstanding capital stock of the Company.
Pursuant to the terms of the Credit Facility, funds borrowed currently
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 September 12, 1997, the effective interest rate was 6.7%.
Covenants and provisions contained in the Credit Facility restrict, with
certain exceptions, among other things, the Company's or any Restricted
Subsidiary's ability (i) to create or incur any additional liens on any assets,
(ii) to sell assets of the business, (iii) to engage in mergers, consolidations
or conveyances of all or substantially all of its assets, (iv) to make any
loans to or other investments in other persons or entities, (v) to incur
additional indebtedness, (vi) to enter into certain transactions with
affiliates, (vii) to invest in margin stock, (viii) to enter into capital or
operating leases, (ix) to declare or pay dividends or make certain other
restricted payments, (x) to prepay certain indebtedness, including without
limitation, the Series B 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 Company's or any consolidated Restricted Subsidiary's fiscal year,
(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 Bank 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
within two business days after the due date any interest or any other amount
due, (ii) material inaccuracy of any representation or warranty given by the
Company in the Credit Facility, (iii) breach of certain covenants and
agreements in the Credit Facility by the Company, (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 twenty days
after notice thereof, (v) default by the Company or its Restricted Subsidiaries
under any other indebtedness in the aggregate principal amount of $1 million,
(vi) a default under the Indenture, (vii) certain acts of bankruptcy,
insolvency or dissolution, (viii) final judgments for payment of money
aggregating $500,000 or more against the Company or certain of its
Subsidiaries, (ix) certain other judgments against the Company or certain of
its Subsidiaries, (x) certain defects or claimed defects in the liens securing
the Credit Facility or in other documentation relating to the Credit Facility,
(xi) the occurrence of a Material Adverse Effect (as defined therein), and
(xii) certain changes of control.
CINEMARK MEXICO (USA), INC. 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%
Senior Subordinated Notes due 2003 (the "Series A Notes"). On March 28, 1994,
Cinemark Mexico completed an exchange offer pursuant to which the holders of
$20 million principal amount of Series A Notes received $20 million principal
amount of 12% Series B Subordinated Notes (the "Series B Notes" which are
registered under the Securities Act) in exchange for their Series A Notes. On
May 6, 1994, Cinemark Mexico issued an additional $2 million of 12% Senior
Subordinated Notes due 2003 (the "Series C Notes") which are also governed by
the terms of the Cinemark Mexico Indenture. The Series A, Series B and Series C
Notes are collectively referred to as the "Cinemark Mexico Notes." The Cinemark
Mexico Notes 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 Series A, Series B and Series C Notes. The Cinemark
Mexico Notes are general unsecured obligations of Cinemark Mexico but are
guaranteed
93
<PAGE> 94
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.
In September 1996, Cinemark Mexico completed the Mexico Exchange Offer to
restructure the outstanding Cinemark Mexico Notes and to issue New Mexico Notes
in exchange for outstanding warrants to purchase common stock of Cinemark
Mexico. As of September 30, 1996, Cinemark Mexico had outstanding (i) $22.4
million aggregate principal amount of Cinemark Mexico Notes and (ii) warrants
to purchase 379,073 shares of common stock of Cinemark Mexico (the "Warrants").
On September 30, 1996, Cinemark Mexico completed the Mexico Exchange Offer
pursuant to which Cinemark Mexico and the holders of all of the Cinemark Mexico
Notes and Warrants exchanged all of the Cinemark Mexico Notes and 356,851
shares issuable under the Warrants for the New Mexico Notes. The form and terms
of the New Mexico Notes are identical in all material respects to the Cinemark
Mexico Notes except that interest on the New Mexico Notes may, on each interest
payment date from February 1, 1997 through and including February 1, 2000, be
paid at the option of Cinemark Mexico in cash or through the issuance of
additional notes of the same series (the "Additional Notes"). If Cinemark
Mexico elects to pay accrued interest in Additional Notes in lieu of cash,
interest during the relevant interest period shall accrue at the rate of 13%
per annum. Holders of Warrants to purchase 22,222 shares of Common Stock of
Cinemark Mexico elected not to participate in the Exchange Offer. The purpose
of the Mexico Exchange Offer was to exchange New Mexico Notes for all
outstanding Cinemark Mexico Notes in order to improve Cinemark Mexico's and
Cinemark de Mexico's financial and operating flexibility. Cinemark Mexico
exercised its option to pay interest accrued on the New Mexico Notes through
the issuance of Additional Notes for the interest period ended February 1,
1997 and for the interest period ended August 1, 1997.
Covenants and certain other provisions contained in the Cinemark Mexico
Indenture restrict, with certain exceptions, among other things, 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 connection with the Mexico Exchange Offer, Cinemark Mexico obtained the
consent of the holders of the Cinemark Mexico Notes to amend the Cinemark
Mexico Indenture. Cinemark Mexico executed that certain Third Supplemental
Indenture dated September 30, 1996 which, among other things, (i) provided for
the issuance of the New Mexico Notes and the Additional Notes and (ii) amended
certain restrictions relating to financial ratios with which Cinemark Mexico
must comply. The Cinemark Mexico Indenture requires Cinemark Mexico to maintain
a Cash Flow Coverage Ratio (as defined in the Indenture) of 2 to 1 beginning
after December 31, 1999. In connection with the Exchange Offer, Cinemark
International also amended certain terms of the Mexico Senior Credit Facility.
See "Management's Discussion and Analysis of Financial Conditions and Results
of Operation-- Liquidity and Capital Resources."
94
<PAGE> 95
CINEMARK MEXICO SENIOR 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
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 relend 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 14.1% and are
secured by a pledge of all of the assets of Cinemark de Mexico.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Series D 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 C 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 D Notes received in
exchange for Series C Notes where such Series C 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 D Notes
by broker-dealers. Series D 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 D 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 D Notes. Any
broker-dealer
95
<PAGE> 96
that resells Series D 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 D Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Series D
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 C Notes against certain
liabilities, including liabilities under the Securities Act.
By acceptance of the Exchange offer, each broker-dealer that receives
Series D 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 D 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 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 Michael D. Cavalier, General
Counsel of the Company.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996 and for each of the three years in the period ended December 31,
1996 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.
96
<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, 1995 and 1996, and June 30, 1997 (Unaudited) ................. F-4
Consolidated Statements of Income for the Years Ended December 31, 1994, 1995 and 1996,
and the Six Months Ended June 30, 1996 and 1997 (Unaudited) ...................................... F-6
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1994,
1995 and 1996, and the Six Months Ended June 30, 1997 (Unaudited) ................................ F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and
1996, and the Six Months Ended June 30, 1996 and 1997 (Unaudited) ................................ F-8
Notes to Consolidated Financial Statements ............................................................. F-9
SUPPLEMENTAL SCHEDULES REQUIRED BY THE INDENTURE
Schedule
A Consolidating Balance Sheet Information, December 31, 1996................................... S-1
B Consolidating Statement of Operations Information for the Year Ended
December 31, 1996............................................................................ S-2
C Consolidating Statement of Cash Flows Information for the Year Ended
December 31, 1996............................................................................ S-3
D Consolidating Balance Sheet Information, June 30, 1997 (Unaudited)........................... S-4
E Consolidating Statement of Operations Information for the Six Months Ended
June 30, 1997 (Unaudited).................................................................... S-5
F Consolidating Statement of Cash Flows Information for the Six Months Ended
June 30, 1997 (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, 1995 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. 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, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
At January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," as discussed in Note 1.
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 as of December 31, 1996 and for
the year then ended, 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 10, 1997
F-3
<PAGE> 100
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------------- June 30,
1995 1996 1997
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,649,724 $ 14,081,226 $ 10,751,236
Temporary cash investments 275,126 301,408 308,408
Inventories 1,061,580 1,296,323 1,872,616
Co-op advertising and other receivables (Notes 12) 4,095,819 8,631,462 12,512,222
Prepaid expenses and other 145,660 2,638,991 2,392,544
------------ ------------ ------------
Total current assets 19,227,909 26,949,410 27,837,026
THEATER PROPERTIES AND EQUIPMENT (Note 5):
Land 14,335,343 39,734,644 39,203,414
Buildings 62,540,849 143,907,477 162,905,151
Leasehold interests and improvements 50,891,524 69,172,660 93,139,627
Theater furniture and equipment 125,172,486 166,596,341 186,347,780
Theaters under construction 29,218,015 31,431,790 32,307,764
Videocassette rental inventory 5,383,873
------------ ------------ ------------
Total 287,542,090 450,842,912 513,903,736
Less accumulated depreciation and amortization 63,059,873 73,421,992 83,111,304
------------ ------------ ------------
Theater properties and equipment - net 224,482,217 377,420,920 430,792,432
OTHER ASSETS:
Certificates of deposit (Note 9) 1,822,954 1,525,852 1,525,852
Investments in and advances to affiliates (Note 12) 4,275,602 6,049,992 15,339,131
Intangible assets - net (Note 3) 7,718,292 5,417,049 4,996,923
Deferred charges and other - net (Note 4) 10,220,127 15,542,244 19,479,810
------------ ------------ ------------
Total other assets 24,036,975 28,535,137 41,341,716
------------ ------------ ------------
TOTAL $267,747,101 $432,905,467 $499,971,174
============ ============ ============
</TABLE>
See notes to consolidated financial statements. (Continued)
F-4
<PAGE> 101
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
-------------------------------- June 30,
1995 1996 1997
--------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
Current portion of long-term liabilities (Note 5) $ 377,737 $ 1,002,313 $ 1,012,228
Accounts payable 14,213,239 24,831,236 8,280,141
Accrued film rentals 6,463,548 9,753,208 12,029,416
Accrued interest 2,826,262 8,267,591 9,848,061
Accrued payrolls 2,139,721 3,094,472 3,603,825
Accrued property taxes and other liabilities 10,522,260 13,022,916 19,707,995
Notes payable to related parties (Note 6) 2,051,642 -- --
Income taxes payable (Note 10) 1,648,629 -- --
------------- ------------- -------------
Total current liabilities 40,243,038 59,971,736 54,481,666
LONG-TERM LIABILITIES:
Long-term debt, less current portion (Note 5) 196,139,904 296,553,642 361,585,988
Deferred lease expenses (Note 9) 9,811,038 11,580,629 12,335,172
Theater development advance, less current portion 1,125,703 769,657 446,238
Deferred income taxes (Note 10) 4,296,211 5,926,609 7,127,172
------------- ------------- -------------
Total long-term liabilities 211,372,856 314,830,537 381,494,570
COMMITMENTS AND CONTINGENCIES (Note 9)
MINORITY INTERESTS IN SUBSIDIARIES (Note 8):
Common shareholders' equity 1,362,033 539,853 1,264,092
Common stock warrants with mandatory redemption
requirements 3,424,132 200,729 200,729
SHAREHOLDERS' EQUITY:
Class A common stock, $.01 par value; 10,000,000 shares
authorized, 3,000, 1,500 and 1,500 shares issued and
outstanding, at December 31, 1995 and 1996 and 30 15 15
June 30, 1997, respectively
Class B common stock, no par value; 1,000,000 shares
authorized, 205,570, 233,176 and 233,913 shares 10,967,419 49,536,710 49,537,447
issued, at December 31, 1995 and 1996 and June 30,
1997, respectively
Additional paid-in capital 6,604,037 9,182,880 10,256,177
Unearned compensation - stock options (2,848,738) (2,434,717) (2,427,578)
Retained earnings 27,161,692 32,391,591 40,525,092
Treasury stock,54,791, 54,965 and 57,211 Class B
shares at cost, at December 31, 1995 and 1996 and
June 30, 1997 respectively (20,000,000) (20,184,416) (24,198,890)
Cumulative foreign currency translation adjustment (10,539,398) (11,129,451) (11,162,146)
------------- ------------- -------------
Total shareholders' equity 11,345,042 57,362,612 62,530,117
------------- ------------- -------------
TOTAL $ 267,747,101 $ 432,905,467 $ 499,971,174
============= ============= =============
</TABLE>
See notes to consolidated financial statements. (Concluded)
F-5
<PAGE> 102
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
---------------------------------------------- -----------------------------------
1994 1995 1996 1996 1997
---------------------------------------------- -----------------------------------
REVENUES: (Unaudited)
<S> <C> <C> <C> <C> <C>
Admissions $ 174,470,503 $ 183,100,626 $ 211,581,569 $ 97,408,274 $ 129,483,037
Concessions 95,159,610 102,077,542 116,943,658 53,506,210 71,127,941
Other (Note 11) 13,446,676 13,380,589 13,205,703 7,389,162 5,162,212
---------------------------------------------- --------------------------------
Total 283,076,789 298,558,757 341,730,930 158,303,646 205,773,190
COSTS AND EXPENSES:
Cost of operations (Note 11)
Film rentals 83,978,465 88,978,423 104,156,508 46,915,669 63,928,263
Concession supplies 17,562,650 17,277,411 18,431,926 9,023,970 10,184,728
Salaries and wages 39,548,147 40,653,338 46,868,814 21,263,603 26,883,216
Facility leases 29,599,702 30,873,208 34,406,046 15,943,730 18,402,135
Advertising 7,189,436 7,623,475 8,500,631 4,172,706 5,163,808
Utilities and other 40,869,506 42,312,878 49,774,114 22,960,389 28,833,964
---------------------------------------------- --------------------------------
Total cost of operations 218,747,906 227,718,733 262,138,039 120,280,067 153,396,114
General and administrative expenses 17,094,964 19,554,615 23,486,530 11,399,523 13,267,302
Depreciation and amortization 15,121,120 15,924,794 21,798,673 8,671,525 10,281,827
---------------------------------------------- --------------------------------
Total 250,963,990 263,198,142 307,423,242 140,351,115 176,945,243
---------------------------------------------- --------------------------------
OPERATING INCOME 32,112,799 35,360,615 34,307,688 17,952,531 28,827,947
OTHER INCOME (EXPENSE):
Interest expense (Note 11) (18,133,438) (18,549,833) (19,551,655) (9,351,787) (14,381,692)
Amortization of debt issue cost and
bond discount (783,515) (824,014) (824,743) (414,824) (386,268)
Interest Income (Note 11) 1,415,026 1,779,339 1,393,441 307,799 504,231
Other gains and losses (512,329) 4,796,727 11,130,996 3,647,372 (25,656)
Equity in income of affiliates 2,709 693,415 362,443 401,499 433,399
Minority interests in (income) loss of
subsidiaries (27,306) 288 144,291 46,578 68,167
---------------------------------------------- --------------------------------
Total (18,038,853) (12,104,078) (7,345,227) (5,363,363) (13,787,819)
---------------------------------------------- --------------------------------
INCOME BEFORE INCOME TAXES AND 14,073,946 23,256,537 26,962,461 12,589,168 15,040,128
EXTRAORDINARY ITEMS
INCOME TAXES (Note 10) 7,068,275 10,101,405 12,346,451 5,425,513 6,850,881
---------------------------------------------- --------------------------------
INCOME BEFORE EXTRAORDINARY ITEMS 7,005,671 13,155,132 14,616,010 7,163,655 8,189,247
EXTRAORDINARY ITEMS (Note 5):
Losses on early extinguishments of
debt, net of income tax benefit of
$6,057,922, $273,834, and $42,054
at December 31, 1996 and June 30,
1996 and 1997, respectively -- -- (9,386,111) (334,685) (55,746)
---------------------------------------------- --------------------------------
NET INCOME $ 7,005,671 $ 13,155,132 $ 5,229,899 $ 6,828,970 $ 8,133,501
============================================== ================================
EARNINGS PER SHARE:
Before extraordinary item $ 43.21 $ 80.32 $ 79.93 $ 40.06 $ 43.58
============================================== ================================
Net income $ 43.21 $ 80.32 $ 28.60 $ 38.19 $ 43.28
============================================== ================================
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 162,113 163,776 182,866 178,820 187,934
============================================== ================================
</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
Shares Amount Shares Amount Paid-In
Issued Issued Capital
----------- ------------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1994 3,000 $ 30 205,570 $ 10,967,419 $ 3,205,887
Net income -- -- -- -- --
Unearned compensation from -- -- -- -- --
stock options granted -- -- -- -- 1,120,000
Amortization of unearned -- -- -- -- --
compensation
Foreign currency translation -- -- -- -- --
adjustment
---------------------------------------------------------------------------
BALANCE DECEMBER 31, 1994 3,000 30 205,570 10,967,419 4,325,887
Net income -- -- -- -- --
Unearned compensation from -- -- -- -- --
stock options granted -- -- -- -- 2,278,150
Amortization of unearned
compensation -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- --
---------------------------------------------------------------------------
BALANCE DECEMBER 31, 1995 3,000 30 205,570 10,967,419 6,604,037
Net income -- -- -- -- --
Common stock issuance (1,500) (15) 25,393 38,567,078 --
Unearned compensation from
stock options granted -- -- -- -- 1,127,117
Unearned compensation from -- -- -- -- --
stock options forfeited -- -- -- -- (216,282)
Amortization of unearned
compensation -- -- -- -- --
Stock options exercised,
including tax benefit -- -- 2,213 2,213 897,800
Net effect of exchange of
Cinemark Mexico Sr. Notes
and conversion of warrants
to Sr. Notes, including tax benefit -- -- -- -- 770,208
Foreign currency translation
adjustment -- -- -- -- --
Purchase of treasury stock, 174
Class B shares,at cost -- -- -- -- --
---------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 1,500 15 233,176 49,536,710 9,182,880
(UNAUDITED)
Net income -- -- -- -- --
Amortization of unearned
compensation -- -- -- -- --
Unearned compensation from
stock options granted -- -- -- -- 465,743
Stock options exercised,
Including tax benefit -- -- 737 737 607,554
Foreign currency translation
adjustment -- -- -- -- --
Purchase of treasury stock, 737 -- -- --
Class B shares,at cost -- -- -- -- --
BALANCE JUNE 30, 1997
---------------------------------------------------------------------------
1,500 $ 15 233,913 $ 49,537,447 $ 10,256,177
===========================================================================
<CAPTION>
Unearned Cumulative
Compensation Retained Treasury Translation
Stock Options Earnings Stock Adjustment Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1994 $ (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 (1,120,000) -- -- -- --
Amortization of unearned 836,081 -- -- -- 836,081
compensation
Foreign currency translation -- -- -- (4,349,900) (4,349,900)
adjustment
-----------------------------------------------------------------------------------
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 (2,278,150) -- -- -- --
Amortization of unearned
compensation 1,591,022 -- -- -- 1,591,022
Foreign currency translation
adjustment -- -- -- (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
Net income -- 5,229,899 -- -- 5,229,899
Common stock issuance -- -- -- -- 38,567,063
Unearned compensation from
stock options granted (1,127,117) -- -- -- --
Unearned compensation from -- -- -- -- --
stock options forfeited 151,810 -- -- -- (64,472)
Amortization of unearned
compensation 1,389,328 -- -- -- 1,389,328
Stock options exercised,
including tax benefit -- -- -- -- 900,013
Net effect of exchange of
Cinemark Mexico Sr. Notes
and conversion of warrants
to Sr. Notes, including tax benefit -- -- -- -- 700,208
Foreign currency translation
adjustment -- -- -- (590,053) (590,053)
Purchase of treasury stock, 174
Class B shares,at cost -- -- (184,416) -- (184,416)
-----------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 (2,434,717) 32,391,591 (20,184,416) (11,129,451) 57,362,612
(UNAUDITED)
Net income -- 8,133,501 -- -- 8,133,501
Amortization of unearned
compensation 472,882 -- -- -- 472,882
Unearned compensation from
stock options granted (465,743) -- -- -- --
Stock options exercised,
Including tax benefit -- -- -- -- 608,291
Foreign currency translation
adjustment -- -- -- (32,695) (32,695)
Purchase of treasury stock, 737
Class B shares,at cost -- -- (4,014,474) -- (4,014,474)
-----------------------------------------------------------------------------------
BALANCE JUNE 30, 1997
$ (2,427,578) $ 40,525,092 $(24,198,890) $(11,162,146) $ 62,530,117
====================================================================================
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 104
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 7,005,671 $ 13,155,132 $ 5,229,899
Loss on early extinguishment of debt -- -- 15,444,033
Noncash items in net income :
Depreciation 10,860,816 12,716,099 18,633,707
Amortization - intangibles and other assets 4,900,756 3,868,241 3,819,462
Deferred lease expenses 1,366,135 1,051,774 2,199,854
Amortization of prepaid leases -- -- --
Deferred income tax expense 1,514,177 1,213,034 1,630,398
Debt issued for accrued interest 314,756 184,134 2,006,371
Amortization of debt discount 143,063 164,468 170,247
Amortized compensation - stock options 836,081 1,591,022 1,324,856
Other gains and losses 301,915 (5,196,922) (7,760,774)
Equity in income of affiliates (2,709) (693,415) (362,443)
Minority interest in income (loss) of subsidiaries 27,306 (288) (144,291)
Cash from (used for) operating working capital:
Inventories (16,831) (176,881) (234,743)
Co-op advertising and other receivables (771,681) (1,000,649) (3,902,355)
Prepaid expenses and other (1,007,532) 1,356,167 (2,493,331)
Accounts payable 3,289,736 5,111,906 12,111,884
Accrued liabilities 3,677,829 1,451,003 12,729,888
Income taxes payable 225,205 1,295,074 (1,648,629)
------------ ------------ -------------
Net cash from operating activities 32,664,693 36,089,899 58,754,033
INVESTING ACTIVITIES:
Additions to theater properties and equipment (53,862,918) (89,287,667) (177,953,281)
Sale of theater properties and equipment 10,500 8,022,500 206,537
Proceeds from 2 Day Video Inc. sale -- -- 9,439,466
Proceeds from affiliate sale -- 800,000 781,300
Decrease (increase) in certificates of deposit 797,933 (323,034) 297,102
Decrease (increase) in temporary cash investments (3,981,970) 4,207,280 (26,282)
Decrease (increase) in investments in and advances to affiliates (3,914,574) (828,065) (1,715,364)
Decrease (increase) in other assets (1,924,649) (2,859,127) (8,452,094)
------------ ------------ -------------
Net cash used for investing activities (62,875,678) (80,268,113) (177,422,616)
FINANCING ACTIVITIES:
Issuance of Senior Subordinated Notes -- -- 199,106,000
Retirement of Senior Notes -- -- (123,370,000)
Repurchase premium on retired Senior Notes -- -- (12,371,954)
Increase in long-term debt 15,890,000 46,000,000 97,510,000
Reductions of long-term debt (233,184) (15,025,359) (77,530,536)
Payment on notes payable to related parties (2,061,556) -- (2,086,513)
Decrease in theater development advance (321,858) (370,808) (356,046)
Minority investment in subsidiaries, net -- 102,625 (677,889)
Purchase of Treasury Stock -- -- --
Net proceeds from common stock issuance -- -- 38,567,063
Common stock issued for options exercised -- -- 900,013
Issuance of subsidiary common stock warrants -- 1,324,132 --
------------ ------------ -------------
Net cash from financing activities 13,273,402 32,030,590 119,690,138
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (441,887) (776,726) (590,053)
------------ ------------ -------------
INCREASE (DECREASE) IN CASH AND CASH (17,379,470) (12,924,350) 431,502
EQUIVALENTS
CASH AND CASH EQUIVALENTS:
Beginning of period 43,953,544 26,574,074 13,649,724
------------ ------------ -------------
End of period $ 26,574,074 $ 13,649,724 $ 14,081,226
============ ============ =============
<CAPTION>
Six Months Ended
June 30,
------------------------------
1996 1997
------------ ------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 6,828,970 $ 8,133,501
Loss on early extinguishment of debt 608,519 --
Noncash items in net income :
Depreciation 7,164,166 9,793,689
Amortization - intangibles and other assets 1,831,059 837,156
Deferred lease expenses 702,915 754,543
Amortization of prepaid leases -- 234,614
Deferred income tax expense 669,152 1,200,563
Debt issued for accrued interest 34,871 1,110,400
Amortization of debt discount 91,124 37,250
Amortized compensation - stock options 622,958 1,080,436
Other gains and losses -- --
Equity in income of affiliates (401,499) (433,399)
Minority interest in income (loss) of subsidiaries (46,578) (68,167)
Cash from (used for) operating working capital:
Inventories (377,476) (576,293)
Co-op advertising and other receivables (676,756) (3,880,760)
Prepaid expenses and other (719,143) 246,447
Accounts payable 4,358,158 (16,551,095)
Accrued liabilities 3,420,703 11,051,416
Income taxes payable (1,648,629) --
------------ ------------
Net cash from operating activities 22,462,514 12,970,301
INVESTING ACTIVITIES:
Additions to theater properties and equipment (70,245,126) (63,167,173)
Sale of theater properties and equipment -- --
Proceeds from 2 Day Video Inc. sale -- --
Proceeds from affiliate sale -- --
Decrease (increase) in certificates of deposit -- --
Decrease (increase) in temporary cash investments (6,900) (7,000)
Decrease (increase) in investments in and advances to affiliate (181,054) (8,855,740)
Decrease (increase) in other assets (2,164,612) (4,589,210)
------------ ------------
Net cash used for investing activities (72,597,692) (76,619,123)
FINANCING ACTIVITIES:
Issuance of Senior Subordinated Notes -- 77,250,000
Retirement of Senior Notes -- (1,630,000)
Repurchase premium on retired Senior Notes -- --
Increase in long-term debt 43,500,000 65,365,000
Reductions of long-term debt (37,013,558) (77,016,048)
Payment on notes payable to related parties (2,086,513) --
Decrease in theater development advance (356,046) (396,095)
Minority investment in subsidiaries, net -- 792,407
Purchase of Treasury Stock -- (4,013,737)
Net proceeds from common stock issuance 38,562,509 --
Common stock issued for options exercised 636,106 --
Issuance of subsidiary common stock warrants -- --
------------ ------------
Net cash from financing activities 43,242,498 60,351,527
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 83,220 (32,695)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH (6,809,460) (3,329,990)
EQUIVALENTS
CASH AND CASH EQUIVALENTS:
Beginning of period 13,649,724 14,081,226
------------ ------------
End of period $ 6,840,264 $ 10,751,236
============ ============
</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 29 states and in Mexico at
December 31, 1996. The following summarizes theatre transactions during 1994,
1995 and 1996:
<TABLE>
<CAPTION>
Theatres Screens
-------- -------
<S> <C> <C>
Active at January 1, 1994 ............................................ 153 1,084
Acquisitions .................................................... 2 9
Openings ........................................................ 7 82
Closings/Sales ....................................................... (4) (12)
----------------
Active at December 31, 1994 .......................................... 158 1,163
Openings ....................................................... 11 130
Sales ........................................................... (10) (46)
----------------
Active at December 31, 1995 .......................................... 159 1,247
Openings ........................................................ 17 237
Closings/Sales .................................................. (7) (31)
----------------
Active at December 31, 1996 .......................................... 169 1,453
================
</TABLE>
At December 31, 1996, the Company also manages three theatres (37 screens)
for Movie Theatre Investors, Ltd.; one theatre (17 screens) for Cinemark
Partners II; and two theatres (24 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. (f/k/a Cinemark II, Inc.) and ENT Holdings, Inc. Cinemark International,
Inc. ("Cinemark International") owns 97.1% 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. Cinemark de Mexico includes the
operations of Cinemark del Norte S.A. de C.V. and Servicio Cinemark S.A. de
C.V. Cinemark International owns 100% of Cinemark Empreendimentos e
Participacoes, LTDA, a Brazilian corporation, whose subsidiary will operate in
Brazil beginning in 1997. Cinemark International also owns 50% interests in
affiliates operating in Chile, Canada, Argentina and Peru and a 60% interest in
an affiliate operating in Ecuador. ENT Holdings, Inc. ("ENT") owns 100% of
Funtime Entertainment, Inc. The consolidated financial statements also include
2 Day Video, Inc. (2 Day) and subsidiary, a video rental "superstore" chain
through the date of its sale in October 1996, Entertainment Amusements, Inc., a
50%-owned holding company whose subsidiary provides video game machines to many
of the Company's theatres, and a 50% interest in Brainerd, Ltd, a theatre joint
venture. Majority-owned companies are consolidated; 50% owned companies 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
F-9
<PAGE> 106
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimates most susceptible to significant change are
those used in determining the valuation of certain accrued liabilities and the
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.
Beginning in 1997, generally accepted accounting principles require that
the U.S. dollar be used as the functional currency of the Company's Mexican
subsidiary for U.S. reporting purposes. As a result, fluctuations in the peso
during 1997 affecting the Company's investment in Mexico will be charged to
exchange gain or loss rather than to the cumulative adjustment account.
INTERIM FINANCIAL STATEMENTS - The accompanying condensed consolidated
financial statements have been prepared by the Company, without audit,
according to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, these interim financial statements
reflect all adjustments (which include only normal recurring adjustments)
necessary to state fairly the financial position and results of operations as
of and for the periods indicated. Operating results for the interim periods are
not necessarily indicative of the results to be achieved for the full year.
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 $1,745,721 and
$3,928,454 of interest incurred during development and construction and
capitalized in 1995 and 1996, 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.
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. On January 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption
of SFAS No. 121 did not have a material effect on the Company's financial
statements. During the third quarter of 1996 the Company determined that an
impairment charge of $2,381,998 was required for certain theatres.
INTANGIBLE ASSETS represent primarily the excess of cost over the fair
values of the net assets of theatre businesses acquired, less accumulated
amortization ($8,853,793 and $8,616,821 at December 31, 1995 and 1996,
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 that are 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, when applicable, the Class B common shares and options
for Class B common shares (Note 7).
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", which will be effective for the Company for the quarter and annual
period ended December 31, 1997. SFAS No. 128 requires expanded disclosure of
earnings per share, including presentation of basic and diluted earnings per
share computations for income from continuing operations. The Company's
computations of primary and fully diluted earnings per share under APB Opinion
No. 15 for the six months ended June 30, 1997 and 1996 approximate the
computation of diluted earnings per share under SFAS No. 128.
F-10
<PAGE> 107
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 recorded
value.
RECLASSIFICATIONS have been made to certain 1994 and 1995 amounts to
conform to 1996 presentation.
2. FOREIGN CURRENCY TRANSLATION
The cumulative foreign currency translation adjustment in shareholders'
equity of $10,539,398 and $11,129,451 at December 31, 1995 and 1996,
respectively, primarily relates to the unrealized adjustments resulting from
translating the financial statements of Cinemark de Mexico. 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, 1996, the total assets of Cinemark
de Mexico were $33,357,719. The Company's other consolidated foreign
subsidiaries were in the development stage and had insignificant translation
adjustments. In 1997, the Company will be required to utilize the U.S. dollar
as the functional currency of Cinemark de Mexico for U.S. reporting purposes
due to Mexico's highly inflationary economy. Thus devaluations in the peso
during 1997 that will affect the Company's investment will be charged to
exchange loss rather than to the cumulative adjustment account.
3. ACQUISITIONS AND INVESTMENT ACTIVITY
In September 1996, Cinemark Holdings Canada, Inc., a 100% subsidiary of
Cinemark International and 50% owner of Cinemark Theatres Alberta, Inc.,
contributed an additional $400,000 to assist in funding the construction of an
additional 12 screen theatre in Alberta, Canada. The other 50% owner of
Cinemark Theatres Alberta, Inc.
contributed an equal amount.
Cinemark International acquired an additional 2,661,450 shares of common
stock of Cinemark Mexico for $10.0 million for a cumulative interest of 97.1%
(96.5% on a fully diluted basis). Cinemark International sold its 50%
partnership interest in Beaumont Cinema Ventures, Ltd., which operated two
theatres in Texas, for $781,300, resulting in a gain of $547,750 in September
1996. Cinemark International also contributed funding of $1,200,000 to its 100%
owned Brazilian subsidiary, $600,000 to its Argentine affiliate, and $100,000
to its Peruvian affiliate.
F-11
<PAGE> 108
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1995, ENT 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 were canceled; a $500,000 note
payable by ENT was canceled; and Funtime International, Inc. paid $800,000 cash
and issued notes payable of $200,000 and $600,000 to ENT. Also in connection
with the sale, ENT 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
incurred a loss of approximately $294,000. In May 1996, Funtime International
exercised this option, issuing a note payable to ENT from Entertainment
Technologies, Inc. (parent company of Funtime International) for $400,000; this
resulted in a gain of $48,464 for ENT.
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 October 1996, the Company invested $571,633 in
Brainerd, Ltd., a limited partnership, which will own and operate a theatre.
In August 1995, Cinemark Inversiones, 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 contributed an equal amount.
In October 1996, the Company sold its entire interest in 2 Day (Class A
common stock) for cash of $9,439,466 and a receivable of $633,288, resulting in
a gain of $7 million.
4. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Debt issue cost ....................................... $ 6,149,523 $ 9,741,136
Noncompete agreements ................................. 835,564 758,145
----------- -----------
Total ........................................ 6,985,087 10,499,281
Less accumulate amortization .......................... 2,662,939 3,345,867
----------- -----------
Net ................................................... 4,322,148 7,153,414
Equipment, lease and other deposits ................... 1,067,756 1,064,123
Funtime International, Inc.:
Note receivable, 10% interest, paid in 1996 ........ 200,000
$600,000 convertible note receivable - net, due .... 445,224 445,224
Entertainment Technologies, Inc:
Note receivable, 10% interest, due June 2000 ....... 358,269
Construction advances and other ....................... 4,184,999 6,521,214
----------- -----------
Total ........................................ $10,220,127 $15,542,244
=========== ===========
</TABLE>
F-12
<PAGE> 109
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 its maturity date at
May 2005. Funtime International, Inc. has granted ENT 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>
1995 1996 June 30,1997
---- ---- ------------
(unaudited)
<S> <C> <C> <C>
Senior Notes due 2002, discussed below ..... $125,000,000 $ 1,630,000 $ --
Senior Subordinated Notes due 2008,
discussed below ....................... 199,137,042 276,424,292
Senior Subordinated Notes of Cinemark
Mexico due 2003, less unamortized
discount of $2,015,751 at December 31,
1995, discussed below.................. 20,549,249 25,710,900 26,821,300
Revolving credit line of $225,000,000,
discussed below........................ 50,000,000 70,000,000 58,000,000
Other notes payable ........................ 618,392 728,013 996,646
----------------------------------------------
Total long-term debt ....................... 196,167,641 297,205,955 362,242,238
Less current ............................... 27,737 652,313 656,250
----------------------------------------------
Long-term debt, less current portion ....... $196,139,904 $296,553,642 $361,585,988
==============================================
</TABLE>
SENIOR NOTES - In June 1992, the Company completed a public offering of
$125,000,000 senior notes payable ("Senior Notes"). The Senior Notes bear
interest at the rate of 12% per annum, payable semiannually on June 1 and
December 1 of each year. In August 1996, the Company utilized proceeds from a
$200 million issuance of Senior Subordinated Notes, due 2008, to repurchase
$123,370,000 of the Senior Notes at a premium of $1,098.33 per $1,000.00
principal amount. This resulted in a net outstanding balance of $1,630,000 in
Senior Notes at December 31, 1996. An extraordinary loss of $9.0 million, net
of related tax benefit, was recognized in connection with the premium paid and
the write-off of the unamortized debt issue costs ($2,463,560) associated with
the repurchased Senior Notes (Notes 4). The remaining Senior Notes are
redeemable at the option of the Company, in whole or in part, beginning June 1,
1997, ranging in redemption price from 106% in 1997 to 100% in 2000 and
thereafter.
SENIOR SUBORDINATED NOTES - In August 1996, the Company issued
$200,000,000 of Senior Subordinated Notes due 2008 (the "Subordinated Notes").
The Subordinated Notes bear interest at the rate of 9-5/8% per annum, payable
semi-annually on February 1 and August 1 of each year. The Subordinated Notes
were issued at 99.553% of the principal face amount (a discount of $4.47 per
$1,000 principal amount) for an aggregate
F-13
<PAGE> 110
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
discount of $894,000. The net proceeds to the Company from the issuance of the
Subordinated Notes (net of discount, fees and expenses) were approximately
$193.2 million. The Subordinated Notes require the Company to maintain a
specified interest expense coverage ratio; restricts the payment of dividends,
payment of subordinated debt prior to maturity and issuance of preferred stock
and other indebtedness; and other restrictive covenants. The Subordinated Notes
are redeemable at the option of the Company, beginning August 2001, ranging in
redemption price from 104.8% in 2001 to 100% in 2003 and thereafter. Any
outstanding Subordinated Note are due August 1, 2008.
In June 1997, the Company issued $75 million of Senior Subordinated Notes
due 2008 ("New Subordinated Notes"). The New Subordinated Notes are
substantially identical in all material respects to the Subordinated Notes,
including rate of interest. The New Subordinated Notes were issued at 103.0% of
the principal face amount (a premium of $30.00 per $1,000 principal amount).
(Unaudited)
SENIOR SUBORDINATED NOTES, MEXICO - In 1993, Cinemark Mexico issued
$20,400,000 of 12% Senior Subordinated Notes due 2003 (the "Mexican
Subordinated Notes") with detachable warrants (the Warrants) (Note 8). Cinemark
de Mexico guarantees the notes on a senior subordinated basis. The Mexican
Subordinated Notes were issued at a discount of $102.94 per $1,000 note,
totaling $2,100,000, and bear interest at 12% per annum payable semiannually on
August 1 and February 1. In 1994, Cinemark Mexico issued an additional
$2,000,000 of Mexican Subordinated Notes due 2003 with the terms governed by
the indenture from the initial offering of Mexican Subordinated Notes. These
notes were issued at a discount of $55 per $1,000 note, totaling $110,000, and
bear interest at 12% per annum payable semiannually on August 1 and February 1.
The entire $22,400,000 in Mexican Subordinated Notes and $1,971,500 of
accrued interest were exchanged in September 1996 for new senior subordinated
notes (the "New Mexican Notes"). The form and terms are identical in all
material respects to the previous notes except that interest on the New Mexican
Notes may be paid through the issuance of additional notes of the same series
at the option of Cinemark Mexico through and including February 1, 2000. If the
Company elects to pay accrued interest in the form of additional notes,
interest will accrue at 13% during that period. In connection with the
exchange, Warrants (Note 8) for 356,851 shares of common stock were exchanged
for $1,339,400 in New Mexican Notes. As a result of the note exchange and
retirement of the Warrants, a net benefit of $.8 million, including tax
benefit, was credited to additional paid in capital.
The indenture for the New Mexican Notes requires a sinking fund payment of
$6,667,000 on each of August 1, 2001, and August 1, 2002; the amounts are to be
utilized on such respective dates to retire a like face amount of the
outstanding New Mexican Notes. The indenture governing the New Mexican 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.
REDUCING, REVOLVING CREDIT FACILITY - In December 1996, the Company
amended its revolving credit line with a reducing, revolving credit facility
(the "Credit Facility") with a group of banks. The Credit Facility provides for
loans of up to $225,000,000 in the aggregate and bears interest at a defined
floating rate, adjusted in accordance with certain financial ratios. The
weighted average interest rate and current interest rate at December 31, 1996,
was 6.75% and 6.53%, respectively.
F-14
<PAGE> 111
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Credit Facility is a reducing revolving credit facility, with
commitments automatically reduced each calendar quarter by $8,437,500,
$11,250,000, $14,062,500 and $22,500,000 in calendar year 2000, 2001, 2002 and
2003, respectively. The Company is required to prepay all loans outstanding in
excess of the aggregate commitment as reduced pursuant to the terms of the
Credit Facility. Borrowings are secured by a pledge of a majority of the issued
and outstanding capital stock of the Company, and the credit agreement requires
that the Company maintains certain financial ratios; restricts the payment of
dividends, payment of subordinated debt prior to maturity and issuance of
preferred stock and other indebtedness; and other restrictive covenants. This
credit facility amended a new revolving credit line of $175,000,000 that the
Company had entered into on February 1996. The $175,000,000 credit facility
replaced the Company's previous credit facility. An extraordinary loss of $.4
million, net of related tax benefit, was recognized in connection with the
write-off of debt issue costs related to the Company's previous credit
facility.
Long-term debt at December 31, 1996, matures as follows: $652,313 in 1997;
$6,126 in 1998; $5,895 in 1999; $3,477 in 2000; $6,670,880 in 2001; and
$289,867,264 thereafter.
The estimated fair value of the Company's long-term debt of $296.6 million
at December 31, 1996, was approximately $300.5 million. Such amounts do not
include prepayment penalties which would be incurred upon the early
extinguishment of certain debt issues.
DEBT ISSUE COSTS - Debt issue costs of $6,149,523 and $9,741,136, net of
accumulated amortization of $2,010,268 and $2,664,766, related to the
Subordinated Notes, the New Mexican Notes and the Reducing, Revolving Credit
Facility, are included in deferred charges at December 31, 1995 and 1996,
respectively. The 1996 period includes an extraordinary loss recognized in
connection with the writeoff of debt issue costs relating to the Company's
prior bank line of credit and repurchase of Senior Notes.
THEATRE DEVELOPMENT ADVANCE - The current portion of long-term liabilities
also includes $350,000 at December 31, 1995 and 1996, 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 $769,657 at December 31, 1996,
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>
1995 1996
---- ----
<S> <C> <C>
Note payable to The Peble Corp. (a former shareholder,
bearing interest at 8.5% ........................... $1,041,147 $ --
Note payable to an officer and shareholder, bearing
interest at 8.5% .............................. 1,010,495
---------- ----------
$2,051,642 $ --
========== ==========
</TABLE>
In March 1996, the Company paid the note payable to The Peble Corp. and
the note payable to an officer and shareholder.
F-15
<PAGE> 112
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. However they 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.
In February 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 of Class B Common Stock, including 1,500
shares of Class A Common stock that were exchanged for Class B Common Stock, 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 in
March 1996. The net proceeds from the issuance of stock by the Company were
$38,567,063.
In November 1996, the Company repurchased 174 shares and 267 shares,
respectively, of Class B Common Stock as treasury stock.
In April 1997, the Company repurchased an aggregate of 1,242 shares of
Class B Common Stock issued to optionholders upon the exercise of stock in
April 1996. The aggregate purchase price for such shares was $2,2224,729
(unaudited).
At December 31, 1996, the Company has reserved Class A common stock in the
amount of 178,211 shares for potential conversions of outstanding Class B
common stock and 8,442 shares for potential conversions 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 - Under terms of the Company's stock option plan,
nonquailifed options to purchase up to 10,685 shares of the Company's Class B
common stock may be granted to key employees. At January 1, 1994, 7,608 options
with an exercise price of $1.00 per share were outstanding.
The total options granted in 1994, 1995 and 1996 were 896, 1,381 and 600
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. During 1996,
2213 vested options were exercised and an additional 430 options were
forfeited, accounting for a reduction of 1996 compensation expense of $64,472.
At December 31, 1996, 6,110 options were exercisable out of a total of 7,842
outstanding.
INDEPENDENT DIRECTOR STOCK OPTIONS - In 1993, the Company 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"). In 1995, the Company amended the
Director
F-16
<PAGE> 113
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 expense of $414,000 was
immediately recognized upon this exchange, with unearned compensation expense
of $276,000 to be recognized over the remaining vesting period of 15 months.
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. As a result of the above grants unearned
compensation of $1,120,000, $2,278,150 and $1,127,117 was recorded in 1994,
1995 and 1996, respectively. Compensation expense under this stock option plan
was $836,081, $1,591,022 and $1,324,856 in 1994, 1995 and 1996, respectively.
The Company applies APB Opinion 25 and related interpretations in
accounting for the Company's stock option plan and Cinemark Mexico's stock
option plan, as described below. Had compensation costs for the Company's stock
option plan been determined based on the fair value at the date of grant for
awards under the plan consistent with the method of Statement of Financial
Accounting Standards (SFAS) No. 123, utilizing the Black-Scholes option pricing
model, the effect on income and earnings per share would not have changed from
the amounts presented in the financial statements. The results are
substantially the same pursuant to SFAS No. 123 as a result of the value of the
underlying stock at the date of grant being significantly higher than the
$1.00 per share exercise price of the options.
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>
1995 1996
---- ----
<S> <C> <C>
Cinemark Mexico - 2.93% interest ............... $ 405,634 $ 187,103
Laredo Theatres, Ltd. - 25% interest (owned by a
relative of the majority shareholder) 574,448 362,176
2 Day Video - 16.9% interest (Note 3) .......... 381,951
Cinemark del Ecuador, S.A. - 40% interest ...... (9,426)
----------- ----------
Total ...................... $ 1,362,033 $ 539,853
=========== ==========
</TABLE>
COMMON STOCK WARRANTS - In connection with the issuance of the
Subordinated Notes (Note 5), Cinemark Mexico issued Warrants for $2.1 million
which were exercisable into 226,662 shares of Cinemark Mexico's common stock.
In August 1995, Cinemark Mexico sold additional Warrants for $1,324,132
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. In September 1996,
356,851 Warrants were exchanged for $1,339,400 in New Mexican Notes resulting
in a remaining balance of $200,729 for 22,222 Warrants outstanding (1% of fully
diluted ownership) (Note 5). The remaining 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
F-17
<PAGE> 114
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
appraised value. If the Warrants have not been redeemed by August 1, 1998, the
Company must offer to purchase one-third of the Warrants on each of July 31,
1998, 1999, and 2000, utilizing the appraised value on such dates. At December
31, 1996, Cinemark Mexico has reserved 22,222 shares of common stock for the
potential conversion of the Warrants.
STOCK OPTION 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
and 1996, Cinemark Mexico granted options to purchase 16,704 and 7,500 shares
of common stock, respectively, at an exercise price of $.10 per share to
certain employees, resulting in unearned compensation of $183,292 and $28,180
in 1994 and 1996 respectively. In 1995, 12,528 of the options granted in 1994
were canceled. The outstanding options vest over a period of six years from the
date of grant and expire ten years from the date of grant. At December 31,
1996, 835 options were exercisable.
9. COMMITMENTS AND CONTINGENCIES
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 term. Deferred lease expenses of $9,811,038 and
$11,580,629 at December 31, 1995 and 1996, 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, 1994,
1995 and 1996, totaled $29,916,187, $31,273,367 and $34,841,041 respectively.
Future minimum payments under noncancelable operating leases with initial
or remaining terms in excess of one year at December 31, 1996, are due as
follows:
<TABLE>
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . $ 34,012,608
1998 . . . . . . . . . . . . . . . . . . . . 33,226,975
1999 . . . . . . . . . . . . . . . . . . . . 32,908,418
2000 . . . . . . . . . . . . . . . . . . . . 32,061,124
2001 . . . . . . . . . . . . . . . . . . . . 32,167,331
Thereafter . . . . . . . . . . . . . . . . . 338,542,424
------------
Total . . . . . . . . . . . . . . . . . . . $502,918,880
============
</TABLE>
After December 31, 1996, the Company 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 $139 million for nine theatre facilities in the United States,
three theatres in Mexico and four theatres in Brazil.
F-18
<PAGE> 115
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYMENT AGREEMENTS - As of December 31, 1996, the Company has
employment agreements with certain principal officers and a shareholder
providing for total minimum future annual payments as follows:
<TABLE>
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . $ 469,061
1998 . . . . . . . . . . . . . . . . . . . . 515,967
1999 . . . . . . . . . . . . . . . . . . . . 567,564
2000 . . . . . . . . . . . . . . . . . . . . 624,320
2001 . . . . . . . . . . . . . . . . . . . . 686,752
----------
Total . . . . . . . . . . . . . . . . . . . $2,863,664
==========
</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 discretionary contributions as
determined annually by the Board of Directors. Contributions of $427,963,
$415,121 and $613,213 were made in 1994, 1995 and 1996, respectively.
LETTERS OF CREDIT AND COLLATERAL - At December 31, 1996, the Company has
outstanding letters of credit of $1,525,852 in connection with property and
liability insurance coverage and certain lease matters. Certificates of deposit
of $1,525,852 are pledged as collateral on the letters of credit.
LITIGATION SETTLEMENT - In April 1996, the Company entered into a
settlement agreement regarding litigation on the development of a proposed
theatre. The Company recognized a gain of $3,667,646 net of expenses, as a
result of the settlement.
10. INCOME TAXES
Income tax expense includes a benefit from the extraordinary loss on early
extinguishment of debt of $6,057,922 and consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ------------ ----------
<S> <C> <C> <C>
Current:
Federal - before utilization of credits ... $ 5,543,239 $ 8,927,814 $3,909,114
Utilization of tax credits ................ (987,000) (1,908,821)
State ..................................... 997,859 1,869,378 749,017
----------- ------------ ----------
Total current expense .... 5,554,098 8,888,371 4,658,131
Deferred:
Temporary differences ..................... 787,177 (466,356) 1,630,398
Reestablished from utilization of
tax credits ......................... 727,000 1,679,390
----------- ------------ ----------
Total deferred expense ... 1,514,177 1,213,034 1,630,398
----------- ------------ ----------
Income tax expense ....... $ 7,068,275 $ 10,101,405 $6,288,529
=========== ============ ==========
</TABLE>
F-19
<PAGE> 116
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
1994 1995 1996
------------ ------------ ----------
<S> <C> <C> <C>
Computed normal tax expense ................. $ 4,925,882 $ 8,139,788 $4,031,450
Goodwill amortization, not deductible
for tax purposes .................. 934,044 361,647 363,044
State and local income taxes, net of federal
income tax benefit ................ 711,226 1,151,411 501,887
Foreign subsidiaries losses not utilized
currently ......................... 445,872 874,897 997,056
Benefit of net operating loss carryforwards
utilized currently ................ (165,329)
Jobs tax credits ............................ (260,000) (127,267)
Other - net ................................. 476,580 (299,071) 395,092
------------ ------------ ----------
$ 7,068,275 $ 10,101,405 $6,288,529
============ ============ ==========
</TABLE>
The tax effects of significant temporary differences and carryforwards
comprising the net long-term deferred income tax liability at December 31, 1995
and 1996, consist of the following:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Deferred liabilities:
Accelerated tax depreciation ................................ $ 11,293,935 $ 15,165,608
Basis difference of assets acquired ......................... 324,878 220,610
Other ....................................................... 944,740 473,371
------------ ------------
Total ...................................... 12,563,553 15,859,589
Deferred assets:
Deferred lease expense ...................................... 3,799,182 4,404,794
Section 263(a) inventory adjustment ......................... 715,632 1,191,173
Amortization of unearned compensation ....................... 1,372,454 1,461,548
Self-insurance accruals ..................................... 1,118,393 1,233,432
Asset Impairment loss ....................................... 737,578
Original issue discount ..................................... 321,429
Deferred gain on sale of interest rate swap ................. 117,909
Tax operating loss carryforward for foreign subsidiaries .... 1,320,769 2,317,825
Valuation allowance - operating loss carryforward ........... (1,320,769) (2,317,825)
Other expenses, not currently deductible for tax purposes ... 1,143,772 583,026
------------ ------------
Total ...................................... 8,267,342 9,932,980
------------ ------------
Net long-term deferred income tax liability ................. $ 4,296,211 $ 5,926,609
============ ============
</TABLE>
F-20
<PAGE> 117
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>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Facility lease expense - theatre and equipment
leases with shareholder affiliates ................... $ 347,917 $ 306,937 $ 306,238
Interest expense - The Peble Corp. (Note 6) .................... 118,094 83,989 17,457
Interest expense - an officer and shareholder
of the Company (Note 6) .............................. 115,149 81,515 17,414
Video game machine income - a subsidiary
of Entertainment Amusements, Inc.(Note 12) ........... 1,157,105 1,394,467 1,745,731
Management fees - Movie Theatre Investors, Ltd. (Note 12)
for property and theatre management services ......... 274,304 300,662 257,360
Management fees - Cinemark Theatres Alberta, Inc. (Note 12)
for property and theatre management services ......... 64,426 74,928 97,073
Management fees - Cinemark Partners II, Ltd. (Note 12)
for property and theatre management services ......... 171,500 59,467
Rental revenue - theatre lease with shareholder affiliate ...... 200,000 250,000
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Cinemark Chile, S.A. - investment, at equity (Note 3) ... $1,775,435 $2,225,518
Entertainment Amusements, Inc. - investment,
at equity ..................................... 831,381 521,926
Cinemark Theatres Alberta, Inc. - investment,
at equity (Note 3) ............................ 1,408,228 1,848,316
Brainerd, Ltd. - partnership interest (Note 3) .......... 571,633
Cinemark Argentina, S.A. (Note 3) ....................... 606,144
Cinemark del Peru, S.A. (Note 3) ........................ 137,586
Movie Theatre Investors, Ltd. - partnership interest .... 55,869 55,869
Cinemark Partners II, Ltd - partnership interest ........ 83,000 83,000
Other ................................................... 121,689
---------- ----------
Total ............................... $4,275,602 $6,049,992
========== ==========
</TABLE>
F-21
<PAGE> 118
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other receivables at December 31 include amounts due from the following:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
A subsidiary of Entertainment Amusements, Inc. ...... $155,137 $ 264,633
Movie Theatre Investors, Ltd. ....................... 394,345 1,090,771
Cinemark Chile, S.A ................................. 62,549 46,654
Cinemark Partners II, Ltd. .......................... 614,620 724,404
Related party rent receivable (Note 11) ............. 199,967 449,940
</TABLE>
13. SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statement of cash flows:
<TABLE>
<CAPTION>
June 30,
1994 1995 1996 1997
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Interest paid $17,477,121 $19,864,594 $17,928,251 $12,945,289
=========== =========== =========== ===========
Income taxes paid $ 5,520,885 $ 7,195,765 $ 4,974,320 $ 4,889,984
=========== =========== =========== ===========
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 for 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
Issued note receivable for sale of Funtime
Pizza Two, Inc. stock and related assets $ 400,000
Issued receivable due from sale of
2 Day Video, Inc. stock 633,288
Issued note payable for purchase of treasury
stock, less related taxes 130,156
Retirement of Cinemark Mexico senior
subordinated notes and issuance of new
senior subordinated notes (Note 5) 22,400,000
Issuance of Cinemark Mexico senior
subordinated notes for redemmed
warrants (Notes 5 and 8) 1,339,400
Net effect of exchange of Cinemark Mexico
senior subordinated notes and coversion
of warrants to senior subordinated notes
on additional paid-in capital
(Notes 5 and 8) 172,456
</TABLE>
F-22
<PAGE> 119
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. JAPANESE JOINT VENTURE
In March 1997, Cinemark International invested $6.5 million into a joint
venture with Shochiku Co., Ltd., a Japanese distributor, exhibitor and producer
of movies ("Shochiku") and several other Japanese companies to develop
state-of-the-art multiplex theatres in Japan. The joint venture will conduct
its business through Shochiku Cinemark Theatres, which is 26.7% owned by
Cinemark International, 26.7% owned by Shochiku, and 46.6% owned by a
consortium of prominent Japanese companies. Shochiku Cinemark Theatres opened
its first theatre (7 screens) in March 1997.
F-23
<PAGE> 120
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE A
CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
RESTRICTED UNRESTRICTED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 3,056,375 $ 11,024,851 $ -- $ 14,081,226
Temporary cash investments ............................ 301,408 301,408
Inventories ........................................... 1,187,268 109,055 1,296,323
Other current assets .................................. 12,147,847 3,312,533 (4,189,927) 11,270,453
------------- ------------ ------------- -------------
Total current assets ............................... 16,391,490 14,747,847 (4,189,927) 26,949,410
THEATRE PROPERTIES AND
EQUIPMENT -Net ....................................... 350,549,600 26,871,320 377,420,920
OTHER ASSETS:
Certificates of deposit ............................... 1,525,852 1,525,852
Investments in and advances to affiliates ............. 14,838,634 4,817,563 (13,606,205) 6,049,992
Intangible assets - net ............................... 7,732,399 (2,315,350) 5,417,049
Deferred charges and other - net ...................... 11,767,041 3,775,203 15,542,244
------------- ------------ ------------- -------------
Total other assets ................................. 35,863,926 8,592,766 (15,921,555) 28,535,137
------------- ------------ ------------- -------------
TOTAL .................................................... $ 402,805,016 $ 50,211,933 ($ 20,111,482) $ 432,905,467
============= ============ ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term liabilities .............. $ 1,002,313 $ -- $ -- $ 1,002,313
Accounts payable, accrued expenses and other
current liabilities ................................. 55,135,724 7,768,671 (3,934,972) 58,969,423
------------- ------------ ------------- -------------
Total current liabilities .......................... 56,138,037 7,768,671 (3,934,972) 59,971,736
LONG-TERM LIABILITIES:
Long term debt, less current portion .................. 270,842,742 25,710,900 296,553,642
Deferred lease expenses ............................... 11,248,587 332,042 11,580,629
Theatre development advance ........................... 769,657 769,657
Deferred income taxes ................................. 6,081,205 100,359 (254,955) 5,926,609
------------- ------------ ------------- -------------
Total long-term liabilities ........................ 288,942,191 26,143,301 (254,955) 314,830,537
MINORITY INTERESTS IN SUBSIDIARIES ....................... 362,176 378,406 740,582
SHAREHOLDERS' EQUITY:
Common stock .......................................... 49,536,725 1,000 (1,000) 49,536,725
Additional paid-in capital ............................ 9,182,880 31,014,208 (31,014,208) 9,182,880
Unearned compensation - stock options ................. (2,434,717) (2,434,717)
Retained earnings (deficit) ........................... 32,391,591 (3,937,978) 3,937,978 32,391,591
Treasury stock ........................................ (20,184,416) (20,184,416)
Cumulative foreign currency translation adjustment .... (11,129,451) (11,155,675) 11,155,675 (11,129,451)
------------- ------------ ------------- -------------
Total shareholders' equity ......................... 57,362,612 15,921,555 (15,921,555) 57,362,612
------------- ------------ ------------- -------------
TOTAL .................................................... $ 402,805,016 $ 50,211,933 ($ 20,111,482) $ 432,905,467
============= ============ ============= =============
</TABLE>
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined in
the Indenture for the Senior Subordinated Notes dated August 15, 1996.
S-1
<PAGE> 121
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE B
CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
RESTRICTED UNRESTRICTED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES .................................... $ 320,132,158 $ 22,376,485 $ (777,713) $ 341,730,930
COSTS AND EXPENSES:
Cost of operations ....................... 243,847,698 18,290,341 262,138,039
General and administrative expenses ...... 20,631,921 3,632,322 (777,713) 23,486,530
Depreciation and amortization ............ 20,185,109 1,750,432 (136,868) 21,798,673
------------- ------------- ------------- -------------
Total ................................. 284,664,728 23,673,095 (914,581) 307,423,242
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) ..................... 35,467,430 (1,296,610) 136,868 34,307,688
OTHER INCOME (EXPENSE):
Interest expense ......................... (16,570,723) (2,980,932) (19,551,655)
Amortization of debt issue cost and
discount ............................. (583,270) (241,473) (824,743)
Equity in income (loss) of affiliates .... (2,391,464) 599,228 2,154,679 362,443
Other income, net ........................ 10,942,743 1,581,694 12,524,437
Minority interests in subsidiaries ....... (83,666) 227,957 144,291
------------- ------------- ------------- -------------
Total ................................. (8,686,380) (813,526) 2,154,679 (7,345,227)
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY ITEM ............. 26,781,050 (2,110,136) 2,291,547 26,962,461
INCOME TAXES ................................ 12,165,040 181,411 12,346,451
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS .... 14,616,010 (2,291,547) 2,291,547 14,616,010
EXTRAORDINARY ITEMS:
Loss on early extinguishments of debt, net
of income tax benefit of $6,057,922 ... (9,386,111) (9,386,111)
------------- ------------- ------------- -------------
NET INCOME (LOSS) ........................... $ 5,229,899 ($ 2,291,547) $ 2,291,547 $ 5,229,899
============= ============= ============= =============
</TABLE>
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined in
the Indenture for the Senior Subordinated Notes dated August 15, 1996.
S-2
<PAGE> 122
CINEMARK USA, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE C
CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
RESTRICTED UNRESTRICTED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net income (loss) ........................................ $ 5,229,899 $ (2,839,297) $ 2,839,297 $ 5,229,899
Loss on early extinguishment of debt ..................... 15,444,033 15,444,033
Noncash items in net income (loss):
Depreciation .......................................... 16,887,679 1,746,028 18,633,707
Amortization .......................................... 3,849,658 106,672 (136,868) 3,819,462
Deferred lease expenses ............................... 2,069,727 130,127 2,199,854
Deferred income tax expense ........................... 1,530,039 100,359 1,630,398
Debt issued for accrued interest ...................... 34,871 1,971,500 2,006,371
Amortization of debt discount ......................... 31,042 139,205 170,247
Amortized compensation - stock options ................ 1,324,856 1,324,856
Gain on sale of assets ................................ (7,527,224) (233,550) (7,760,774)
Equity in (income) loss of affiliates ................. 3,076,082 (599,228) (2,839,297) (362,443)
Minority interest ..................................... 83,666 (227,957) (144,291)
Cash used for operating working capital .................. 14,037,692 3,163,176 (638,154) 16,562,714
------------- ------------- ------------- -------------
Net cash from operations ........................... 56,072,020 3,457,035 (775,022) 58,754,033
INVESTING ACTIVITIES:
Additions to theatre properties and equipment ......... (167,788,339) (10,164,942) (177,953,281)
Sale of theater properties and equipment .............. 206,537 206,537
Proceeds from 2 Day Video Inc. sale ................... 9,439,466 9,439,466
Proceeds from affiliate sale .......................... 781,300 781,300
Decrease in certificates of deposit ................... 297,102 297,102
Increase in temporary cash investments ............... (26,282) (26,282)
Increase in investments in and advances to affiliate... (10,802,381) (912,983) 10,000,000 (1,715,364)
Decrease (increase) in other assets ................... (9,022,874) 433,912 136,868 (8,452,094)
------------- ------------- ------------- -------------
Net cash used for investing activities ............. (177,670,489) (9,888,995) 10,136,868 (177,422,616)
FINANCING ACTIVITIES:
Issuance of Senior Subordinated Notes ................. 199,106,000 199,106,000
Retirement of Senior Notes ............................ (123,370,000) (123,370,000)
Repurchase premium on retired Senior Notes ............ (12,371,954) (12,371,954)
Increase in long-term debt ............................ 97,510,000 97,510,000
Reductions of long-term debt .......................... (77,530,536) (77,530,536)
Payment on notes payable to related parties ........... (2,086,513) (638,154) 638,154 (2,086,513)
Decrease in theater developement advance .............. (356,046) (356,046)
Minority investment in subsidiaries, net .............. (677,889) (677,889)
Issuance of common stock to Cypress ................... 38,567,063 38,567,063
Common stock issued for options exercised ............. 900,013 900,013
Cinemark USA investment in Cinemark
International ...................................... 10,000,000 (10,000,000)
------------- ------------- ------------- -------------
Net cash from financing activities ................. 119,690,138 9,361,846 (9,361,846) 119,690,138
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT .......................................... (590,053) (590,053)
------------- ------------- ------------- -------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ......................................... (1,908,331) 2,339,833 431,502
CASH AND CASH EQUIVALENTS:
Beginning of period ................................... 4,964,706 8,685,018 13,649,724
------------- ------------- ------------- -------------
End of period ......................................... $ 3,056,375 $ 11,024,851 $ 14,081,226
============= ============= ============= =============
</TABLE>
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined in
the Indenture for the Senior Subordinated Notes dated August 15, 1996.
S-3
<PAGE> 123
CINEMARK USA, INC AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE D
CONSOLIDATING BALANCE SHEET INFORMATION
JUNE 30, 1997
(NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
ASSETS
<TABLE>
<CAPTION>
RESTRICTED UNRESTRICTED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 3,764,838 $ 6,986,398 $ -- $ 10,751,236
Temporary cash investments ............................ 308,408 308,408
Inventories ........................................... 1,541,295 331,321 1,872,616
Tax and other receivables ............................. 25,939,130 9,188,362 (20,222,726) 14,904,766
------------- ------------- ------------- -------------
Total current assets ............................... 31,245,263 16,814,489 (20,222,726) 27,837,026
THEATRE PROPERTIES AND
EQUIPMENT - net ..................................... 390,188,540 40,603,892 430,792,432
OTHER ASSETS:
Certificates of deposit ............................... 1,525,852 1,525,852
Investments in and advances to affiliates ............. 21,206,273 13,850,341 (19,717,483) 15,339,131
Intangible assets - net ............................... 7,243,839 (2,246,916) 4,996,923
Deferred charges and other - net ...................... 14,666,032 6,236,946 (1,423,168) 19,479,810
------------- ------------- ------------- -------------
Total other assets ................................. 44,641,996 20,087,287 (23,387,567) 41,341,716
------------- ------------- ------------- -------------
TOTAL .............................................. $ 466,075,799 $ 77,505,668 ($ 43,610,293) $ 499,971,174
============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term liabilites ............... $ 1,012,228 $ -- $ -- $ 1,012,228
Accounts payable and accrued expenses ................. 48,449,669 25,875,381 (20,855,612) 53,469,438
------------- ------------- ------------- -------------
Total current liabilities .......................... 49,461,897 25,875,381 (20,855,612) 54,481,666
LONG-TERM LIABILITIES:
Long term debt, less current portion .................. 334,837,364 26,821,300 361,658,664
Deferred lease expenses ............................... 11,839,945 495,227 12,335,172
Theatre development advance and other ................. 373,562 373,562
Deferred income taxes ................................. 6,654,302 1,263,042 (790,172) 7,127,172
------------- ------------- ------------- -------------
Total long-term liabilities ........................ 353,705,173 28,579,569 (790,172) 381,494,570
MINORITY INTERESTS IN SUBSIDIARIES ....................... 378,612 1,086,209 1,464,821
SHAREHOLDERS' EQUITY:
Common stock .......................................... 49,537,462 1,000 (1,000) 49,537,462
Additional paid-in capital ............................ 10,256,177 38,264,208 (38,264,208) 10,256,177
Unearned compensation - stock options ................. (2,427,578) (2,427,578)
Retained earnings (deficit) ........................... 40,525,092 (5,113,344) 5,113,344 40,525,092
Treasury stock ........................................ (24,198,890) (24,198,890)
Cumulative foreign currency translation adjustment .... (11,162,146) (11,187,355) 11,187,355 (11,162,146)
------------- ------------- ------------- -------------
Total shareholders' equity ......................... 62,530,117 21,964,509 (21,964,509) 62,530,117
------------- ------------- ------------- -------------
TOTAL .............................................. $ 466,075,799 $ 77,505,668 ($ 43,610,293) $ 499,971,174
============= ============= ============= =============
</TABLE>
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined in
the Indenture for the Senior Subordinated Notes dated August 15, 1996.
S-4
<PAGE> 124
CINEMARK USA, INC AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE E
CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
SIX MONTHS ENDED JUNE 30, 1997
(NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
<TABLE>
<CAPTION>
RESTRICTED UNRESTRICTED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES: ....................................... $ 191,662,060 $ 14,819,906 $ (708,776) $ 205,773,190
COSTS AND EXPENSES:
Cost of operations: .......................... 141,323,174 12,072,940 153,396,114
General and administrative expenses .......... 11,348,871 2,627,207 (708,776) 13,267,302
Depreciation and amortization ................ 9,802,283 547,978 (68,434) 10,281,827
------------- ------------- ------------- -------------
Total ..................................... 162,474,328 15,248,125 (777,210) 176,945,243
------------- ------------- ------------- -------------
OPERATING INCOME ................................ 29,187,732 (428,219) 68,434 28,827,947
OTHER INCOME (EXPENSE):
Interest expense ............................. (12,695,638) (1,686,054) (14,381,692)
Amortization of debt issue costs and debt
discount ................................... (332,805) (53,463) (386,268)
Equity in income (loss) of affiliates ........ (1,007,042) 333,399 1,107,042 433,399
Other income, net ............................ 108,241 370,444 (110) 478,575
Minority interests ........................... (16,436) 84,603 68,167
------------- ------------- ------------- -------------
Total ..................................... (13,943,680) (951,071) 1,106,932 (13,787,819)
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS ........................... 15,244,052 (1,379,290) 1,175,366 15,040,128
INCOME TAXES .................................... 7,054,805 (203,924) 6,850,881
------------- ------------- ------------- -------------
INCOME BEFORE EXTRAORDINARY ITEM ................ 8,189,247 (1,175,366) 1,175,366 8,189,247
EXTRAORDINARY ITEMS:
Loss on early extinguishment of debt, net of
income tax benefit of $42,054 ................ (55,746) (55,746)
------------- ------------- ------------- -------------
NET INCOME LOSS ................................. $ 8,133,501 ($ 1,175,366) $ 1,175,366 $ 8,133,501
============= ============= ============= =============
</TABLE>
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined in
the Indenture for the Senior Subordinated Notes dated August 15, 1996.
S-5
<PAGE> 125
CINEMARK USA, INC AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE F
CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
SIX MONTHS ENDED JUNE 30, 1997
(NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
<TABLE>
<CAPTION>
RESTRICTED UNRESTRICTED
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net income (loss) ............................................... $ 8,133,501 ($ 1,175,366) $ 1,175,366 $ 8,133,501
Noncash items in net income (loss):
Depreciation ................................................. 9,246,927 546,762 9,793,689
Amortization ................................................. 850,911 54,679 (68,434) 837,156
Deferred lease expenses ...................................... 591,358 163,185 754,543
Amortization of prepaid leases ............................... 234,614 234,614
Deferred income tax (expense) benefit ........................ 37,880 1,162,683 1,200,563
Debt issued for accrued interest ............................. 1,110,400 1,110,400
Amortization of debt discount ................................ 37,250 37,250
Amortized compensation - stock option ........................ 1,080,436 1,080,436
Equity in income (loss) of affiliate ......................... 1,075,366 (333,399) (1,175,366) (433,399)
Minority interests ........................................... 16,436 (84,603) (68,167)
Other gains .................................................. 306 306
Cash from (used for) operating working capital .................. (21,719,206) 12,008,615 (9,710,591)
------------ ------------ ------------ ------------
Net cash from (used for) operations ....................... (648,835) 13,687,570 (68,434) 12,970,301
INVESTING ACTIVITIES:
Additions to theatre properties .............................. (48,887,839) (14,279,334) (63,167,173)
Increase in temporary cash investments ...................... (7,000) (7,000)
Decrease (increase) in advances to affiliates ................ (7,406,360) (8,699,380) 7,250,000 (8,855,740)
Decrease (increase) in deferred issue costs and other assets.. (1,906,608) (2,751,036) 68,434 (4,589,210)
------------ ------------ ------------ ------------
Net cash used for investing activities .................... (58,200,807) (25,736,750) 7,318,434 (76,619,123)
FINANCING ACTIVITIES:
Issuance of Senior Subordinated Notes ........................ 77,250,000 77,250,000
Retirement of Senior Notes ................................... (1,630,000) (1,630,000)
Increase in long-term debt ................................... 65,365,000 65,365,000
Reductions in long-term debt ................................. (77,016,048) (77,016,048)
Purchase of treasury stock ................................... (4,013,737) (4,013,737)
Minority investment in subsidiaries, net ..................... 792,407 792,407
Decrease in theatre development advance ...................... (396,095) (396,095)
Cinemark USA investment in Cinemark International ............ 7,250,000 (7,250,000)
------------ ------------ ------------ ------------
Net cash from financing activities ........................ 59,559,120 8,042,407 (7,250,000) 60,351,527
FOREIGN CURRENCY TRANSLATION ADJUSTMENT ......................... (1,015) (31,680) (32,695)
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................ 708,463 (4,038,453) (3,329,990)
CASH AND CASH EQUIVALENTS:
Beginning of period .......................................... 3,056,375 11,024,851 14,081,226
------------ ------------ ------------ ------------
End of period ................................................ $ 3,764,838 $ 6,986,398 $ 10,751,236
============ ============ ============ ============
</TABLE>
Note: "Restricted Subsidiaries" and "Unrestricted Subsidiaries" are defined in
the Indenture for the Senior Subordinated Notes dated August 15, 1996.
S-6
<PAGE> 126
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
PAGE
----
Available Information......................................... 4
Prospectus Summary............................................ 5
Risk Factors.................................................. 16
The Exchange Offer............................................ 20
Capitalization................................................ 27
Selected Consolidated Financial
and Operating Data............................................ 28
Management's Discussion and
Analysis of Financial Condition and
Results of Operation......................................... 31
Business...................................................... 39
Management.................................................... 47
Principal Shareholders........................................ 55
Certain Transactions.......................................... 58
Description of Series B Notes................................. 61
Federal Income Tax
Consequences.................................................. 90
Description of Certain
Debt Instruments............................................. 91
Plan of Distribution.......................................... 95
Legal Matters................................................. 96
Index to Financial Statements................................. F-1
Independent Auditors Report................................... F-3
$75,000,000
[GRAPHIC]
CINEMARK USA, INC.
Offer to Exchange its 9-5/8% Series D Senior Subordinated
Notes Due 2008 which have been registered under the
Securities Act for any and all of its outstanding 9-5/8%
Series C Senior Subordinated Notes due 2008
---------------------------
PROSPECTUS
---------------------------
September 18, 1997
<PAGE> 127
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> 128
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
**1 Purchase Agreement dated June 20, 1997 between the Company and Bear,
Stearns & Co. Inc.
**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 June 26, 1997 between the Company and U.S. Trust
Company of Texas, N.A. governing the Notes, with a form of Series C
Note attached
**4.2 Form of Series C Note
**4.3 Exchange Registration Rights Agreement dated June 26, 1997 between
the Company and Bear, Stearns & Co. Inc.
*5 Form of Opinion of the Company concerning the legality of the New
Notes
**10.1(a) Indenture for Series B Notes, with form of Series B Note attached.
**10.2 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.
**10.3 Management Agreement dated as of March 1, 1991 between Movie Theatre
Investors, Ltd. and the Company.
**10.4(a) Management Agreement dated as of March 1, 1991 between Movie Theatre
Investors, Ltd. and the Company.
**10.4(b) Management Agreement between the Company and Cinemark II, Inc.
("Cinemark II") dated as of June 10, 1992.
**10.4(c) First Amendment to Management Agreement effective as of December 2,
1991 among the Company, Movie Theatre Holdings, Inc. and E. William
Savage
**10.4(d) Management Agreement, dated as of July 28, 1993, between the Company
and Cinemark Mexico (USA).
**10.4(e) Management Agreement, dated as of September 10, 1992, between the
Company and Cinemark de Mexico.
**10.4(f) Management Agreement dated December 10, 1993 between Laredo Joint
Venture and the Company.
**10.4(g) Management Agreement dated September 1, 1994 between Cinemark
Partners II, Ltd. and the Company.
**10.5 Agreement Regarding Right of First Refusal dated March 28, 1991
between the Company and Movie Theatre Investors, Ltd.
</TABLE>
II-2
<PAGE> 129
<TABLE>
<S> <C>
**10.6(a) Employment Agreement dated as of October 17, 1991 between the
Company and Lee Roy Mitchell.
**10.6(b) First Amendment to Employment Agreement dated as of April 7, 1992
between the Company and Lee Roy Mitchell.
**10.6(c) Employment Agreement dated as of October 17, 1991 between the
Company and Tandy Mitchell.
**10.6(d) First Amendment to Employment Agreement dated as of April 7, 1992
between the Company and Tandy Mitchell.
**10.6(e) Second Amendment to Employment Agreement between the Company and Lee
Roy Mitchell dated as of June 10, 1992.
**10.7(a) 1991 Nonqualified Stock Option Plan of Cinemark USA, Inc.
**10.7(b) Cinemark Mexico Nonqualified Stock Option Plan.
**10.8(a) License Agreement as of July 23, 1990 between the Company and Movie
Theatre Investors, Ltd.
**10.8(b) License Agreement dated December 10, 1993 between Laredo Joint
Venture and the Company.
**10.9(a) Tax Sharing Agreement between the Company and Cinemark II dated as
of June 10, 1992.
**10.9(b) Tax Sharing Agreement dated as of July 28, 1993, between the Company
and Cinemark Mexico (USA).
**10.9(c) License Agreement dated September 1, 1994 between Cinemark Partners
II, Ltd. and the Company.
**10.10(a) Indemnification Agreement between the Company and Lee Roy Mitchell
dated as of July 13, 1992.
**10.10(b) Indemnification Agreement between the Company and Tandy Mitchell
dated as of July 13, 1992.
**10.10(d) Indemnification Agreement between the Company and Alan W. Stock
dated as of July 13, 1992.
**10.10(f) Indemnification Agreement between the Company and W. Bryce Anderson
dated as of July 13, 1992.
**10.10(g) Indemnification Agreement between the Company and Sheldon I. Stein
dated as of July 13, 1992.
**10.10(h) Indemnification Agreement between the Company and Heriberto Guerra
dated as of December 3, 1993
**10.10(i) Indemnification Agreement between the Company and Gary R. Gibbs
dated as of July 19, 1995.
**10.11(a) Credit Agreement dated as of December 12, 1996 among the Banks and
the Agent.
**10.11(b) Pledge Agreement dated as of December 12, 1996 executed by the
pledgors listed on the signature page thereto for the benefit of the
Agent and the Banks.
**10.11(c) Note of the Company dated as of December 12, 1996 in the original
principal amount of $50,000,000 payable to the order of Bank of
America National Trust and Savings Association
**10.11(d) Note of the Company dated as of December 12, 1996 in the original
principal amount of $35,000,000 payable to the order of NationsBank
of Texas, N.A.
**10.11(e) Note of the Company dated as of December 12, 1996 in the original
principal amount of $20,000,000 payable to the order of First
National Bank of Boston
**10.11(f) Note of the Company dated as of December 12, 1996 in the original
principal amount of $15,000,000 payable to the order of Fleet Bank,
N.A.
**10.11(g) Note of the Company dated as of December 12, 1996 in the original
principal amount of $15,000,000 payable to the order of The Fuji
Bank, Limited
**10.11(h) Note of the Company dated as of December 12, 1996 in the original
principal amount of $25,000,000 payable to the order of Bank of New
York
**10.11(i) Note of the Company dated as of December 12, 1996 in the original
principal amount of $25,000,000 payable to the order of CIBC Inc.
</TABLE>
II-3
<PAGE> 130
<TABLE>
<S> <C>
**10.11(j) Note of the Company dated as of December 12, 1996 in the original
principal amount of $20,000,000 payable to the order of Bank of Nova
Scotia
**10.11(k) Note of the Company dated as of December 12, 1996 in the original
principal amount of $20,000,000 payable to the order of Comerica
Bank-Texas
**10.12(a) Letter Agreements with directors of the Company regarding stock
options.
**10.12(b) Letter Agreements with directors of the Company amending stock
options
**10.13(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.
**10.13(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.
**10.13(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
**10.13(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").
**10.13(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.
**10.13(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.
**10.13(g) Warrant Certificates.
**10.13(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.
**10.13(i) Subscription Agreement dated as of December 31, 1994 between the
Company and Cinemark International.
**10.13(j) Subscription Agreement dated June 1, 1995 among Cinemark Mexico
(USA) and Cinemark International
**10.13(k) Purchase Agreement dated August 30, 1995 among Cinemark Mexico (USA)
and the purchasers thereto
**10.13(l) Warrant Certificates
**10.14 Senior Secured Credit Agreement dated December 4, 1995 among
Cinemark II, Cinemark Mexico (USA) and Cinemark de Mexico
**10.15(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
**10.15(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
**10.16 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
*23.2 Consent of Michael D. Cavalier, General Counsel of the Company
(included in Exhibit 5.1)
24 Power of Attorney (set forth on page II-6)
</TABLE>
II-4
<PAGE> 131
<TABLE>
<S> <C>
*25 T-1 Statement of Eligibility and Qualifications under the Trust
Indenture Act of 1939 of the United States Trust Company of Texas,
N.A. relating to the Series B Notes
</TABLE>
- -----------------
*Filed herewith
**Incorporated by Reference
(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.
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-5
<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 18, 1997.
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 18, 1997
- --------------------------------
Lee Roy Mitchell Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
/s/ Tandy Mitchell* Director, Executive Vice September 18, 1997
- --------------------------------
Tandy Mitchell President and Secretary
/s/ Alan W. Stock*
- --------------------------------
Alan W. Stock Director September 18, 1997
/s/ Jeffrey J. Stedman Vice President (Principal
- --------------------------------
Jeffrey J. Stedman Financial Officer)
September 18, 1997
/s/ W. Bryce Anderson* Director September 18, 1997
- --------------------------------
W. Bryce Anderson
/s/ Heriberto Guerra, Jr.* Director September 18, 1997
- --------------------------------
Heriberto Guerra, Jr.
/s/ James L. Singleton * Director September 18, 1997
- --------------------------------
James L. Singleton
/s/ James A. Stern* Director September 18, 1997
- --------------------------------
James A. Stern
/s/ Denny Rydberg* Director September 18, 1997
- --------------------------------
Denny Rydberg
</TABLE>
By: /s/ Lee Roy Mitchell
------------------------------
Lee Roy Mitchell
Attorney-in-Fact
II-6
<PAGE> 133
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
<C> <C> <C>
**1 Purchase Agreement dated June 20, 1997 between the Exhibit 1 to the
Company and Bear, Stearns & Co. Inc., Goldman Sachs Company's Registration
& Co. Inc. and Morgan Stanley & Co. Incorporated Statement (file 333-
32959) on Form S-4
filed August 6, 1997
**3.1(a) Amended and Restated Articles of Incorporation of the Exhibit 3.1(a) to
Company filed with the Texas Secretary of State on June the Company's
3, 1992 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 Exhibit 3.1(b) to
on June 27, 1988 merging Gulf Drive-In Theatres, Inc. the Company's
and Cinemark of Louisiana, Inc. into the Company Registration
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 Exhibit 3.1(d) to
dated October 27, 1989 merging Premiere Cinemas Corp. the Company's
into the Company 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 Exhibit 3.1(e) to
dated October 27, 1989 merging Tri-State Entertainment the Company's
Incorporated into the Company Registration
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 Exhibit 3.1(f) to the
on December 27, 1990 merging Cinema 4, Inc. into the Company
Company s Registration
Statement (file 33-
47040) on form S-1
filed on April 9,
1992
</TABLE>
E-1
<PAGE> 134
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
<C> <C> <C>
**3.1(f) Articles of Merger filed with the Texas Secretary of State Exhibit 3.1(f) to the
on December 27, 1990 merging Cinema 4, Inc. into the Company's Annual
Company 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
**3.2(b) Amendment to Bylaws of the Company dated March 12, Exhibit 3.2(b) to
1996 the Company's
Annual Report (file
33-47040) on Form
10-K filed March
26, 1997
**4.1 Indenture dated June 26, 1997 between the Company and Exhibit 4.1 to the
U.S. Trust Company of Texas, N.A. governing the Notes, Company's Registration
with a form of Series C Note attached Statement (file 333-
32959) on Form S-4
filed August 6, 1997
**4.2 Form of Series C Note Exhibit 4.2 to the
Company's Registration
Statement (file 333-
32959) on Form S-4
filed August 6, 1997
**4.3 Exchange Registration Rights Agreement dated June 26, Exhibit 4.3 to the
1997 between the Company and Bear, Stearns & Co. Inc. Company's Registration
Statement (file 33-32959)
on Form S-4 filed
August 6, 1997
*5 Opinion of the Company concerning the legality of the Page ______
Series D New Notes
**10.1(a) Indenture for Series B Notes, with form of Series B Note Exhibit 4.1 to the
attached. Company's
Registration
Statement (file 33-
41895) on Form S-
4 filed September
13, 1996
</TABLE>
E-2
<PAGE> 135
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
<C> <C> <C>
**10.2 Promissory Note dated September 4, 1987 executed by The Exhibit 10.5 to the
Pebble Group, Ltd. in the original principal amount of Company's
$700,000 payable to Citizens Savings and Loan, and Registration
assumed by the Company. Statement (file 33-
47040) on Form S-1
filed on April 9,
1992.
**10.3 Management Agreement dated as of March 1, 1991 between Exhibit 10.6(a) to
Movie Theatre Investors, Ltd. and the Company. the Company's
Registration
Statement (file
33- 47040)
on Form S-1 filed
on April 9, 1992.
**10.4(a) Management Agreement dated as of March 1, 1991 between Exhibit 10.6(b) to
Movie Theatre Investors, Ltd. and the Company. the Company's
Registration Statement
(file 33-47040) on
Form S-1 filed on
April 9, 1992.
**10.4(b) Management Agreement between the Company and Exhibit 10.6(c) to
Cinemark II, Inc. ("Cinemark II") dated as of June 10, 1992. the Company's
Annual Report (file
33-47040) on
Form 10-K filed
March 31, 1993.
**10.4(c) First Amendment to Management Agreement effective as of Exhibit 10.6(e) to
December 2, 1991 among the Company, Movie Theatre the Company's
Holdings, Inc. and E. William Savage Registration
Statement (file 33-
47040) on Form S-1
filed on April 9,
1992
</TABLE>
E-3
<PAGE> 136
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
<C> <C> <C>
**10.4(d) Management Agreement, dated as of July 28, 1993, between Exhibit 10.7 to
the Company and Cinemark Mexico (USA). Cinemark Mexico
(USA)'s
Registration
Statement (file 33-
72114) on Form S-4
filed on November
24, 1994.
**10.4(e) Management Agreement, dated as of September 10, 1992, Exhibit 10.8 to
between the Company and Cinemark de Mexico. Cinemark Mexico
(USA)'s Registration
Statement (file
33-72114) on
Form S-4 filed
on November 24, 1994.
**10.4(f) Management Agreement dated December 10, 1993 between Exhibit 10.14(b) to
Laredo Joint Venture and the Company. the Company's
Annual Report (file
33-47040) on form
10-K filed March 31,
1994.
**10.4(g) Management Agreement dated September 1, 1994 between Exhibit 10.4(i) to
Cinemark Partners II, Ltd. and the Company. the Company's Annual
Report (file
33-47040) on Form
10-K filed March 29,
1995.
**10.5 Agreement Regarding Right of First Refusal dated March Exhibit 10.10 to
28, 1991 between the Company and Movie Theatre CUSA's
Investors, Ltd. Registration
Statement (file
33-47040) on Form
S-1 filed on April
9, 1992.
</TABLE>
E-4
<PAGE> 137
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
<C> <C> <C>
**10.6(a) Employment Agreement dated as of October 17, 1991 Exhibit 10.11(a) to
between the Company and Lee Roy Mitchell. the Company's
Registration
Statement (file 33-
47040) on Form S-1
filed on April 9,
1992.
**10.6(b) First Amendment to Employment Agreement dated as of Exhibit 10.11(b) to
April 7, 1992 between the Company and Lee Roy Mitchell. the Company's
Registration Statement
(file 33-47040)
on Form S-1 filed
on April 9, 1992.
**10.6(c) Employment Agreement dated as of October 17, 1991 Exhibit 10.11(c) to
between the Company and Tandy Mitchell. the Company's Registration
Statement (file
33-47040) on Form
S-1 filed on
April 9, 1992.
**10.6(d) First Amendment to Employment Agreement dated as of Exhibit 10.11(d) to
April 7, 1992 between the Company and Tandy Mitchell. the Company's Registration
Statement (file
33-47040) on
Form S-1 filed
on April 9, 1992.
**10.6(e) Second Amendment to Employment Agreement between Exhibit 10.11(e) to
the Company and Lee Roy Mitchell dated as of June 10, the Company's
1992. Annual Report (file
33-47040) on Form
10-K filed
March 31, 1993.
</TABLE>
E-5
<PAGE> 138
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
<C> <C> <C>
**10.7(a) 1991 Nonqualified Stock Option Plan of Cinemark USA, Exhibit 10.14 to the
Inc. Company's
Registration
Statement (file 33-
47040) on Form S-1
filed on April 9,
1992.
**10.7(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.
**10.8(a) License Agreement dated as of July 23, 1990 between the Exhibit 10.18(a) to
Company and Movie Theatre Investors, Ltd. the Company's
Registration
Statement (file 33-
47040) on Form S-1
filed on April 9,
1992.
**10.8(b) License Agreement dated December 10, 1993 between Exhibit 10.14(c) to
Laredo Joint Venture and the Company. the Company's
Annual Report (file
33-47040) on Form
10-K filed March
31, 1994
**10.8(c) License Agreement dated September 1, 1994 between Exhibit 10.10(c) to
Cinemark Partners II, Ltd. and the Company. the Company's
Annual Report
(file 33-47040)
on Form 10-K
filed March 29, 1995.
</TABLE>
E-6
<PAGE> 139
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
<C> <C> <C>
**10.9(a) Tax Sharing Agreement between the Company and Exhibit 10.22 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.
**10.9(b) Tax Sharing Agreement dated as of July 28, 1993, between Exhibit 10.10 to
the Company and Cinemark Mexico (USA). Cinemark Mexico
(USA)'s Registration
Statement (33-72114)
on Form S-4 filed
on November 24, 1994.
**10.10(a) Indemnification Agreement between the Company and Lee Exhibit 10.23(a) to
Roy Mitchell dated as of July 13, 1992. the Company's Annual
Report (file
33-47040) on Form
10-K filed March 31,
1993.
**10.10(b) Indemnification Agreement between the Company and Exhibit 10.23(b) to
Tandy Mitchell dated as of July 13, 1992. the Company's Annual
Report (file
33-47040) on Form
10-K filed March
31, 1993.
10.10(c) Indemnification Agreement between the Company and Exhibit 10.23(d) to
Alan W. Stock dated as of July 13, 1992. the Company's Annual
Report (file 33-47040)
on Form 10-K filed
March 31, 1993.
**10.10(d) Indemnification Agreement between the Company and Exhibit 10.23(f) to
W. Bryce Anderson dated as of July 13, 1992. the Company's
Annual Report (file
33-47040) on Form
10-K filed March
31, 1993.
</TABLE>
E-7
<PAGE> 140
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
<C> <C> <C>
10.10(e) Indemnification Agreement between the Company and Exhibit 10.23(g) to
Sheldon I. Stein dated as of July 13, 1992. the Company's
Annual Report (file
33-47040) on Form
10-K filed March
31, 1993.
**10.10(f) Indemnification Agreement between the Company and Exhibit 10.13(f) to
Heriberto Guerra dated as of December 3, 1993 the Company's
Registration
Statement (file 333-
11895) on Form S-4
filed September 13,
1996
**10.10(g) Indemnification Agreement between the Company and Gary Exhibit 10.13(g) to
R. Gibbs dated as of July 19, 1995. the Company's
Registration
Statement (file 333-
11895) on Form S-4
filed September 13,
1996
**10.11(a) Credit Agreement dated as of December 12, 1996 among Exhibit 10.12(a) to
the Banks and the Agent. Company's Annual
Report (file 33-
47040 and 333-
11895) on Form 10-
K filed March 27,
1997
**10.11(b) Pledge Agreement dated as of December 12, 1996 executed Exhibit 10.12(b) to
by the pledgors listed on the signature page thereto for the Company's Annual
benefit of the Agent and the Banks. Report (file 33-
47040 and 333-
11895) on Form 10-
K filed March 27,
1997
</TABLE>
E-8
<PAGE> 141
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
<C> <C> <C>
**10.11(c) Note of the Company dated as of December 12, 1996 in the Exhibit 10.12(c) to
original principal amount of $50,000,000 payable to the Company's Annual
order of Bank of America National Trust and Savings Report (file 33-
Association 47040 and 333-
11895) on Form 10-
K filed March 27,
1997
**10.11(d) Note of the Company dated as of December 12, 1996 in the Exhibit 10.12(d) to
original principal amount of $35,000,000 payable to the Company's Annual
order of NationsBank of Texas, N.A. Report (file 33-
47040 and 333-
11895) on Form 10-
K filed March 27,
1997
**10.11(e) Note of the Company dated as of December 12, 1996 in the Exhibit 10.12(e) to
original principal amount of $20,000,000 payable to the Company's Annual
order of First National Bank of Boston Report (file 33-
47040 and 333-
11895) on Form 10-
K filed March 27,
1997
**10.11(f) Note of the Company dated as of December 12, 1996 in the Exhibit 10.12(f) to
original principal amount of $15,000,000 payable to the Company's Annual
order of Fleet Bank, N.A. Report (file 33-
47040 and 333-
11895) on Form 10-
K filed March 27,
1997
10.12(g) Note of the Company dated as of December 12, 1996 in the Exhibit 10.12(g) to
original principal amount of $15,000,000 payable to the Company's Annual
order of The Fuji Bank, Limited Report (file 33-
47040 and 333-
11895) on Form 10-
K filed March 27,
1997
</TABLE>
E-9
<PAGE> 142
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
<C> <C> <C>
**10.11(h) Note of the Company dated as of December 12, 1996 in the Exhibit 10.12(h) to
original principal amount of $25,000,000 payable to the Company's Annual
order of Bank of New York Report (file 33-
47040 and 333-
11895) on Form 10-
K filed March 27,
1997
10.12(i) Note of the Company dated as of December 12, 1996 in the Exhibit 10.12(i) to
original principal amount of $25,000,000 payable to the Company's Annual
order of CIBC, Inc. Report (file 33-
47040 and 333-
11895) on Form 10-
K filed March 27,
1997
**10.11(j) Note of the Company dated as of December 12, 1996 in the Exhibit 10.12(j) to
original principal amount of $20,000,000 payable to the Company's Annual
order of Bank of Nova Scotia Report (file 33-
47040 and 333-
11895) on Form 10-
K filed March 27,
1997
**10.11(k) Note of the Company dated as of December 12, 1996 in the Exhibit 10.12(k) to
original principal amount of $20,000,000 payable to the Company's Annual
order of Comerica Bank-Texas Report (file 33-
47040 and 333-
11895) on Form 10-
K filed March 27,
1997
**10.12(a) Letter Agreements with directors of the Company regarding Exhibit 10.15 to the
stock options. Company's Annual
Report (file 33-
47040) on Form 10-
K filed March 31,
1993.
</TABLE>
E-10
<PAGE> 143
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
<C> <C> <C>
**10.12(b) Letter Agreements with directors of the Company amending Exhibit 10.15(c) to
stock options the Company's
Registration
Statement (file 333-
11895) on Form S-4
filed September 13,
1996
**10.13(a) Indenture, dated as of July 30, 1993, among Cinemark Exhibit 4.1 to
Mexico (USA), Cinemark de Mexico, as Guarantor, and Cinemark Mexico
United States Trust Company of New York, as trustee, (USA)'s
relating to the Senior Subordinated Notes. Registration
Statement (file 33-72114)
on Form S-4 filed
on November 24, 1994.
**10.13(b) First Supplemental Indenture dated May 2, 1994 among Exhibit 4.4 to
Cinemark Mexico (USA), Cinemark de Mexico and United Cinemark Mexico
States Trust Company of New York, as Trustee. (USA)'s Annual
Report (file 33-72114)
on Form 10-K filed
March 31, 1994.
**10.13(c) Second Supplemental Indenture dated August 30, 1995 Exhibit 10.16(c) to
among Cinemark Mexico (USA), Cinemark de Mexico and the Company's
United States Trust Company of New York, as Trustee Registration
Statement (file 333-
11895) on Form S-4
filed September 13,
1996
**10.13(d) Third Supplemental Indenture dated September 30, 1996 Exhibit 10.14(d) to
among Cinemark Mexico (USA), Cinemark de Mexico and the Company's
United States Trust Company of New York, as Trustee Annual Report (file
333-11895) on
Form 10-K filed
March 27, 1997
</TABLE>
E-11
<PAGE> 144
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- -------- ----------- ------------------
<S> <C> <C>
**10.13(d) Purchase Agreement, dated as of July 30, 1993, among Exhibit 4.2 to
Cinemark Mexico (USA), Cinemark de Mexico and each of Cinemark Mexico
the purchasers of the Series A Notes named on the signature (USA)'s
pages thereof (the "Purchasers"). Registration
Statement (file 33-
72114) on Form S-4
filed on November
24, 1994.
**10.13(e) Registration Rights Agreement, dated as of July 30, 1993, Exhibit 4.3 to
among Cinemark Mexico (USA), Cinemark de Mexico and Cinemark Mexico
the Purchasers of the Series A Notes. (USA)'s
Registration Statement
(file 33-72114)
on Form S-4
filed on November
24, 1994.
**10.13(f) Warrant Registration Rights Agreement, dated as of July 30, Exhibit 10.1 to
1993, among Cinemark Mexico (USA), Cinemark II, New Cinemark Mexico
Wave Investments A.V.V. ("New Wave") and the (USA)'s
purchasers of the warrants named on the signature pages Registration
thereof. Statement (file 33-
72114) on Form S-4
filed on November
24, 1994.
**10.13(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.
**10.13(h) Purchase Agreement dated May 6, 1994 among Cinemark Exhibit 4.5 to
Mexico (USA), Cinemark de Mexico and each of the Cinemark Mexico
purchasers of the Series C Notes named on the registration (USA)'s Annual
pages thereto. Report (file 33-
72114) on Form
10-K filed on March
31, 1995
</TABLE>
E-12
<PAGE> 145
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
<C> <C> <C>
**10.13(i) Subscription Agreement dated as of December 31, 1994 Exhibit 10.4(a) to
between the Company and Cinemark International. Cinemark Mexico
(USA)'s Annual
Report (file 33-
72114) on Form
10-K filed March
31, 1995
**10.13(j) Subscription Agreement dated June 1, 1995 among Exhibit 10.16(j) to
Cinemark Mexico (USA) and Cinemark International the Company's
Registration
Statement (file 333-
11895) on Form S-4
filed September 13,
1996
**10.13(k) Purchase Agreement dated August 30, 1995 among Exhibit 10.16(k) to
Cinemark Mexico (USA) and the purchasers thereto the Company's
Registration
Statement (file 333-
11895) on Form S-4
filed September 13,
1996
**10.13(l) Warrant Certificates Exhibit 10.16(l) to
the Company's
Registration
Statement (file 333-
11895) on Form S-4
filed September 13,
1996
**10.14 Senior Secured Credit Agreement dated December 4, 1995 Exhibit 10.18 to the
among Cinemark II, Cinemark Mexico (USA) and Company's Annual
Cinemark de Mexico Report (file 33-
47040) on Form 10-
K filed April 1,
1996
</TABLE>
E-13
<PAGE> 146
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER DESCRIPTION REFERENCE TO
- ------ ----------- ------------
<C> <C> <C>
**10.15(a) Security Purchase Agreement dated February 20, 1996 Exhibit 10.19(a) to
among the Company, Cypress Merchant Banking Partners the Company's
L.P., Cypress Pictures Ltd., The Broadhead Limited Annual Report (file
Partnership and T&LRM Family Limited Partnership 33-47040) on Form
10-K filed April 1,
1996
**10.15(b) Shareholders' Agreement dated March 12, 1996 among the Exhibit 10.19(b) to
Company, Mr. Mitchell, Cypress Merchant Banking the Company's
Partners L.P., Cypress Pictures Ltd. and Mr. Mitchell and Annual Report (file
Mr. Don Hart as Co-Trustees of certain trusts signatory 33-47040) on Form
thereto 10-K filed April 1,
1996
**10.16 Joint Venture Agreement dated December 31, 1995 among Exhibit 10.20 to the
Cinemark II, 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. Exhibit 12 to the Company's
Registration Statement (file
333-32959) on Form S-4 filed
August 6, 1997
**21 Subsidiaries of the Registrant Exhibit 21 to the Company's
Registration Statement (file
*23.1 Consent of Deloitte & Touche LLP, Independent Auditors 333-32959) on Form S-4 filed
August 6, 1997
*23.2 Consent of Michael D. Cavalier, General Counsel of the
Company (included in Exhibit 5.1)
24 Power of Attorney (set forth on page II-6)
*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-14
<PAGE> 1
EXHIBIT 5
[CINEMARK USA, INC. LOGO]
September 18, 1997
Cinemark USA, Inc.
7502 Greenville Ave., Suite 800
Dallas, Texas 75231-3830
Ladies and Gentlemen:
I am the General Counsel of Cinemark USA, Inc., a Texas corporation
(the "Issuer"), in connection with the proposed exchange by the Issuer of an
aggregate of $75,000,000 principal amount of the Issuer's 9-5/8% Series D
Senior Subordinated Notes due 2008 (the "New Notes"), of the Issuer, for an
aggregate of $75,000,000 principal amount of the Issuer's 9-5/8% Series C
Senior Subordinated Notes due 2008 (the "Old Notes"). The Old Notes were, and
the New Notes will be, issued pursuant to the Indenture dated as of June 26,
1997 (the "Indenture") among the Issuer and United States Trust Company of
Texas, N.A., as trustee (the "Trustee"). In connection with the exchange offer,
the Issuer has filed with the Securities and Exchange Commission a registration
statement on Form S-4 File No. 333-32959 (the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"). Unless otherwise
defined herein, capitalized terms used in this opinion shall have the meanings
set forth in the Indenture or the Accord identified in the following paragraph.
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter should be read in conjunction therewith. The law covered by the opinions
expressed herein is limited to the federal laws of the United States and the
laws of the State of Texas.
In preparing this Opinion Letter, I have examined the Indenture, which
includes the form of the New Notes, which has been filed as an exhibit to the
Registration Statement. In addition, I have examined originals or photostatic,
certified or conformed copies of all such agreements, documents, instruments,
corporate records, certificates of public officials, public records and
certificates of officers of the Issuers as I have deemed necessary or
appropriate in the circumstances. In addition to the assumptions set forth in
Section 4 of the Accord, I have relied upon factual representations made to me
by the Issuer.
<PAGE> 2
Cinemark USA, Inc.
September 18, 1997
Page 2
Based upon such examination and review, I am of the opinion that the
New Notes proposed to be exchanged by the Issuer have been duly authorized for
issuance and, subject to the Registration Statement becoming effective under
the Securities Act and to compliance with any applicable state securities laws,
the New Notes, when executed by the Issuer, authenticated by the Trustee and
delivered in exchange for Old Notes in accordance with the provisions of the
Indenture and the Registration Statement, will be valid and legally binding
obligations of the Issuer enforceable in accordance with their terms.
The foregoing Opinions are subject to the following qualifications,
exceptions, assumptions and limitations:
A. The General Qualifications apply to the opinions set forth
above (the Remedies Opinion). In addition to the General Qualifications, we
express no opinion as to the enforceability of any provisions contained in the
New Notes purporting to (i) allow the acceleration of the maturity of any
indebtedness or the exercise of any other rights without notice to the person
or entity signatory thereto or bound thereby; (ii) restrict access to legal or
equitable remedies (including, without limitation, proper jurisdiction and
venue); (iii) establish evidentiary standards; (iv) waive the benefits of any
statute of limitation or any applicable bankruptcy, insolvency or usury law or
stay or extension law or waive any rights under any applicable statutes or
rules hereafter enacted or promulgated; or (v) preserve and maintain a
guarantor's liability despite the fact that the guaranteed debt is
unenforceable due to illegality. In addition, the enforceability of the rights
to indemnification contained in the Indenture may be limited by Federal or New
York State laws or the policies underlying such laws. We note that the Trust
Indenture Act provides that certain provisions of the Trust Indenture Act are
automatically included in the Indenture unless expressly excluded. To the
extent that the Indenture does not expressly exclude or waive such provisions
of the Trust Indenture Act, such provisions may supersede or override similar
provisions in the Indenture.
B. I have assumed, with your consent, for purposes of expressing
the opinion above, that the laws of the State of New York would be the same as
the laws of the State of Texas.
I hereby consent to the filing of this opinion as Exhibit 5.1 to
Amendment No. 1 to the Registration Statement.
Very truly yours,
/s/ Michael Cavalier
--------------------
Michael Cavalier
General Counsel
MC/cw
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-32959 of Cinemark USA, Inc. on Form S-4 of our report dated March 10, 1997,
(which report includes an explanatory paragraph concerning the Company's change
in 1996 in its method of accounting for the impairment of long lived assets and
long lived assets to be disposed of to conform with Statement of Financial
Accounting Standards No. 121) appearing in the Prospectus, which is a part of
this Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
September 18, 1997
Dallas, Texas
<PAGE> 1
EXHIBIT 25
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM T - 1
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION To DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2) _________
-------------------------
U.S. TRUST COMPANY OF TEXAS, N.A.
(Exact name of trustee as specified in its charter)
75-2353745
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
2001 Ross Ave, Suite 2700 75201
Dallas, Texas (Zip Code)
(Address of trustee's
Principal executive offices)
Compliance Officer
U.S. Trust Company of Texas, N.A.
2001 Ross Ave, Suite 2700
Dallas, Texas 75201
(214) 754-1200
(Name, address and telephone number of agent for service)
-------------------------
Cinemark USA, Inc.
(Exact name of obligor as specified in its charter)
Texas 75-2353745
(State or other jurisdiction of I.R.S. employer
incorporation or organization) identification No.)
7502 Greenville Ave, Suite 800
Dallas, Texas 75231
(Address of principal executive offices) (Zip Code)
-------------------------
9 5/8% Series C Senior Subordinated Notes due 2008
(Title of the indenture securities)
- --------------------------------------------------------------------------------
<PAGE> 2
GENERAL
1. General Information.
Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Reserve Bank of Dallas (11th District), Dallas, Texas
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Dallas, Texas
The Office of the Comptroller of the Currency, Dallas, Texas
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to corporate trust powers.
2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an affiliate of the
Trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting securities of
the Trustee:
As of September 15,1997
- --------------------------------------------------------------------------------
Col A. Col B.
- --------------------------------------------------------------------------------
Title of class Amount Outstanding
- --------------------------------------------------------------------------------
Capital Stock - par value $100 per share 5,000 shares
4. Trusteeships under Other Indentures.
Cinemark USA, Inc. 9 5/8% Senior Subordinated Notes Due 2008 Series A/B
5. Interlocking Directorates and Similar Relationships with the Obligor or
Underwriters.
Not Applicable
<PAGE> 3
6. Voting Securities of the Trustee Owned by the Obligor or its Officials.
Not Applicable
7. Voting Securities of the Trustee Owned by Underwriters or their Officials.
Not Applicable
8. Securities of the Obligor Owned or Held by the Trustee.
Not Applicable
9. Securities of Underwriters Owned or Held by the Trustee.
Not Applicable
10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor.
Not Applicable
11. Ownership or Holdings by the Trustee of any Securities of a Person Owning
50 Percent or More of the Voting Securities of the Obligor.
Not Applicable
12. Indebtedness of the Obligor to the Trustee.
Not Applicable
13. Defaults by the Obligor.
Not Applicable
14. Affiliations with the Underwriters.
Not Applicable
15. Foreign Trustee.
Not Applicable
16. List of Exhibits.
T - 1.1 - A copy of the Articles of Association of U.S. Trust Company
of Texas, N.A.; incorporated herein by reference to Exhibit
T-1.1 filed with Form T-1 Statement, Registration
No. 22-21897.
<PAGE> 4
16. (con't.)
T-1.2 - A copy of the certificate of authority of the Trustee to
commence business; incorporated herein by reference to Exhibit
T-1.2 filed with Form T-1 Statement, Registration No.
22-21897.
T-1.3 - A copy of the authorization of the Trustee to exercise
corporate trust powers; incorporated herein by reference to
Exhibit T-1.3 filed with Form T-1 Statement, Registration
No. 22-21897.
T-1.4 - A copy of the By-laws of the U.S. Trust Company of Texas,
N.A., as amended to date,; incorporated herein by reference to
Exhibit T-1.4 filed with Form T-1 Statement, Registration
No. 22-21897.
T-1.6 - The consent of the Trustee required by Section 321(b) of
the Trust Indenture Act of 1939.
T-1.7 - A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of September 15,1997 the Trustee had 5,000 shares of Capital Stock
outstanding, all of which are owned by U.S. T.L.P.O. Corp. As of September
15, 1997 U.S. T.L.P.O. Corp. had 35 shares of Capital Stock outstanding, all of
which are owned by U.S. Trust Corporation U.S. Trust Corporation had
outstanding 19,185,828 shares of $5 par value Common Stock as of September
12, 1997.
The term "Trustee" in Items 2, 5, 6, 7, 8, 9, 10 and 11 refers to each of U.S
Trust Company of Texas, N.A., U.S. T.L.P.O. Corp. and U.S. Trust Corporation.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the Trustee
of all the facts on which to base responsive answers to Items 2, 5, 6, 7,
9, 10 and 11, the answers to said Items are based upon incomplete information.
Items 2, 5, 6, 7, 9, 10 and 11 may, however, be considered correct unless
amended by an amendment to this Form T-1.
In answering any items in this Statement of Eligibility and Qualification which
relates to matters peculiarly within the knowledge of the obligors or their
directors or officers, or an underwriter for the obligors, the Trustee has
relied upon information furnished to it by the obligors and will rely on
information to be furnished by the obligors or such underwriter, and the
Trustee disclaims responsibility for the accuracy or completeness of such
information.
-------------------------
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
U.S Trust Company of Texas, N.A., a national banking association organized
under the laws of the United States of America, has duly caused the statement
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Dallas, and State of Texas on the
15th day of September, 1997.
U.S. Trust Company
of Texas, N.A., Trustee
By:
----------------------------
Bill Barbner
Vice President
<PAGE> 6
Articles of Association EXHIBIT T-1.1
of
U.S. Trust Company of Texas, National Association
For the purpose of organizing an association to perform any lawful activities
of national banks, the undersigned to enter into the following articles of
association:
FIRST: The title of this association shall be U.S. Trust Company of Texas,
National Association.
SECOND: The main office of the association shall be in Dallas County of
Dallas, State of Texas. The general business of the association
shall be conducted at its main office and its branches.
THIRD: The board of directors of this association shall consist of not
less than five nor more than twenty-five persons, the exact number
to be fixed and determined from time to time by resolution of a
majority of the full board of directors or by resolution of a
majority of the shareholders at any annual or special meeting
thereof. Each director shall own common or preferred stock of the
association with an aggregate par value of not less than $1,000,
or common or preferred stock of a bank holding company owning the
association with an aggregate par, fair market or equity value of
not less than $1,000, as of either (i) the date of purchase, (ii)
the date the person became a director or (iii) the date of that
person's most recent election to the board of directors,
whichever is greater. Any combination of common or preferred
stock of the association or such holding company may be used.
Any vacancy in the board of directors may be filled by action of a
majority of the remaining directors may not increase the number of
directors between meetings of shareholders to a number which:
(1) exceeds by more than two the number of directors last elected
by shareholders where the number was 15 or less; and (2) exceeds
by more than four the number of directors last elected by
shareholders where the number was 16 or more, but in no event
shall the number of directors exceed 25.
Terms of directors, including directors selected to fill
vacancies, shall expire at the next regular meeting of
shareholders at which directors are elected, unless the directors
resign or are removed from office.
<PAGE> 7
Despite the expiration of a director's term, the director shall
continue to serve until his or her successor is elected and
qualifies or until there is a decrease in the number of directors
and his or her position is eliminated.
Honorary or advisory members of the board of directors, without
voting power or power of final decision in matters concerning the
business of the association, may be appointed by resolution of a
majority of the full board of directors or by resolution of
shareholders at any annual or special meeting. Honorary or
advisory directors shall not be counted for purposes of
determining the number of directors of the association or the
presence of a quorum in connection with any board action, and
shall not be required to own qualifying shares.
FOURTH: There shall be an annual meeting of the shareholders to elect
directors and transact whatever other business may be brought
before the meeting. It shall be held at the main office or any
other convenient place the board of directors may designate, on
the day of each year specified therefore in the bylaws, or if
that day falls on a legal holiday in the State in which the
association is located, on the next following banking day. If no
election is held on the day fixed, or in event of a legal
holiday, an election may be held on any subsequent day within 60
days of the day fixed, to be designated by the board of directors,
or, if the directors fail to fix the day, by shareholders
representing two-thirds of the shares issued and outstanding. In
all cases at least 10 days advance notice of the meeting shall be
given to the shareholders by first class mail.
In all elections of directors, the number of votes each common
shareholder may cast will be determined by multiplying the number
of shares he or she owns by the number of directors to be elected.
Those votes may be cumulated and cast for a single candidate or
may be distributed among two or more candidates in the manner
selected by the shareholder. On all other requisitions, each
common shareholder shall be entitled to one vote for each share of
stock held by him or her.
Nominations for election to the board of directors may be made by
the board of directors or by any stockholder of any outstanding
class of capital stock of the association entitled to vote for
election of directors. Nominations other than those made by or on
behalf of the existing management shall be made in writing and be
delivered or
<PAGE> 8
mailed to the president of the association and to the Comptroller
of the Currency, Washington, D.C., not less than 14 days nor more
than 50 days prior to any meeting of shareholders called for the
election of directors; provided, however, that if less than 21
days notice of the meeting is given to shareholders, such
nominations shall be mailed or delivered to the president of the
association and to the Comptroller of the Currency not later than
the close of business on the seventh day following the day on
which the notice of meeting was mailed. Such notification shall
contain the following information to the extent known to the
notifying shareholder.
(1) The name and address of each proposed nominee.
(2) The principal occupation of each proposed nominee.
(3) The total number of shares of capital stock of the
association that will be voted for each proposed nominee.
(4) The name and residence address of the notifying shareholder.
(5) The number of shares of capital stock of the association
owned by the notifying shareholder.
Nominations not made in accordance herewith may, in his/her
decision, be disregarded by the chairperson of the meeting, and
the vote tellers may disregard all votes cast for each such
nominee. No bylaw may unreasonably restrict the nomination of
directors by shareholders.
A director may resign at any time by delivering written notice to
the board of directors, its chairperson, or to the association,
which resignation shall be effective when the notice is delivered
unless the notice specifics a later effective date.
A director may be removed by shareholders at a meeting called to
remove him or her, when notice of the meeting stating that the
purpose or one of the purposes is to remove him or her is
provided, if there is a failure to fulfill one of the affirmative
requirements for qualification, or for case, provided, however,
that a director may not be removed if the number of votes
sufficient to elect him or her under cumulative voting is voted
against his or her removal.
<PAGE> 9
FIFTH: The authorized amount of capital stock of this association shall be
5,000 shares of common stock of the par value of One Hundred
Dollars ($100) each; but said capital stock may be increased or
decreased from time to time, according to the provisions of the
laws of the United States.
No holder of shares of the capital stock of any class of the
association shall have any preemptive or preferential right of
subscription to any shares of any class of stock of the
association, whether nor or hereafter authorized, or to any
obligations convertible into stock of the association, issued, or
sold, nor any right of subscription to any thereof other than
such, if any, as the board of directors, in its discretion may
from time to time determine and at such price as the board of
directors may from time to time fix.
Unless otherwise specified in the articles of association or
required by law, (1) all matters requiring shareholder action,
including amendments to the articles of association must be
approved by shareholders owning a majority voting interest in the
outstanding voting stock, and (2) each shareholder shall be
entitled to one vote per share.
Unless otherwise specified in the articles of association or
required by law, all shares of voting stock shall be voted
together as a class, on any matters requiring shareholder
approval. If a proposed amendment would affect two or more
classes or series in the same or a substantially similar way, all
the classes or series so affected, must vote together as a single
voting group on the proposed amendment.
Shares of the same class or series may be issued as a dividend on
a pro rata basis and without consideration. Shares of another
class or series may be issued as a share dividend in respect of a
class or series of stock if approved by a majority of the votes
entitled to the cast by the class or series to be issued unless
there are no outstanding shares of the class or series to be
issued. Unless otherwise provided by the board of directors, the
record date for determining shareholders entitled to a share
dividend shall be the date the board of directors authorizes the
share dividend.
Unless otherwise provided in the bylaws, the record date for
determining shareholders entitled to notice of and to vote at any
meeting is the close of business on the day before the first
notice is
<PAGE> 10
mailed or otherwise sent to the shareholders, provided that in no
event may a record date be more than 70 days before the meeting.
If a shareholder is entitled to fractional shares pursuant to
preemptive rights, a stock dividend, consolidation or merger,
reverse stock split or otherwise, the association may (a) issue
fractional shares, or (b) in lieu of the issuance of fractional
shares, issue script or warrants entitling the holder to receive a
full share upon surrendering enough script or warrants to equal a
full share, (c) if there is an established and active market in
the association's stock, make reasonable arrangements to provide
the shareholder with an opportunity to realize a fair price
throughout sale of the fraction, or purchase of the additional
fraction required for a full share, (d) remit the cash equivalent
of the fraction to the shareholder, or (e) sell full shares
representing all the fractions at public auction or to the highest
bidder after having solicited and received sealed bids from at
least three licensed stock brokers, and distribute the proceeds
pro rata to shareholders who otherwise would be entitled to the
fractional shares. The holder of a fractional share is entitled
to exercise the rights from shareholder, including the right to
vote, to receive dividends, and to participate in the assets of
the association upon liquidation, in proportion to the fractional
interest. The holder of script or warrants is not entitled to any
of these rights unless the script or warrants explicitly provide
for such rights. The script or warrants may be subject to such
additional conditions as (1) that the script or warrants will
become void if not exchanged for full shares before a specified
date, and (2) that the shares for which the script or warrants are
exchangeable may be sold at the option of the association, at any
time and from time to time, may authorize and issue debt
obligations, whether or not subordinated, without the approval of
the shareholders. Obligations classified as debt, whether or not
subordinated, which may be issued by the association without the
approval of shareholders, do not carry voting rights on any issue,
including an increase or decrease in the aggregate number of the
securities, or the exchange or reclassification of all or part of
securities into securities of another class or series.
SIXTH: The board of directors shall appoint one of its members
president of this association, and one of its members chairperson
of the board and shall have the power to appoint one or more vice
presidents, a secretary who shall keep minutes of the directors'
and shareholders' meetings and be responsible for authenticating
the records of the association, and such other officers and
employees as may be required
<PAGE> 11
to transact the business of this association. A duly appointed
officer may appoint one or more officers or assistant officers if
authorized by the board of directors in accordance with the
bylaws.
The board of directors shall have the power to:
(1) Define the duties of the officers, employees and
agents of the association.
(2) Delegate the performance of its duties, but not the
responsibility for its duties, to the officers,
employees, and agents of the association.
(3) Fix the compensation and enter into employment
contracts with its officers and employees upon
reasonable terms and conditions consistent with
applicable law.
(4) Dismiss officers and employees.
(5) Require bonds from officers and employees and to fix
the penalty thereof.
(6) Ratify written policies authorized by the
association's management or committees of the board.
(7) Regulate the manner in which any increase or decrease
of the capital of the association shall be made,
provided that nothing herein shall restrict the
power of shareholders to increase or decrease the
capital of the association in accordance with law,
and nothing shall raise or lower from two-thirds the
percentage required for shareholder approval to
increase or reduce the capital.
(8) Manage and administer the business and affairs of the
association.
(9) Adopt initial bylaws, not inconsistent with law or
the articles of association, for managing the
business and regulating the affairs of the
association.
<PAGE> 12
(10) Amend or repeal bylaws, except to the extent that
the articles of association reserve this power in
whole or in part to shareholders.
(11) Make contracts.
(12) Generally to perform all acts that are legal for a
board of directors to perform.
SEVENTH: The board of directors shall have the power to change the
location of the main office to any other place within the limits
of Dallas, Texas, without the approval of the shareholders, and
shall have the power to establish or change the location of any
branch or branches of the association to any other location
permitted under applicable law, without the approval of the
shareholders, subject to approval by the Office of the
Comptroller of the Currency.
EIGHTH: The corporate existence of this association shall continue until
terminated according to the laws of the United States.
NINTH: The board of directors of this association, or any one or more
shareholders owning, in the aggregate, not less than five
percent of the stock of this association, may call a special
meeting of shareholders at any time. Unless otherwise provided
by the bylaws or the laws of the United States, or waived by
shareholders, a notice of the time, place, and purpose of every
annual and special meeting of the shareholders shall be given by
first-class mail, postage prepaid, mailed at least 10, and no
more than 60, days prior to the date of meeting to each
shareholder of record at his/her address as shown upon the boods
of this association. Unless otherwise provided by the bylaws,
any action requiring approval of shareholders must be effected
at duly called annual or special meeting.
TENTH: An director of the association or such director's heirs,
executors, or: administrators may be indemnified or reimbursed
by the association for reasonable expenses actually incurred in
connection with claims made against such director to the extent
allowed by applicable law, including 12 CFR 7.5217, and
regulatory and public policy.
ELEVENTH: These articles of association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of
the holders of a majority of the stock of this association,
unless the vote of the holders of a greater amount of stock is
required by law, and in that case by the vote of the holders of
such greater amount. The association's board of directors may
propose one or more amendments to the articles of association
for submission to the shareholders.
<PAGE> 13
COMPTROLLER OF THE CURRENCY
TREASURY DEPARTMENT OF THE UNITED STATES
WASHINGTON, D.C.
Whereas, satisfactory evidence has been presented to the Comptroller of
the Currency that U.S. Trust Company of Texas, National Association located in
Rowlett State of Texas has complied with all provisions of the statutes of the
United States required to be complied with before being authorized to commence
the business of banking as a National Banking Association;
Now therefore. Thereby certify that the above-named association is
authorized to commence the business of banking as a National Banking
Association.
In testimony whereof. witness my signature and seal of
office this 7th day of December 1990
Charter No. 18782 /s/ Peter C. Keaft
Comptroller of the Currency
<PAGE> 14
Exhibit T-1.3
TRUST PERMIT
- ------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- ------------------------------------------------------------------------------
Southwestern District
1600 Lincoln Plaza
500 N. Akard
Dallas, Texas 75201-3394
WHEREAS,-U.S. Trust Company of Texas, National Association, located in Dallas,
Texas, being a national banking association, organized under the statutes of
the United States, has made application for authority to act as fiduciary;
AND WHEREAS, applicable provisions of the statutes of the United States
authorize the grant of such authority;
NOW THEREFORE, I certify that the said association is authorized to act in all
fiduciary capacities permitted by such statutes.
IN TESTIMONY WHEREOF, witness my
signature and seal of the Office
this Sixth day of August, 1991.
/s/ EDWARD M. GRAVES
---------------------------------------
Edward M. Graves
Director for Analysis
CHARTER NUMBER 18782
<PAGE> 15
BY-LAWS
U.S. TRUST COMPANY OF TEXAS, N.A.
1.0
MEETING OF SHAREHOLDERS
1.1. Annual Meeting
The regular annual meeting of the shareholders for the election of directors
and the transaction of whatever business may properly come before the meeting,
shall be held at such time, within six months after the close of the
Corporation's fiscal year, and place as Board of Directors may designate.
Notice of such meeting shall be mailed, postage prepaid, at least ten days
prior to the date thereof, addressed to each shareholder at his address
appearing on the books of the Corporation. If, from any cause, an election of
directors is not made on the said day, the Board of Directors shall order the
election to be held on some subsequent day, as soon thereafter as practicable,
according to the provisions of law; and notice thereof shall be given in the
manner herein provided for the annual meeting.
1.2. Special Meetings.
Except as otherwise specifically provided by statute, special meetings of the
shareholders may be called for any purpose at any time by the Board of
Directors or by any one or more shareholders owning, in the aggregate, not less
than ten (10) percent of the stock of the Corporation. Every such special
meeting, unless otherwise provided by law, shall be called by mailing, postage
prepaid, not less than ten days prior to the date fixed for such meeting, to
each stockholder at his address appearing on the books, of the Corporation, a
notice stating the purpose of the meeting.
1.3. Nominations for Director.
Nominations for election to the Board of Directors may be made by the Board of
Directors or by any stockholder of any outstanding class of capital stock of
the Corporation entitled to vote for the election of directors.
<PAGE> 16
1.4. Proxies.
Shareholders may vote at any meeting of the shareholders by proxies duly
authorized in writing, but no officer or employee of this Corporation shall act
as proxy. Proxies shall be valid only for one meeting, to be specified therein,
and any adjournments of such meeting. Proxies shall be dated and shall be filed
with the records of the meeting.
1.5. Quorum.
A majority of the outstanding capital stock, represented in person or by proxy,
shall constitute a quorum at any meeting of shareholders, unless otherwise
provided by law; but less than a quorum may adjourn any meeting, from time to
time, and the meeting may be held, as adjourned, without further notice. A
majority of the votes cast shall decide every question or matter submitted to
the shareholders at any meeting, unless otherwise provided by law. Shareholders
may participate in said meeting by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence at a meeting.
1.6. Action Without a Meeting.
Any action required by law, these By-Laws, or the Articles of Incorporation of
the Corporation to be taken at any annual or special meeting of shareholders of
the Corporation, or any action which may be taken at any annual or special
meeting of such shareholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of all outstanding stock entitled to vote
thereon.
<PAGE> 17
2.0
DIRECTORS
2.1. Board of Directors.
The Board of Directors shall have the power to manage and administer the
business and affairs of the Corporation. Except as expressly limited by law,
all corporate powers of the Corporation shall be vested in and may be exercised
by said Board of Directors.
2.2. Numbers.
The Board of Directors shall consist of not less than five nor more than
twenty-five persons, the exact number within such minimum and maximum limits to
be fixed and determined from time to time by resolution of a majority of the
full Board of Directors or by resolution of the shareholders at any meeting
thereof; provided, however, that a majority of the full Board of Directors may
not increase the number of directors to a number which exceeds by more than two
the number of directors last elected by shareholders.
2.3. Organization Meeting.
The Secretary, upon receiving the result of any election, shall notify the
directors-elect of their election and of the time at which they are required to
meet at the Main Office of the corporation for the purpose of filing their
affidavits accepting such directorship, as required by law, organizing the new
Board of Directors and electing and appointing officers of the Corporation for
the succeeding year. Such meeting shall be held on the day of the election or
as soon thereafter as practicable, and, in any event, within thirty days
thereof. If, at the time fixed for such meeting, there shall not be a quorum
present, the directors present may adjourn the meeting, from time to time,
until a quorum is obtained.
2.4. Regular Meetings.
At least one regular meeting of the Board of Directors shall be held in the
months of January, February, March, April, May, June, July, September, October
and November upon notice. Written notice of the time and place of such regular
meetings of the Board of Directors shall be given to each Director by either
personal delivery, telegram, facsimile transmission, or any other form of
electronic communications, unless prohibited by law, at least two (2) days
before the meeting or by notice mailed to the Director at least five (5) days
before each meeting. One
<PAGE> 18
or more representatives designated by the sole shareholder shall receive prior
notice of, and an invitation to attend, any meeting of the Board of Directors.
2.5. Special Meetings.
Special meetings of the Board of Directors may be called by the President of
the Corporation, or at the request of two or more directors. Each member of the
Board of Directors shall be given notice stating the time and place, by
telegram, letter, facsimile transmission or other electronic communication, or
in person, of each such special meeting.
2.6. Quorum.
A majority of the directors shall constitute a quorum at any meeting, except
when otherwise provided by law; but a lesser number may adjourn any meeting
from time to time, and the meeting may be held, as adjourned, without further
notice. Members of the Board of Directors or any committee thereof may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
2.7. Vacancies.
When any vacancy occurs among the directors, the remaining members of the Board
of Directors, in accordance with the laws of the State of Texas, may appoint a
director to fill such vacancy at any regular meeting of the Board of Directors,
or at a special meeting for that purpose.
2.8. Action Without a Meeting.
Any action required to be taken at a meeting of the Board of Directors of the
Corporation, or any action which may be taken at a meeting of the Board of
Directors or a committee thereof, may be taken without a meeting if a consent
in writing, setting forth the action so to be taken, signed by all of the
directors, or all the members of the committee, as the case may be, is filed in
the minutes of the proceedings of the Board of Directors or of the committee.
Such consent shall have the same effect as a unanimous vote.
<PAGE> 19
3.0
COMMITTEES OF THE BOARD
3.1 Examining Committee.
The Board of Directors shall annually appoint a committee of two or more
directors, which shall, at least once during each calendar year and within
fifteen months of the last such examination make suitable examinations of the
affairs of the Corporation, or cause suitable examinations to be made by
examiners responsible only to the Board of Directors, to ascertain whether the
Corporation is in sound financial condition, whether internal controls and
procedures are being maintained, and shall recommend to the Board of Directors
such changes in the manner of conducing the affairs of the Corporation as shall
be deemed advisable. Such reports shall state the results of such examinations
in writing to the Board of Directors at the next regular meeting thereafter.
3.2 Executive Committee.
There shall be an Executive Committee composed of two or more directors which
shall have and may exercise all the authority of the Board of Directors when
the Board of Directors is not in session, except that such committee shall not
have the authority to:
(a) approve or recommend to shareholders actions or proposals
required by law to be approved by shareholders,
(b) Designate candidates for the office of director, for purposes
of proxy solicitation or otherwise,
(c) fill vacancies on the Board of Directors or any committee
thereof,
(d) amend the By-Laws, or
(e) authorize or approve the issuance or sale of, or any contract
to issue or sell, shares, except that the Board of Directors,
having provided general authorization for the issuance or sale
of shares, or any contract therefore, may, pursuant to a
general formula or method specified by the Board of Directors,
by resolution or by adoption of a stock option or other plan,
authorize the Executive Committee to fix the terms of any
contract for the sale of the shares and to fix the terms upon
which such share may be issued or sold; provided, however,
that the Executive Committee shall secure the consent or
approval of U.S. Trust Corporation on behalf of the sole
shareholder of the Corporation evidenced by (i) a resolution
of its
<PAGE> 20
Board of Directors or (ii) written approval of its Chairman
or President to such action.
The Executive Committee shall keep minutes of its meetings, and such minutes
shall be submitted at the next regular meeting of the Board of Directors at
which a quorum is present, and any action taken by the Board of Directors with
respect thereto shall be entered in the minutes of the Board of Directors.
The Executive Committee shall meet at least once in each calendar month in
which a regular meeting of the Board of Directors is not scheduled.
<PAGE> 21
4.0
OFFICERS AND EMPLOYEES
4.1 Chairman of the Board.
The Board of Directors shall appoint one of its members to be Chairman of the
Board of Directors to serve at the pleasure of the Board of Directors. Such
person shall preside at all meetings of the Board of Directors. The Chairman of
the Board of Directors shall supervise the carrying out of the policies adopted
or approved by the Board of Directors; shall have general executive powers, as
well as the specific powers conferred by these By-Laws; shall also have and may
exercise such further powers and duties as from time to time may be conferred
upon or assigned by the Board of Directors.
4.2 President.
The Board of Directors shall appoint one of its members to be President of the
Corporation. In the absence of the Chairman, the President shall preside at any
meeting of the Board of Directors. The President shall have general executive
powers, and shall exercise any and all other powers and duties pertaining by
law, regulation or practice to the Office of President, or imposed by these
By-Laws. The President shall also exercise such further powers and duties as
from time to time may-be conferred or assigned by the Board of Directors.
4.3 Vice President.
The Board of Directors may appoint one or more Vice Presidents. Each Vice
President shall have such powers and duties as may be assigned by the Board of
Directors. One Vice President shall be designated by the Board of Directors, in
the absence of the President, to perform all the duties of the President.
4.4 Secretary.
The Board of Directors shall appoint a Secretary, Cashier, or other designated
officer who shall be Secretary of the Board of Directors and of the
Corporation, and shall keep accurate minutes of all meetings. The Secretary
shall attend to the giving of all notices required by these By-Laws to be
given; shall be custodian of the corporate seal, records, documents and papers
of the Corporation; shall have and may exercise any and all other powers and
duties pertaining by law, regulation or practice, to the Offices of the
Secretary or Cashier, or imposed by these By-Laws; and shall also perform such
other duties as may be assigned from time to time by the Board of Directors.
4.5 Other Officers.
The Board of Directors may appoint one or more Assistant Vice Presidents, one
or more Trust Officers, one or more Assistant Secretaries, one or more
Assistant Cashiers, one or more Managers and Assistant Managers of Branches and
such other officers and attorneys which from time to time may appear to the
Board of
<PAGE> 22
Directors to be required or desirable to transact the business of the
Corporation. Such officers shall respectively exercise such powers and perform
such duties as pertain to their several offices, or as may be conferred upon,
or assigned to them by the Board of Directors, the Chairman of the Board of
Directors, or the President.
4.6 Tenure of Office.
The President and all other officers shall hold office for the current year for
which the Board of Directors was elected, unless they shall resign, become
disqualified, or removed; and any vacancy occurring in the Office of the
President shall be filled promptly by the Board of Directors.
<PAGE> 23
5.0
TRUST DEPARTMENT
5.1 Trust Department.
There shall be a department of the Corporation known as the Trust Department
which shall perform the fiduciary responsibilities of the Corporation.
5.2 Trust Officer.
There shall be a Trust Officer of this Corporation whose duties shall be to
manage, supervise and direct all the activities of the Trust Department. Such
person shall do or cause to be done all things necessary or proper in carrying
on the business of the Trust Department in accordance with provisions of law
and applicable regulation; and shall act pursuant to opinions of counsel where
such opinions is deemed necessary. Opinions of counsel shall be retained on
file in connection with all important matters pertaining to fiduciary
activities. The Trust Officer shall be responsible for all assets and documents
held by the Corporation in connection with fiduciary matters.
The Board of Directors may appoint such other officers of the Trust Department
as it may deem necessary, with such duties as may be assigned.
5.3 Trust Investment Committee
There shall be a Trust Investment Committee of this Corporation composed of two
or more members, who shall be capable and experienced officers or directors of
the Corporation. All investments of funds held in a fiduciary capacity shall be
made, retained or disposed of only with the approval of the Trust Investment
Committee, and the Committee shall keep minutes of all its meetings, showing
the disposition of all matters it considers and passes upon. The Committee
shall, promptly after the acceptance of an account for which the Corporation
has investment responsibilities, review the assets thereof, to determine the
advisability of retaining or disposing of such assets. The Committee shall
conduct a similar review at least once during each calendar year thereafter.
The Trust Investment Committee or any sub-committee thereof shall additionally
exercise the Department's fiduciary authority over matters such as
discretionary distributions, account overdrafts, acceptance of new accounts,
closing of accounts, exceptions or changes to the published fee schedules, and
all other matters which require a high degree of corporate discretion.
A report of all investment reviews and other Committee actions shall be noted
in the minutes of the Committee.
<PAGE> 24
5.4 Trust Department Files
There shall be maintained in the Trust Department files containing all
fiduciary records necessary to assure that its fiduciary responsibilities have
been properly undertaken and discharged.
5.5 Trust Investments
Funds held in a fiduciary capacity shall be invested in accordance with the
instrument establishing the fiduciary relationship and permissible by law.
<PAGE> 25
6.0
STOCK AND STOCK CERTIFICATES
6.1 Transfers
Shares of stock shall be transferrable on the books of the Corporation, and a
transfer book shall be kept in which all transfers of stock shall be recorded.
Every person becoming a shareholder by such transfer shall, in proportion to
his shares, succeed to all rights of the prior holder of such shares.
6.2 Stock Certificates
Certificates of stock shall bear the signature of the Chairman (which may be
engraved, printed, or impressed) and Secretary, Cashier, Assistant Cashier, or
any other officer appointed by the Board of Directors for that purpose, to be
known as an Authorized Officer, and the seal of the Corporation shall be
engraved thereon. Each certificate shall recite on its face that the stock
represented thereby is transferrable only upon the books of the Corporation
properly endorsed.
<PAGE> 26
7.0
CORPORATE SEAL
7.1
The President, the Cashier, the Secretary or any Assistant Cashier or Assistant
Secretary, or other officer thereunto designated by the Board of Directors,
shall have the authority to affix the corporate seal to any document requiring
such seal, and to attest the same. Such seal shall be substantially in the
following form:
Impression
of
Seal
<PAGE> 27
8.0
MISCELLANEOUS PROVISIONS
8.1 Fiscal Year
The Fiscal Year of the Corporation shall be the calendar year.
8.2 Execution of Instruments
All agreements, indentures, mortgages, deeds, conveyances, transfers,
certificates, declarations, receipts, discharges, releases, satisfactions,
settlements, petitions, schedules, accounts, affidavits, bonds, undertakings,
proxies and other instruments or documents may be signed, executed,
acknowledged, verified, delivered or accepted on behalf of the Corporation by
the Chairman of the Board, or the President, or any Vice President, or the
Secretary, or the Cashier, or, if in connection with exercise of fiduciary
powers of the Corporation, by any of said officers or by any Trust Officer.
Any such instruments may also be executed, acknowledged, verified, delivered or
accepted on behalf of the Corporation in such other manner and by such other
officers or agents as the Board of Directors may from time to time direct. The
provisions of this Section 8.2 are supplementary to any other provision of
these By-Laws.
8.3 Records
The Articles of Incorporation, the By-laws and the proceedings of all meetings
of the shareholders, the Board of Directors, and standing committees of the
Board shall be recorded in appropriate minute books provided for the purpose.
The minutes of each meeting shall be signed by the Secretary, Cashier or other
Officer appointed to act as Secretary of the meeting.
<PAGE> 28
9.0
BY-LAWS
9.1 Inspection
A copy of the By-Laws, with all amendments thereto, shall at all times be kept
in a convenient place at the Main Office of the Corporation, and shall be open
for inspection to all shareholders, during business hours.
9.2 Amendments
The By-Laws may be amended, altered, or repealed, at any regular or special
meeting of the Board of Directors, by a vote of a majority of the total number
of the Directors.
<PAGE> 29
10.0
INDEMNIFICATION
10.1 Indemnified Person
To the extent permitted and in the manner prescribed by law, the Corporation
shall indemnify any person ("indemnified person") made or threatened to be made
a party to any action, suit or proceeding, whether civil or criminal, by reason
of the fact that he, his testator or intestate, is or was a director, advisory
board member or officer of the Corporation or served any other corporation of
any type or kind, domestic or foreign, or any partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity at the request
of the Corporation, against judgments, fines, amounts paid in settlement and
reasonable expenses (which the Corporation may advance), including attorney's
fees, actually and necessarily incurred as a result of such action, suit or
proceeding, or any appeal therein. The foregoing right of indemnification shall
not be exclusive of any other right to which any such person may be entitled
but shall not apply in the event of misconduct or gross negligence of the
proposed indemnified person.
<PAGE> 30
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 2000
- -------------------------------------------------------------------------------------------------------------------------
[1]
[LOGO] Please refer to page i,
Table of Contents, for
the required disclosure
of estimated burden
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC OFFICES ONLY AND TOTAL ASSETS
OF LESS THAN $100 MILLION -- FFIEC 034
(970331)
REPORT AT THE CLOSE OF BUSINESS JUNE 30, 1997 -----------
(RCRI 9999)
This report is required by law: 12 U.S.C. Section 324 (State This report form is to be filed by banks with domestic
member banks); 12 U.S.c. Section 1817 (State nonmember offices only. Banks with branches and consolidated
banks); and 12 U.S.C. Section 161 (National banks). subsidiaries in U.S. territories and possessions,
Edge or Agreement subsidiaries, foreign branches,
consolidated foreign subsidiaries, or International
Banking Facilities must file FFIEC 031.
- -------------------------------------------------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by The Reports of Condition and Income are to be
an authorized officer and the Report of Condition must be prepared in accordance with Federal regulatory
attested to by not less than two directors (trustees) for authority instructions. NOTE: These instructions may
State nonmember banks and three directors for State member in some cases differ from generally accepted
and National Banks. accounting principles.
I, Alfred B. Childs, SVP & Cashier We, the undersigned directors (trustees), attest to
-------------------------------------------------------- the correctness of this Report of Condition
Name and Title of Officer Authorized to Sign Report (including the supporting schedules) and declare that
it has been examined by us and to the best of our
of the named bank do hereby declare that these Reports of knowledge and belief has been prepared in conformance
Condition and Income (including the supporting schedules) with the instructions issued by the appropriate
have been prepared in conformance with the instructions Federal regulatory authority and is true and correct.
issued by the appropriate Federal regulatory authority and
are true to the best of my knowledge and belief. /s/ William Goodwin
-----------------------------------------------------
Director (Trustee)
/s/ Alfred B. Childs
- ------------------------------------------------------------- /s/ Arthur C. White
Signature of Officer Authorized to Sign Report -----------------------------------------------------
Director (Trustee)
July 16, 1997 /s/ J.T. Moore
- ------------------------------------------------------------- -----------------------------------------------------
Date of Signature Director (Trustee)
- -------------------------------------------------------------------------------------------------------------------------
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANKS: Return the original and one copy to the NATIONAL BANKS: Return the original only in the
appropriate Federal Reserve District Bank. special return address envelope provided. If express
mail is used in lieu of the special return address
STATE NONMEMBER BANKS: Return the original only in the envelope, return the original only to the FDIC, c/o
special return address envelope provided. If express mail is Quality Data Systems, 2127 Espey Court, Suite 204,
used in lieu of the special return address envelope, return Crofton, MD 21114.
the original only to the FDIC, c/o Quality Data Systems,
2127 Espey Court, Suite 204, Crofton, MD 21114.
- -------------------------------------------------------------------------------------------------------------------------
06-30-97
FDIC Certificate Number Banks should affix the address label in this space.
-----------
(RCRI 9050) U.S. Trust Company of Texas, National Association
-------------------------------------------------
Legal Title of Bank (TEXT 9010)
2001 Ross Avenue, Suite 2700
----------------------------
City (TEXT 9130)
Dallas, TX 75201
-----------------------------------------
State Abbrev. (TEXT 9200) ZIP Code (TEXT 9920)
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency
</TABLE>
<PAGE> 31
<TABLE>
<S> <C> <C> <C>
U.S. Trust Company of Texas, N.A. Call Date: 06/30/97 State #: 6797 FFIEC 034
2100 Ross Avenue, Suite 2700 Vendor ID: D Cert #: 33217 Page RC-2
Dallas, TX 75201 Transit #: 11101765
----------
9
----------
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED
COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC -- Balance Sheet
<TABLE>
<CAPTION>
C100
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RCON
----
ASSETS
1. Cash and balances due from depository institutions:
a. Noninterest-bearing balances and currency and coin(1,2)............................... 0081 996 1.a
b. Interest bearing balances(3).......................................................... 0071 679 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)............................ 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D).......................... 1773 96,249 2.b
3. Federal funds sold (4) and securities purchased under agreements to resell: 1350 7,000 3
4. Loans and lease financing receivables: RCON
----
a. Loans and leases, net of unearned income (from Schedule RC-C)... 2122 43,923 4.a
b. LESS: Allowance for loan and lease losses....................... 3123 531 4.b
c. LESS: Allocated transfer risk reserve........................... 3128 0 4.c
RCON
d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b ----
and 4.c).............................................................................. 2125 43,392 4.d
5. Trading assets ............................................................................ 3545 0 5.
6. Premises and fixed assets (including capitalized leases)................................... 2145 725 6.
7. Other real estate owned (from Schedule RC-M)............................................... 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule
RC-M)...................................................................................... 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding............................... 2155 0 9.
10. Intangible assets (from Schedule RC-M)..................................................... 2143 0 10.
11. Other assets (from Schedule RC-F).......................................................... 2160 1,539 11.
12. a. Total assets (sum of items 1 through 11)................................................ 2170 150,580 12.a
b. Losses deferred pursuant to U.S.C. 1823(j).............................................. 0306 0 12.b
c. Total assets and losses deferred pursuant to 12 U.S.C. 1823(j)
(sum of items 12.a and 12.b)............................................................ 0307 150,580 12.c
</TABLE>
(1) Includes cash items in process of collection and unposted debits.
(2) The amount reported in this item must be greater than or equal to the sum of
Schedule RC-M, items 3.a and 3.b.
(3) Includes time certificates of deposit not held for trading.
(4) Report `term federal funds sold' in Schedule RC, item 4.a, `Loans and
leases, net of unearned income', and in Schedule RC-C, part 1.
(5) Report securities purchased under agreements to resell that involve the
receipt of immediately available funds and mature in one business day or
roll over under a continuing contract in Schedule RC, item 3.a, `Federal
Funds sold.'
<PAGE> 32
<TABLE>
<S> <C> <C> <C>
U.S. Trust Company of Texas, N.A. Call Date: 06/30/97 State #: 6797 FFIEC 034
2100 Ross Avenue, Suite 2700 Vendor ID: D Cert #: 33217 Page RC-2
Dallas, TX 75201 Transit #: 11101765
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10
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</TABLE>
SCHEDULE RC -- CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from
Schedule RC-E)................................................................ RCON 2200 116,826 13.a
(1) Noninterest-bearing(1).......................... RCON 6631 7,804 13.a.1
(2) Interest-bearing................................ RCON 6636 109,022
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs...............
(1) Noninterest-bearing.....................................................
(2) Interest-bearing........................................................
14. Federal funds purchased(2) and securities sold under agreements to repurchase: RCON 2800 0 14.
15. a. Demand notes issued to the U.S. Treasury.................................... RCON 2840 0 15.a
b. Trading liabilities......................................................... RCON 3548 0 15.b
16. Other borrowed money:
a. WITH A REMAINING MATURITY OF ONE YEAR OR LESS............................... RCON 2332 5,000 16.a
b. WITH A REMAINING MATURITY OF MORE THAN ONE YEAR THROUGH THREE YEARS......... RCON A547 3,000 16.b
c. WITH A REMAINING MATURITY OF MORE THAN THREE YEARS.......................... RCON A548 3,000 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding....................... RCON 2920 0 18.
19. Subordinated notes and debentures.............................................. RCON 3200 0 19.
20. Other liabilities (from Schedule RC-G)......................................... RCON 2930 1,393 20.
21. Total liabilities (sum of items 13 through 20)................................. RCON 2948 129,219 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.................................. RCON 3838 7,000 23.
24. Common stock................................................................... RCON 3230 500 24.
25. Surplus (exclude all surplus related to preferred stock)....................... RCON 3839 8,384 25.
26. a. Undivided profits and capital reserves...................................... RCON 3632 5,404 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities...... RCON 8434 73 26.b
27. Cumulative foreign currency translation adjustments............................
28. a. Total equity capital (sum of items 23 through 27)........................... RCON 3210 21,361 28.a
b. Losses deferred pursuant to 12 U.S.C. 1823(j)............................... RCON 0306 0 28.b
c. Total equity capital and losses deferred pursuant to 12 U.S.C. 1823(j)
(sum of items 28.a and 28.b)................................................ RCON 3559 21,361 28.c
29. Total liabilities, limited-life preferred stock, equity capital, and losses
deferred pursuant to 12 U.S.C. 1823(j) (sum of items 21, 22 and 28.c).......... RCON 2257 150,580 29.
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the bank
by independent external auditors as of any date during 1995..................... RCON 6724 N/A M.1
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Report "term federal funds purchased" in Schedule RC, item 16, 'Other
borrowed money.'
(3) Report securities sold under agreements to repurchase that involve the
receipt of immediately available funds and mature in one business day or
roll over under a continuing contract in Schedule RC, item 14.a, 'Federal
funds purchased.'
<PAGE> 33
Exhibit T-1.6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939 as amended in connection with the proposed issue of Cinemark USA, Inc.
9 5/8% Series C Senior Subordinated Notes due 2008, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefore.
U.S. Trust Company of Texas, N.A.
By:
----------------------------
Bill Barber
Vice President
