<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1997.
REGISTRATION NO. 333-________________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
CINEMARK USA, INC.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
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)
---------------------------
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
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
---------------------------
<TABLE>
<CAPTION>
===================================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9-5/8% Series D Senior Subordinated $75,000,000 100% $75,000,000 $22,727.28
Notes due 2008..........................
===================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrants
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
===============================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated August 6, 1997
PRELIMINARY 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
---------------------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 p.m., NEW YORK CITY TIME,
ON _________, 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)
<PAGE> 3
The Company will not receive any proceeds from the Exchange Offer and will
pay all the expenses incident to the Exchange Offer. Tenders of Series 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.
---------------------------
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 ______________, 1997
3
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Series 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).
4
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Company's Consolidated Financial Statements, including the
notes thereto, appearing elsewhere in this Prospectus. Unless the context
otherwise requires, references in this 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 July 31, 1997, the
Company operated 1,648 screens in 183 theatres located in 29 states, Canada,
Chile, Mexico, Brazil, Argentina, Peru, El Salvador and Japan consisting of
1,296 screens in 137 "first run" theatres and 352 screens in 46 "discount"
theatres. Of the Company's 1,648 screens, 1,135 (or 69%) 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 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,
5
<PAGE> 6
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
6
<PAGE> 7
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.
7
<PAGE> 8
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).
8
<PAGE> 9
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 __________,
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
9
<PAGE> 10
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."
10
<PAGE> 11
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
11
<PAGE> 12
"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."
12
<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 August 4, 1997, the Company had total outstanding indebtedness of
$372.3 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 August 4, 1997, the Company had outstanding $68
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 August 4, 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 August 4,
1997, the Company had expended approximately $73.9 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
___________, 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 $68
million and the effective interest rate on such borrowing was 6.6%. 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.
32
<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 July 31, 1997, the Company opened in the U.S. six theatres (73 screens)
and has 11 theatres (142 screens) under construction. In addition, as of August
4, 1997, the Company has 26 theatres (285 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 August 4, 1997, the Company had
expended approximately $73.9 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 August 4, 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
37
<PAGE> 38
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 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.
38
<PAGE> 39
BUSINESS
THE COMPANY
The Company is the fifth largest motion picture exhibitor in North
America in terms of the number of screens in operation. At July 31, 1997, the
Company operated 1,648 screens in 183 theatres located in 29 states, Canada,
Chile, Mexico, Brazil, Argentina Peru, El Salvador and Japan, consisting of
1,296 screens in 137 "first run" theatres and 352 screens in 46 "discount"
theatres. Of the Company's 1,648 screens, 1,135 (or 69%) 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.
39
<PAGE> 40
<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
40
<PAGE> 41
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
41
<PAGE> 42
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.
42
<PAGE> 43
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
43
<PAGE> 44
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,
44
<PAGE> 45
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 1,441 screens operated by the Company in the U.S. at July 31, 1997,
27 theatres (328 screens) were owned, 128 theatres (1,035 screens) were leased
pursuant to building leases, two theatres (14 screens) were leased pursuant to
ground leases and four theatres (54 screens) were managed. The Company's leases
are generally entered into on a long term basis with terms (including options)
generally ranging from 20 to 40 years. Approximately 30 of the Company's
theatre leases (covering 151 screens) have remaining terms (including renewal
periods) of less than five years and approximately 39 of the Company's theatre
leases (covering 403
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 July 31, 1997, the Company operated 21 theatres (207 screens) outside
of the U.S. with 10 theatres (107 screens) under commitment with executed
leases. Of the 21 theatres operated outside of the U.S., 20 theatres (195
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 July 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>
56
<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."
57
<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.
58
<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 July 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.
59
<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.
60
<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.
61
<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 July 31, 1997, the Company had outstanding approximately
$58 million of Senior Indebtedness. The Notes are effectively subordinated to
Indebtedness of the Company's subsidiaries, which aggregated $26.8 million as
of July 31, 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
62
<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.
63
<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
64
<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
65
<PAGE> 66
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,
66
<PAGE> 67
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.
67
<PAGE> 68
"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.
68
<PAGE> 69
"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
69
<PAGE> 70
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.
70
<PAGE> 71
"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
71
<PAGE> 72
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.
72
<PAGE> 73
"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
73
<PAGE> 74
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).
74
<PAGE> 75
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
75
<PAGE> 76
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
76
<PAGE> 77
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
77
<PAGE> 78
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
78
<PAGE> 79
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
79
<PAGE> 80
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.
80
<PAGE> 81
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.
81
<PAGE> 82
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
82
<PAGE> 83
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.
83
<PAGE> 84
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
84
<PAGE> 85
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
85
<PAGE> 86
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
86
<PAGE> 87
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
87
<PAGE> 88
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
88
<PAGE> 89
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.
89
<PAGE> 90
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.
90
<PAGE> 91
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.
91
<PAGE> 92
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
92
<PAGE> 93
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 August 4, 1997, the effective interest rate was 6.6%.
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
---------------------------
_________, 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
***To be filed by amendment
(b) Financial Statement Schedules
All of the Financial Statement Schedules have been omitted because
they are not applicable or not required or the required information is
included in the Financial Statements or notes thereto.
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 August 6, 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 August 6, 1997
- --------------------------------
Lee Roy Mitchell Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
/s/ Tandy Mitchell Director, Executive Vice August 6, 1997
- --------------------------------
Tandy Mitchell President and Secretary
/s/ Alan W. Stock
- --------------------------------
Alan W. Stock Director August 6, 1997
/s/ Jeffrey J. Stedman Vice President (Principal
- --------------------------------
Jeffrey J. Stedman Financial Officer)
August 6, 1997
/s/ W. Bryce Anderson Director August 6, 1997
- --------------------------------
W. Bryce Anderson
/s/ Heriberto Guerra, Jr. Director August 6, 1997
- --------------------------------
Heriberto Guerra, Jr.
/s/ James L. Singleton Director August 6, 1997
- --------------------------------
James L. Singleton
/s/ James A. Stern Director August 6, 1997
- --------------------------------
James A. Stern
/s/ Denny Rydberg Director August 6, 1997
- --------------------------------
Denny Rydberg
</TABLE>
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 Page ______
Company and Bear, Stearns & Co. Inc., Goldman Sachs
& Co. Inc. and Morgan Stanley & Co. Incorporated
3.1(a) Amended and Restated Articles of Incorporation of the 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 Page ______
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 Page ______
4.3 Exchange Registration Rights Agreement dated June 26, Page ______
1997 between the Company and Bear, Stearns & Co. Inc.
***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. Page ______
21 Subsidiaries of the Registrant Page ______
23.1 Consent of Deloitte & Touche LLP, Independent Auditors
***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 1
CONFORMED COPY
CINEMARK USA, INC.
$75,000,000
9-5/8% Series C Senior Subordinated Notes due 2008
PURCHASE AGREEMENT
June 20, 1997
BEAR, STEARNS & CO. INC.
<PAGE> 2
CINEMARK USA, INC.
$75,000,000
9-5/8% Series C Senior Subordinated Notes due 2008
PURCHASE AGREEMENT
June 20, 1997
New York, New York
BEAR, STEARNS & CO. INC.
245 Park Avenue
New York, New York 10167
Ladies & Gentlemen:
Cinemark USA, Inc., a Texas corporation ("Cinemark"), proposes
to issue and sell to Bear, Stearns & Co. Inc. (the "Initial Purchaser") an
aggregate of $75,000,000 principal amount of 9-5/8% Series C Senior
Subordinated Notes due 2008 (the "Series C Notes"), subject to the terms and
conditions set forth herein. The Series C Notes will be issued pursuant to an
indenture (the "Indenture"), to be dated the Closing Date (as defined below),
between Cinemark and U.S. Trust Company of Texas, N.A., as trustee (the
"Trustee") which shall be in a form substantially similar to that certain
existing indenture between Cinemark and the Trustee dated as of August 15,
1996.
1. ISSUANCE OF SECURITIES.
Cinemark proposes, upon the terms and subject to the
conditions set forth herein, to issue and sell to the Initial Purchaser an
aggregate of $75,000,000 principal amount of Series C Notes. The Series C
Notes and the Series D Notes (as defined below) issuable in exchange therefor
are collectively referred to herein as the "Securities." The proceeds to
Cinemark from the sale to the Initial Purchaser of the Series C Notes will be
used as described under "Use of Proceeds" in the Offering Memorandum (as
defined below).
Upon original issuance thereof, and until such time as the
same is no longer required under the applicable requirements of the Securities
Act of 1933, as amended (the "Act"), the Series C Notes (and all securities
issued in exchange therefor or in substitution thereof) shall bear the
following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD TO, OR FOR THE ACCOUNT OR BENEFIT
OF, ANY PERSON EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE.
BY ITS ACQUISITION HEREOF, THE HOLDER AGREES THAT IT WILL NOT
PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE
DATE OF ORIGINAL ISSUANCE OF THIS SECURITY AND THE LAST DATE
ON WHICH CINEMARK OR ANY AFFILIATE OF CINEMARK WAS THE OWNER
OF THIS SECURITY (THE "RESALE RESTRICTION TERMINATION DATE")
RESELL, PLEDGE OR OTHERWISE TRANSFER THIS SECURITY, EXCEPT (A)
TO CINEMARK, (B) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE
FOR
<PAGE> 3
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A
PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF ANOTHER QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH THE RESALE PROVISIONS OF RULE 144A, (C) PURSUANT TO
OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN
THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (D)
PURSUANT TO THE RESALE LIMITATIONS PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
(F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (BASED UPON
AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO CINEMARK IF
CINEMARK SO REQUESTS) SUBJECT IN EACH OF THE FOREGOING CASES
TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY
OR THE PROPERTY OF SUCH ACCOUNT BE AT ALL TIMES WITHIN ITS
CONTROL AND TO COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. THE FOREGOING RESTRICTIONS ON
RESALE WILL NOT APPLY SUBSEQUENT TO THE RESALE RESTRICTION
TERMINATION DATE.
2. OFFERING.
The Series C Notes will be offered and sold to the Initial
Purchaser pursuant to an exemption from the registration requirements under the
Act. Cinemark will prepare an offering memorandum dated the date hereof in
form and substance satisfactory to the Initial Purchaser (the "Offering
Memorandum"), relating to Cinemark and its subsidiaries and the issuance of the
Series C Notes.
The Initial Purchaser has advised Cinemark that the Initial
Purchaser will make offers of the Series C Notes on the terms to be set forth
in the Offering Memorandum, as amended or supplemented, solely to persons whom
the Initial Purchaser reasonably believes to be "qualified institutional
buyers," as defined in Rule 144A under the Act ("QIBs"). The QIBs also are
referred to herein as the "Eligible Purchasers." Sales to Eligible Purchasers
under this Agreement are referred to herein as "Exempt Resales" The Initial
Purchaser will offer the Series C Notes to such Eligible Purchasers at prices
to be determined by the Initial Purchaser from time to time.
Holders (including subsequent transferees) of the Series C
Notes will have the registration rights set forth in an exchange registration
rights agreement relating thereto (the "Registration Rights Agreement"), to be
dated the Closing Date, which will be in substantially the form of that certain
registration rights agreement dated as of August 15, 1996 by and among Cinemark
and the Purchasers named therein, for so long as such Series C Notes constitute
"Transfer Restricted Securities" (as defined in such Registration Rights
Agreement). Pursuant to terms and conditions contained in the Registration
Rights Agreement, Cinemark will agree to use its best efforts to file with the
Securities and Exchange Commission (the "Commission"), under the circumstances
set forth therein, (i) a registration statement under the Act (the "Exchange
Offer Registration Statement") relating to the 9-5/8% Senior Subordinated
2
<PAGE> 4
Notes due 2008, Series D (the "Series D Notes") to be offered in exchange for
the Series C Notes (the "Exchange Offer") and (ii) a shelf registration
statement pursuant to Rule 415 under the Act (the "Shelf Registration
Statement") relating to the resale by certain holders of the Series C Notes,
and to use its best efforts to cause such Registration Statements to be
declared effective and to consummate the Exchange Offer. This Purchase
Agreement (this "Agreement"), the Securities, the Indenture and the
Registration Rights Agreement are hereinafter sometimes referred to
collectively as the "Operative Documents."
3. PURCHASE, SALE AND DELIVERY.
(a) On the basis of the representations, warranties and
covenants contained in this Agreement, and subject to its terms and conditions,
Cinemark agrees to issue and sell to the Initial Purchaser, and the Initial
Purchaser agrees to purchase from Cinemark, that aggregate principal amount of
Series C Notes set forth opposite its name on Schedule I hereto. The Initial
Purchaser shall pay a purchase price equal to 103% of the principal amount of
the Series C Notes.
(b) Delivery of, and payment of the purchase price for, the
Notes shall be made at the offices of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., 1700 Pacific Avenue, Suite 4100, Dallas, Texas 75201 or such other
location as may be mutually acceptable. Such delivery and payment shall be
made at 9:30 a.m. New York City time on June 26, 1997 or at such other date and
time as shall be agreed upon by the Initial Purchaser and Cinemark. The time
and date of such delivery and the payment of the purchase price are herein
called the "Closing Date."
(c) On the Closing Date, one or more of the Series C Notes in
definitive form, registered in such names and in such denominations as
specified by the Initial Purchaser at least two business days prior to such
date, having an aggregate principal amount of $75,000,000 shall be delivered by
Cinemark to the Initial Purchaser (or as the Initial Purchaser directs),
against payment by the Initial Purchaser of the purchase price therefor by wire
transfer of same day funds to an account or accounts designated by Cinemark,
provided that Cinemark shall give at least two business days' prior written
notice to the Initial Purchaser of the information required to effect such wire
transfer. The Series C Notes shall be made available to the Initial Purchaser
for inspection not later than 9:30 a.m. New York City time on the business day
immediately preceding the Closing Date.
4. AGREEMENTS OF CINEMARK.
Cinemark covenants and agrees with the Initial Purchaser as
follows:
(a) To advise the Initial Purchaser promptly and, if
requested by the Initial Purchaser, confirm such advice in writing, of
(i) the issuance by any state securities commission of any stop order
suspending the qualification or exemption from qualification of any of
the Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purpose by any state securities
commission or other regulatory authority and (ii) the happening of any
event that makes any statement of a material fact made in the Offering
Memorandum untrue or that requires the making of any additions to or
changes in the Offering Memorandum in order to make the statements
therein, in the light of the circumstances under which they are made,
not misleading. Cinemark shall use its best efforts to prevent the
issuance of any stop order or order suspending the qualification or
exemption of any of the Securities under any state securities or Blue
3
<PAGE> 5
Sky laws and, if at any time any state securities commission or other
regulatory authority shall issue an order suspending the qualification
or exemption of any of the Securities under any state securities or
Blue Sky laws, Cinemark shall use its best efforts to obtain the
withdrawal or lifting of such order at the earliest practicable time.
(b) To furnish the Initial Purchaser and those persons
identified by the Initial Purchaser to Cinemark, without charge, as
many copies of the Offering Memorandum, and any amendments or
supplements thereto, as the Initial Purchaser may reasonably request.
Cinemark consents to the use of the Offering Memorandum, and any
amendments and supplements thereto required pursuant hereto, by the
Initial Purchaser in connection with Exempt Resales.
(c) Not to amend or supplement the Offering Memorandum prior
to the Closing Date unless the Initial Purchaser shall previously have
been advised thereof and shall have consented to, or not have
reasonably objected thereto, in writing within a reasonable time after
being furnished a copy thereof. Cinemark shall promptly prepare, upon
the Initial Purchaser's request, any amendment or supplement to the
Offering Memorandum that the Initial Purchaser or Cinemark believe may
be necessary or advisable in connection with Exempt Resales.
(d) If, after the date hereof and prior to consummation of
any Exempt Resale, any event shall occur as a result of which, in the
judgment of Cinemark or in the opinion of counsel for Cinemark or
counsel for the Initial Purchaser, it becomes necessary or advisable
to amend or supplement the Offering Memorandum in order to make the
statements therein, in the light of the circumstances when such
Offering Memorandum is delivered to an Eligible Purchaser which is a
prospective purchaser, not misleading, or if it is necessary or
advisable to amend or supplement the Offering Memorandum to comply
with applicable law, (i) to notify the Initial Purchaser and (ii)
forthwith to prepare an appropriate amendment or supplement to such
Offering Memorandum so that the statements therein as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that such Offering Memorandum will
comply with applicable law.
(e) To cooperate with the Initial Purchaser and counsel for
the Initial Purchaser in connection with the qualification or
registration of the Series C Notes under the securities or Blue Sky
laws of such jurisdictions as the Initial Purchaser may reasonably
request and to continue such qualification in effect so long as
required for the Exempt Resales; provided, however that Cinemark shall
not be required in connection therewith to register or qualify as a
foreign corporation where it is not now so qualified or to take any
action that would subject it to service of process in suits or
taxation, in each case, except as to matters and transactions relating
to Exempt Resales, in any jurisdiction where it is not now so subject.
(f) To use the proceeds from the sale of the Series C Notes
in the manner described in the Offering Memorandum under the caption
"Use of Proceeds."
(g) Not to claim voluntarily, and to resist actively any
attempts to claim, the benefit of any usury laws against the holders
of any Securities.
(h) To do and perform all things required to be done and
performed under this Agreement by it prior to the Closing Date and use
its best efforts to satisfy all conditions precedent on its part to
the delivery of the Series C Notes.
(i) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act)
that would be integrated with the sale of the Series C Notes in
4
<PAGE> 6
a manner that would require the registration under the Act of the sale
to the Initial Purchaser or the QIBs of the Series C Notes or to take
any other action that would result in the Exempt Resales not being
exempt from registration under the Act.
(j) For so long as any of the Securities remain outstanding
and during any period in which Cinemark is not subject to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to make available to any holder of Series C Notes in
connection with any sale thereof and any prospective purchaser of such
Series C Notes designated by such holder, the information required by
Rule 144A(d)(4) under the Act.
(k) To use its best efforts to cause the Exchange Offer to be
made in accordance with and subject to the terms set forth in the
Registration Rights Agreement in the appropriate form to permit
registered Series D Notes to be offered in exchange for the Series C
Notes and to comply with all applicable federal and state securities
laws in connection with the Exchange Offer.
(l) To comply in all material respects with all of the
agreements set forth in the Operative Documents and in the
representation letter of Cinemark to The Depository Trust Company
("DTC") relating to the approval of the Securities by DTC for
"book-entry" transfer.
(m) To cooperate with the Initial Purchaser to effect the
inclusion of the Securities in the National Association of Securities
Dealers, Inc. ("NASD") Private Offering, Resales and Trading through
Automated Linkages ("PORTAL") market and to obtain approval of the
Securities by DTC for "book-entry" transfer.
(n) During a period of two years following the Closing Date,
to deliver without charge to the Initial Purchaser promptly upon their
becoming available, copies of (i) all reports or other publicly
available information that Cinemark shall mail or otherwise make
available to its stockholders and (ii) all reports, financial
statements and proxy or information statements filed by Cinemark with
the Commission or any national securities exchange and such other
publicly available information concerning Cinemark and its
subsidiaries including without limitation, press releases, as the
Initial Purchaser may reasonably request.
(o) Not to, and to cause its affiliates not to, offer, sell,
contract to sell or grant any option to purchase or otherwise transfer
or dispose of any Securities or any other debt security issued by
Cinemark (other than a private loan, credit or financing agreement
with a bank or similar financing institution) or any security
convertible into or exchangeable or exercisable for any such debt
security, for a period of 90 days after the Closing Date, without the
Initial Purchaser's prior written consent, except for (i) sales or
transfers between affiliates of Cinemark and (ii) the issue and
exchange of Series D Notes for Series C Notes in the Exchange Offer.
(p) Prior to the Closing Date, to furnish to the Initial
Purchaser, as soon as they have been prepared by Cinemark, a copy of
any unaudited interim financial statements for any period subsequent
to the periods covered by the financial statements appearing in the
Offering Memorandum.
(q) Not to and not to permit any of its subsidiaries to take,
directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of Cinemark to facilitate
the sale or resale of either the Series C Notes or the Series D Notes.
Except as permitted by the Act, Cinemark will not
5
<PAGE> 7
distribute any (i) offering memorandum, including, without limitation,
the Offering Memorandum or (ii) other offering material, in connection
with the offering and sale of the Securities.
5. REPRESENTATIONS AND WARRANTIES.
(a) Cinemark represents and warrants to the Initial Purchaser
that as of the date hereof (except as otherwise expressly provided):
(i) The Offering Memorandum is being prepared in
connection with the Exempt Resales. The Offering Memorandum and any
supplement or amendment to it will not contain any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties contained
in this paragraph shall not apply to statements in or omissions from
the Offering Memorandum (or any supplement or amendment thereto) made
in reliance upon and in conformity with information relating to the
Initial Purchaser furnished to Cinemark in writing by the Initial
Purchaser expressly for use therein. No stop order preventing the use
of the Offering Memorandum, or any amendment or supplement thereto, or
any order asserting that any of the transactions contemplated by this
Agreement are subject to the registration requirements of the Act, has
been issued.
(ii) Cinemark (x) has been duly organized and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, (y) has all requisite corporate power
and authority to carry on its business as it is being conducted
currently and as will be described in the Offering Memorandum and to
own, lease and operate its properties, and (z) is duly qualified and
in good standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its ownership
or leasing of property requires such qualification, except where the
failure to be so qualified (a) could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on
the properties, business, results of operations or financial condition
of Cinemark and its subsidiaries taken as a whole or (b) could not,
individually or in the aggregate, reasonably be expected to materially
interfere with or materially adversely affect the issuance of the
Securities pursuant hereto, or (c) could not in any manner interfere
with Cinemark's ability to perform its obligations under this
Agreement or any other Operative Document or any of the transactions
to be described in the Offering Memorandum under the caption "Use of
Proceeds" (any of the events set forth in clauses (a), (b) or (c), a
"Material Adverse Effect").
(iii) Each of Cinemark International, Inc. and Cinemark
Properties, Inc. (collectively, the "Material Subsidiaries") (A) has
been duly organized or incorporated, as applicable, and is validly
existing and in good standing under the laws of its jurisdiction of
organization or incorporation, (B) has all requisite power (corporate
or other) and authority to carry on its business as it is currently
being conducted and as will be described in the Offering Memorandum
and to own, lease and operate its properties, and (C) is duly
qualified and in good standing as a foreign organization or
corporation, as applicable, authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the
failure to be so qualified could not reasonably be expected to have a
Material Adverse Effect.
(iv) All of the issued and outstanding shares of capital
stock of Cinemark's subsidiaries have been duly authorized, validly
issued and are fully paid and nonassessable and were not issued
6
<PAGE> 8
in violation of any preemptive or similar rights. Cinemark owns,
directly or indirectly, shares of capital stock of each of its
subsidiaries, as listed on Schedule 5(a)(iv). Except as will be set
forth in the Offering Memorandum, all such shares of capital stock of
its subsidiaries are owned, directly or indirectly, by Cinemark free
and clear of any material lien, encumbrance, claim, security interest,
restriction on transfer, stockholders' agreement, voting trust or
other restrictions. Cinemark does not directly or indirectly own any
shares of capital stock or any other securities or any corporation or
have any equity interest in any firm, partnership, association or
other entity except as described on Schedule 5(a)(iv).
(v) All of the outstanding shares of capital stock of
Cinemark have been duly authorized, validly issued, and are fully paid
and nonassessable and were not issued in violation of any preemptive
or similar rights. On March 31, 1997, after giving pro forma effect
to the issuance and sale of the Series C Notes pursuant hereto and the
other transactions described therein, Cinemark would have had an
authorized and outstanding capitalization as will be set forth in the
Offering Memorandum under the caption "Capitalization," subject to the
notes and assumptions included therein.
(vi) Except as will be set forth in the Offering
Memorandum, there are not currently any outstanding material
subscriptions, rights, warrants, calls, commitments of sale or options
to acquire, or instruments convertible into or exchangeable for,
capital stock or other equity interests of Cinemark or any of its
subsidiaries.
(vii) Cinemark has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
Operative Documents and to consummate the transactions contemplated
hereby and thereby, including, without limitation, the corporate power
and authority to issue, sell and deliver the Securities as provided
herein and therein.
(viii) When the Series C Notes are issued and delivered
pursuant to this Agreement, no Series C Note will be of the same class
(within the meaning of Rule 144A under the Act) as securities of
Cinemark that are listed on a national securities exchange under
Section 6 of the Exchange Act or that are quoted in a United States
automated inter-dealer quotation system.
(ix) This Agreement has been duly and validly authorized,
executed and delivered by Cinemark and (assuming the due
authorization, execution and delivery of this Agreement by the Initial
Purchaser) is the legal, valid and binding agreement of Cinemark,
enforceable against Cinemark in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity (regardless of
whether such enforcement is sought in a proceeding in equity or at
law) (the "Enforceability Exceptions").
(x) The Indenture has been duly and validly authorized by
Cinemark and, when duly executed and delivered by Cinemark, the
Indenture will be the legal, valid and binding obligation of Cinemark,
enforceable against Cinemark in accordance with its terms, subject to
the Enforceability Exceptions. The Offering Memorandum will contain
an accurate summary of the material terms of the Indenture.
(xi) The Registration Rights Agreement has been duly and
validly authorized by Cinemark and, when duly executed and delivered
by Cinemark, the Registration Rights Agreement will be the legal,
valid and binding obligation of Cinemark, enforceable against Cinemark
in
7
<PAGE> 9
accordance with its terms, subject to the Enforceability Exceptions.
The Offering Memorandum will contain an accurate summary of the
material terms of the Registration Rights Agreement.
(xii) The Series C Notes have been duly and validly
authorized by Cinemark for issuance and sale to the Initial Purchaser
pursuant to this Agreement and, when issued and authenticated in
accordance with the terms of the Indenture and delivered against
payment therefor in accordance with the terms hereof and thereof, the
Series C Notes will be the legal, valid and binding obligations of
Cinemark, enforceable against Cinemark in accordance with their terms
and entitled to the benefits of the Indenture, subject to the
Enforceability Exceptions. The Offering Memorandum will contain an
accurate summary of the material terms of the Series C Notes.
(xiii) When the Series D Notes have been duly and validly
authorized for issuance by Cinemark and, when issued and authenticated
in accordance with the terms of the Exchange Offer and the Indenture,
the Series D Notes will be the legal, valid and binding obligations of
Cinemark, enforceable against Cinemark in accordance with their terms
and entitled to the benefits of the Indenture, subject to the
Enforceability Exceptions.
(xiv) Neither Cinemark nor any of its subsidiaries is (A)
in violation of its charter or bylaws or equivalent documents, (B) in
default in the performance of any bond, debenture, note, indenture,
mortgage, deed of trust or other agreement or instrument to which it
is a party or by which it is bound or to which any of its properties
is subject, or (C) in violation of any local, state, federal or
foreign law, statute, ordinance, rule, regulation, judgment or court
decree applicable to it or any of its assets or properties (whether
owned or leased), except, in the case of clauses (A) (with respect to
subsidiaries other than the Material Subsidiaries), (B) and (C), for
any such violation or default that could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
To the best knowledge of Cinemark, there exists no condition that,
with notice or the passage of time or both, would constitute such a
default under any such document or instrument except for any such
default that could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.
(xv) None of (A) the execution, delivery or performance by
Cinemark of this Agreement and the other Operative Documents, (B) the
issuance and sale of the Securities, nor (C) the consummation by
Cinemark of the transactions to be described in the Offering
Memorandum under the caption "Use of Proceeds", violates, conflicts
with or constitutes a breach of any of the terms or provisions of, or
a default under (or an event that with notice or the lapse of time, or
both, would constitute a default), or requires consent (other than
those consents that have been obtained or will be obtained prior to
the Closing Date) under, or results in the imposition of a lien or
encumbrance on any properties of Cinemark or its subsidiaries, or an
acceleration of any indebtedness of Cinemark or its subsidiaries
pursuant to, (i) the charter or bylaws (or equivalent documents) of
Cinemark or any of its subsidiaries, (ii) any bond, debenture, note,
indenture, mortgage, deed of trust or other agreement or instrument to
which Cinemark or any of its subsidiaries is a party or by which
Cinemark or any of its subsidiaries is bound or to which any of their
respective properties is subject, (iii) any statute, rule or
regulation applicable to Cinemark or any of its subsidiaries or their
respective assets or properties or (iv) any judgment, order or decree
of any court or governmental agency or authority having jurisdiction
over Cinemark or any of its subsidiaries or their respective assets or
properties, except in the case of clauses (ii), (iii) and (iv), for
any such violation, default, consent, imposition of a lien or
acceleration that could not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect. Except as may
be required under applicable state securities or Blue Sky
8
<PAGE> 10
laws, and except for any NASD filings and the filing of a registration
statement under the Act and qualification of the Indenture under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") in
connection with the Registration Rights Agreement, no consent,
approval, authorization or order of, or filing, registration,
qualification, license or permit of or with, any court or governmental
agency, body or administrative agency or any other person is required
for (1) the execution, delivery and performance by Cinemark of this
Agreement and the other Operative Documents or (2) the issuance and
sale of the Securities and the transactions contemplated thereby,
except such as have been obtained and made and except where the
failure to obtain such consents or waivers would not, individually or
in the aggregate, have a Material Adverse Effect.
(xvi) There is (i) no action, suit, investigation or
proceeding before or by any court, arbitrator or governmental agency,
body or official, domestic or foreign, now pending or, to the
knowledge of Cinemark, threatened or contemplated to which Cinemark or
any of its subsidiaries is or may be a party or to which the business
or property of Cinemark or any of its subsidiaries is or may be
subject, (ii) no statute, rule, regulation or order that has been
enacted, adopted or issued by any governmental agency or, to the
knowledge of Cinemark, that has been proposed by any governmental
body, and (iii) no injunction, restraining order or order of any
nature by a federal or state court or foreign court of competent
jurisdiction to which Cinemark or any of its subsidiaries is or may be
subject or to which the business, assets, or property of Cinemark or
any of its subsidiaries is or may be subject, that, in the case of
clauses (i), (ii) and (iii) above, (A) is required to be disclosed in
the Offering Memorandum and that will not be so disclosed or (B)
could, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
(xvii) No action has been taken and no statute, rule,
regulation or order has been enacted, adopted or issued by any
governmental agency that prevents the issuance of the Securities or
prevents or suspends the use of the Offering Memorandum; no
injunction, restraining order or order of any nature by a federal or
state court of competent jurisdiction has been issued that prevents
the issuance of the Securities or prevents or suspends the sale of the
Securities in any jurisdiction referred to in Section 4(e) hereof; and
every request of any securities authority or agency of any
jurisdiction for additional information has been complied with in all
material respects.
(xviii) There is (i) no significant unfair labor practice
complaint pending against Cinemark or any of its subsidiaries, nor, to
the knowledge of Cinemark, threatened against any of them, before the
National Labor Relations Board, any state or local labor relations
board or any foreign labor relations board, and no significant
grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against
Cinemark or any of its subsidiaries or, to the knowledge of Cinemark,
threatened against any of them, (ii) no significant strike, labor
dispute, slowdown or stoppage pending against Cinemark or any of its
subsidiaries nor, to the knowledge of Cinemark, threatened against any
of them and (iii) no union organizing or union representation question
existing with respect to the employees of Cinemark or any of its
subsidiaries. No claim has been filed against Cinemark or any of its
subsidiaries alleging violation of (A) any federal, state or local law
or foreign law relating to discrimination in hiring, promotion or pay
of employees, (B) any applicable wage or hour laws or (C) any
provision of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the rules and regulations thereunder, except as
could not reasonably be expected to have a Material Adverse Effect.
9
<PAGE> 11
(xix) Neither Cinemark nor any of its subsidiaries, nor any
of their respective officers, directors, employees, agents or
affiliates or any other person acting on their behalf has, directly or
indirectly, given or agreed to give any money, gift or similar benefit
to any customer, supplier, employee or agent of a customer or
supplier, official or employee of any governmental agency,
instrumentality of any government or any political party or candidate
for office (domestic or foreign) or other person who was, at the time,
in a position to help or hinder the business of Cinemark or its
subsidiaries (or assist Cinemark or its subsidiaries in connection
with any actual or proposed transaction) which would at the time have
been reasonably likely to subject Cinemark or its subsidiaries to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign) except for such damages or penalties,
either individually or in the aggregate, that could not reasonably be
expected to have a Material Adverse Effect.
(xx) Each of Cinemark and its subsidiaries has (A) good
and indefeasible title to all of the properties and assets material to
the business of Cinemark and its subsidiaries taken as a whole as
owned by it, free and clear of all liens, charges, encumbrances and
restrictions (except (i) liens constituting Permitted Liens under the
Indenture and (ii) liens, charges, encumbrances and restrictions that
do not in the aggregate materially detract from the value of such
properties and assets or materially impair the use thereof in the
operation of the business of Cinemark and its subsidiaries, taken as a
whole), (B) peaceful and undisturbed possession under all material
leases to which any of them is a party as lessee and each of which
lease is valid and binding and no default which would have a Material
Adverse Effect exists thereunder, (C) all licenses, certificates,
permits, authorizations, approvals, franchises and other rights from,
and has made all declarations and filings with, all federal, state and
local authorities, all self-regulatory authorities and all courts and
other tribunals (each, an "Authorization") necessary to engage in the
business conducted by any of them in the manner to be described in the
Offering Memorandum, except as could not reasonably be expected to
have a Material Adverse Effect and (D) no reason to believe that any
governmental body or agency is considering limiting, suspending or
revoking any such Authorization. All such Authorizations are valid
and in full force and effect and each of Cinemark and its subsidiaries
is in compliance in all material respects with the terms and
conditions of all such Authorizations and with the rules and
regulations of the regulatory authorities having jurisdiction with
respect thereto. All leases to which Cinemark or any of its
subsidiaries is a party are valid and binding and no default by
Cinemark or any such subsidiary, as the case may be, has occurred and
is continuing thereunder and no material defaults by the landlord are
existing under any such lease, except in each case as could not
reasonably be expected to have a Material Adverse Effect.
(xxi) All Federal and other material tax returns required
to be filed by Cinemark or any of its subsidiaries in all
jurisdictions have been so filed. All Federal and other material
taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due or claimed to be due from such
entities or that are due and payable have been paid, other than those
being contested in good faith and for which adequate reserves have
been provided. There are no material proposed additional tax
assessments against Cinemark or any of its subsidiaries, or the assets
or property of Cinemark or any of its subsidiaries which could
reasonably be expected to, if the assessments were made, have a
Material Adverse Effect.
(xxii) To the knowledge of Cinemark and without independent
verification, the properties of Cinemark and its subsidiaries, taken
as a whole, are structurally sound with no known defects which would
have a Material Adverse Effect, are in operating condition and good
repair (reasonable wear and tear excepted) and are adequate for their
uses.
10
<PAGE> 12
(xxiii) Neither Cinemark nor any of its subsidiaries is an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended (the "Investment Company Act"), or analogous foreign laws and
regulations.
(xxiv) There are no holders of securities of Cinemark or any
of its subsidiaries who, by reason of the execution by Cinemark of
this Agreement or any other Operative Document or the consummation by
Cinemark of the transactions contemplated hereby and thereby, have the
right to request or demand that Cinemark or any of its subsidiaries
register under the Act or analogous foreign laws and regulations
securities held by them.
(xxv) Cinemark believes that it and each of its
subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurance that: (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect
thereto.
(xxvi) Cinemark and each of its subsidiaries maintains, or
Cinemark maintains on behalf of its subsidiaries, insurance covering
its or their material properties, operations, personnel and
businesses. Cinemark believes that such insurance insures against
such losses and risks as are adequate in accordance with customary
industry practice to protect Cinemark and its subsidiaries and their
respective businesses. Neither Cinemark nor any of its subsidiaries
has received notice from any insurer or agent of such insurer that
substantial capital improvements or other material expenditures will
have to be made in order to continue such insurance. All such
insurance is outstanding and duly in force on the date hereof and will
be outstanding and duly in force on the terms in effect on the date
hereof on commercially reasonable terms.
(xxvii) Neither Cinemark nor any of its subsidiaries has (i)
taken, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of Cinemark or any of its
subsidiaries to facilitate the sale or resale of the Series C Notes or
(ii) since June 18, 1997 sold, bid for, purchased or paid any person
any compensation for soliciting purchases of the Series C Notes or
paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of Cinemark or any of its
subsidiaries.
(xxviii) No registration under the Act of the Series C Notes
is required for the sale of the Series C Notes to the Initial
Purchaser as contemplated hereby or for the Exempt Resales assuming
(i) that the purchasers who buy the Series C Notes in the Exempt
Resales are QIBs and (ii) the accuracy of the Initial Purchaser's
representations regarding the absence of general solicitation in
connection with the sale of Series C Notes to the Initial Purchaser
and the Exempt Resales contained herein. No form of general
solicitation or general advertising was used by Cinemark or any of its
subsidiaries or any of their representatives (although no
representation or warranty is made as to actions taken by the Initial
Purchaser and its representatives) in connection with the offer and
sale of any of the Series C Notes or in connection with Exempt
Resales, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium
or broadcast over television or radio, or any seminar or meeting whose
11
<PAGE> 13
attendees have been invited by any general solicitation or general
advertising. No securities of the same class as the Series C Notes
have been issued and sold by Cinemark or any of its subsidiaries
within the six- month period immediately prior to the date hereof.
(xxix) The execution and delivery of this Agreement, the
other Operative Documents and the sale of the Series C Notes to be
purchased by the QIBs will not involve any prohibited transaction
within the meaning of Section 406 of ERISA or Section 4975 of the
Internal Revenue Code of 1986. The representations made in the
preceding sentence are made in reliance upon and subject to the
accuracy of, and compliance with, the representations and covenants
made or deemed made by the QIBs as will be set forth in the Offering
Memorandum under the caption "Notice to Investors."
(xxx) The Offering Memorandum, as of its date, and each
amendment or supplement thereto, as of its date, will contain the
information specified in, and meets the requirements of, Rule
144A(d)(4) under the Act.
(xxxi) Subsequent to the respective dates as of which
information will be given in the Offering Memorandum and up to the
Closing Date, except as will be set forth in the Offering Memorandum,
(A) neither Cinemark nor any of its subsidiaries has incurred any
liabilities or obligations, direct or contingent, which are material,
individually or in the aggregate, to Cinemark and its subsidiaries,
taken as a whole, nor entered into any material transaction not in the
ordinary course of business, (B) there has not been, individually or
in the aggregate, any change or development of which Cinemark is aware
which could reasonably be expected to result in a Material Adverse
Effect of the type described in clause (a) of such definition and (C)
there has been no dividend or distribution of any kind declared, paid
or made by Cinemark or any of its subsidiaries on any class of their
capital stock.
(xxxii) None of the execution, delivery and performance of
this Agreement, the issuance and sale of the Securities, the
application of the proceeds from the issuance and sale of the
Securities and the consummation of the transactions contemplated
thereby as set forth in the Offering Memorandum, will violate
Regulations G, T, U or X promulgated by the Board of Governors of the
Federal Reserve System or analogous foreign laws and regulations.
(xxxiii) The accountants who have certified or will certify
the financial statements included or to be included as part of the
Offering Memorandum are independent accountants. The annual
historical financial statements of Cinemark to be included in the
Offering Memorandum comply as to form in all material respects with
the requirements applicable to registration statements on Form S-1
under the Act and will present fairly in all material respects the
financial position and results of operations of Cinemark at the
respective dates and for the respective periods indicated. Such
financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis
throughout the periods presented. The pro forma adjustments and as
adjusted information to be included in the Offering Memorandum will
give effect to assumptions made on a reasonable basis and will present
fairly in all material respects the historical and proposed
transactions contemplated by the Offering Memorandum and this
Agreement. The other financial and statistical information and data
to be included in the Offering Memorandum, historical, as adjusted and
pro forma, will be accurately presented on a basis consistent with the
financial statements to be included in the Offering Memorandum and the
books and records of Cinemark.
12
<PAGE> 14
(xxxiv) Except pursuant to this Agreement, there are no
contracts, agreements or understandings between or among Cinemark or
any of its subsidiaries and any other person that would reasonably be
expected to give rise to a valid claim against Cinemark or any of its
subsidiaries or the Initial Purchaser for a brokerage commission,
finder's fee or like payment in connection with the issuance, purchase
and sale of the Securities.
(xxxv) After giving effect to the transactions contemplated
by the Offering Memorandum, the Company shall be solvent as determined
in accordance with the applicable provisions of the Texas Business
Corporation Act.
(xxxvi) There exist no conditions that would constitute a
default by Cinemark (or an event which with notice or the lapse of
time, or both, would constitute a default) under any of the Operative
Documents.
(xxxvii) Each certificate signed by any officer of Cinemark
and delivered to the Initial Purchaser or counsel for the Initial
Purchaser shall be deemed to be a representation and warranty by
Cinemark to the Initial Purchaser as to the matters covered thereby.
Cinemark acknowledges that the Initial Purchaser and, for
purposes of the opinions to be delivered to the Initial Purchaser pursuant to
Section 8 hereof, counsel to Cinemark and counsel to the Initial Purchaser will
rely upon the accuracy and truth of the foregoing representations and hereby
consents to such reliance.
(b) The Initial Purchaser represents, warrants and covenants
to Cinemark and agrees that:
(i) Such Initial Purchaser is a QIB, with such knowledge
and experience in financial and business matters as are necessary in
order to evaluate the merits and risks of an investment in the Series
C Notes.
(ii) Such Initial Purchaser (A) is not acquiring the
Series C Notes with a view to any distribution thereof that would
violate the Act or the securities laws of any state of the United
States or any other applicable jurisdiction and (B) will be reoffering
and reselling the Series C Notes only to QIBs in reliance on the
exemption from the registration requirements of the Act provided by
Rule 144A.
(iii) No form of general solicitation or general
advertising has been or will be used by such Initial Purchaser or any
of its representatives in connection with the Exempt Resales,
including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium
or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising.
(iv) Such Initial Purchaser agrees that, in connection
with the Exempt Resales, it will solicit offers to buy the Series C
Notes only from, and will offer to sell the Series C Notes only to,
QIBs. Such Initial Purchaser further agrees (A) that it will offer to
sell the Series C Notes only to, and will solicit offers to buy the
Series C Notes only from QIB's who in purchasing such Series C Notes
will be deemed to have represented and agreed that they are purchasing
the Series C Notes for their own accounts or accounts with respect to
which they exercise sole investment discretion and that they or such
accounts are QIBs and (B) that such Series C Notes will not have been
registered under the Act and may be resold, pledged or otherwise
transferred only (x)(I) to a
13
<PAGE> 15
person who the seller reasonably believes is a QIB in a transaction
meeting the requirements of Rule 144A, (II) in a transaction meeting
the requirements of Rule 144, (III) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904
under the Act or (IV) in accordance with another exemption from the
registration requirements of the Act (and based upon an opinion of
counsel reasonably acceptable to Cinemark if Cinemark so requests),
(y) to Cinemark, (z) pursuant to an effective registration statement
under the Act and, in each case, in accordance with any applicable
securities laws of any state of the United States or any other
applicable jurisdiction and (C) that the holder will, and each
subsequent holder is required to, notify any purchaser from it of the
security evidenced thereby of the resale restrictions set forth in (B)
above.
Such Initial Purchaser understands that Cinemark and, for
purposes of the opinions to be delivered to the Initial Purchaser
pursuant to Section 8 hereof, counsel to Cinemark and counsel to the
Initial Purchaser will rely upon the accuracy and truth of the
foregoing representations and hereby consents to such reliance.
6. INDEMNIFICATION.
(a) Cinemark agrees to indemnify and hold harmless, to the
fullest extent permitted by applicable law, the Initial Purchaser,
each person, if any, who controls the Initial Purchaser within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
and the respective officers, directors, partners, employees,
representatives and agents of the Initial Purchaser or any controlling
persons, against any and all losses, liabilities, claims, damages and
expenses whatsoever (including but not limited to reasonable
attorneys' fees and any and all reasonable expenses whatsoever
incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any
and all amounts paid in settlement of any claim or litigation
(collectively, "Losses")), joint or several, to which they or any of
them may become subject under the Act, the Exchange Act or otherwise,
insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in
the Offering Memorandum, or in any supplement thereto or amendment
thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
provided, however, that Cinemark will not be liable in any such case
to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission
made in the Offering Memorandum in reliance upon and in conformity
with written information furnished to Cinemark by or on behalf of the
Initial Purchaser expressly for use therein. This indemnity agreement
will be in addition to any liability which Cinemark may otherwise
have, including under this Agreement.
(b) The Initial Purchaser agrees to indemnify and hold
harmless Cinemark, each person, if any, who controls Cinemark within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act and the respective officers, directors, partners, employees,
representatives and agents of Cinemark or any controlling persons,
against any and all Losses to which they may become subject under the
Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the Offering
Memorandum, or in any amendment thereof or supplement thereto, or
arise out of or are based
14
<PAGE> 16
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, in each case to the extent, but only to the extent,
that any such loss, liability, claim, damage or expense arises out of
or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to Cinemark by or on
behalf of the Initial Purchaser expressly for use therein; provided,
however, that in no case shall the Initial Purchaser be liable or
responsible under this subsection (b) for any amount in excess of the
discounts and commissions received by the Initial Purchaser unless
such Losses are a result of the gross negligence or willful misconduct
of the Initial Purchaser. This indemnity will be in addition to any
liability which the Initial Purchaser may otherwise have, including
under this Agreement.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such subsection,
notify each party against whom indemnification is to be sought in
writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it
may have under this Section 6, except to the extent that it has been
prejudiced in any material respect by such failure, or from any
liability which it may otherwise have). In case any such action is
brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent it may elect by
written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume
the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified
party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless
(i) the employment of such counsel shall have been authorized in
writing by the indemnifying parties in connection with the defense of
such action and the indemnifying party has agreed in writing to pay
the fees and expenses of such counsel, (ii) the indemnifying parties
shall not have employed counsel to take charge of the defense of such
action within a reasonable time after notice of commencement of the
action, or (iii) such indemnified party or parties shall have
concluded, upon the advice of counsel, that there may be defenses
available to it or them which are different from or additional to
those available to one or all of the indemnifying parties (in which
case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties),
in any of which events such fees and expenses of counsel shall be
borne by the indemnifying parties; provided, however, that the
indemnifying party under subsection (a) or (b) above, shall only be
liable for the legal expenses of one counsel (in addition to any local
counsel) for all indemnified parties in each jurisdiction in which any
claim or action is brought. Anything in this subsection to the
contrary notwithstanding, an indemnifying party shall not be liable
for any settlement of any claim or action effected without its prior
written consent; provided, however, that such consent was not
unreasonably withheld.
7. CONTRIBUTION.
In order to provide for contribution in circumstances in which
the indemnification provided for in Section 6 is for any reason held to be
unavailable or is insufficient to hold harmless a party indemnified thereunder,
Cinemark, on the
15
<PAGE> 17
one hand, and the Initial Purchaser, on the other hand, shall contribute to the
aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by Cinemark, any contribution received by Cinemark from persons, other
than the Initial Purchaser, who may also be liable for contribution, including
persons who control Cinemark within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act) to which Cinemark and the Initial Purchaser
may be subject, in such proportion as is appropriate to reflect the relative
benefits received by Cinemark, on the one hand, and the Initial Purchaser, on
the other hand, from the offering of the Series C Notes or, if such allocation
is not permitted by applicable law or indemnification is not available as a
result of the indemnifying party not having received notice as provided in
Section 6, in such proportion as is appropriate to reflect not only the
relative benefits referred to above but also the relative fault of Cinemark, on
the one hand, and the Initial Purchaser, on the other hand, in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by Cinemark, on the one hand,
and the Initial Purchaser, on the other hand, shall be deemed to be in the same
proportion as (x) the total proceeds from the offering of Series C Notes (net
of discounts and commissions but before deducting expenses) received by
Cinemark, and (y) the discounts and commissions received by the Initial
Purchaser, respectively. The relative fault of Cinemark, on the one hand, and
of the Initial Purchaser, on the other hand, shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by Cinemark, on the one hand, or the Initial
Purchaser, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. Cinemark and the Initial Purchaser agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to above. Notwithstanding the
provisions of this Section 7, (i) in no case shall the Initial Purchaser be
required to contribute any amount in excess of the amount by which the
discounts and commissions applicable to the Series C Notes purchased by the
Initial Purchaser pursuant to this Agreement exceeds the amount of any damages
which the Initial Purchaser have otherwise been required to pay by reason of
any untrue or alleged untrue statement or omission or alleged omission and (ii)
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 7,
each person, if any, who controls the Initial Purchaser within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and the respective
officers, directors, partners, employees, representatives and agents of the
Initial Purchaser or any controlling persons shall have the same rights to
contribution as the Initial Purchaser, and each person, if any, who controls
Cinemark, within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and the respective officers, directors, partners, employees,
representatives and agents of Cinemark or any controlling persons shall have
the same rights to contribution as Cinemark, subject in each case to clauses
(i) and (ii) of this Section 7. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section 7, notify such
party or parties from whom contribution may be sought, but the failure to so
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have under this
Section 7 or otherwise.
8. CONDITIONS OF INITIAL PURCHASER'S OBLIGATIONS.
The obligations of the Initial Purchaser to purchase and pay
for the Series C Notes, as provided herein, shall be subject to the following
conditions:
(a) All of the representations and warranties of Cinemark
contained in this Agreement shall be true and correct on the date
hereof and on the Closing Date with the same force and effect as if
made on and as of the date hereof and the Closing Date, respectively.
Cinemark shall have performed or complied with all of the agreements
herein contained and required to be performed or complied with by it
at or prior to the Closing Date.
(b) The Offering Memorandum shall have been prepared in form
and substance satisfactory to the Initial Purchaser and shall have
been printed and copies distributed to the Initial Purchaser in New
York as soon as practicable after the date of this Agreement but not
later than 12:00 p.m., New York City time, on June 24, 1997 or at such
later date and time as to which the Initial Purchaser may agree, and
no stop order suspending the qualification or exemption from
qualification of the Series C Notes in any jurisdiction referred to in
Section 4(e) shall have been issued and no proceeding for that purpose
shall have been commenced or shall be pending or threatened.
(c) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which could, as of the Closing Date,
16
<PAGE> 18
reasonably be expected to have a Material Adverse Effect; no action,
suit or proceeding shall have been commenced and be pending against or
affecting or threatened against, Cinemark or any of its subsidiaries
before any court or arbitrator or any governmental body, agency or
official that, if adversely determined, could reasonably be expected
to result in a Material Adverse Effect; and no stop order shall have
been issued preventing the use of the Offering Memorandum, or any
amendment or supplement thereto, or which could reasonably be expected
to have a Material Adverse Effect.
(d) Since the dates as of which information is given in the
Offering Memorandum and other than as set forth in the Offering
Memorandum, (i) there shall not have been any material and adverse
change or any development that is reasonably likely to result in a
material and adverse change in the long-term debt, or material
increase in the short-term debt, of Cinemark or any of its
subsidiaries from that set forth in the Offering Memorandum, (ii) no
dividend or distribution of any kind shall have been declared, paid or
made by Cinemark or any of its subsidiaries on any class of its
capital stock, and (iii) neither Cinemark nor any of its subsidiaries
shall have incurred any liabilities or obligations other than
contracts entered into in the ordinary course of business, direct or
contingent, that individually or in the aggregate could have a
Material Adverse Effect and that are required to be disclosed on a
balance sheet or notes thereto in accordance with generally accepted
accounting principles and are not disclosed on the latest balance
sheet or notes thereto included in the Offering Memorandum. Since the
date hereof and since the dates as of which information is given in
the Offering Memorandum, there shall not have occurred any material
adverse change in the properties, business, results of operations,
condition (financial or otherwise), affairs or prospects of Cinemark
and its subsidiaries taken as a whole.
(e) The Initial Purchaser shall have received a certificate,
dated the Closing Date, signed on behalf of Cinemark by its president
and chief operating officer and its chief financial officer (i)
confirming as of the Closing Date, the matters set forth in paragraphs
(a), (b), (c) and (d) of this Section 8, (ii) stating that on the
Closing Date, Cinemark will use the proceeds of the offering and sale
of the Series C Notes as set forth in the Offering Memorandum, and
(iii) stating that as of the Closing Date, no facts have come to such
officers' attention that would cause such officers to believe that the
Offering Memorandum, as of its date or the Closing Date, contained an
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(f) The Initial Purchaser shall have received on the Closing
Date (i) the opinion, dated the Closing Date, of Akin, Gump, Strauss,
Hauer & Feld, L.L.P., Dallas, Texas, counsel to Cinemark,
substantially to the effect set forth in Exhibit B hereto and (ii) a
statement of Michael D. Cavalier, Associate General Counsel of
Cinemark, to the effect set forth in Exhibit C hereto. In providing
such opinion, Akin, Gump, Strauss, Hauer & Feld, L.L.P., shall opine
as to the federal laws of the United States, the laws of the State of
Texas and, to the extent set forth therein, the laws of the State of
New York.
(g) The Initial Purchaser shall have received on the Closing
Date the opinion, dated the Closing Date, of Haynes & Boone, counsel
to the Trustee, to the effect that (i) the Trustee is a national
banking association or state chartered bank or trust company and is
duly incorporated and validly existing in good standing under the laws
of the jurisdiction in which it is incorporated, (ii) the Trustee has
the corporate power and authority necessary to enter into the
Indenture and authenticate the Securities as Trustee thereunder, (iii)
the Indenture has been duly and validly
17
<PAGE> 19
authorized, executed and delivered by the Trustee and is the legal,
valid and binding agreement of the Trustee enforceable against the
Trustee in accordance with its terms and (iv) the Series C Notes have
been duly authenticated and delivered by the Trustee pursuant to the
terms of this Agreement and the Indenture.
(h) The Initial Purchaser shall have received on the Closing
Date the opinion, dated the Closing Date, of Simpson Thacher &
Bartlett (a partnership which includes professional corporations),
counsel to the Initial Purchaser, covering such matters as are
customarily covered in such opinions.
(i) Prior to the printing of the Offering Memorandum and at
the Closing Date the Initial Purchaser shall have received from
Deloitte & Touche, L.L.P., independent public accountants for
Cinemark, dated as of the date of this Agreement and as of the Closing
Date, customary comfort letters addressed to the Initial Purchaser and
in form and substance previously agreed upon by the Initial Purchaser
and counsel to the Initial Purchaser with respect to the financial
statements and certain financial information of Cinemark and its
subsidiaries contained in the Offering Memorandum.
(j) Cinemark and the Trustee shall have entered into the
Indenture and the Initial Purchaser shall have received counterparts,
conformed as executed, thereof.
(k) Cinemark shall have entered into the Registration Rights
Agreement and the Initial Purchaser shall have received counterparts,
conformed as executed, thereof.
(l) Simpson Thacher & Bartlett shall have been furnished with
such documents, in addition to those set forth above, as they may
reasonably require for the purpose of enabling them to review or pass
upon the matters referred to in this Section 8 and in order to
evidence the accuracy, completeness or satisfaction in all material
respects of any of the representations, warranties or conditions
herein contained.
(m) Prior to the Closing Date, Cinemark shall have furnished
to the Initial Purchaser such further information, certificates and
documents as the Initial Purchaser may reasonably request.
All opinions, certificates, letters and other documents
required by this Section 8 to be delivered by Cinemark will be in compliance
with the provisions hereof only if they are reasonably satisfactory in form and
substance to the Initial Purchaser and its counsel. Cinemark will furnish the
Initial Purchaser with such conformed copies of such opinions, certificates,
letters and other documents as it shall reasonably request.
9. INITIAL PURCHASER'S INFORMATION.
Cinemark and the Initial Purchaser severally acknowledge that
the statements with respect to the offering of the Series C Notes to be set
forth in (i) the last paragraph of the cover page, (ii) the first paragraph,
the third paragraph, the fifth and sixth sentences of the fourth paragraph and
the fifth paragraph under the caption "Plan of Distribution" and (iii) the
second sentence under the caption "Legal Matters" will constitute the only
information furnished in writing by the Initial Purchaser expressly for use in
the Offering Memorandum.
18
<PAGE> 20
10. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS.
All representations and warranties, covenants and agreements
of the Initial Purchaser and Cinemark contained in this Agreement, including
without limitation, the agreements contained in Sections 11(d) and 13, the
indemnity agreements contained in Section 6 and the contribution agreements
contained in Section 7, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Initial Purchaser,
any controlling person thereof or by or on behalf of Cinemark or any
controlling person thereof, and shall survive delivery of and payment for the
Series C Notes to and by the Initial Purchaser. The representations contained
in Section 5 and the agreements contained in Sections 6, 7 and 11(d) and 12
shall survive the termination of this Agreement, including any termination
pursuant to Section 11.
11. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
(a) This Agreement shall become effective upon execution and
delivery of a counterpart hereof by each of the parties hereto.
(b) The Initial Purchaser shall have the right to terminate
this Agreement at any time prior to the Closing Date by notice to Cinemark from
the Initial Purchaser, without liability (other than with respect to Sections 6
and 7) on the Initial Purchaser's part to Cinemark if, on or prior to such
date, (i) Cinemark shall have failed, refused or been unable to perform in any
material respect any agreement on its part to be performed hereunder, (ii) any
other condition to the obligations of the Initial Purchaser hereunder as
provided in Section 8 is not fulfilled when and as required in any material
respect, (iii) in the reasonable judgment of the Initial Purchaser, any
material adverse change shall have occurred since the respective dates as of
which information is given in the Offering Memorandum in the condition
(financial or otherwise), business, properties, assets, liabilities, prospects,
net worth, results of operations or cash flows of Cinemark and its
subsidiaries, taken as a whole, other than as set forth in the Offering
Memorandum, or (iv)(A) any domestic or international event or act or occurrence
has materially disrupted, or in the reasonable opinion of the Initial Purchaser
will in the immediate future materially disrupt, the market for Cinemark's
securities or for securities in general; or (B) trading in securities generally
on either of the New York or American Stock Exchanges shall have been suspended
or materially limited, or minimum or maximum prices for trading shall have been
established, or maximum ranges for prices for securities shall have been
required, on such exchange, or by such exchange or other regulatory body or
governmental authority having jurisdiction; or (C) a banking moratorium shall
have been declared by federal or state authorities, or a moratorium in foreign
exchange trading by major international banks or persons shall have been
declared; or (D) there is an outbreak or escalation of armed hostilities
involving the United States on or after the date hereof, or if there has been a
declaration by the United States of a national emergency or war, the effect of
which shall be, in the Initial Purchaser's judgment, to make it inadvisable or
impracticable to proceed with the offering or delivery of the Series C Notes on
the terms and in the manner contemplated in the Offering Memorandum; or (E)
there shall have been such a material adverse change in general economic,
political or financial conditions or if the effect of international conditions
on the financial markets in the United States shall be such as, in the Initial
Purchaser's judgment, makes it inadvisable or impracticable to proceed with the
offering or delivery of the Series C Notes as contemplated thereby; or (F) (1)
there shall have occurred a downgrading in the rating accorded the Series C
Notes by any "nationally recognized statistical rating organization" as that
term is defined by the Commission for purposes of Rule 436(g)(2) of the rules
and regulations of the Commission under the Act or (2) any such organization
shall have publicly announced that it has under surveillance or review (other
than an announcement with positive implications of a possible upgrading), its
rating of the Series C Notes.
(c) Any notice of termination pursuant to this Section 11
shall be by telephone, telex, telephonic facsimile, or telegraph, confirmed in
writing by letter within three days thereof.
19
<PAGE> 21
(d) If this Agreement shall be terminated pursuant to any of
the provisions hereof (other than a termination pursuant to Section 11(b)(iv))
or if the sale of the Series C Notes provided for herein is not consummated
because any condition to the obligations of the Initial Purchaser set forth
herein is not satisfied or because of any refusal, inability or failure on the
part of Cinemark to perform any agreement herein or comply with any provision
hereof, Cinemark will, subject to demand by the Initial Purchaser, reimburse
the Initial Purchaser for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of Initial Purchaser's counsel), incurred by the
Initial Purchaser in connection herewith.
12. FEES AND EXPENSES.
(a) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is terminated,
Cinemark agrees to pay all costs, expenses, fees and taxes in connection with
this Agreement and the transactions contemplated hereby and by the other
Operative Documents, including without limitation all costs, expenses, fees and
taxes relating to: (i) the preparation, printing, filing and distribution of
the Offering Memorandum (including, without limitation, financial statements)
and all amendments and supplements thereto required pursuant hereto, (ii) the
preparation (including, without limitation, duplication costs) and delivery of
this Agreement, the other Operative Documents, all preliminary and final Blue
Sky memoranda and all other agreements, memoranda, correspondence and other
documents prepared and delivered in connection herewith and with the Exempt
Resales, (iii) the issuance, transfer and delivery by Cinemark of the
Securities to the Initial Purchaser, (iv) the qualification or registration of
the Securities for offer and sale under the securities or Blue Sky laws of the
jurisdictions referred to in paragraph (e) above (including, without
limitation, the cost of printing and mailing a preliminary and final Blue Sky
Memorandum and the reasonable fees and disbursements of counsel to the Initial
Purchaser relating thereto), (v) furnishing such copies of the Offering
Memorandum, and all amendments and supplements thereto, as may be reasonably
requested for use in connection with Exempt Resales, (vi) the preparation of
certificates for the Securities (including, without limitation, printing and
engraving thereof), (vii) the fees, disbursements and expenses of counsel to
Cinemark and its independent public accountants, (viii) all expenses and
listing fees in connection with the application for quotation of the Series C
Notes in the PORTAL market, (ix) all fees and expenses (including fees and
expenses of counsel to Cinemark) of Cinemark in connection with the approval of
the Securities by DTC for "book-entry" transfer, (x) rating the Securities by
rating agencies, (xi) the fees and expenses of the Trustee and its counsel in
connection with the Indenture and the Securities, (xii) the performance by
Cinemark of its other obligations under this Agreement and the other Operative
Documents and (xiii) other expenses incurred by Cinemark in connection with the
marketing and sale of the Securities.
(b) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is terminated,
and except as otherwise provided in Section 11(d), the Initial Purchaser agrees
to pay all of its out-of-pocket expenses not specifically provided for in
Section 12(a) hereof, including the fees and expenses of Initial Purchaser's
counsel.
13. NOTICE.
All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to the Initial
Purchaser shall be mailed, delivered, or telexed, telegraphed or telecopied and
confirmed in writing to Bear, Stearns & Co. Inc., 245 Park Avenue, New York,
New York 10167, Attention: Corporate Finance Department, telecopy number:
(212) 272-3092; and if sent to Cinemark, shall be mailed, delivered or telexed,
telegraphed or telecopied and confirmed in writing to Cinemark USA, Inc., 7502
Greenville Avenue, Suite 800, Dallas, Texas 75231, Attention: Jeffrey J.
Stedman and Michael Cavalier, telecopy number: (214) 369-9972, with a copy to
Akin, Gump, Strauss,
20
<PAGE> 22
Hauer & Feld, L.L.P., 1700 Pacific Avenue, Suite 4100, Dallas, Texas 75201,
Attention: Terry M. Schpok, P.C., telecopy number: (214) 969-4343; provided,
however, that any notice pursuant to Sections 6 or 7 shall be mailed, delivered
or telexed, telegraphed or telecopied and confirmed in writing within three
days thereof.
14. PARTIES.
This Agreement shall inure solely to the benefit of, and shall
be binding upon, the Initial Purchaser, Cinemark and the controlling persons
and agents referred to in Sections 6 and 7, and their respective successors and
assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provision herein contained. The term "successors and assigns"
shall not include a purchaser, in its capacity as such, of Series C Notes from
the Initial Purchaser.
15. CONSTRUCTION.
This Agreement shall be construed in accordance with the
internal laws of the State of New York. Time is of the essence in this
Agreement.
16. CAPTIONS.
The captions included in this Agreement are included solely
for convenience of reference and are not to be considered a part of this
Agreement.
21
<PAGE> 23
17. COUNTERPARTS.
This Agreement may be executed in various counterparts which
together shall constitute one and the same instrument.
Very truly yours,
CINEMARK USA, INC.
By: /s/ Jeffrey J. Stedman
-----------------------------
Name: Jeffrey J. Stedman
Title: Vice President
Accepted and agreed to as of
the date first above written:
BEAR, STEARNS & CO. INC.
By: /s/ J. Andrew Bugas
--------------------------------
Name: J Andrew Bugas
Title: Senior Managing Director
22
<PAGE> 24
SCHEDULE I
<TABLE>
<CAPTION>
Aggregate Principal
Initial Purchaser Amount of Series C Notes
- ----------------- ------------------------
<S> <C>
Bear, Stearns & Co. Inc. $75,000,000
-----------
-----------
Total $75,000,000
</TABLE>
S-1
<PAGE> 1
EXHIBIT 4.1
================================================================================
CINEMARK USA, INC.
9-5/8% SERIES C SENIOR SUBORDINATED NOTES DUE 2008
------------------------------
INDENTURE
Dated as of June 26, 1997
------------------------------
U.S. TRUST COMPANY OF TEXAS, N.A.
as Trustee
------------------------------
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
- ---------------- -----------------
<S> <C>
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3,7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6,7.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6,11.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3,11.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5, 11.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE . . . . . . . . . . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Other Definitions . . . . . . . . . . . . . . . . . . 15
Section 1.3. Incorporation by Reference of Trust Indenture Act . . 15
Section 1.4. Rules of Construction . . . . . . . . . . . . . . . . 16
ARTICLE 2
THE NOTES . . . . . . . . . . . . . . . 16
Section 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . 16
Section 2.2. Execution and Authentication . . . . . . . . . . . . 18
Section 2.3. Trustee, Registrar and Paying Agent . . . . . . . . . 18
Section 2.4. Paying Agent to Hold Money in Trust . . . . . . . . . 19
Section 2.5. Holder Lists . . . . . . . . . . . . . . . . . . . . 19
Section 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . 20
Section 2.7. Replacement Notes . . . . . . . . . . . . . . . . . . 25
Section 2.8. Outstanding Notes . . . . . . . . . . . . . . . . . . 25
Section 2.9. Treasury Notes . . . . . . . . . . . . . . . . . . . 26
Section 2.10. Temporary Notes . . . . . . . . . . . . . . . . . . . 26
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . 26
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . 26
Section 2.13. Persons Deemed Owners . . . . . . . . . . . . . . . . 27
Section 2.14. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 3
REDEMPTION AND PREPAYMENT . . . . . . . . . . . 27
Section 3.1. Notices to Trustee . . . . . . . . . . . . . . . . . 27
Section 3.2. Selection of Notes to Be Redeemed . . . . . . . . . . 27
Section 3.3. Notice of Redemption . . . . . . . . . . . . . . . . 28
Section 3.4. Effect of Notice of Redemption . . . . . . . . . . . 29
Section 3.5. Deposit of Redemption Price . . . . . . . . . . . . . 29
Section 3.6. Notes Redeemed in Part . . . . . . . . . . . . . . . 29
Section 3.7. Optional Redemption . . . . . . . . . . . . . . . . . 29
Section 3.8. Mandatory Redemption . . . . . . . . . . . . . . . . 30
ARTICLE 4
COVENANTS . . . . . . . . . . . . . . . 30
Section 4.1. Payment of Notes . . . . . . . . . . . . . . . . . . 30
Section 4.2. Maintenance of Office or Agency . . . . . . . . . . . 31
Section 4.3. Provisions of Reports and Other Information . . . . . 31
Section 4.4. Compliance Certificate . . . . . . . . . . . . . . . 32
Section 4.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.6. Stay, Extension and Usury Laws . . . . . . . . . . . 33
Section 4.7. Limitation on Restricted Payments . . . . . . . . . . 33
</TABLE>
i
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4.8. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries . . . . . . . . . . 35
Section 4.9. Limitation on Indebtedness . . . . . . . . . . . . . 36
Section 4.10. Limitation on Asset Sales . . . . . . . . . . . . . . 37
Section 4.11. Limitation on Transactions with Affiliates . . . . . 39
Section 4.12. Limitation on Liens . . . . . . . . . . . . . . . . . 40
Section 4.13. Limitation on Layering Debt . . . . . . . . . . . . . 42
Section 4.14. Offer to Repurchase Upon Change of Control . . . . . 42
Section 4.15. Corporate Existence . . . . . . . . . . . . . . . . . 44
Section 4.16. Covenant with Respect to Cinemark International and its
Subsidiaries . . . . . . . . . . . . . . . . . . . . 44
Section 4.17. Limitation on Restrictive Covenants . . . . . . . . . 44
ARTICLE 5
SUCCESSORS . . . . . . . . . . . . . . 44
Section 5.1. Merger, Consolidation, or Sale of Assets . . . . . . 44
Section 5.2. Successor Company Substituted . . . . . . . . . . . . 45
ARTICLE 6
DEFAULTS AND REMEDIES . . . . . . . . . . . 45
Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . 45
Section 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . 46
Section 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . 47
Section 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . 47
Section 6.5. Control by Majority . . . . . . . . . . . . . . . . . 47
Section 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . 47
Section 6.7. Rights of Holders of Notes to Receive Payment . . . . 48
Section 6.8. Collection Suit by Trustee . . . . . . . . . . . . . 48
Section 6.9. Trustee May File Proofs of Claim . . . . . . . . . . 48
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . 49
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . 49
ARTICLE 7
TRUSTEE . . . . . . . . . . . . . . . 49
Section 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . 49
Section 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . 50
Section 7.3. Individual Rights of Trustee . . . . . . . . . . . . 51
Section 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . 51
Section 7.5. Notice of Defaults . . . . . . . . . . . . . . . . . 51
Section 7.6. Reports by Trustee to Holders of the Notes . . . . . 52
Section 7.7. Compensation and Indemnity . . . . . . . . . . . . . 52
Section 7.8. Replacement of Trustee . . . . . . . . . . . . . . . 53
Section 7.9. Successor Trustee by Merger, etc . . . . . . . . . . 54
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . 54
Section 7.11. Preferential Collection of Claims Against Company . . 54
ARTICLE 8
DEFEASANCE AND DISCHARGE . . . . . . . . . . . 54
Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance 54
</TABLE>
ii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 8.2. Legal Defeasance . . . . . . . . . . . . . . . . . . 54
Section 8.3. Covenant Defeasance . . . . . . . . . . . . . . . . . 55
Section 8.4. Conditions to Legal or Covenant Defeasance . . . . . 55
Section 8.5. Discharge . . . . . . . . . . . . . . . . . . . . . . 56
Section 8.6. Deposited Money and Government Securities to be Held
in Trust; Other Miscellaneous Provisions . . . . . . . 57
Section 8.7. Repayment to Company . . . . . . . . . . . . . . . . 57
Section 8.8. Reinstatement . . . . . . . . . . . . . . . . . . . . 57
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . 58
Section 9.1. Without Consent of Holders of Notes . . . . . . . . . 58
Section 9.2. With Consent of Holders of Notes . . . . . . . . . . 58
Section 9.3. Compliance with Trust Indenture Act . . . . . . . . . 60
Section 9.4. Revocation and Effect of Consents . . . . . . . . . . 60
Section 9.5. Notation on or Exchange of Notes . . . . . . . . . . 60
Section 9.6. Trustee to Sign Amendments, etc . . . . . . . . . . . 60
Section 9.7. Payments for Consent . . . . . . . . . . . . . . . . 61
ARTICLE 10
SUBORDINATION . . . . . . . . . . . . . . 61
Section 10.1. Agreement to Subordinate . . . . . . . . . . . . . . 61
Section 10.2. Liquidation; Dissolution; Bankruptcy. . . . . . . . . 61
Section 10.3. Default on Designated Senior Indebtedness . . . . . . 61
Section 10.4. Acceleration of Notes . . . . . . . . . . . . . . . 62
Section 10.5. When Distribution Must Be Paid Over . . . . . . . . 62
Section 10.6. Notice by the Company . . . . . . . . . . . . . . . 63
Section 10.7. Subrogation . . . . . . . . . . . . . . . . . . . . 63
Section 10.8. Relative Rights . . . . . . . . . . . . . . . . . . 63
Section 10.9. Subordination May Not Be Impaired by the Company. . . 63
Section 10.10. Distribution or Notice to Representative . . . . . . 64
Section 10.11. Rights of Trustee and Paying Agent . . . . . . . . . 64
Section 10.12. Authorization to Effect Subordination . . . . . . . . 65
ARTICLE 11
MISCELLANEOUS . . . . . . . . . . . . . . 65
Section 11.1. Trust Indenture Act Controls . . . . . . . . . . . . 65
Section 11.2. Notices . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.3. Communication by Holders of Notes with Other Holders
of Notes . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.4. Certificate and Opinion as to Conditions Precedent . 67
Section 11.5. Statements Required in Certificate or Opinion . . . . 67
Section 11.6. Rules by Trustee and Agents . . . . . . . . . . . . . 67
Section 11.7. No Personal Liability of Directors, Officers,
Employees and Others. . . . . . . . . . . . . . . . . 67
Section 11.8. Governing Law . . . . . . . . . . . . . . . . . . . . 67
Section 11.9. No Adverse Interpretation of Other Agreements . . . . 68
Section 11.10. Successors . . . . . . . . . . . . . . . . . . . . . . 68
Section 11.11. Severability . . . . . . . . . . . . . . . . . . . . . 68
Section 11.12. Originals . . . . . . . . . . . . . . . . . . . . . . 68
Section 11.13. Table of Contents, Headings, etc. . . . . . . . . . . 68
Section 11.14. Counterparts . . . . . . . . . . . . . . . . . . . . . 68
</TABLE>
iii
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
EXHIBITS
Exhibit A FORM OF NOTE . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B CERTIFICATE OF TRANSFEROR . . . . . . . . . . . . . . B-1
</TABLE>
iv
<PAGE> 7
This INDENTURE, dated as of June 26, 1997, is by and between Cinemark
USA, Inc., a Texas corporation (the "Company"), and U.S. Trust Company of
Texas, N.A., as trustee (the "Trustee").
The parties listed above agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the 9-5/8% Series
C Senior Subordinated Notes due 2008 (the "Series C Notes") and the 9-5/8%
Series D Senior Subordinated Notes due 2008 (the "Series D Notes" and, together
with the Series C Notes, the "Notes").
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.1. DEFINITIONS.
"Acquired Indebtedness" of any particular Person means
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such particular Person or assumed by
such particular Person in connection with the acquisition of assets from any
other Person, and not incurred by such other Person in connection with, or in
contemplation of, such other Person merging with or into such particular Person
or becoming a Subsidiary of such particular Person or such acquisition.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means any Registrar or Paying Agent.
"Applicable Law", except as the context may otherwise require,
means all applicable laws, rules, regulations, ordinances, judgments, decrees,
injunctions, writs and orders of any court or governmental or congressional
agency or authority and rules, regulations, orders, licenses and permits of any
United States federal, state, municipal, regional, or other governmental body,
instrumentality, agency or authority.
"Asset Disposition" means any sale, lease, conveyance, transfer
or other disposition (or series of related sales, leases, conveyances,
transfers or dispositions) of any Capital Stock of a Restricted Subsidiary of
the Company (whether or not upon issuance), or of any Capital Stock of Cinemark
International by the Company (but not the issuance and sale of Capital Stock by
Cinemark International), or of any other property or other assets (each
referred to for the purposes of this definition as a "disposition") by the
Company or any of its Restricted Subsidiaries, whether for cash or other
consideration, other than (i) a disposition by a Restricted Subsidiary of the
Company to the Company or a Wholly Owned Subsidiary of the Company that is a
Restricted Subsidiary, (ii) a disposition by the Company to a Wholly Owned
Subsidiary of the Company that is a Restricted Subsidiary, (iii) a disposition
that is a Permitted Investment or a Restricted Payment not prohibited by
Section 4.7 (to the extent such Permitted Investment or Restricted Payment may
be deemed to constitute an Asset Disposition), (iv) dispositions of inventory
in the ordinary course of business, (v) a disposition pursuant to Section 5.1,
(vi) exchanges of theatre properties that comply with the requirements
described in Section 4.10(f),
<PAGE> 8
provided that payment of any Other Consideration shall, to the extent provided
therein, be treated as an Asset Disposition, (vii) a designation of a
Restricted Subsidiary as an Unrestricted Subsidiary, if the Company elects to
treat such designation as an Investment and not as an Asset Disposition, or
(viii) a disposition of Capital Stock, property or assets in a single
transaction or a series of related transactions (other than dispositions of the
type described in clauses (i) through (vii) above) having a Fair Market Value
of less than $2 million. For purposes of this definition, "Fair Market Value"
of any Capital Stock, property or other assets means the fair market value of
such Capital Stock, property or other assets at the time of disposition, which
in the case of any disposition or series of related dispositions having an
aggregate fair market value of $2 million or more shall be determined in good
faith (taking into account, without limitation, any assumption of indebtedness
in connection with such disposition) by resolution of the Board of Directors.
Notwithstanding any provision of this Indenture to the contrary, the expiration
or non-renewal of any lease of theatre properties or equipment at the normal
expiration date thereof without payment to the Company or any of its Restricted
Subsidiaries of consideration therefor shall not constitute an Asset
Disposition.
"Asset Disposition Expenses" shall have the meaning assigned to
such term in the definition of the term "Net Proceeds."
"Bankruptcy Law" means Title 11, United States Code, as may be
amended from time to time, or any similar federal or state law for the relief
of debtors.
"Board of Directors" means the Board of Directors of the Company,
or any authorized committee of the Board of Directors.
"Business Day" means any day other than a Saturday, Sunday,
public holiday or day on which banking institutions in New York (or, with
respect to any payments or transfers to be made by the Trustee or any Agent, as
applicable, in the city where such Trustee or Agent is located) are authorized
or obligated by law or executive order to close.
"Capitalized Lease Obligations" means the capitalized amount of
the rental obligations of any Person under any lease of any property (whether
real, personal or mixed) which, in accordance with GAAP, is required to be
capitalized on the balance sheet of such Person.
"Capital Stock" of any Person means (i) any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock and any warrants, options and similar rights to acquire
such capital stock, (ii) in the case of a partnership, partnership interests
(whether general or limited) and (iii) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash" means money or currency or a credit balance in a Deposit
Account.
"Cash Equivalents" means (i) direct obligations of the United
States of America or any agency thereof having maturities of not more than one
year from the date of acquisition, (ii) time deposits and certificates of
deposit of any domestic commercial bank of recognized standing having capital
and surplus in excess of $500 million, with maturities of not more than one
year from the date of acquisition, (iii) repurchase obligations issued by any
bank described in clause (ii) above with a term not to exceed 30 days; (iv)
commercial paper rated at least A-1 or the equivalent thereof by S&P or at
least P-1 or the equivalent thereof by Moody's, in each case maturing within
one year after the date of acquisition and
2
<PAGE> 9
(v) shares of any money market mutual fund, or similar fund, in each case
having assets in excess of $500 million, which invests predominantly in
investments of the types described in clauses (i) through (iv) above.
"Change of Control" means (i) the acquisition, including through
merger, consolidation or otherwise, by any Person or any Persons acting
together which would constitute a "group" (a "Group") for purposes of Section
13(d) of the Exchange Act, together with all affiliates and associates (as
defined in Rule 12b-2 under the Exchange Act) thereof, of direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of more
than 50% of (A) the outstanding shares of Common Stock of the Company or (B)
the total voting power of all classes of Capital Stock of the Company entitled
to vote generally in the election of directors, or (ii) the election by any
Person or Group, together with all affiliates and associates thereof, of a
sufficient number of its or their nominees to the Board of Directors such that
such nominees, when added to any existing directors remaining on such Board of
Directors after such election who are affiliates or associates of such Person
or Group, shall constitute a majority of such Board of Directors; provided,
however, that, for purposes of this definition, the terms "Person" and "Group"
shall be deemed not to include (i) the Company, (ii) any Restricted Subsidiary
of the Company that is a Wholly Owned Subsidiary, (iii) Lee Roy Mitchell or
Tandy Mitchell, or any descendant of Lee Roy Mitchell or the spouse of any such
descendant, the estate of Lee Roy Mitchell, Tandy Mitchell, any descendant of
Lee Roy Mitchell or the spouse of any such descendant or any trust or other
arrangement for the benefit of Lee Roy Mitchell, Tandy Mitchell, any descendant
of Lee Roy Mitchell or the spouse of any such descendant (collectively, the
"Mitchell Family"), (iv) any group which includes any member or members of the
Mitchell Family if a majority of the Capital Stock of the Company held by such
group is beneficially owned (including the power to vote such Capital Stock of
the Company) by such member or members or by one or more affiliates at least
80% of the equity interests of which are owned by such member or members or (v)
Cypress Merchant Banking Partners L.P. or Cypress Pictures Ltd., and provided,
further, that, the term "Change of Control" shall be deemed not to include any
transaction or series of transactions that results in the Capital Stock of the
Company being held by one or more Persons if the beneficial ownership, direct
or indirect, of the Company after such transaction or series of transactions is
substantially the same as the beneficial ownership, direct or indirect, of the
Company prior to such transaction or series of transactions.
"Cinemark International" means Cinemark International, Inc., a
Texas corporation.
"Cinemark International Management Agreement" means the
Management Agreement, dated as of June 10, 1992, between the Company and
Cinemark International, as such agreement may be amended, supplemented or
otherwise modified from time to time in accordance with the terms hereof and
thereof.
"Commission" or "SEC" means the Securities and Exchange
Commission, and any successor thereto.
"Common Stock" of any Person means Capital Stock of such Person
that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Consolidated EBITDA" of any Person means, for any period
(without duplication), (i) the sum of (A) Consolidated Net Income, (B)
Consolidated Interest Expense, (C) provisions for taxes based on or calculated
with respect to income, (D) depreciation expense, (E) amortization expense, and
(F) all other non-cash items reducing Consolidated Net Income, less all non-
cash items increasing Consolidated
3
<PAGE> 10
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 Original 9-5/8% Notes Issuance Date, (iv)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (v) net costs under Hedging
Obligations (including amortizations of discount), (vi) preferred stock
dividends in respect of preferred stock of Restricted Subsidiaries of such
Person, other than payable-in-kind dividends in respect of preferred stock that
is not Disqualified Stock, held by Persons other than such Person or one of its
Wholly Owned Subsidiaries that is a Restricted Subsidiary, and (vii) dividends
in respect of Disqualified Stock of such Person.
"Consolidated Net Income" of any Person means, for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP,
however, including, in the case of the Company and its Restricted Subsidiaries,
only those management fees actually received by the Company from its
Unrestricted Subsidiaries, and excluding amortization of debt discount and debt
issue costs with respect to transactions consummated on or prior to the
Original 9-5/8% Notes Issuance Date, provided that (i) accrued but unpaid
compensation expenses related to any stock appreciation or stock option plans
shall not be deducted until such time as such expenses result in a cash
expenditure, (ii) compensation expenses related to tax payment plans
implemented by the Company from time to time in connection with the exercise
and/or repurchase of stock options shall not be deducted from Net Income to the
extent of the related tax benefits arising therefrom, (iii) the Net Income of
any Person that is not a Restricted Subsidiary of such Person or that is
accounted for by such Person by the equity method of accounting shall not be
included in such Consolidated Net Income, except that the Company's equity in
the Net Income of any such Person for any such period or any previous period
shall be so included only up to the aggregate amount of cash dividends or
distributions paid to the Company or one of its Restricted Subsidiaries, and
(iv) the Net Income (if positive) of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded. For purposes of this definition, "Net Income" of any Person
means, for any period, the net income (or loss) of such Person determined in
accordance with GAAP, excluding, however, from the determination (i) any
extraordinary loss resulting from early extinguishment of debt on or prior to
the Original 9-5/8% Notes Issuance Date, (ii) any net gain or loss from any
extraordinary item (net of all related taxes, fees, costs and expenses), (iii)
any net gain or loss (net of all related taxes and Asset Disposition Expenses)
realized upon the sale or other disposition during such period (including
without limitation dispositions pursuant to sale and leaseback transactions) of
any real property, equipment or other asset of such Person, which is not sold
or otherwise disposed of in the ordinary course of business, or of any Capital
Stock of such Person or a Restricted Subsidiary of such Person, and (iv) the
cumulative effect of changes in accounting principles.
"Consolidated Net Worth" of any Person means, as of any date, the
amount which, in accordance with GAAP, would be set forth under the caption
"Shareholders' Equity" (or any like caption) on a consolidated balance sheet
of such Person and its Restricted Subsidiaries, less amounts attributable to
Disqualified Stock of such Person or any of its Restricted Subsidiaries.
"Consolidated Tangible Assets" of any Person means, as of any
date, the amount which, in accordance with GAAP, would be set forth under the
caption "Total Assets" (or any like caption) on
4
<PAGE> 11
a consolidated balance sheet of such Person and its Restricted Subsidiaries,
less all intangible assets, including, without limitation, goodwill,
organization costs, patents, trademarks, copyrights, franchises, and research
and development costs.
"Corporate Trust Office of the Trustee" shall be at the address
of the Trustee specified in Section 11.2 hereof or such other address as to
which the Trustee may give notice to the Company.
"Credit Facility" means that certain 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.
"Definitive Notes" means Notes that are in the form of the Notes
attached hereto as Exhibit A that do not include the paragraph called for by
footnote 1 or the schedule called for by footnote 3 thereof.
"Deposit Account" means a demand, savings, passbook, money market
or like account with a commercial bank, savings and loan association or like
organization or a government securities dealer, other than an account evidenced
by a negotiable certificate of deposit.
"Depositary" means, with respect to the Notes issuable or issued
in whole or in part in global form, the Person specified in Section 2.3 hereof
as the Depositary with respect to the Notes, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Designated Senior Indebtedness" means (i) the Credit Facility
and all Indebtedness thereunder and (ii) any other Senior Indebtedness issued
after the Original 9-5/8% Notes Issuance Date and permitted under the terms of
this Indenture, the principal amount of which is $10 million or more and that
has been designated by the Company as Designated Senior Indebtedness.
"Disqualified Stock" of any Person means any Capital Stock of
such Person that, by its terms (or by the terms of any security into which it
is convertible or for which it is exercisable, redeemable or exchangeable),
matures, or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in
part (but only to the extent of such part), on or prior to the Stated Maturity
of the Notes.
5
<PAGE> 12
"EBITDA Ratio" of any Person means the ratio of (i) the aggregate
amount of Consolidated EBITDA of such Person for the four full fiscal quarters
immediately prior to the date of the transaction giving rise to the need to
calculate the EBITDA Ratio (the "Determination Date") to (ii) the aggregate
Consolidated Interest Expense which such Person shall accrue during the fiscal
quarter in which the Determination Date occurs and the three fiscal quarters
immediately subsequent to such fiscal quarter, assuming that the Consolidated
Interest Expense shall accrue on the amount of such Person's Indebtedness on
the Determination Date, including any Indebtedness proposed to be incurred on
such date (as though all such Indebtedness was incurred on the first day of the
quarter in which the Determination Date occurred), but specifically excluding
Indebtedness proposed to be repaid or defeased (or with respect to the
defeasance of which a deposit satisfying the defeasance requirements of such
Indebtedness has irrevocably been made) on such date (as though all such
Indebtedness was repaid on the first day of the quarter in which the
Determination Date occurred); provided that if during the four-quarter period
referred to in clause (i) above, the Person for which the EBITDA Ratio is being
determined or any of its Restricted Subsidiaries shall have acquired any assets
other than assets acquired as a result of capital expenditures made in the
ordinary course of business of such Person, the EBITDA Ratio of such Person as
of such Determination Date shall be calculated on a pro forma basis, as if such
acquisition had occurred at the beginning of such four-quarter period. For
purposes of this definition, interest on Indebtedness determined on a
fluctuating basis for periods succeeding the Determination Date shall be
calculated as if the rate in effect on the Determination Date had been the
applicable rate for the entire period, taking into account any Hedging
Obligations applicable to such Indebtedness.
"Equity Offering" means either (i) a bona fide underwritten sale
to the public of Common Stock of the Company or a Parent pursuant to a
registration statement (other than a Form S-8 or any other form relating to
securities issuable under any employee benefit plan of the Company) that is
declared effective by the Commission, or (ii) a privately negotiated sale of
Common Stock of the Company or a Parent by the Company or such Parent, as the
case may be, to a Person that, immediately prior to the time of such sale, is
not an Affiliate of the Company or such Parent, in each case completed
following the Original 9-5/8% Notes Issuance Date and resulting in aggregate
gross proceeds to the Company or such Parent of at least $20 million; provided,
that in the case of any such sale of Common Stock of a Parent, (x) the net
proceeds of such sale shall be contributed within 30 days by such Parent to the
Company or (y) the Parent shall use such proceeds to purchase Capital Stock of
the Company that is not Disqualified Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Exchange Notes" means the Series D Notes to be issued by the
Company upon the expiration of the Exchange Offer pursuant to the terms of the
Registration Rights Agreement, containing terms identical in all material
respects to the Series C Notes (except that (i) the transfer restrictions
thereon shall be eliminated (other than as may be imposed by state securities
laws) and (ii) there will be no provision for the payment of Liquidated
Damages).
"Exchange Offer" means, subject to the terms of the Registration
Rights Agreement, the offer by the Company to the Holders of the opportunity to
exchange their Series C Notes for Exchange Notes pursuant to a registration
statement filed with the Commission.
"Existing Unrestricted Subsidiaries" means Cinemark International
and its Subsidiaries.
"50% Entity" shall have the meaning assigned to such term in the
definition of the term "Subsidiary."
6
<PAGE> 13
"GAAP" means generally accepted accounting principles as applied
in the United States set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States, which are applicable as of the date of determination; provided that the
definitions contained in this Indenture and all ratios and calculations
contained in the covenants contained herein shall be determined in accordance
with GAAP as in effect and applied by the Company as of the Original 9-5/8%
Notes Issuance 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.
"Global Note" means a Note that contains the paragraph called for
by footnote 1 and the schedule referred to in footnote 3 to the form of the
Note attached hereto as Exhibit A.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America or any agency or
instrumentality thereof for the payment of which guarantee or obligations the
full faith and credit of the United States is pledged.
"guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such other Person (whether arising by virtue of
participation arrangements, by agreement to keep well, or to maintain financial
statement conditions or otherwise), (ii) to purchase, sell or lease (as lessee
or lessor) property, or to purchase or sell services, primarily for the purpose
of enabling such other Person to make payment of such Indebtedness, (iii) to
supply funds to or in any other manner invest in such other Person (including
any agreement to pay for property or services irrespective of whether such
property is received or such services are rendered), or (iv) entered into for
the purpose of assuring the obligee of such Indebtedness in any other manner of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided that the term "guarantee" shall not include (i)
endorsements for collection or deposit in the ordinary course of business, and
(ii) leases entered into in the ordinary course of business.
"Hedging Obligation" means any agreement, whether or not in
writing, relating to any transaction that is a rate swap, basis swap, forward
rate transaction, commodity swap, commodity option, equity or equity index swap
or option, bond, note or bill option, interest rate option, forward foreign
exchange transaction, cap, collar or floor transaction, currency swap, cross-
currency rate swap, swaption, currency option or any other, similar transaction
(including any option to enter into any of the foregoing) or any combination of
the foregoing, and, unless the context otherwise clearly requires, any master
agreement relating to or governing any or all of the foregoing.
"Holder" or "Securityholder" means a Person in whose name a Note
is registered on the Register.
"Indebtedness" of any Person means, at any date, and without
duplication, any obligation of such Person or its Restricted Subsidiaries for
or in respect of: (i) money borrowed (whether or not for a cash consideration
and whether or not the recourse of the lender is to the whole of the assets of
such Person or only a portion thereof) and premiums (if any) and capitalized
interest (if any) in respect thereof;
7
<PAGE> 14
(ii) any debenture, bond, note or similar instrument (whether or not issued for
a cash consideration), if it would appear as a liability on a balance sheet of
such Person prepared in accordance with GAAP; (iii) any letter of credit (other
than in respect of Trade Payables), bankers' acceptance or note purchase
facility or any liability with respect to any recourse receivables purchase,
factoring or discounting arrangement; (iv) Capitalized Lease Obligations
(whether in respect of buildings, machinery, equipment or otherwise), except
any such obligation that represents a Trade Payable; (v) any deferred purchase
or conditional sale agreement or arrangement representing the deferred and
unpaid balance of the purchase price of any property (including pursuant to
financing leases), except any such balance which represents a Trade Payable;
(vi) all obligations to purchase, redeem, retire, defease or otherwise acquire
for value any Disqualified Stock of such Person (or any warrants, rights or
options to acquire such Disqualified Stock) valued, in the case of Disqualified
Stock, at the greatest amount payable in respect thereof on a liquidation
(whether voluntary or involuntary), prior to the Stated Maturity of the Notes,
plus accrued and unpaid dividends; (vii) preferred stock of Restricted
Subsidiaries of such Person held by Persons other than such Person or one of
its Wholly Owned Subsidiaries that is a Restricted Subsidiary; (viii) direct or
indirect guarantees of all Indebtedness of other Persons referred to in clauses
(i) through (vii) above; and (ix) all Indebtedness of the types referred to in
clauses (i) through (viii) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on any asset owned by such Person or its Restricted Subsidiaries (even
though such Person or its Restricted Subsidiaries have not assumed or become
liable for the payment of such Indebtedness); provided, that the term
"Indebtedness" shall not be deemed to include any liability for federal, state,
local or other taxes owed or owing by the Company. The amount of Indebtedness
of any Person or its Restricted Subsidiaries at any date shall be (without
duplication) (i) the outstanding balance at such date of all unconditional
Indebtedness obligations as described above and the maximum liability of any
such contingent Indebtedness obligations at such date, (ii) in the case of
Indebtedness of others secured by a Lien to which the property or assets owned
or held by such Person or its Restricted Subsidiaries is subject, the lesser of
the fair market value at such date of any property and assets subject to a Lien
securing the Indebtedness of others and the amount of the Indebtedness secured,
and (iii) in the case of Indebtedness of others guaranteed by such Person as
described above, the lesser of the maximum amount of such guaranty and the
amount of the Indebtedness guaranteed. A guaranty of Indebtedness of the
Company or a Restricted Subsidiary of the Company that is permitted under the
Indenture shall not constitute a separate incurrence of Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Initial Issuance Date" means the date of original issuance of
the Series C Notes.
"Interest Payment Date" means each of February 1 and August 1.
"Investment" means any direct or indirect advance, loan or other
extension of credit or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities issued by, any other Person, other
than (i) loans or advances made to employees in the ordinary course of business
not in excess of $50,000 outstanding at any time to any employee, (ii) advances
to customers or suppliers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of any Person or its Subsidiaries
and any securities received in settlement thereof or as a result of a
bankruptcy or an insolvency proceeding, (iii) workers' compensation, utility,
lease and similar deposits and prepaid expenses in the ordinary course of
business, (iv) Capital Stock, bonds, notes, debentures and other assets
received as a result of Asset Dispositions not prohibited by Section 4.10, and
(v) endorsements of negotiable instruments and documents in the ordinary course
of business. In addition, (i) the fair market value of the assets (net of
liabilities) of any Restricted
8
<PAGE> 15
Subsidiary at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary shall constitute an Investment in such Subsidiary in
such amount, if the Company has elected that such designation be deemed to be
an Investment and not an Asset Disposition, and (ii) the lesser of (A) the
amount of Restricted Payments made to any Unrestricted Subsidiary or (B) the
fair market value of the assets (net of liabilities) of such Unrestricted
Subsidiary, in each case at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary of the Company, shall constitute a return of
capital and a decrease in the amount of the Company's Investment in such
Subsidiary.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the Company's principal place of business, the City of
New York or at a place of payment are authorized by law, regulation or
executive order to remain closed. If a payment date is a Legal Holiday at a
place of payment, payment may be made at that place on the next succeeding day
that is not a Legal Holiday, and no interest shall accrue for the intervening
period.
"Lien" means any mortgage, lien, pledge, security interest,
conditional sale or other title retention agreement, charge or other security
interest or encumbrance of any kind (including any agreement to give any
security interest).
"Liquidated Damages" means liquidated damages as defined in
Section 5 of the Registration Rights Agreement.
"Marketable Equity Securities" means shares of Capital Stock of
any Person that are listed on the New York Stock Exchange, the American Stock
Exchange or the national market tier of The Nasdaq Stock Market and, upon
receipt by the Company or a Restricted Subsidiary, such shares are freely
tradeable under the Securities Act and applicable state securities laws and are
so listed or included for trading privileges.
"Moody's" means Moody's Investors Service, Inc.
"Net Proceeds" means the aggregate amount of consideration in the
form of Cash, Temporary Cash Investments or Marketable Equity Securities
received by the Company or any of its Restricted Subsidiaries with respect to
any Asset Disposition, after deducting therefrom brokerage commissions,
appraisal fees, survey charges, engineering fees, title insurance premiums,
legal fees, finder's fees, loan origination and similar fees, underwriting
fees, investment banking fees and other similar commissions or fees, and any
filing, recording or registration fees, costs and expenses, recording taxes,
transfer taxes, provisions for all taxes payable as a result of such Asset
Disposition, amounts required to be paid to any Person owning a beneficial
interest in the assets subject to such Asset Disposition, and appropriate
amounts to be provided as a reserve in accordance with GAAP against any
liabilities associated with such Asset Disposition after such Asset Disposition
(to the extent such reserves are not subsequently reversed), including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Disposition ("Asset Disposition
Expenses"), and also less any amounts required to be applied to retire all or a
portion of the Notes or Indebtedness permitted under Section 4.9 having the
benefit of a Lien on the property or assets so transferred, to the extent, but
only to the extent, that such amounts are paid by the Company or one of its
Restricted Subsidiaries or are amounts for which the Company or one of its
Restricted Subsidiaries is directly and not contingently liable, as the case
may be, and properly attributable to the transaction in respect of which such
consideration is received or to the asset that is the subject of such
transaction.
9
<PAGE> 16
"Note Custodian" means the Trustee, as custodian with respect to
the Notes in global form, or any successor entity thereto.
"Obligations" means any principal, premium, interest, penalties,
fees, indemnifications, reimbursements, damages and other liabilities payable
under the documentation governing any Indebtedness.
"Offer" means a Change of Control Offer or Net Proceeds Offer, as
the case may be.
"Offer Purchase Date" means a Change of Control Purchase Date or
Net Proceeds Purchase Date, as the case may be.
"Offering Memorandum" means the Offering Memorandum, dated June
20, 1997, relating to the offering of the Series C Notes.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Secretary, any Assistant Secretary, or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of
the Company by two Officers of the Company, one of whom must be the Chairman of
the Board, the President or the Chief Financial Officer of the Company, that
meets the requirements of Section 11.5 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.5 hereof. The counsel may be counsel to the Company, any Subsidiary of the
Company or the Trustee.
"Original Notes" means the Series A Notes and the Series B Notes.
"Original 9-5/8% Notes Indenture" means the indenture, dated as
of August 15, 1996, by and between the Company and the Trustee, as amended by
that certain First Supplemental Indenture thereto, dated as of the date hereof,
and as further amended or supplemented from time to time.
"Original 9-5/8% Notes Issuance Date" means August 15, 1996.
"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
10
<PAGE> 17
Company or a Restricted Subsidiary of the Company; (vi) refundable construction
advances made with respect to the construction of properties of a nature or
type that are used in a business similar or related to the business of the
Company or its Restricted Subsidiaries in the ordinary course of business;
(vii) advances or extensions of credit on terms customary in the industry in
the form of accounts or other receivables incurred, or pre-paid film rentals,
and loans and advances made in settlement of such accounts receivable, all in
the ordinary course of business; (viii) guarantees not prohibited by Section
4.9; (ix) entry into and Investments in joint ventures, partnerships and other
Persons engaged or proposing to engage in the indoor motion picture exhibition
business, provided that (A) the Person into which such Investment is made is
either a Restricted Subsidiary of the Company, or such Person or a Subsidiary
of such Person will, as a result of the making of such Investment and all other
contemporaneous related transactions, become a Restricted Subsidiary of the
Company and (B) the amount of such Investment, valued at the time made,
together with all Investments previously made pursuant to this clause (ix)
(and, without duplication, all Investments made pursuant to clause (ix) of the
definition of "Permitted Investments" as set forth in Section 1.1 of the
Original 9-5/8% Notes Indenture shall be deemed made pursuant to this clause
(ix) as well), valued at the respective times made, shall not exceed 10% of
Consolidated Tangible Assets of the Company as of the last day of the full
fiscal quarter ending immediately prior to the date of such Investment; (x) any
Investment made solely with funds the payment or application of which is not
restricted pursuant to Section 4.7; (xi) Investments in the Notes and the
Original Notes; (xii) any consolidation or merger of a Restricted Subsidiary
that is a Wholly Owned Subsidiary of the Company to the extent otherwise
permitted under the Indenture; (xiii) payments of up to $1.5 million annually
to repurchase Capital Stock of the Company issued under the Company's employee
stock option plans; (xiv) Hedging Obligations of the Company or any of its
Restricted Subsidiaries to the extent otherwise permitted under the Indenture;
(xv) Investments in Cinemark International not to exceed $40 million; and (xvi)
other Investments not to exceed $10 million.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, incorporated or unincorporated association,
joint-stock company, trust, unincorporated organization or government or other
agency or political subdivision thereof or other entity of any kind.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, by and among the Company and the other
parties thereto, as such agreement may be amended, modified or supplemented
from time to time.
"Representative" means, for any Senior Indebtedness, the trustee,
agent or representative with respect to such Senior Indebtedness.
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Administration of the Trustee (or
any successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Subsidiary" means (i) any Subsidiary of the Company
in existence on the Original 9-5/8% Notes Issuance Date other than the Existing
Unrestricted Subsidiaries, (ii) any Subsidiary of the Company (other than a
Subsidiary that is also a Subsidiary of an Unrestricted Subsidiary) organized
or acquired after the Original 9-5/8% Notes Issuance Date, unless such
Subsidiary shall have been designated as an Unrestricted Subsidiary by
resolution of the Board of Directors as provided in and in compliance with the
definition of "Unrestricted Subsidiary," and (iii) any Unrestricted Subsidiary
which is designated as a Restricted Subsidiary by the Board of Directors;
provided that, immediately after giving
11
<PAGE> 18
effect to the designation referred to in clause (iii), no Default or Event of
Default shall have occurred and be continuing and the Company could incur at
least $1.00 of additional Indebtedness under Section 4.9(a). The Company shall
evidence any such designation to the Trustee by promptly filing with the
Trustee an Officer's Certificate certifying that such designation has been made
and stating that such designation complies with the requirements of the
immediately preceding sentence.
"S&P" means Standard and Poor's Ratings Group, a division of
McGraw-Hill, Inc.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"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 this Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness will not include (x) the Notes
or the Original Notes, (y) any Indebtedness of the Company to any of its
Subsidiaries or other Affiliates, or (z) any Indebtedness that is incurred in
violation of the terms of this Indenture.
"Series A Notes" means the 9-5/8% Senior Subordinated Notes due
2008, Series A, issued by the Company pursuant to the Original 9-5/8% Notes
Indenture.
"Series B Notes" means the 9-5/8% Senior Subordinated Notes due
2008, Series B, issued by the Company pursuant to the Original 9-5/8% Notes
Indenture.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary of the Company that, together with its Restricted
Subsidiaries, (i) for the most recent fiscal year of the Company, accounted for
more than 5% of the consolidated revenues of the Company and its Restricted
Subsidiaries or (ii) as of the end of such fiscal year, was the owner of more
than 5% of the consolidated assets of the Company and its Restricted
Subsidiaries, all as set forth on the most recently available consolidated
financial statements of the Company for such fiscal year.
"Stated Maturity" means, when used with respect to any security,
the date specified in such security as the fixed date on which an amount equal
to the principal of such security is due and payable.
"Subsidiary" means, with respect to any Person, (i) a Person a
majority of whose Capital Stock with voting power under ordinary circumstances
to elect directors (or Persons having similar or corresponding powers and
responsibilities) is at the time, directly or indirectly, owned by such Person,
by one or more Subsidiaries of such Person or by such Person and one or more
Subsidiaries thereof or (ii) upon designation by the Company, and until
designation by the Company to the contrary, a Person, 50% of whose Capital
Stock with voting power under ordinary circumstances to elect directors (or
Persons having similar or corresponding powers and responsibilities) is at the
time, directly or indirectly, owned by such Person, by one or more Subsidiaries
of such Person or by such Person and one or more Subsidiaries thereof (a "50%
Entity"). The Company shall evidence any designation pursuant to clause (ii) of
the immediately preceding sentence to the Trustee by filing with the Trustee
within 45 days of such designation an Officer's Certificate certifying that
such designation has been made. All references within the Indenture to
designations of Unrestricted Subsidiaries as Restricted Subsidiaries or
Restricted Subsidiaries as Unrestricted Subsidiaries shall be deemed to include
designations of 50% Entities as Restricted Subsidiaries and Restricted
Subsidiaries as 50% Entities, respectively.
12
<PAGE> 19
"Temporary Cash Investments" means any Investment in the
following kinds of instruments: (A) readily marketable obligations issued or
unconditionally guaranteed as to principal and interest by the United States of
America or by any agency or authority controlled or supervised by and acting as
an instrumentality of the United States of America if, on the date of purchase
or other acquisition of any such instrument by the Company or any Restricted
Subsidiary of the Company, the remaining term to maturity or interest rate
adjustment is not more than two years; (B) obligations (including, but not
limited to, demand or time deposits, bankers' acceptances and certificates of
deposit) issued or guaranteed by a depository institution or trust company
incorporated under the laws of the United States of America, any state thereof,
the District of Columbia, Canada or any province or territory thereof, provided
that (1) such instrument has a final maturity not more than one year from the
date of purchase thereof by the Company or any Restricted Subsidiary of the
Company and (2) such depository institution or trust company has at the time of
the Company's or such Restricted Subsidiary's Investment therein or contractual
commitment providing for such Investment, (x) capital, surplus and undivided
profits (as of the date of such institution's most recently published financial
statements) in excess of $100 million and (y) the long-term unsecured debt
obligations (other than such obligations rated on the basis of the credit of a
Person other than such institution) of such institution, at the time of the
Company's or such Restricted Subsidiary's Investment therein or contractual
commitment providing for such Investment, are rated in the highest rating
category of both S&P and Moody's; (C) commercial paper issued by any
corporation, if such commercial paper has, at the time of the Company's or any
Restricted Subsidiary's Investment therein or contractual commitment providing
for such Investment, credit ratings of at least A-1 by S&P and P-1 by Moody's;
(D) money market mutual or similar funds having assets in excess of $100
million; (E) readily marketable debt obligations issued by any corporation, if
at the time of the Company's or any Restricted Subsidiary's Investment therein
or contractual commitment providing for such Investment (1) the remaining term
to maturity is not more than two years and (2) such debt obligations are rated
in one of the two highest rating categories of both S&P and Moody's; (F) demand
or time deposit accounts used in the ordinary course of business with
commercial banks the balances in which are at all times fully insured as to
principal and interest by the Federal Deposit Insurance Corporation or any
successor thereto or any Canadian equivalent thereof; (G) demand or time
deposit accounts used in the ordinary course of business with overseas branches
of commercial banks incorporated under the laws of the United States of
America, any state thereof, the District of Columbia, Canada or any province or
territory thereof, provided that such commercial bank has, at the time of the
Company's or such Restricted Subsidiary's Investment therein, (1) capital,
surplus and undivided profits (as of the date of such institution's most
recently published financial statements) in excess of $100 million and (2) the
long-term unsecured debt obligations (other than such obligations rated on the
basis of the credit of a Person other than such institution) of such
institution, at the time of the Company's or any Restricted Subsidiary's
Investment therein, are rated in the highest rating category of both S&P and
Moody's; and (H) to the extent not otherwise included herein, Cash Equivalents.
In the event that either S&P or Moody's ceases to publish ratings of the type
provided herein, a replacement rating agency shall be selected by the Company
with the consent of the Trustee, and in each case the rating of such
replacement rating agency most nearly equivalent to the corresponding S&P or
Moody's rating, as the case may be, shall be used for purposes hereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) and the rules and regulations thereunder, as in effect on the
date on which this Indenture is qualified under the TIA (except as provided in
Sections 9.1(e) and 9.3 hereof).
"Trade Payables" of any Person means accounts payable or any
other indebtedness or monetary obligations to trade creditors created, assumed
or guaranteed by such Person or any of its Subsidiaries in the ordinary course
of business in connection with the obtaining of materials or services.
13
<PAGE> 20
"Transfer Restricted Securities" means securities that bear or
are required to bear the legend set forth in Section 2.6 hereof.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means, until such time as any of the
following shall be designated as a Restricted Subsidiary of the Company by the
Board of Directors as provided in and in compliance with the definition of
"Restricted Subsidiary," (i) each of the Existing Unrestricted Subsidiaries,
(ii) any Subsidiary of the Company or of a Restricted Subsidiary of the Company
organized or acquired after the Original 9-5/8% Notes Issuance Date that is
designated concurrently with its organization or acquisition as an Unrestricted
Subsidiary by resolution of the Board of Directors, (iii) any Subsidiary of any
Unrestricted Subsidiary, and (iv) any Restricted Subsidiary of the Company that
is designated as an Unrestricted Subsidiary by resolution of the Board of
Directors, provided that, (A) immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing and (B) any such designation shall be deemed, at the election of the
Company at the time of such designation, to be either (but not both) (x) the
making of a Restricted Payment at the time of such designation in an amount
equal to the Investment in such Subsidiary subject to the restrictions
contained in Section 4.7 or (y) the making of an Asset Disposition at the time
of such designation in an amount equal to the Investment in such Subsidiary
subject to the restrictions contained in Section 4.10. The Company shall
evidence any designation pursuant to clause (ii) or (iv) of the immediately
preceding sentence to the Trustee by filing with the Trustee within 45 days of
such designation an Officer's Certificate certifying that such designation has
been made and, in the case of clause (iv), the related election of the Company
in respect thereof.
"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
14
<PAGE> 21
by applicable law, is owned by such Person (either directly or indirectly
through Wholly Owned Subsidiaries).
SECTION 1.2. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
--------------------------------------------------- ----------
<S> <C>
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . 4.11
"Change of Control Offer" . . . . . . . . . . . . . . . . . 4.14(a)
"Change of Control Offer Price" . . . . . . . . . . . . . . 4.14(a)
"Change of Control Purchase Date" . . . . . . . . . . . . . 4.14(a)
"Covenant Defeasance" . . . . . . . . . . . . . . . . . . . 8.3
"Discharge" . . . . . . . . . . . . . . . . . . . . . . . . 8.5
"DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
"DTC Participants" . . . . . . . . . . . . . . . . . . . . 2.1(b)
"Event of Default" . . . . . . . . . . . . . . . . . . . . 6.1
"Incurrence" . . . . . . . . . . . . . . . . . . . . . . . 4.9(a)
"Legal Defeasance" . . . . . . . . . . . . . . . . . . . . 8.2
"Net Proceeds Offer" . . . . . . . . . . . . . . . . . . . 4.10(a)
"Net Proceeds Offer Amount" . . . . . . . . . . . . . . . . 4.10(a)
"Net Proceeds Offer Price" . . . . . . . . . . . . . . . . 4.10(a)
"Net Proceeds Purchase Date" . . . . . . . . . . . . . . . 4.10(a)
"Other Consideration" . . . . . . . . . . . . . . . . . . . 4.10(f)
"Pari Passu Offer" . . . . . . . . . . . . . . . . . . . . 4.10(b)
"Pari Passu Offer Amount" . . . . . . . . . . . . . . . . . 4.10(b)
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . 2.3
"Payment Blockage Notice" . . . . . . . . . . . . . . . . . 10.3
"Refinancing Indebtedness" . . . . . . . . . . . . . . . . 4.9(a)
"Register" . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Restricted Payments" . . . . . . . . . . . . . . . . . . . 4.7(a)
"SEC" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 ("Commission")
"75% Test" . . . . . . . . . . . . . . . . . . . . . . . . 4.10(a)
"Surviving Entity" . . . . . . . . . . . . . . . . . . . . 5.1
"Transaction Value" . . . . . . . . . . . . . . . . . . . . 4.10(f)
</TABLE>
SECTION 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
15
<PAGE> 22
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company and any successor
obligor upon the Notes.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
SECTION 1.4. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the
plural include the singular;
(e) provisions apply to successive events and transactions;
(f) references to sections of or rules under the Exchange Act
or the Securities Act shall be deemed to include substitute, replacement
of successor sections or rules adopted by the SEC from time to time; and
(g) "herein," "hereof" and other words or similar import refer
to this Indenture as a whole (as amended or supplemented from time to
time) and not to any particular Article, Section or other subdivision.
ARTICLE 2
THE NOTES
SECTION 2.1. FORM AND DATING.
(a) General Form of Notes. The Notes and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A
hereto, which Exhibit is part of this Indenture. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage. Each
Note shall be dated the date of its authentication. The Notes shall be in
minimum denominations of $1000 and integral multiples thereof. The terms and
provisions contained in the Notes shall constitute, and are hereby expressly
made, a part of this Indenture and the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby. Notes offered and sold in reliance on Rule
144A under the Securities Act will initially be issued only in the form of one
or more Global Notes. Notes offered and sold in reliance on any other
exemption from registration under the Securities Act will be issued only in the
form of Definitive Notes. Global Notes shall be substantially in the form of
Exhibit A attached hereto (including the text and schedule called for by
footnotes 1 and 3 thereto). Definitive Notes shall be substantially in the
form of Exhibit A attached hereto (excluding the
16
<PAGE> 23
text and schedule called for by footnotes 1 and 3 thereto). Global Notes or
Definitive Notes issued as Exchange Notes will not include the legend called
for by footnote 2 of Exhibit A.
(b) Form of Global Notes. Each Global Note (i) shall
represent such portion of the outstanding Notes as shall be specified therein,
(ii) shall provide that it shall represent the aggregate amount of outstanding
Notes from time to time endorsed thereon and that the aggregate amount of
outstanding Notes represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges and redemptions, (iii) shall be
registered in the name of the Depositary or its nominee, duly executed by the
Company and authenticated by the Trustee as provided herein, for credit to the
respective accounts of the Holders (or such accounts as they may direct) at the
Depositary, (iv) shall be delivered by the Trustee or its Agent to the
Depositary or a Note Custodian pursuant to the Depositary's instructions and
(v) shall bear a legend substantially to the following effect:
"Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to the Company or its agent for registration
of transfer, exchange or payment, and any certificate issued is
registered in the name of Cede & Co. or such other name as is
required by an authorized representative of DTC (and any payment
hereon is made to Cede & Co or to such other entity as is
requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede
& Co., has an interest herein."
Members of, or participants in, the Depositary ("DTC Participants") shall have
no rights under this Indenture with respect to any Global Note held on their
behalf by the Depositary, and the Depositary may be treated by the Company, the
Trustee, and any agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee, or any agent of the
Company or the Trustee from giving effect to any written certification, proxy
or other authorization furnished to the Depositary or impair, as between the
Depositary and its agent members, the operation of customary practices
governing the exercise of the rights of a Holder of any Note.
Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the amount of outstanding Notes represented thereby
shall be made by the Trustee or the Note Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.6 hereof.
(c) Form of Definitive Notes. Definitive Notes may be produced
in any manner determined by the Officers of the Company executing such Notes,
as evidenced by their execution of such Notes. The Trustee must register
Definitive Notes so issued in the name of, and cause the same to be delivered
to, such Person (or its nominee). Subject to the provisions of Section 2.6,
any Person having a beneficial interest in the Global Note may exchange such
beneficial interest, upon request to the Trustee, for fully certificated
Definitive Notes in duly registered form.
(d) Provisions Applicable to Forms of Notes. The Notes may
also have such additional provisions, omissions, variations or substitutions as
are not inconsistent with the provisions of this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with this Indenture,
any Applicable Law or with any rules made pursuant thereto or with the rules of
any securities exchange or governmental agency or as may be determined
consistently herewith by the Officer of the Company executing such Notes, as
17
<PAGE> 24
conclusively evidenced by their execution of such Notes. All Notes shall be
otherwise substantially identical except as provided herein.
Subject to the provisions of this Article 2, a registered Holder
of a beneficial interest in a Global Note may grant proxies and otherwise
authorize any Person to take any action that a Holder is entitled to take under
this Indenture or the Notes.
SECTION 2.2. EXECUTION AND AUTHENTICATION.
An Officer shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal may be reproduced on the Notes and may
be in facsimile form.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid or obligatory for any purpose or
entitled to the benefits of the Indenture until authenticated by the manual
signature of the Trustee or its authenticating agent. The signature shall be
conclusive evidence that the Note has been authenticated under this Indenture.
The Trustee shall, upon the delivery to the Trustee of a written
order of the Company signed by two Officers, from time to time, authenticate
Notes for original issue up to an aggregate principal amount of $75,000,000.
The aggregate principal amount of Notes outstanding at any time may not exceed
such amount except as provided in Section 2.7 hereof.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Notes. An authenticating agent may
authenticate Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent to deal with
the Company or an Affiliate of the Company.
SECTION 2.3. TRUSTEE, REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent").
The Registrar shall keep a register ("Register") of the Notes and of their
transfer and exchange. The Company may also from time to time appoint one or
more co-registrars and one or more additional paying agents. The term
"Registrar" includes any co-registrar and the term "Paying Agent" includes any
additional paying agent. The Company may change any Paying Agent or Registrar
upon notice to the Holders. The Company shall notify the Trustee in writing of
the name and address of any Agent not a party to this Indenture. If the
Company fails to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act, subject to the last paragraph of this Section
2.3, as such. The Company or any of its Subsidiaries may act as Paying Agent
or Registrar; provided, however, that none of the Company, its Subsidiaries or
the Affiliates of the foregoing shall act (i) as Paying Agent in connection
with redemptions, offers to purchase, discharges and defeasance, as otherwise
specified in this Indenture, and (ii) as Paying Agent or Registrar if a Default
or Event of Default has occurred and is continuing.
The Company hereby appoints U.S. Trust Company of Texas, N.A., at
its Corporate Trust Office, as the Trustee hereunder and U.S. Trust Company of
Texas, N.A. hereby accepts such
18
<PAGE> 25
appointment. The Trustee shall have the powers and authority granted to and
conferred upon it in the Notes and hereby and such further powers and authority
to act on behalf of the Company as may be mutually agreed upon by the Company
and the Trustee, and the Trustee shall keep a copy of this Indenture available
for inspection during normal business hours at its Corporate Trust Office.
The Company initially appoints DTC to act as Depositary with
respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with respect to the
Global Notes.
All of the terms and provisions with respect to such powers and
authority contained in the Notes are subject to and governed by the terms and
provisions hereof.
The Trustee may resign as Registrar or Paying Agent upon 30 days
prior written notice to the Company.
SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal of, or premium, if any, or interest on, the Notes, and
shall notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon
payment of all such money over to the Trustee, the Paying Agent (if other than
the Company or a Subsidiary) shall have no further liability for the money. If
the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold
in a separate trust fund for the benefit of the Holders all money held by it as
Paying Agent. Upon any bankruptcy or reorganization proceedings relating to
the Company, the Trustee shall serve as Paying Agent for the Notes.
SECTION 2.5. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable to it the most recent list available to it of the names and
addresses of all Holders and, after the consummation of the Exchange Offer,
shall otherwise strictly comply with TIA Section 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each Interest Payment Date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may require of the names and addresses of the Holders of Notes and,
after the consummation of the Exchange Offer, the Company shall otherwise
strictly comply with TIA Section 312(a).
SECTION 2.6. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Definitive Notes. If Definitive
Notes are presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Definitive Notes; or
(y) to exchange such Definitive Notes for an equal principal
amount of Definitive Notes of other authorized
denominations,
19
<PAGE> 26
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Notes presented or surrendered for register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the
Registrar duly executed by such Holder or by such
Holder's attorney, duly authorized in writing; and
(ii) in the case of a Definitive Note that is a Transfer
Restricted Security, such request shall be
accompanied by the following additional information
and documents, as applicable:
(A) if such Transfer Restricted Security is
being delivered to the Registrar by a Holder
for registration in the name of such Holder,
without transfer, a certification to that
effect from such Holder (in substantially
the form of Exhibit B hereto); or
(B) if such Transfer Restricted Security is
being transferred to a "qualified
institutional buyer" (as defined in Rule
144A under the Securities Act) in accordance
with Rule 144A under the Securities Act or
pursuant to an exemption from registration
in accordance with Rule 144 or Rule 904
under the Securities Act or pursuant to an
effective registration statement under the
Securities Act, a certification to that
effect from such Holder (in substantially
the form of Exhibit B hereto); or
(C) if such Transfer Restricted Security is
being transferred in reliance on another
exemption from the registration requirements
of the Securities Act, a certification to
that effect from such Holder (in
substantially the form of Exhibit B hereto)
and an Opinion of Counsel from such Holder
or the transferee reasonably acceptable to
the Company and to the Registrar to the
effect that such transfer is in compliance
with the Securities Act.
(b) Restrictions on Transfer of a Definitive Note for a
Beneficial Interest in a Global Note. A Definitive Note may not be exchanged
for a beneficial interest in a Global Note except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Definitive
Note, duly endorsed or accompanied by appropriate instruments of transfer, in
form satisfactory to the Trustee, together with:
(i) if such Definitive Note is a Transfer Restricted
Security, a certification from the Holder thereof
(in substantially the form of Exhibit B hereto) to
the effect that such beneficial interest is being
transferred to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act)
in accordance with Rule 144A under the Securities
Act or pursuant to an exemption from registration
in accordance with Rule 144 or Rule 904 under the
Securities Act; and
(ii) whether or not such Definitive Note is a Transfer
Restricted Security, written instructions from the
Holder thereof directing the Trustee to make, or to
direct the Note Custodian to make, an endorsement
on the Global Note to reflect an increase in the
aggregate principal amount of the Notes represented
by the Global Note,
in which case the Trustee or its agent shall cancel such Definitive Note in
accordance with Section 2.11 hereof and cause, or direct the Note Custodian to
cause, in accordance with the standing instructions and procedures existing
between the Depositary and the Note Custodian, the aggregate principal amount
of
20
<PAGE> 27
Notes represented by the Global Note to be increased accordingly. If no Global
Notes are then outstanding, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.2 hereof, the Trustee shall
authenticate a new Global Note in the appropriate principal amount.
(c) Transfer and Exchange of a Beneficial Interest in a Global
Note. The transfer and exchange of beneficial interests in Global Notes shall
be effected through the Depositary, in accordance with this Indenture and the
procedures of the Depositary therefor, which shall include restrictions on
transfer comparable to those set forth herein to the extent required by the
Securities Act. Notwithstanding the foregoing, in the case of a Transfer
Restricted Security, a beneficial interest in a Global Note being transferred
in reliance on an exemption from the registration requirements of the
Securities Act (other than in accordance with Rule 144A, Rule 144 or Rule 904
under the Securities Act) may only be transferred for a Definitive Note and
pursuant to the provisions of Section 2.6(d) below.
(d) Transfer and Exchange of a Beneficial Interest in a Global
Note for a Definitive Note.
(i) Any Person having a beneficial interest in a
Global Note may upon request exchange such
beneficial interest for a Definitive Note.
Upon receipt by the Trustee of written
instructions or such other form of
instructions as is customary for the
Depositary, from the Depositary or its
nominee on behalf of any Person having a
beneficial interest in a Global Note, and,
in the case of a Transfer Restricted
Security, the following additional
information and documents (all of which may
be submitted by facsimile):
(A) if such beneficial interest is being
transferred to the Person designated by the
Depositary as being the beneficial owner, a
certification to that effect from such
Person (in substantially the form of Exhibit
B hereto); or
(B) if such beneficial interest is being
transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A
under the Securities Act or pursuant to an
exemption from registration in accordance
with Rule 144 or Rule 904 under the
Securities Act or pursuant to an effective
registration statement under the Securities
Act, a certification to that effect from the
transferor (in substantially the form of
Exhibit B hereto); or
(C) if such beneficial interest is being
transferred in reliance on another exemption
from the registration requirements of the
Securities Act, a certification to that
effect from the transferor (in substantially
the form of Exhibit B hereto) and an Opinion
of Counsel from the transferee or transferor
reasonably acceptable to the Company and to
the Registrar to the effect that such
transfer is in compliance with the
Securities Act,
in which case the Trustee or the Note Custodian, at
the direction of the Trustee, shall, in accordance
with the standing instructions and procedures
existing between the Depositary and the Note
Custodian, cause the aggregate principal amount of
Global Notes to be reduced accordingly and,
following such reduction, the Company shall execute
and, upon receipt of an authentication order in
accordance with Section 2.2 hereof, the Trustee
shall authenticate and deliver to the transferee a
Definitive Note in the appropriate principal
amount.
21
<PAGE> 28
(ii) Definitive Notes issued in exchange for a
beneficial interest in a Global Note pursuant to
this Section 2.6(d) shall be registered in such
names and in such authorized denominations as the
Depositary, pursuant to instructions from its
direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver
such Definitive Notes to the Persons in whose names
such Notes are so registered.
(e) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.6), a Global Note may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Notes in Absence of
Depositary. If at any time:
(i) the Depositary for the Notes notifies the Company
that the Depositary is unwilling or unable to
continue as Depositary for the Global Notes or, if
at any time such Depositary ceases to be a
"clearing agency" registered under the Exchange
Act, and a successor Depositary for the Global
Notes is not appointed by the Company within 90
days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the
Trustee in writing that it elects to cause the
issuance of Definitive Notes under this Indenture
in exchange for all or any part of the Notes
represented by a Global Note or Global Notes,
the Depositary or the Note Custodian shall surrender such Global Note to the
Trustee, without charge, and then the Company shall execute, and the Trustee
shall, upon receipt of an authentication order in accordance with Section 2.2
hereof, authenticate and deliver in exchange for such Global Notes, Definitive
Notes in an aggregate principal amount equal to the principal amount of such
Global Notes. Such Definitive Notes shall be registered in such names as the
Depositary shall direct in writing.
(g) Legends.
(i) Except as permitted by the following paragraphs
(ii), and (iii), each Note certificate evidencing
Global Notes and Definitive Notes (and all Notes
issued in exchange therefor or substitution
thereof) shall bear legends in substantially the
following form:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF, THE HOLDER AGREES THAT IT
WILL NOT PRIOR TO THE DATE WHICH IS TWO YEARS AFTER
THE LATER OF THE DATE OF ORIGINAL ISSUANCE OF THIS
NOTE AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE
(THE "RESALE RESTRICTION TERMINATION DATE") RESELL,
PLEDGE OR OTHERWISE TRANSFER THIS NOTE, EXCEPT (A)
TO THE COMPANY, (B) FOR SO LONG AS THE NOTES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT, TO A PERSON WHOM THE HOLDER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF ANOTHER
22
<PAGE> 29
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
THE RESALE PROVISIONS OF RULE 144A, (C) PURSUANT TO
OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (D) PURSUANT TO THE RESALE
LIMITATIONS PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR (F) PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, (BASED UPON AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY IF THE COMPANY SO REQUESTS) SUBJECT IN EACH
OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW
THAT THE DISPOSITION OF ITS PROPERTY OR THE
PROPERTY OF SUCH ACCOUNT BE AT ALL TIMES WITHIN ITS
CONTROL AND TO COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS AND (3) AGREES THAT IT WILL DELIVER
TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
THE FOREGOING RESTRICTIONS ON RESALE WILL NOT APPLY
SUBSEQUENT TO THE RESALE RESTRICTION TERMINATION
DATE.
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted
Security represented by a Global Note) pursuant to
Rule 144 under the Securities Act or pursuant to an
effective registration statement under the
Securities Act:
(A) in the case of any Transfer Restricted
Security that is a Definitive Note, the
Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security
for a Definitive Note that does not bear the
legend set forth in (i) above and rescind
any restriction on the transfer of such
Transfer Restricted Security; and
(B) in the case of any Transfer Restricted
Security represented by a Global Note, such
Transfer Restricted Security shall not be
required to bear the legend set forth in (i)
above, but shall continue to be subject to
the provisions of Section 2.6(c) hereof;
provided, however, that with respect to any
request for an exchange of a Transfer
Restricted Security that is represented by a
Global Note for a Definitive Note that does
not bear the legend set forth in (i) above,
which request is made in reliance upon Rule
144, the Holder thereof shall certify in
writing to the Registrar that such request
is being made pursuant to Rule 144 (such
certification to be substantially in the
form of Exhibit B hereto).
(iii) Notwithstanding the foregoing, upon consummation of
the Exchange Offer, the Company shall issue and,
upon receipt of an authentication order in
accordance with Section 2.2 hereof, the Trustee
shall authenticate Series D Notes in exchange for
Series C Notes accepted for exchange in the
Exchange Offer, which Series D Notes shall not bear
the legend set forth in (i) above, and the
Registrar shall rescind any restriction on the
transfer of such Notes, in each case unless the
Holder of such Series C Notes is either (A) a
broker-dealer, (B) a Person participating in the
distribution of the Series C Notes or (C) a Person
who is an affiliate (as defined in Rule 144A) of
the Company.
23
<PAGE> 30
(h) Cancellation and/or Adjustment of Global Notes. At such
time as all beneficial interests in Global Notes have been exchanged for
Definitive Notes, redeemed, repurchased or cancelled, all Global Notes shall be
returned to or retained and cancelled by the Trustee or its agent in accordance
with Section 2.11 hereof. At any time prior to such cancellation, if any
beneficial interest in a Global Note is exchanged for Definitive Notes,
redeemed, repurchased or cancelled, the principal amount of Notes represented
by such Global Note shall be reduced accordingly and an endorsement shall be
made on such Global Note, by the Trustee or the Notes Custodian, at the
direction of the Trustee, to reflect such reduction.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall
authenticate Definitive Notes and Global Notes at
the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the
Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental
charge payable in connection therewith (other than
any such transfer taxes or similar governmental
charge payable upon exchange or transfer pursuant
to Sections 2.2, 2.10, 3.6, 3.7, 4.10, 4.14 and 9.5
hereto).
(iii) All Definitive Notes and Global Notes issued upon
any registration of transfer or exchange of
Definitive Notes or Global Notes shall be the valid
obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this
Indenture, as the Definitive Notes or Global Notes
surrendered upon such registration of transfer or
exchange.
(iv) Neither the Registrar nor the Company shall be
required:
(A) to issue, to register the transfer of or to
exchange Notes during a period beginning at
the opening of business 15 Business Days
before the day of any selection of Notes for
redemption under Section 3.2 hereof and
ending at the close of business on the day
of selection; or
(B) to register the transfer of or to exchange
any Note so selected for redemption in whole
or in part, except the unredeemed portion of
any Note being redeemed in part; or
(C) to register the transfer of or to exchange a
Note between a record date and the next
succeeding Interest Payment Date.
(v) The Trustee shall authenticate Definitive Notes and
Global Notes in accordance with the provisions of
Section 2.2 hereof.
(j) Certain Transfers in Connection with and after the
Exchange Offer. Notwithstanding any other provision of
this Indenture: (i) no Series D Note may be exchanged by
the Holder thereof for a Series C Note; (ii) accrued and
unpaid interest on the Series C Notes being exchanged in
the Exchange Offer shall be due and payable on the next
Interest Payment Date for the Series D Notes following the
Exchange Offer; and (iii) interest on the Series D Notes
to be issued in the Exchange Offer shall accrue from the
date of the Exchange Offer.
24
<PAGE> 31
SECTION 2.7. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, the Company shall, upon the written
request of the Holder thereof, issue and the Trustee, upon the written order of
the Company signed by two Officers of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by such Holder that
is sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company may charge for its
expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company
and shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
The provisions of this Section 2.7 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.8. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated
by the Trustee except for those cancelled by it (or its agent), those delivered
to it (or its agent) for cancellation, those reductions in the interest in a
Global Note effected by the Trustee in accordance with the provisions hereof,
and those described in this Section as not outstanding. Except as set forth in
Section 2.9 hereof, a Note does not cease to be outstanding because the Company
or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.7 hereof, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note (other than a mutilated Note surrendered for replacement) is held
by a bona fide purchaser (as such term is defined in Section 8-302 of the
Uniform Commercial Code as in effect in the State of New York).
If the principal amount of any Note is considered paid under
Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, Cash or
Cash Equivalents sufficient to pay Notes payable on that date, then on and
after that date such Notes shall be deemed to be no longer outstanding and
shall cease to accrue interest.
SECTION 2.9. TREASURY NOTES.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company,
shall be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that a Responsible Officer of the
Trustee has actual knowledge are so owned shall be so disregarded.
25
<PAGE> 32
SECTION 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon a written order
of the Company signed by two Officers of the Company. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall
prepare and the Trustee shall authenticate definitive Notes in exchange for
temporary Notes.
Until such exchange, Holders of temporary Notes shall be entitled
to all of the benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee or its
Agent for cancellation. The Registrar and Paying Agent shall forward to the
Trustee any Notes surrendered to them for registration of transfer, exchange or
payment. The Trustee (or its Agent) and no one else shall cancel all Notes
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall destroy cancelled Notes (subject to the record retention
requirement of the Exchange Act). Certification of the destruction of all
cancelled Notes shall be delivered to the Company from time to time. The
Company may not issue new Notes to replace Notes that it has paid or that have
been delivered to the Trustee (or its Agent) for cancellation. If the Company
acquires any of the Notes, such acquisition shall not operate as a redemption
or satisfaction of the indebtedness represented by such Notes unless and until
the same are surrendered to the Trustee (or its Agent) for cancellation
pursuant to this Section 2.11.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.1 hereof. The Company shall notify the Trustee
in writing of the amount of defaulted interest proposed to be paid on each Note
and the date of the proposed payment. The Company shall fix or cause to be
fixed each such special record date and payment date, provided that no such
special record date shall be less than 10 days prior to the related payment
date for such defaulted interest. At least 15 days before the special record
date, the Company (or, upon the written request of the Company, the Trustee in
the name and at the expense of the Company) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such defaulted interest to be paid.
SECTION 2.13. PERSONS DEEMED OWNERS.
Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent, the Company and any agent of the foregoing
shall deem and treat the Person in whose name any Note is registered as the
absolute owner of such Note for all purposes (including the purpose of
receiving payment of principal of and interest on such Notes; provided that
defaulted interest shall be paid as set forth in Section 2.12), and none of the
Trustee, any Agent, the Company or any agent of the foregoing shall be affected
by notice to the contrary.
26
<PAGE> 33
SECTION 2.14. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company will print CUSIP
numbers on the Notes, and the Trustee may use CUSIP numbers in notices of
redemption and purchase as a convenience to Holders; provided, however, that
any such notices may state that no representation is made as to the correctness
of such numbers as printed on the Notes and that reliance may be placed only on
the other identification numbers printed on the Notes, and any such redemption
or purchase shall not affected by any defect or omission in such numbers.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.1. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date (unless a
shorter period is acceptable to the Trustee), an Officers' Certificate setting
forth (i) the clause of Section 3.7 pursuant to which the redemption shall
occur, (ii) the redemption date, (iii) the principal amount of Notes to be
redeemed, (iv) the redemption price and accrued and unpaid interest and (v)
whether it requests the Trustee to give notice of such redemption. Any such
notice may be cancelled at any time prior to the mailing of notice of such
redemption to any Holder and shall thereby be void and of no effect.
SECTION 3.2. SELECTION OF NOTES TO BE REDEEMED.
If fewer than all of the Notes are to be redeemed at any time,
the Trustee shall select the Notes to be redeemed among the Holders of the
Notes in compliance with the requirements of any applicable Depositary and
securities exchange requirements or, if the Notes are not so listed, on a pro
rata basis, by lot or in accordance with any other method the Trustee considers
fair and appropriate and in such manner as complies with any such requirements
and any applicable legal requirements; provided that no Notes of $1,000
principal amount or less shall be redeemed in part. In the event of partial
redemption by lot, the particular Notes to be redeemed shall be selected,
unless otherwise provided herein, not less than 30 nor more than 60 days prior
to the redemption date by the Trustee from the outstanding Notes not previously
called for redemption.
The Trustee shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.3. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption
date, the Company shall mail or cause to be mailed, by first class mail, a
notice of redemption to each Holder whose Notes are to be redeemed at such
Holder's registered address.
27
<PAGE> 34
The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price and accrued and unpaid interest;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the redemption date and the only remaining right of
the Holders of such Notes is to receive payment of the redemption price
upon surrender to the Paying Agent of the Notes redeemed;
(g) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for redemption are being
redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that
the Company shall have delivered to the Trustee, at least 40 days prior to the
redemption date (unless a shorter period is acceptable to the Trustee), an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.
SECTION 3.4. EFFECT OF NOTICE OF REDEMPTION.
Unless otherwise stated therein, once notice of redemption is
mailed in accordance with Section 3.3 hereof, Notes called for redemption
become irrevocably due and payable on the redemption date at the redemption
price.
SECTION 3.5. DEPOSIT OF REDEMPTION PRICE.
On or prior to the redemption date, the Company shall deposit
with the Paying Agent (other than the Company or any of its Subsidiaries) money
sufficient in same day funds to pay the redemption price of and accrued
interest on all Notes to be redeemed on that date. The Paying Agent shall
promptly return to the Company any money deposited with the Paying Agent by the
Company in excess of the amounts necessary to pay the redemption price of, and
accrued interest on, all Notes to be redeemed. If the money is deposited on
the redemption date, such deposit shall be made by 10:00 a.m. Dallas, Texas
time.
28
<PAGE> 35
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption whether or not such
Notes are presented for payment, and the only remaining right of the Holders of
such Notes shall be to receive payment of the redemption price upon surrender
to the Paying Agent of the Notes redeemed. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid principal from the redemption date until
such principal is paid and to the extent lawful, on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.1 hereof.
SECTION 3.6. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
SECTION 3.7. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 3.7, the
Company shall not have the option to redeem the Notes pursuant to this Section
3.7 prior to August 1, 2001. Thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve month period beginning on August 1 of the years indicated below:
<TABLE>
<CAPTION>
PERCENTAGE YEAR
---------- ----
<S> <C>
2001 104.813%
2002 102.406%
2003 and thereafter 100.000%
</TABLE>
(b) Notwithstanding the foregoing, on and prior to August 1,
1999, the Company may redeem up to 35% of the aggregate principal amount of the
Notes originally outstanding at a redemption price of 110% of the principal
amount thereof, plus accrued and unpaid interest thereon to the redemption
date, with the net proceeds of one or more Equity Offerings of the Company or,
if applicable, a Parent; provided that at least 65% of the aggregate principal
amount of the Notes originally issued remains outstanding immediately after the
occurrence of such redemption (but such unredeemed Notes may be redeemed
pursuant to the optional redemption procedure described in Section 3.7(a)); and
provided, further, that such notice of redemption shall be given not later than
30 days, and such redemption shall occur not later than 90 days, after the date
of the closing of any such Equity Offering.
(c) Notwithstanding the two preceding paragraphs, the Company
shall not optionally redeem the Notes unless, substantially concurrently with
such redemption, the Company redeems an aggregate principal amount of the
Original 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
Original
29
<PAGE> 36
Notes outstanding immediately prior to such proposed redemption. The Company
shall not optionally redeem the Original 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 Original Notes to be so redeemed and the denominator of
which is the aggregate principal amount of the Original Notes outstanding
immediately prior to such proposed redemption and (ii) the aggregate principal
amount of the Notes outstanding immediately prior to such proposed redemption.
(d) Any redemption pursuant to this Section 3.7 shall be made
pursuant to the provisions of Sections 3.1 through 3.6 hereof.
SECTION 3.8. MANDATORY REDEMPTION.
Except as set forth under Sections 4.10 and 4.14 hereof, the
Company shall not be required to make mandatory redemption payments with
respect to the Notes.
ARTICLE 4
COVENANTS
SECTION 4.1. PAYMENT OF NOTES.
The Company shall pay or cause to be paid in New York, New York
the principal of, premium, if any, and interest on the Notes on the dates and
in the manner provided in the Notes. Principal, premium, if any, and interest
shall be considered paid on the date due if the Paying Agent, if other than the
Company or a Subsidiary thereof, holds as of 10:00 a.m. New York City time on
the due date money deposited by the Company in same day funds and designated
for and sufficient to pay all principal, premium, if any, and interest then
due. The Paying Agent shall return to the Company, no later than three
Business Days following the date of payment, any money (including accrued
interest) in excess of the amounts paid on the Notes.
The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal at a rate
equal to 1% per annum in excess of the then applicable interest rate on the
Notes to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law to the extent that such
interest is an allowed claim against the debtor under such Bankruptcy Law) on
overdue installments of interest (without regard to any applicable grace
period) at the same rate to the extent lawful.
SECTION 4.2. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City
of New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may
be served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
30
<PAGE> 37
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or
agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.3.
SECTION 4.3. PROVISIONS OF REPORTS AND OTHER INFORMATION.
(a) Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company will furnish to
the Trustee and the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial position and results of
operations of the Company and its Subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports. In addition, whether or not required by the rules and regulations of
the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to prospective
investors upon request. The Company shall include an unaudited consolidating
balance sheet and related statements of income and cash flows for the Company
and its Subsidiaries, separately identifying the Company and its Restricted
Subsidiaries as one group and the Company's Unrestricted Subsidiaries as a
separate group, in all reports containing the consolidated financial statements
(which in the case of annual reports shall be audited) of the Company and its
consolidated Subsidiaries which are required to be delivered by the Company to
the Securityholders pursuant to this Section 4.3, including the Company's
Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. If required by
the terms thereof, the Company shall also comply with the provisions of TIA
Section 314(a).
(b) So long as any of the Transfer Restricted Securities remain
outstanding, the Company shall furnish to the Holders of the Transfer
Restricted Securities and to prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
(c) If the Company instructs the Trustee to distribute any of
the documents described in Section 4.3(a) to the Holders, the Company shall
provide the Trustee with a sufficient number of copies of all such documents
that the Company may be required to deliver to such Holders.
SECTION 4.4. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 45 days
after the end of each of the first three fiscal quarters of each year, and
within 90 days after the end of the last fiscal quarter of each year, an
Officers' Certificate stating that a review of the activities of the Company
and its Subsidiaries during the preceding fiscal quarter, or fiscal year, as
appropriate, has been made under the supervision of the signing Officers with a
view to determining whether the Company has kept, observed, performed and
31
<PAGE> 38
fulfilled its obligations under this Indenture, and further stating, as to each
such Officer signing such certificate, that to the best of his or her knowledge
the Company has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions of this Indenture
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of, or
interest on, the Notes are prohibited or, if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.3 above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial
statements, nothing has come to their attention that would lead them to believe
that the Company has violated any provisions of Article 4 or Article 5 hereof
or, if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not be
liable directly or indirectly to any Person for any failure to obtain knowledge
of any such violation.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes
to take with respect thereto.
SECTION 4.5. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries
to pay, prior to delinquency, all material taxes, assessments, and governmental
levies except (i) such as are contested in good faith and by appropriate
proceedings or (ii) such as for which reserve or other appropriate provision,
if any, as shall be required to be in conformity with GAAP, has been made
therefor, or (iii) where the failure to effect such payment is not adverse in
any material respect to the Holders of the Notes.
SECTION 4.6. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it shall not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as
though no such law has been enacted.
SECTION 4.7. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend on, or
make any distribution to the holders of, any Capital Stock of the Company or a
Restricted Subsidiary, other than dividends or distributions (A) from a
Restricted Subsidiary of the Company to the Company or to a Restricted
Subsidiary or (B) payable in Capital Stock of the Company that is not
Disqualified Stock; (ii) repay, redeem or otherwise acquire or retire for value
any Capital Stock of the Company or any of its Subsidiaries (other than Wholly
Owned Subsidiaries of the Company that are Restricted Subsidiaries), other than
a Permitted Investment; (iii) prepay, repay, redeem,
32
<PAGE> 39
defease or otherwise acquire or retire for value prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness of the Company that is pari passu with or subordinated in right of
payment to the Notes, other than a Permitted Investment and except (A) as
permitted pursuant to clause (vii) of Section 4.9(b), (B) upon a change of
control, as defined in and to the extent required by the indenture or other
agreement or instrument pursuant to which such pari passu or subordinated
Indebtedness was issued, provided the Company is then in compliance with the
provisions of Section 4.14, (C) any payment pursuant to a Pari Passu Offer and
(D) any prepayment, repayment, redemption, defeasance or other acquisition or
retirement for value of (1) the Original 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 pro rata 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 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 Original 9-5/8% Notes Issuance Date including such
Restricted Payment (the value of any such payment, if other than cash,
shall be the value determined in good faith by resolution of the Board
of Directors) shall exceed the sum of: (1) 50% of the aggregate
Consolidated Net Income (after deducting from such Consolidated Net
Income accrued but unpaid compensation expenses related to any stock
appreciation or stock option plans net of tax benefits), or, in the
event such aggregate Consolidated Net Income shall be a loss, minus 100%
of such loss, of the Company and its Restricted Subsidiaries earned
subsequent to the Original 9-5/8% Notes 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
Original 9-5/8% Notes Issuance Date, plus (3) the aggregate net proceeds
received by the Company from the issuance or sale of Indebtedness that
is convertible into Capital Stock after the Original 9-5/8% Notes
Issuance Date, to the extent that such Indebtedness is actually
converted into Capital Stock (other than Disqualified Stock), plus (4)
the aggregate net proceeds received after the Original 9-5/8% Notes
Issuance Date by the Company as capital contributions to the Company
(other than from a Subsidiary), plus (5) an amount equal to the net
reduction in Investments resulting from payments of principal of
Indebtedness, return of capital and other transfers of assets, in each
case to the Company or any Restricted Subsidiary of the Company (but
excluding any such amounts included in Consolidated Net Income), or from
designations of Unrestricted Subsidiaries as Restricted Subsidiaries,
plus (6) $15 million.
(b) The foregoing provisions of this Section 4.7 shall not
prohibit:
(i) the payment of any dividend within 60 calendar days after
the date of declaration thereof, if at the date of
declaration such dividend would have complied with the
provisions of this Indenture;
33
<PAGE> 40
(ii) the repayment, redemption, acquisition or retirement for
value of any Capital Stock of the Company or any of its
Subsidiaries in exchange for, or out of the aggregate net
proceeds of, a substantially concurrent issuance (other
than to the Company or any of its Restricted Subsidiaries)
of Capital Stock of the Company or a Restricted Subsidiary
of the Company;
(iii) the prepayment, repayment, redemption, defeasance or other
acquisition or retirement for value prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund
payment of any Indebtedness of the Company that is pari
passu with or subordinated in right of payment to the
Notes, in exchange for, or out of the aggregate net
proceeds of, a substantially concurrent issuance (other
than to the Company or a Restricted Subsidiary) of Capital
Stock of the Company or a Restricted Subsidiary of the
Company;
(iv) the prepayment, repayment, redemption, defeasance or other
acquisition or retirement for value prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund
payment of any Indebtedness of the Company that is pari
passu with or subordinated in right of payment to the
Notes, in exchange for, or out of the aggregate net
proceeds of, a substantially concurrent issuance (other
than to the Company or a Restricted Subsidiary) of
Indebtedness of the Company that is pari passu with or
subordinated in right of payment to, the Notes, but only
if the Weighted Average Life and period of time to Stated
Maturity of such new Indebtedness are each greater than
the Weighted Average Life and period of time to Stated
Maturity of such retired Indebtedness; and
(v) the payment of any dividend or distribution to any holder
of Capital Stock of a Restricted Subsidiary of the
Company, other than a holder that is an Affiliate of the
Company (except a holder that is an Affiliate of the
Company solely by virtue of the ownership of such Capital
Stock), as part of a pro rata dividend or distribution to
all holders of such class or series of Capital Stock (but
only the amount of such dividend or distribution paid to a
Person other than the Company or a Restricted Subsidiary
of the Company shall constitute a Restricted Payment).
For purposes of calculating the aggregate amount of Restricted
Payments made pursuant to Section 4.7(a)(B) above, payments made under this
Section 4.7(b) (other than under clause (iv) hereof) shall be included in such
amount; provided that dividends paid within 60 calendar days of the date of
declaration shall be deemed to be paid at the date of declaration.
SECTION 4.8. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not permit any of the Restricted
Subsidiaries of the Company to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of such Restricted Subsidiary to (i) pay dividends
or make any other distributions on its Capital Stock, or pay any Indebtedness,
owed to the Company or any of its Restricted Subsidiaries, (ii) make any
Investment in the Company or any of its Restricted Subsidiaries, (iii) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries or (iv) guarantee any Indebtedness of the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (A) applicable law, (B) any instrument governing Acquired
Indebtedness permitted to be incurred under Section 4.9 which encumbrances or
restrictions are not applicable to any Person or the properties or assets of
any Person, other than the Person so acquired or its Subsidiaries, or the
property or assets of the Person so acquired or its Subsidiaries, (C) any
restrictions
34
<PAGE> 41
existing under agreements in effect on the Original 9-5/8% Notes Issuance Date,
(D) any restrictions with respect to a Restricted Subsidiary imposed pursuant
to an agreement which has been entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted Subsidiary,
provided, that such disposition is permitted pursuant to Section 4.10, (E) any
agreement governing Indebtedness otherwise permitted under the Indenture
restricting the sale or other disposition of property securing such
Indebtedness if such agreement does not expressly restrict the ability of a
Restricted Subsidiary to pay dividends or to make distributions, loans or
advances, (F) the issuance of preferred stock by a Restricted Subsidiary or the
payment of dividends thereon in accordance with the terms thereof, provided
that issuance of such preferred stock is permitted pursuant to Section 4.9 and
the terms of such preferred stock do not expressly restrict the ability of a
Restricted Subsidiary to pay dividends or make any other distributions on its
Capital Stock (other than requirements to pay dividends or liquidation
preferences on such preferred stock prior to paying any dividends or making any
other distributions on such other Capital Stock), (G) this Indenture, (H) the
Credit Facility and other Senior Indebtedness, (I) supermajority voting
requirements existing under corporate charters, bylaws, stockholders agreements
and the like, (J) in the case of clause (iii) above, agreements (1) that
restrict in a customary manner the subletting, pledging, assignment or transfer
of any property or asset that is a lease, license, conveyance or contract or
similar property or asset, or (2) existing by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by this Indenture, including, without limitation, transfer
restrictions on any specific properties or assets that are subject to a sale
agreement otherwise permitted pursuant Section 4.10, (K) existing under any
agreement which refinances or replaces any of the agreements in the preceding
clauses; provided, that the terms and conditions of any such restrictions are
not materially less favorable to the Holders than those contained in the
agreements refinanced or replaced 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 Section 4.8 shall prevent the Company
or any Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted under Section 4.12 or (2)
restricting the sale or other disposition of property or assets of the Company
or any of its Restricted Subsidiaries that secure Indebtedness of the Company
or any of its Restricted Subsidiaries.
SECTION 4.9. LIMITATION ON INDEBTEDNESS.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary of the Company to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with
respect to, any Indebtedness (collectively, an "incurrence"; with respect to
any non-interest bearing or other discount Indebtedness, an "incurrence" shall
be deemed to have occurred only on the date of original issuance thereof),
unless, after giving effect to the incurrence of such Indebtedness and the
application of the net proceeds therefrom, the EBITDA Ratio (as calculated on
the Determination Date) is greater than 2.0 to 1.0; provided that if the
Indebtedness which is the subject of a determination under this provision is
Acquired Indebtedness, then the Consolidated EBITDA of the Company shall be
determined by giving effect (on a pro forma basis, as if the transaction had
occurred at the beginning of the immediately preceding four-quarter period) to
both the incurrence or assumption of such Acquired Indebtedness by the Company
and the inclusion in the Consolidated EBITDA of the Person whose Indebtedness
would constitute Acquired Indebtedness.
(b) Notwithstanding the foregoing, Indebtedness may be incurred
as follows:
35
<PAGE> 42
(i) Indebtedness under the Credit Facility in an aggregate
principal amount not to exceed $195 million at any one
time outstanding, less the aggregate amount of all
permanent reductions thereto pursuant to Section 4.10,
provided that the aggregate principal amount of
Indebtedness deemed to be incurred under the Credit
Facility shall be the same amount as is deemed to be
incurred under the Credit Facility pursuant to the
Original 9-5/8% Notes Indenture;
(ii) Indebtedness represented by amounts due under Hedging
Obligations (provided that the obligations under such
Hedging Obligations are related to Indebtedness otherwise
permitted by the terms of this Section 4.9 and that the
aggregate notional principal amount of such Hedging
Obligations shall not exceed 105% of the total amount of
the related underlying Indebtedness);
(iii) Indebtedness represented by property, liability and
workers' compensation insurance, performance bonds (which
may be in the form of letters of credit) for construction
contracts let by the Company and its Restricted
Subsidiaries in the ordinary course of business (provided
that to the extent that such performance bonds secure
Indebtedness, such Indebtedness is otherwise permitted
under this Section 4.9), surety bonds and appeal bonds
(which, in each case, may be in the form of letters of
credit) required in the ordinary course of business or in
connection with the enforcement of rights or claims of the
Company or any Restricted Subsidiary of the Company or in
connection with judgments that do not result in a Default
or an Event of Default;
(iv) Indebtedness of the Company evidenced by the Notes and
this Indenture and by the Original Notes and the Original
9-5/8% Notes Indenture;
(v) Indebtedness owing to a Wholly Owned Subsidiary of the
Company that is a Restricted Subsidiary or to the Company;
(vi) Acquired Indebtedness, provided that such Indebtedness if
incurred by the Company would be in compliance with the
first paragraph of this covenant;
(vii) Indebtedness issued in exchange for, or the proceeds of
which are used to repay or refund or refinance or
discharge or otherwise retire for value, Indebtedness of
the Company or any of its Restricted Subsidiaries
permitted under clauses (iv) and (vi) above, clause (viii)
below and Section 4.9(a) ("Refinancing Indebtedness") in a
principal amount not to exceed the principal amount of the
Indebtedness so refinanced plus any premium and accrued
interest plus customary fees, expenses and costs related
to the incurrence of such Refinancing Indebtedness,
provided that with respect to any Refinancing Indebtedness
which refinances Indebtedness which ranks junior in right
of payment to the Notes, (A) such Refinancing Indebtedness
is subordinated in right of payment at least to the same
extent as the Indebtedness to be refunded or refinanced if
such Indebtedness had remained outstanding and (B) the
Refinancing Indebtedness has a Weighted Average Life and
Stated Maturity that are equal to or greater than those of
the Indebtedness to be repaid or refunded or refinanced or
discharged or otherwise retired for value at the time of
such incurrence;
(viii) Indebtedness outstanding on the Original 9-5/8% Notes
Issuance Date;
36
<PAGE> 43
(ix) Indebtedness of the Company or a Restricted Subsidiary of
the Company to an Unrestricted Subsidiary for money
borrowed, provided, that such Indebtedness is subordinated
in right of payment to the Notes and the Weighted Average
Life of such Indebtedness is greater than the Weighted
Average Life of the Notes; and
(x) other Indebtedness not to exceed $25 million.
SECTION 4.10. LIMITATION ON ASSET SALES.
(a) The Company shall not, and shall not permit any of the
Restricted Subsidiaries of the Company to, make any Asset Disposition, unless
(i) the consideration received from such Asset Disposition is at least equal to
the Fair Market Value of the Capital Stock, property or other assets sold, (ii)
at least 75% of the consideration received from such Asset Disposition is in
the form of Cash, Temporary Cash Investments or Marketable Equity Securities
(the "75% Test"), provided that the amount of any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto) of the Company or such Restricted Subsidiary which are assumed
by the transferee, cancelled or satisfied in any Asset Disposition (other than
liabilities that are incurred in connection with or in anticipation of such
Asset Disposition) as a credit against the purchase price therefor shall be
deemed to be Cash to the extent of the amount so credited for purposes of the
75% Test, and (iii) the Company applies, or causes its Restricted Subsidiaries
to apply, 100% of the Net Proceeds from any Asset Disposition to an offer (a
"Net Proceeds Offer") to purchase Notes outstanding having a Net Proceeds Offer
Price at least equal to such Net Proceeds, such Net Proceeds Offer to commence
on a date not later than 360 calendar days after the date of such Asset
Disposition at a purchase price (the "Net Proceeds Offer Price") equal to 100%
of the principal amount thereof, plus accrued interest thereon to the closing
date of the Net Proceeds Offer (the "Net Proceeds Purchase Date"), except to
the extent that such Net Proceeds have been applied either to (i) 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
(ii) the purchase of assets or businesses in the same line of business as the
Company and its Restricted Subsidiaries or assets incidental thereto.
Notwithstanding anything to the contrary in this Section 4.10, the Company will
not be required to make a Net Proceeds Offer with respect to any Net Proceeds
from Asset Dispositions until the aggregate amount of Net Proceeds from Asset
Dispositions in any period of 12 consecutive months which are not applied
either to the permanent repayment of principal and interest on Indebtedness (as
described above) or to the purchase of assets or businesses (as described
above), exceeds $10 million. For purposes of this Section 4.10, the principal
amount of Notes for which a Net Proceeds Offer shall be made is referred to as
the "Net Proceeds Offer Amount."
(b) To the extent required by any pari passu Indebtedness, and
provided there is a permanent reduction in the principal amount of such pari
passu Indebtedness, the Company shall simultaneously with the Net Proceeds
Offer make an offer to purchase such pari passu Indebtedness (a "Pari Passu
Offer") in an amount (the "Pari Passu Offer Amount") equal to the Net Proceeds
Offer Amount, as determined above, multiplied by a fraction, the numerator of
which is the outstanding principal amount of such pari passu Indebtedness and
the denominator of which is the sum of the outstanding principal amount of the
Notes and such pari passu Indebtedness, in which case the Net Proceeds Offer
Amount shall be correspondingly reduced by such Pari Passu Offer Amount.
(c) The Company may credit against its obligation to make a Net
Proceeds Offer pursuant to this Section 4.10 up to $2 million aggregate
principal amount of Notes, at 100% of the principal amount thereof, which have
been acquired by the Company and surrendered for cancellation after the making
of the Net Proceeds Offer and which have not been used as a credit against or
acquired pursuant to any prior
37
<PAGE> 44
obligation to make an offer to purchase Notes pursuant to the provisions set
forth under Section 4.14 or this Section 4.10.
(d) Upon notice of a Net Proceeds Offer provided to the Trustee
by the Company, notice of such Net Proceeds Offer shall be mailed by the
Trustee (at the Company's expense) not less than 30 calendar days nor more than
60 calendar days before the Net Proceeds Purchase Date to each Holder of Notes
at such Holder's last registered address appearing in the Register. The
Company shall provide the Trustee with copies of all materials to be delivered
with such notice. The notice shall contain all instructions and material
necessary to enable such Holders to tender Notes pursuant to the Net Proceeds
Offer. In such notice, the Company shall state: (1) that the Net Proceeds
Offer is being made pursuant to this Section 4.10 and that it will purchase the
principal amount of Notes equal to the Net Proceeds Offer Amount; (2) the Net
Proceeds Offer Price and the Net Proceeds Purchase Date; (3) that any Note not
tendered will continue to accrue interest; (4) that, unless the Company
defaults in the payment of the Net Proceeds Offer Price, all Notes accepted for
payment pursuant to the Net Proceeds Offer shall cease to accrue interest after
the Net Proceeds Purchase Date; (5) that Holders electing to have any Notes
purchased pursuant to such Net Proceeds Offer will be required to surrender the
Notes, and complete the section entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes or transfer beneficial ownership of such Notes by
book-entry transfer, to the Company, the Depositary (if appointed by the
Company), or the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Net Proceeds
Purchase Date; (6) that Holders will be entitled to withdraw their election if
the Company, the Depositary or the Paying Agent, as the case may be, receives,
not later than the close of business on the third Business Day preceding the
Net Proceeds Purchase Date, a telegram, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Notes delivered
for purchase, and a statement that such Holder is withdrawing his election to
have the Notes purchased; and (7) that Holders whose Notes are being purchased
only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered (or transferred by book-entry
transfer), provided that the principal amount of such unpurchased portion must
be equal to $1,000 or an integral multiple thereof. If Notes in a principal
amount in excess of the Net Proceeds Offer Amount are surrendered pursuant to
the Net Proceeds Offer, the Company shall purchase Notes on a pro rata basis
(with such adjustments as may be deemed appropriate by the Company so that only
Notes in denominations of $1,000 or integral multiples of $1,000 shall be
acquired). The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Net Proceeds Offer.
(e) On the Net Proceeds Purchase Date, the Company shall (i)
accept for payment Notes or portions thereof validly tendered pursuant to the
Net Proceeds Offer (on a pro rata basis if required), (ii) deposit with the
Paying Agent money in immediately available funds, sufficient to pay the
purchase price of all Notes or portions thereof so accepted, and (iii) deliver
to the Trustee Notes so accepted together with an Officer's Certificate stating
the Notes or portions thereof accepted for payment by the Company. If the
Company complies with its obligations set forth in the immediately preceding
sentence, whether or not a Default or Event of Default has occurred and is
continuing on the Net Proceeds Purchase Date, the Paying Agent shall as
promptly as practicable mail to each Holder of Notes so accepted payment in an
amount equal to the purchase price, and the Company shall execute and the
Trustee shall as promptly as practicable authenticate and mail or deliver to
such Holder a new Note equal in principal amount to any unpurchased portion of
the Note surrendered. Any Notes not so accepted shall be as promptly as
practicable mailed or delivered by the Company to the Holders thereof. The
Company shall publicly announce the results of the Net Proceeds Offer on or as
promptly as practicable after the Net Proceeds Purchase Date. For purposes of
this covenant, the Trustee shall act as the Paying Agent.
38
<PAGE> 45
(f) Notwithstanding anything to the contrary contained in this
Indenture, the Company or any of its Restricted Subsidiaries may engage in
transactions in which theatre properties will be transferred in exchange for
one or more other theatre properties; provided that if the Fair Market Value of
the theatre properties to be transferred by the Company or such Restricted
Subsidiary, plus the Fair Market Value of any other consideration paid or
credited by the Company or such Restricted Subsidiary (the "Transaction Value")
exceeds $2 million, such transaction shall require approval of the Board of
Directors. In addition, each such transaction shall be valued at an amount
equal to all consideration received by the Company or such Restricted
Subsidiary in such transaction, other than the theatre properties received
pursuant to such exchange ("Other Consideration"), for purposes of determining
whether an Asset Disposition has occurred. If the Other Consideration is of an
amount and character such that such transaction constitutes an Asset
Disposition, then Section 4.10(a) shall be applicable to any Net Proceeds of
such Other Consideration.
SECTION 4.11. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any Restricted
Subsidiary of the Company to, directly or indirectly, enter into any
transaction (including without limitation the purchase, sale, lease or exchange
of any property or the rendering of any service) with a Person that,
immediately prior to such transaction, was an Affiliate (an "Affiliate
Transaction"), unless such transaction is on terms no less favorable to the
Company or such Restricted Subsidiary than those that could be obtained in a
comparable arms' length transaction with an entity that is not an Affiliate;
provided that continued performance under agreements as in effect on the
Original 9-5/8% Notes Issuance Date and described in the Offering Memorandum,
or consummation, on the terms described in the Offering Memorandum, of
transactions described therein that are not consummated prior to the Original
9-5/8% Notes Issuance Date (and renewals and extensions of such agreements and
transactions on terms not materially less favorable to the Holders than the
terms of such original agreements and transactions), shall not be subject to
such limitation.
In addition, the Company shall not, and shall not permit any of
the Restricted Subsidiaries of the Company to, enter into (i) an Affiliate
Transaction involving or having an expected value of more than $2 million
unless such transaction shall have been approved in good faith by resolution of
the Board of Directors and such resolution provides that such Affiliate
Transaction complies with the requirements of this Section 4.11 or (ii) an
Affiliate Transaction involving or having an expected value of more than $15
million, unless the Company has received an opinion of a nationally recognized
independent investment banking firm, accounting firm, appraisal firm or other
experts of nationally recognized standing if, in each case, such firm is
regularly engaged to render opinions of such type, to the effect that the
transaction is fair to the Company (or, if the Company is not a party to such
Affiliate Transaction, then to such Restricted Subsidiary) from a financial
point of view.
Notwithstanding anything to the contrary contained in this
Indenture, the foregoing provisions shall not apply to (i) transactions between
the Company and a Wholly Owned Subsidiary of the Company that is a Restricted
Subsidiary or between Wholly Owned Subsidiaries of the Company that are
Restricted Subsidiaries, (ii) payments required to be made to the Company by
Cinemark International or by any Subsidiary of Cinemark International under the
Cinemark International Management Agreement or under a Subsidiary management
agreement, as the case may be, (iii) payments pursuant to any tax sharing
agreement or arrangement among the Company and its Subsidiaries, (iv)
transactions with any current or former employee, officer or director of the
Company or any of its Restricted Subsidiaries pursuant to reasonable employee
benefit plans or compensation arrangements or agreements entered into in the
ordinary course of business on or prior to the Original 9-5/8% Notes Issuance
Date, or amended or created thereafter with the approval of the Board of
Directors, (v) transactions with any employee of the Company pursuant to which
the Company purchases or otherwise acquires Capital Stock of the Company from
such
39
<PAGE> 46
employee as permitted under Section 4.7, or (vi) transactions constituting (A)
a Restricted Payment not prohibited by Section 4.7 and not constituting a
Permitted Investment, or (B) an investment not constituting an "Investment" by
reason of a specific exclusion from such definition.
SECTION 4.12. LIMITATION ON LIENS.
The Company shall not, and shall not permit any of the Restricted
Subsidiaries of the Company to, create, incur, assume or suffer to exist any
Lien upon any of its property or assets (including assets acquired after the
Original 9-5/8% Notes Issuance Date), except for:
(i) Liens incurred after the Original 9-5/8% Notes Issuance
Date securing Indebtedness of the Company that ranks pari
passu or junior in right of payment to the Notes, if the
Notes are secured equally and ratably with such
Indebtedness;
(ii) Liens outstanding on the Original 9-5/8% Notes Issuance
Date;
(iii) Liens for taxes, assessments, governmental charges or
claims not yet delinquent or which are being contested in
good faith by appropriate proceedings, provided that
adequate reserves with respect thereto are maintained on
the books of the Company or its Restricted Subsidiaries,
as the case may be, in conformity with GAAP;
(iv) Landlords', carriers', warehousemen's, mechanics',
materialmen's, repairmen's or the like Liens arising by
contract or statute in the ordinary course of business and
with respect to amounts which are not yet delinquent or
are being contested in good faith by appropriate
proceedings;
(v) pledges or deposits made in the ordinary course of
business (A) in connection with leases, performance bonds
and similar obligations, or (B) in connection with
workers' compensation, unemployment insurance and other
social security legislation;
(vi) easements, rights-of-way, restrictions, minor 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;
40
<PAGE> 47
(xii) Liens on accounts receivable and inventory or cash
deposits collateralizing reimbursement obligations with
respect to letters of credit, in either case securing
Indebtedness permitted to be incurred under clause (i) of
Section 4.9(b);
(xiii) Liens incurred or deposits made to secure the performance
of tenders, bids, leases, statutory or regulatory
obligations, banker's acceptances, surety and appeal
bonds, government contracts, performance and return-of-
money bonds and other obligations of a similar nature
incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money);
(xiv) Liens (including extensions and renewals thereof) upon
real or personal property acquired after the Original 9-
5/8% Notes Issuance Date; provided that (a) such Lien is
created solely for the purpose of securing Indebtedness
incurred, in accordance with Section 4.9, (1) to finance
the cost (including the cost of improvement or
construction) of the item of property or assets subject
thereto and such Lien is created prior to, at the time of
or within six months after the later of the acquisition,
the completion of construction or the commencement of full
operation of such property or (2) to refinance any
Indebtedness previously so secured, (b) the principal
amount of the Indebtedness secured by such Lien does not
exceed 100% of such cost and (c) any such Lien shall not
extend to or cover any property or assets other than such
item of property or assets and any improvements on such
item;
(xv) leases or subleases granted to others that do not
materially interfere with the ordinary course of business
of the Company and its Restricted Subsidiaries, taken as a
whole;
(xvi) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of
the Company or its Restricted Subsidiaries relating to
such property or assets;
(xvii) any interest or title of a lessor in the property subject
to any Capitalized Lease Obligation or operating lease;
(xviii) Liens arising from filing Uniform Commercial Code
financing statements regarding leases;
(xix) Liens on property of, or on shares of stock or
Indebtedness of, any Person existing at the time such
Person becomes, or becomes a part of, any Restricted
Subsidiary, provided that such Liens do not extend to or
cover any property or assets of the Company or any
Restricted Subsidiary other than the property or assets
acquired;
(xx) Liens in favor of the Company or any Restricted
Subsidiary;
(xxi) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in
connection with the importation of goods;
(xxii) Liens encumbering deposits securing Indebtedness under
Hedging Obligations;
(xxiii) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods
entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business in
accordance with the past practices of the Company and its
Restricted Subsidiaries;
41
<PAGE> 48
(xxiv) Liens on or sales of receivables;
(xxv) the rights of film distributors under film licensing
contracts entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business
on a basis customary in the movie exhibition industry; and
(xxvi) any renewal of or substitution for any Liens permitted by
any of the preceding clauses, provided that the
Indebtedness secured is not increased (other than by any
premium and accrued interest, plus customary fees,
expenses and costs related to such renewal or substitution
of Liens or the incurrence of any related refinancing of
Indebtedness) nor the Liens extended to any additional
assets (other than proceeds and accessions).
The provisions of this Section 4.12 do not authorize the
incurrence of any Indebtedness not otherwise permitted by Section 4.9.
SECTION 4.13. LIMITATION ON LAYERING DEBT.
The Company will not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Indebtedness of the Company but senior in any
respect in right of payment to the Notes.
SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company
shall be required to make an offer (a "Change of Control Offer") to Holders to
repurchase any and all of the Notes (but only in denominations of $1,000 or
integral multiples of $1,000) at a purchase price (the "Change of Control Offer
Price") equal to 101% of the aggregate principal amount, plus accrued and
unpaid interest thereon to the date of purchase ("Change of Control Purchase
Date").
(b) Notice of a Change of Control Offer shall be mailed by the
Company, with a copy to the Trustee, or, at the Company's option, by the
Trustee (at the Company's expense) not more than 30 calendar days after the
Change of Control to each Holder of the Notes at such Holder's last registered
address appearing in the Register. In such notice, the Company shall describe
the transaction that constitutes the Change of Control and offer to repurchase
Notes pursuant to the procedures required by this Section 4.14 and described in
such notice. The notice shall contain all instructions and materials necessary
to enable Holders to tender Notes pursuant to the Change of Control Offer. In
addition, the notice shall state: (1) that the Change of Control Offer is
being made pursuant to this Section 4.14 and that all Notes tendered will be
accepted for payment; (2) the Change of Control Offer Price and the Change of
Control Purchase Date, which shall be no sooner than 60 nor later than 90 days
after the Change of Control; (3) that any Note not tendered will continue to
accrue interest; (4) that, unless the Company defaults in the payment of the
Change of Control Offer Price, all Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Purchase Date; (5) that Holders electing to have any Notes purchased
pursuant to a Change of Control Offer will be required to deliver the Notes,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Notes completed, or transfer by book-entry transfer, to the Company, the
Depositary (if appointed by the Company), or the Paying Agent at the address
specified in the notice prior to the close of business on the third Business
Day preceding the Change of Control Purchase Date; (6) that Holders will be
entitled to withdraw their election
42
<PAGE> 49
if the Company, the Depositary or the Paying Agent, as the case may be,
receives, not later than the close of business on the third Business Day
preceding the Change of Control Purchase Date, a telegram, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes delivered for purchase, and a statement that such Holder is
withdrawing his election to have the Notes purchased; and (7) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered (or
transferred by book-entry transfer), which unpurchased portion must be equal to
at least $1,000 in principal amount or an integral multiple thereof. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Notes as a result of a Change of Control.
(c) On the Change of Control Purchase Date, the Company shall
(i) accept for payment Notes or portions thereof validly tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money in
immediately available funds sufficient to pay the purchase price of all Notes
or portions thereof so accepted, and (iii) deliver to the Trustee Notes so
accepted together with an Officer's Certificate stating the Notes or portions
thereof accepted for payment by the Company. If the Company complies with its
obligations set forth in the immediately preceding sentence, whether or not a
Default or Event of Default has occurred and is continuing on the Change of
Control Purchase Date, the Paying Agent shall as promptly as practicable mail
or deliver to each Holder of Notes so accepted payment in an amount equal to
the purchase price, and the Company shall execute and the Trustee shall as
promptly as practicable authenticate and mail or deliver to such Holder a new
Note equal in principal amount to any unpurchased portion of the Note
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. Any Notes not so accepted
shall be as promptly as practicable mailed or delivered by the Trustee to the
Holders thereof. The Company shall publicly announce the results of the Change
of Control Offer on or as promptly as practicable after the Change of Control
Purchase Date. For purposes of this Section 4.14, the Trustee shall act as the
Paying Agent.
(d) Prior to complying with the other provisions of this Section
4.14, but in any event within 90 days following a Change of Control, the
Company shall either repay all outstanding Senior Indebtedness or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Indebtedness to permit the repurchase of Notes required by this Section 4.14.
SECTION 4.15. CORPORATE EXISTENCE.
Except as otherwise permitted pursuant to the terms hereof, the
Company shall do or cause to be done all things necessary to preserve and keep
in full force and effect (i) its corporate existence, and the corporate,
partnership or other existence of each of its Significant Subsidiaries, in
accordance with their respective organizational documents (as the same may be
amended from time to time), and (ii) the material rights (charter and
statutory), licenses and franchises of the Company and its Significant
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise of itself or any of its
Significant Subsidiaries, or the corporate, partnership or other existence of
any of its Significant Subsidiaries, if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries, taken as a whole, and that the
loss thereof is not adverse in any material respect to the Holders of the
Notes.
43
<PAGE> 50
SECTION 4.16. COVENANT WITH RESPECT TO CINEMARK INTERNATIONAL AND ITS
SUBSIDIARIES.
The Company shall cause Cinemark International and its
Subsidiaries on a consolidated basis to be engaged principally in the
acquisition, construction and operation of indoor motion picture theatres and
other activities incidental thereto outside the United States and Canada.
SECTION 4.17. LIMITATION ON RESTRICTIVE COVENANTS.
Notwithstanding any other provision of this Indenture, the
restrictive covenants set forth in this Indenture, including, without
limitation, those set forth in Sections 4.7, 4.9, 4.10 and 4.11 shall be and
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
the covenant set forth in Section 4.8 of the Original 9-5/8% Notes Indenture.
ARTICLE 5
SUCCESSORS
SECTION 5.1. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate with or merge with or into, or
sell, assign or lease all or substantially all of the properties and assets of
the Company and its Restricted Subsidiaries, taken as a whole, to any Person
(other than the Company or a Wholly Owned Subsidiary of the Company that is a
Restricted Subsidiary), or permit any Person (other than a Wholly Owned
Subsidiary of the Company that is a Restricted Subsidiary) to merge with or
into the Company unless:
(i) the Company shall be the continuing Person, or the Person
formed by such consolidation or into which the Company is
merged or to which the properties and assets of the
Company and its Restricted Subsidiaries taken as a whole
are transferred (the "surviving entity") shall be a
corporation organized and existing under the laws of the
United States or any state thereof or the District of
Columbia and shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the
Company under the Notes and the Indenture, and the
Indenture shall remain in full force and effect;
(ii) immediately before and immediately after giving effect to
such transaction, no Event of Default and no Default shall
have occurred and be continuing;
(iii) unless the applicable transaction involves the merger of a
Restricted Subsidiary of the Company into the Company, the
Company or, in the case of a consolidation or merger in
which the Company is not the continuing Person, the
surviving entity, after giving pro forma effect to such
transaction, could incur $1.00 of additional Indebtedness
(assuming a market rate of interest with respect to such
additional Indebtedness) pursuant to Section 4.9(a); and
(iv) unless the applicable transaction involves the merger of a
Restricted Subsidiary of the Company into the Company,
immediately after giving effect to such transaction, the
Consolidated Net Worth of the Company, or, in the case of
a consolidation or merger in which the Company is not the
continuing Person, the surviving entity, shall be equal to
or
44
<PAGE> 51
greater than the Consolidated Net Worth of the Company
immediately before such transaction.
SECTION 5.2. SUCCESSOR COMPANY SUBSTITUTED.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole in accordance with Section 5.1 hereof, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such transfer is made, shall succeed to, and be substituted for, and
may exercise every right and power of the Company under the Indenture with the
same effect as if such successor corporation had been named as the Company
therein; and thereafter, if the Company is dissolved following a transfer of
all or substantially all of its assets in accordance with this Indenture, the
Company shall be discharged and released from all obligations and covenants
under this Indenture and the Notes. The Trustee shall enter into a
supplemental indenture to evidence the succession and substitution of such
successor Person and such discharge and release of the Company.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1. EVENTS OF DEFAULT.
An "Event of Default" occurs if one of the following shall have
occurred and be continuing:
(a) the Company defaults in the payment of (i) the principal
of (or premium, if any, on) any Notes when the same becomes due and
payable at maturity, by acceleration or otherwise, (ii) the redemption
price on any redemption date, or (iii) the Change of Control Offer Price
or the Net Proceeds Offer Price on the applicable Offer Purchase Date
relating to such Offer;
(b) the Company defaults in the payment of interest on any
Note when the same becomes due and payable, which default continues for
a period of 30 calendar days;
(c) the Company or any Subsidiary of the Company fails to
comply with any of its covenants or agreements in the Notes or this
Indenture (other than those referred to in clauses (a) and (b) above)
and such failure continues for 45 calendar days after receipt by the
Company of a Notice of Default specifying such Default;
(d) an event of default on any other Indebtedness for borrowed
money of the Company or any of its Restricted Subsidiaries having an
aggregate amount outstanding in excess of $5 million which default (i)
is caused by a failure to pay when due (after giving effect to any grace
periods) any principal, premium, if any, or interest on such
Indebtedness or (ii) has caused the holders thereof to declare such
Indebtedness due and payable in advance of its scheduled maturity;
(e) the Company or any Significant Subsidiary of the Company
pursuant to or within the meaning of any Bankruptcy Law: (i) commences a
voluntary case or proceeding, (ii) consents to the entry of an order for
relief against it in an involuntary case or proceeding, (iii) consents
to the appointment of a Custodian of it or for all or substantially all
of its property, (iv) makes a general
45
<PAGE> 52
assignment for the benefit of its creditors, or (v) admits in writing
its inability to pay its debts generally as they become due;
(f) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (i) is for relief against the
Company or any Significant Subsidiary of the Company in an involuntary
case or proceeding, (ii) appoints a Custodian of the Company or any
Significant Subsidiary of the Company or for all or substantially all of
its respective properties, or (iii) orders the liquidation of the
Company or any Significant Subsidiary of the Company; and in each case
the order or decree remains unstayed and in effect for 60 calendar days;
or
(g) final non-appealable judgments for the payment of money
which in the aggregate exceed $5 million (net of applicable insurance
coverage which is acknowledged in writing by the insurer) shall be
rendered against the Company or any Significant Subsidiary of the
Company by a court and shall remain unstayed or undischarged for a
period of 60 calendar days.
A Default under clause (c) above is not an Event of Default until
the Trustee notifies the Company, or the Holders of at least 25% in aggregate
principal amount of the Notes at the time outstanding notify the Company and
the Trustee, of the Default and the Company does not cure such Default within
45 days after receipt of such notice. Such notice must be in writing and
specify the Default, demand that it be remedied and state that the notice is a
"Notice of Default."
Notwithstanding the foregoing, if an Event of Default specified
in clause (d) above occurs and is continuing, such Event of Default and all
consequences thereof (including, without limitation, any acceleration or
resulting payment default) shall be annulled and rescinded, automatically and
without any action by the Trustee or the holders of the Notes, if (i) the
Indebtedness that is the subject of such Event of Default has been repaid, or
(ii) the default relating to such Indebtedness is waived or cured (and if such
Indebtedness has been accelerated, then the holders thereof have rescinded
their declaration of acceleration in respect of such Indebtedness).
SECTION 6.2. ACCELERATION.
If any Event of Default specified in clauses (a), (b), (c), (d)
or (g) of Section 6.1 hereof occurs and is continuing, then the Holders of at
least 25% in aggregate principal amount of the then outstanding Notes by
written notice to the Company and the Trustee may declare the unpaid principal
of, and any accrued interest on, all the Notes to be due and payable
immediately. If any Event of Default with respect to the Company specified in
clauses (e) or (f) of Section 6.1 hereof occurs, all outstanding principal and
interest on the Notes shall be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder. The Holders
of a majority in aggregate principal amount of the Notes then outstanding, by
written notice to the Trustee and to the Company, may rescind an acceleration
(except an acceleration due to a default in payment of the principal of, or
premium or interest on, any of the Notes) if the rescission would not conflict
with any judgment or decree and if all existing Events of Default (except
nonpayment of principal, premium or interest that have become due solely
because of the acceleration) have been cured or waived.
SECTION 6.3. OTHER REMEDIES.
Subject to Section 6.2, if an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect any payment due on the Notes or to enforce the performance
of any provision of the Notes or this Indenture.
46
<PAGE> 53
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
SECTION 6.4. WAIVER OF PAST DEFAULTS.
Subject to Section 9.2, Holders of a majority in aggregate
principal amount of the then outstanding Notes by notice to the Trustee may, on
behalf of the Holders of all of the Notes, waive an existing Default or Event
of Default and its consequences hereunder (including without limitation
acceleration and its consequences, including any related payment default that
resulted from such acceleration). Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
SECTION 6.5. CONTROL BY MAJORITY.
The Holders of a majority in aggregate principal amount of the
Notes then outstanding may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture or that the Trustee determines may be
unduly prejudicial to the rights of another Holder or that involves the Trustee
in personal liability. The Trustee may take any other action deemed proper by
the Trustee that is not inconsistent with such direction.
SECTION 6.6. LIMITATION ON SUITS.
Subject to the provisions of Section 6.7 hereof, no Holder of a
Note may pursue any remedy with respect to this Indenture or the Notes
(including without limitation the institution of any proceeding, judicial or
otherwise, with respect to the Notes or this Indenture or for the appointment
of a receiver or trustee for the Company and/or any of its Subsidiaries)
unless:
(a) the Holder has given to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in aggregate principal amount
of the Notes then outstanding have made a written request to the Trustee
to pursue the remedy;
(c) such Holders have offered to provide to the Trustee
indemnity reasonably satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee has not complied with the request within 60
calendar days after receipt of the request and the offer of indemnity;
and
(e) during such 60-day period, the Holders of a majority in
aggregate principal amount of the Notes then outstanding have not given
the Trustee a direction which, in the opinion of the Trustee, is
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
47
<PAGE> 54
SECTION 6.7. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
The right of any Holder of a Note to receive payment of principal
of, and premium, if any, and interest on, the Note, on or after the respective
due dates expressed in the Note (including in connection with an offer to
purchase), or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.8. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.1(a) or (b) occurs
and is continuing, the Trustee is authorized to recover judgment in its own
name and as trustee of an express trust against the Company for principal of,
and premium, if any, and interest on, the Notes and interest on overdue
principal and, to the extent lawful, interest, and such further amount as shall
be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.9. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Notes allowed in any judicial proceedings relative to
the Company (or any other obligor upon the Notes), its creditors or its
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.7 hereof. To the extent that the
payment of any such reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.7 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf
of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6, it
shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.7 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
48
<PAGE> 55
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium, if any, and interest ratably, without preference
or priority of any kind, according to the amounts due and payable on the Notes
for principal, premium, if any, and interest, respectively; and
Third: the remainder to the Company or to such party as a court
of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, each party to this Indenture agrees, and each Holder by its
acceptance of its Notes shall be deemed to have agreed, that any court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any
party litigant in the suit, having due regard to the merits and good faith of
the claims or defenses made by the party litigant. This Section does not apply
to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.7
hereof, or a suit by Holders of more than 10% in principal amount of the then
outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.1. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent Person would exercise or use under the circumstances in the conduct of
its own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee shall not be liable hereunder except
for such duties of the Trustee which shall be determined solely
by the express provisions of this Indenture and the Trustee need
perform only those duties that are specifically set forth in this
Indenture and no others, and no implied covenants or obligations
shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture. However, the Trustee
shall examine the certificates and opinions to determine whether
or not such documents conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liabilities for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section;
49
<PAGE> 56
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it
is proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with
a direction received by it pursuant to Section 6.5 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b), and (c) of this Section 7.1.
(e) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or incur any liability whatsoever in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers hereunder. The Trustee shall be under no obligation to
exercise any of its rights and powers under this Indenture at the request of
any Holders, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it in its sole subjective discretion (which
discretion shall be exercised in good faith) against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.2. RIGHTS OF TRUSTEE.
(a) Subject to Section 7.1, the Trustee may conclusively rely
upon any document believed by it to be genuine and to have been signed or
presented by the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and require an Officers' Certificate or an Opinion of
Counsel or both. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such Officers' Certificate or
Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes in its sole subjective discretion
(which discretion shall be exercised in good faith) to be authorized or within
the rights or powers conferred upon it by this Indenture.
(e) The permissive right of the Trustee to act hereunder shall
not be construed as a duty.
(f) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company shall be sufficient
if signed by an Officer of the Company.
(g) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders unless such Holders shall have offered to the
Trustee security or indemnity satisfactory to the Trustee in its sole
subjective discretion (which discretion shall be exercised in good faith)
against the costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction.
50
<PAGE> 57
(h) The Trustee shall not be required to take notice or deemed
to have notice of any Event of Default hereunder, except failure by the Company
to make any of the payments to the Trustee pursuant to Section 6.1(a) or
Section 6.1(b) hereof, unless the Trustee shall be specifically notified in
writing of such Event of Default by the Company or by one or more of the
Holders.
SECTION 7.3. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest (as such term is defined in TIA Section 310(b)), it must eliminate
such conflict within 90 days, apply to the SEC for permission to continue as
trustee (to the extent permitted under TIA Section 310(b)) or resign. Any
Agent may do the same with like rights and duties. The Trustee is also subject
to Sections 7.10 and 7.11 hereof.
SECTION 7.4. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes,
it shall not be accountable for the Company's use of the proceeds from the
Notes or any money paid to the Company or upon the Company's direction under
any provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.5. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if
it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice
of the Default or Event of Default within 90 days after such event occurs.
Except in the case of a Default or Event of Default under Section 6.1(a) or
(b), the Trustee may withhold such notice if it determines that withholding the
notice is in the interests of the Holders of the Notes.
SECTION 7.6. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each July 31 beginning with the July 31
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if
no event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by
mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders
of Notes shall be mailed to the Company and filed with the SEC and each stock
exchange, if any, on which the Notes are listed in accordance with and to the
extent required by TIA Section 313(d). The Company shall promptly notify the
Trustee if the Notes become listed on any stock exchange or automatic quotation
system.
SECTION 7.7. COMPENSATION AND INDEMNITY.
Absent any other agreement to the contrary, the Company shall pay
to the Trustee from time to time compensation as shall be agreed upon between
the Company and the Trustee for its acceptance of this
51
<PAGE> 58
Indenture and services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture against the
Company (including this Section 7.7) and defending itself against any claim
(whether asserted by the Company or any Holder or any other Person) or
liability in connection with the exercise or performance of any of its powers
or duties hereunder, except to the extent any such loss, liability or expense
may be attributable to its negligence or bad faith. The Trustee shall promptly
notify the Company of any claim for which it may seek indemnity. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel; provided that the Company will not be required to
pay such fees and expenses if it assumes the Trustee's defense with counsel
acceptable to and approved by the Trustee (such approval not to be unreasonably
withheld) and there is no conflict of interest between the Company and the
Trustee in connection with such defense. The Company need not pay for any
settlement made without its written consent, which consent shall not be
unreasonably withheld. The Company need not reimburse the Trustee for any
expense or indemnity against any liability or loss of the Trustee to the extent
such expense, liability or loss is attributable to the negligence, bad faith or
willful misconduct of the Trustee.
The obligations of the Company under this Section 7.7 shall
survive the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(e) or (f) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section
313(b)(2).
SECTION 7.8. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing upon 60 days notice and be
discharged from the trust hereby created by so notifying the Company in
writing. The Holders of Notes of a majority in principal amount of the then
outstanding Notes may remove the Trustee by so notifying the Trustee and the
Company in writing and may appoint a successor trustee with the consent of the
Company. The Company may remove the Trustee if:
52
<PAGE> 59
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a receiver, Custodian or public officer takes charge of
the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint or
request the Trustee to appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount
of the then outstanding Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company,
or the Holders of Notes of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who
has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.7 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.8, the Company's obligations under Section 7.7
hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $100 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
53
<PAGE> 60
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
ARTICLE 8
DEFEASANCE AND DISCHARGE
SECTION 8.1. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding
Notes upon compliance with the conditions set forth below in this Article 8.
SECTION 8.2. LEGAL DEFEASANCE.
Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.2, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.4 hereof, be deemed to
have been discharged from its obligations with respect to all outstanding Notes
on the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by
the outstanding Notes, which shall thereafter be deemed to be "outstanding"
only for the purposes of Section 8.6 hereof and the other Sections of this
Indenture referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall
survive until otherwise terminated or discharged pursuant to this Indenture:
(a) the rights of Holders of outstanding Notes to receive solely from the trust
fund described in Section 8.4 hereof, and as more fully set forth in such
Section, payments in respect of the principal of, and premium, if any, and
interest on, such Notes when such payments are due, (b) the Company's
obligations with respect to such Notes under Article 2 and Section 4.2 hereof,
(c) the rights, powers, trusts, duties and immunities of the Trustee hereunder
and the Company's obligations in connection therewith and (d) this Article 8.
Subject to compliance with this Article 8, the Company may exercise its option
under this Section 8.2 notwithstanding the prior exercise of its option under
Section 8.3 hereof.
SECTION 8.3. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.3, and subject to the satisfaction of the
conditions set forth in Section 8.4 hereof, the Company shall be released from
its obligations under the covenants contained in Sections 4.4, 4.5, 4.7, 4.8,
4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 5.1, and 5.2 with respect to the
outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter
be deemed not "outstanding" for the purposes of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance
54
<PAGE> 61
means that, with respect to the outstanding Notes, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any
other document and such omission to comply shall not constitute a Default or an
Event of Default under Section 6.1 hereof, but, except as specified above, the
remainder of this Indenture and such Notes shall be unaffected thereby. In
addition, upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3 hereof, subject to the satisfaction of the
conditions set forth in Section 8.4 hereof, Sections 6.1(c) through 6.1(g)
hereof shall not constitute Events of Default.
SECTION 8.4. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
In order to exercise either Legal Defeasance or Covenant
Defeasance, the Company must irrevocably deposit, or caused to be deposited,
with the Trustee (or another trustee satisfying the requirements of this
Indenture), in trust for such purpose, (1) money in an amount, (2) U.S.
Government Obligations which through the payment of principal and interest in
accordance with their terms will provide money in an amount, or (3) a
combination thereof, sufficient in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay the principal of, and premium, if any, and
interest on, the outstanding Notes at maturity or upon redemption, together
with all other amounts payable by the Company under the Indenture. Such Legal
Defeasance or Covenant Defeasance will become effective 91 days after such
deposit if and only if:
(i) no Default or Event of Default with respect to the
Notes shall have occurred and be continuing immediately prior to
the time of such deposit;
(ii) no Default or Event of Default pursuant to
Sections 6.1(e) or 6.1(f) shall have occurred at any time in the
period ending on the 91st day after the date of such deposit and
shall be continuing on such 91st day;
(iii) such defeasance does not result in a breach or
violation of, or constitute a default under, any other agreement
or instrument to which the Company is a party or by which it is
bound (and, in furtherance of such condition, no Default or Event
of Default shall result under this Indenture due to the
incurrence of Indebtedness to fund such deposit and the entering
into of customary documentation in connection therewith, even
though such documentation may contain provisions that would
otherwise give rise to a Default or Event of Default); and
(iv) the Company has delivered to the Trustee (A)(1) in
the case of Legal Defeasance, an Opinion of Counsel to the effect
that (x) there has been published by the Internal Revenue Service
a ruling or (y) since the date of this Indenture, there has been
a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel
shall confirm that, the Holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not
occurred, or (2) in the case of Covenant Defeasance, an Opinion
of Counsel to the effect that the Holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to
federal income tax on the same amount, in the same manner and at
the same times as would have been the case if such Covenant
Defeasance had not occurred; and (B) an Officers' Certificate and
55
<PAGE> 62
an Opinion of Counsel, each stating that all conditions precedent
relating to such Legal Defeasance or Covenant Defeasance have
been complied with.
SECTION 8.5. DISCHARGE.
If (i) the Company shall deliver to the Trustee for cancellation
all Notes theretofore authenticated and delivered (other than any Notes which
shall have been destroyed, lost or stolen and in lieu of or in substitution for
which other Notes shall have been authenticated and delivered) and not
theretofore cancelled, or (ii) all Notes not theretofore surrendered or
delivered to the Trustee for cancellation shall have become due and payable, or
are by their terms to become due and payable within one year or are to be
called for redemption within one year under arrangements satisfactory to the
Trustee, and the Company shall irrevocably deposit with the Trustee, as trust
funds solely for the benefit of the Holders for that purpose, an amount
sufficient to pay at maturity or upon redemption all of the Notes (other than
any Notes which shall have been destroyed, lost or stolen and in lieu of or in
substitution for which other Notes shall have been authenticated and delivered)
not theretofore surrendered or delivered to the Trustee for cancellation,
including principal, premium, if any, and interest due or to become due to such
date of maturity or redemption date, as the case may be, then this Indenture
shall cease to be of further force or effect (except as to rights of
registration of transfer or exchange of the Notes provided in this Indenture)
and, at the written request of the Company, accompanied by an Officer's
Certificate and Opinion of Counsel, each stating that all conditions precedent
provided for herein relating to the satisfaction and discharge of this
Indenture have been complied with, and upon payment of the costs, charges and
expenses incurred or to be incurred by the Trustee in relation thereto or in
carrying out the provisions of this Indenture, the Trustee shall satisfy and
discharge this Indenture ("Discharge"); provided that the Company's obligations
with respect to the payment of principal, premium, if any, and interest will
not terminate until the same shall apply the moneys so deposited to the payment
to the Holders of Notes of all sums due and to become due thereon.
SECTION 8.6. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.7 hereof, all money and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.6, the
"Trustee") pursuant to Section 8.4 or 8.5 hereof in respect of the outstanding
Notes shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company or any of its Subsidiaries or
Affiliates acting as Paying Agent) as the Trustee may determine, to the Holders
of such Notes of all sums due and to become due thereon in respect of
principal, premium, if any, and interest but such money need not be segregated
from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the cash or U.S. Government
Obligations deposited pursuant to this Section 8.6 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or U.S. Government Obligations held by it as provided
in this Section 8.6 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which
56
<PAGE> 63
may be the opinion delivered under Section 8.4 hereof), are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance, Covenant Defeasance or Discharge.
SECTION 8.7. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company or any of its Subsidiaries or Affiliates, in trust for the
payment of the principal of, or premium, if any, or interest on, any Note and
remaining unclaimed for one year after such principal, premium, if any, or
interest has become due and payable shall be paid to the Company on its request
or (if then held by the Company or any of its Subsidiaries or Affiliates) shall
be discharged from such trust; and the Holder of such Note shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such
trust money, and all liability of the Company or any of its Subsidiaries or
Affiliates as trustee thereof, shall thereupon cease; provided, however, that
the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in the
New York Times and The Wall Street Journal (national edition), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 8.8. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United
States dollars or U.S. Government Obligations in accordance with Section 8.2,
8.3 or 8.5 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit
had occurred pursuant to Section 8.2, 8.3 or 8.5 hereof until such time as the
Trustee or Paying Agent is permitted to apply all such assets in accordance
with Section 8.2, 8.3 or 8.5 hereof, as the case may be; provided, however,
that, if the Company makes any payment of principal of, or premium, if any, or
interest on, any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.1. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.2 of this Indenture, the Company and
the Trustee may amend or supplement this Indenture or the Notes without the
consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(c) to provide for the assumption of the Company's obligations
to the Holders of Notes in the case of a merger or consolidation
pursuant to Article 5 hereof;
57
<PAGE> 64
(d) to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights hereunder of any such Holder; or
(e) to comply with requirements of the SEC in order to effect
or maintain the qualification of this Indenture under the TIA as then in
effect.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.2 hereof, the Trustee shall join with the Company in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained.
SECTION 9.2. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.2, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and, subject to Sections 6.4 and
6.7 and the last sentence of Section 6.1 hereof, any existing Default or Event
of Default (other than a Default or Event of Default in the payment of
principal of, premium, if any, or interest on, the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture or the Notes may be waived with the
consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of the documents described in
Section 7.2 hereof, the Trustee shall join with the Company in the execution of
such amended or supplemental Indenture and to make any further appropriate
agreements and stipulations that may be therein contained, but the Trustee
shall not be obligated to enter into such amended or supplemental Indenture
that adversely affects its own rights, duties, liabilities or immunities under
this Indenture or otherwise.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.2 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.2
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.4 and 6.7 hereof, the
Holders of a majority in principal amount of the Notes then outstanding may
waive compliance in a particular instance by the Company with any provision of
this Indenture or the Notes. However, without the consent of each Holder
affected, an amendment or waiver may not (with respect to any Notes held by a
non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
58
<PAGE> 65
(b) reduce the principal of or change the fixed maturity of any
Note or alter the provisions with respect to the redemption of the
Notes;
(c) reduce the rate of or change the time for payment of
interest on any Note;
(d) waive a Default or Event of Default in the payment of
principal of, or premium, if any, or interest on, the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating
to waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of, premium, if any, or interest on, the Notes;
(g) waive a redemption payment with respect to any Note; or
(h) make any change in the foregoing amendment and waiver
provisions.
In addition, any amendment to the provisions of Article 10 of
this Indenture requires the consent of the Holders of at least 66-2/3% in
aggregate principal amount of the Notes then outstanding if such amendment
would adversely affect the rights of Holders of the Notes.
SECTION 9.3. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in an amended or supplemental Indenture that complies with
the TIA as then in effect.
SECTION 9.4. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent
Holder of a Note may revoke the consent as to its Note if the Trustee receives
written notice of revocation before the date the waiver, supplement or
amendment has been approved by the requisite Holders. An amendment, supplement
or waiver becomes effective when approved by the requisite Holders and executed
by the Trustee (or, if otherwise provided in such waiver, supplement or
amendment, in accordance with its terms) and thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated
proxies), and only those Persons, shall be entitled to consent to such
amendment or waiver or revoke any consent previously given, whether or not such
Persons continue to be Holders after such record date. No consent shall be
valid or effective for more than 90 days after such record date except to the
extent that the requisite number of consents to the amendment,
59
<PAGE> 66
supplement or waiver have been obtained within such 90-day period or as set
forth in the next paragraph of this Section 9.4.
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder, unless it makes a change described in any of clauses
(a) through (h) of Section 9.2, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Note who has consented to it and every
subsequent Holder of a Note or portion of a Note that evidences the same
indebtedness as the consenting Holder's Note.
SECTION 9.5. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue, and the Trustee shall authenticate, new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.6. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
In executing any amended or supplemental indenture, the Trustee shall be
entitled to receive and (subject to Section 7.1) shall be fully protected in
relying upon, an Officer's Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental indenture is authorized or
permitted by this Indenture.
SECTION 9.7. PAYMENTS FOR CONSENT.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any
terms or provisions of the Notes unless such consideration is offered to be
paid or agreed to be paid to all Holders of the Notes which so consent, waive
or agree to amend in the time frame set forth in solicitation documents
relating to such consent, waiver or agreement.
ARTICLE 10
SUBORDINATION
SECTION 10.1. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting a Note agrees,
that the payment of principal of, and premium, if any, and interest on, and
other Obligations evidenced by, the Notes is subordinated in right of payment,
to the extent and in the manner provided in this Article 10, to the prior
payment in full of all Senior Indebtedness (whether outstanding on the date
hereof or hereafter incurred), and that the subordination is for the benefit of
the holders of Senior Indebtedness.
60
<PAGE> 67
SECTION 10.2. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, an assignment for the benefit of creditors or any marshalling of the
Company's assets and liabilities:
(1) holders of Senior Indebtedness shall be entitled to
receive payment in full in Cash (or U.S. dollar-denominated Cash
Equivalents) of all Obligations due in respect of such Senior
Indebtedness (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Indebtedness)
before the Holders of Notes shall be entitled to receive any payment of
any kind or character with respect to the Notes; and
(2) until all Obligations with respect to Senior Indebtedness
are paid in full in Cash (or U.S. dollar-denominated Cash Equivalents),
any distribution to which the Holders of Notes would be entitled but for
this Article 10 shall be made to the holders of such Senior
Indebtedness.
Notwithstanding the foregoing, Holders of Notes may receive (i)
securities that are subordinated at least to the same extent as the Notes to
Senior Indebtedness and any securities issued in exchange for Senior
Indebtedness and (ii) payments made from the trusts described in Sections 8.4
and 8.5 hereof.
SECTION 10.3. DEFAULT ON DESIGNATED SENIOR INDEBTEDNESS.
The Company may not make any payment of any kind or character
upon or in respect of the Notes (other than in (i) securities that are
subordinated to the same extent as the Notes to Senior Indebtedness and any
securities issued in exchange for Senior Indebtedness and (ii) payments made
from the trusts described in Sections 8.4 and 8.5 hereof) if:
(i) a default in the payment of the principal of, premium, if
any, or interest on Designated Senior Indebtedness occurs and is
continuing; or
(ii) any other default occurs and is continuing with respect to
Designated Senior Indebtedness that permits holders of the Designated
Senior Indebtedness as to which such default relates to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Company or the holders of any Designated
Senior Indebtedness.
Payments on the Notes may and shall be resumed:
(a) in the case of default referred to in Section 10.3(i), upon
the date on which such default is cured or waived, and
(b) in case of a default referred to in Section 10.3(ii), upon
the earlier of (i) the date on which such default is cured or waived or
(ii) 179 days after the date on which the applicable Payment Blockage
Notice is received by the Trustee (unless the maturity of any Designated
Senior Indebtedness has been accelerated or unless the provisions of
this Article 10 otherwise do not permit such payment).
In no event shall more than one period of payment blockage be
made in any 360 consecutive day period. No nonpayment default that existed or
was continuing on the date of receipt by the Trustee of any Payment Blockage
Notice shall be, or be made, the basis for a subsequent Payment Blockage
Notice. Following the expiration of any period during which the Company is
prohibited from making payments
61
<PAGE> 68
on the Notes pursuant to a Payment Blockage Notice, the Company will be
obligated to resume making any and all required payments in respect of the
Notes, including without limitation any missed payments.
SECTION 10.4. ACCELERATION OF NOTES.
The Company and the Trustee shall promptly notify holders of
Designated Senior Indebtedness if payment on the Notes is accelerated because
of an Event of Default.
SECTION 10.5. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder receives any payment
of any Obligations with respect to the Notes at a time when the Trustee or such
Holder, as applicable, has actual knowledge that such payment is prohibited by
Section 10.3 hereof, such payment shall be held by the Trustee or such Holder,
in trust for the benefit of and, upon written request, shall be paid forthwith
over and delivered to, the holders of Senior Indebtedness as their interests
may appear or their Representative under the indenture or other agreement (if
any) pursuant to which Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations with respect to Senior Indebtedness remaining unpaid to the extent
necessary to pay such Obligations in full in accordance with their terms, after
giving effect to any concurrent payment or distribution to or for the holders
of Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of Senior Indebtedness, and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or on
behalf of Holders or the Company or any other Person money or assets to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
10, except if such payment is made as a result of the willful misconduct or
gross negligence of the Trustee.
SECTION 10.6. NOTICE BY THE COMPANY.
The Company shall promptly notify the Trustee and the Paying
Agent of any facts known to the Company that would cause a payment of any
Obligations with respect to the Notes to violate this Article 10, but failure
to give such notice shall not affect the subordination of the Notes to the
Senior Indebtedness as provided in this Article.
SECTION 10.7. SUBROGATION.
After all Senior Indebtedness is irrevocably paid in full in Cash
or U.S. dollar-denominated Cash Equivalents reasonably satisfactory to the
holders thereof and until the Notes are paid in full, Holders shall be
subrogated (equally and ratably with all other Indebtedness pari passu with the
Notes) to the rights of holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness to the extent that distributions otherwise
payable to the Holders have been applied to the payment of Senior Indebtedness.
A distribution made under this Article to holders of Senior Indebtedness that
otherwise would have been made to Holders is not, as between the Company and
Holders, a payment by the Company on the Notes.
62
<PAGE> 69
SECTION 10.8. RELATIVE RIGHTS.
This Article defines the relative rights of Holders and holders
of Senior Indebtedness. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders, the obligation
of the Company, which is absolute and unconditional, to pay principal of
and interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders and creditors of the
Company other than their rights in relation to holders of Senior
Indebtedness; or
(3) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Indebtedness to receive
distributions and payments otherwise payable to Holders.
If the Company fails because of this Article 10 to pay principal
of or interest on a Note on the due date, the failure is still a Default or
Event of Default.
SECTION 10.9. SUBORDINATION MAY NOT BE IMPAIRED BY THE COMPANY.
No right of any holder of Senior Indebtedness to enforce the
subordination of the Indebtedness evidenced by the Notes shall be impaired by
any act or failure to act by the Company or any Holder or by the failure of the
Company or any Holder to comply with this Indenture.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to
holders of Senior Indebtedness, the distribution may be made and the notice
given to their Representative.
Upon any payment or distribution of assets of the Company
referred to in this Article 10, the Trustee and the Holders shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
for the purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of Senior Indebtedness and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
10.
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Notes to violate this Article. Only the Company or a
Representative may give the notice. Nothing in this Article 10 shall impair
the claims of, or payments to, the Trustee under or pursuant to Section 7.7
hereof.
63
<PAGE> 70
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness (or a Representative of such holder) to establish that such notice
has been given by a holder of Senior Indebtedness (or a Representative of any
such holder). In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article 10, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article 10, and if such
evidence is not furnished, the Trustee may defer any payment which it may be
required to make for the benefit of such Person pursuant to the terms of this
Indenture pending judicial determination as to the rights of such Person to
receive such payment.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness with the same rights it would have if it were not Trustee.
Any Agent may do the same with like rights.
SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Note by the Holder's acceptance thereof
authorizes and directs the Trustee on the Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination as provided
in this Article 10, and appoints the Trustee to act as the Holder's
attorney-in-fact for any and all such purposes.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA Section 318(c), such TIA-imposed duties shall
control.
SECTION 11.2. NOTICES.
Any notice or communication by the Company or the Trustee to the
other is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company:
Cinemark USA, Inc.
7502 Greenville Avenue
Suite 800
Dallas, Texas 75231
Phone No.: (214) 696-1644
Telecopier No.: (214) 369-9972
Attention: General Counsel
64
<PAGE> 71
With a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201
Phone No.: (214) 969-2800
Telecopier No.: (214) 969-4343
Attention: Terry M. Schpok, P.C.
If to the Trustee:
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Suite 2700
Dallas, Texas 75201
Phone No.: (214) 754-1255
Telecopier No.: (214) 754-1303
Attention: Corporate Trust Department
With a copy to:
Haynes and Boone, L.L.P.
20201 Main Street, Suite 2200
Fort Worth, Texas 76102-6866
Phone No.: (817) 347-6600
Telecopier No.: (817) 347-6650
Attention: William Greenhill, Esq.
The Company or the Trustee, by notice to the other, may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery, in each case to the address shown
above. Notwithstanding the foregoing, notices to the Trustee shall only be
effective upon actual receipt thereof by the Trustee at the Corporate Trust
Office of the Trustee.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
65
<PAGE> 72
SECTION 11.3. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the Notes.
The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
SECTION 11.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 11.5 hereof) stating that, in the opinion of the
signers, all conditions precedent and covenants, if any, provided for in
this Indenture relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 11.5 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been
satisfied.
SECTION 11.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions
of TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) the opinion of such Person, that he or she has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has
been satisfied; and
(c) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 11.6. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules
and set reasonable requirements for its functions.
SECTION 11.7. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHERS.
No past, present or future director, officer, employee, agent,
manager, incorporator, stockholder or other Affiliate of the Company, as such,
shall have any liability for any obligations of the Company under any of the
Notes, this Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
66
<PAGE> 73
SECTION 11.8. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE AND THE NOTES.
SECTION 11.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture,
loan or debt agreement of the Company or its Subsidiaries or of any other
Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 11.10. SUCCESSORS.
This Indenture shall inure to the benefit of and be binding upon
the parties hereto and each of their respective successors and assigns, except
that the Company may not assign this Indenture or its obligations hereunder
except as expressly permitted by Sections 5.1 and 5.2. Without limiting the
generality of the foregoing, this Indenture shall inure to the benefit of all
Holders from time to time. Except as set forth in Article 10, nothing
expressed or mentioned in this Indenture is intended or shall be construed to
give any Person, other than the parties hereto, their respective successors and
assigns, and the Holders, any legal or equitable right, remedy or claim under
or in respect of this Indenture or any provision herein contained.
SECTION 11.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.12. ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
SECTION 11.14. COUNTERPARTS.
This Indenture may be signed in counterparts and by the different
parties hereto in separate counterparts, each of which shall constitute an
original and all of which together shall constitute one and the same
instrument.
[Signatures on following page]
67
<PAGE> 74
IN WITNESS WHEREOF, the parties hereto have executed this Indenture this
June 26, 1997.
CINEMARK USA, INC.
By: /s/ JEFFREY J. STEDMAN
---------------------------------
Name: Jeffrey J. Stedman
Title: Vice President
U.S. TRUST COMPANY OF TEXAS, N.A.
as Trustee
By: /s/ BILL BARBER
---------------------------------
Name: Bill Barber
Title: Vice President
S-68
<PAGE> 75
================================================================================
EXHIBIT A
(Face of Note)
Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the Company or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.(1/)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES THAT IT WILL
NOT PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE DATE OF
ORIGINAL ISSUANCE OF THIS NOTE AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (THE "RESALE RESTRICTION
TERMINATION DATE") RESELL, PLEDGE OR OTHERWISE TRANSFER THIS NOTE, EXCEPT (A)
TO THE COMPANY, (B) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT
TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON WHOM THE HOLDER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF ANOTHER QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH THE
RESALE PROVISIONS OF RULE 144A, (C) PURSUANT TO OFFERS AND SALES THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (D) PURSUANT TO THE RESALE LIMITATIONS PROVIDED BY RULE 144
UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
(BASED UPON AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY IF THE
COMPANY SO REQUESTS) SUBJECT IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT
OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH ACCOUNT BE
AT ALL TIMES WITHIN ITS CONTROL AND TO COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THE
FOREGOING RESTRICTIONS ON RESALE WILL NOT APPLY SUBSEQUENT TO THE RESALE
RESTRICTION TERMINATION DATE.(2/)
- --------------------
(1.) This paragraph should be included only if the Note is issued in global
form.
(2.) This legend not required in the case of (1) a Note issued pursuant to
Section 2.6(g)(ii) of the Indenture or (2) a Series B Note issued
pursuant to Section 2.6(g)(iii) of the Indenture.
A-1
<PAGE> 76
CINEMARK USA, INC.
9-5/8% [Series C] [Series D] Senior Subordinated Notes due 2008
No. $__________
CUSIP #__________
Cinemark USA, Inc., a Texas corporation (the "Company")
promises to pay to
or registered assigns,
the principal sum of __________________________Dollars on August 1, 2008
Interest Payment Dates: February 1 and August 1, commencing on August 1,
1997
Record Dates: January 15 and July 15
Dated: ___________ __, 1997
CINEMARK USA, INC.
By:______________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
This is one of the
Notes referred to in the
within-mentioned Indenture:
U.S. TRUST COMPANY OF TEXAS, N.A.
as Trustee
By:__________________________________
Authorized Signatory
Dated:_______________________________
A-2
<PAGE> 77
(Back of Note)
9-5/8% [Series C] [Series D] Senior Subordinated Notes due 2008
Capitalized terms used herein but not defined shall have the meanings
assigned to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. The Notes will be limited in aggregate principal amount
to $75 million and will mature on August 1, 2008. The Company promises to pay
interest on the principal amount of this Note from June 26, 1997 until
maturity. The Company will pay interest semi-annually on February 1 and August
1 of each year, commencing August 1, 1997, or if any such day is not a Business
Day, on the next succeeding Business Day (each an "Interest Payment Date").
Interest on the Notes will accrue at the rate of 9-5/8% per annum from the most
recent date to which interest has been paid or, if no interest has been paid,
from the Initial Issuance Date. The Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law to the extent
that such interest is an allowed claim enforceable against the debtor under
such Bankruptcy Law) on overdue principal and premium, if any, from time to
time on demand at the rate equal to 1% per annum in excess of the rate then in
effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of
a 360-day year of twelve 30-day months. Notwithstanding any other provision of
the Indenture or this Note: (i) accrued and unpaid interest on the Series C
Notes being exchanged in the Exchange Offer shall be due and payable on the
next Interest Payment Date for the Series D Notes following the Exchange Offer,
(ii) interest on the Series D Notes to be issued in the Exchange Offer shall
accrue from the date the Exchange Offer is consummated and (iii) the Series D
Notes shall have no provisions for Liquidated Damages.
2. METHOD OF PAYMENT. The Company shall pay the principal of, and
premium and interest on, the Notes on the dates and in the manner provided
herein and in the Indenture. Principal of, and premium and interest on,
Definitive Notes will be payable, and Definitive Notes may be presented for
registration of transfer or exchange, at the office or agency of the Company
maintained for such purpose. Principal of, and premium and interest on, Global
Notes will be payable by the Company through the Trustee to the Depository in
immediately available funds. Holders of Definitive Notes will be entitled to
receive interest payments by wire transfer in immediately available funds if
appropriate wire transfer instructions have been received in writing by the
Trustee not less than 15 days prior to the applicable Interest Payment Date.
Such wire instructions, upon receipt by the Trustee, shall remain in effect
until revoked by such Holder. If wire instructions have not been received by
the Trustee with respect to any Holder of a Definitive Note, payment of
interest may be made by check in immediately available funds mailed to such
Holder at the address set forth upon the Register maintained by the Registrar.
3. PAYING AGENT AND REGISTRAR. Initially, U.S. Trust Company of
Texas, N.A., the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity, except that none of the Company, its Subsidiaries or their Affiliates
shall act (i) as Paying Agent in connection with any redemption, offer to
purchase, discharge or defeasance, as otherwise specified in the Indenture, and
(ii) as Paying Agent or Registrar if a Default or Event of Default has occurred
and is continuing.
A-3
<PAGE> 78
4. INDENTURE.
The Company issued the Notes under an Indenture dated as of June 26,1997
(as such may be amended, supplemented or restated from time to time, the
"Indenture") between the Company and the Trustee. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections
77aaa-77bbbb). The Notes are subject to all such terms, and Holders are
referred to the Indenture and such Act for a statement of such terms. The
Notes are general unsecured obligations of the Company limited to $75 million
in aggregate principal amount.
The payment of principal of, and premium, if any, and interest on, and
other Obligations evidenced by, the Notes is subordinated in right of payment,
to the extent and in the manner provided in the Indenture, to the prior payment
in full of all present and future Senior Indebtedness (as defined in the
Indenture) of the Company. Each Holder of this Note, by accepting the same,
(i) agrees to such provisions, (ii) authorizes and directs the Trustee on such
Holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in the Indenture and (iii) appoints
the Trustee to act as attorney-in-fact for any and all such purposes.
5. OPTIONAL REDEMPTION.
The Notes will not be redeemable at the Company's option prior to
August 1, 2001, except as provided below. Thereafter, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice to the Holders, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest thereon to the applicable redemption
date, if redeemed during the twelve month period beginning on August 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . 104.813%
2002 . . . . . . . . . . . . . . . . . . 102.406%
2003 and thereafter . . . . . . . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, on and prior to August 1, 1999,
the Company may redeem up to 35% of the aggregate principal amount of the Notes
originally outstanding at a redemption price of 110% of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, with
the net proceeds of one or more Equity Offerings of the Company or, if
applicable, a Parent, as described in Section 3.7 of the Indenture; provided
that at least 65% of the aggregate principal amount of the Notes originally
issued remains outstanding immediately after the occurrence of such redemption
(but such unredeemed Notes may be redeemed pursuant to the optional redemption
procedure described in the immediately preceding paragraph; and provided,
further, that such notice of redemption shall be given not later than 30 days,
and such redemption shall occur not later than 90 days, after the date of the
closing of any such Equity Offering. On and after the redemption date,
interest ceases to accrue on the Notes or portions thereof called for
redemption.
Notwithstanding the two preceding paragraphs, the Company shall
not optionally redeem the Notes unless, substantially concurrently with such
redemption, the Company redeems an aggregate principal amount of the Original
Notes (rounded to the nearest integral multiple of $1,000) equal to the product
of (A) a fraction, the numerator of which is the aggregate principal amount of
the Notes to be so
A-4
<PAGE> 79
redeemed and the denominator of which is the aggregate principal amount of the
Notes outstanding immediately prior to such proposed redemption and (B) the
aggregate principal amount of the Original Notes outstanding immediately prior
to such proposed redemption. The Company shall not optionally redeem the
Original 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 (A) a fraction,
the numerator of which is the aggregate principal amount of the Original Notes
to be so redeemed and the denominator of which is the aggregate principal
amount of the Original Notes outstanding immediately prior to such proposed
redemption and (B) the aggregate principal amount of the Notes outstanding
immediately prior to such proposed redemption.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not
be required to make mandatory redemption payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon a Change of Control, the Company shall be required to
make an offer to Holders to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of each Holder's Notes at a purchase price equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon to the date of purchase as provided in, and subject to the
terms of, the Indenture.
(b) If the Company or any Restricted Subsidiary consummates
any Asset Disposition, the Company may be required, subject to the terms and
conditions of the Indenture, to utilize a certain portion of the proceeds
received from such Asset Disposition to repurchase Notes at a purchase price
equal to 100% of the principal amount thereof, plus accrued interest thereon to
the date of purchase.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, it need not exchange or register the transfer of any Notes for a
period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
9. PERSONS DEEMED OWNERS. The registered Holder of a Note
may be treated as its owner for all purposes.
10. UNCLAIMED MONEY . If money for the payment of principal,
premium or interest remains unclaimed for one year, the Trustee and the Paying
Agent will pay the money back to the Company at its request. After that, all
liability of the Trustee and such Paying Agent with respect to such money shall
cease.
11. DEFEASANCE PRIOR TO REDEMPTION OR MATURITY. Subject to
certain conditions contained in the Indenture, the Company at any time may
terminate some or all of its obligations under the Notes and the Indenture if
the Company deposits with the Trustee money or U.S. Government Obligations
sufficient
A-5
<PAGE> 80
to pay the principal of, and premium and interest on, the Notes to redemption
or maturity, as the case may be.
12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding, and any existing Default or Event or Default or compliance
with any provision of the Indenture or the Notes may be waived with the consent
of the Holders of a majority in principal amount of the then outstanding Notes.
Without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
Notes in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the TIA as then in effect.
13. DEFAULTS AND REMEDIES. Events of Default include: (i)
default by the Company in the payment of (A) the principal of (or premium, if
any, on) any Notes when the same becomes due and payable at maturity, by
acceleration or otherwise, (B) the redemption price on any redemption date, or
(C) the Change of Control Offer Price or the Net Proceeds Offer Price on the
applicable Offer Purchase Date relating to such Offer; (ii) default by the
Company in the payment of interest on any Note when the same becomes due and
payable, which default continues for a period of 30 calendar days; (iii)
failure by the Company or any Subsidiary of the Company to comply with any of
its covenants or agreements in the Notes or the Indenture (other than those
referred to in clauses (i) and (ii) above), which failure continues for 45
calendar days after receipt by the Company of a Notice of Default specifying
such Default; (iv) an event of default on any other Indebtedness for borrowed
money of the Company or any of its Restricted Subsidiaries having an aggregate
amount outstanding in excess of $5 million which default (A) is caused by a
failure to pay when due (after giving effect to any grace periods) any
principal of, or premium, if any, or interest on, such Indebtedness or (B) has
caused the holders thereof to declare such Indebtedness due and payable in
advance of its scheduled maturity; (v) certain events of bankruptcy or
insolvency with respect to the Company or any Significant Subsidiary of the
Company; or (vi) the rendering of final non-appealable judgments for the
payment of money which in the aggregate exceed $5 million (net of applicable
insurance coverage which is acknowledged in writing by the insurer) against the
Company or any Significant Subsidiary of the Company by a court and which
remain unstayed or undischarged for a period of 60 calendar days.
A Default under clause (iii) of the immediately preceding
paragraph is not an Event of Default until the Trustee notifies the Company, or
the Holders of at least 25% in principal amount of the Notes at the time
outstanding notify the Company and the Trustee, of the Default and the Company
does not cure such Default within 45 days after receipt of such notice.
Notwithstanding the foregoing, if an Event of Default specified in clause (iv)
of the immediately preceding paragraph occurs and is continuing, such Event of
Default and all consequences thereof (including, without limitation, any
acceleration or resulting payment default) shall be annulled and rescinded,
automatically and without any action by the Trustee or the holders of the
Notes, if (i) the Indebtedness that is the subject of such Event of Default has
been repaid, or (ii) the default relating to such Indebtedness is waived or
cured (and if such Indebtedness has been accelerated, then the holders thereof
have rescinded their declaration of acceleration in respect of such
Indebtedness). If any Event of Default under clauses (i), (ii), (iii), (iv) or
(vi) of the immediately preceding paragraph occurs and is continuing, then the
Holders of at least 25% in aggregate principal amount of the then outstanding
Notes by written notice to the Company and the Trustee may declare the unpaid
principal
A-6
<PAGE> 81
of, and any accrued interest on, all the Notes to be due and payable
immediately. If any Event of Default with respect to the Company specified in
clause (v) of the immediately preceding paragraph occurs, all outstanding
principal and interest on the Notes shall be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Trustee and to the Company, may rescind
an acceleration (except an acceleration due to a default in payment of the
principal of, or premium or interest on, any of the Notes) if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default (except nonpayment of principal, premium or interest that have become
due solely because of the acceleration) have been cured or waived.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect any
payment due, or to enforce the performance of any provision, under the Notes or
the Indenture. The Trustee may refuse to enforce the Indenture or the Notes
unless it receives reasonable indemnity or security. Holders of Notes may not
enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of
the Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the Notes notice of any continuing Default
or Event of Default (except under clauses (i) or (ii) above) if it determines
that withholding notice is in their interest.
14. TRUSTEE'S DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee, subject to the
provisions of TIA Section 310.
15. NO RECOURSE AGAINST OTHERS. A director, officer,
employee, agent, manager, incorporator, stockholder or other Affiliate of the
Company, as such, shall not have any liability for any obligations of the
Company under any of the Notes or the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder
by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Notes.
16. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
17. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
18. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED
SECURITIES. In addition to the rights provided to Holders under the Indenture,
Holders of Transfer Restricted Securities shall have all the rights set forth
in the Registration Rights Agreement.
19. CUSIP NUMBERS. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
A-7
<PAGE> 82
20. GOVERNING LAW. THE INDENTURE AND THIS NOTE SHALL BE
GOVERNED AND CONSTRUED BY THE INTERNAL LAW OF THE STATE OF NEW YORK.
21. SUCCESSOR CORPORATION. In the event a successor
corporation assumes all the obligations of the Company under the Notes and the
Indenture, pursuant to the terms thereof, the Company will be released from all
such obligations.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Cinemark USA, Inc.
7502 Greenville Avenue
Suite 800
Dallas, Texas 75231
Phone No.: (214) 696-1644
Telecopier No.: (214) 369-9972
Attention: General Counsel
A-8
<PAGE> 83
ASSIGNMENT FORM
To assign this Note, fill in the form below and have your signature
guaranteed: (I) or (we) assign and transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
---------------------------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date: Your Name:
----------------------------- ---------------------------
(Print your name exactly as it
appears on the face of this Note)
Your Signature:
----------------------
(Sign exactly as your name appears on
the face of this Note)
Signature Guarantee*:
----------------
- ---------------------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
A-9
<PAGE> 84
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Note purchased by the Company pursuant
to Section 4.10 or Section 4.14 of the Indenture, check the appropriate box
below:
[ ] Section 4.10 [ ] Section 4.14
If you elect to have only part of this Note purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the
amount (in minimum denominations of $1000 or integral multiples thereof) you
elect to have purchased: $___________
Date: Your Name:
----------------------- ---------------------------
(Print your name exactly as it
appears on the face of this Note)
Your Signature:
----------------------
(Sign exactly as your name appears on
the Note)
Social Security or Tax Identification
No.:
-------------------
Signature Guarantee*:
----------------
- ---------------------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
A-10
<PAGE> 85
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTE(3/)
The following exchanges of a part of this Global Note for
Definitive Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
------------------- ----------------------- ----------------------- -------------------------- ----------------------
<S> <C> <C> <C> <C>
</TABLE>
- --------------------
3. This schedule should be included only if the Note is issued in global
form.
A-11
<PAGE> 86
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES
Re: 9-5/8% Series C Senior Subordinated Notes due 2008 of Cinemark USA, Inc.
This Certificate relates to $_____ principal amount of Notes held
in * global or * definitive form by ________________ (the
"Transferor").
The Transferor*:
[ ] has requested the Trustee by written order to deliver, in
exchange for its beneficial interest in the Global Note held by the Depositary,
a Note or Notes in definitive, registered form or a beneficial interest in the
Series D Global Note issued pursuant to the Exchange Offer, in both cases in
the authorized denominations in an aggregate principal amount equal to its
beneficial interest in such Global Note (or the portion thereof indicated
above); or
[ ] has requested the Trustee by written order to exchange or
register the transfer of a Note or Notes.
In connection with such request and in respect of each such Note,
the Transferor does hereby certify that it is familiar with the Indenture
relating to the above captioned Notes, and the transfer of this Note does not
require registration under the Securities Act of 1933, as amended (the
"Securities Act") because such Note*:
[ ] is being acquired for the Transferor's own account, without
transfer;
[ ] is being transferred pursuant to an effective registration
statement;
[ ] is being transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act), in reliance on
such Rule 144A;
[ ] is being transferred pursuant to an exemption from registration
in accordance with Rule 904 under the Securities Act;**
[ ] is being transferred pursuant to Rule 144 under the Securities
Act; or
- --------------------
* Check applicable box.
** If this box is checked, this certificate must be accompanied by an
opinion of counsel to the effect that such transfer is in compliance
with the Securities Act.
B-1
<PAGE> 87
[ ] is being transferred pursuant to another exemption from the
registration requirements of the Securities Act (explain:
___________________________________________
__________________________________________________________________
_______)***
Date: Your Name:
------------------- -------------------------
(Print your name exactly as it
appears on the face of the Note)
Your Signature:
--------------------
(Sign exactly as your name appears
on the Note)
Social Security or Tax
Identification No.:
-----------------
Signature Guarantee****:
------------
- --------------------
*** If this box is checked, this certificate must be accompanied by a
opinion of counsel to the effect that such transfer is in compliance
with the Securities Act.
**** Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
B-2
<PAGE> 1
EXHIBIT 4.2
================================================================================
Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the Company or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY PERSON EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES THAT IT WILL
NOT PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE DATE OF
ORIGINAL ISSUANCE OF THIS NOTE AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (THE "RESALE RESTRICTION
TERMINATION DATE") RESELL, PLEDGE OR OTHERWISE TRANSFER THIS NOTE, EXCEPT (A)
TO THE COMPANY, (B) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT
TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON WHOM THE HOLDER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF ANOTHER QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH THE
RESALE PROVISIONS OF RULE 144A, (C) PURSUANT TO OFFERS AND SALES THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (D) PURSUANT TO THE RESALE LIMITATIONS PROVIDED BY RULE 144
UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (F) PURSUANT TO ANY OTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
(BASED UPON AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY IF THE
COMPANY SO REQUESTS) SUBJECT IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT
OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH ACCOUNT BE
AT ALL TIMES WITHIN ITS CONTROL AND TO COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THE
FOREGOING RESTRICTIONS ON RESALE WILL NOT APPLY SUBSEQUENT TO THE RESALE
RESTRICTION TERMINATION DATE.
================================================================================
<PAGE> 2
CINEMARK USA, INC.
9-5/8% Series C Senior Subordinated Notes due 2008
No. N-1 $75,000,000
CUSIP #172441AG2
Cinemark USA, Inc., a Texas corporation (the "Company")
promises to pay to CEDE & CO.
or registered assigns,
the principal sum of SEVENTY FIVE MILLION Dollars on August 1, 2008
Interest Payment Dates: February 1 and August 1, commencing on August
1, 1997.
Record Dates: January 15 and July 15
Dated: June 26, 1997
CINEMARK USA, INC.
By:
------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
This is one of the
Notes referred to in the
within-mentioned Indenture:
U.S. TRUST COMPANY OF TEXAS, N.A.
as Trustee
By:
----------------------------------
Authorized Signatory
Dated: June 26, 1997
2
<PAGE> 3
9-5/8% Series C Senior Subordinated Notes due 2008
Capitalized terms used herein but not defined shall have the meanings
assigned to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. The Notes will be limited in aggregate principal
amount to $75 million and will mature on August 1, 2008. The Company promises
to pay interest on the principal amount of this Note from June 26, 1997 until
maturity. The Company will pay interest semi-annually on February 1 and August
1 of each year, commencing August 1, 1997, or if any such day is not a Business
Day, on the next succeeding Business Day (each an "Interest Payment Date").
Interest on the Notes will accrue at the rate of 9-5/8% per annum from the most
recent date to which interest has been paid or, if no interest has been paid,
from the Initial Issuance Date. The Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law to the
extent that such interest is an allowed claim enforceable against the debtor
under such Bankruptcy Law) on overdue principal and premium, if any, from time
to time on demand at the rate equal to 1% per annum in excess of the rate then
in effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of
a 360-day year of twelve 30-day months. Notwithstanding any other provision of
the Indenture or this Note: (i) accrued and unpaid interest on the Series C
Notes being exchanged in the Exchange Offer shall be due and payable on the
next Interest Payment Date for the Series D Notes following the Exchange Offer,
(ii) interest on the Series D Notes to be issued in the Exchange Offer shall
accrue from the date the Exchange Offer is consummated and (iii) the Series D
Notes shall have no provisions for Liquidated Damages.
2. METHOD OF PAYMENT. The Company shall pay the principal of,
and premium and interest on, the Notes on the dates and in the manner provided
herein and in the Indenture. Principal of, and premium and interest on,
Definitive Notes will be payable, and Definitive Notes may be presented for
registration of transfer or exchange, at the office or agency of the Company
maintained for such purpose. Principal of, and premium and interest on, Global
Notes will be payable by the Company through the Trustee to the Depository in
immediately available funds. Holders of Definitive Notes will be entitled to
receive interest payments by wire transfer in immediately available funds if
appropriate wire transfer instructions have been received in writing by the
Trustee not less than 15 days prior to the applicable Interest Payment Date.
Such wire instructions, upon receipt by the Trustee, shall remain in effect
until revoked by such Holder. If wire instructions have not been received by
the Trustee with respect to any Holder of a Definitive Note, payment of
interest may be made by check in immediately available funds mailed to such
Holder at the address set forth upon the Register maintained by the Registrar.
3. PAYING AGENT AND REGISTRAR. Initially, U.S. Trust Company of
Texas, N.A., the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity, except that none of the Company, its Subsidiaries or their Affiliates
shall act (i) as Paying Agent in connection with any redemption, offer to
purchase, discharge or defeasance, as otherwise specified in the Indenture, and
(ii) as Paying Agent or Registrar if a Default or Event of Default has occurred
and is continuing.
3
<PAGE> 4
4. INDENTURE.
The Company issued the Notes under an Indenture dated as of June
26,1997 (as such may be amended, supplemented or restated from time to time,
the "Indenture") between the Company and the Trustee. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections
77aaa-77bbbb). The Notes are subject to all such terms, and Holders are
referred to the Indenture and such Act for a statement of such terms. The
Notes are general unsecured obligations of the Company limited to $75 million
in aggregate principal amount.
The payment of principal of, and premium, if any, and interest on, and
other Obligations evidenced by, the Notes is subordinated in right of payment,
to the extent and in the manner provided in the Indenture, to the prior payment
in full of all present and future Senior Indebtedness (as defined in the
Indenture) of the Company. Each Holder of this Note, by accepting the same,
(i) agrees to such provisions, (ii) authorizes and directs the Trustee on such
Holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in the Indenture and (iii) appoints
the Trustee to act as attorney-in-fact for any and all such purposes.
5. OPTIONAL REDEMPTION.
The Notes will not be redeemable at the Company's option prior to
August 1, 2001, except as provided below. Thereafter, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice to the Holders, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest thereon to the applicable redemption
date, if redeemed during the twelve month period beginning on August 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . . . . . . 104.813%
2002 . . . . . . . . . . . . . . . . . . . . . . . . . 102.406%
2003 and thereafter . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, on and prior to August 1, 1999, the
Company may redeem up to 35% of the aggregate principal amount of the Notes
originally outstanding at a redemption price of 110% of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, with
the net proceeds of one or more Equity Offerings of the Company or, if
applicable, a Parent, as described in Section 3.7 of the Indenture; provided
that at least 65% of the aggregate principal amount of the Notes originally
issued remains outstanding immediately after the occurrence of such redemption
(but such unredeemed Notes may be redeemed pursuant to the optional redemption
procedure described in the immediately preceding paragraph; and provided,
further, that such notice of redemption shall be given not later than 30 days,
and such redemption shall occur not later than 90 days, after the date of the
closing of any such Equity Offering. On and after the redemption date,
interest ceases to accrue on the Notes or portions thereof called for
redemption.
Notwithstanding the two preceding paragraphs, the Company shall not
optionally redeem the Notes unless, substantially concurrently with such
redemption, the Company redeems an aggregate principal amount of the Original
Notes (rounded to the nearest integral multiple of $1,000) equal to the product
of (A) 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
4
<PAGE> 5
immediately prior to such proposed redemption and (B) the aggregate principal
amount of the Original Notes outstanding immediately prior to such proposed
redemption. The Company shall not optionally redeem the Original 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 (A) a fraction, the numerator of
which is the aggregate principal amount of the Original Notes to be so redeemed
and the denominator of which is the aggregate principal amount of the Original
Notes outstanding immediately prior to such proposed redemption and (B) the
aggregate principal amount of the Notes outstanding immediately prior to such
proposed redemption.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon a Change of Control, the Company shall be required to make
an offer to Holders to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of each Holder's Notes at a purchase price equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon to the date of purchase as provided in, and subject to the
terms of, the Indenture.
(b) If the Company or any Restricted Subsidiary consummates any
Asset Disposition, the Company may be required, subject to the terms and
conditions of the Indenture, to utilize a certain portion of the proceeds
received from such Asset Disposition to repurchase Notes at a purchase price
equal to 100% of the principal amount thereof, plus accrued interest thereon to
the date of purchase.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date
and the corresponding Interest Payment Date.
9. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
10. UNCLAIMED MONEY . If money for the payment of principal,
premium or interest remains unclaimed for one year, the Trustee and the Paying
Agent will pay the money back to the Company at its request. After that, all
liability of the Trustee and such Paying Agent with respect to such money shall
cease.
11. DEFEASANCE PRIOR TO REDEMPTION OR MATURITY. Subject to certain
conditions contained in the Indenture, the Company at any time may terminate
some or all of its obligations under the Notes and the Indenture if the Company
deposits with the Trustee money or U.S. Government Obligations
5
<PAGE> 6
sufficient to pay the principal of, and premium and interest on, the Notes to
redemption or maturity, as the case may be.
12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding, and any existing Default or Event or Default or compliance
with any provision of the Indenture or the Notes may be waived with the consent
of the Holders of a majority in principal amount of the then outstanding Notes.
Without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
Notes in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the TIA as then in effect.
13. DEFAULTS AND REMEDIES. Events of Default include: (i) default
by the Company in the payment of (A) the principal of (or premium, if any, on)
any Notes when the same becomes due and payable at maturity, by acceleration or
otherwise, (B) the redemption price on any redemption date, or (C) the Change
of Control Offer Price or the Net Proceeds Offer Price on the applicable Offer
Purchase Date relating to such Offer; (ii) default by the Company in the
payment of interest on any Note when the same becomes due and payable, which
default continues for a period of 30 calendar days; (iii) failure by the
Company or any Subsidiary of the Company to comply with any of its covenants or
agreements in the Notes or the Indenture (other than those referred to in
clauses (i) and (ii) above), which failure continues for 45 calendar days after
receipt by the Company of a Notice of Default specifying such Default; (iv) an
event of default on any other Indebtedness for borrowed money of the Company or
any of its Restricted Subsidiaries having an aggregate amount outstanding in
excess of $5 million which default (A) is caused by a failure to pay when due
(after giving effect to any grace periods) any principal of, or premium, if
any, or interest on, such Indebtedness or (B) has caused the holders thereof to
declare such Indebtedness due and payable in advance of its scheduled maturity;
(v) certain events of bankruptcy or insolvency with respect to the Company or
any Significant Subsidiary of the Company; or (vi) the rendering of final
non-appealable judgments for the payment of money which in the aggregate exceed
$5 million (net of applicable insurance coverage which is acknowledged in
writing by the insurer) against the Company or any Significant Subsidiary of
the Company by a court and which remain unstayed or undischarged for a period
of 60 calendar days.
A Default under clause (iii) of the immediately preceding paragraph
is not an Event of Default until the Trustee notifies the Company, or the
Holders of at least 25% in principal amount of the Notes at the time
outstanding notify the Company and the Trustee, of the Default and the Company
does not cure such Default within 45 days after receipt of such notice.
Notwithstanding the foregoing, if an Event of Default specified in clause (iv)
of the immediately preceding paragraph occurs and is continuing, such Event of
Default and all consequences thereof (including, without limitation, any
acceleration or resulting payment default) shall be annulled and rescinded,
automatically and without any action by the Trustee or the holders of the
Notes, if (i) the Indebtedness that is the subject of such Event of Default has
been repaid, or (ii) the default relating to such Indebtedness is waived or
cured (and if such Indebtedness has been accelerated, then the holders thereof
have rescinded their declaration of acceleration in respect of such
Indebtedness). If any Event of Default under clauses (i), (ii), (iii), (iv) or
(vi) of the immediately preceding paragraph occurs and is continuing, then the
Holders of at least 25% in aggregate principal amount of the then outstanding
Notes by written notice to the Company and the Trustee may declare the unpaid
principal of, and any accrued interest on, all the
6
<PAGE> 7
Notes to be due and payable immediately. If any Event of Default with respect
to the Company specified in clause (v) of the immediately preceding paragraph
occurs, all outstanding principal and interest on the Notes shall be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of a majority in aggregate principal
amount of the Notes then outstanding, by written notice to the Trustee and to
the Company, may rescind an acceleration (except an acceleration due to a
default in payment of the principal of, or premium or interest on, any of the
Notes) if the rescission would not conflict with any judgment or decree and if
all existing Events of Default (except nonpayment of principal, premium or
interest that have become due solely because of the acceleration) have been
cured or waived.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect any
payment due, or to enforce the performance of any provision, under the Notes or
the Indenture. The Trustee may refuse to enforce the Indenture or the Notes
unless it receives reasonable indemnity or security. Holders of Notes may not
enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of
the Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the Notes notice of any continuing Default
or Event of Default (except under clauses (i) or (ii) above) if it determines
that withholding notice is in their interest.
14. TRUSTEE'S DEALINGS WITH COMPANY. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee, subject to the
provisions of TIA Section 310.
15. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
agent, manager, incorporator, stockholder or other Affiliate of the Company, as
such, shall not have any liability for any obligations of the Company under any
of the Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
16. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
17. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
18. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES.
In addition to the rights provided to Holders under the Indenture, Holders of
Transfer Restricted Securities shall have all the rights set forth in the
Registration Rights Agreement.
19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is
made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
7
<PAGE> 8
20. GOVERNING LAW. THE INDENTURE AND THIS NOTE SHALL BE GOVERNED
AND CONSTRUED BY THE INTERNAL LAW OF THE STATE OF NEW YORK.
21. SUCCESSOR CORPORATION. In the event a successor corporation
assumes all the obligations of the Company under the Notes and the Indenture,
pursuant to the terms thereof, the Company will be released from all such
obligations.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Cinemark USA, Inc.
7502 Greenville Avenue
Suite 800
Dallas, Texas 75231
Phone No.: (214) 696-1644
Telecopier No.: (214) 369-9972
Attention: General Counsel
8
<PAGE> 9
ASSIGNMENT FORM
To assign this Note, fill in the form below and have your signature
guaranteed: (I) or (we) assign and transfer this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date: _________________________ Your Name:________________________________
(Print your name exactly as it appears
on the face of this Note)
Your Signature:___________________________
(Sign exactly as your name appears on
the face of this Note)
Signature Guarantee*:_____________________
____________________________
* Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
9
<PAGE> 10
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Note purchased by the Company pursuant to
Section 4.10 or Section 4.14 of the Indenture, check the appropriate box below:
Section 4.10 Section 4.14
If you elect to have only part of this Note purchased by the Company
pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount (in
minimum denominations of $1000 or integral multiples thereof) you elect to have
purchased: $___________
Date:__________________________ Your Name:_________________________________
(Print your name exactly as it
appears on the face of this Note)
Your Signature:____________________________
(Sign exactly as your name
appears on the Note)
Social Security or Tax Identification
No.:_______________________________________
Signature Guarantee*:______________________
_______________________________________
* Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
10
<PAGE> 11
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTE
The following exchanges of a part of this Global Note for Definitive
Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
---------------- --------------------- --------------------- ------------------------ ---------------------
<S> <C> <C> <C> <C>
</TABLE>
11
<PAGE> 1
EXHIBIT 4.3
EXCHANGE REGISTRATION RIGHTS AGREEMENT
Dated as of June 26, 1997
by and between
CINEMARK USA, INC.
and
BEAR, STEARNS & CO. INC.
<PAGE> 2
This Exchange and Registration Rights Agreement (this "Agreement") is
made and entered into as of June 26, 1997 by and among Cinemark USA, Inc., a
Texas corporation ("Cinemark") and Bear, Stearns & Co. Inc. (the "Purchaser").
Pursuant to the Purchase Agreement, dated June 20, 1997 (the
"Purchase Agreement"), by and between Cinemark and the Purchaser, the
Purchaser has agreed to purchase the aggregate principal amount of Cinemark's
9-5/8% Series C Senior Subordinated Notes due 2008 (the "Series C Notes") set
forth on Schedule I thereto.
In order to induce the Purchaser to purchase the Series C Notes,
Cinemark has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Purchaser set forth in Section 3 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Business Day: Any day except a Saturday, Sunday or other day in the
City of New York on which banks are authorized to close.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummate: A Registered Exchange Offer shall be deemed
"Consummated" for purposes of this Agreement upon the occurrence of (i) the
filing and effectiveness under the Act of the Exchange Offer Registration
Statement relating to the Series D Notes to be issued in the Exchange Offer,
(ii) the maintenance of such Registration Statement continuously effective and
the keeping of the Exchange Offer open for a period not less than the minimum
period required pursuant to Section 3(b) hereof, and (iii) the delivery by
Cinemark to the Trustee under the Indenture of Series D Notes in the same
aggregate principal amount as the aggregate principal amount of Series C Notes
that were validly tendered by Holders thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Series C Notes, each
Interest Payment Date.
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by Cinemark under the Act of the
Series D Notes pursuant to an Exchange Offer Registration Statement pursuant to
which Cinemark offers the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities held by such Holders for Series D Notes in an aggregate principal
amount equal to the aggregate principal amount of the Transfer Restricted
Securities validly tendered in such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
1
<PAGE> 3
Exempt Resales: The transactions in which the Purchaser proposes to
sell the Series C Notes to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act.
Holders: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of June 26, 1997, between
Cinemark and U.S. Trust Company of Texas, N.A., as trustee (the "Trustee"),
pursuant to which the Securities are to be issued, as such Indenture is amended
or supplemented from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the
Securities.
Liquidated Damages: As defined in Section 5 hereof.
NASD: National Association of Securities Dealers, Inc.
Person: An individual, partnership, corporation, limited liability
company, joint venture, association, trust or other organization whether or not
a legal entity, or a government or agency or political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other
amendments thereto, including post-effective amendments, and all material
incorporated by reference into such Prospectus.
Purchaser: As defined in the preamble hereto.
Record Holder: With respect to any Damages Payment Date relating to
the Securities, each Person who is a Holder of the Securities on the record
date with respect to the Interest Payment Date on which such Damages Payment
Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of Cinemark
relating to (a) an offering of Series D Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the provisions of
this Agreement, in each case, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.
Securities: The Series C Notes and the Series D Notes.
Series C Notes: As defined in the preamble hereto.
Series D Notes: Cinemark's 9-5/8% Series D Senior Subordinated Notes
due 2008 to be issued pursuant to the Indenture in the Exchange Offer.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration: A registration effected by the filing of a Shelf
Registration Statement pursuant to Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 as in effect on the date of the
Indenture.
2
<PAGE> 4
Transfer Restricted Securities: Each of the Securities, until the
earliest to occur, with respect to a particular Security, of (a) the date on
which such Security is exchanged in the Exchange Offer and entitled to be
resold to the public by the Holder thereof without complying with the
prospectus delivery requirements of the Act, (b) the date on which such
Security has been effectively registered under the Act and disposed of in
accordance with a Shelf Registration Statement, (c) the date on which such
Security may be distributed to the public pursuant to Rule 144 under the Act or
by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (d) the date such Security ceases to be outstanding.
Underwritten Registration or Underwritten Offering: A registration
in which securities of Cinemark are sold to an underwriter for reoffering to
the public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The Securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed
to be a holder of Transfer Restricted Securities (each, a "Holder") whenever
such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under
applicable law or Commission policy (so long as the procedures set forth in
Section 6(a) below are being or have been complied with), Cinemark shall (i)
use its best efforts to cause to be filed with the Commission, not later than
30 days after the Closing Date, the Exchange Offer Registration Statement under
the Act relating to the Series D Notes and the Exchange Offer, (ii) use its
best efforts to cause such Exchange Offer Registration Statement to be declared
effective by the Commission at the earliest practicable time, but not later
than 90 days after the Closing Date, (iii) in connection with the foregoing,
file (A) all pre- effective amendments to such Exchange Offer Registration
Statement as may be necessary in order to cause such Exchange Offer
Registration Statement to become effective, (B) if applicable, a post-effective
amendment to such Exchange Offer Registration Statement pursuant to Rule 430A
under the Act and (C) cause all necessary filings in connection with the
registration and qualification of the Series D Notes to be made under the Blue
Sky laws of such jurisdictions as are necessary to permit Consummation of the
Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer
Registration Statement, commence and Consummate the Exchange Offer. The
Exchange Offer shall be on an appropriate form permitting registration of the
Series D Notes to be offered in exchange for the Transfer Restricted Securities
and to permit resales of Securities held by Broker-Dealers as contemplated by
Section 3(c) below. If, after such Exchange Offer Registration Statement
initially is declared effective by the Commission, the Exchange Offer or the
issuance of Series D Notes thereunder or the sale of Transfer Restricted
Securities pursuant thereto as contemplated by Section 3(c) below is interfered
with by any stop order, injunction or other order or requirement of the
Commission or any other governmental agency or court, such Exchange Offer
Registration Statement shall be deemed not to have become effective for
purposes of this Agreement during the period that such stop order, injunction
or other similar order or requirement shall remain in effect.
(b) Cinemark shall use its best efforts to cause the Exchange Offer
Registration Statement to be effective continuously and shall keep the Exchange
Offer open for a period of not less than the minimum period required under
applicable federal and state securities laws to Consummate the Exchange Offer;
provided, however, that in no event shall such period be less than 20 Business
Days. Cinemark shall cause the Exchange Offer to comply with all applicable
federal and state securities laws. No securities other than the Securities
shall be included in the Exchange Offer Registration Statement. Cinemark shall
use its best efforts to cause the Exchange Offer to be Consummated on the
earliest practicable date after the Exchange Offer Registration Statement has
become effective, but not later than 30 days thereafter.
3
<PAGE> 5
(c) Cinemark shall indicate in a "Plan of Distribution" section
contained in the Prospectus included in the Exchange Offer Registration
Statement that any Broker-Dealer who holds Series C Notes that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from Cinemark), may exchange such
Series C Notes pursuant to the Exchange Offer; provided, however, such
Broker-Dealer may be deemed to be an "underwriter" within the meaning of the
Act and must, therefore, deliver a prospectus meeting the requirements of the
Act in connection with any resales of the Series D Notes received by such
Broker-Dealer in the Exchange Offer, which prospectus delivery requirement may
be satisfied by the delivery by such Broker-Dealer of the Prospectus contained
in the Exchange Offer Registration Statement. Such "Plan of Distribution"
section shall also contain all other information with respect to such resales
by Broker-Dealers that the Commission may require in order to permit such
resales pursuant thereto, but such "Plan of Distribution" shall not name any
such Broker-Dealer or disclose the amount of Securities held by any such
Broker-Dealer except to the extent required by the Commission.
Cinemark shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for resales of Securities acquired by
Broker-Dealers for their own accounts as a result of market-making activities
or other trading activities, and to ensure that it conforms with the
requirements of this Agreement, the Act and the policies, rules and regulations
of the Commission as announced from time to time, for a period of twelve months
from the date on which the Exchange Offer Registration Statement is declared
effective.
Cinemark shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time during such
period in order to facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) Cinemark is not required to file an
Exchange Offer Registration Statement or consummate the Exchange Offer because
the Exchange Offer is not permitted by applicable law or Commission policy (so
long as the procedures set forth in Section 6(a) below are being or have been
complied with) or (ii) any Holder of Transfer Restricted Securities shall
notify Cinemark on or prior to the 20th Business Day following the Consummation
of the Exchange Offer that (A) such Holder is prohibited by a change in
applicable law or Commission policy from participating in the Exchange Offer,
(B) such Holder may not resell the Series D Notes to be acquired by it in the
Exchange Offer to the public without delivering a prospectus and that the
Prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder or (C) such Holder is
a Broker- Dealer and owns Series C Notes acquired directly from Cinemark or an
affiliate of Cinemark, then Cinemark shall:
(x) use its best efforts to cause to be filed a shelf
registration statement pursuant to Rule 415 under the Act, which may be an
amendment to the Exchange Offer Registration Statement (in either event,
the "Shelf Registration Statement"), on or prior to the 30th day after the
obligation to file such Shelf Registration Statement arises (the "Shelf
Filing Deadline"), which Shelf Registration Statement shall provide for
resales of all Transfer Restricted Securities, the Holders of which shall
have provided the information required pursuant to Section 4(b) hereof;
and
(y) use its best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission on or before the 90th
day after the obligation to file such Shelf Registration Statement arises
(but in any event within 120 days after the Closing Date).
Cinemark shall use its best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is
available for resales of Securities by the Holders of Transfer Restricted
Securities entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least three years following the Closing Date.
4
<PAGE> 6
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
Cinemark in writing, within 20 Business Days after receipt of a request
therefor, such information as Cinemark may reasonably request specified in Item
507 and Item 508 of Regulation S-K under the Act for use in connection with any
Shelf Registration Statement or Prospectus or preliminary Prospectus included
therein. Each Holder as to which any Shelf Registration Statement is being
effected agrees to furnish promptly to Cinemark all information required to be
disclosed in order to make the information previously furnished to Cinemark by
such Holder not materially misleading. No Holder of Transfer Restricted
Securities shall be entitled to Liquidated Damages pursuant to Section 5 hereof
unless and until such Holder shall have used its best efforts to provide all
such reasonably requested information.
SECTION 5. LIQUIDATED DAMAGES
If (i) any of the Registration Statements required by this Agreement
is not filed with the Commission on or prior to the date specified for such
filing in this Agreement, (ii) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the
Exchange Offer has not been Consummated within 30 business days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) any Registration Statement required by this Agreement is
filed and declared effective but shall thereafter cease to be effective or fail
to be usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself immediately declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), Cinemark hereby agrees
to pay liquidated damages ("Liquidated Damages") to each Holder of Transfer
Restricted Securities on each Interest Payment Date. Liquidated Damages shall
accrue from and after the date of each Registration Default, and continuing
thereafter until such Registration Default has been cured or waived, at a rate
equal to one-quarter of one percent (0.25%) per annum of the principal amount
of the Series 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. Cinemark shall notify the Trustee within one business day after (i)
each and every Registration Default and (ii) the date the Registration Default
has been so cured. All accrued Liquidated Damages shall be paid to Record
Holders by Cinemark in New York, New York by wire transfer of immediately
available funds or by federal funds check on each Interest Payment Date.
Following the cure or waiver of all Registration Defaults relating to any
particular Transfer Restricted Securities, the accrual of Liquidated Damages
with respect to such Transfer Restricted Securities will cease.
All obligations of Cinemark set forth in the preceding paragraph that
are outstanding with respect to any Transfer Restricted Security at the time
such security ceases to be a Transfer Restricted Security shall survive until
such time as all such obligations with respect to such Security shall have been
satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, Cinemark shall comply with all of the provisions of Section
6(c) below, shall use its best efforts to effect such exchange to permit the
sale of Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof, and shall comply with all
of the following provisions:
(i) If in the reasonable opinion of counsel to Cinemark there
is a question as to whether the Exchange Offer is permitted by applicable
law, Cinemark hereby agrees to seek a no-action letter or other favorable
decision from the Commission, including oral advice from the staff of the
Commission, allowing Cinemark to Consummate an Exchange Offer for such
Series C Notes. Cinemark hereby agrees to pursue the issuance of such a
decision to the Commission staff level but shall not be required to take
commercially unreasonable action to effect a change of Commission policy.
In connection with the foregoing, Cinemark hereby agrees, however, to (A)
participate in telephonic conferences with the Commission, (B) deliver to
the Commission staff an analysis
5
<PAGE> 7
prepared by counsel to Cinemark setting forth the legal bases, if any,
upon which such counsel has concluded that such an Exchange Offer should
be permitted and (C) diligently pursue a resolution (which need not be
favorable) by the Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of Cinemark, prior
to the Consummation thereof, a written representation to Cinemark (which
may be contained in the letter of transmittal contemplated by the Exchange
Offer Registration Statement) to the effect that (A) it is not an
affiliate of Cinemark, (B) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Series D Notes to be issued in the
Exchange Offer and (C) it is acquiring the Series D Notes in its ordinary
course of business. Each Holder hereby acknowledges and agrees that any
Broker-Dealer who acquired Series C Notes directly from Cinemark or any
affiliate of Cinemark and any such Holder intending to use the Exchange
Offer to participate in a distribution of the securities to be acquired in
the Exchange Offer (1) could not under Commission policy as in effect on
the date of this Agreement rely on the position of the Commission
enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and
Exxon Capital Holdings Corporation (available May 13, 1988), as
interpreted in the Commission's letter to Shearman & Sterling dated July
2, 1993, and similar no-action letters (including any no-action letter
obtained pursuant to clause (i) above), and (2) must comply with the
registration and prospectus delivery requirements of the Act in connection
with a secondary resale transaction and that such a secondary resale
transaction should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
508, as applicable, of Regulation S-K if the resales are of Series D Notes
obtained by such Holder in exchange for Series C Notes acquired by such
Holders directly from Cinemark.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, Cinemark shall provide a supplemental letter to the Commission
(A) stating that Cinemark is registering the Exchange Offer in reliance on
the position of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) and, if applicable, any no-action letter obtained
pursuant to clause (i) above, (B) including a representation that Cinemark
has not entered into any arrangement or understanding with any Person to
distribute the Series D Notes to be received in the Exchange Offer and
that, to the best of Cinemark's information and belief, each Holder
participating in the Exchange Offer is acquiring the Series D Notes in its
ordinary course of business and has no arrangement or understanding with
any Person to participate in the distribution of the Series D Notes
received in the Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, Cinemark shall comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
pursuant thereto Cinemark will as expeditiously as practicable prepare and file
with the Commission a Registration Statement relating to the registration on
any appropriate form under the Act, which form shall be available for the sale
of the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof.
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement to permit the
sale or resale of Transfer Restricted Securities (including, without
limitation, any Registration Statement and the related Prospectus required to
permit resales of Securities by Broker-Dealers), Cinemark shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for
the period specified in Section 3 or 4 of this Agreement, as applicable;
upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and usable for resale
of Transfer Restricted Securities during the period required by this
Agreement, Cinemark shall file promptly an appropriate amendment to such
Registration Statement, in the case of clause (A), correcting any such
misstatement or omission, and, in the case of either clause (A) or (B),
use its best efforts to cause such amendment to be declared
6
<PAGE> 8
effective and such Registration Statement and the related Prospectus to
become usable for their intended purpose(s) as soon as reasonably
practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as applicable, or such shorter
period as will terminate when all Transfer Restricted Securities covered
by such Registration Statement have been exchanged or sold or until such
Transfer Restricted Securities no longer constitute Transfer Restricted
Securities or are no longer outstanding; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Act, and to comply fully with
the applicable provisions of Rules 424 and 430A under the Act in a timely
manner; and comply with the provisions of the Act with respect to the
disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise promptly the underwriter(s), if any, and
selling Holders and, if requested by such Persons, to confirm such advice
in writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when the
same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to
the Prospectus or for additional information relating thereto, (C) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement under the Act or of the suspension by any
state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes or (D) of
the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement or the
Prospectus in order to make the statements therein not misleading. If at
any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending
the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, Cinemark
shall use its best efforts to obtain the withdrawal or lifting of such
order at the earliest practicable time;
(iv) furnish to the Purchaser, each selling Holder named in any
Registration Statement or Prospectus and each of the underwriter(s) in
connection with such sale, if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included therein or
any amendments or supplements to any such Registration Statement or
Prospectus if requested by such person, which documents will be subject to
the review of such Holders and underwriter(s) in connection with such
sale, if any, for a period of at least five Business Days, and Cinemark
will not file any such Registration Statement or Prospectus or any
amendment or supplement to any such Registration Statement or Prospectus
if requested by such person to which a selling Holder of Transfer
Restricted Securities covered by such Registration Statement or the
underwriter(s) in connection with such sale, if any, shall reasonably
object within five Business Days after the receipt thereof. A selling
Holder or underwriter, if any, shall be deemed to have reasonably objected
to such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission or fails to comply with the applicable
requirements of the Act.
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus, if
requested by any selling Holders or the underwriter(s), if any, within
five business days after receipt of notification thereof from Cinemark,
provide copies of such document to the selling Holders and to the
underwriter(s), if any, make Cinemark's representatives available for
discussion of such document and other customary due diligence matters, and
include such information in such document prior to the filing thereof as
such selling Holders or underwriter(s), if any, reasonably may request;
7
<PAGE> 9
(vi) make available at reasonable times for inspection by the
selling Holders, any underwriter participating in any disposition pursuant
to such Registration Statement, and any attorney or accountant retained by
such selling Holders or any of the underwriter(s), all financial and other
records, pertinent corporate documents and properties of Cinemark and
cause Cinemark' officers, directors and employees to supply all
information reasonably requested by any such Holder, underwriter, attorney
or accountant in connection with such Registration Statement subsequent to
the filing thereof and prior to its effectiveness;
(vii) if requested by any selling Holders or the underwriter(s)
in connection with such sale, if any, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and such
underwriter(s), if any, may reasonably request to have included therein,
including, without limitation, information relating to the "Plan of
Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being
sold to such underwriter(s), the purchase price being paid therefor and
any other terms of the offering of the Transfer Restricted Securities to
be sold in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after
Cinemark is notified of the matters to be included in such Prospectus
supplement or post-effective amendment;
(viii) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be rated with the
appropriate rating agencies, if so requested by the Holders of a majority
in aggregate principal amount of Notes covered thereby or the
underwriter(s), if any;
(ix) furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits if so requested by such person;
(x) deliver to each selling Holder and each of the
underwriter(s) in connection with such sale, if any, without charge, as
many copies of the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such Persons reasonably may
request; Cinemark hereby consents to the use of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and each of
the underwriter(s), if any, in connection with the offering and the sale
of the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(xi) enter into such agreements (including an underwriting
agreement), and make such representations and warranties, and take all
such other actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities pursuant
to any Registration Statement contemplated by this Agreement, all to such
extent as may be reasonably acceptable to Cinemark and reasonably
requested by the Purchaser or by any Holder of Transfer Restricted
Securities or any underwriter in connection with any sale or resale
pursuant to any Registration Statement contemplated by this Agreement; and
whether or not an underwriting agreement is entered into and whether or
not the registration is an Underwritten Registration, Cinemark shall:
(A) furnish to each Purchaser, each selling Holder and each
underwriter, in such substance and scope as they may reasonably
request and as are customarily made by issuers to underwriters in
primary underwritten offerings, upon the date of the Consummation of
the Exchange Offer and, if applicable, upon the effectiveness of the
Shelf Registration Statement:
(1) a certificate, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, signed by (x) the
President or any Vice President and (y) a principal financial or
accounting officer of Cinemark, confirming, as the date thereof,
the matters set forth in paragraphs (a), (b), (c) and (d) of
Section 8 of the Purchase Agreement and such other matters as
such parties may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for
Cinemark,
8
<PAGE> 10
covering the matters set forth in paragraph (f) of Section 8 of
the Purchase Agreement and such other matters as such parties
may reasonably request, and in any event including a statement
to the effect that such counsel has participated in conferences
with officers and other representatives of Cinemark,
representatives of the independent public accountants for
Cinemark, the Purchaser' representatives and the Purchaser'
counsel at which the contents of such Registration Statement and
the related Prospectus were discussed, although such counsel has
not undertaken to investigate or independently verify and does
not assume any responsibility for, the accuracy, completeness or
fairness of such statements; and that such counsel advises that,
on the basis of the foregoing (relying as to materiality to a
large extent upon facts provided to such counsel by officers and
other representatives of Cinemark and without independent check
or verification), no facts came to such counsel's attention that
caused such counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective, and, in the
case of the Exchange Offer Registration Statement, as of the
date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the
opinion dated the date of Consummation of the Exchange Offer, as
of the date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Without limiting the foregoing, such counsel may state further
that such counsel makes no comment with respect to, assumes no
responsibility for, and has not independently verified, the
accuracy, completeness or fairness of the financial statements,
notes and schedules and other financial and statistical data
included in any Registration Statement contemplated by this
Agreement or the related Prospectus; and
(3) a customary comfort letter, dated as of the date of
Consummation of the Exchange Offer or the date of effectiveness
of the Shelf Registration Statement, as the case may be, from
Cinemark's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters by underwriters in connection with primary underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 8(h) of the Purchase
Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section;
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by Cinemark
pursuant to this clause (xi), if any; and
(D) if at any time the representations and warranties of
Cinemark contemplated in clause (A)(1) above cease to be true and
correct, Cinemark shall so advise the Purchaser and the
underwriter(s), if any, and each Holder promptly and, if requested by
such Persons, shall confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if
any, and their respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the securities
or Blue Sky laws of such jurisdictions as the selling Holders or
underwriter(s), if any, may reasonably request and do any and all other
acts or things necessary or advisable (including, without limitation, the
imposition of such restrictions on offers or sales of the Securities as
are referred to in paragraph 3(b) of this Agreement) to enable the
disposition in such jurisdictions of the Transfer Restricted Securities
covered by the applicable Registration Statement; provided, however, that
Cinemark shall not be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that
would subject it to the service of process in suits or to taxation, except
as to matters and transactions relating to the Registration Statement, in
any jurisdiction where it is not now so subject;
9
<PAGE> 11
(xiii) shall issue, upon the request of any Holder of Series C
Notes covered by the Shelf Registration Statement, Series D Notes, having
an aggregate principal amount equal to the aggregate principal amount of
Series C Notes surrendered to Cinemark by such Holder in exchange therefor
or being sold by such Holder; such Series D Notes to be registered in the
name of such Holder or in the name of the purchaser(s) of such Series D
Notes, as the case may be; in return, the Series C Notes held by such
Holder shall be surrendered to Cinemark for cancellation;
(xiv) cooperate with the selling Holders and the underwriter(s),
if any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and to register such Transfer Restricted Securities
in such denominations (which denominations shall be of $1,000 and integral
multiples thereof) and such names as the Holders or the underwriter(s), if
any, may request at least two Business Days prior to such sale of Transfer
Restricted Securities made by such underwriter(s);
(xv) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriter(s),
if any, to consummate the disposition of such Transfer Restricted
Securities;
(xvi) if any fact or event contemplated by Section 6(c)(iii)(D)
above shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an untrue statement
of a material fact or omit to state any material fact necessary to make
the statements therein not misleading;
(xvii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration Statement
covering such Transfer Restricted Securities and provide the Trustee under
the Indenture with printed certificates for the Transfer Restricted
Securities which are in a form eligible for deposit with the Depository
Trust Company;
(xviii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter") that
is required to be retained in accordance with the rules and regulations of
the NASD, and use its best efforts to cause such Registration Statement to
become effective and approved by such governmental agencies or authorities
as may be necessary to enable the Holders selling Transfer Restricted
Securities to consummate the disposition of such Transfer Restricted
Securities;
(xix) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to Holders, as soon as reasonably practicable, a consolidated
earnings statement meeting the requirements of Rule 158 under the Act
(which need not be audited) covering a twelve-month period (A) beginning
at the end of any fiscal quarter in which Transfer Restricted Securities
are sold to underwriters in a firm or best efforts Underwritten Offering
or (B) if not sold to underwriters in such an offering, commencing with
the first month of Cinemark's first fiscal quarter commencing after the
effective date of the Registration Statement;
(xx) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement, and, in connection therewith, cooperate, with the Trustee
and the Holders of Securities to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in accordance with
the terms of the TIA; and execute, and use its best efforts to cause the
Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
(xxi) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15 of the Exchange Act; and
10
<PAGE> 12
(xxii) use its best efforts to cause all Transfer Restricted
Securities covered by the Registration Statement to be listed on each
securities exchange on which similar securities issued by Cinemark are
then listed if requested by the Holders of a majority in aggregate
principal amount of Series C Notes covered by such Registration Statement
or the managing underwriter(s), if any.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of any notice from Cinemark of
the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof,
such Holder will forthwith discontinue disposition of Transfer Restricted
Securities pursuant to the applicable Registration Statement until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(xvi) hereof, or until it is advised in writing
(the "Advice") by Cinemark that the use of the Prospectus may be resumed, and
has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus. If so directed by Cinemark, each
Holder will deliver to Cinemark (at Cinemark's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of such notice. In the event Cinemark shall give any such notice, the
time period regarding the effectiveness of such Registration Statement set
forth in Section 3 or 4 hereof, as applicable, shall be extended by the number
of days during the period from and including the date of the giving of such
notice pursuant to Section 6(c)(iii)(D) hereof to and including the date when
each selling Holder covered by such Registration Statement shall have received
the copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xvi) hereof or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to Cinemark's performance of or compliance
with this Agreement will be borne by Cinemark, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made by any
Purchaser or Holder with the NASD (and, if applicable, the reasonable fees and
expenses of any "qualified independent underwriter" and its counsel that may be
required by the rules and regulations of the NASD)); (ii) all fees and expenses
incurred in connection with compliance with federal securities and state Blue
Sky or securities laws; (iii) all expenses of printing (including printing
certificates for the Series D Notes to be issued in the Exchange Offer and
printing of Prospectuses), messenger and delivery services and telephone; (iv)
all fees and disbursements of counsel for Cinemark, and in accordance with
Section 7(b) below, the Holders of Transfer Restricted Securities; (v) if
applicable, all application and filing fees in connection with listing
Securities on a national securities exchange or automated quotation system
pursuant to the requirements hereof; and (vi) all fees and disbursements of
independent certified public accountants of Cinemark (including the expenses of
any special audit and comfort letters required by or incident to such
performance).
Cinemark will bear its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expenses of any annual audit and the fees and
expenses of any Person, including special experts, retained by Cinemark.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), Cinemark will reimburse the
Purchaser and the Holders of Transfer Restricted Securities being tendered in
the Exchange Offer and/or resold pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or registered pursuant
to the Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, which shall be Simpson Thacher &
Bartlett (a partnership which includes professional corporations) or such other
counsel as may be chosen by the Holders of a majority in principal amount of
the Transfer Restricted Securities for whose benefit such Registration
Statement is being prepared.
11
<PAGE> 13
SECTION 8. INDEMNIFICATION
(a) Cinemark agrees to indemnify and hold harmless, to the fullest
extent permitted by applicable law, each of the Holders, each person, if any,
who controls any Holder within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and the respective officers, directors, partners,
employees, representatives and agents of each Holder or any controlling person,
against any and all losses, liabilities, claims, damages and expenses
whatsoever (including but not limited to reasonable attorneys' fees and any and
all reasonable expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation) (collectively, "Losses"), joint or several, to which they or any of
them may become subject under the Act, the Exchange Act or otherwise, insofar
as such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus, or in any supplement thereto or amendment thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, that Cinemark will not be liable in any such case to the
extent, but only to the extent, that any such Loss arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to Cinemark by or on behalf of any Holders expressly for
use therein. This indemnity will be in addition to any liability which
Cinemark may otherwise have, including, under this Agreement.
(b) Each of the Holders agrees, severally and not jointly, to
indemnify and hold harmless Cinemark, each person, if any, who controls
Cinemark within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and the respective officers, directors, partners, employees,
representatives and agents of Cinemark or any controlling person, against any
and all Losses, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or Prospectus, or in any
amendment thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to Cinemark by or on behalf of
such Holder expressly for use therein; provided, however, that in no case shall
any Holder be liable or responsible for any amount in excess of the dollar
amount of the proceeds received by such Holder upon the sale of the Securities
giving rise to such indemnification obligation, unless such Losses are a result
of the gross negligence or willful misconduct of such Holder. This indemnity
will be in addition to any liability which any Holder may otherwise have,
including under this Agreement.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may otherwise have). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action and the indemnifying party has
agreed in writing to pay the fees and expenses of such counsel, (ii) the
indemnifying parties shall not have employed
12
<PAGE> 14
counsel to take charge of the defense of such action within a reasonable time
after notice of commencement of the action, or (iii) such indemnified party or
parties shall have concluded, upon the advice of counsel, that there may be
defenses available to it or them which are different from or additional to
those available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of counsel shall be borne by the indemnifying parties;
provided, however, that the indemnifying party under subsection (a) or (b)
above, shall only be liable for the legal expenses of one counsel (in addition
to any local counsel) for all indemnified parties in each jurisdiction in which
any claim or action is brought. Anything in this subsection to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement
of any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
(d) In order to provide for contribution in circumstances in which
the indemnification provided for in this Section 8 is for any reason held to be
unavailable or is insufficient to hold harmless a party indemnified hereunder,
Cinemark, on the one hand, and each Holder, on the other hand, shall contribute
to the aggregate losses, claims, damages, liabilities and expenses of the
nature contemplated by such indemnification provision (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by Cinemark any contribution received by
Cinemark from persons, other than the Holders, who may also be liable for
contribution, including persons who control Cinemark within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act) to which Cinemark
and any Holder may be subject, in such proportion as is appropriate to reflect
the relative benefits received by Cinemark, on the one hand, and any such
Holder, on the other hand, or, if such allocation is not permitted by
applicable law or if indemnification is not available as a result of the
indemnifying party not having received notice as provided in this Section 8, in
such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of Cinemark, on the one hand, and
the Holders, on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The relative benefits
received by Cinemark, on the one hand, and any Holder, on the other hand, shall
be deemed to be in the same proportion as (x) the total proceeds from the
offering of the Securities (net of discounts and commissions but before
deducting expenses) received by Cinemark and (y) the total proceeds received by
such Holder upon its sale of Securities which would otherwise give rise to the
indemnification obligation, respectively. The relative fault of Cinemark, on
the one hand, and of the Holders, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by Cinemark or the Holders and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. Cinemark and each Holder
agree that it would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to above. Notwithstanding the provisions of this Section 8, (i) no
Holder shall be required to contribute, in the aggregate, any amount in excess
of the dollar amount by which the proceeds received by such Holder with respect
to the sale of its Securities exceeds the amount of any damages which such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission and (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person, if
any, who controls a Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and the respective officers, directors,
partners, employees, representatives and agents of a Holder or any controlling
person shall have the same rights to contribution as such Holder, and each
person, if any, who controls Cinemark within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act and the respective officers,
directors, partners, employees, representatives and agents of Cinemark or any
controlling person shall have the same rights to contribution as Cinemark,
subject in each case to clauses (i) and (ii) of this Section 8(d). Any party
entitled to contribution will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a
claim for contribution may be made against another party or parties under this
Section 8, notify such party or parties from whom contribution may be sought,
but the failure to so notify such party or parties shall not relieve the party
or parties from whom contribution may be sought from any obligation it or they
may have under this Section 8 or otherwise.
13
<PAGE> 15
SECTION 9. RULE 144A
Cinemark hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding, to make available to any Holder or
beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
from such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to Cinemark (it being understood that Bear, Stearns &
Co, Inc. is reasonably satisfactory); such investment bankers and manager or
managers are referred to herein as the "underwriters".
SECTION 12. MISCELLANEOUS
(a) Remedies. Cinemark agrees that monetary damages (including the
Liquidated Damages contemplated hereby) would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Cinemark will not on or after the
date of this Agreement enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement
or otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of Cinemark's securities under any agreement
in effect on the date hereof.
(c) Adjustments Affecting the Securities. Cinemark will not take
any action, or permit any change to occur, with respect to the Securities that
would materially and adversely affect the ability of the Holders to Consummate
any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless Cinemark has
obtained the written consent of Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of Holders whose securities are being
tendered pursuant to the Exchange Offer or registered pursuant to the Shelf
Registration and that does not affect directly or indirectly the rights of
other Holders whose securities are not being tendered pursuant to such Exchange
Offer or registered pursuant to the Shelf Registration may be given by the
Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities being tendered or registered, as applicable.
14
<PAGE> 16
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to Cinemark:
Cinemark USA, Inc.
7502 Greenville Avenue
Suite 800
Dallas, Texas 75231
Phone No.: (214) 696-1644
Telecopier No.: (214) 569-9972
Attention: Jeffrey J. Stedman
With copies to:
Cinemark USA, Inc.
7502 Greenville Avenue
Suite 800
Dallas, Texas 75231
Phone No.: (214) 696-1644
Telecopier No.: (214) 569-9972
Attention: Michael Cavalier
and
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue
Suite 4100
Dallas, Texas 75201
Phone No.: (214) 969-2800
Telecopier No.: (214) 969-4343
Attention: Terry M. Schpok, P.C.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next Business Day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
15
<PAGE> 17
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(k) Entire Agreement. This Agreement together with the other
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the registration rights granted by
Cinemark with respect to the Transfer Restricted Securities. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
16
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
CINEMARK USA, INC.
By: /s/ JEFFREY J. STEDMAN
----------------------------------------
Name: Jeffrey J. Stedman
Title: Vice President
BEAR, STEARNS & CO. INC.
By:
-----------------------------------
Name:
Title:
<PAGE> 1
CINEMARK USA,INC. AND SUBSIDIARIES
$75M SERIES C 9 5/8% SENIOR SUB NOTES, DUE 2008 EXHIBIT 12
COMPUTATION OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
12 MOS ENDED 6 MOS ENDED 12 MOS. ENDED 6 MOS. ENDED 12 MOS ENDED
JUNE 30, 1997 JUNE 30,1997 JUNE 30, 1997 JUNE 30, 1997 DEC 31, 1996
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------- ---------- ---------- --------- ---------
COMPUTATION OF EARNINGS
REGISTRANT'S PRETAX INCOME FROM
CONTINUING OPERATIONS 29,413,421 15,040,128 29,413,421 15,040,128 26,962,461
CAPITALIZED INTEREST (3,358,833) (830,876) (3,358,833) (830,876) (3,865,246)
---------- ---------- ---------- ---------- ----------
TOTAL EARNINGS 26,054,588 14,209,252 26,054,588 14,209,252 23,097,215
COMPUTATION 0F FIXED CHARGES
INTEREST EXPENSE 27,219,802 15,700,609 24,581,560 14,381,692 22,190,305
CAPITALIZED INTEREST 3,471,147 911,586 3,471,147 911,586 3,928,454
AMORTIZATION OF DEBT ISSUE COST & DEBT 796,187 386,268 796,187 386,268 824,743
DISCOUNT
AMORTIZATION OF DEBT PREMIUM (204,545) (102,273) (102,273) (102,273) (204,545)
INTEREST FACTOR ON RENT EXPENSE 12,288,150 6,134,045 12,288,150 6,134,045 11,468,682
---------- ---------- ---------- ---------- ----------
TOTAL FIXED CHARGES 43,570,741 23,030,235 41,034,771 21,711,318 38,207,639
TOTAL EARNINGS AND FIXED CHARGES 69,625,328 37,239,487 67,089,359 35,920,570 61,304,854
---------- ---------- ---------- ---------- ----------
RATIO OF EARNINGS TO FIXED CHARGES 1.60 1.62 1.63 1.65 1.60
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
6 MOS. ENDED 12 MOS. ENDED 12 MOS. ENDED 12 MOS. ENDED 12 MOS. ENDED
JUNE 30, 1996 JUNE 30, 1996 DEC 31, 1996 DEC 31, 1994 DEC 31, 1993
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------- ---------- ---------- ---------- ----------
COMPUTATION OF EARNINGS
REGISTRANT'S PRETAX INCOME FROM
CONTINUING OPERATIONS 12,589,168 26,962,461 23,256,537 14,073,947 15,890,531
CAPITALIZED INTEREST (1,337,289) (3,865,246) (1,726,155) (560,185) 5,425
---------- ---------- ---------- ---------- ----------
TOTAL EARNINGS 11,251,879 23,097,215 21,530,382 13,513,762 15,895,956
COMPUTATION 0F FIXED CHARGES
INTEREST EXPENSE 9,351,787 19,551,655 18,549,833 18,133,438 16,573,409
CAPITALIZED INTEREST 1,368,893 3,928,454 1,745,720 565,610
AMORTIZATION OF DEBT ISSUE COST & DEBT 414,824 824,743 824,014 783,515 528,724
DISCOUNT
AMORTIZATION OF DEBT PREMIUM
INTEREST FACTOR ON RENT EXPENSE 5,314,577 11,468,682 10,291,069 9,866,567 9,089,838
---------- ---------- ---------- ---------- ----------
TOTAL FIXED CHARGES 16,450,081 35,773,534 31,410,636 29,349,130 26,191,971
TOTAL EARNINGS AND FIXED CHARGES 27,701,960 58,870,749 52,941,018 42,862,892 42,087,927
---------- ---------- ---------- ---------- ----------
RATIO OF EARNINGS TO FIXED CHARGES 1.68 1.65 1.69 1.46 1.61
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
12 MOS. ENDED
DEC 31, 1992
<S> <C>
- -----------------------------------------------------
COMPUTATION OF EARNINGS
REGISTRANT'S PRETAX INCOME FROM
CONTINUING OPERATIONS 8,700,634
CAPITALIZED INTEREST 5,425
----------
TOTAL EARNINGS 8,706,059
COMPUTATION 0F FIXED CHARGES
INTEREST EXPENSE 11,888,863
CAPITALIZED INTEREST
AMORTIZATION OF DEBT ISSUE COST & DEBT 369,140
DISCOUNT
AMORTIZATION OF DEBT PREMIUM
INTEREST FACTOR ON RENT EXPENSE 7,922,237
----------
TOTAL FIXED CHARGES 20,180,240
TOTAL EARNINGS AND FIXED CHARGES 28,886,299
----------
RATIO OF EARNINGS TO FIXED CHARGES 1.43
==========
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF CINEMARK USA, INC.
Cinemark Corporation, a Texas corporation
Sunnymead Cinema Corp., a California corporation
Cinemark Properties, Inc., a Texas corporation
Cinemark Transportation, Inc., a Texas corporation
Trans Texas Cinema, Inc., a Texas corporation
Missouri City Central 6, Inc., a Texas corporation
Cinemark International, Inc., a Texas corporation
2 Day Video, Inc., a Texas corporation (1/96 - 10/96)
2 Day Video of Georgia, Inc., a Georgia corporation (1/96 - 10/96)
ENT Holdings, Inc., a Texas corporation
Funtime Entertainment, Inc., a Texas corporation
Funtime Pizza Two Corporation, a Texas corporation (1/1/96 - 5/96)
Funtime Pizza Three Corporation, a Texas corporation
Funtime Pizza Four Corporation, a Texas corporation
Cinemark Mexico (USA), Inc., a Texas corporation
Cinemark de Mexico, S.A. de C.V., a Mexican corporation
Inversiones Cinemark, S.A., a Chilean corporation
Cinemark Chile, S.A., a Chilean corporation
Tinseltown Equities, Inc., a Texas corporation
<PAGE> 2
Cinema Management Group, Inc., a Texas corporation
Cinemark Theatres Ontario, Inc., a Canadian corporation
Entertainment Amusement Enterprises, Inc., a Texas corporation
Cinemark Partners I, Inc., a Texas corporation
Cinemark Holdings Canada, Inc., a Canadian corporation
Cinemark Alberta, Inc., a Canadian corporation
Laredo Theatre, Ltd., a Texas limited partnership
Skillman Cinema, Ltd., a Texas limited partnership
Cinemark Argentina, S.A., an Argentine corporation
Cinemark LTDA, a Brazilian corporation
Cinemark Empreendimentos e. Participacoes LTDA, a Brazilian corporation
Servicios Cinemark, S.A. de C.V., a Mexican corporation
Cinemark del Norte, S.A. de C.V., a Mexican corporation
Cinemark Theatres Canada, Inc., a Canadian corporation
Cinemark del Ecuador, an Ecuadorian corporation
Cinemark del Peru, a Peruvian corporation
-2-
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Cinemark USA, Inc. on
Form S-4 of our report dated March 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.
DELOITTE & TOUCHE LLP
August 5, 1997
Dallas, Texas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIS FORM
S-4 FOR THE SIX MONTHS ENDING JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-10-1997
<PERIOD-END> JUN-30-1997
<CASH> 10,751,236
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,872,616
<CURRENT-ASSETS> 27,837,026
<PP&E> 513,903,736
<DEPRECIATION> 83,111,304
<TOTAL-ASSETS> 499,971,174
<CURRENT-LIABILITIES> 54,481,666
<BONDS> 303,245,592
0
0
<COMMON> 49,536,725
<OTHER-SE> 12,993,392
<TOTAL-LIABILITY-AND-EQUITY> 499,971,174
<SALES> 205,773,190
<TOTAL-REVENUES> 205,773,190
<CGS> 0
<TOTAL-COSTS> 176,945,243
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,767,960
<INCOME-PRETAX> 15,040,128
<INCOME-TAX> 6,850,881
<INCOME-CONTINUING> 8,189,247
<DISCONTINUED> 0
<EXTRAORDINARY> (55,746)
<CHANGES> 0
<NET-INCOME> 8,133,501
<EPS-PRIMARY> 0
<EPS-DILUTED> 43.28
</TABLE>
