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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file Number 0-24216
Imax Corporation
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Canada 98-0140269
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
2525 Speakman Drive, Mississauga, Ontario, Canada L5K 1B1
(Address of principal executive offices) (Postal Code)
</TABLE>
Registrant's telephone number, including area code (905) 403-6500
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange
Title of each class on which registered
------------------- -------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, no par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
The aggregate market value of the Common Shares of the registrant held by
non-affiliates of the registrant, computed by reference to the last sale price
of such shares as of the close of trading on March 11, 1999 was $331,522,635
(18,290,904 common shares times $18.125). As of March 11, 1999, there were
29,799,888 Common Shares of the registrant outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
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Annual Report on Form 10-K
December 31, 1998
Table of Contents
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Page
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PART I
<S> <C> <C>
Item 1-- Business................................................................................... 4
Item 2-- Properties................................................................................. 11
Item 3-- Legal Proceedings.......................................................................... 11
Item 4-- Submission of Matters to a Vote of Security Holders........................................ 12
PART II
Item 5-- Market for Registrant's Common Equity and Related Stockholder Matters...................... 13
Item 6-- Selected Financial Data.................................................................... 14
Item 7-- Management's Discussion and Analysis of Financial Condition and Results of Operations...... 18
Item 7a-- Quantitative and Qualitative Disclosures about Market Risk................................. 29
Item 8-- Financial Statements and Supplementary Data................................................ 30
Item 9-- Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 54
PART III
Item 10-- Directors and Executive Officers of the Registrant......................................... 54
Item 11-- Executive Compensation..................................................................... 56
Item 12-- Security Ownership of Certain Beneficial Owners and Management............................. 62
Item 13-- Certain Relationships and Related Transactions............................................. 65
PART IV
Item 14-- Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 67
Signatures.............................................................................................. 70
</TABLE>
2
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EXCHANGE RATE DATA
Unless otherwise indicated, all dollar amounts in this document are
expressed in United States dollars. The following table sets forth, for the
periods indicated, certain exchange rates based on the noon buying rate in the
City of New York for cable transfers in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York (the "Noon Buying
Rate"). Such rates quoted are the number of U.S. dollars per one Canadian dollar
and are the inverse of rates quoted by the Federal Reserve Bank of New York for
Canadian dollars per U.S. $1.00. The average exchange rate is based on the
average of the exchange rates on the last day of each month during such periods.
The Noon Buying Rate on December 31, 1998 was U.S. $0.6522.
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<CAPTION>
Year ended December 31
-------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
--------------------------------------------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Exchange rate at end of period..... U.S. $0.7134 U.S. $0.7325 U.S. $0.7301 U.S. $0.6999 U.S. $0.6522
Average exchange rate
during period................... 0.7299 0.7312 0.7329 0.7220 0.6740
High exchange rate during
period.......................... 0.7644 0.7533 0.7513 0.7471 0.7105
Low exchange rate during
period.......................... 0.7098 0.7008 0.7235 0.6945 0.6341
</TABLE>
SPECIAL NOTE REGARDING FORWARD -LOOKING INFORMATION
Certain statements included herein may constitute "forward-looking
statements" within the meaning of the United States Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, but are
not limited to, references to future capital expenditures (including the amount
and nature thereof), business strategies and measures to implement strategies,
competitive strengths, goals, expansion and growth of its business and
operations, plans and references to the future success of the Company. These
forward-looking statements are based on certain assumptions and analyses made by
the Company in light of its experience and its perception of historical trends,
current conditions and expected future developments as well as other factors it
believes are appropriate in the circumstances. However, whether actual results
and developments will conform with the expectations and predictions of the
Company is subject to a number of risks and uncertainties, including, but not
limited to, general economic, market or business conditions; the opportunities
(or lack thereof) that may be presented to and pursued by the Company;
competitive actions by other companies; conditions in the out-of-home
entertainment industry; changes in laws or regulations; risks associated with
investments and operations in foreign jurisdictions and any future international
expansion, including those related to economic, political and regulatory
policies of local governments and laws and policies of the United States and
Canada; and the potential impact of increased competition in the markets the
Company operates within and other factors, many of which are beyond the control
of the Company. Consequently, all of the forward-looking statements made herein
are qualified by these cautionary statements, and there can be no assurance that
the actual results or developments anticipated by the Company will be realized
or, even if substantially realized, that they will have the expected
consequences to, or effects on, the Company.
- --------------------------------------------------------------------------------
IMAX(R), IMAX(R) Dome, IMAX(R) Ridefilm(R), IMAX(R) Solido(R), OMNIMAX(R),
IMAX(R) 3D, Personal Sound Environment(R), The IMAX Experience(R), and An
IMAX(R) Experience(TM) are trademarks and trade names of the Company or its
subsidiaries that are registered or otherwise protected under laws of various
jurisdictions.
3
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PART I
Item 1. Business
GENERAL
Imax Corporation and its subsidiaries (the "Company") designs and
manufactures projection and sound systems for giant-screen ("15/70-format")
theaters based on proprietary and patented technology and is the largest
producer and distributor of films for giant-screen theaters. The Company
generally does not own IMAX(R) theaters but leases its projection and sound
systems and licenses the use of its trademarks. The IMAX brand name enjoys
widespread recognition with more than 500 million viewers throughout the world
having experienced the Company's high-quality, giant-screen theater attractions
since 1970 including over 65 million viewers in 1998.
The IMAX theater network is the most extensive giant-screen theater network
in the world with 183 theaters operating in 25 countries as of December 31, 1998
which will grow to over 250 theaters by the year 2000. The Company has
experienced substantial growth as a result of the increased demand for both IMAX
theaters in commercial locations and IMAX 3D theater systems in North America
and around the world.
IMAX theater systems combine advanced high-resolution projection systems,
sound systems and screens as large as eight stories high (approximately 80 feet)
that extend to the edge of a viewer's peripheral vision to create highly
realistic audio-visual experiences. As a result, audiences feel as if they are a
part of the on-screen action in a way that is more intense and exciting than in
traditional theaters. In addition, the Company's IMAX 3D theater systems combine
the same projection and sound systems and up to eight storey screens with 3D
images that further increase the audience's feeling of immersion in the film.
IMAX theater systems are often a featured attraction at high profile and
prestigious locations such as the Smithsonian Institution, the Kennedy Space
Center in Florida, Lincoln Square in New York, Potsdamer Platz in Berlin,
Germany, the Museum of Science and Industry in Chicago, the theater adjacent to
Grand Canyon National Park and the Luxor Hotel and Casino in Las Vegas, Nevada.
The library of 15/70-format films available for IMAX theaters includes 139
films at the end of 1998, of which the Company has the distribution rights to 49
such films. 15/70-format (15-perforation, 70mm) is the size of the film frame
used in IMAX projection systems and is the largest commercially available film
size. By utilizing 15/70-format film, IMAX theaters can project images which are
larger and exhibit higher resolution than other film formats. 15/70-format films
cover a variety of entertaining and educational subjects, including space (The
Dream Is Alive which was filmed from NASA's space shuttles and has grossed over
$148 million since its release in 1985), rock concerts (Rolling Stones "At the
Max"), and historical events (Fires of Kuwait, which was nominated for an
Academy Award(R)). In recent years, additions to the 15/70-format film library
have also included more commercial films such as Everest, which was produced and
distributed by MacGillivray Freeman Films and was the first 15/70-format film to
break into Variety's top 10 highest grossing films in North America and T-REX:
Back to the Cretaceous which was produced by the Company and features giant
computer generated 3D images of dinosaurs. In February 1999, the Company
announced an agreement with Buena Vista Pictures Distribution, a unit of The
Walt Disney Company, to release Disney's newest animated feature Fantasia 2000:
The IMAX Experience exclusively to IMAX theaters around the world for a four-
month period commencing January 1, 2000. Fantasia 2000 will be the first
theatrical full-length feature film to be reformatted into 15/70-format film.
4
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The Company was formed in March 1994 as a result of an amalgamation between
WGIM Acquisition Corp. and the former Imax Corporation ("Predecessor Imax").
Predecessor Imax was incorporated in 1967. Imax effected a corporate
reorganization in December 1998 to better align employees and operations to the
Company's current lines of business. Imax Ltd., a 100% owned subsidiary of Imax
Corporation is responsible for the functions of system leasing, film marketing
and distribution, systems maintenance, camera rental, marketing and
administration.
PRODUCT LINES
The Company is the largest designer and supplier of projection and sound
systems and the largest producer and distributor of 15/70-format films for
giant-screen theaters. The Company's theater systems include specialized
projection equipment, advanced sound systems, specialty screens, theater
automation control systems and film handling equipment. The Company derives
substantially all of its revenues from giant-screen theaters and related film
products and services.
Giant-Screen Theaters
The Company is the pioneer and leader in the giant-screen, large-format
film industry. The IMAX theater system network has the largest installed base of
giant-screen theater systems, with systems located in 183 theaters in 25
countries as of December 31, 1998 which will grow to over 250 theaters by the
year 2000. IMAX theaters have flat or dome shaped screens in 2D and 3D which are
many times larger than conventional theaters, extending to the edge of the
viewer's peripheral vision. The theaters have a steeply inclined floor to
provide all audience members a clear view of the screen and typically seat 250
to 500 people.
The Company's projection systems utilize the largest commercially available
film format (70mm, 15-perforation film frame), which is 10 times larger than
conventional film (35mm, 4-perforation film frame) and therefore are able to
project significantly more detail on a larger screen. The Company believes its
projectors, which utilize the Company's Rolling Loop technology, are unsurpassed
in their ability to project film with maximum steadiness and clarity with
minimal film wear, and substantially enhance the quality of the projected image.
As a result, the Company's projection systems deliver a higher level of clarity,
detail and brightness compared to conventional movies and competing systems.
To complement the film technology and viewing experience, IMAX theater
systems feature unique digital sound systems. The sound systems are among the
most advanced in the industry and help to heighten the sense of realism of a
15/70-format film. IMAX sound systems are specifically designed for IMAX
theaters and are an important competitive advantage of IMAX systems.
The following chart shows the number of the Company's theater systems by
product, installed base and backlog as of December 31, 1998:
<TABLE>
<CAPTION>
2D 3D
----------------------------------- ------------------------------
Product Installed Backlog Product Installed Backlog
---------- --------- ------- ------- --------- -------
Base Base
---- ----
---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Flat Screen IMAX 64 4 IMAX 3D 47 29
IMAX 3D SR 3 39
Dome Screen IMAX Dome 66 4 IMAX Solido 3 -
</TABLE>
IMAX and IMAX Dome Systems. IMAX and IMAX Dome systems make up the largest
component of the Company's installed theater base. IMAX theaters, with a flat
screen, were introduced in 1970, while IMAX Dome theaters, previously known as
OMNIMAX theaters, are designed for tilted dome screens and were introduced in
1973. There have been several significant proprietary and patented enhancements
to these systems since their introduction.
5
<PAGE>
IMAX 3D and 3D SR Systems. IMAX 3D systems make up the largest component of
the Company's backlog. IMAX 3D theaters utilize a flat screen 3D system which
produces realistic three-dimensional images on a giant IMAX screen. The Company
believes that the IMAX 3D system offers consumers one of the most realistic 3D
experiences available today. To create the 3D effect, the audience uses either
polarized glasses or electronic glasses that separate the left- and right-eye
images. The electronic glasses use liquid crystal shutter lenses controlled by
an infrared signal. Each lens "opens and closes" 48 times a second in
synchronization with the projector to produce full color stereoscopic viewing.
IMAX 3D systems represent the dominant portion of the Company's product mix. The
IMAX 3D projectors can project both 2D and 3D films, allowing theater owners the
flexibility to exhibit either type of film. The Company offers upgrades to
existing theaters which have 2D IMAX projection systems to IMAX 3D projection
systems. Since the introduction of IMAX 3D technology, the Company has upgraded
10 theater systems and had one additional upgrade in backlog as of December 31,
1998.
In 1997, the Company launched a smaller IMAX 3D system called IMAX 3D SR;
a patented theater system that combines a proprietary theater design, a more
automated projection system and specialized sound system to replicate the
experience of a larger IMAX 3D theater in a smaller space (up to 270 seats). The
IMAX 3D SR theater system is designed to be located primarily in multiplexes in
smaller cities and with lower costs. The Company had 39 IMAX 3D SR systems in
backlog at December 31, 1998.
IMAX Solido Systems. IMAX Solido theaters comprise a dome screen 3D system
that projects the film onto a tilted dome such that objects not only appear to
"come out" from the screen but also to envelop the viewer. IMAX Solido
projectors, like IMAX 3D projectors, can project both 2D and 3D films.
Theater System Leases
The Company's system leases generally have 10 to 20-year initial terms and,
subject to certain conditions, are typically renewable by the customer for one
or more additional 10 year terms. As part of the lease agreement, the Company
advises the customer on theater design, custom assembles and supervises the
installation of the theater system, provides training to theater personnel and
ongoing maintenance to the system. Prospective theater owners are responsible
for providing the theater location, the design and construction of the theater
building and any other necessary improvements. Under the terms of the typical
lease agreement, the title to all theater system equipment (including the
projection screen, the projector and the sound system) remains with the Company.
The Company has the right to remove the equipment for non-payment or other
defaults by the customer. The contracts are generally not cancelable by the
customer unless the Company fails to perform its obligations. The contracts are
generally denominated in U.S. dollars, except in Canada and Japan, where
contracts are generally denominated in Canadian dollars and Japanese yen,
respectively.
The typical lease agreement provides for three major sources of revenue:
(i) upfront fees, (ii) ongoing royalty payments and (iii) ongoing maintenance
fees. Royalty payments and maintenance fees are generally received over the life
of the contract and are usually adjusted annually based on changes in the local
consumer price index. The terms of each lease agreement vary according to the
system technology provided and the geographic location of the customer.
The following is an overview of the theater system contract signings over
the past five years:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
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<S> <C> <C> <C> <C> <C>
Permanent systems signed (1) 15 24 26 48 43
Temporary systems signed 4 -- -- -- --
----- ------ ------ ----- ------
Total systems signed 19 24 26 48 43
Value of systems signed (in millions) $46.0 $64.6 $89.6 $128.4 $129.2
</TABLE>
(1) Represents the number of the Company's theater systems which were the
subject of sale or long-term lease agreements signed by the Company. The number
of signings indicated for 1996, 1997 and 1998 excludes 3, 12, and one theaters
in which the Company had an equity interest, respectively.
6
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Theater Operations and Investments
The Company has seven theaters in which it holds an equity interest. As of
December 31, 1998 the Company's sales backlog includes 13 theaters in which the
Company has an equity interest.
In the case of equity interests which are joint ventures, the Company
generally contributes the projection and sound system to the theater in exchange
for a percentage of the theater revenues and/or profits. The Company's partner
is generally responsible for constructing and outfitting the theater. The
Company may also provide management services in return for a fee or a percentage
of theater revenues as part of the equity interest.
Sound Systems
The Company, through its 51% owned subsidiary, Sonics Associates Inc.
("Sonics"), manufactures the sound systems for the Company's theaters. IMAX
theaters feature six-channel high-fidelity sound-systems with sub-bass which
place full range speakers both in front of and behind the audience to provide a
complete sound field with the ability to relate sounds to the action on and off
the screen. The Company custom designs the loudspeaker system for each IMAX
theater to eliminate variations in volume and sound quality over the theater
seating area to ensure that the members of the audience experience superb sound
quality regardless of where they are seated. The Company has developed a
patented digital audio technology with advanced circuit design specifically to
enhance sound clarity and depth of sound reproduction. Sonics is 51% owned by
the Company and 49% owned by four executive officers of Sonics.
Film Production, Post-Production and Distribution
The library of 15/70-format films available for IMAX theaters consists of
139 films at the end of 1998 on subjects such as space, wildlife, music, history
and natural wonders and commercial subjects. The Company has distribution rights
to 49 such films. The majority of the 15/70-format films have been produced by
third parties, including several award-winning filmmakers. There are currently
more than 25 15/70-format films in production, including three being produced by
the Company, which are expected to be released over the next three years.
In February 1999, the Company announced an agreement with Buena Vista
Pictures Distribution, a unit of The Walt Disney Company, to release Fantasia
2000 exclusively to IMAX theaters around the world for a four-month period
commencing January 1, 2000. This will be the first theatrical full-length
feature film to be reformatted into 15/70-format film.
15/70-format films can make audiences feel as though they have been
transported to places they have never been through the use of the largest,
clearest film images available today. In addition to their entertainment appeal,
15/70-format films often seek to educate the audience. 15/70-format films are
expected to be in distribution for five or more years, although many of the
films in the library have remained popular for longer periods including the
films To Fly! (1976), Grand Canyon--The Hidden Secrets (1984) and The Dream Is
Alive (1985) which were all exhibited during 1998. In 1998, there were six new
films released in the 15/70-format. 15/70-format films have been filmed from the
NASA space shuttles (The Dream Is Alive), documented rock concerts (Rolling
Stones "At the Max"), examined natural wonders (The Eruption of Mount St.
Helens, which was nominated for an Academy Award(R)), recorded historic events
(Fires of Kuwait, which was nominated for an Academy Award(R)) and have been
filmed from the top of the world's highest summit (Everest).
The Company produces films financed either internally or, partially or
fully, financed by third parties. With respect to third party productions, the
third party generally pays for all production costs in advance of the Company's
expenditures. The Company generally receives a film production fee in exchange
for producing the films and is appointed the exclusive distributor of the film.
When the Company produces films, it typically hires production talent and
specialists on a project-by-project basis, similar to a movie studio, allowing
the Company to retain creative and quality control without the burden of
significant ongoing overhead expenses. Typically, the ownership rights to films
produced for third parties are held by the film sponsors, the film investors and
the Company. In the case of films for IMAX Ridefilm theaters, the Company
primarily financed these films internally.
7
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The Company generally distributes films produced by the Company and has
acquired distribution rights to films produced by independent producers. The
Company has distribution rights to more 15/70-format films than any competing
distributor. As distributor, the Company generally receives a percentage of the
theater box office receipts. On a limited basis, the Company also markets video
cassette and laser disk souvenir copies of its films both at theaters and
through general retail chains.
David Keighley Productions 70MM Inc., a wholly-owned subsidiary of the
Company, provides film post-production and quality control services for
15/70-format films (whether produced internally or externally).
Cameras. The Company rents 2D 15/70-format cameras and provides technical
and post-production services to third party producers for a fee. The Company
maintains 20 cameras and other film and lighting equipment to support
third-party producers and also offers production advice and technical assistance
to filmmakers.
The Company has developed state-of-the-art patented dual and single
filmstrip 3D cameras; which are among the most advanced motion picture cameras
in the world and are the only 3D cameras of their kind. The IMAX 3D camera
simultaneously shoots left- and right-eye images and its compact size allows
filmmakers access to a variety of locations, such as underwater or aboard
aircraft. The Company has two dual filmstrip cameras in its inventory.
Attractions
Large Screen Motion Simulation Theaters. Large scale IMAX Simulator Rides
or ISRs such as the Asteroid Adventure ride at Phantasialand in Bruhl, Germany,
which seats 256 passengers, and Back To The Future(R)...The Ride which seats 192
passengers, combine an IMAX Dome projection system with several multiple
passenger vehicles, engaging films, and digital sound technology to provide
unique entertainment experiences.
IMAX Ridefilm Theaters. IMAX Ridefilm theaters are a compact, modular
version of an ISR which allow theaters to be located in smaller locations. There
are currently 28 Ridefilm systems in operation and three in backlog as of
December 31, 1998.
In 1998, the Company decided to rationalize its Attractions operations.
The Company does not intend to manufacture or sell the Ridefilm motion base
product (with the exception of delivering in 1999 the three Ridefilm motion
bases currently in backlog) and does not intend to produce new films for the
movie rides. The financial impact of this decision is further explained in the
Results of Operations section contained in Item 7 and in Note 3 of the Notes to
Consolidated Financial Statements contained in Item 8.
MARKETING AND CUSTOMERS
The Company markets its theater systems through a direct sales force and
marketing staff located in offices in Canada, the United States, Europe,
Singapore and Japan. In addition, the Company has agreements with consultants,
business brokers and real estate professionals to locate potential customers and
theater sites for the Company on a commission basis.
8
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The Company has experienced an increase in the number of commercial theater
signings and international signings since 1995. At December 31, 1998, the number
of commercial theaters installed and in backlog had increased 21% over 1997. The
commercial theater segment of the Company's theater network is now its largest
segment with a total of 125 theaters opened or in backlog. At December 31, 1998,
40% of all opened and backlog theaters are for locations outside of North
America. The Company's institutional customers include science and natural
history museums, zoos, aquaria and other educational and cultural centers. The
Company also leases its systems to theme parks, tourist destination sites, fairs
and expositions. For a breakdown of the installed theater base and backlog by
market segment, geographic segment and product as of December 31, 1998, see Item
7, Management's Discussion and Analysis of Financial Condition and Results of
Operations.
INDUSTRY AND COMPETITION
The Company competes with a number of manufacturers of large-format film
projection systems; however, the IMAX theater network and the number of
15/70-format films to which the Company has distribution rights are
substantially larger than those of its 15/70-format competitors. The Company's
customers generally consider a number of criteria when selecting a large-format
theater including quality, reputation, brand name recognition, type of system,
features, price and service. The Company believes that its competitive strengths
include the value of the IMAX brand name, the quality and historic up-time of
IMAX theater systems, the number and quality of 15/70-format films that it
distributes, the quality of the sound system included with the IMAX theater and
the level of the Company's service and maintenance efforts.
The commercial success of the Company's products is ultimately dependent
upon consumer preferences. The out-of-home entertainment industry in general
continues to go through significant changes, primarily due to technological
developments and changing consumer tastes. Numerous companies are developing new
entertainment products for the out-of-home entertainment industry in response to
these changes, and some of these new products are or may be directly competitive
with the Company's products. Competitors may design products which are more
attractive to the consumers and/or more cost effective than the Company's
products and that may make the Company's products less competitive. There can be
no assurance that the Company's existing products will continue to compete
effectively and be attractive to consumers or that its products under
development will ever be attractive to consumers or be competitive. The Company
may also face competition from companies in the entertainment industry with
substantially greater financial and other resources than the Company.
RESEARCH AND DEVELOPMENT
The Company has significant in-house proprietary expertise in projection
system, camera, and sound system design, engineering and technology. In January
1997, the Company was awarded an Academy Award(R) for scientific and technical
achievement by the Academy of Motion Picture Arts and Sciences. In addition, the
Company has substantial proprietary knowledge in 15/70-format film production.
As of December 31, 1998, 31 of the Company's employees were connected with
research and development projects.
Several of the underlying technologies and resulting products and systems
of the Company are covered by patents or patent applications. Other underlying
technologies are available to competitors, in part because of the expiration of
certain patents owned by the Company. The Company, however, has successfully
obtained patent protection covering several of its significant improvements made
to such technologies. The Company historically has retained the rights to the
intellectual property associated with new products and technologies developed
under arrangements with third parties. The Company plans to continue to fund
research and development activity in areas considered important to the Company's
continued commercial success.
Including contributions by third parties, the Company (excluding its
subsidiaries) has spent approximately $10.9 million on research and development
over the last five years, including approximately $2.0 million, $1.4 million and
$1.7 million in 1996, 1997 and 1998 respectively. In 1991, the Company received
a multi-year grant from the Ontario Technology Fund of the Government of Ontario
for research and development. The program was completed in 1998 and cost
approximately $7.0 million over seven years, with the Ontario Technology Fund
contributing approximately $3.1 million.
9
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MANUFACTURING AND SERVICE
Imax Manufacturing
The Company assembles its giant-screen projection systems at its Corporate
Headquarters and Technology Center in Mississauga, Ontario (near Toronto). A
majority of the components for the Company's systems are purchased from outside
vendors. The Company develops and designs all the key elements for the
proprietary technology involved in its projector and camera systems. Fabrication
of these components is then subcontracted to a group of carefully pre-qualified
suppliers. Manufacture and supply contracts are signed for the delivery of
components on an order-by-order basis. The Company has developed long-term
relationships with a number of significant suppliers, and the Company believes
its existing suppliers will continue to supply quality products in quantities
sufficient to satisfy its needs. The Company inspects all components and
sub-assemblies, completes the final assembly, and then subjects the systems to
comprehensive testing prior to shipment. Since 1980, the IMAX theater systems
have had an average in service time of over 99.8 %.
Sonics Manufacturing
Sonics develops, designs and assembles the key elements of its theater
sound systems. The standard IMAX theater sound system comprises components from
a variety of sources with approximately 50% of the materials cost of each system
attributable to proprietary components provided under OEM agreements with
outside vendors. These proprietary components include custom loudspeaker
enclosures and horns and specialized amplifiers, signal processing and control
equipment. Major elements of the signal processing and control equipment are
provided by a subsidiary of Sonics, Oxmoor Incorporated, which also fabricates
professional audio electronics equipment for a variety of applications. The
components for the complete sound system are assembled by Sonics at its facility
in Birmingham, Alabama. Sonics also offers individual system customization for
unique applications such as amusement park rides.
Service and Maintenance
The Company provides key services and support functions for the IMAX
theater network and for filmmakers. To support the IMAX theater network, the
Company has personnel stationed in major markets who provide periodic and
emergency service and maintenance on existing systems throughout the world. The
Company's personnel typically visit each theater every three months to service
the projection systems. Sonics personnel visit each system annually to service
the theater sound systems. The Company also provides theater design expertise
for both the visual and audio aspects of the theater, as well as system
installation and training.
PATENTS AND TRADEMARKS
The Company's inventions cover various aspects of its proprietary
technology and many of such inventions are protected by Letters Patent or
applications filed throughout the world, most significantly in the United
States, Canada, Japan, Korea, France, Germany and the United Kingdom. The
subject matter covered by these patents and applications encompasses electronic
circuitry and mechanisms employed in film projectors and projection systems
(including 3D projection systems), a simulator theater system and the orthogonal
motion base mechanism, and a method for synchronizing digital data systems. The
Company has been diligent in the protection of its proprietary interests and is
currently challenging what it believes to be illegal use by others of its
patented proprietary technology. See Item 3--Legal Proceedings.
The Company and its subsidiaries currently hold 40 patents, have 14 patents
pending in the United States and have corresponding patents or filed
applications in many countries throughout the world. While the Company considers
its patents to be important to the overall conduct of its business, it does not
consider any particular patent essential to its operations. Certain of the
Company's patents in the United States, Canada and Japan for improvements to the
IMAX projector, IMAX Solido and sound systems expire between 1999 and 2017.
10
<PAGE>
The Company and its subsidiaries own or otherwise have rights to trademarks
and trade names used in conjunction with the sale of their products, systems and
services. The following trademarks are considered significant in terms of the
current and contemplated operations of the Company: The IMAX Experience(R), An
IMAX(R) Experience(TM), IMAX(R), IMAX(R) 3D, IMAX(R) Dome, IMAX(R) Solido(R),
Personal Sound Environment (R), OMNIMAX(R) and IMAX(R) Ridefilm(TM). These
trademarks are protected by registration or common law widely throughout the
world. The Company also owns the service mark IMAX THEATRE(TM). The Company
vigorously enforces its trademarks and trade names against whomever it believes
is infringing upon its rights.
EMPLOYEES
As of December 31, 1998, the Company had 466 employees. The Company's
employees are not represented by a labor union. The Company has never
experienced an employee strike and believes that its employee relations are
excellent.
Item 2. Properties
The Company's principal executive offices are located in Mississauga,
Ontario. The Company's principal facilities are as follows:
<TABLE>
<CAPTION>
Location Operation Own/Lease Expiration
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Mississauga, Ontario (1).... Headquarters, Administrative, Assembly and Own N/A
Research and Development
Birmingham, Alabama ......... Sound Systems Design and Assembly Own N/A
Culver City, California...... Film Post Production Lease 1999
Kempten, Germany............. Sales and Marketing Lease 1999
Los Angeles, California...... Sales, Marketing and Administrative Lease 2001
New York, New York........... Administrative Lease 2004
Singapore.................... Sales and Marketing Lease 1999
Tokyo, Japan................. Sales, Marketing, Maintenance and Theater Design Lease 1999
</TABLE>
(1) This property is subject to a collateral secured charge in favour of The
Toronto-Dominion Bank in connection with the working capital facility.
Item 3. Legal Proceedings
In April 1994, Compagnie France Film Inc. filed a claim against the Company
in the Superior Court in the District of Montreal, in the Province of Quebec,
alleging breach of contract and bad faith in respect of an agreement which the
plaintiff claims it entered into with the Company for the establishment of an
IMAX theater in Quebec City, Quebec, Canada. Until December 1993, Predecessor
Imax was in negotiations with the plaintiff and another unrelated party for the
establishment of an IMAX theater in Quebec City. In December 1993, Predecessor
Imax executed a system lease agreement with the other party. During the
negotiations, both parties were aware of the other party's interest in also
establishing an IMAX theater in Quebec City. The plaintiffs claimed damages of
Canadian $4.6 million, representing the amount of profit they claim they were
denied due to their inability to proceed with an IMAX theater in Quebec City,
together with expenses incurred in respect of this project and pre-judgement
interest. The Company disputed this claim and filed a defense in response.
Compagnie France Film had also incorporated a shell company, 3101-8450 Quebec
Inc. ("3101"). 3101 was to, among other things, enter into a lease for the
proposed IMAX theater site. In November 1993, while negotiations between
Compagnie France Film and the Company were still ongoing, 3101 entered into a
lease for the site. 3101 defaulted on the lease and the landlord sued 3101 in an
unrelated action to which the Company was not a party. In February 1996, 3101
was found liable to pay the landlord damages in the amount of Canadian $2.5
million. Subsequent to that judgment 3101 intervened in the lawsuit between
Compagnie France Film and the Company in order to claim from the Company damages
in the amount of Canadian $2.5 million. The Company disputed these claims and
the suit went to trial in January 1998. In a decision rendered in April 1998,
the court dismissed the plaintiffs' claims with costs. In May 1998, the
plaintiffs and 3101 both filed appeals of the decision to the Court of Appeal.
The Company believes that the amount of the loss, if any, will not have a
material impact on the financial position or results of operations of the
Company, although no assurance can be given with respect to the ultimate outcome
of this litigation.
11
<PAGE>
The Company filed a complaint in August 1994 in the U.S. District Court
for the Northern District of California claiming that Neil Johnson, NJ
Engineering Inc. and Cinema Technologies Inc. engaged in unfair competition and
misappropriated the Company's trade secrets in the design and manufacture of the
defendants' 70mm 15-perforation projection systems. The Company settled its
claims with NJ Engineering Inc. but continued to pursue an injunction against
Cinema Technologies Inc. and its principal Mr. Johnson to prevent shipment of
projectors, which incorporate the Company's trade secrets in addition to
damages. The defendants brought two motions for summary judgement, one of which
was based on the defendants' statute of limitations defense and the other based
on, among others, the defendants' contention that the trade secrets at issue
were not trade secrets. The court denied the motion based on the statute of
limitations defense, granted the motion based on the unfair competition and
trade secret status issues, and entered a judgement for the defendants. The
Company filed an appeal of this decision to the U.S. Court of Appeals for the
Ninth Circuit and on August 19, 1998 it affirmed the granting of the motion
based on the trade secrets claim, but vacated and reversed, and remanded for
further proceedings, with respect to the Company's unfair competition claim
against Cinema Technologies Inc. The case was returned to trial court in October
1998; a trial date has been set for September 1999.
Iwerks Entertainment, Inc. ("Iwerks") filed a complaint against the Company
on February 26, 1996 in the U.S. District Court for the Central District of
California alleging violations under the Sherman Act, the Clayton Act, and
tortious interference with contracts and prospective economic advantage. Iwerks
was seeking unquantified damages, injunctive relief and restitution. All claims
against the Company were dismissed in a summary judgement in April 1998. In May
1998, Iwerks filed an appeal of this decision to the U.S. Court of Appeals for
the Ninth Circuit. The amount of the loss, if any, cannot be determined at this
time.
On March 5, 1998, Rosalini Film Productions Inc. filed a claim against the
Company in the U.S. District Court for the Central District of California,
alleging breach of written agreement, breach of implied convenant of good faith
and fair dealing, fraud and deceit, negligent misrepresentation, unfair
competition, unjust enrichment, quantum meruit, constructive trust and
declaratory relief with respect to a film project the plaintiff claims to have
pursued with the Company. The plaintiff was seeking unquantified damages. The
Company disputed this claim and intended to vigorously defend this action. In
April 1998, the plaintiff filed a voluntary dismissal of its claim. In December
1998, a refiled claim was served on the Company. In January 1999, the parties
agreed to settle the action. In Management's opinion, the terms of the
settlement did not have a material impact on the financial position or results
of the operation of the Company.
In addition to the litigation described above, the Company is currently
involved in other litigation which, in the opinion of the Company's management,
will not materially affect the Company's financial position or future operating
results, although no assurance can be given with respect to the ultimate outcome
for any such litigation.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the security holders during
the quarter ended December 31, 1998.
12
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Shares are listed for trading under the trading symbol
"IMAX" on the Nasdaq National Market System ("Nasdaq"). The Common Shares are
also listed on The Toronto Stock Exchange ("TSE") under the trading symbol
"IMX". The following table sets forth the range of high and low sales prices per
share for the Common Shares on Nasdaq and the TSE, adjusted for the 2-for-1
stock split which became effective in May, 1997, for the periods indicated.
<TABLE>
<CAPTION>
U.S. Dollars
-----------------------------------
High Low
------------- ------------
<S> <C> <C>
Nasdaq
Year ended December 31, 1998
Fourth quarter 32.250 18.000
Third quarter 25.000 17.000
Second quarter 28.875 21.750
First quarter 29.000 20.500
Year ended December 31, 1997
Fourth quarter 26.625 20.000
Third quarter 28.750 23.375
Second quarter 24.750 16.875
First quarter 18.000 15.125
<CAPTION>
Canadian Dollars
-----------------------------------
High Low
------------- ------------
<S> <C> <C>
TSE
Year ended December 31, 1998
Fourth quarter 51.000 33.000
Third quarter 38.050 26.750
Second quarter 40.800 30.100
First quarter 41.950 28.750
Year ended December 31, 1997
Fourth quarter 37.750 28.500
Third quarter 39.000 32.000
Second quarter 34.000 23.250
First quarter 25.000 20.500
</TABLE>
As of December 31, 1998 the Company had 221 registered holders of record of
the Company's Common Shares.
The Company has not paid within the last three fiscal years, and has no
current plans to pay, dividends on its Common Shares. The payment of dividends
by the Company is subject to certain restrictions under the terms of the
Company's indebtedness (see note 10 to the consolidated financial statements in
Item 8). The payment of any future dividends will be determined by the Board of
Directors in light of conditions then existing, including the Company's
financial condition and requirements, future prospects, restrictions in
financing agreements, business conditions and other factors deemed relevant by
the Board of Directors.
13
<PAGE>
Item 6. Selected Financial Data
(in thousands of dollars, except per share data and systems data)
The selected financial data set forth below is derived from the
consolidated financial statements of the Company and its subsidiaries and
Predecessor Imax and its subsidiaries. The financial statements have been
prepared in accordance with United States Generally Accepted Accounting
Principles ("U.S. GAAP"). The Company adopted the U.S. dollar as its reporting
currency in 1995. Comparative figures have been restated as if the U.S. dollar
had been the reporting currency in prior periods. Effective April 1, 1996, the
Company adopted the U.S. dollar as its functional currency. This change in
accounting policy was applied prospectively. All financial information referred
to herein is expressed in U.S. dollars unless otherwise noted.
On March 1, 1994, WGIM Acquisition Corp. was amalgamated with Predecessor
Imax to form the Company and merged the Trumbull Company, Inc. ("TCI") into a
wholly-owned subsidiary of the Company to form Ridefilm Corporation
(collectively referred to as the "Acquisitions"). The historical data of
Predecessor Imax and the Company are not comparable in all respects. The
Acquisitions have been accounted for as a purchase. Accounting for the
Acquisitions has resulted in material differences in the basis of assets and
liabilities between Predecessor Imax and the Company. The Company's results of
operations have been affected by an increase in interest expense and
amortization of fair value increments on assets acquired, intangibles and
deferred financing costs.
14
<PAGE>
<TABLE>
<CAPTION>
The Company
Pro Forma ---------------------------------------------------
1994 (1) 1995 1996 1997 1998
----------- ----------- --------- --------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating Statement Data:
Revenue.....................................
Systems.................................. $ 37,507 $ 51,968 $ 85,972 $ 97,539 $ 140,874
Films.................................... 30,885 28,835 28,367 39,683 30,824
Other.................................... 6,617 7,694 15,499 21,259 18,657
---------- ---------- --------- ---------- ----------
Total revenue............................ 75,009 88,497 129,838 158,481 190,355
Costs and expenses (2)...................... 56,118 44,348 58,257 73,806 111,784
---------- ---------- --------- ---------- ----------
Gross margin................................ 18,891 44,149 71,581 84,675 78,571
Loss from equity accounted investees (3).... - - - (22) (6,763)
Selling, general and administrative
expenses (4)............................. 21,972 25,925 29,495 32,115 38,777
Research and development (5)................ 4,563 2,808 2,493 2,129 2,745
Amortization of intangibles (6)............. 2,603 2,541 2,708 2,701 5,948
---------- ---------- --------- ---------- ----------
Earnings (loss) from operations............. (10,247) 12,875 36,885 47,708 24,338
Interest income............................. 1,794 3,377 5,797 5,604 5,320
Interest expense............................ (7,400) (7,337) (11,765) (13,402) (14,646)
Foreign exchange gain (loss)................ (538) 193 (337) (623) 588
----------- ---------- ---------- ----------- ----------
Earnings (loss) before taxes and minority interest
(16,391) 9,108 30,580 39,287 15,600
(Provision for) recovery of taxes........... 4,833 (5,458) (13,579) (17,265) (9,810)
---------- ----------- ---------- ----------- -----------
Earnings (loss) before minority interest.... (11,558) 3,650 17,001 22,022 5,790
Minority interest........................... -- -- (1,593) (1,357) (1,895)
---------- ---------- ---------- ----------- -----------
Earnings (loss) before extraordinary item... $ (11,558) $ 3,650 $ 15,408 $ 20,665 $ 3,895
Extraordinary loss on early retirement of debt,
net of income tax benefit of $1,588......... - - - - (2,095)
---------- ---------- -------- --------- ----------
Net earnings................................ $ (11,558) $ 3,650 $ 15,408 $ 20,665 1,800
=========== ========== ========= ========== ==========
Earnings (loss) per share (7)
before extraordinary item
Basic.................................... $ (0.42) $ 0.12 $ 0.54 $ 0.71 $ 0.10
Diluted.................................. $ (0.42) $ 0.11 $ 0.50 $ 0.68 $ 0.09
Net earnings (loss)
Basic $ (0.42) $ 0.12 $ 0.54 $ 0.71 $ 0.03
Diluted $ (0.42) $ 0.11 $ 0.50 $ 0.68 $ 0.03
Systems and Other Data:
Total systems signed (8).................... 19 24 26 48 43
Value of systems signed (in millions)....... $ 46.0 $ 64.6 $ 89.6 $ 128.4 $ 129.2
New systems delivered ...................... 13 11 26 24 41
Total systems in operation.................. 120 130 149 159 183
Total systems in sales backlog (9).......... 36 44 45 77 76
Revenue in sales backlog (10)............... $ 80,767 $ 107,238 $ 131,835 $ 175,394 $ 175,756
</TABLE>
15
<PAGE>
(1) The Unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1994 gives effect to the issuance and sale of senior
notes, the application of the net proceeds therefrom, the acquisition of
Predecessor Imax and TCI, the equity conversions and the issuance of common
shares (collectively "the Transactions") as if the transactions had
occurred on January 1, 1994.
(2) The costs and expenses for the years ended December 31, 1994, 1995, 1996,
1997 and 1998 include $9.3 million, $2.5 million, $1.9 million, $1.4
million, and $0.5 million respectively, of charges for the amortization of
purchase accounting adjustments. The year ended December 31, 1998 includes
a $7.9 million charge related to rationalization of the Company's motion
simulation division and $19.1 million related to the write-down of the
value of some of the films in the Company's library.
(3) Loss from equity accounted investees in 1998 includes the Company's 50%
share of the loss of Forum Ride Associates and a provision against the
remaining carrying value of the Company's equity investment in Forum Ride
Associates totaling $6.1 million and a $0.5 million provision against an
equity investment in a motion simulation ride.
(4) The selling, general and administrative expenses for the year ended
December 31, 1994 include $1.1 million of non-recurring charges as a result
of the Transactions. For the year ended December 31, 1998 selling, general
and administration expenses include a $1.9 million charge related to the
rationalization of Ridefilm.
(5) The research and development expenses for the year ended December 31, 1994
include a non-recurring charge of $2.4 million to reflect the write-off of
purchased in-process research and development in connection with the
acquisition of Ridefilm.
(6) Amortization of intangibles in 1998 includes a $3.3 million charge
related to the write-off of goodwill associated with the
Ridefilm business.
(7) Earnings (loss) per share in the current and prior periods give retroactive
effect to (a) the 2-for-1 stock split which became effective by May 27,
1997 and (b) the adoption of FASB Statement of Standards No. 128 which
became effective by December 31, 1997.
(8) Represents the number of theater systems which were the subject of sale or
lease agreements entered into by the Company in the years indicated. The
1996, 1997 and 1998 signings exclude 3, 12 and one theaters in which the
Company has an equity interest, respectively.
(9) 1996, 1997 and 1998 systems in backlog include two, thirteen and thirteen
theaters in which the Company has an equity interest, respectively.
(10) Represents the minimum revenue on signed system sale and lease agreements
that will be recognized as revenue as the associated theater systems are
delivered. Does not include revenues from wholly-owned, partnership or
joint venture theaters.
16
<PAGE>
<TABLE>
<CAPTION>
Predecessor Imax The Company
Two months ended Ten months ended
February 28, 1994 December 31, 1994
----------------- -----------------
<S> <C> <C>
Operating Statement Data:
Revenue
Systems........................................................ $ 1,454 $ 35,927
Films.......................................................... 1,886 28,914
Other.......................................................... 800 5,810
----------------- -----------------
Total Revenue.................................................. 4,140 70,651
Costs and expenses................................................ 3,169 52,788
----------------- -----------------
Gross margin...................................................... 971 17,863
Selling, general and administrative expenses...................... 2,245 19,690
Research and development.......................................... 219 4,331
Amortization of intangibles....................................... 3 2,154
----------------- -----------------
Loss from operations.............................................. (1,496) (8,312)
Interest income................................................... 19 1,767
Interest expense.................................................. (157) (6,091)
Foreign exchange gain (loss)...................................... (161) (675)
------------------ ------------------
Loss before taxes................................................. (1,795) (13,311)
Recovery of taxes................................................. 802 3,634
----------------- -----------------
Net loss.......................................................... $ (993) $ (9,677)
================== ==================
</TABLE>
<TABLE>
<CAPTION>
The Company
----------------------------------------------------------------------
Balance Sheet Data: 1994 1995 1996 1997 1998
--------------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and marketable
securities.......................... $ 56,949 $ 50,747 $ 120,688 $ 90,530 $ 202,941
Total assets............................. 184,736 194,515 308,744 344,359 490,091
Total long-term indebtedness............. 70,294 70,810 167,023 165,000 300,000
Total shareholders' equity............... 52,926 57,486 54,841 81,117 84,446
</TABLE>
17
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
The Company derives revenue principally from long-term theater system lease
agreements, maintenance agreements, film production agreements and from the
distribution of films. Other revenues include the operation of theaters in which
the Company has an equity interest, the Company's motion simulation operations
and camera rentals.
Theater Systems
The Company generally provides its theater systems on a long-term lease
basis to customers with initial lease terms of typically 10 to 20 years. Lease
agreements typically provide for three major sources of revenue: (i) upfront
fees, (ii) ongoing royalty payments, and (iii) maintenance fees. The amount of
upfront fees vary depending on the type of system and location and generally are
paid to the Company in installments commencing upon the signing of the agreement
and continuing through the delivery of the theater system. Ongoing royalty
payments are paid monthly over the term of the contract, commencing after
delivery. These payments are generally equal to the greater of a fixed minimum
amount per annum and a percentage of box office receipts. An annual maintenance
fee is generally payable commencing in the second year of theater operations.
Both minimum royalty payments and maintenance fees are typically indexed to the
local consumer price index.
Sales and sales-type leases. Revenues from the Company's theater system
sale agreements and from theater system lease agreements which transfer
substantially all of the benefits and risks of ownership ("sales-type leases")
are recognized on the completed contract method (that is, upon delivery of the
system). Revenues recognized at the time of the theater system delivery consist
of upfront fees and the present value of minimum royalties on sales-type leases
over the initial term of the lease. For leases with initial terms greater than
10 years, the Company's practice is to reserve the revenue related to the
present value of minimum royalties beyond the initial 10 years. The timing of
theater system delivery is largely dependent on the timing of the construction
of the customer's theater which is used to fix the delivery date in the
contract. The delivery of the theater system stated in the contract may be
before the actual opening of the theater and as of December 31, 1998 the Company
had delivered 32 theater systems to theaters that had not yet begun operations.
Revenues recognized at the time of the theater system delivery generally are
derived from contracts signed 12 to 24 months prior to the date of recognition.
Such revenue is shown as sales backlog until it is recognized upon delivery.
Therefore, revenue for theater systems is generally predictable on a long-term
basis given the relationship to projected theater system deliveries. However,
systems revenue in any given quarter may vary significantly depending on the
nature and timing of the delivery of systems.
Cash receipts under upfront fees are generally received in advance of
deliveries over the average of 12 to 24 months from initial contract signing to
final delivery and are recorded as deferred revenue. The associated costs of
manufacturing the theater system are recorded as inventory and systems under
construction. Upon delivery, the deferred revenue and inventory costs are
recognized in income.
Cash receipts under royalty payments are received after delivery.
Typically, ongoing royalties are received over the 10 to 20 year life of the
system agreements and under any renewal periods. The Company recognizes the
present value of the minimum royalties on sales-type leases upon delivery of the
theater system up to 10 years. The discounted minimum royalties are recorded on
the Company's balance sheet as an increase in net investment in leases. For
financial reporting purposes, the actual cash received for minimum royalties in
each year are divided into two components representing both a repayment of the
net investment in leases (which has no income effect but reduces net investment
in leases) and finance income on the net investment in leases balance (which is
recorded as royalty revenue as earned). In the event of default of payment of
minimum contracted royalties, the Company may repossess the system and refurbish
it for resale. Royalties in excess of minimums are recorded as revenue when due
under the terms of the lease agreement.
18
<PAGE>
Sales Backlog. Sales backlog represents the minimum revenues on signed
system sale and lease agreements that will be recognized as revenue as the
associated theater systems are delivered. The minimum revenue comprises the
upfront fees plus the present value of the minimum royalties due under
sales-type lease agreements for the first 10 years of the initial lease term.
The value of sales backlog does not include revenues from theaters in which the
Company has an equity interest, letters of intent, IMAX Ridefilm system
contracts, or long-term conditional theater commitments.
Film Production
Revenue from films produced for third parties is recognized when the film
is completed and delivered to the sponsor. The associated production costs are
deferred and charged against the associated revenue when the revenue is
recognized. The completion of films for third parties depends upon the
contracted delivery dates with film sponsors. Thus, both film revenues and film
income in any given period will vary significantly depending upon the timing of
the completion of films. When the Company invests in films, costs incurred are
deferred and shown on the balance sheet as film assets. Cash received from sales
of the film in advance of delivery is shown as deferred revenue until the film
is complete and delivered to the exhibitor. The film assets are amortized
against revenues using the individual-film-forecast method in accordance with
the Financial Accounting Standards Board Statement No. 53 ("FAS 53").
Film Distribution
Revenues from the distribution of films are recognized when films are
exhibited by theaters. The costs of films are charged as expenses using the
individual-film-forecast method in accordance with FAS 53. The
individual-film-forecast method amortizes film costs (reflected on the balance
sheet as film assets) in the same ratio that current gross revenues bear to
anticipated total gross revenues. The costs of distribution of films are charged
against the specific license to which they relate. Estimates of anticipated
total gross revenues are reviewed quarterly by the Company and revised where
necessary to reflect more current information.
International Operations
A significant portion of the Company's sales are made to customers located
outside of the United States and Canada. During 1996, 1997 and 1998
approximately 39.5%, 47.6% and 46.7%, respectively, of the Company's revenues
were derived from sales outside the United States and Canada. The Company
expects that international operations will continue to account for a substantial
portion of its revenues in the future. In order to minimize exposure to exchange
rate risk, the Company prices theater systems (the largest component of
revenues) in U.S. dollars except in Canada and Japan where they are priced in
Canadian dollars and Japanese yen, respectively. Annual minimum royalty payments
and maintenance fees follow a similar currency policy.
Accounting Policies
The Company reports its results under both United States generally accepted
accounting principles ("U.S. GAAP") and Canadian generally accepted accounting
principles. The financial statements and results referred to herein are reported
under U.S. GAAP.
19
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenue for each of
the items set forth below:
<TABLE>
<CAPTION>
The Company
--------------------------------------------------------------------
Pro Forma
1994 (1) 1995 1996 1997 1998
----------- ----------- ---------- ----------- -----------
% % % % %
<S> <C> <C> <C> <C> <C>
Revenue
Systems................................ 50.0 58.7 66.2 61.6 74.0
Films.................................. 41.2 32.6 21.9 25.0 16.2
Other.................................. 8.8 8.7 11.9 13.4 9.8
----------- ----------- ---------- ----------- -----------
Total.................................... 100.0 100.0 100.0 100.0 100.0
Costs and expenses (2)................... 74.8 50.1 44.9 46.6 58.7
----------- ----------- ---------- ----------- -----------
Gross margin............................. 25.2 49.9 55.1 53.4 41.3
Loss from equity accounted investees..... - - - - 3.6
Selling, general and administrative
.....expenses............................ 29.3 29.3 22.7 20.3 20.4
Research and development (3)............. 6.1 3.2 1.9 1.3 1.4
Amortization of intangibles (4).......... 3.5 2.9 2.1 1.7 3.1
----------- ----------- ---------- ----------- -----------
Earnings (loss) from operations.......... (13.7) 14.5 28.4 30.1 12.8
------------ ----------- ---------- ----------- -----------
Earnings (loss) before extraordinary item (15.4) 4.1 11.9 13.0 2.0
------------ ----------- ---------- ----------- -----------
Net earnings (loss) ..................... (15.4) 4.1 11.9 13.0 0.9
============ =========== ========== =========== ===========
</TABLE>
(1) See Note 1 to table in Item 6. Selected Financial Data.
(2) The costs and expenses include 12.4%, 2.8%, 1.4%, 0.9% and 0.3% of charges
for the amortization of purchase accounting adjustments for the years ended
December 31, 1994, 1995, 1996, 1997 and 1998, respectively. For the year
ended December 31, 1998 costs and expenses include a charge of 4.1% related
to the rationalization of the Company's motion simulation and attractions
business and a charge of 10.0% related to the write-down of unrecoverable
film costs.
(3) Research and development costs for the year ended December 31, 1994 include
a non-recurring charge of 3.2% to reflect the write-off of purchased in-
process research and development in connection with the acquisition of
Ridefilm.
(4) Amortization of intangibles in 1998 includes a non-recurring charge of 1.7%
to reflect the write-off of goodwill associated with the Ridefilm business.
Year Ended December 31, 1998 versus Year Ended December 31, 1997
In 1998 the Company had revenues of $190.4 million and net earnings (after
a $2.1 million extraordinary loss on the early extinguishment of debt) of $1.8
million ($0.03 per share on a diluted basis) compared to revenues of $158.5
million and net earnings of $20.7 million ($0.68 per share on a diluted basis)
in 1997. The increase in revenues of 20% is due to higher systems revenue which
more than offset declines in film and other revenues. Results in 1998 were
adversely affected by four significant items: a) the rationalization of the
Company's motion simulation and attractions business resulted in a charge of
$0.46 per share; b) the write-down of assets in the Company's film library
resulted in a charge of $0.35 per share; c) the extraordinary loss on the early
extinguishment of debt contributed a charge of $0.07 per share and, d) the
redemption premium of the Company's Class "C" preferred shares contributed a
charge of $0.02 per share.
20
<PAGE>
Theater Network and Sales Backlog
The Company signed agreements for 43 theater systems in 1998, excluding one
theater in which it has an equity interest, which represents future minimum
revenues of $129.2 million. In 1997, the Company signed agreements for 48
theater systems excluding 12 theaters in which it had an equity interest, for
future minimum revenues of $128.4 million. The majority of signings for 1998
were for IMAX 3D systems (91%) and commercial operators (88%). In 1998, signings
for theaters to be located outside of Canada and the United States increased to
66% from 22% in 1997. As of December 31, 1998, there were IMAX theaters
operating in 25 countries, up from 22 countries at December 31, 1997, with
theaters to be located in a further 15 countries once the theaters in backlog
open. As a result of the strong theater signings and record deliveries, the
Company's sales backlog increased slightly to $175.8 million at December 31,
1998 from $175.4 million at December 31, 1997.
21
<PAGE>
The IMAX theater network increased to 183 theaters in operation at December
31, 1998 from 159 theaters at the beginning of the year. The following is a
geographic, market and product breakdown of the IMAX theaters in operation and
theaters in backlog at December 31, 1998:
<TABLE>
<CAPTION>
Existing Theatres Backlog
------------------------ -------------------------
Theaters % Theaters %
-------- --------- -------- ----------
<S> <C> <C> <C> <C>
Geographic:
United States................................ 87 48% 41 56%
Europe....................................... 32 17 13 18
Japan........................................ 19 10 1 1
Canada....................................... 18 10 7 9
Asia (excluding Japan)....................... 12 7 4 5
Mexico....................................... 8 4 - -
Australia.................................... 6 3 2 3
South Africa................................. 1 1 - -
Middle East.................................. - - 5 7
South America................................ - - 1 1
--- ---------- -------- ----------
Total........................................ 183 100% 74 100%
=== ========= ======== ==========
Market:
Science and Natural History.................. 94 51% 6 8%
Commercial................................... 57 31 68 92
Theme Parks.................................. 21 12 - -
Destination Sites............................ 5 3 - -
Zoos and Aquaria............................. 6 3 - -
--- ----------- -------- ----------
Total........................................ 183 100% 74 100%
=== ========== ======== ==========
Product:
2D........................................... 130 71% 7 9%
3D........................................... 53 29 67 91%
--- ----------- -------- --------
Total........................................ 183 100% 74 100%
=== ========== ======== =========
</TABLE>
22
<PAGE>
Film Library
There were six new films released in the 15/70-format in 1998, bringing the
total number of available films to 139 at the end of the year. The Company has
the distribution rights to 49 of those films. In 1998, the Company released one
new film: T-REX: Back to the Cretaceous which features giant 3D digital
dinosaurs.
The Company currently has three films in production which are scheduled for
release in 1999 through 2001, and twelve films in development and
pre-production. As of December 31, 1998 there were more than 25 films in
production in the 15/70-format, including the three being produced by the
Company.
Rationalization of Motion Simulation and Attractions Business
Included in earnings for the year ended December 31, 1998 is a pre-tax
charge of $13,569,000 related to the Company's investment in the motion
simulation and attractions business. The motion simulation industry in general
has not generated significant returns for any of its key participants. The high
cost of producing motion simulation films and high manufacturing and
installation costs at recently delivered locations have resulted in continued
inadequate returns for this operation. Sales, which hit a low of only two
signings in 1998, continued to lag. The lack of growth in the network of bases,
which was required to support the original investment plus ongoing investment in
film, will prevent the recovery of future film investment. Recent sales
cancellations have also contributed to the Company's decision to rationalize the
Ridefilm activity to reduce future potential losses.
The Company does not intend to manufacture or sell the Ridefilm motion
bases product (with the exception of delivering in 1999 the three motion bases
currently in backlog), and does not intend to produce new motion simulation
films. Existing motion base owners have been informed of the Company's decision
to no longer market the motion base product in the future. Administration and
sales personnel associated with the Ridefilm operation have been either
terminated or re-assigned to other areas of the Company. The Company will
continue to license the existing Ridefilm library to its existing motion base
customers and make efforts to convert non-Ridefilm motion simulation films to be
compatible with the Ridefilm projection system.
Also included in earnings for the year ended December 31, 1998 is a loss of
$1,937,000 representing the Company's 50% share of the loss of Forum Ride
Associates, a 50% joint venture with Starwood Hotels & Resorts Inc., operating
an IMAX 3D Simulator Ride at the Forum Shops at Caesars Palace in Las Vegas,
Nevada. The ride opened in January 1998 and attendance levels in its first year
of operations were approximately 50% below budget. The Company believes that it
will have limited ability in improving attendance to this attraction since much
of it is dependent upon the flow of local traffic to its retail location, which
has also proven to be well below original forecasts. The Company has been
unsuccessful in obtaining changes required to stimulate local traffic in the
retail area where the attraction is located. Despite the critical acclaim the
movie ride has received, the Company does not anticipate that it will be able to
attain the future attendance levels necessary to generate earnings sufficient to
justify the remaining carrying value of its investment. The Company took a
charge of $4,208,000 to write-off its remaining investment in the joint venture
after considering current period operating losses combined with a projection
that demonstrated continuing losses.
Revenues
The Company's revenues in 1998 were $190.4 million, compared to $158.5
million in 1997, an increase of 20%. The following table sets forth the
breakdown of revenue by category in thousands of dollars:
<TABLE>
<CAPTION>
1996 1997 1998
----------------- --------------- ---------------
<S> <C> <C> <C>
Systems Revenue
Sales and leases.................................. $ 70,671 $ 78,672 $ 121,042
Royalties (1)..................................... 7,949 10,285 10,154
Maintenance....................................... 7,352 8,582 9,678
---------------- -------------- --------------
85,972 97,539 140,874
---------------- -------------- --------------
Film Revenue
Production........................................ 8,298 6,459 352
Distribution...................................... 13,422 21,953 15,052
Post-production................................... 6,647 11,271 15,420
---------------- -------------- --------------
28,367 39,683 30,824
---------------- -------------- --------------
Other Revenue 15,499 21,259 18,657
---------------- -------------- --------------
$ 129,838 $ 158,481 $ 190,355
================ ============== ==============
</TABLE>
- ---------------------------
(1) Includes finance income.
Systems Revenues. Systems revenue increased from $97.5 million in 1997 to
$140.9 million in 1998, an increase of 44%. Revenue from sales and leases
increased from $78.7 million to $121.0 million, an increase of 54%. The Company
recognized revenues on the delivery of 41 theater systems under sales and
sales-type leases in 1998 as compared to 24 theater systems in 1997. Royalty
revenue, excluding arrears billings, and maintenance revenue increased 7% and
13%, respectively, over the prior year principally due to the increased number
of theater systems in the network.
Film Revenues. Film revenues declined from $39.7 million in 1997 to $30.8
million in 1998. In 1997, the Company produced one film for a third party
whereas in 1998 the Company did not produce any third party films. Film
distribution revenues declined from $22.0 million in 1997 to $15.1 million in
1998 due to the timing of film release including the strong performance in 1997
of three films released in the latter half of 1996 and the fact that the
Company's major 1998 release, T-REX: Back to the Cretaceous, was not released
until the fourth quarter. Film post-production activities increased from $11.3
million in 1997 to $15.4 million in 1998, an increase of 37%. The growth in
revenues was due to an increase in the number of prints released,
post-production activities and extensions of products and services.
Other Revenues. Other revenues declined 12% from $21.2 million in 1997 to
$18.7 million in 1998 due to lower revenue from the delivery of IMAX Ridefilm
systems which declined to six units in 1998 versus 15 units in 1997. Partially
offsetting the lower revenues were increases in camera and Company-owned theater
operations revenues.
23
<PAGE>
Gross Margin
Gross margin in 1998 was $78.6 million versus $84.7 million in 1997. The
number of systems delivered in 1998 increased to 41 from 24 in 1997. The
resulting increase in the gross margin was more than offset by the write-down in
1998 of the Company's motion simulation assets of $7.9 million and a write-down
of its film assets of $19.1 million. Gross margin as a percentage of total
revenues decreased from 53.4% in 1997 to 41.3% in 1998. An increase resulting
from the higher proportion of systems revenue (which generally has higher
margins than film and other revenues) was more than offset by the charges noted
above which reduced the gross margin by 4.1% and 10.0%, respectively.
Other
Loss from equity accounted investees in 1998 includes $6.1 million of the
Company's share of the loss of Forum Ride Associates (a 50% joint venture with
Starwood Resorts Worldwide Inc. operating an IMAX 3D Simulator Ride) and a
write-off of the Company's remaining investment in the joint venture.
Selling, general and administrative expenses were $38.8 million in 1998
versus $32.1 million in 1997. The increase in selling, general and
administrative costs in 1998 over 1997 resulted primarily from increases in
performance-based compensation expenses, marketing, branding and affiliate
relations initiatives and staffing additions to the Company's film department,
particularly marketing, partially offset by declines in litigation expense. Also
included in 1998 is $1.9 million of costs related to the rationalization of the
Company's motion simulation and attractions unit.
Research and development expenses were $2.7 million in 1998 versus $2.1
million in 1997. In 1997, the Company's technical staff were engaged in the
design and production of the new IMAX 3D SR system and not in typical research
and development activities.
Amortization of intangibles in 1998 includes a non-recurring charge of $3.3
million to write-off the remaining goodwill associated with the Company's motion
simulation business.
Interest expense increased in 1998 as a result of the $200 million Senior
Notes due 2005 which were issued on December 4, 1998.
The Company experienced a foreign exchange gain of $0.6 million in 1998
compared to a loss of $0.6 million in 1997. The foreign exchange gain in 1998
resulted primarily from fluctuations in exchange rates on the Japanese yen
denominated net investment in leases, while the loss in 1997 resulted primarily
from fluctuations in exchange rates on the Canadian dollar, the Japan Yen and
French franc denominated cash balances and net investment in leases.
The effective tax rate on earnings before tax differs from the statutory
tax rate and will vary from year to year primarily as a result of the
amortization of goodwill, which is not deductible for tax purposes,
manufacturing and processing profits deduction and the provision of income taxes
at different rates in foreign and other provincial jurisdictions. The effective
tax rate in 1998 was much higher than in recent years due to the large amount of
non-deductible goodwill and deferred tax charge associated with the
rationalization of Ridefilm as well being affected by the $6.1 million loss
associated with Forum Ride Associates which is provided for at a lower tax rate
than the Company's statutory tax rate.
Minority interest expense of $1.9 million and $1.4 million in 1998 and
1997, respectively, represents a 49% minority interest in
the earnings of the Company's subsidiary, Sonics Associates Inc.
24
<PAGE>
Year ended December 31, 1997 versus Year ended December 31, 1996
Revenues
The Company's revenues in 1997 were $158.5 million compared to $129.8
million in 1996, an increase of 22%.
Systems revenue increased from $86.0 million in 1996 to $97.5 million in
1997, an increase of 13%. Revenue from sales and leases increased from $70.7
million to $78.7 million, an increase of 11%. The Company recognized revenues on
the delivery of 24 theater systems under sales and sales-type leases in 1997 as
compared to 26 theater systems in 1996. Royalty revenue, excluding arrears
billings, and maintenance revenue increased 19% and 17%, respectively, over the
prior year principally due to the increased number of theater systems in the
network.
Film revenues increased from $28.4 million in 1996 to $39.7 million in
1997. Film distribution revenues increased from $13.4 million in 1996 to $22.0
million in 1997, an increase of 64%. Film distribution revenues increased in
1997 over 1996 due to strong results of films which were released in the latter
half of 1996 and in 1997 and also due to the growth in the IMAX theater network.
Film post-production activities generated revenues of $11.3 million in 1997
versus $6.6 million in 1996, an increase of 70%. The growth in revenues was due
to an increase in the number of post-production projects, an increase in the
number of prints released and extensions of related products and services.
Other revenues of $21.2 million in 1997 represented an increase of 37% over
1996. The growth in other revenues was primarily due to the delivery of 15 IMAX
Ridefilm systems in 1997 versus seven in 1996. Theater operations revenue also
increased 17% in 1997 over 1996 due to the opening of a new theater in which the
Company has an equity interest at the end of 1996.
Gross Margin
Gross margin in 1997 was $84.7 million versus $71.6 million in 1996. Gross
margin improved in 1997 over 1996 principally due to the higher average value of
systems deliveries, increased royalty revenue and an increase in film revenues
in 1997. The average value of systems deliveries increased in 1997 due to a
higher number of IMAX 3D and international theater systems delivered compared to
1996. In 1997, gross margin as a percentage of sales was 53.4% versus 55.1% in
1996. The decline in gross margin as a percentage of total revenues in 1997 from
1996 was due to the higher proportion of film and other revenues which are
generally lower margin revenue sources than system sources.
Other
Selling, general and administrative expenses were $32.1 million in 1997
versus $29.5 million in 1996. The increase in selling, general and
administrative costs in 1997 over 1996 resulted primarily from an increase in
performance based compensation expenses, marketing, branding and affiliate
relations initiatives and litigation costs, offset by declines in costs
associated with the Company's Ridefilm division.
Research and development expenses were $2.1 million in 1997 versus $2.5
million in 1996. The Company's technical staff were engaged, earlier in 1997, in
the design and production of the new IMAX 3D SR system and not in the typical
research and development activities. Research and development activities
returned to historical levels in the latter half of 1997.
Interest expense included a full year's debt service in 1997 related to the
5 3/4% of Convertible Subordinated Notes which were issued in April 1996
resulting in a $1.6 million increase in interest expense in 1997 compared to the
prior year.
25
<PAGE>
The Company experienced a foreign exchange loss of $0.6 million in 1997
compared to a loss of $0.3 million in 1996. The foreign exchange loss in 1997
and 1996 resulted primarily from fluctuations in exchange rates on Canadian
dollar, Japanese yen and French franc denominated cash balances and net
investment in leases.
Quarterly Results
The following table sets forth unaudited data regarding operations for each
quarter of 1997 and 1998. The quarterly information has been prepared on the
same basis as the annual consolidated financial statements and, in management's
opinion, contains all normal recurring adjustments necessary to fairly state the
information set forth herein. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
1997 1998
----------------------------------------------- ----------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year Quarter Quarter Quarter Quarter Year
(in thousands of dollars except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenue
Systems............ $ 17,918 $20,061 $ 22,477 $37,083 $97,539 $26,364 $30,890 $35,793 $47,827 $140,874
Films.............. 12,299 10,648 10,521 6,215 39,683 7,062 6,761 5,163 11,838 30,824
Other.............. 2,325 4,731 2,893 11,310 21,259 2,873 5,526 3,293 6,965 18,657
-------- ------- ------ ------- ------- ------ ------ ------ -------- -------
Total.............. 32,542 35,440 35,891 54,608 158,481 36,299 43,177 44,249 66,630 190,355
Gross margin........... 17,877 17,714 20,333 28,729 84,653 21,044 24,699 26,453 6,375 78,571
Earnings (loss) from 9,377 9,441 12,201 16,689 47,708 9,985 14,566 16,702 (16,915) 24,338
operations
Earnings (loss) before
extraordinary item: 3,698 4,148 5,485 7,334 20,665 4,199 6,161 7,120 (13,585) 3,895
Net earnings (loss) ... 3,698 4,148 5,485 7,334 20,665 4,199 6,161 7,120 (15,680) 1,800
Per share data (1):
Earnings (loss) before
extraordinary item
Basic.............. $ 0.13 $ 0.14 $ 0.19 $ 0.25 $ 0.71 $ 0.14 $ 0.21 $ 0.24 $ (0.49) $ 0.10
Diluted............ $ 0.12 $ 0.14 $ 0.18 $ 0.24 $ 0.68 $ 0.14 $ 0.20 $ 0.23 $ (0.49) $ 0.09
Net earnings (loss)
Basic.............. $ 0.13 $ 0.14 $ 0.19 $ 0.25 $ 0.71 $ 0.14 $ 0.21 $ 0.24 $ (0.56) $ 0.03
Diluted............ $ 0.12 $ 0.14 $ 0.18 $ 0.24 $ 0.68 $ 0.14 $ 0.20 $ 0.23 $ (0.56) $ 0.03
</TABLE>
(1) Retroactively adjusted for the 2-for-1 stock split which became
effective by May, 1997 and the adoption of FASB Statement of
Standards No. 128 which became effective by December 31, 1997.
The Company's operating results can fluctuate significantly from quarter to
quarter. This fluctuation is due primarily to the timing of theater system
deliveries, the mix of theater systems shipped, and the timing of recognition of
revenues on film production agreements. Other expenses vary less significantly
and are influenced by the timing of marketing initiatives and research and
development projects.
In 1998, revenues fluctuated by quarter largely due to the delivery of
systems. In the fourth quarter of 1998, the Company recorded $66.6 million of
revenues (35% of full year revenue) due to the delivery of 16 IMAX theater
systems and increases in film post-production revenues. The fluctuations in
gross margin in the first three quarters of 1998 was due to the variation in the
revenue mix between systems, film and other. The decline in the gross margin in
the fourth quarter was due to the costs associated with the rationalization of
the Company's motion simulation and attractions unit and the write-down of film
assets. Earnings from operations varied by quarter due to the fluctuation in
gross margin, the write-down of the Company's equity interest in the Race For
Atlantis attraction and were impacted by other expenses, which were
proportionately higher in the last quarter due to the rationalization of the
Company's motion simulation and attractions unit and performance-based
compensation expenses.
Net earnings were also adversely impacted in the fourth quarter of 1998 by
the additional interest expense on the $200 million Senior Notes due 2005 issued
on December 4, 1998 and by the extraordinary loss on the early extinguishment of
debt.
26
<PAGE>
In 1997, revenues fluctuated by quarter largely due to the delivery of
systems and films. In the fourth quarter of 1997, the Company recorded $54.6
million of revenue (34% of full-year revenue) due to the delivery of 10 IMAX
theater systems and 10 IMAX Ridefilm systems. Gross margin fluctuated
significantly by quarter due to both the fluctuation in revenue and also the
different revenue mix between systems, film and other. Earnings from operations
varied by quarter due to the fluctuation in gross margin and were impacted by
other expenses, which were proportionately higher in the last quarter due to
performance-based compensation expenses, litigation costs and marketing and
affiliation relations initiatives.
The Company expects quarterly results to continue to fluctuate in the
future.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company's principal source of liquidity included
cash and cash equivalents of $143.6 million, marketable securities of $59.4
million, trade accounts receivable of $45.2 million, net investment in leases
due within one year of $9.3 million and the amounts receivable under contracts
in backlog which are not yet reflected on the balance sheet.
In addition, the Company is party to an agreement with The Toronto-Dominion
Bank with respect to a working capital facility. The Bank has made available to
the Company a revolving loan in an aggregate amount up to Canadian $10 million
or its U.S. dollar equivalent. Loans made under the working capital facility
bear interest at the prime rate of interest per annum for Canadian dollar
denominated loans and, for U.S. dollar denominated loans, at the U.S. base rate
of interest established by the Bank. These loans are repayable upon demand. At
December 31, 1998, $3.1 million was available for use under this facility.
In December, 1998, the Company issued $200 million of Senior Notes due
December 1, 2005, part of the proceeds of which were used to redeem the $65
million of 10% Senior Notes due 2001. The Senior Notes due 2005 bear interest at
7.875% per annum and are subject to redemption by the Company, in whole or in
part, at any time on or after December 1, 2002, at redemption prices expressed
as percentages of the principal amount for each 12-month period commencing
December 1 of the years indicated: 2002 - 103.938%, 2003 - 101.969%, 2004 and
thereafter - 100.000% together with interest accrued thereon to the redemption
date. Until December 1, 2001, up to 35% of the aggregate principal amount of the
Notes may be redeemed by the Company using the net proceeds of a public offering
of common shares of the Company or certain other equity placements, at a
redemption price of 107.875%, together with accrued interest thereon. The
Company may also redeem the notes, in whole or in part, at any time prior to
December 1, 2002, at a redemption price equal to 100% of the principal amount
plus a "make-whole premium" calculated in reference to the redemption price on
the first date that the notes may be redeemed by the Company plus accrued
interest to but excluding the redemption date. If certain changes result in the
imposition of withholding taxes under Canadian law, the Senior Notes are subject
to redemption at the option of the Company, in whole but not in part, at a
redemption price of 100% of the principal amount thereof plus accrued interest
to the date of redemption. In the event of a change in control, holders of the
notes may require the Company to repurchase all or part of the notes at a price
equal to 101% of the principal amount thereof plus accrued interest to the date
of repurchase.
In April 1996, the Company completed a private placement of a $100 million
offering of 5 3/4% Convertible Subordinated Notes (the "Subordinated Notes") due
2003. These Notes are convertible into common shares of the Company at the
option of the holder at a conversion price of $21.406 per share (equivalent to a
conversion rate of 46.7154 shares per $1,000 principal amount of Notes) at any
time prior to maturity. The Notes are redeemable at the option of the Company on
or after April 1, 1999 at redemption prices expressed as percentages of the
principal amount (1999 - 103.286%; 2000 - 102.464%; 2001 - 101.643%; 2002 -
100.821%) plus accrued interest. The Subordinated Notes may only be redeemed by
the Company between April 1, 1999 and April 1, 2001 if the last reported market
price of the Company's common shares is equal to or greater than $30 per share
for any 20 of the 30 consecutive trading days prior to the notice of redemption.
The Subordinated Notes may be redeemed at any time on or after April 1, 2001
without limitation.
27
<PAGE>
The Company partially funds its operations through cash flow from
operations. Under the terms of the Company's typical theater system lease
agreement, the Company receives substantial cash payments before it completes
the performance of its obligations. Similarly, the Company typically receives
cash payments for film productions in advance of related cash expenditures.
These cash flows have generally been adequate to finance the ongoing operations
of the Company.
Cash provided by operating activities amounted to $23.9 million for the
year ended December 31, 1998 after the payment of $14.6 million of interest,
$4.1 million of income taxes and working capital requirements. Working capital
requirements include an increase of $12.8 million in accounts receivable,
primarily related to an increase in upfront fees billed in connection with
increased signings and the growth in the number of systems in backlog, and an
increase of $30.4 million in net investment in leases due to the theater systems
delivered under sales-type leases in 1998. Cash used in investing activities in
1998 amounted to $72.1 million. Of this amount, $21.2 million was invested in
film assets, principally T-REX: Back to the Cretaceous and Galapagos, $14.0
million was invested in capital assets, principally space and 3D cameras and
owned and operated theaters, $4.0 million was invested in other assets,
principally joint ventured and owned and operated theaters and $32.9 million was
invested in marketable securities. Cash provided by financing activities include
proceeds of $200 million from the issuance of Senior Notes, part of the proceeds
of which were used to repay the $65 million 10% Senior Notes, the $2.8 million
redemption premium thereon, the debt financing costs of $4.9 million and the
redemption of Class C preferred shares amounting to $2.2 million. Cash provided
by financing activities also included $2.6 million from the issuance of common
shares pursuant to the Company's stock option plan.
Cash provided by operating activities amounted to $11.6 million for the
year ended December 31, 1997 after the payment of $11.4 million of interest,
$5.1 million of income taxes and working capital requirements. Working capital
requirements include an increase of $15.1 million in accounts receivable,
primarily related to an increase in upfront fees billed in connection with
increased signings and the growth in the number of systems in backlog, and an
increase of $18.7 million in net investment in leases due to the theater systems
delivered under sales-type leases in 1997. Cash used in investing activities in
1997 amounted to $53.5 million. Of this amount, $28.1 million was invested in
film assets, principally The IMAX Nutcracker, T-REX: Back to the Cretaceous, The
Hidden Dimension and the IMAX Ridefilm film library, $12.7 million was invested
in capital assets, $8.3 million was invested in marketable securities and $4.5
million was invested in other assets, principally investments in a joint
ventured theater, IMAX Attractions and IMAX Ridefilm operations. Cash provided
by financing activities included proceeds of $5.8 million from the issuance of
common shares pursuant to the Company's stock option plan and repayment of the
Company's long-term debt totaling $2.3 million.
The Company believes that cash flow from operations together with existing
cash balances and the working capital facility will be sufficient to meet cash
requirements of its existing level of operations for the foreseeable future.
IMPACT OF THE YEAR 2000
The Year 2000 issue involves computer programs and embedded chips, which
use two digit date fields, failing or creating errors as a result of the change
in the century. The Company has assessed and continues to assess the impact of
the Year 2000 issue on its operations including information technology systems,
non-information technology systems and the readiness of facility and utility
suppliers. The Company's information technology systems include the cost
accounting and financial software systems. The Company completed an upgrade of
these systems in the first quarter of 1999 to versions that are Year 2000 ready.
28
<PAGE>
The Company's non-information technology systems include the projection and
sound systems. The Company has completed the evaluation of its projection system
in the first quarter of 1999 at minimal cost and concluded that the performance
of the projection system would not be negatively impacted by the change in the
century. Sonics has been evaluating each of the subsystems of the sound system
used in connection with the projection system. Sonics has concluded that the
current standard sound systems hardware would not be negatively impacted by the
change in the century. The software incorporates proprietary software elements
in addition to "off-the-shelf" utility software. Sonics has evaluated the
proprietary software elements and have concluded that they too would not be
negatively impacted by the change in the century. Sonics has verified that the
manufacturer of each purchased software element has tested and certified their
product as Year 2000 ready. Sonics must still complete the testing of a few
automation subsystems. These automation subsystems, however, are not part of
every sound system. Sonics' service department will conduct a Year 2000
readiness test on each of the automation subsystems in use at IMAX theatres
during routine service visits. Sonics expects to complete such testing at
minimal cost by the end of the second quarter of 1999. If there is a failure in
a subsystem of a sound system to be Year 2000 ready, this failure would impact
on the ability of a theatre to present pre-show material but would not affect
the theatre's ability to present a 15/70-format film.
The Company is evaluating the facilities and utility systems to determine
their Year 2000 readiness. The Company plans to complete this evaluation by the
second quarter of 1999.
The impact of the Year 2000 issue on the Company will also be affected by
the Year 2000 readiness of its customers; suppliers of raw materials, components
and software; and providers of facilities, equipment and services. The Company
has identified critical suppliers and service providers, and sent them
questionnaires to determine their Year 2000 readiness. The responses to the
questionnaires are currently being reviewed by the Company. By the end of the
second quarter of 1999, the Company will decide the alternatives or contingency
plans required to address the potential failure of a third party to be Year 2000
ready.
While the Company's Year 2000 efforts are expected to reduce the Company's
level of uncertainty about the Year 2000 issue, failure by a third party to be
Year 2000 ready may have a material adverse effect on the Company's business,
results of operations and financial condition, and there is no assurance that a
material adverse effect may be avoided.
Item7a. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in foreign currency
rates. The Company does not use financial instruments for trading or other
speculative purposes.
A substantial portion of the Company's revenues are denominated in U.S.
dollars while a substantial portion of its costs and expenses are denominated in
Canadian dollars. A portion of the net U.S. dollar flows of the Company are
converted to Canadian dollars to fund Canadian dollar expenses, either through
the spot market or through forward contracts. In Japan, the Company has ongoing
operating expenses related to its operations. Net Japanese yen flows are
converted to U.S. dollars generally through forward contracts to minimize
currency exposure. The Company also has cash receipts under leases denominated
in French francs which are converted to U.S. dollars generally through forward
contracts to minimize currency exposure.
Contract amounts, average contractual exchange rates, and fair values are
disclosed in Note 19 to the Audited Financial Statements contained in Item 8.
29
<PAGE>
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements are filed as part of this
Report.
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Auditors' Report to Shareholders............................................................................. 31
Consolidated Balance Sheets as at December 31, 1998 and 1997................................................. 32
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996................... 33
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996................... 34
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996......... 35
Notes to Consolidated Financial Statements................................................................... 36
</TABLE>
30
<PAGE>
AUDITORS' REPORT TO SHAREHOLDERS
We have audited the consolidated balance sheets of Imax Corporation as at
December 31, 1998 and 1997 and the consolidated statements of operations,
shareholders' equity and cash flow for each year in the three-year period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatements. 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.
In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at December
31, 1998 and 1997 and the results of its operations and cash flows for each year
in the three-year period ended December 31, 1998 in accordance with United
States generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
February 9, 1999
31
<PAGE>
IMAX CORPORATION
CONSOLIDATED BALANCE SHEETS
In accordance with United States Generally Accepted Accounting Principles
(In thousands of U.S. dollars)
<TABLE>
<CAPTION>
As at December 31,
1998 1997
-------------- ------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 143,566 $ 64,069
Short-term marketable securities 39,305 10,184
Accounts receivable (note 3) 45,217 32,401
Current portion of net investment in leases (note 4) 9,303 6,007
Inventories and systems under construction (notes 3 and 5) 18,747 21,922
Prepaid expenses 3,766 2,474
------------- -------------
Total current assets 259,904 137,057
Long-term marketable securities 20,070 16,277
Net investment in leases (note 4) 79,124 51,825
Film assets (notes 3 and 6) 34,885 42,036
Capital assets (note 7) 46,563 41,360
Goodwill (notes 3 and 8) 38,129 43,915
Other assets (note 9) 11,416 11,889
------------- -------------
Total assets $ 490,091 $ 344,359
============= =============
Liabilities
Current liabilities
Accounts payable $ 9,882 $ 7,129
Accrued liabilities 30,153 24,220
Current portion of deferred revenue 22,062 29,067
Income taxes payable 435 318
------------- -------------
Total current liabilities 62,532 60,734
Deferred revenue 15,005 13,618
Senior notes due 2005 (note 10) 200,000 -
Senior notes due 2001 (note 11) - 65,000
Convertible subordinated notes (note 12) 100,000 100,000
Deferred income taxes (note 16) 23,263 19,596
------------- -------------
Total liabilities 400,800 258,948
------------- -------------
Minority interest 4,845 2,950
------------- -------------
Redeemable preferred shares (note 13) - 1,344
------------- -------------
Commitments and contingencies (notes 14 and 19)
Shareholders' equity
Capital stock (note 13) 55,236 52,604
Retained earnings 29,436 28,642
Other comprehensive income (226) (129)
-------------- --------------
Total shareholders' equity 84,446 81,117
------------- -------------
Total liabilities and shareholders' equity $ 490,091 $ 344,359
============= =============
</TABLE>
(the accompanying notes are an integral part of these consolidated
financial statements)
32
<PAGE>
IMAX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
In accordance with United States Generally Accepted Accounting Principles
(In thousands of U.S. dollars, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
-------------- --------------- --------------
<S> <C> <C> <C>
Revenue
Systems $ 140,874 $ 97,539 $ 85,972
Films 30,824 39,683 28,367
Other 18,657 21,259 15,499
-------------- --------------- --------------
190,355 158,481 129,838
Costs and expenses (notes 3 and 6) 111,784 73,806 58,257
-------------- --------------- --------------
Gross margin 78,571 84,675 71,581
Loss from equity accounted investees (notes 3 and 9) (6,763) (22) -
Selling, general and administrative expenses (note 3) 38,777 32,115 29,495
Research and development 2,745 2,129 2,493
Amortization of intangibles (note 3) 5,948 2,701 2,708
-------------- --------------- --------------
Earnings from operations 24,338 47,708 36,885
Interest income 5,320 5,604 5,797
Interest expense (14,646) (13,402) (11,765)
Foreign exchange gain (loss) 588 (623) (337)
-------------- ---------------- ---------------
Earnings before income taxes and minority interest 15,600 39,287 30,580
Provision for income taxes (notes 3 and 16) (9,810) (17,265) (13,579)
--------------- ---------------- ---------------
Earnings before minority interest 5,790 22,022 17,001
Minority interest (1,895) (1,357) (1,593)
--------------- ---------------- ---------------
Earnings before extraordinary item $ 3,895 $ 20,665 $ 15,408
Extraordinary loss on early retirement of debt,
net of income tax benefit of $ 1,588 (note 11) (2,095) - -
--------------- -------------- --------------
Net earnings $ 1,800 $ 20,665 $ 15,408
============= ============== =============
Earnings per share (note 13)
Earnings before extraordinary item
Basic $ 0.10 $ 0.71 $ 0.54
Diluted $ 0.09 $ 0.68 $ 0.50
Net earnings
Basic $ 0.03 $ 0.71 $ 0.54
Diluted $ 0.03 $ 0.68 $ 0.50
</TABLE>
(the accompanying notes are an integral part of these consolidated
financial statements)
33
<PAGE>
IMAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
In accordance with United States Generally Accepted Accounting Principles
(In thousands of U.S. dollars)
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
--------------- --------------- --------------
Cash provided by (used in):
<S> <C> <C> <C>
Operating Activities
Net earnings $ 1,800 $ 20,665 $ 15,408
Items not involving cash:
Depreciation and amortization (note 17) 22,677 15,075 12,685
Loss from equity accounted investees 6,763 22 -
Deferred income taxes 3,975 14,015 8,961
Unrecoverable film costs (note 6) 22,738 - -
Extraordinary loss on early extinguishment of debt 3,683 - -
Minority interest 1,895 1,357 1,593
Amortization of discount on senior notes - 311 1,863
Other (259) 237 145
Changes in deferred revenue on film production 8,046 (5,840) 3,331
Changes in other operating assets and liabilities (note 17) (47,371) (34,254) (17,211)
---------------- ---------------- ---------------
Net cash provided by operating activities 23,947 11,588 26,775
--------------- --------------- --------------
Investing Activities
Increase in marketable securities (32,920) (8,250) (18,164)
Increase in film assets (21,192) (28,056) (14,822)
Purchase of capital assets (14,021) (12,654) (11,905)
Increase in other assets (3,982) (4,502) (3,638)
---------------- ---------------- ---------------
Net cash used in investing activities (72,115) (53,462) (48,529)
---------------- ---------------- ---------------
Financing Activities
Repurchase of 10% senior notes due 2001 (67,789) - (4,919)
Issue of 7.875% senior notes due 2005 200,000 -
Issue of convertible subordinated notes - - 100,000
Deferred charges on debt financing (4,852) - (3,301)
Class C preferred shares dividends paid (386) - -
Redemption of Class C preferred shares (2,178) - -
Common shares issued 2,632 5,758 2,038
Repayment of long-term debt - (2,326) (729)
Common shares and warrants repurchased - - (19,508)
--------------- --------------- ---------------
Net cash provided by financing activities 127,427 3,432 73,581
--------------- --------------- --------------
Effect of exchange rate changes on cash 238 (78) 15
--------------- ---------------- --------------
Increase (decrease) in cash and cash equivalents
during the year
79,497 (38,520) 51,842
Cash and cash equivalents, beginning of year 64,069 102,589 50,747
--------------- --------------- --------------
Cash and cash equivalents, end of year $ 143,566 $ 64,069 $ 102,589
=============== =============== ==============
</TABLE>
(the accompanying notes are an integral part of these consolidated
financial statements)
34
<PAGE>
IMAX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
In accordance with United States Generally Accepted Accounting Principles
(In thousands of U.S. dollars)
<TABLE>
<CAPTION>
Number of
Common Shares
Issued and Retained Other Total
Outstanding Capital Earnings Comprehensive Shareholders'
Stock (Deficit) Income Equity
------------- ----- -------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 28,153,258 $ 64,046 $ (6,792) $ 232 $ 57,486
Issuance of common stock 391,960 2,038 - - 2,038
Common shares and warrants repurchased (660,000) (19,508) - - (19,508)
Accrual of stock compensation benefit - 234 - - 234
Accrual of preferred dividends - - (169) - (169)
Accretion of discount on preferred shares - - (140) - (140)
Net earnings - - 15,408 - 15,408
Foreign currency translation adjustments - - - (508) (508)
---------- ---------- --------- ----------- -----------
Balance at December 31, 1996 27,885,218 46,810 8,307 (276) 54,841
Issuance of common stock 1,230,200 5,758 - - 5,758
Accrual of stock compensation benefit - 36 - - 36
Accrual of preferred dividends - - (170) - (170)
Accretion of discount of preferred shares - - (160) - (160)
Net earnings - - 20,665 - 20,665
Foreign currency translation adjustments - - - 147 147
---------- ---------- --------- ---------- ----------
Balance at December 31, 1997 29,115,418 52,604 28,642 (129) 81,117
Issuance of common stock 362,966 2,632 - - 2,632
Accrual of preferred dividends - - (171) - (171)
Accretion of discount on preferred shares - - (183) - (183)
Premium paid on early redemption of Class
C Preferred shares - - (652) - (652)
Net earnings - - 1,800 1,800
Foreign currency translation adjustments - - - (97) (97)
Balance at December 31, 1998 29,478,384 $ 55,236 $ 29,436 $ (226) $ 84,446
========== ========== ========= =========== ==========
</TABLE>
(the accompanying notes are an integral part of these consolidated
financial statements)
35
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
1. Description of the Business
Imax Corporation provides a wide range of products and services to the
network of IMAX(R) theaters. The principal activities of the Company are:
o the design, manufacture and marketing of proprietary projection and
sound systems for IMAX theaters;
o the development, production, post-production and distribution of films
shown in the IMAX theater network; and
o the provision of other services to the IMAX theater network including
designing and manufacturing IMAX camera equipment for rental to
filmmakers and providing ongoing maintenance services for the IMAX
projection and sound systems.
2. Summary of Significant Accounting Policies
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. The most significant estimates are related to
the recoverability of film assets, capital assets, goodwill and the
measurement of contingencies. Actual results could be materially different
from these estimates. Significant accounting policies are summarized as
follows:
(a) Basis of consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries.
(b) Investments
Investments in marketable securities categorized as available-for-sale
securities are carried at fair value with unrealized gains or losses
included in a separate component of shareholders' equity. Investments in
marketable securities categorized as held-to-maturity securities are
carried at amortized cost.
Investments in joint ventures are accounted for by the equity method of
accounting under which consolidated net earnings include the Company's
share of earnings or losses of the investees. The carrying values of the
investments are adjusted for the Company's share of undistributed income
or losses since acquisition and dividends received are recorded as a
reduction in the investments. Write-downs are only made for declines in
value which are other than temporary.
(c) Inventories
Inventories are carried at the lower of cost, determined on a first-in,
first-out basis, or net realizable value. Finished goods and
work-in-process include the cost of raw materials, direct labor and
manufacturing overhead costs.
36
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
2. Summary of Significant Accounting Policies - (continued)
(d) Film assets
Film assets represent costs incurred in producing and distributing
films net of accumulated amortization. The film costs are charged as
expenses using the individual-film forecast method as prescribed by
Statement of Financial Accounting Standards No. 53 whereby film costs
are amortized in the same ratio that current gross revenues bear to
anticipated total gross revenues. Estimates of anticipated total gross
revenues are reviewed quarterly by management and revised where
necessary to reflect more current information.
The recoverability of film costs is dependent upon commercial
acceptance of the films. Any capitalized costs of a film that are
determined to be unrecoverable are charged to operations in the period
that determination is made.
(e) Capital assets
Capital assets are stated at cost and are depreciated on a straight-
line basis over their estimated useful lives as follows:
<TABLE>
<CAPTION>
<S> <C>
Projection equipment -- 10 to 15 years
Motion simulation equipment -- 5 years
years Camera equipment -- 5 to 10 years
Buildings -- 20 to 25
Office and production equipment -- 3 to 5 years
Leasehold improvements -- Over the term of the underlying leases
</TABLE>
(f) Goodwill
Goodwill represents the excess purchase price of acquired businesses over
the fair value of net assets acquired. Goodwill is amortized on a
straight-line basis over its estimated life ranging from 10 years to 25
years. The carrying value of goodwill is periodically reviewed by the
Company and impairments are recognized in earnings when the undiscounted
expected future operating cash flows derived from the acquired businesses
are less than the carrying value.
(g) Deferred revenue
Deferred revenue comprises receipts under systems sales and lease
contracts, film production contracts and film exhibition contracts not yet
recognized as revenue. The current portion of deferred revenue represents
the estimated amount to be recognized in earnings during the following 12
month period.
(h) Income taxes
Income taxes are accounted for under the asset and liability method whereby
deferred tax assets and liabilities are recognized for the expected future
tax consequences of events that have been recognized in the financial
statements or tax returns. Deferred tax assets and liabilities are measured
using tax rates expected to apply to taxable income in the years in which
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in earnings in the period in which the change occurs.
37
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
Summary of Significant Accounting Policies - (continued)
(i) Revenue and cost recognition
Sales and sales-type leases
Revenues from theater system sales and leases which transfer substantially
all of the benefits and risks of ownership to the customer ("sales-type
leases") are recognized on the completed contract method (that is upon
delivery of the system). Revenues include initial advance payments and
contracted minimum rental payments discounted to their present value.
Cash receipts under initial advance payments are generally received in
advance of deliveries and are recorded as deferred revenue. The associated
costs are recorded as inventories and systems under construction. Upon
delivery of the theater system, the deferred revenue and deferred costs,
net of residual value at the end of the lease term, are recognized in
earnings.
The Company recognizes the present value of the minimum rentals on
sales-type leases upon delivery of the theater system. Cash receipts under
minimum rental payments are received after delivery. Typically, ongoing
rentals are received over the life of the system agreement and under any
renewal periods. In the event of default of payment of minimum contracted
rentals, the Company may repossess the system and refurbish it for resale.
Royalties in excess of minimum rentals are recorded as revenue when due
under the terms of the lease agreement.
Operating leases
Revenues from leases which do not transfer substantially all of the
benefits and risks of ownership to the customer are treated as operating
leases where revenues and direct expenses are recognized over the term of
the lease and costs of leased assets are amortized over their estimated
useful lives.
Film production revenues
Revenues from films produced for third parties are recognized when the film
is completed and delivered to the sponsor. The associated production costs
are deferred and subsequently charged to earnings when the film is
delivered and the revenue is recognized.
(j) Research and development
Research and development expenditures are expensed as incurred.
(k) Foreign currency translation
Effective April 1, 1996, the U.S. dollar was adopted as the Company's
functional currency as a result of the continued growth of the Company's
business outside of Canada and the additional U.S. dollar denominated
financing raised by the Company in April 1996. Monetary assets and
liabilities of the Company's operations which are denominated in currencies
other than the U.S. dollar are translated into U.S. dollars at the exchange
rates prevailing at year end. Non-monetary items are translated at
historical exchange rates. Revenue and expense transactions are translated
at exchange rates prevalent at the transaction date. All exchange gains and
losses are included in the determination of net earnings in the period in
which they arise.
38
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
2. Summary of Significant Accounting Policies - (continued)
(l) Stock-based compensation
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
based Compensation, became effective for the Company for the year ended
December 31, 1996. This statement allows enterprises to continue to measure
compensation cost for employee stock option plans using the methodology
currently prescribed by APB Opinion No. 25, Accounting for Stock Issued to
Employees. The Company elected to remain with the accounting in Opinion No.
25 and has made pro forma disclosures of net earnings and earnings per
share in Note 13 as if the methodology prescribed by Statement No. 123 had
been adopted.
3. Rationalization of Motion Simulation and Attractions Business
Included in earnings for the year ended December 31, 1998 is a pre-tax
charge of $13,569,000 related to the Company's investment in its motion
simulation and attractions business. The Company's decision to rationalize
its activities in this business was based upon declining sales of its
motion simulation products and continued operating losses within the
business unit. The Company does not intend to manufacture or sell
additional Ridefilm motion base products (with the exception of delivering
in 1999 the three motion bases currently in backlog) and does not intend to
produce new motion simulation films.
As a result, management determined that there has been a permanent
impairment of the Ridefilm assets amounting to $13,293,000 based on the
estimated present value of future cash flows of the operations. As a result
of the re-valuation and write down of Ridefilm assets, the Consolidated
Statement of Operations for the Company reflect the following costs and
expenses for the year ended December 31, 1998: a) amortization of
intangibles includes $3,266,000 related to the write-off of the remaining
unamortized goodwill; b) costs and expenses include $1,427,000 related to
the write-down of three participating joint venture operations, $3,665,000
related to a write-down of film assets, $768,000 related to the write-down
of inventory (leaving the historical cost of assets contracted to be
delivered in 1999) and $1,067,000 related to the write-off of obsolete
fixed assets; c) selling, general and administrative expense includes
$1,682,000 related to a provision for doubtful accounts as the future
collectibility of amounts is expected to be impaired by the decision to
rationalize the business; d) loss from equity accounted investees includes
$543,000 representing the write-down of the assets to fair market value of
the Company's 50% equity share of a joint venture and e) income tax expense
includes a write-down of deferred state tax assets amounting to $875,000
relating to losses considered unlikely to be utilized. In addition to the
impairment of assets, costs and expenses includes a provision for costs
totaling $950,000 that will provide no future economic benefit and included
in selling, general and administrative expense for the year ended December
31, 1998 is a provision for severance of $201,000 for seven management,
sales and administrative staff.
39
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
4. Net Investment in Leases and Lease Payments Receivable
The Company enters into sales-type leases which have initial advance
payments and annual rental payments with contracted minimums which are
generally indexed with inflation. The Company's net investment in
sales-type leases comprises:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Total minimum lease payments receivable $ 159,422 $ 109,036
Residual value of equipment 5,004 3,157
Unearned finance income (62,792) (51,014)
------------- -------------
Present value of minimum lease payments receivable 101,634 61,179
Valuation allowance (13,207) (3,347)
------------- -------------
88,427 57,832
Less current portion 9,303 6,007
------------ ------------
$ 79,124 $ 51,825
============ ============
</TABLE>
Income recognized on systems from annual rental payments comprised the
following:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ---------
<S> <C> <C> <C>
Minimum rental payments on operating leases $ 910 $ 1,073 $ 1,178
Contingent rentals (1) 4,100 4,971 3,892
Finance income 5,144 4,241 2,878
------------ ------------ ----------
Total $ 10,154 $ 10,285 $ 7,948
============ ============ ==========
</TABLE>
(1) 1997 contingent rentals include $832,000 of arrears billings.
The estimated amount of minimum rental payments receivable from all signed
leases, excluding those in sales backlog at December 31, 1998, for each of
the next five years is as follows:
1999 $ 11,565
2000 $ 12,573
2001 $ 12,697
2002 $ 12,715
2003 $ 12,589
5. Inventories and Systems Under Construction
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Raw materials $ 7,555 $ 6,943
Work-in-process 10,686 14,508
Finished goods 506 471
--------------- ---------------
$ 18,747 $ 21,922
=============== ===============
6. Film Assets
1998 1997
--------------- ---------------
Completed films, net of amortization $ 25,687 $ 30,396
Films in production 9,198 11,313
Acquired film rights, net of amortization - 327
--------------- ---------------
$ 34,885 $ 42,036
=============== ===============
</TABLE>
40
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
6. Film Assets - (continued)
Included in costs and expenses for the year ended December 31, 1998 is a
charge of $22.7 million to reflect a write-down for unrecoverable film
costs. The write-down of film assets is attributed principally to the
write-down of the Ridefilm film library of $3,665,000 and the 15/70-format
films Mission to Mir, The Hidden Dimension and The IMAX Nutcracker.
7. Capital Assets
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------
Accumulated
Cost depreciation Net book value
----------------- ----------------- ------------------
<S> <C> <C> <C>
Equipment held for lease
Projection equipment $ 11,131 $ 6,324 $ 4,807
Motion simulation equipment 3,403 3,263 140
Camera equipment 12,373 2,870 9,503
----------------- ----------------- -----------------
26,907 12,457 14,450
----------------- ----------------- -----------------
Assets under construction 6,605 - 6,605
----------------- ----------------- -----------------
Other capital assets
Land 2,431 - 2,431
Buildings 17,227 2,368 14,859
Office and production equipment 18,389 10,255 8,134
Leasehold improvements 376 292 84
----------------- ----------------- -----------------
38,423 12,915 25,508
----------------- ----------------- -----------------
$ 71,935 $ 25,372 $ 46,563
================= ================= =================
1997
----------------------------------------------------------------
Accumulated
Cost depreciation Net book value
Equipment held for lease
Projection equipment $ 9,964 $ 4,052 $ 5,912
Motion simulation equipment 3,403 1,090 2,313
Camera equipment 9,466 2,440 7,026
----------------- ----------------- -----------------
22,833 7,582 15,251
----------------- ----------------- -----------------
Assets under construction 3,634 - 3,634
----------------- ----------------- -----------------
Other capital assets
Land 2,431 - 2,431
Buildings 14,557 1,793 12,764
Office and production equipment 14,297 7,150 7,147
Leasehold improvements 398 265 133
----------------- ----------------- -----------------
31,683 9,208 22,475
----------------- ----------------- -----------------
$ 58,150 $ 16,790 $ 41,360
================= ================ =================
</TABLE>
41
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
8. Goodwill
The accumulated amortization of goodwill excluding goodwill relating to
Ridefilm was $9,176,000 and $7,285,000 at December 31, 1998 and 1997,
respectively. The accumulated amortization of goodwill relating to Ridefilm
was $6,321,000 in 1998 and $2,423,000 in 1997. Unamortized goodwill related
to Ridefilm was fully written off in 1998 (see note 3).
9. Other Assets
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Investments in joint ventures accounted for under the equity method $ 2,454 $ 6,915
Deferred charges on debt financing 6,794 3,771
Other assets 2,168 1,203
--------------- ---------------
$ 11,416 $ 11,889
=============== ===============
</TABLE>
Included in loss from equity accounted investees for the year ended
December 31, 1998 is a loss of $1,937,000 representing the Company's share
of the loss of Forum Ride Associates, a 50% joint venture with Starwood
Hotels & Resorts Worldwide, Inc., operating an IMAX 3D Simulator Ride at
the Forum Shops at Caesars Palace in Las Vegas, Nevada. The Company also
took a charge of $4,208,000 to write-off its remaining investment in the
joint venture after considering current period operating losses combined
with a projection that demonstrated continuing losses exist.
Investments in joint ventures accounted for under the equity method as at
December 31, 1998 also reflects the charge to write-down a Ridefilm joint
venture (See note 3).
10. Senior Notes due 2005
In December, 1998, the Company issued $200 million of Senior Notes due
December 1, 2005 bearing interest at 7.875% per annum with interest payable
in arrears on June 1 and December 1 of each year, commencing June 1, 1999.
The 7.875% Senior Notes are the senior unsecured obligation of the Company,
ranking pari passu in right of payment to all existing and future senior
unsecured and unsubordinated indebtedness of the Company and senior in
right of payment to any subordinated indebtedness of the Company.
The 7.875% Senior Notes Indenture contains covenants that, among other
things, limit the ability of the Company and its subsidiaries to incur
additional indebtedness, pay dividends or make other distributions, make
certain investments, create certain liens, engage in certain transactions
with affiliates, engage in sale and leaseback transactions, engage in
mergers, consolidations or the transfer of all or substantially all of the
assets of the Company.
42
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
10. Senior Notes due 2005
The 7.875% Senior Notes are subject to redemption by the Company, in whole
or in part, at any time on or after December 1, 2002, at redemption prices
expressed as percentages of the principal amount for each 12-month period
commencing December 1 of the years indicated; 2002 - 103.938%, 2003 -
101.969%, 2004 and thereafter - 100.000% together with interest accrued
thereon to the redemption date. Until December 1, 2001, up to 35% of the
aggregate principal amount of the Notes may be redeemed by the Company
using the net proceeds of a public offering of common shares of the Company
or certain other equity placements, at a redemption price of 107.875%,
together with accrued interest thereon. The Company may also redeem the
notes, in whole or in part, at any time prior to December 1, 2002, at a
redemption price equal to 100% of the principal amount plus a "make-whole
premium" calculated in reference to the redemption price on the first date
that the notes may be redeemed by the Company plus accrued interest to, but
excluding, the redemption date. If certain changes result in the imposition
of withholding taxes under Canadian law, the 7.875% Senior Notes are
subject to redemption at the option of the Company, in whole but not in
part, at a redemption price of 100% of the principal amount thereof plus
accrued interest to the date of redemption. In the event of a change in
control, holders of the notes may require the Company to repurchase all or
part of the notes at a price equal to 101% of the principal amount thereof
plus accrued interest to the date of repurchase.
Interest expense on the 7.875% Senior Notes amounted to $1,181,000 in 1998.
11. Senior Notes due 2001
In December, 1998, the Company provided all holders of the 10% Senior Notes
due 2001 with a notice of redemption at a price in accordance with the
terms of the 10% Senior Notes of 104.29% of the principal amount. As of
December 31, 1998, all of the 10% Senior Notes due 2001 had been redeemed
for a total of $67,789,000. The excess of the redemption price over the
principal amount of the 10% Senior Notes of $2,789,000 and the write-off of
the remaining unamortized deferred financing costs of $894,000 resulted in
an extraordinary pre-tax loss of $3,683,000 in the year ended December 31,
1998.
Interest expense on the 10% Senior Notes amounted to $6,681,000 in 1998
(1997 - $6,175,000; 1996 - $6,621,000).
12. Convertible Subordinated Notes
In April 1996, the Company issued $100 million of Convertible Subordinated
Notes due April 1, 2003 bearing interest at 5.75 % payable in arrears on
April 1 and October 1. The Notes, subordinate to present and future senior
indebtedness of the Company, are convertible into common shares of the
Company at the option of the holder at a conversion price of $21.406 per
share (equivalent to a conversion rate of 46.7154 shares per $1,000
principal amount of Notes) at any time prior to maturity.
Interest expense related to the Convertible Subordinated Notes was
$5,750,000 during the year ended December 31, 1998 (1997 - $5,750,000; 1996
- $4,159,000).
The notes are redeemable at the option of the Company on or after April 1,
1999 at redemption prices expressed as percentages of the principal amount
(1999 - 103.286%; 2000 - 102.464%; 2001 - 101.643%; 2002 - 100.821%) plus
accrued interest. The notes may only be redeemed by the Company between
April 1, 1999 and April 1, 2001 if the last reported market price of the
Company's common shares is equal to or greater than $30 per share for any
20 of the 30 consecutive trading days prior to the notice of redemption.
The notes may be redeemed at any time on or after April 1, 2001 without
limitation.
43
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
13. Capital Stock and Redeemable Preferred Shares
(a) Authorized
The authorized capital of the Company consists of an unlimited number of
common shares and an unlimited number of Class C preferred shares issuable
in two series.
The following is a summary of the rights, privileges, restrictions and
conditions of each of the classes of shares.
Common shares
The holders of common shares are entitled to receive dividends if, as and
when declared by the directors of the Company, subject to the rights of the
holders of any other class of shares of the Company entitled to receive
dividends in priority to the common shares.
The holders of the common shares are entitled to one vote for each common
share held at all meetings of the shareholders.
Redeemable Class C preferred shares, Series 1
The holders of Class C shares are entitled to a cumulative dividend at the
rate of 7 % per annum on the Class C issue price of Canadian $100 per
share. These dividends shall accrue from the issue date but shall not be
declared or paid prior to the third anniversary date of the issue date.
Dividends on the Class C shares are to be paid in priority to dividends
payable to the holders of the common shares.
If on any anniversary date of the issue date after the third such
anniversary date the Class C cumulative dividends to be paid on such date
are not paid and such dividends were required to have been paid pursuant to
certain conditions, then the rate at which Class C cumulative dividends
shall accrue thereafter will increase by 1 % per annum to a maximum
dividend rate of 10 % per annum until all Class C cumulative dividends have
been paid as required, at which time the dividend rate will revert to 7 %
per annum.
The Class C shares are redeemable at the option of the Company at any time
in whole, or from time to time in part, in each case for an amount equal to
the Class C issue price plus all accrued and unpaid dividends to, but not
including, the date of such redemption. The Class C shares were to be
redeemed in whole on September 1, 2002. Notice of redemption for all
outstanding Class C shares was delivered on December 29, 1998 and all
outstanding shares were redeemed on January 21, 1999 (see note 13e).
Except as otherwise required by law, the holders of Class C shares Series 1
are not entitled to vote at any meeting of the shareholders.
Redeemable Class C preferred shares, Series 2
The Class C Series 1 preferred shares may be converted at any time in whole
upon a resolution of the directors of the Company into the same number of
Class C Series 2 preferred shares. The Series 2 shares shall be identical
to the Series 1 shares except that the holders of Series 2 shares will be
entitled to such number of votes as the directors determine subject to a
maximum of six percent of the votes attaching to all voting shares of the
Company outstanding immediately following the conversion.
44
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
13. Capital Stock and Redeemable Preferred Shares - (continued)
(b) Changes during the period
Pursuant to shareholders' approval at the Annual and Special Meeting held
on May 6, 1997, the Company's shares were split on a 2-for-1 basis in May
1997. Common share, stock option and earnings per share data for the
comparative periods give retroactive effect to the stock split as if it had
taken place at the beginning of the period.
In 1998, the Company issued 361,300 common shares pursuant to the exercise
of stock options for cash proceeds of $2,605,000 and 1,666 shares were
issued under the terms of an employment contract with an ascribed value of
$27,000.
In 1997, the Company issued 778,200 common shares pursuant to the exercise
of stock options for cash proceeds of $5,616,000 and 5,000 shares were
issued under the terms of an employment contract with an ascribed value of
$37,000.
In 1996, the Company issued 386,960 common shares pursuant to the exercise
of stock options for cash proceeds of $2,001,000 and 5,000 shares were
issued under the terms of an employment contract with an ascribed value of
$37,000. The Company repurchased 660,000 common shares and all of the
outstanding warrants of the Company from certain officers and directors of
the Company for $19,508,000 in cash.
(c) Shares held for other than retirement
As at December 31, 1998, and 1997, 213,000 (1996 - 660,000) issued common
shares are held by a subsidiary of the Company for other than retirement.
During 1997, 447,000 common shares held by a subsidiary of the Company were
sold to a former employee of the Company in connection with the exercise of
a stock option grant for cash proceeds of $105,000.
(d) Stock options and warrants
The Company has reserved a total of 4,618,788 common shares for future
issuance as follows:
(i) 381,744 common shares have been reserved for issuance pursuant to stock
options granted in connection with the employment of Douglas Trumbull,
former Vice Chairman of the Company, at an exercise price equivalent to
Canadian $0.32 per share and expire on September 1, 2002. These options
are fully vested.
(ii)26,208 common shares have been reserved for issuance pursuant to stock
options granted at an exercise price equivalent to Canadian $1.59 per
share which vest over a five-year period and expire on April 8, 2004. At
December 31, 1998, options in respect of 4,000 common shares were vested
and exercisable.
45
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
13. Capital Stock and Redeemable Preferred Shares - (continued)
(iii) 4,210,836 common shares have been reserved for issuance under the
Employee Stock Option Plan, of which options in respect of 3,327,300 common
shares are outstanding at December 31, 1998. The options granted under the
Employee Stock Option Plan generally vest over a five-year period and
expire 10 years from the date granted. As at December 31, 1998, options in
respect of 1,140,766 common shares were vested and exercisable.
<TABLE>
<CAPTION>
Number of shares Average exercise price per share
---------------- --------------------------------
1998 1997 1996 1998 1997 1996
----------- ------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of year 2,005,600 2,126,800 2,009,800 $ 14.55 $ 8.99 $ 6.86
Granted 1,815,500 711,000 481,000 22.58 23.10 15.47
Exercised (335,900) (749,200) (350,800) 7.14 7.45 6.49
Canceled or expired (157,900) (83,000) (13,200) 19.56 9.36 6.77
----------- ------------- ----------
Options outstanding, end of year 3,327,300 2,005,600 2,126,800 $ 19.38 $ 14.55 $ 8.99
========== =========== ===========
</TABLE>
The weighted average fair value of common share options granted in 1998 is
$11,707,000 (1997 - $5,604,000, 1996 - $2,622,000). The fair value of
common share options granted is estimated at the grant date using the
Black-Scholes option-pricing model with the following assumptions: dividend
yield of 0 %, a riskfree interest rate of 5 % (1997 and 1996 - 6%),
expected life of the options ranging from two to five years and expected
volatility of 40 %.
The following table summarizes certain information in respect of options
outstanding under the Employee Stock Option Plan as at December 31, 1998:
<TABLE>
<CAPTION>
Number of Shares
--------------------------------------------
Range of exercise Average exercise Average
prices per share Outstanding Vested price per share remaining term
---------------- ----------- ------ --------------- --------------
<S> <C> <C> <C> <C> <C>
$ 5.00 - $ 9.99 494,300 253,900 $ 6.83 6 years
$10.00 - $ 14.99 104,000 42,000 11.21 7 years
$15.00 - $ 19.99 526,400 302,000 16.35 7 years
$20.00 - $ 24.99 1,695,500 414,366 22.20 9 years
$25.00 - $ 28.99 507,100 128,500 27.02 83/4 years
------------------ -----------------
Total 3,327,300 1,140,766 $ 19.38 8 years
================== =================
</TABLE>
(e) Redeemable Preferred Shares
In December, 1998 all holders of the outstanding Redeemable Class C
Preferred Shares were notified by the Company that the shares were being
redeemed. As at December 31, 1998 accrued liabilities include the amount
owing on the redemption of the preferred shares of $3,300,000 Canadian.
Cumulative dividends payable amounted to $423,000 as at December 31, 1998.
In January 1999, all of the outstanding Redeemable Class C Preferred Shares
were redeemed and cumulative dividends owing were paid.
As at December 31, 1997, there were 33,333 Class C Series 1 redeemable
preferred shares issued and outstanding. Cumulative dividends payable on
the Class C Series 1 redeemable preferred shares amounted to $653,000 at
December 31, 1997.
46
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
13. Capital Stock and Redeemable Preferred Shares - (continued)
(f) Earnings per Share
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
Net earnings available to common shareholders:
Earnings before extraordinary loss $ 3,895 $ 20,665 $ 15,408
less: accrual of preferred dividends (171) (170) (169)
accretion of discount of preferred shares (183) (160) (140)
premium paid on early redemption of preferred
shares (652) - -
------------------- ----------------- -----------------
2,889 20,335 15,099
Extraordinary loss on the early redemption of debt,
net of income tax benefit of $1,588 (2,095) - -
------------------- ----------------- -----------------
$ 794 $ 20,335 $ 15,099
================== ================= =================
Weighted average number of common shares:
Issued and outstanding at beginning of year 29,115,418 27,885,218 28,153,258
Weighted average shares
Issued in the year 165,175 659,065 172,546
Repurchased in the year - - (476,686)
------------------ ----------------- ------------------
Weighted average used in computing basic
earnings per share 29,280,593 28,544,283 27,849,118
Assumed exercise of stock options, net of
shares assumed acquired under the Treasury
Stock Method 1,192,975 1,575,410 2,075,780
------------------ ----------------- -----------------
Weighted average used in computing diluted
earnings per share 30,473,568 30,119,693 29,924,898
================== ================= =================
</TABLE>
Common shares potentially issuable pursuant to the Convertible Subordinate
Notes would have an antidilutive effect on earnings per share and have not
been included in the above computations.
If the methodology prescribed by Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, had been adopted by the Company,
pro forma results would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net earnings (loss) $ (2,828) $ 19,499 $ 15,059
Earnings (loss) per share
Basic $ (0.13) $ 0.67 $ 0.53
Diluted $ (0.13) $ 0.64 $ 0.49
</TABLE>
47
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
14. Commitments
(a) Total minimum annual rental payments under operating leases for premises are
as follows:
1999 $2,074
2000 $2,174
2001 $2,338
2002 $2,461
2003 $2,518
Rent expense was $1,478,000 for the year ended December 31, 1998 (1997 -
$1,033,000; 1996 - $1,161,000).
(b) The Company has unused lines of credit amounting to Canadian $4.7 million,
or the equivalent in U.S. dollars. No commitment fees are payable on these
lines of credit.
The Company has guaranteed up to $5.75 million of a term loan undertaken by
the Forum Ride Associates joint venture to which it is a party in
connection with the development and construction the IMAX Race For Atlantis
attraction in Las Vegas. The term loan, which matures in January 2009,
bears interest at LIBOR plus 3 % and is collateralized by the assets of the
joint venture.
15. Government Assistance
A portion of the Company's research activities which relate to 3D motion
pictures is eligible for government grants. Government grants have been
credited against research and development expense in the amount of $67,000
during the year ended December 31, 1998 (1997 - $100,000; 1996 - $324,000).
16. Income Taxes
(a) Earnings before income taxes and minority interest by tax jurisdiction
comprise the following:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ---------------
<S> <C> <C> <C>
Canada $ 16,481 $ 31,872 $ 32,461
United States (5,439) 6,512 3,308
Japan 1,475 1,424 (5,351)
Other 3,083 (521) 162
---------------- ----------------- ---------------
Total $ 15,600 $ 39,287 $ 30,580
================ ================ ===============
(b) The provision for income taxes comprises the following:
1998 1997 1996
---------------- ---------------- ---------------
Current $ (4,247) $ (3,250) $ (4,618)
Deferred (5,563) (14,015) (8,961)
----------------- ----------------- ----------------
Total $ (9,810) $ (17,265) $ (13,579)
================= ================= ================
</TABLE>
48
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
16. Income Taxes - (continued)
(c) The provision for income taxes before extraordinary item differs from the
amount that would have resulted by applying the combined Canadian federal
and Ontario provincial statutory income tax rates (44.62 %) to earnings as
described below:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income tax expense at combined statutory rates $ (6,961) $ (17,530) $ (13,644)
(Increase) decrease resulting from:
Non-deductible expenses, including amortization of goodwill (2,727) (985) (1,519)
Manufacturing and processing profits deduction 159 684 977
Large corporations tax (235) (335) (275)
Income tax at different rates in foreign and other provincial
jurisdictions (266) 292 701
Investment tax credits and other 220 609 181
------------ ------------ ------------
Provision for income taxes as reported $ (9,810) $ (17,265) $ (13,579)
============= ============= =============
(d) The deferred income tax liability consists of:
1998 1997
------------- -------------
Net operating loss carry forwards $ 2,346 $ 2,349
Investment tax credit carry forwards 5,492 5,015
Asset write downs 1,688 800
Income recognition on systems deliveries (74,994) (52,374)
Excess book over tax depreciation and amortization 43,405 26,740
Other 1,611 (145)
------------- --------------
(20,452) (17,615)
Valuation allowance (2,811) (1,981)
-------------- --------------
$ (23,263) $ (19,596)
============== ==============
17. Consolidated Statements of Cash Flow
1998 1997 1996
------------ ------------ ------------
(a) Changes in other operating assets and
liabilities were as follows: Decrease
(increase) in:
Accounts receivable $ (12,816) $ (15,081) $ (7,940)
Net investment in leases (30,447) (18,674) (15,499)
Inventories and systems under construction 2,476 (1,365) (3,761)
Prepaid expenses (1,635) (604) 420
Increase (decrease) in:
Accounts payable 2,969 2,428 1,446
Accrued liabilities 5,933 7,543 5,633
Income taxes payable (187) (2,423) 1,964
Other deferred revenue (13,664) (6,078) 526
------------- ------------- ------------
$ (47,371) $ (34,254) $ (17,211)
============= ============= =============
(b) Cash payments made during the year on account of:
Income taxes $ 4,106 $ 5,145 $ 2,395
============ ============ ============
Interest $ 14,597 $ 11,402 $ 7,872
============ ============ ============
</TABLE>
49
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
17. Consolidated Statements of Cash Flow - (continued)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
(c) Depreciation and amortization comprise the following:
Acquired systems contracts in process $ - $ 1,027 $ 1,337
Film assets 5,740 4,905 2,850
Capital assets 8,459 5,560 5,020
Intangibles 5,948 2,701 2,708
Deferred financing costs 935 882 770
Other 1,595 - -
------------ ------------ ------------
$ 22,677 $ 15,075 $ 12,685
============ ============ ============
</TABLE>
18. Segmented Information
The Company has two reportable segments: systems and films. The systems
segment designs, manufactures and sells or leases and maintains projection
systems. The film segment performs production, post-production and
distribution of films. The accounting policies of the segments are the same
as those described in note 2. Segment performance is evaluated based on
gross margin less selling, general and administrative expenses, research
and development expenses, and goodwill amortization. Inter-segment
transactions are not significant.
<TABLE>
<CAPTION>
A) Business Segments
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue
Systems $ 140,874 $ 97,539 $ 85,972
Films 30,824 39,683 28,367
Other 18,657 21,259 15,499
------------ ------------ ------------
Total consolidated revenues $ 190,355 $ 158,481 $ 129,838
============ ============ ============
Earnings (loss) from operations
Systems $ 78,145 $ 52,594 $ 45,224
Films (16,458) 11,452 7,965
Other (18,053) 1,000 (1,101)
Corporate overhead (19,296) (17,338) (15,203)
------------- ------------- -------------
Consolidated earnings from operations $ 24,338 $ 47,708 $ 36,885
============ ============ ============
Depreciation and amortization
Systems $ 7,572 $ 6,741 $ 6,781
Films 5,908 5,100 2,954
Other and corporate 9,197 3,234 2,950
------------ ------------ ------------
$ 22,677 $ 15,075 $ 12,685
============ ============ ============
</TABLE>
50
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
18. Segmented Information - (continued)
Purchase of Capital Assets 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Systems $ 4,547 $ 6,103 $ 3,406
Films 194 206 76
Other 9,280 6,345 8,423
------------ ------------ ------------
$ 14,021 $ 12,654 $ 11,905
============ ============ ============
Assets
Assets
Systems $ 204,349 $ 167,926 $ 146,835
Films 49,048 52,199 23,729
Other 26,092 28,116 11,422
Corporate 210,602 96,118 126,758
------------ ------------- -----------
$ 490,091 $ 344,359 $ 308,744
============ ============ ===========
</TABLE>
In 1998, the loss in the film segment includes a write-down of $19,073,000
for unrecoverable film costs. The Other segment includes a charge of
$13,569,000 relating to rationalization of the motion simulation and
attractions business (note 3) and a loss of $6,145,000 from the Company's
50% share of Forum Ride Associates' loss for the year and the write-off of
the remaining carrying value of this equity investee (note 9).
B) Geographic Segments
Systems revenue and film distribution and post-production revenues by
geographic area are based on the location of the theatre, while the
location of the customer determines the geographic allocation of film
production revenues:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue
Canada $ 22,037 $ 12,890 $ 27,740
United States 79,494 70,070 50,852
Europe 45,680 38,238 25,567
Japan 12,454 11,986 17,350
Rest of World 30,690 25,297 8,329
------------ ------------ ------------
$ 190,355 $ 158,481 $ 129,838
============ ============ ============
Long-lived assets
1998 1997 1996
------------ ------------ ------------
Canada $ 134,740 $ 131,600 $ 108,808
United States 49,888 43,109 30,061
Europe 30,012 17,910 11,100
Japan 4,820 6,787 7,429
Rest of World 10,727 7,896 3,143
------------ ------------ ------------
$ 230,187 $ 207,302 $ 160,541
============ ============ ============
</TABLE>
51
<PAGE>
IMAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with United States Generally Accepted Accounting Principles
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
For the years ended December 31, 1998, 1997 and 1996.
19. Financial Instruments
From time to time the Company engages in hedging activities to reduce the
impact of fluctuations in foreign currencies on its profitability and cash
flow. The credit risk exposure associated with these activities would be
limited to all unrealized gains on contracts based on current market
prices. The Company believes that this credit risk has been minimized by
dealing with highly rated institutions.
To fund Canadian dollar costs in 1999 and 2000, the Company had entered
into forward exchange contracts as at December 31, 1998 to hedge the
conversion of $39 million of its cash flow into Canadian dollars at an
average exchange rate of Canadian $1.45 per U.S. dollar. In addition, the
Company had entered into forward exchange contracts as at December 31, 1998
to hedge the conversion of 182.6 million Yen of its cash flow in 1999 into
U.S. dollars at an average exchange rate of 122 Yen per U.S. dollar. The
Company recognizes exchange gains or losses on the forward exchange
contracts when the contracts mature.
The Company has also entered into foreign currency swap transactions to
hedge minimum lease payments receivable under sales-type lease contracts
denominated in Japanese Yen and French Francs. These swap transactions fix
the foreign exchange rates on conversion of 139 million Yen at 98 Yen per
U.S. dollar through September 2004 and on 15.5 million Francs at 5.1 Francs
per U.S. dollar through September 2005. The Company recognizes an exchange
gain or loss when the swaps mature.
The estimated fair values of the Company's financial instruments at
December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Carrying Estimated Fair
Amount Value
------ -----
<S> <C> <C>
Cash and cash equivalents $ 143,566 $ 143,566
Marketable securities 59,375 59,375
Senior notes 200,000 200,000
Convertible subordinated notes 100,000 145,000
Foreign currency contracts 473 (1,901)
</TABLE>
The carrying amount of cash and cash equivalents approximates fair value
due to the short maturity of these instruments. Marketable securities,
which principally represent investments in corporate bonds maturing through
2000, have been categorized as available-for-sale securities and are
carried at estimated fair value. The fair values of the Company's Senior
Notes and Convertible Notes are estimated based on quoted market prices for
the Company's debt. The fair value of foreign currency contracts held for
hedging purposes represents the estimated amount the Company would pay to
terminate the agreements, taking into consideration current exchange rates
and the credit worthiness of the counterparts.
52
<PAGE>
20. Contingencies
(a) In April 1994, Compagnie France Film Inc. filed a claim against the Company
in the Superior Court in the District of Montreal, in the Province of
Quebec, alleging breach of contract and bad faith in respect of an
agreement which the plaintiff claims it entered into with the Company for
the establishment of an IMAX theater in Quebec City, Quebec, Canada. Until
December 1993, Predecessor Imax was in negotiations with the plaintiff and
another unrelated party for the establishment of an IMAX theater in Quebec
City. In December 1993, Predecessor Imax executed a system lease agreement
with the other party. During the negotiations, both parties were aware of
the other party's interest in also establishing an IMAX theater in Quebec
City. The plaintiffs claimed damages of Canadian $4.6 million, representing
the amount of profit they claim they were denied due to their inability to
proceed with an IMAX theater in Quebec City, together with expenses
incurred in respect of this project and pre-judgment interest.
Compagnie France Film had also incorporated a shell company, 3101-8450
Quebec Inc. ("3101"). 3101 was to, among other things, enter into a lease
for the proposed IMAX theater site. In November 1993, while negotiations
between Compagnie France Film and the Company were still ongoing, 3101
entered into a lease for the site. 3101 defaulted on the lease and the
landlord sued 3101 in an unrelated action to which the Company was not a
party. In February 1996, 3101 was found liable to pay the landlord damages
in the amount of Canadian $2.5 million. Subsequent to that judgment 3101
intervened in the lawsuit between Compagnie France Film and the Company in
order to claim from the Company damages in the amount of Canadian $2.5
million.
The company disputed these claims and the suit went to trial in January
1998. In a decision rendered in April 1998, the Court dismissed the
plaintiffs' claims with costs. In May 1998, Campagnie France Film Inc. and
3101 both filed appeals of the April 1998 decision to the Court of Appeal.
The Company believes that it will be successful in responding to these
appeals and the ultimate loss, if any, will not have a material impact on
the financial position or results of operations of the Company, although no
assurance can be given with respect to the ultimate outcome of this
litigation.
(b) On February 26, 1996, Iwerks Entertainment Inc. filed a complaint against
the Company alleging violations under the Sherman Act, the Clayton Act,
tortious interference with contracts and prospective economic advantage,
and unfair competition. The plaintiff was seeking unquantified damages,
injunctive relief and restitution. All claims against the Company were
dismissed in a summary judgement in April 1998. In May 1998, Iwerks
Entertainment, Inc. filed an appeal of this decision. The amount of the
loss, if any, cannot be determined at this time.
(c) In addition to the litigation described above, the Company is currently
involved in other litigation which, in the opinion of the Company's
management, will not materially affect the Company's financial position or
future operating results, although no assurance can be given with respect
to the ultimate outcome for any such litigation.
21. Impact of Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities will become effective in the
first quarter of the Company's 2000 fiscal year. The Company is evaluating
the impact that the requirements of this Statement will have on the
accounting for its hedging activities.
53
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information regarding the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Bradley J. Wechsler.................. 47 Chairman, Co-Chief Executive Officer and Director
Richard L. Gelfond................... 43 Vice Chairman, Co-Chief Executive Officer and Director
John M. Davison...................... 40 Chief Operating Officer and Chief Financial Officer and Director
Andrew Gellis........................ 44 Senior Vice President, Film
Michael A. Gibbon.................... 55 Executive Vice President, Technology
David B. Keighley.................... 51 Senior Vice President and President of David Keighley
Productions 70MM Inc.
Mark J. Thornley..................... 41 Vice President, Finance
G. Mary Ruby......................... 41 Vice President, Legal Affairs and Corporate Secretary
John A. Mackie....................... 34 Assistant Secretary
Mary C. Sullivan..................... 35 Vice President, Human Resources and Administration
Graeme Ferguson...................... 69 Director
Michael Fuchs........................ 53 Director
Garth M. Girvan...................... 49 Director
Murray B. Koffler.................... 75 Director
Philip C. Moore...................... 45 Director
Miles S. Nadal....................... 41 Director
Marc A. Utay......................... 39 Director
</TABLE>
Under the Articles of the Company, the Board of Directors is divided into
three classes, each of which serves for a three year term. The term of Class II
directors, currently composed of Garth M. Girvan, Murray B. Koffler and Marc A.
Utay, expires in 1999. The term of Class I directors, currently composed of John
M. Davison, Graeme Ferguson, Michael Fuchs and Philip C. Moore, expires in 2000.
The term of Class III directors, currently composed of Richard L. Gelfond, Miles
S. Nadal and Bradley J. Wechsler expires in 2001.
Bradley J. Wechsler has been Chairman of the Company since March 1994 and
Co-Chief Executive Officer since May 1996. From March 1, 1994 to September 12,
1994, Mr. Wechsler also served a Interim Chief Executive Officer. Prior to 1994,
Mr. Wechsler held various finance and operations positions in the entertainment
industry. Mr. Wechsler also serves on the Boards of NYU Hospital, the Kernochan
Center for Law, Media and the Arts, and the American Museum of the Moving Image.
Richard L. Gelfond has been Vice Chairman of the Company since March 1994
and Co-Chief Executive Officer since May 1996. In 1991 Mr. Gelfond founded
Cheviot Capital Advisors Inc., a financial advisory and merchant banking firm
that specializes in acquisitions and venture capital investments. In addition,
Mr. Gelfond serves on the boards of several private and philanthropic entities.
54
<PAGE>
John M. Davison joined the Company in 1987 and was appointed Vice
President, Finance in 1991. In 1995 Mr. Davison became Senior Vice President,
Finance and Administration, responsible for the financial affairs and
administrative operations of the Company. In 1997 Mr. Davison was appointed
Executive Vice President, Operations and Chief Financial Officer and in February
1999 was appointed Chief Operating Officer and Chief Financial Officer. He
became a Director of the Company in May 1994. Mr. Davison is a Chartered
Accountant and Chartered Business Valuator. Mr. Davison is a Canadian citizen.
Andrew Gellis joined the Company as Senior Vice President, Film in January
1996 responsible for supervising the production and distribution of the
Company's films for both the institutional and commercial markets. Prior to
joining the Company, Mr. Gellis was affiliated with Sony Corporation and its
numerous entertainment/technology divisions, where he helped pioneer and advance
Sony's entrance into the large-format filmmaking arena. Mr. Gellis also wrote
and produced Sony's highly-acclaimed 15/70-format 3D film Across The Sea of
Time. Mr. Gellis began his career at the J. Michael Bloom Agency, where he
founded the literary department on both coasts, served as a production executive
at CBS Film, Inc., was a studio-based producer at Twentieth-Century Fox and was
the head of his own film production company.
Michael A. Gibbon joined the Company in 1988 and became Vice President,
Technology in 1989 and Senior Vice President, Technology in 1995 and was
appointed Executive Vice President, Technology in 1999. Mr. Gibbon is
responsible for technology, manufacturing and client support, for both the
making of films and for theaters and projection systems. Mr. Gibbon is
registered as a professional engineer by the Association of Professional
Engineers of Ontario. Mr. Gibbon is a Canadian citizen.
David B. Keighley has been a Senior Vice President of the Company since
July 1997 and is President of David Keighley Productions 70MM Inc. From January
1995 to July 1997, Mr. Keighley was a Vice President of the Company. Mr.
Keighley is responsible for motion picture post-production and image quality
assurance for 15/70-format films and has been involved in the production and
post-production of 15/70-format films for more than two decades. Mr. Keighley
was recognized by the Board of Governors of the Society of Motion Picture and
Television Engineers (SMPTE) as the winner of the 1993 Herbert T. Kalmus Gold
Medal Award for his outstanding contributions to 15/70mm print quality control
and pioneering efforts in making high-quality 15/70mm release prints through the
interpositive/internegative system. Mr. Keighley is a Canadian citizen.
Mark J. Thornley joined the Company in 1996 and was appointed Vice
President, Planning in January 1998 and was appointed Vice President, Finance in
October 1998. Prior to joining the Company, Mr. Thornley was a partner in a
private financial consulting and communications firm. Mr. Thornley is a Canadian
citizen.
G. Mary Ruby joined the Company in 1987 and was appointed Vice President,
Legal Affairs and Corporate Secretary in 1991. Ms Ruby acts as Corporate
Secretary to the Board of Directors and provides advice with respect to the
Company's legal affairs. Ms. Ruby is a member of the Ontario Bar and is a
Canadian citizen.
John A. Mackie joined the Company in 1998 as Assistant General Counsel and
was appointed Assistant Secretary in February 1999. Prior to joining the
Company, Mr. Mackie was Associate General Counsel of AT&T Canada Long Distance
Services Company (now AT&T Canada Corp.), from January 1998, and legal counsel
of AT&T Canada Long Distance Services Company from August 1997. Prior to August
1997, Mr. Mackie was an associate with the law firm Fraser & Beatty (now Fraser
Milner). Mr. Mackie is a member of the Ontario Bar and is a Canadian citizen.
Mary C. Sullivan joined the Company in 1996 as Director, Human Resources
and was appointed Vice President, Human Resources and Administration in January
1998. Prior to joining the Company, Ms. Sullivan was Director, Human Resources
of Central Park Lodges. Ms. Sullivan is a Canadian citizen.
Graeme Ferguson, a Director of the Company since May 1996, was a co-founder
and past President of the Company. Since 1994, Mr. Ferguson has been a
consultant to the Company on various film productions. He has produced or
co-produced such 15/70-format films as North Of Superior, Man Belongs To The
Earth, Snow Job, Ocean, Hail Columbia!, The Dream Is Alive, Blue Planet, Journey
To The Planets, Destiny In Space, Into The Deep, L5-First City In Space, and
Mission To Mir. Mr. Ferguson is a Canadian citizen and is a Member of the Order
of Canada.
55
<PAGE>
Michael Fuchs, a Director of the Company since May 1996, held the position
of Chairman and Chief Executive Officer of Home Box Office from October 1984
until November 1995. Under his leadership, HBO became the largest and most
successful pay-television company in the world. In May, 1995 Mr. Fuchs added the
chairmanship of Warner Music Group to his portfolio, becoming responsible for
the overall management of the two divisions for the world's leading
entertainment conglomerate, Time Warner Inc. Mr. Fuchs left Time Warner in
November, 1995. Mr. Fuchs has received many honors, including induction into the
Broadcasting & Cable Magazine Hall of Fame (1994), The National Academy of Cable
Programming Governors Award (1994), The Milton Petrie Award from The National
Victim Center (1992), The Simon Wiesenthal Center's Distinguished Service Award
(1989), The National Cable Television Association's Vanguard Award for
Programming Excellence (1988), The Simon Wiesenthal Center's Humanitarian Award
(1996), Union College's Nott Medal for Distinguished Alumni (1995), and People
For the American Way's Spirit of Liberty Award (1996). Mr. Fuchs holds numerous
other directorships.
Garth M. Girvan, a Director of the Company since 1994, is a partner of
McCarthy Tetrault, special Canadian counsel to the Company. Mr. Girvan is a
Canadian citizen.
Murray B. Koffler, a Director of the Company since May 1996, founded
Shoppers Drug Mart in 1968 and presently serves as Honorary Chairman. Mr.
Koffler co-founded Four Seasons Hotels Limited and presently serves as a
director. Since 1988, Mr. Koffler has been Chairman of the International Board
of Directors of the Weizmann Institute of Science in Israel. Mr. Koffler holds
numerous other directorships. Mr. Koffler is a Canadian citizen and is an
Officer of the Order of Canada.
Philip C. Moore, a Director of the Company since 1994, is a partner of
McCarthy Tetrault, special Canadian counsel to the Company. Mr. Moore is a
Canadian citizen.
Miles S. Nadal, a Director of the Company since 1994, has been President
and Chief Executive Officer, and a director, of MDC Corporation since 1986. MDC
Corporation is a multi-disciplined communications and marketing organization
providing a broad range of consulting, production and manufacturing services in
the communications industry. Mr. Nadal is a Canadian citizen.
Marc A. Utay, a Director of the Company since May 1996, has been Managing
Director of Wasserstein Perella & Co. Inc. and a member of the firm's Policy
Committee, Mr. Utay is head of the firm's Leveraged Finance, Retailing and
Media, Telecommunication and Entertainment groups. Prior to his joining
Wasserstein Perella, Mr. Utay was Managing Director at Bankers Trust Company
where he specialized in leveraged finance and mergers and acquisitions.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth, for the periods indicated, the
compensation paid or granted by the Company and its subsidiaries to the
individuals who served during 1998 as Chief Executive Officers and the four most
highly compensated executive officers of the Company, other than the Chief
Executive Officers, who were serving as executive officers at December 31, 1998
(collectively, the "Named Executive Officers"). As noted in Item 13 under
"Standstill Agreement", the Articles of the Company provide that the entering
into or changing the terms of any agreement with the Co-Chief Executive Officers
is an "Extraordinary Matter" requiring unanimous approval by the "CEO Advisors"
(who currently comprise a representative of Wasserstein Perella and the Co-Chief
Executive Officers), failing which unanimous approval of the Board of Directors
is required. The compensation for the Co-Chief Executive Officers for the period
January 1, 1998 through June 30, 1998 was determined in accordance with their
employment agreements effective January 1, 1997 and for the period from July 1,
1998 through December 31, 1998, in accordance with the terms of their renewal
employment agreements effective July 1, 1998 which agreements were approved by
the Board of Directors upon the recommendation of the Compensation Committee,
which is composed of three directors independent of management, after receiving
the unanimous recommendation of the CEO Advisors.
56
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
Other
Annual
Name and Principal Position of Year ended Compensation Restricted Securities Under All Other
Named Executive Officer December 31 Salary Bonus (1) (2) Stock Awards Options Granted Compensation (9)
- --------------------------- ----------- --------- --------- --------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
($) ($) ($) ($) (#) ($)
Bradley J. Wechsler 1998 605,000 800,000 -- 330,000(4) 458,000 8,522
Chairman and Co-Chief 1997 710,000 1,300,000 -- 465,000(3) 80,000 8,614
Executive
Officer 1996 650,000 650,000 -- -- -- 8,022
Richard L. Gelfond 1998 605,000 800,000 -- 330,000(4) 458,000 8,306
Vice Chairman and Co-Chief 1997 710,000 1,300,000 -- 465,000(3) 80,000 8,614
Executive Officer 1996 650,000 650,000 -- -- -- 7,806
David B. Keighley, Senior 1998 218,123 266,000 -- -- 15,000 8,522
Vice
President and President, 1997 178,849 220,597 -- -- 15,000 11,019
David Keighley 1996 150,078 149,438 -- -- 10,000 8,189
Productions 70MM Inc.
John M. Davison 1998 200,000 100,000 -- -- 75,000 10,404
Chief Operating Officer and 1997 193,025 73,455 -- -- 35,000 10,273
Chief Financial Officer 1996 146,580 45,631 -- -- 20,000 8,006
Andrew Gellis 1998 225,000 50,000 50,000(6) -- 12,500 8,306
Senior Vice President, Film 1997 210,000 55,000 50,000(6) -- 12,500 8,614
1996 210,000 55,125 50,000(6) -- 62,000 306
Christian Jorg 1998 215,000 25,000 -- -- -- 8,198
Senior Vice President, IMAX 1997 208,692 40,000 136,875(8) -- 12,500 8,614
Attractions and Chief 1996 198,731 44,324 77,500(8) -- 25,000 162
Operating
Officer of Ridefilm
Corporation (7)
</TABLE>
(1) These amounts are paid under annual incentive arrangements that the
Company has with each of the Named Executive Officers, as detailed under
"Employment Contracts."
(2) The value of perquisites and other personal benefits for each Named
Executive Officer does not exceed the lesser of $50,000 and 10% of his
annual salary and bonus.
(3) These amounts represent the dollar value of the grant of 30,000 synthetic
restricted shares ("phantom stock") on January 1, 1997 to each of Messrs.
Wechsler and Gelfond as detailed under "Employment Contracts".
(4) These amounts represent the dollar value of the grant of 15,000 phantom
stock on January 1, 1998 to each of Messrs. Wechsler and Gelfond as
detailed under "Employment Contracts". The value of this phantom stock
grant to each of the Named Executives as at December 31, 1998 was
$474,375.
(5) 1996 amounts have been restated to reflect the 2-for-1 stock split which
became effective by May 27, 1997. (6) This amount was paid on account of
certain script writing services provided by Mr. Gellis. (7) Effective
February 22, 1999 Mr. Jorg's employment with the Company was terminated.
(8) This amount represents the taxable benefit in respect of the 5,000
fully paid-up shares issued to Mr. Jorg pursuant to his employment
contract.
(9) These amounts reflect (i) the payment by the Company of life insurance
premiums on the lives of the Named Executive Officers, and (ii)
contributions to the Company's defined contribution pension plans.
57
<PAGE>
Options Granted
The Company has a Stock Option Plan under which the Company may grant
options to purchase common shares on terms that may be determined, within the
limitations of the Stock Option Plan. The aggregate number of common shares
reserved for issuance under the Plan is 4,210,836 common shares. Options to
purchase 3,327,300 common shares have been granted and are outstanding under the
Plan as at December 31, 1998, of which 533,334 options were granted subject to
receipt of shareholder and regulatory approvals. The exercise price for options
issued under the Plan, is not to be less than the market price of the common
shares on the date of grant. An option will be exercisable for a maximum period
of 10 years from the date of grant, subject to earlier termination if the option
holder ceases to be employed by the Company. The Board of Directors determines
vesting requirements. If a Participant's employment with the Company terminates
for any reason, any Options which have not vested will be surrendered for
cancellation without any consideration being paid therefor. If the Participant's
employment is terminated without "cause" or by reason of such Participant's
resignation, death or permanent disability, the Participant (or the
Participant's estate) will be entitled to exercise the Participant's vested
Options for a period of 30 days. If the Participant's employment is terminated
for cause, such Participant's vested Options will be surrendered for
cancellation without any consideration being paid therefor. If the Participant
is a party to an employment agreement with the Company or any of its
subsidiaries and breaches any of the restrictive covenants in such agreement,
such Participant will be required to surrender all unexercised Options for
cancellation without any consideration being paid therefor and will be obligated
to pay to the Company an amount equal to the aggregate profit realized by such
Participant with respect to any prior Option exercises.
The following table sets forth information relating to individual grants of
options to purchase common shares of the Company to Named Executive Officers
under the Stock Option Plan during the financial year ended December 31, 1998 in
respect of services rendered or to be rendered to the Company:
Option Grants in Financial Year ended December 31, 1998
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value at Assumed
Options Annual Rates of
Securities Granted to Stock Price
Under Employees Appreciation for
Options in Financial Exercise Expiration Option Term
------------------
Name Granted Year Price Date 5% 10%
---------------------- ---------- -------- -------------- ---------- ------- -------
(#) (%) ($/Common Share) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Bradley J. Wechsler(1) 80,000 23.50 1-Jan-05 770,800 1,786,000
(2) 211,333 22.38 25-Aug-08 2,979,669 7,520,116
(3) 166,667 22.38 25-Aug-08 2,349,905 5,930,712
---------- --------- ---------
458,000 25.23 6,100,374 15,236,828
========== ========= =========
Richard L. Gelfond (1) 80,000 23.50 1-Jan-05 770,800 1,786,000
(2) 211,333 22.38 25-Aug-08 2,979,669 7,520,116
(3) 166,667 22.38 25-Aug-08 2,349,905 5,930,712
---------- --------- ---------
458,000 25.23 6,100,374 15,236,828
========== ========= ==========
John Davison (4) 75,000 4.13 21.36 13-Aug-08 1,009,260 2,547,180
Andrew Gellis (4) 12,500 0.69 21.36 13-Aug-08 168,210 424,530
David Keighley (4) 15,000 0.83 21.36 13-Aug-08 201,852 509,436
</TABLE>
(1) These options vested immediately upon the grant date and entitle the Named
Executive Officer to purchase one common share for each option. The market
value of the common shares underlying the options was equal to the exercise
price on the date of the grant.
(2) 111,333 of these options vested immediately upon the grant date and 100,000
of these options vested on January 1, 1999. These options entitle the Named
Executive Officer to purchase one common share for each option. The market
value of the common shares underlying the options was equal to the exercise
price on the date of the grant.
58
<PAGE>
(3) These options are subject to shareholder and regulatory approvals and
vested on January 1, 1999 subject only thereto. These options entitle the
Named Executive Officer to purchase one common share for each option. The
market value of the common shares underlying the options was equal to the
exercise price on the date of the grant.
(4) These options vest over five years at the rate of 20% per year and entitle
the Named Executive Officer to purchase one common share for each option.
The market value of the common shares underlying the options was equal to
the exercise price on the date of the grant.
Aggregated Option Exercises during the Financial Year
Ended December 31, 1998 and Financial Year-End Option Values
<TABLE>
<CAPTION>
Unexercised Options at Value of Unexercised
Securities Aggregate financial Year-End in-the-money Options
Acquired Value Exercisable/ at Financial Year-end
Name on Exercise Realized Unexercisable Exercisable/Unexercisable(1)
- --------------------- ------------- ------------ ---------------------- ----------------------------
<S> <C> <C> <C> <C>
(#) ($) (#) ($)
Bradley J. Wechsler NIL NIL 271,333/266,667 2,953,274/2,465,336
Richard L. Gelfond NIL NIL 271,333/266,667 2,953,274/2,465,336
David Keighley 24,500 530,634 31,500/49,000 686,858/703,265
Christian Jorg 20,000 363,750 22,500/45,000(2) 390,363/735,450
John M. Davison 33,000 653,043 14,000/148,008 170,830/1,998,052
Andrew Gellis NIL NIL 27,300/59,700 492,913/896,963
</TABLE>
(1) Calculated based on the December 31, 1998 closing price of the common
shares on Nasdaq of $31.625.
(2) These 45,000 options were cancelled in January 1999 in connection with
the termination of Mr. Jorg's employment with the Company.
Pension Plans
The Company maintains defined contribution employee pension plans for its
employees, including its executive officers. The Company makes contributions to
these plans on behalf of employees in an amount equal to 5% of their base salary
subject to certain prescribed maximums. During the financial year ended December
31, 1998, the Company contributed an aggregate of $9,752 to the Canadian plan on
behalf of Mr. Davison and an aggregate of $40,000 to the Company's defined
contribution employee pension plan qualified under Section 401(k) of the U.S.
Internal Revenue Code on behalf of Messrs. Wechsler, Gelfond, Keighley, Jorg and
Gellis. The Company does not have any other pension plans for its employees.
Employment Contracts
The Company had entered into renewal employment agreeements with each of
Messrs. Wechsler and Gelfond ("the Executives") with effect from January 1, 1997
for a two-year term. The employment agreements provided that each of the
Executives would receive an annual salary of $710,000. In addition, at the
beginning of each year of the term, each Executive was to be granted the right
to receive 30,000 synthetic shares ("phantom stock"). At any time after January
1, 1998 and January 1, 1999, each Executive would have the right to exercise the
right to receive the phantom stock by being paid an amount equal the fair market
value of an equal number of common shares of the Company on the date on which
the Executive makes the request. As part of the January 1997 employment
agreement, each Executive was also granted 80,000 options on January 2, 1998
which options expire on January 1, 2005.
On November 3, 1998 the Company entered into employment agreements with
each of the Executives with effect from July 1, 1998 for a three-year term.
Under the Company's governance process as set forth in its Articles and By-laws,
the "CEO Advisors" unanimously recommended to the Compensation Committee, which
is composed of three directors independent of management, the approval of these
agreements, which were approved by the Board of Directors upon the
recommendation of the Compensation Committee. The CEO Advisors include a
representative of Wasserstein Perella, the largest shareholders of the Company.
The renewal employment agreements provide that each of the Executives will
receive a salary of US $500,000 in each year of the term. These agreements also
59
<PAGE>
provide that each of the Executives will receive a bonus for each of 1998, 1999,
2000 and the period January 1, 2001 to June 30, 2001 of $605,000, $500,000,
$500,000 and $250,000 adjusted by a multiple of zero to two times, tied to the
performance of the Company and certain qualitative and quantitative measures
determined by the CEO Advisors and the Compensation Committee of the Board. The
bonus paid to each of Messrs. Wechsler and Gelfond in respect of 1998 was
$800,000. In 1998 each Executive was also paid $688,125 upon exercising their
right to receive an amount equal to the fair market value of 30,000 shares,
equal to the number of synthetic restricted shares ("phantom stock") granted on
January 1, 1997. The renewal employment agreements reduced the number of
synthetic restricted shares ("phantom stock") which were to be granted on
January 1, 1998 as per the former employment agreements, from 30,000 per
executive to 15,000. Each Executive is also granted 378,000 options (subject to
receipt of shareholder and regulatory approval) to purchase common shares in
accordance with the Stock Option Plan on August 26, 1998 and is to be granted
400,000 options on January 1, 2000, which options expire on August 25, 2008 and
December 31, 2009 respectively. Under the agreements, each of the Executives is
to perform such services with respect to the Company's business as may be
reasonably requested from time to time by the Board of Directors and which are
consistent with his position as Co-Chief Executive Officer. In addition, the
Company is to use its best efforts to cause the Executives to be elected to the
Board of Directors and to the designation of a CEO Advisor. In addition, a
provision contained in their original employment agreements is continued,
whereby each of the Executives is also entitled to receive, upon a sale of the
Company or the exercise after March 1, 1999 by the Executives of their rights to
require the Company to take action to liquidate their common shares under a
Shareholders' Agreement among Wasserstein Perella Partners, L.P., Mr. Wechsler,
Mr. Gelfond and certain other investors dated as of June 16, 1994, a cash bonus
in an amount equal to the product of (a) 0.375% and (b) the amount by which the
sale or liquidation transaction imputes an equity value in excess of Cdn.
$150,000,000 to the common shares originally issued by the Company (on a fully
diluted basis but excluding the common shares issued upon the conversion of the
Class B convertible preferred shares of the Company formerly outstanding which
were converted into common shares on June 16, 1994 and the common shares
issuable upon the exercise of warrants owned by each of Messrs. Wechsler and
Gelfond). Under the employment agreements, the Company is to equalize the
Executives to the taxes which each of the Executives would have paid had he
earned his employment compensation and paid taxes thereon solely in the United
States. The employment agreements also contain non-competition provisions.
The Company and David Keighley Productions 70 MM Inc. (formerly David
Keighley Productions and 70MM Inc.) ("DKP/70MM"), a wholly-owned subsidiary of
the Company, entered into an employment agreement on July 15, 1997. The
agreement is for a five-year term. Under this agreement, Mr. Keighley is to
receive an annual base salary of $212,405 in the year ended July 15, 1998 and
will receive an annual base salary of 105% of the previous year's base salary in
each of the next four years during the term of the agreement. Mr. Keighley is
entitled to receive an annual bonus of one-third of his annual base salary if
DKP/70MM met it pre-tax profit threshold as provided in the agreement. Mr.
Keighley is also entitled to receive a further profit-based bonus of 10% of any
excess of DKP/70MM's audited profit before taxes over DKP/70MM's pre-tax profit
threshold. Mr. Keighley's bonus in respect of DKP/70MM's year ended December 31,
1998 was U.S. $266,000. Under the agreement, Mr. Keighley has also given
covenants regarding confidentiality and non-competition. The agreement provides
that the employment of Mr. Keighley may be terminated at any time for cause or
without cause. If Mr. Keighley's employment is terminated without cause,
DKP/70MM must continue to pay Mr. Keighley his annual base salary for a maximum
period of 36 months. In addition to the above, the Company provided Mr. Keighley
with a temporary housing loan in the amount of U.S. $75,000 plus interest (which
was repaid in 1997) to be used in connection with his relocation to Los Angeles
at the Company's request.
Mr. Jorg entered into an employment agreement on August 8, 1995 under which
he was employed as Vice President, Business Affairs and Business Development.
Effective March 1, 1997 Mr. Jorg was promoted to the position of Senior Vice
President and Chief Operating Officer, IMAX Attractions and Chief Operating
Officer of Ridefilm Corporation. The agreement was for a three-year term. Under
his agreement Mr. Jorg received an annual base salary of $195,000 in the first
year of the employment term, $205,000 in the second year and $215,000 in the
third year plus an annual performance bonus (with a minimum guaranteed bonus of
$20,000 for 1997). Pursuant to the agreement, Mr. Jorg received 10,000 fully
paid common shares of the Company. Mr. Jorg has covenants
60
<PAGE>
regarding confidentiality and non-competition. The agreement provided that the
employment of Mr. Jorg may be terminated at any time for cause. If Mr. Jorg's
employment was terminated without cause, the Company was to pay Mr. Jorg his
annual base salary and guaranteed bonus for the balance of the term. The Company
entered into a new Employment Agreement with Mr. Jorg effective August 8, 1998
which provided for an annual salary of $215,000 and provided that if Mr. Jorg's
employment was terminated without cause, Mr. Jorg was entitled to receive his
salary and benefits of a period of 90 days. Pursuant to a letter agreement dated
January 21, 1999, Mr. Jorg confirmed receipt of notice of termination on January
7, 1999 with termination of employment effective February 22, 1999. Mr. Jorg's
entitlement to receive salary and benefits terminates effective April 7, 1999.
Mr. Gellis entered into an employment agreement effective January 1, 1998
under which he was employed as Senior Vice President, Film of the Company. The
agreement is for a two-year term. Under this agreement Mr. Gellis receives an
annual base salary of $225,000 for 1998 and $250,000 for 1999 plus an annual
performance bonus at a target of 30% of salary, with a guaranteed minimum annual
bonus of $50,000. Mr. Gellis is also entitled to receive a minimum of $50,000 in
each year of the term in respect of script writing services performed by Mr.
Gellis for the Company. Mr. Gellis has given covenants regarding confidentiality
and non-competition. The agreement provides that the employment of Mr. Gellis
may be terminated at any time for cause. If Mr. Gellis' employment is terminated
without cause, the Corporation must pay Mr. Gellis his annual salary and
guaranteed bonus and benefits for the balance of the term. If Mr. Gellis'
employment is terminated without cause in connection with a change in control,
the Corporation must pay Mr. Gellis his annual salary and guaranteed bonus and
benefits for the greater of the balance of the term and six months.
Mr. Davison entered into an employment agreement with the Company on
January 16, 1991, as amended by a letter dated August 31, 1992, under which he
was employed as Director, Corporate Development and then promoted to Vice
President, Finance. The agreement is for an indefinite term and contains
covenants regarding confidentiality and non-competition. The agreement provides
that the employment of Mr. Davison may be terminated at any time for cause. If
Mr. Davison's employment is terminated without cause, the Corporation must pay
Mr. Davison his annual salary for 12 months. Mr. Davison and the Company entered
into a share option agreement dated as of April 8, 1994. Under this agreement
Mr. Davison was granted options to purchase 75,008 common shares of the Company
at Cdn. $1.595 per share. The options vest over a five year period with 50%
vesting on the attainment of certain performance criteria to be determined by
the Company and the remaining vesting as to 20% each year. Any unvested options
on the date of any termination of Mr. Davison's employment are forfeited.
Compensation Committee
The Board of Directors constituted a Compensation Committee in December
1996. The members of the Compensation Committee are Messrs. Girvan, Nadal and
Utay. Mr. Fuchs is an unofficial member of the Committee. As the Compensation
Committee did not participate in executive compensation decisions in respect of
1998, other than the employment agreement entered into by the Co-Chief Executive
Officers, the compensation of the Company's employees was established through
guidelines set by the Board of Directors.
Compensation for all the Company's employees, including its Named Executive
Officers, is based on each employee's job responsibilities and on his or her
individual performance over time. The Company's executive compensation program
has three principal components: base salary, annual variable incentive
compensation and stock options. The Company believes these components
collectively provide a fair and competitive pay package and an appropriate
relationship between an executive's compensation, the executive's performance,
and the Company's performance.
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Directors' Compensation
Directors are reimbursed for the expenses of attending meetings of the
Board of Directors. In addition, members of the Board of Directors who are not
also employees of the Company receive Cdn. $20,000 per year plus Cdn. $1,500 for
each meeting of the Board attended in person and Cdn. $750 for each telephone
meeting of the Board or meeting of any committee of the Board, whether
participating in person or by telephone. In addition, each of the directors who
are not also employees of the Company are granted options to purchase 4,000
common shares at an exercise price equal to the market value of the common
shares of the Company on the date of grant which vest on the date of grant and
expire on the date which is 10 years after the date of grant.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the beneficial
ownership of each class of the Company's securities as at December 31, 1998 or
as otherwise indicated below, including (i) all beneficial owners of more than
5% of the Company's voting capital stock, (ii) all directors and Named Executive
Officers individually, and (iii) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------
Title of Class Beneficial Owners Number of Shares % of
-------------- ----------------- ---------------- -------
Class(1)
-------
<S> <C> <C> <C>
Common Shares Wasserstein Perella Group: 10,177,384(2) 34.3
Wasserstein Perella Partners, L.P.
Wasserstein Perella Offshore Partners, L.P.
WPPN, Inc.
Goldman Sachs Group: 1,551,594(3) 5.2
Goldman Sachs & Co.
The Goldman Sachs Group, L.P.
Goldman Sachs 1998 Exchange Place Fund, L.P.
Goldman Sachs 1997 Exchange Place Fund, L.P.
Goldman Sachs Management Partners, L.P.
Oppenheimer Group: 3,375,000(4) 11.4
Oppenheimer Funds, Inc.
Oppenheimer Convertible Securities Fund
Capital Research Group: 4,694,810(5) 15.8
Capital Research and Management Company
Small Cap World Fund Inc.
Capital Guardian Trust Company
Capital International, Inc.
Capital International, S.A.
Bradley J. Wechsler....................................... 836,633 (6) 2.8
Richard L. Gelfond........................................ 856,633 (7) 2.9
Graeme Ferguson........................................... 44,642 (8) *
John M. Davison........................................... 14,000 (9) *
Michael Fuchs............................................. 59,496 (8) *
Garth M. Girvan........................................... 37,898 (8) *
David B. Keighley......................................... 31,500 (10) *
Christian H. Jorg......................................... 42,500 (11) *
Andrew Gellis............................................. 27,300 (12) *
Miles S. Nadal............................................ 16,000 (13) *
Murray B. Koffler......................................... 16,200 (8) *
Philip C. Moore........................................... 12,000 (8) *
Marc A. Utay.............................................. 12,000 (8) *
All directors and executive officers as a group (16 2,079,140 (14) 7.0
persons)..................................................
Class C
Preferred Shares (15) John M. Davison........................................... 217 *
David B. Keighley......................................... 83 *
Graeme Ferguson........................................... 212 *
All directors and executive officers as a group (16 816 2.4
persons)..................................................
</TABLE>
* less than 1 %.
(1) Based on dividing the Number of Shares by the total shares outstanding as
of December 31, 1998.
(2) Based on information contained in a Schedule 13G dated February 12, 1999.
(3) Based on information contained in a Schedule 13G dated February 16, 1999
and information provided directly to the Company by Goldman Sachs. Goldman
Sachs disclaimed beneficial ownership of an unspecified number of such
shares.
(4) Based on information contained in a Schedule 13G dated February 11, 1999.
Includes 3,000,000 shares issuable upon conversion of the 5.75%
Convertible Debentures due 2003.
(5) Based on information contained in a Schedule 13G dated February 8, 1999.
Includes 455,210 shares issuable upon the conversion of the 5.75%
Convertible Debenture due 2003. Capital Research and Management Company,
Capital Guardian Trust Company, Capital International, Inc. and Capital
International, S.A. each disclaimed beneficial ownership of the 3,136,810
shares reported held by them, advising they are owned by accounts under
their discretionary management.
(6) Included in the amount shown are 271,333 common shares as to which Mr.
Wechsler had, at December 31, 1998, the right to acquire beneficial
ownership through the exercise of options.
(7) Included in the amount shown are 271,333 common shares as to which Mr.
Gelfond had, at December 31, 1998, the right to acquire beneficial
ownership through the exercise of options.
(8) Included in the amount shown are 12,000 common shares as to which Messrs.
Ferguson, Fuchs, Girvan, Koffler, Moore and Utay had, at December 31,
1998, the right to acquire beneficial ownership through the exercise of
options.
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<PAGE>
(9) Included in the amount shown are 14,000 common shares as to which Mr.
Davison had, at December 31, 1998, the right to acquire beneficial
ownership through the exercise of options.
(10) Included in the amount shown are 31,500 common shares as to which
Mr.Keighley had, at December 31, 1998, the right to acquire beneficial
ownership through the exercise of options.
(11) Included in the amount shown are 22,500 common shares as to which Mr. Jorg
had, at December 31, 1998, the right to acquire beneficial ownership
through the exercise of options.
(12) Included in the amount shown are 27,300 common shares as to which Mr.
Gellis had, at December 31, 1998, the right to acquire beneficial
ownership through the exercise of options.
(13) Included in the amount shown are 16,000 common shares as to which Mr.
Nadal had, at December 31, 1998, the right to acquire beneficial ownership
through the exercise of options.
(14) Included in the amount shown are 773,966 common shares as to which all
directors and executive officers as a group had, at December 31, 1998, the
right to acquire beneficial ownership through the exercise of options.
(15) All shareholders of the outstanding Class C Preferred Shares were notified
on December 29, 1998 that the shares were being redeemed by the Company.
All outstanding Class C Preferred Shares were redeemed by the Company in
January 1999.
Statements as to securities beneficially owned by directors and by
executive officers, or as to securities over which they exercise control or
direction, are based upon information obtained from such directors and executive
officers and from records available to the Company.
Shareholders' Agreements
The Corporation, Wasserstein Perella Partners, L.P., Wasserstein
Perella Offshore Partners, L.P., WPPN, Inc., and the Michael J. Biondi Voting
Trust (collectively "WP"), and each of Messrs. Wechsler and Gelfond are parties
to a Second Amended and Restated Shareholders Agreement (the "Shareholders
Agreement") dated as of February 9, 1999, which amends and restates the previous
amended and restated shareholders agreement among those parties dated June 16,
1994. The Shareholders Agreement includes, among other things, certain
restrictions on transfers of common shares, take-along rights and come-along
rights. If WP holds at least 35% of their original holdings and WP desires to
transfer all of their securities in a transaction in which a majority of the
shares of outstanding common stock are to be sold, then Messrs. Gelfond and
Wechsler will be required to sell their securities on the same terms as WP sells
its securities.
The Shareholders Agreement also contains provisions related to the
composition of the Board of Directors and committees thereof. WP is entitled,
but not required, to designate individuals to be nominated for election as
directors as follows: so long as WP holds 3,685,759 or more Common shares, it
may designate six nominees, of whom three may be employees of WP and its
affiliates (the "WP Employee Designees") and three shall be independent persons
and resident Canadians. If WP holds less than 3,685,759 Common shares, but
1,842,879 or more Common shares, it may designate four nominees, of whom two may
be WP Employee Designees and two shall be independent persons and resident
Canadians. If WP holds less than 1,842,879 Common shares but 921,439 or more
Common shares, it may designate two nominees, one of may be a WP Employee
Designee and the other of whom shall be an independent person and shall be a
resident Canadian. In addition to these, provisions, each of Messrs. Wechsler
and Gelfond is entitled to be a director of the Corporation so long as he is
either a Co-Chief Executive Officer or is the Chief Executive Officer of the
Corporation or Messrs. Wechsler and Gelfond own more than 375,000 Common shares.
In addition, Messrs. Wechsler and Gelfond are collectively entitled, but not
required, to designate individuals to be nominated for election as directors as
follows: so long as they hold 1,628,000 or more Common shares, they may
designate three nominees, all of whom shall be independent persons and resident
Canadians. If they hold less than 1,628,000 Common shares, but 1,075,000 or more
Common shares, they may designate two nominees, both of whom shall be
independent and resident Canadians. If they hold less than 1,075,000 Common
shares but 375,000 or more Common shares, they may designate one nominee who
shall be an independent person. If the requirement that the Corporation have
`resident Canadian' directors is changed, then neither WP nor Messrs. Wechsler
and Gelfond will be required to designate resident Canadian nominees. Each of
the nominees of WP who is to be an independent person is subject to the approval
by Messrs. Wechsler and Gelfond, which approval is not to be unreasonably
withheld; each of the nominees of Messrs. Wechsler and Gelfond
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<PAGE>
is subject to the approval of WP, which approval is in WP's sole discretion for
the first nominee to serve in each such position and thereafter, is not to be
unreasonably withheld. Each of WP and Messrs. Wechsler and Gelfond has agreed to
use their best efforts to cause each of the individuals designated to be elected
or appointed as a director of the Corporation, whether at the next meeting of
shareholders of the Company (the "Meeting") or thereafter.
The Shareholders Agreement also provides that the Corporation, WP and each
of Messrs. Wechsler and Gelfond shall use their best efforts to cause the
Corporation to establish a nominating committee of the Board of Directors
consisting of two directors, one designated by WP and the other designated by
Messrs. Wechsler and Gelfond. In addition, WP has the right, subject to the
approval of Messrs. Wechsler and Gelfond, to designate a WP Employee Designee
for appointment by the Board of Directors of the Corporation as the
Non-Executive Chairman of the Corporation, as long as WP holds at least
2,948,607 Common shares. Michael J. Biondi has been approved as such designee.
If Mr. Biondi no longer holds that position, then WP is to propose three
replacements and Messrs. Wechsler and Gelfond shall select one of those proposed
for appointment by the Board as the Non-Executive Chairman. Each of Messrs.
Wechsler and Gelfond is entitled to be appointed as a Co-Chairman or Chairman of
the Corporation as long as he is a Co-Chief Executive Officer or the Chief
Executive Officer of the Corporation. The Agreement provides that the duties of
the Non-Executive Chairman and the Co-Chief Executive Officers shall be as set
forth in the Bylaws, including the requirement that the following actions be
approved by the Non-Executive Chairman and at least one of the Co-Chief
Executive Officers: setting the dates and times of meetings of the directors and
shareholders (other than normal quarterly Board of Directors, and annual
shareholders' meetings), setting the agenda of such meetings, and appointing
members of committees of the Board of Directors other than persons designated by
WP and Messrs. Wechsler and Gelfond as provided in the Shareholders' Agreement.
Each of WP and Messrs. Wechsler and Gelfond have the right to designate one
director to serve on each committee of the Board of Directors of the
Corporation, provided that each such person meets applicable regulatory
requirements.
Each of WP and Messrs. Wechsler and Gelfond have agreed to use their best
efforts to cause there no longer to be CEO Advisors as of the date upon which
all of the WP Employee Designees are elected as directors of the Corporation.
After that date, none of WP or Messrs. Wechsler and Gelfond shall take any
action to reestablish the CEO Advisors and the majority approval requirements
described below under "Standstill Agreement" would apply.
Registration Rights Agreement
The Corporation, WP and Messrs. Wechsler and Gelfond have also entered into
a registration rights agreement (the "Registration Rights Agreement") dated as
of February 9, 1999, which carries forward the corresponding provisions of the
June 16, 1994 shareholders agreement, and pursuant to which each of WP and
Messrs. Wechsler and Gelfond have certain rights to cause the Corporation to use
its best efforts to register their securities under the U.S. Securities Act of
1933. WP is entitled to effect up to four demand registrations and Messrs.
Wechsler and Gelfond are entitled to make two such demand registrations. WP and
Messrs. Wechsler and Gelfond also have unlimited piggy-back rights to register
their securities under the Registration Rights Agreement whenever the
Corporation proposes to register any securities under the U.S. Securities Act,
other than the registration of securities pursuant to an initial public offering
or the registration of securities upon Form S-4 or S-8 under the U.S. Securities
Act or filed in connection with an exchange offer or an offering of securities
solely to the Corporation's existing shareholders. In addition to these
provisions, if Messrs. Wechsler and Gelfond hold at least 25% of their original
holdings, WP has recouped its original investment plus a 30% compounded annual
return on such investment, and WP initiates the sale of the Corporation, then
for 60 days thereafter, WP will enter into exclusive negotiations with Messrs.
Gelfond and Wechsler, and for another 60 days thereafter WP may not enter into
an agreement for the sale of the Corporation to a third party. The Registration
Rights Agreement also provides that Messrs. Wechsler and Gelfond will have the
right from March 1 to March 31 in any, but only one, of 1999, 2000 and 2001, to
notify the Corporation of their decision to require the Corporation to take
action to liquidate their common shares. The Corporation is required to use its
best efforts to cause at its option either (i) the sale of the Corporation
within a period of 180 days from receipt of the notice to liquidate, (ii) the
filing of a registration statement pursuant to the U.S. Securities Act within a
period of 120 days from its receipt of the notice to liquidate, or (iii)
purchase the securities owned by Messrs. Gelfond and Wechsler for cash at the
fair market value as agreed upon by the Corporation and Messrs. Gelfond and
Wechsler within 20 days of the notice to liquidate, or in the event of their
failure to reach an agreement, as determined by a procedure utilizing nationally
recognized investment banking firms. In the event that Messrs. Gelfond and
Wechsler exercise their rights to require the Corporation to take such action,
they may be entitled to certain cash bonus payments as described above under
"Executive Compensation - Employment Contracts".
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<PAGE>
The former shareholders of the Corporation have substantially similar
piggyback registration rights that commenced on March 1, 1996 pursuant to the
terms of the Selling Shareholders' Agreement (as defined below).
WP, Messrs. Gelfond and Wechsler, and the former shareholders of
Predecessor Imax have entered into another shareholders' agreement (the "Selling
Shareholders' Agreement") which includes, among other things, registration
rights, tag along rights and drag along rights.
Item 13. Certain Relationships and Related Transactions
Standstill Agreement
The Corporation, each of Messrs. Wechsler and Gelfond and WP entered into
an Amended and Restated Standstill Agreement (the "Standstill Agreement") as of
February 9, 1999 which amends and restates the previous Standstill Agreement
dated June 16, 1994. Under the terms of the Standstill Agreement, WP agreed to
vote in any election for directors in favour of each person nominated by the
then current Board of Directors, not to participate in or facilitate proxy
contests, not to deposit into a voting trust or subject voting securities to an
agreement with respect to voting such securities, not to acquire or affect or
attempt to acquire or effect control of the Corporation or to participate in a
"group" as defined pursuant to Section 13(d) of the U.S. Securities Exchange Act
of 1934, which owns or seeks to acquire beneficial ownership or control of
the Corporation, and not to attempt to influence the Corporation except through
normal Board of Directors' processes. In addition, the parties agreed that the
CEO Advisors currently provided for in the Articles and By-laws of the
Corporation would cease to exist upon the election of those directors (the "WP
Employee Designees") WP is to have the right to designate as provided in the
Second Amended and Restated Shareholders' Agreement (the "Shareholders'
Agreement'), which was also entered into by those same parties as of February 9,
1999. To accomplish this, the Corporation agreed to submit to its shareholders
at the Meeting resolutions to amend the Articles and Bylaws to delete reference
to the CEO Advisors, and each of the parties to the Standstill Agreement agreed
to use their best efforts so to amend the Articles and Bylaws as of the date on
which all of the WP Employee Designees are elected or appointed as directors of
the Corporation. The Standstill Agreement continues in effect until the earlier
of June 30, 2001, unless extended by WP at its option for successive one year
terms until March 1, 2004, or the date upon which WP holds less than 700,000
Common shares.
As noted above, shareholders are to be asked at the Meeting for their
approval of resolutions, the effect of which will be to delete from the Articles
of the Corporation those provisions establishing the CEO Advisors, effective
upon the date of the election or appointment to the Board of Directors of the
Corporation of all of the WP Employee Designees and to set forth the requirement
that certain matters be approved by 75% of the directors then in office. These
matters are: (i) hiring or terminating the employment of the Chief Executive
Officer or any Co-Chief Executive Officer of the Corporation; (ii) issuing any
shares of capital stock for a purchase price, or incurring indebtedness, in an
amount of US$25 million or more; (iii) disposing of any material single asset,
or all or substantially all of the assets of the Corporation or approving the
sale or merger of the Corporation; (iv) acquiring a substantial interest in any
other entity or entering into any major strategic alliance; and (v) entering
into or changing the terms of any agreement or transaction with WP or Messrs.
Wechsler and Gelfond (other than agreements in the ordinary course of business,
such as employment agreements). Prior to that date, the current provisions of
the Articles and Bylaws of the Corporation relating to the CEO Advisors would
remain in effect. The Articles and Bylaws currently provide that if the Board of
Directors appoints CEO Advisors to the CEO and the Board of Directors with
respect to the extraordinary matters set forth below (the "Extraordinary
Matters"), then any action of the Board of Directors with respect to an
Extraordinary Matter requires the unanimous approval of the directors unless the
CEO Advisors have unanimously recommended that the Board of Directors approve
the action, in which case a simple majority of the Board of Directors is
required to approve the action. The By-laws of the Corporation provide that: (a)
the CEO Advisors are comprised of three or five individuals; (b) the CEO
Advisors have the responsibility of being available to the CEO to consult with
him on the Extraordinary Matters prior to the implementation of any decisions
related to such matters, and prior to any request that the Board of Directors
consider any such matters; (c) the CEO is required to consult with the CEO
Advisors on the Extraordinary Matters
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prior to the implementation of any decisions related to such matters, and prior
to any request that the Board of Directors consider any such matters; (d) the
CEO Advisors have the responsibility of being available to consult with the
Board of Directors on any Extraordinary Matters and they may provide the Board
of Directors with their views on any such matters, and (e) the CEO Advisors have
no power to make any decisions on any matters and are not a committee of the
Board of Directors for any purpose. Messrs. Wechsler and Gelfond and Mr.
Townsend Ziebold, the designee of WP, currently serve as the CEO Advisors.
Pursuant to the employment agreements described above under "Employment
Contracts" each of Messrs. Wechsler and Gelfond are to be designated as CEO
Advisors. Under the Corporation's By-laws, the Board of Directors has the power
to terminate a CEO Advisor, subject to the contractual obligations of the
employment agreements and the Standstill Agreement.
Under the current Articles and By-laws the following decisions of the Board
of Directors are considered "Extraordinary Matters": (a) hiring or firing the
CEO or the Corporation's primary external lawyers or accountants; (b) incurring
any capital expenditure in excess of Cdn. $5 million; (c) incurring indebtedness
in amount of Cdn. $10 million or lending money to, or guaranteeing obligations
of, others; (d) commencing or settling litigation other than in the ordinary
course or that is likely to have material impact on the Corporation; (e)
entering into contracts or transactions outside of the ordinary course of
business providing for payments in any fiscal year in excess of Cdn. $5 million;
(f) disposing of any material single asset, or all or substantially all of the
assets of the Corporation; (g) acquiring a substantial interest in any other
entity (other than joint ventures under Cdn. $10 million) or entering into any
major strategic alliance; (h) changing the nature of the Corporation's business
or entering into new line of business; (i) entering into or changing terms of
any agreements or transactions with WP, Mr. Gelfond and Mr. Wechsler; (j)
issuing any shares of capital stock; (k) doing or permitting any act whereby the
Corporation would be bankrupt; (l) approving annual budgets and operating
targets; and (m) hiring or firing any officer or employee of the Corporation
paid more than Cdn. $175,000 per annum (increased by 6% per annum beginning with
the end of the financial year ended December 31, 1994).
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The consolidated financial statements filed as part of this Report are
included in Part II.
(a)(2) Financial Statement Schedules
No financial statement schedules are required to be filed as part of this
Report.
(a)(3) Exhibits
The Items listed as Exhibits 10.1 to 10.12 relate to management contracts or
compensatory plans or arrangements.
Exhibit
No. Description
- --- -----------
3.1 Articles of Incorporation of Imax Corporation. Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form F-1 (File No. 33-77536)(the "Registration Statement").
3.2 Bylaw No. 1 of Imax Corporation. Incorporated by reference to Exhibit
3.2 to the Registration Statement.
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Exhibit
No. Description
- --- -----------
4.1 Share Option Agreement, dated as of March 1, 1994, between WGIM
Acquisition Corporation and Douglas Trumbull. Incorporated by
reference to Exhibit 4.6 to the Registration Statement.
4.2 Amended and Restated Shareholders' Agreement, dated as of June 16,
1994 (the "Shareholders' Agreement"), by and among Imax
Corporation, Wasserstein Perella Partners, L.P., Wasserstein
Perella Offshore Partners, L.P., WPPN, Inc., Richard L. Gelfond and
Bradley J. Wechsler, Revere Equity Corp. and Chemical Equity
Associates. Incorporated by reference to Exhibit 4.7 to Form 10-
K/A for the year ended December 31, 1994.
4.3 Standstill Agreement, dated as of June 16, 1994, among Imax
Corporation, Wasserstein Perella Partners, L.P., Wasserstein
Perella Offshore Partners, L.P. and WPPN, Inc. Incorporated by
reference to Exhibit 4.8 to Form 10-K/A for the year ended December
31, 1994.
4.4 Shareholders' Agreement, dated as of January 3, 1994, among WGIM
Acquisition Corporation, the Selling Shareholders as defined
therein, Wasserstein Perella Partners, L.P., Wasserstein Perella
Offshore Partners, L.P., Bradley J. Wechsler, Richard L. Gelfond
and Douglas Trumbull (the "Selling Shareholders' Agreement").
Incorporated by reference to Exhibit 4.9 to the Registration
Statement.
4.5 Amendment, dated as of March 1, 1994, to the Selling Shareholders'
Agreement. Incorporated by reference to Exhibit 4.10 to the
Registration Statement.
4.6 Letter, dated as of January 3, 1994, from WP and GW Shareholders
(as defined in the Selling Shareholders' Agreement) to Douglas
Trumbull. Incorporated by reference to Exhibit 4.11 to the
Registration Statement.
4.7 Indenture, dated as of March 1, 1994, between WGIM Acquisition
Corporation and Continental Bank, National Association, as Trustee.
Incorporated by reference to Exhibit 10.2 to the Registration
Statement.
4.8 Indenture, dated as of April 9, 1996, between Imax Corporation and
Chemical Bank, as Trustee, related to the issue of the 5 3/4%
Convertible Subordinated Notes due April 1, 2003. Incorporated by
reference to Exhibit 4.3 to Amendment No.1 to the Company's
Registration Statement on Form F-3 (File No.333-5212).
*4.9 Indenture, dated as of December 4, 1998 between Imax Corporation
and U.S. Bank Trust, N.A., as Trustee, related to the issue of the
7.875% Senior Notes due December 1, 2005.
Registrant agrees to provide copies of instruments with respect to
long-term debt and its working capital facility, which do not
exceed 10 % of the total assets of the registrant and its
subsidiaries on a consolidated basis, to the Commission upon
request.
*4.10 Shareholders Agreement, dated as of February 9, 1999 by and among
Wasserstein Perella Partners, L.P., Wasserstein Perella Offshore
Partners, L.P., WPPN Inc, the Michael J. Biondi Voting Trust,
Bradley J. Wechsler and Richard L. Gelfond and Imax Corporation.
*4.11 Standstill Agreement, dated as of February 9, 1999 by and among
Wasserstein Perella Partners, L.P., Wasserstein Perella Offshore
Partners, L.P., WPPN Inc, and the Michael J. Biondi Voting Trust,
Imax Corporation, Richard L. Gelfond and Bradley J. Wechsler.
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Exhibit
No. Description
- --- -----------
*4.12 Registration Rights Agreement, dated as of February 9, 1999, by and
among Imax Corporation, Wasserstein Perella Partners, L.P.,
Wasserstein Perella Offshore Partners, L.P., WPPN Inc, the Michael
J. Biondi Voting Trust, Bradley J. Wechsler and Richard L. Gelfond.
10.1 Consulting Agreement, dated as of June 11, 1997, between Imax
Corporation and I. Graeme Ferguson. Incorporated by reference to
Exhibit 10.3 to Form 10-K for the year ended December 31, 1997.
10.2 Employment Agreement, dated as of January 1, 1997, between Imax
Corporation and Bradley J. Wechsler. Incorporated by reference to
Exhibit 10.4 to Form 10-K for the year ended December 31, 1997.
10.3 Employment Agreement, dated as of January 1, 1997, between Imax
Corporation and Richard L. Gelfond. Incorporated by reference to
Exhibit 10.5 to Form 10-K for the year ended December 31, 1997.
10.4 Employment Agreement, dated as of January 16, 1991, and amending
letter of August 31, 1992 between Imax Corporation and John M.
Davison. Incorporated by reference to Exhibit 10.6 to Form 10-K for
the year ended December 31, 1997.
10.5 Employment Agreement, dated as of July 15, 1997 between David
Keighley Productions 70MM Inc. and David B. Keighley. Incorporated
by reference to Exhibit 10.7 to Form 10-K for the year ended
December 31, 1997.
10.6 Form of Imax Corporation Amended and Restated Share Option Plan.
Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (File No.333-5720).
10.7 Share Option Agreement, dated as of April 8, 1994 between Imax
Corporation and John M. Davison. Incorporated by reference to
Exhibit 10.15 to the Registration Statement.
10.8 Employment Agreement, dated August 8, 1995, between Imax
Corporation and Christian Jorg. Incorporated by reference to
Exhibit 10.13 to Form 10-K for the year ended December 31, 1996.
10.9 Employment Agreement, dated July 1, 1998 between Imax Corporation
and Richard L. Gelfond. Incorporated by reference to Exhibit 10.1
to Form 10-Q for the quarter ended September 30, 1998.
10.10 Employment Agreement, dated July 1, 1998 between Imax Corporation
and Bradley J. Wechsler. Incorporated by reference to Exhibit 10.2
to Form 10-Q for the quarter ended September 30, 1998.
*10.11 Employment Agreement, dated October 8, 1998 (and effective from
January 1, 1998) between Imax Corporation and Andrew Gellis.
*10.12 Amending Agreement, dated as of August 8, 1998 between Imax
Corporation and Christian Jorg and letter agreement dated January
21, 1999.
*21 Subsidiaries of Imax Corporation.
*23 Consent of PricewaterhouseCoopers LLP.
*24 Power of Attorney of certain directors.
* Filed herewith
(b) No reports on Form 8-K were filed by the registrant during the quarter
ended December 31, 1998.
69
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
IMAX CORPORATION
<TABLE>
<S> <C>
By /S/ JOHN M. DAVISON
---------------------------------------
John M. Davison
Chief Operating Officer and Chief
Financial Officer
</TABLE>
Date: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 29, 1999.
/S/ BRADLEY J. WECHSLER /S/ RICHARD L. GELFOND
- ----------------------------------- ------------------------------
Bradley J. Wechsler Richard L. Gelfond
Director and Director and
Co-Chief Executive Officer Co-Chief Executive Officer
(Principal Executive Officer) (Principal Executive Officer)
<TABLE>
<S> <C> <C>
/S/ JOHN M. DAVISON /S/ MARK J. THORNLEY GARTH M. Girvan *
- --------------------------------- -------------------------------- --------------------------
John M. Davison Mark J. Thornley Garth M. Girvan
Director and Vice President, Finance Director
Chief Operating Officer (Principal Accounting Officer)
and Chief Financial Officer
(Principal Financial Officer)
<CAPTION>
<S> <C> <C>
GRAEME FERGUSON * PHILIP C. MOORE * MILES NADAL *
- --------------------------------- -------------------------------- --------------------------
Graeme Ferguson Philip C. Moore Miles Nadal
Director Director Director
MICHAEL FUCHS * MURRAY B. KOFFLER* MARC A. UTAY*
- --------------------------------- -------------------------------- --------------------------
Michael Fuchs Murray B. Koffler Marc A. Utay
Director Director Director
By * /S/ JOHN M. DAVISON
--------------------------------------
John M. Davison (as attorney-in-fact)
</TABLE>
70
<PAGE>
EXHIBIT 4.9
IMAX CORPORATION
TO
U.S. BANK TRUST NATIONAL ASSOCIATION
Trustee
Indenture
Dated as of December 4, 1998
$200,000,000
7 7/8% Senior Notes due December 1, 2005
<PAGE>
IMAX CORPORATION
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of December 4, 1998
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- ----------------- ----------
<S> <C> <C>
(S) 310(a)(1) ............................................ 609
(a)(2) ............................................ 609
(a)(3) ............................................ Not Applicable
(a)(4) ............................................ Not Applicable
(b) ............................................ 608
............................................ 610
(S) 311(a) ............................................ 613
(b) ............................................ 613
(S) 312(a) ............................................ 701
702
(b) ............................................ 702
(c) ............................................ 702
(b) ............................................ 703
(c) ............................................ 703
(d) ............................................ 703
(S) 314(a) ............................................ 704
(a)(4) ............................................ 1020
(b) ............................................ Not Applicable
(c)(1) ............................................ 102
(c)(2) ............................................ 102
(c)(3) ............................................ Not Applicable
(d) ............................................ Not Applicable
(e) ............................................ 102
(S) 315(a) ............................................ 601
(b) ............................................ 602
(c) ............................................ 601
(d) ............................................ 601
(d)(1) ............................................ 601
(e) ............................................ 514
(S) 316(a) ............................................ 101
(a)(l)(A) ............................................ 502
512
(a)(l)(B) ............................................ 513
(a)(2) ............................................ Not Applicable
(b) ............................................ 508
(S) 317(a)(1) ............................................ 503
(a)(2) ............................................ 504
(b) ............................................ 1003
(S) 318(a) ............................................ 107
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
RECITALS OF THE COMPANY....................................................................................1
ARTICLE IDefinitions and Other Provisionsof General Application............................................1
SECTION 101. Definitions.....................................................................1
-----------
Acquired Indebtedness.............................................................................2
Acquisition.......................................................................................2
Act...............................................................................................2
Additional Amounts................................................................................2
Additional Securities.............................................................................2
Affiliate.........................................................................................3
Asset Sale".......................................................................................3
Attributable Value................................................................................3
Authenticating Agent..............................................................................3
Authority.........................................................................................3
Average Life......................................................................................3
Beneficial Owner..................................................................................3
Board of Directors................................................................................4
Board Resolution..................................................................................4
Business Day......................................................................................4
Capital Stock.....................................................................................4
Capitalized Lease Obligation......................................................................4
Cash Equivalent...................................................................................4
Change of Control.................................................................................5
Commission........................................................................................5
Common Stock......................................................................................5
Company Request...................................................................................5
Company Order.....................................................................................5
Company...........................................................................................5
Consolidated Coverage Ratio.......................................................................5
Consolidated EBITDA...............................................................................6
Consolidated Fixed Charges........................................................................6
Consolidated Net Income...........................................................................6
Consolidated Net Worth............................................................................7
Convertible Subordinated Notes....................................................................7
Core Subsidiary...................................................................................7
Corporate Trust Office............................................................................7
corporation.......................................................................................7
Default...........................................................................................7
Defaulted Interest................................................................................7
Depositary........................................................................................7
Disqualified Capital Stock........................................................................7
Dollars and $.....................................................................................8
Duration..........................................................................................8
Equity Interest...................................................................................8
Event of Default..................................................................................8
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Event of Loss.....................................................................................8
Exchange Act......................................................................................8
Excluded Holder...................................................................................8
Excluded Person...................................................................................8
Exempted Affiliate Transaction....................................................................9
Fully Traded Common Stock.........................................................................9
Generally accepted accounting principles..........................................................9
Global Security...................................................................................9
Guarantee.........................................................................................9
Holder............................................................................................9
Indebtedness......................................................................................9
Indenture........................................................................................10
Interest Payment Date............................................................................10
Interest Swap and Hedging Obligation.............................................................10
Investment.......................................................................................11
Issue Date.......................................................................................11
Lien.............................................................................................11
Make-Whole Premium...............................................................................11
Net Cash Proceeds................................................................................11
Officers' Certificate............................................................................12
Operating Expense or Cost Reduction..............................................................12
Opinion of Counsel...............................................................................12
Outstanding......................................................................................12
Paying Agent.....................................................................................13
Permitted Indebtedness...........................................................................13
Permitted Investment.............................................................................15
Permitted Joint Venture..........................................................................15
Permitted Lien...................................................................................15
Person...........................................................................................16
Predecessor Security.............................................................................16
Public Equity Offering...........................................................................17
Purchase Money Indebtedness......................................................................17
Qualified Capital Stock..........................................................................17
Qualified Exchange...............................................................................17
Rating Agencies..................................................................................17
Redemption Date..................................................................................17
Reference Period.................................................................................17
Refinancing Indebtedness.........................................................................17
Regular Record Date..............................................................................18
Related Business.................................................................................18
Responsible Officer..............................................................................18
Restricted Payment...............................................................................18
Revolving Credit Facility........................................................................19
Sale and Leaseback Transaction...................................................................19
Securities.......................................................................................19
Securities Act...................................................................................19
Shareholders' Agreement..........................................................................20
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
S&P..............................................................................................20
Special Record Date..............................................................................20
Special Subsidiary...............................................................................20
Stated Maturity..................................................................................20
Strategic Equity Placement.......................................................................20
Subordinated Indebtedness........................................................................20
Subsidiary.......................................................................................20
Taxes............................................................................................21
Total Common Equity..............................................................................21
Treasury Rate....................................................................................21
Trust Indenture Act..............................................................................21
Trustee..........................................................................................21
Unrestricted Subsidiary..........................................................................21
U.S. Government Obligations......................................................................22
Vice President...................................................................................22
Wasserstein Offshore Partners....................................................................22
Wasserstein Perella Partners.....................................................................22
Weighted Average Life to Maturity................................................................22
Wholly Owned Subsidiary..........................................................................23
SECTION 102. Compliance Certificates and Opinions...........................................23
------------------------------------
SECTION 103. Form of Documents Delivered to Trustee.........................................23
--------------------------------------
SECTION 104. Acts of Holders; Record Date...................................................24
----------------------------
SECTION 105. Notices. Etc., to Trustee and Company..........................................25
-------------------------------------
SECTION 106. Notice to Holders: Waiver......................................................26
-------------------------
SECTION 107. Conflict with Trust Indenture Act..............................................26
---------------------------------
SECTION 108. Effect of Headings and Table of Contents.......................................26
----------------------------------------
SECTION 109. Successors and Assigns.........................................................26
----------------------
SECTION 110. Separability Clause............................................................27
-------------------
SECTION 111. Benefits of Indenture..........................................................27
---------------------
SECTION 112. Governing Law..................................................................27
-------------
SECTION 113. Legal Holidays.................................................................27
--------------
SECTION 114. Consent to Service; Jurisdiction...............................................27
--------------------------------
SECTION 115. Conversion of Currency.........................................................28
----------------------
SECTION 116. Currency Equivalent............................................................29
-------------------
SECTION 117. Shareholders, Officers and Directors.............................................
ARTICLE IISecurity Forms..................................................................................30
SECTION 201. Forms Generally................................................................30
---------------
SECTION 202. Form of Face of Security.......................................................30
------------------------
SECTION 203. Form of Reverse of Security....................................................31
---------------------------
SECTION 204. Form of Trustee's Certificate of Authentication................................35
-----------------------------------------------
SECTION 205. Form of Legend for Global Securities...........................................35
------------------------------------
ARTICLE IIIThe Securities.................................................................................35
SECTION 301. Title and Terms................................................................35
---------------
SECTION 302. Denominations..................................................................36
-------------
SECTION 303. Execution, Authentication, Delivery and Dating.................................36
----------------------------------------------
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 304. Temporary Securities...........................................................37
--------------------
SECTION 305. Registration, Registration of Transfer and Exchange............................37
---------------------------------------------------
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities...............................39
------------------------------------------------
SECTION 307. Payment of Interest; Interest Rights Preserved.................................40
----------------------------------------------
SECTION 308. Persons Deemed Owners..........................................................41
---------------------
SECTION 309. Cancellation...................................................................41
------------
SECTION 310. Computation of Interest........................................................41
-----------------------
ARTICLE IVSatisfaction and Discharge......................................................................41
SECTION 401. Satisfaction and Discharge of Indenture........................................41
---------------------------------------
SECTION 402. Application of Trust Money.....................................................42
--------------------------
ARTICLE VRemedies.........................................................................................43
SECTION 501. Events of Default..............................................................43
-----------------
SECTION 502. Acceleration of Maturity; Rescission and Annulment.............................44
--------------------------------------------------
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee................45
---------------------------------------------------------------
SECTION 504. Trustee May File Proofs of Claim...............................................45
--------------------------------
SECTION 505. Trustee May Enforce Claims Without Possession of Securities....................46
-----------------------------------------------------------
SECTION 506. Application of Money Collected.................................................46
------------------------------
SECTION 507. Limitation on Suits............................................................46
-------------------
SECTION 508. Unconditional Right of Holders to Receive Principal,.............................
and Interest...................................................................47
SECTION 509. Restoration of Rights and Remedies.............................................47
----------------------------------
SECTION 510. Rights and Remedies Cumulative.................................................47
------------------------------
SECTION 511. Delay or Omission Not Waiver...................................................47
----------------------------
SECTION 512. Control by Holders.............................................................47
------------------
SECTION 513. Waiver of Past Defaults........................................................48
-----------------------
SECTION 514. Undertaking for Costs..........................................................48
---------------------
SECTION 515. Waiver of Stay or Extension Laws...............................................48
--------------------------------
ARTICLE VIThe Trustee.....................................................................................48
SECTION 601. Certain Duties and Responsibilities............................................48
-----------------------------------
SECTION 602. Notice of Defaults.............................................................49
------------------
SECTION 603. Certain Rights of Trustee......................................................49
-------------------------
SECTION 604. Not Responsible for Recitals or Issuance of Securities.........................50
------------------------------------------------------
SECTION 605. May Hold Securities............................................................50
-------------------
SECTION 606. Money Held in Trust............................................................50
-------------------
SECTION 607. Compensation and Reimbursement.................................................50
------------------------------
SECTION 608 Disqualification: Conflicting Interests. .............................51
---------------------------------------
SECTION 609. Corporate Trustee Required; Eligibility........................................51
---------------------------------------
SECTION 610. Resignation and Removal; Appointment of Successor. ............................51
-------------------------------------------------
SECTION 611. Acceptance of Appointment by Successor.........................................52
--------------------------------------
SECTION 612. Merger, Conversion, Consolidation or Succession to Business....................52
-----------------------------------------------------------
SECTION 613. Preferential Collection of Claims Against Company..............................53
-------------------------------------------------
SECTION 614. Appointment of Authenticating Agent............................................53
-----------------------------------
ARTICLE VIIHolders' Lists and Reports by Trustee and Company..............................................54
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders. ....................54
---------------------------------------------------------
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 702. Preservation of Information; Communications to Holders. .......................55
------------------------------------------------------
SECTION 703. Reports by Trustee. ...........................................................55
------------------
SECTION 704. Reports by Company.
------------------
ARTICLE VIII
The Company shall: ..............................................................................55
SECTION 801. Company May Consolidate, Etc. Only on Certain Terms............................56
---------------------------------------------------
SECTION 802. Successor Substituted..........................................................56
---------------------
ARTICLE IXSupplemental Indentures.........................................................................57
SECTION 901. Supplemental Indentures Without Consent of Holders.............................57
--------------------------------------------------
SECTION 902. Supplemental Indentures with Consent of Holders................................57
-----------------------------------------------
SECTION 903. Execution of Supplemental Indentures...........................................58
------------------------------------
SECTION 904. Effect of Supplemental Indentures..............................................59
---------------------------------
SECTION 905. Conformity with Trust Indenture Act............................................59
-----------------------------------
SECTION 906. Reference in Securities to Supplemental Indentures.............................59
--------------------------------------------------
SECTION 907. Notice of Supplemental Indentures..............................................59
---------------------------------
ARTICLE XCovenants........................................................................................59
SECTION 1001. Payment of Principal, Premium and Interest.....................................59
------------------------------------------
SECTION 1002. Maintenance of Office or Agency................................................59
-------------------------------
SECTION 1003. Money for Security Payments to be Held in Trust................................60
-----------------------------------------------
SECTION 1004. Existence......................................................................61
---------
SECTION 1005. Maintenance of Properties......................................................61
-------------------------
SECTION 1006. Payment of Taxes and Other Claims..............................................61
---------------------------------
SECTION 1007. Maintenance of Insurance.......................................................61
------------------------
SECTION 1008. Limitation on Incurrence of Additional Indebtedness............................62
---------------------------------------------------
SECTION 1009. Limitation on Restricted Payments..............................................62
---------------------------------
SECTION 1010. Limitation on Dividends and Other Payment........................................
Restrictions Affecting Subsidiaries............................................63
-----------------------------------
SECTION 1011. Limitation on Liens............................................................64
-------------------
SECTION 1012. Limitation on Sale and Leaseback Transactions..................................64
---------------------------------------------
SECTION 1013. Limitation on Sale of Assets...................................................64
----------------------------
SECTION 1014. Limitation on Transactions with Affiliates.....................................66
------------------------------------------
SECTION 1015. Repurchase of Securities at the Option of the Holder.............................
Upon A Change of Control...................................................... 67
------------------------
SECTION 1016. Payment of Additional Amounts..................................................68
-----------------------------
SECTION 1017. Limitation on Status as Investment Company.....................................69
------------------------------------------
SECTION 1018. Payments for Consent...........................................................69
--------------------
SECTION 1019. Reports 69
-----------
SECTION 1020. Statement By Officers as to Default; Compliance Certificates...................69
------------------------------------------------------------
SECTION 1021. Waiver of Certain Covenants. ..................................................70
---------------------------
SECTION 1022. Limitation on Applicability of Certain Covenants...............................70
------------------------------------------------
ARTICLE XIRedemption of Securities........................................................................70
SECTION 1101. Right of Redemption............................................................70
-------------------
SECTION 1102. No Mandatory Redemption........................................................71
-----------------------
SECTION 1103. Election to Redeem; Notice to Trustee.........................................72
--------------------------------------
SECTION 1104. Selection by Trustee of Securities to Be Redeemed..............................72
-------------------------------------------------
SECTION 1105. Notice of Redemption...........................................................72
--------------------
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 1106. Deposit of Redemption Price....................................................73
---------------------------
SECTION 1107. Securities Redeemed in Part....................................................74
---------------------------
ARTICLE XIIDefeasance and Covenant Defeasance.............................................................74
SECTION 1201. Company's Option to Effect Defeasance or Covenant Defeasance...................74
------------------------------------------------------------
SECTION 1202. Defeasance and Discharge.......................................................74
------------------------
SECTION 1203. Covenant Defeasance............................................................74
-------------------
SECTION 1204. Conditions to Defeasance or Covenant Defeasance................................75
-----------------------------------------------
SECTION 1205. Deposited Money and U.S. Government Obligations to be Held in....................
SECTION 1207. Reinstatement..................................................................77
-------------
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TESTIMONIUM
SIGNATURES AND SEALS
SCHEDULE I - Debt outstanding on date of Indenture I-1
SCHEDULE II - Dividend and other payment restrictions affecting
Restricted Subsidiaries II-1
SCHEDULE III - Liens existing on the date of this Indenture III-1
</TABLE>
viii
<PAGE>
EXHIBIT 4.16
INDENTURE, dated as of December 4, 1998, between Imax Corporation, a
corporation duly organized and existing under the laws of the Canada (herein
called the "Company"), having its principal office at 2525 Speakman Drive,
Mississauga, Ontario, Canada, L5K 1B1 and U.S. Bank Trust National Association,
a national banking association, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 7 7/8%
Senior Notes due December 1, 2005 of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
Definitions and Other Provisions
of General Application
SECTION 11. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles (whether or not such is indicated herein), and, except as
otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or
permitted hereunder shall mean such accounting principles as are generally
accepted in Canada as consistently applied by the Company at the date of
such computation;
1
<PAGE>
(4) unless the context otherwise requires, any reference to an
"Article" or a "Section", or to an "Annex" or a "Schedule", refers to an
Article or Section of, or to an Annex or a Schedule attached to, this
Indenture, as the case may be;
(5) unless the context otherwise requires, any reference to a
statute, rule or regulation refers to the same (including any successor
statute, rule or regulation thereto) as it may be amended from time to
time;
(6) unless otherwise specifically set forth herein, all calculations
or determinations of a Person shall be performed or made on a consolidated
basis in accordance with generally accepted accounting principles but shall
not include the accounts of Unrestricted Subsidiaries, except to the extent
of dividends and distributions actually paid to the Company or one of its
Wholly Owned Subsidiaries; and
(7) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in
that Article.
"Acquired Indebtedness" means, with respect to a specified
person, (i) Indebtedness or Disqualified Capital Stock of any person
existing at the time such person becomes a Subsidiary of the specified
person, including by designation, or is merged, amalgamated or consolidated
into or with the specified person or one of its Subsidiaries and (ii)
Indebtedness secured by a Lien encumbering any asset at the time such asset
is acquired by such specified person; provided that Acquired Indebtedness
shall not include any Indebtedness incurred or secured in connection with,
or in contemplation of, such other person merging, amalgamating or
consolidating with or into or becoming a Subsidiary of such specified
person.
"Acquisition" means the purchase or other acquisition of any
person or substantially all the assets of any person by any other person,
whether by purchase, merger, amalgamation, consolidation, or other
transfer, and whether or not for consideration.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Additional Amounts" has the meaning specified in Section 1016.
"Additional Securities" means Securities that are issued under a
supplemental indenture after the date that the Securities are first issued
by the Company and authenticated by the Trustee under this Indenture, which
will rank pari passu with the Securities initially issued in all respects
(or in all respects except for the payment of interest accruing prior to
the issue date of such Additional Securities or except for the first
payment of interest following the issue date of such Additional
Securities).
2
<PAGE>
"Affiliate" of any specified person means any other person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For purposes of this
definition, the term "control", as used with respect to any person, means
the power to direct the management and policies of such person, directly or
through one or more intermediaries, whether through the ownership of voting
securities, by contract, or otherwise, provided that beneficial ownership
of 10% or more of the total voting power normally entitled to vote in the
election of directors, managers or trustees, as applicable, of a person
shall for such purposes be deemed to constitute control.
"Asset Sale" has the meaning specified in Section 1013.
"Attributable Value" means, as to any particular lease under
which any person is at the time liable other than a Capitalized Lease
Obligation, and at any date as of which the amount thereof is to be
determined, the total net amount of rent required to be paid by such person
under such lease during the remaining term thereof (whether or not such
lease is terminable at the option of the lessee prior to the end of such
term), including any period for which such lease has been, or may, at the
option of the lessor, be extended, discounted from the last date of such
term to the date of determination at a rate per annum equal to the discount
rate which would be applicable to a Capitalized Lease Obligation with a
like term in accordance with generally accepted accounting principles. The
net amount of rent required to be paid under any lease for any such period
shall be the aggregate amount of rent payable by the lessee with respect to
such period after excluding amounts required to be paid on account of
insurance, taxes, assessments, utility, operating and labor costs and
similar charges. "Attributable Value" means, as to a Capitalized Lease
Obligation under which any person is at the time liable and at any date as
of which the amount thereof is to be determined, the discounted present
value of the rental obligations of such person, as lessee, required to be
capitalized on the balance sheet of such person in conformity with
generally accepted accounting principles.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities.
"Authority" means any federal, provincial, municipal or local
government or quasi-governmental agency or authority.
"Average Life" means, as of the date of determination, with
respect to any security or instrument, the quotient obtained by dividing
(i) the sum of the products of (a) the number of years from the date of
determination to the date or dates of each successive scheduled principal
(or redemption) payment of such security or instrument and (b) the amount
of each such respective principal (or redemption) payment by (ii) the sum
of all such principal (or redemption) payments.
"Beneficial Owner" or "beneficial owner" has the meaning
attributed to it in Rules l3d-3 and l3d-5 under the Exchange Act (as in
effect on the Issue Date), whether or not applicable, except that a
"person" shall be deemed to have
3
<PAGE>
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board authorized to act
for it in respect thereof.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board of Directors and to be in full force and effect on the
date of such certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in New York,
New York or Chicago, Illinois, are authorized or obligated by law or
executive order to close.
"Capital Stock" means (a) with respect to any person that is a
corporation, any and all shares, interests, participations or other
equivalents (however designated and whether or not voting) of corporate
stock, including each class of common stock and preferred stock of such
person and (b) with respect to any person that is not a corporation, any
and all partnership, membership or other equity interests of such person.
"Capitalized Lease Obligation" means, as applied to any person,
any lease of any property (whether real, personal or mixed) of which the
discounted present value of the rental obligations of such person, as
lessee, in conformity with generally accepted accounting principles, is
required to be capitalized on the balance sheet of such person.
"Cash Equivalent" means (a) marketable obligations of or
obligations guaranteed by Canada or the United States of America or issued
by any agency thereof and backed by the full faith and credit of the United
States of America or Canada, in each case with a Duration of three years or
less, (b) marketable direct obligations issued by any state of the United
States of America, any province of Canada or any political subdivision
thereof having the highest rating obtainable from either Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P"),
Dominion Bond Rating Service, Limited ("DBRS") or Canadian Bond Rating
Service, Inc. ("CBRS") and having a Duration of three years or less, (c)
commercial paper, bankers acceptances, notes, bonds, debentures, repurchase
agreements, call loans, guaranteed investment certificates and other
similar instruments, in each case having a rating of investment grade by
Moody's, S&P, DBRS or CBRS, and in each case (other than with respect to
commercial paper) having a Duration of three years or less, (d)
certificates of deposit with a Duration of three years or less issued by
United States commercial banks of recognized standing with capital, surplus
and undivided profits aggregating in excess of
4
<PAGE>
US$100 million, (e) certificates of deposits issued or acceptances accepted
by or guaranteed by a bank to which the Bank Act (Canada) applies or by any
company licensed to carry on the business of a trust company in one or more
provinces of Canada, in each case with capital, surplus and undivided
profits aggregating in excess of Cdn$100 million, with a Duration of three
years or less, (f) shares of money market funds that have assets in excess
of US$100 million and that invest substantially all of their assets in Cash
Equivalents of the kind described in clauses (a) through (e) above, (g)
asset-backed securities rated AA or higher by Moody's, S&P, DBRS or CBRS
with a Duration of three years or less, and (h) mortgage-backed securities
rated AA or higher by Moody's, S&P, DBRS or CBRS with a Duration of 3 years
or less; provided that an Investment in (a) through (h) of this definition
shall not be considered to be a Cash Equivalent if, as a result of giving
effect thereto, (A) more than 20% of the aggregate Investments made
pursuant to clauses (a) through (h) of this definition are rated "BBB" or
below or (B) more than 10% of the aggregate Investments made pursuant to
clauses (a) through (h) of this definition are made pursuant to clause (h)
of this definition.
"Change of Control" has the meaning specified in Section 1015.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at
any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"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.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by its Chairman of the Board, its
President or a Vice President, and by its Treasurer, an Assistant
Treasurer, the Corporate Controller, its Secretary or an Assistant
Secretary, and delivered to the Trustee.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become
such pursuant to the applicable provisions of this Indenture and thereafter
"Company" shall mean such successor Person.
"Consolidated Coverage Ratio" of any person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma
basis, of (a) the aggregate amount of Consolidated EBITDA of such person
(exclusive of amounts attributable to operations and businesses permanently
discontinued or disposed of) for the Reference Period to (b) the aggregate
Consolidated Fixed Charges of such person (exclusive of amounts
attributable to operations and businesses permanently discontinued or
disposed of, but only to the extent that the obligations giving rise to
such Consolidated Fixed Charges would no longer be obligations contributing
to such person's Consolidated Fixed Charges subsequent to the Transaction
Date) during the Reference Period; provided, that for purposes of such
calculation, (i) Acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date
shall be assumed to have occurred on the first day of the Reference Period
and any Operating Expense or Cost Reduction with respect
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to such Acquisition shall be deducted from such calculation, (ii)
transactions giving rise to the need to calculate the Consolidated Coverage
Ratio shall be assumed to have occurred on the first day of the Reference
Period, (iii) the incurrence of any Indebtedness or issuance of any
Disqualified Capital Stock during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date (and the
application of the proceeds therefrom to the extent used to refinance or
retire other Indebtedness) shall be assumed to have occurred on the first
day of such Reference Period, and (iv) the Consolidated Fixed Charges of
such person attributable to interest on any Indebtedness or dividends on
any Disqualified Capital Stock bearing a floating interest (or dividend)
rate shall be computed on a pro forma basis as if the average rate in
effect from the beginning of the Reference Period to the Transaction Date
had been the applicable rate for the entire period, unless such person or
any of its Subsidiaries is a party to an Interest Swap and Hedging
Obligation (which shall remain in effect for the 12-month period
immediately following the Transaction Date) that has the effect of fixing
the interest rate on the date of computation, in which case such rate
(whether higher or lower) shall be used.
"Consolidated EBITDA" means, with respect to any person, for any
period, the Consolidated Net Income of such person for such period adjusted
to add thereto (to the extent deducted from net revenues in determining
Consolidated Net Income), without duplication, the sum of (i) consolidated
income tax expense, (ii) consolidated depreciation and amortization
expense, (iii) other non-recurring non-cash charges of such person and its
Subsidiaries reducing Consolidated Net Income for such period and (iv)
Consolidated Fixed Charges.
"Consolidated Fixed Charges" of any person means, without
duplication, for any period, as applied to any person, (A) the sum of (a)
the aggregate of the interest expense on Indebtedness of such person and
its consolidated Subsidiaries for such period, on a consolidated basis,
including, without limitation, (i) amortization of debt discount, (ii) the
net cost under Interest Swap and Hedging Obligations (including
amortization of discounts), (iii) the interest portion of any deferred
payment obligation and (iv) accrued interest, plus (b) the interest
component of the Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by such person and its consolidated
Subsidiaries during such period minus (B) the cash interest income
(exclusive of deferred financing fees) of such person and its consolidated
subsidiaries during such period, in each case as determined in accordance
with generally accepted accounting principles consistently applied.
"Consolidated Net Income" means, with respect to any person for
any period, the net income (or loss) of such person and its Subsidiaries
(determined on a consolidated basis in accordance with generally accepted
accounting principles) for such period, adjusted to exclude (only to the
extent included in computing such net income (or loss) and without
duplication): (a) net gains or losses in respect of dispositions of assets
other than in the ordinary course of business, (b) any gains or losses from
currency exchange transactions not in the ordinary course of business
consistent with past practice, (c) any gains (but not losses) attributable
to any extraordinary items not covered by clause (a) of this definition,
(d) the net income, if positive, of any person, other than a Subsidiary, in
which such person or any of its Subsidiaries has an interest, except to the
extent of the amount of any dividends or distributions actually paid in
cash or Cash Equivalents to such person or a Subsidiary of such person
during such period, but in any case not in excess of such person's pro
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rata share of such person's net income for such period, (e) the net income
or loss of any person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition, (f) the net income, if
positive, of any of such person's Subsidiaries to the extent that the
declaration or payment of dividends or similar distributions is not at the
time permitted by operation of the terms of its charter or bylaws or any
other agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Subsidiary, (g) the cumulative
effects of accounting changes, (h) deductions resulting from the
amortization of purchase accounting adjustments (i) any write-offs or
write-downs of investments in film assets existing on the Issue Date and of
assets comprising the Company's or its Subsidiaries' motion simulation and
attractions business and (j), for purposes of Section 1009, any expense
attributable to warrants, options or rights to purchase Qualified Capital
Stock issued in consideration for goods or services provided to the Company
or its Subsidiaries.
"Consolidated Net Worth" of any person at any date means the
aggregate consolidated stockholders' equity of such person (plus amounts of
equity attributable to preferred stock) and its Subsidiaries, as would be
shown on the consolidated balance sheet of such person prepared in
accordance with generally accepted accounting principles, adjusted to
exclude, to the extent included in calculating such equity, the amount of
any such stockholders' equity attributable to Disqualified Capital Stock or
treasury stock of such person and its Subsidiaries.
"Convertible Subordinated Notes" means the Company's 5.75%
Convertible Subordinated Notes due April 1, 2003.
"Core Subsidiary" means a Subsidiary that is not a Special
Subsidiary.
"Corporate Trust Office" means the office of the affiliate of the
Trustee in The City of New York, New York at which at any particular time
its corporate trust business may be administered.
"corporation" means a corporation, association, company, joint-
stock company, limited liability company, partnership or business trust.
"Default" means any event, occurrence or condition that is or
with the passage of time or the giving of notice or both would be an Event
of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means The Depository Trust Company or, if The
Depository Trust Company shall cease to be a clearing agency registered
under the Exchange Act, any other clearing agency registered under the
Exchange Act that is designated as the successor Depositary in a Company
Order delivered to the Trustee.
"Disqualified Capital Stock" means (a) except as set forth in
clause (b) of this definition, with respect to any person, any Equity
Interest
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<PAGE>
of such person that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the
happening of an event or the passage of time would be, required to be
redeemed or repurchased (including at the option of the holder thereof) by
such person or any of its Subsidiaries, in whole or in part, on or prior to
the Stated Maturity of the Notes and (b) with respect to any Subsidiary of
such person (including with respect to any Subsidiary of the Company), any
Equity Interest other than any common equity with no preference,
privileges, or redemption or repayment provisions; provided that any Equity
Interest that would not constitute Disqualified Capital Stock but for
provisions thereof giving holders thereof the right to require such person
to repurchase or redeem such Equity Interest upon the occurrence of an
"asset sale" or "change of control" occurring prior to the Stated Maturity
of the Notes shall not constitute Disqualified Capital Stock if the "asset
sale" or "change of control" provisions applicable to such Equity Interest
are no more favorable to the holders of such Equity Interest than the
provisions contained in Section 1013 and Section 1015 and such Equity
Interest specifically provides that (i) such person will not repurchase or
redeem any such Equity Interest pursuant to such provision prior to the
Company's repurchase of such Notes as are required to be repurchased
pursuant to Section 1013 and Section 1015 and (ii) in the case of an Asset
Sale Offer, such repurchase or redemption shall not exceed such Excess
Proceeds, less the principal amount of Notes tendered in such Asset Sale
Offer.
"Dollars" and "$" means such coins or currency of the United
States of America which is legal tender for payment of public and private
debts and "Canadian Dollars" and "C$" means such coins or currency of
Canada which is legal tender for payment of public and private debts.
"Duration" means, with respect to any given financial instrument,
(i) the weighted average of the time to payment of each payment required to
be made on a date certain with respect to such financial instrument, the
weights being the present value of each such payment (calculated at the
financial instrument's yield as of the date of acquisition by the Company
or any Subsidiary) as a percentage of the total present value all such
payments (calculated at the financial instrument's yield as of the date of
acquisition by the Company or any Subsidiary) divided by (ii) one plus the
yield (as of the date of acquisition by the Company or any Subsidiary) of
such financial instrument.
"Equity Interest" of any person means Capital Stock of such
person and all warrants, options or other rights to acquire Capital Stock
of such person (but excluding any debt security that is convertible into,
or exchangeable for, Capital Stock (and which is not otherwise Capital
Stock)).
"Event of Default" has the meaning specified in Section 501.
"Event of Loss" means, with respect to any property or asset, any
(i) loss, destruction or damage of such property or asset or (ii) any
condemnation, seizure or taking, by exercise of the power of eminent domain
or otherwise, of such property or asset, or confiscation or requisition of
the use of such property or asset.
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"Exchange Act" refers to the Securities Exchange Act of 1934 as
it may be amended and any successor act thereto.
"Excluded Holder" has the meaning specified in Section 1016.
"Excluded Person" means Wasserstein Perella Partners, Wasserstein
Offshore Partners and WPPN, Inc. or any of their respective officers,
directors or employees (or any employee partnership of which either
Wasserstein Perella Partners, Wasserstein Offshore Partners or WPPN, Inc.
or any of their respective Affiliates is the general partner, or of which
any of their respective executive officers or directors is the general
partner), Messrs. Bradley J. Weschler and Richard L. Gelfond, or any of
their respective Affiliates or a "group" (as used for purposes of Section
13(d) and 14(d) of the Exchange Act) of which Messrs. Bradley J. Wechsler
and Richard L. Gelfond are a part, provided that Messrs. Bradley J.
Wechsler and Richard L. Gelfond continue to be Senior Officers of the
Company.
"Exempted Affiliate Transaction" means (a) reasonable fees and
compensation paid and indemnity provided pursuant to (including issuances
of securities or other payments, awards or grants in cash, securities or
otherwise) customary employee compensation arrangements (including, without
limitation, stock option and stock ownership plans) approved by a majority
of independent (as to such transactions) members of the Board of Directors
of the Company, (b) payments, purchases or redemptions set forth in clauses
(a), (b) or (c) of the definition of "Restricted Payments" and made, in
form and amount, on a pro rata basis to all holders of common shares or
subordinated Indebtedness, as applicable, of the Company, (c) transactions
solely between the Company and any of its Subsidiaries or solely among
Subsidiaries of the Company, (d) payments made pursuant to the terms of the
Shareholders' Agreement, (e) the payment of reasonable and customary fees
to and the provision of indemnity on behalf of directors of the Company who
are not employees of the Company, (f) payments pursuant to any agreement in
effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any amendment thereto) in any
replacement agreement thereto so long as any such amendment or replacement
agreement is not more disadvantageous to the Company or its Subsidiaries,
as the case may be, than the original agreement as in effect on the Issue
Date; and (g) loans advanced to employees and officers of the Company and
its Subsidiaries not in excess of $1.0 million at any time outstanding.
"Fully Traded Common Stock" means common stock issued by any
corporation if (A) such common stock is listed on either The New York Stock
Exchange, The American Stock Exchange, The Toronto Stock Exchange, or is
included for trading privileges in the Nasdaq National Market; and (B) such
common stock does not constitute more than 15% of the issued and
outstanding common stock of such corporation held by Persons other than 10%
holders of such common stock and Affiliates and insiders of such
corporation.
"Generally accepted accounting principles" means, as at any date
of determination, generally accepted accounting principles in the United
States and which are applicable as of the date of determination.
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"Global Security" means a Security that evidences all or part of
the Securities and bears the legend set forth in Section 205.
"Guarantee" means a guarantee or other credit support (other than
by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner (including, without
limitation, letters of credit and reimbursement agreements in respect
thereof), of all or any part of any indebtedness.
"Holder" means a Person in whose name a Security is registered in
the Security Register.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of such person, to
the extent such liabilities and obligations would appear as a liability
upon the consolidated balance sheet of such person in accordance with
generally accepted accounting principles, (i) in respect of borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such person or only to a portion thereof), (ii) evidenced by bonds, notes,
debentures or similar instruments, (iii) representing the balance deferred
and unpaid of the purchase price of any property or services, except those
incurred in the ordinary course of its business that would constitute
ordinarily a trade payable or account payable to trade creditors that are
not more than 120 days past their original due date or which are being
contested in good faith by appropriate proceeding, (iv) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks,
(v) relating to any Capitalized Lease Obligation, or (vi) evidenced by a
letter of credit or a reimbursement obligation of such person with respect
to any letter of credit; (b) all net obligations of such person under
Interest Swap and Hedging Obligations; (c) all liabilities and obligations
of others of the kind described in the preceding clause (a) or (b) that
such person has guaranteed or that is otherwise its legal liability or
which are secured by any assets or property of such person; (d) any and all
deferrals, renewals, extensions, refinancing and refundings (whether direct
or indirect) of, or amendments, modifications or supplements to, any
liability of the kind described in any of the preceding clauses (a), (b) or
(c), or this clause (d), whether or not between or among the same parties;
and (e) all Disqualified Capital Stock of such person (measured at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends). For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of
such Disqualified Capital Stock as if such Disqualified Capital Stock were
purchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such
fair market value to be determined in good faith by the board of directors
of the issuer (or managing general partner of the issuer) of such
Disqualified Capital Stock. Indebtedness shall not include any liability
for federal, provincial, state, local or other taxes except to the extent
otherwise included in the definition of "Indebtedness". Guarantees of (or
obligations with respect to letters of credit supporting) Indebtedness
otherwise included in the determination of the aggregate amount of
Indebtedness incurred shall not also be included in such determination.
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"Indenture" means this instrument as originally executed or as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions
hereof.
"Interest Payment Date" means the Stated Maturity of an
instalment of interest on the Securities.
"Interest Swap and Hedging Obligation" means any obligation of
any person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange
agreement, currency exchange agreement or any other agreement or
arrangement designed to protect against fluctuations in interest rates or
currency values, including, without limitation, any arrangement whereby,
directly or indirectly, such person is entitled to receive from time to
time periodic payments calculated by applying either a fixed or floating
rate of interest on a stated notional amount in exchange for periodic
payments made by such person calculated by applying a fixed or floating
rate of interest on the same notional amount.
"Investment" by any person in any other person means (without
duplication) (a) the acquisition (whether by purchase, merger,
consolidation or otherwise) by such person (whether for cash, property,
services, securities or otherwise) of capital stock, bonds, notes,
debentures, partnership or other ownership interests or other securities,
including any options or warrants, of such other person; (b) the making by
such person of any deposit with, or advance, loan or other extension of
credit to, such other person (including the purchase of property from
another person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such other person) or any commitment
to make any such advance, loan or extension (but excluding accounts
receivable or deposits arising in the ordinary course of business); (c)
other than guarantees of Indebtedness of the Company to the extent
permitted by Section 1008, the entering into by such person of any
guarantee of, or other credit support or contingent obligation with respect
to, Indebtedness or other liability of such other person; and (d) the
making of any capital contribution by such person to such other person. Any
property transferred to an Unrestricted Subsidiary from the Company or a
Subsidiary shall be deemed an Investment valued at its fair market value at
the time of such transfer, provided, however, if in any such case such fair
market value exceeds $1 million, such determination of fair market value
shall be certified in an Officer's Certificate
"Issue Date" means the date of first issuance of the Securities
under this Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation or other
encumbrance upon or with respect to any property of any kind, real or
personal, movable or immovable, now owned or hereafter acquired.
"Make-Whole Premium" means, with respect to a Security at any
time, the greater of (a) 1.0 % of the principal amount of such Security and
(b) the excess of (i) the present value at such time, discounted from the
first date on which such Security could be redeemed at the option of the
Company, of the principal amount at maturity of such Security plus the
amount of premium that would be due on such Security were it to be
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redeemed on the first date on which such Security could be redeemed at the
option of the Company, computed using a discount rate equal to the Treasury
Rate plus 50 basis points, over (ii) the then outstanding principal amount
of such Security.
"Net Cash Proceeds" means the aggregate amount of cash or Cash
Equivalents received by the Company in the case of a sale of Qualified
Capital Stock and by the Company and its Subsidiaries in respect of an
Asset Sale plus, in the case of an issuance of Qualified Capital Stock upon
any exercise, exchange or conversion of securities (including options,
warrants, rights and convertible or exchangeable debt) of the Company that
were issued for cash on or after the Issue Date, the amount of cash
originally received by the Company upon the issuance of such securities
(including options, warrants, rights and convertible or exchangeable debt)
less, in each case, the sum of all payments, fees, commissions and expenses
(including, without limitation, the fees and expenses of legal counsel and
investment banking fees and expenses) incurred in connection with such
Asset Sale or sale of Qualified Capital Stock, and, in the case of an Asset
Sale only, less the amount (estimated reasonably and in good faith by the
Company) of income, franchise, sales and other applicable taxes required to
be paid by the Company or any of its respective Subsidiaries in connection
with such Asset Sale.
"Offer to Purchase" means an Asset Sale Offer pursuant to Section
1013 and/or a Change of Control Offer pursuant to Section 1015, as
applicable.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, a Vice Chairman of the Board, the President or a
Vice President, and by the Treasurer, an Assistant Treasurer, the Corporate
Controller, the Secretary or an Assistant Secretary, of the Company, and
delivered to the Trustee.
"Operating Expense or Cost Reduction" means with respect to the
calculation of a Consolidated Coverage Ratio, an operating expense or cost
reduction with respect to an Acquisition, which, in the good faith estimate
of management, will be realized as a result of such Acquisition, provided
that the foregoing eliminations of operating expenses and realizations of
cost reductions shall be of the types permitted to be given effect to in
accordance with Article 11 of Regulation S-X under the Exchange Act as in
effect on the Issue Date.
"Opinion of Counsel" means a written opinion of counsel, who may
be counsel for the Company, and who shall be acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(1) Securities theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation;
(2) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than
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the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the
Holders of such Securities; provided that, if such Securities are to be
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been
---------
made;
(3) Securities, except to the extent provided in Sections 1202
and 1203, with respect to which the Company has effected defeasance
and/or covenant defeasance as provided in Article Thirteen; and
(4) Securities which have been paid pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands such Securities are valid obligations
of the Company;
provided, however, that in determining whether the Holders of the requisite
-------- -------
principal amount of the Outstanding Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder,
Securities owned by the Company or any other obligor upon the Securities or
any Affiliate of the Company or of such other obligor shall be disregarded
and deemed not to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which
the Trustee knows to be so owned shall be so disregarded. Securities so
owned which have been pledged in good faith may be regarded as Outstanding
if the pledgee establishes to the satisfaction of the Trustee the pledgee's
right so to act with respect to such Securities and that the pledgee is not
the Company or any other obligor upon the Securities or any Affiliate of
the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay
the principal of (and premium, if any) or interest on any Securities on
behalf of the Company.
"Permitted Indebtedness" means any of the following:
(2) Indebtedness of the Company evidenced by the Notes and
represented by this Indenture, issued in the Offering in an aggregate
principal amount not to exceed $200 million;
(3) Indebtedness of the Company and its Subsidiaries pursuant to
the Revolving Credit Facility (including any Indebtedness issued to
refinance, refund or replace such Indebtedness) provided that the aggregate
principal amount of such Indebtedness outstanding at any time does not
exceed the greater of (a) $50 million minus the amount of any such
Indebtedness retired with Net Cash Proceeds from any Asset Sale or assumed
by a transferee in an Asset Sale and (b) the sum of 80% of the net book
value of accounts receivable of the Company and its Subsidiaries and 60% of
the net book value of inventory of the Company and its Subsidiaries;
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(4) Indebtedness of Core Subsidiaries, provided that the
aggregate principal amount of such Indebtedness outstanding at any time
does not exceed $25 million;
(5) Refinancing Indebtedness with respect to (i) any
Indebtedness described in clause (a) of this definition, (ii) incurred
under the Debt Incurrence Ratio test of Section 1008, (iii) incurred under
this clause (d) or (iv) which is outstanding on the Issue Date so long as
such Refinancing Indebtedness, if secured, is secured only by the assets
that secured the Indebtedness so refinanced;
(6) Indebtedness of the Company and its Special Subsidiaries
representing Capitalized Lease Obligations or Purchase Money Indebtedness
in an aggregate amount outstanding at any time (including any Indebtedness
issued to refinance, replace, or refund such Indebtedness) of up to $15
million, provided, in the case of a Capitalized Lease Obligation, the
principal amount of such Capitalized Lease Obligation does not, at the time
of incurrence, exceed the fair market value of the property acquired in
connection with such Capitalized Lease Obligation, and in the case of
Purchase Money Indebtedness, such Indebtedness does not constitute more
than 100% of the cost to the Company or such Subsidiary of the property so
purchased;
(7) Interest Swap and Hedging Obligations of the Company and its
Subsidiaries that are incurred for the purpose of fixing or hedging
interest rate or currency risk of the Company and its Subsidiaries and not
incurred for the purpose of speculation;
(8) Indebtedness of the Company and its Subsidiaries solely in
respect of performance, surety or appeal bonds (to the extent that such
incurrence does not result in the incurrence of any obligation to repay any
obligation relating to borrowed money of others), and letters of credit and
letters of guarantee, all incurred in the ordinary course of business in
accordance with customary industry practices, in amounts and for the
purposes customary in the Company's industry;
(9) Indebtedness of the Company to any Wholly Owned Subsidiary,
and Indebtedness of a Subsidiary to any other Wholly Owned Subsidiary or to
the Company; provided that, in the case of Indebtedness of the Company,
such obligations shall be unsecured and subordinated in all respects to the
Company's obligations pursuant to the Notes and the date of any event that
causes such Subsidiary to no longer be a Wholly Owned Subsidiary shall be
an Incurrence Date;
(10) Indebtedness of the Company and its Subsidiaries arising
from agreements providing for indemnification, adjustment of purchase price
or similar obligations, or from guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company or any
Subsidiary pursuant to such agreements, in any case incurred in connection
with the disposition of any business, assets or Subsidiary, other than
guarantees of Indebtedness incurred by any person acquiring all or any
portion of such business, assets or Subsidiary for the purpose of financing
such acquisition or, in the case of performance bonds, incurred in
connection with the sale or leasing of systems in the ordinary course of
business;
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(11) Indebtedness incurred by a person prior to the time (A) such
person became a Core Subsidiary of the Company, (B) such person
amalgamated, merged or consolidated with or into a Core Subsidiary of the
Company or (C) another Core Subsidiary of the Company amalgamated, merged
or consolidated with or into such person (in a transaction in which such
person became a Core Subsidiary of the Company) which Indebtedness was not
incurred in anticipation of such transaction and was outstanding prior to
such transaction; provided that after giving pro forma effect to any such
incurrence, the Company could incur at least $1.00 of additional
Indebtedness pursuant to the second paragraph of Section 1008;
(12) additional Indebtedness of the Company not to exceed $10
million in aggregate principal amount at any one time outstanding; and
(13) Indebtedness of the Company and its Subsidiaries existing on
the Issue Date not to exceed the amount outstanding on such date, and which
is set forth in a schedule to this Indenture.
"Permitted Investment" means (a) Investments in any of the Notes;
(b) Investments in Cash Equivalents; (c) Investments in intercompany notes
to the extent permitted to be incurred under clause (g) of the definition
of "Permitted Indebtedness"; (d) any Investment in a Subsidiary of the
Company or in a person in a Related Business, which, after such Investment,
becomes a Subsidiary of the Company; (e) Investments in Permitted Joint
Ventures, provided that either (1)(i) the Company or its Subsidiaries have
the ability to liquidate their Investment in such Permitted Joint Venture,
without penalty to the Company or its Subsidiaries, within three years of
giving notice of their intention to do so and, (ii) in the good faith
opinion of an executive officer of the Company, each of the other holders
of Equity Interests in the Permitted Joint Venture is contributing
consideration to the Permitted Joint Venture in relation to such holder's
economic interest in the Permitted Joint Venture which is at least equal to
the consideration being contributed to the Permitted Joint Venture by the
Company or a Subsidiary in relation to its economic interest in the
Permitted Joint Venture (provided, that in making his or her determination
pursuant to this clause (ii), such executive officer may take into account
better than normal profits which may be derived from the Company's other
businesses as a result of such Investment) or (2) the Consolidated Coverage
Ratio of the Company for the Reference Period immediately preceding the
date of such Investment, after giving effect on a pro forma basis to such
Investment, would be at least 3.0 to 1; (f) loans or advances to employees
of the Company or a Subsidiary made in the ordinary course of business, (g)
stock obligations or securities received in settlement of debts created in
the ordinary course of business and owing to the Company or any Subsidiary
or in satisfaction of judgments, (h) Investments received in connection
with an Asset Sale in accordance with Section 1013, (i) Investments of the
Company or any Subsidiary in effect on the Issue Date, (j) Investments in
securities of trade creditors or customers received pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of
such trade creditors or customers, and (k) Investments the payment for
which consists exclusively of Qualified Capital Stock of the Company.
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"Permitted Joint Venture" means any joint venture arrangement
(which may be structured as an unincorporated joint venture, corporation,
partnership, association or limited liability company) (i) in which the
Company and its Subsidiaries own at least 20% but less than 50% of the
ownership interest thereof and (ii) which engages only in a Related
Business.
"Permitted Lien" means (a) Liens created in connection with the
incurrence of Indebtedness under the Revolving Credit Facility and
Capitalized Lease Obligations and Purchase Money Indebtedness, to the
extent otherwise permitted by clause (b) or (e) of the definition
"Permitted Indebtedness"; (b) Liens existing on the Issue Date and which
are set forth in a schedule to this Indenture; (c) Liens imposed by
governmental authorities for taxes, assessments or other charges not yet
subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with generally
accepted accounting principles; (d) statutory liens of carriers,
warehousemen, mechanics, materialmen, landlords, repairmen or other like
Liens arising by operation of law in the ordinary course of business
provided that (i) the underlying obligations are not overdue for a period
of more than 30 days, or (ii) such Liens are being contested in good faith
and by appropriate proceedings and adequate reserves with respect thereto
are maintained on the books of the Company in accordance with generally
accepted accounting principles; (e) Liens securing the performance of bids,
trade contracts (other than borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business; (f) easements, rights-
of-way, zoning, similar restrictions and other similar encumbrances or
title defects which, singly or in the aggregate, do not in any case
materially detract from the value of the property subject thereto (as such
property is used by the Company or any of its Subsidiaries) or interfere
with the ordinary conduct of the business of the Company or any of its
Subsidiaries; (g) Liens arising by operation of law in connection with
judgments, only to the extent, for an amount and for a period not resulting
in an Event of Default with respect thereto; (h) pledges or deposits made
in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security
legislation; (i) Liens securing the Notes; (j) Liens securing Indebtedness
of a person existing at the time such person becomes a Subsidiary or is
merged with or into the Company or a Subsidiary or Liens securing
Indebtedness incurred in connection with an Acquisition, provided that such
Liens were in existence prior to the date of such acquisition, merger or
consolidation, were not incurred in anticipation thereof, and do not extend
to any assets other than those acquired; (k) leases or subleases granted to
other persons in the ordinary course of business not materially interfering
with the conduct of the business of the Company or any of its Subsidiaries
or materially detracting from the value of the relative assets of the
Company or any Subsidiary; (l) Liens arising from precautionary Uniform
Commercial Code financing statement or similar filings regarding operating
leases entered into by the Company or any of its Subsidiaries in the
ordinary course of business;(m) Liens securing Refinancing Indebtedness
incurred to refinance any Indebtedness that was previously so secured in a
manner no more adverse to the Holders of the Notes than the terms of the
Liens securing such refinanced Indebtedness provided that the Indebtedness
secured is not increased and the Lien is not extended to any additional
assets or property, (n) Liens in favor of the Company or any Subsidiary,
(o) Liens securing obligations under Interest Swap and Hedging Obligations
permitted to be incurred under this Indenture, (p) Liens created or
deposits made to secure the performance of tenders, bids, leases, statutory
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obligations, government contracts, performance bonds and other obligations
of a like nature incurred in the ordinary course of business, (q) 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, (r) Liens in connection with securitizations of accounts receivable
under long term system leases and (s) other Liens securing obligations
incurred in the ordinary course of business, which obligations do not
exceed $5.0 million in the aggregate at any one time outstanding.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 306 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security
shall be deemed to evidence the same debt as the mutilated, destroyed, lost
or stolen Security.
"Public Equity Offering" means an underwritten offering of common
shares of the Company for cash pursuant to an effective registration
statement under the Securities Act or a prospectus under applicable
Canadian securities laws.
"Purchase Money Indebtedness" of any Person means Indebtedness of
such Person secured by a Lien on real or personal property of such person
which Indebtedness (a) constitutes all or a part of the purchase price or
construction cost of such property or (b) is incurred prior to, at the time
of or within 90 days after the acquisition or substantial completion of
such property for the purpose of financing all or any part of the purchase
price or construction cost thereof; provided, however, that (w) the
Indebtedness so Incurred does not exceed 100% of the purchase price or
construction cost of such property, (x) such Lien does not extend to or
cover any property other that such item of property and any improvements on
such item, (y) the purchase price or construction cost for such property is
or should be included in "addition to property, plant and equipment" in
accordance with generally accepted accounting principles and (z) the
purchase or construction of such property is not part of any acquisition of
a Person or business unit or line of business.
"Qualified Capital Stock" means any Capital Stock of the Company
that is not Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption,
retirement, repurchase or other acquisition of Capital Stock or
Indebtedness of the Company with the Net Cash Proceeds received by the
Company from the substantially concurrent sale (other than from or to a
Subsidiary or from or to an employee stock ownership plan financed by loans
from the Company or a Subsidiary of the Company) of Qualified Capital Stock
or any exchange of Qualified Capital Stock for any Capital Stock or
Indebtedness of the Company.
"Rating Agencies" means Moody's and S&P.
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"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Reference Period" with regard to any person means the most
recently ended four full fiscal quarters, for which financial statements
are available immediately preceding any date upon which any determination
is to be made pursuant to the terms of the Notes or this Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified
Capital Stock (a) issued in exchange for, or the proceeds from the issuance
and sale of which are used substantially concurrently to repay, redeem,
defease, refund, refinance, discharge or otherwise retire for value, in
whole or in part, or (b) constituting an amendment, modification or
supplement to, or a deferral or renewal ((a) and (b) above are,
collectively, a "Refinancing") of any Indebtedness or Disqualified Capital
Stock in a principal amount or, in the case of Disqualified Capital Stock,
liquidation preference, not to exceed (after deduction of reasonable and
customary fees and expenses incurred in connection with the Refinancing)
the (A) lesser of (i) the principal amount or, in the case of Disqualified
Capital Stock, liquidation preference, of the Indebtedness or Disqualified
Capital Stock so Refinanced and (ii) if such Indebtedness being Refinanced
was issued with an original issue discount, the accreted value thereof (as
determined in accordance with generally accepted accounting principles) at
the time of such Refinancing, plus (B) the amount of any premium required
to be paid in connection with such Refinancing pursuant to the terms of the
Indebtedness being so refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such Refinancing by
means of a tender offer or privately negotiated repurchase and plus (C) the
expenses of the Company or the Subsidiary, as the case may be, incurred in
connection with such Refinancing; provided, that (A) such Refinancing
Indebtedness of any Subsidiary of the Company shall only be used to
refinance outstanding Indebtedness or Disqualified Capital Stock of such
Subsidiary, (B) such Refinancing Indebtedness shall (x) not have an Average
Life shorter than the Indebtedness or Disqualified Capital Stock to be so
refinanced at the time of such Refinancing and (y) in all respects, be no
less subordinated or junior, if applicable, to the rights of Holders of the
Notes than was the Indebtedness or Disqualified Capital Stock to be
refinanced and (C) such Refinancing Indebtedness shall have a final stated
maturity or redemption date, as applicable, no earlier than the final
stated maturity or redemption date, as applicable, of the Indebtedness or
Disqualified Capital Stock to be so refinanced.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the November 15 or May 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date.
"Related Business" means the business conducted (or proposed to
be conducted) by the Company and its Subsidiaries as of the Issue Date and
any and all businesses that in the good faith judgment of the Board of
Directors of the Company are related businesses.
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"Responsible Officer", when used with respect to the Trustee,
means the chairman or any vice-chairman of the board of directors, the
chairman or any vice-chairman of the executive committee of the board of
directors, the chairman of the trust committee, the president, any vice
president, the secretary, any assistant secretary, the treasurer, any
assistant treasurer, the cashier, any assistant cashier, any trust officer
or assistant trust officer, the controller or any assistant controller 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 Payment" means, with respect to any person, (a) the
declaration or payment of any dividend or other distribution in respect of
Equity Interests of such person or any parent or Subsidiary of such person,
(b) any payment on account of the purchase, redemption or other acquisition
or retirement for value of Equity Interests of such person or any
Subsidiary or direct or indirect parent of such person (other than any such
Equity Interests owned by such person or any Subsidiary), (c) other than
with the proceeds from the substantially concurrent sale of, or in exchange
for, Refinancing Indebtedness, any purchase, redemption, or other
acquisition or retirement for value of, any payment in respect of any
amendment of the terms of or any defeasance of, any Subordinated
Indebtedness, directly or indirectly, by such person or a parent or
Subsidiary of such person prior to the scheduled maturity, any scheduled
repayment of principal, or scheduled sinking fund payment, as the case may
be, of such Indebtedness and (d) any Investment by such person, other than
a Permitted Investment; provided, however, that the term "Restricted
Payment" does not include (i) any dividend, distribution or other payment
on or with respect to Equity Interests of an issuer to the extent payable
solely in shares of Qualified Capital Stock or in options, warrants or
other rights to acquire Qualified Capital Stock of such issuer; or (ii) any
dividend, distribution or other payment to the Company, or to any of its
Subsidiaries, by the Company or any of its Subsidiaries (or, in the case of
payment by any non-Wholly Owned Subsidiary, to any other holder of Equity
Interests of such non-Wholly Owned Subsidiary on a pro rata basis). If (x)
the Company or a Subsidiary of the Company issues, transfers, conveys,
leases or otherwise disposes of any shares of Capital Stock of a Subsidiary
of the Company or securities convertible or exchangeable into, or options,
warrants, rights or any other interest with respect to, Capital Stock of a
Subsidiary of the Company, and as a result of such transaction or as a
result of the exercise, conversion or exchange of such securities, options,
warrants, rights or other interest such Subsidiary would cease to be a
Subsidiary, or (y) the Company or a Subsidiary of the Company issues,
transfers, conveys, leases or otherwise disposes of any shares of Capital
Stock or ownership interests of a Permitted Joint Venture which complies
with the provisions of clauses (e)(1)(i) or (e)(2) of the definition of
Permitted Investment or securities convertible or exchangeable into, or
options, warrants, rights or any other interest with respect to, Capital
Stock or ownership interests of a Permitted Joint Venture, or permits such
a Permitted Joint Venture to issue any shares of Capital Stock or ownership
interests of such Permitted Joint Venture or securities convertible or
exchangeable into, or options, warrants, rights or any other interest with
respect to Capital Stock of or ownership interests, in such Permitted Joint
Venture, the Company shall be deemed to have made a Restricted Payment in
an amount equal to its net investment in such Subsidiary or Permitted Joint
Venture unless, after giving effect to such issuance, transfer, conveyance,
lease or disposition, the former Subsidiary shall be or the
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Permitted Joint Venture shall continue to be, a Permitted Joint Venture
which complies with the provisions of clauses (e)(1)(i) or (e)(2) of the
definition of Permitted Investment.
"Revolving Credit Facility" means the revolving credit facilities
dated March 25, 1998 with The Toronto-Dominion Bank.
"Sale and Leaseback Transaction" of any Person means an
arrangement with any lender or investor or to which such lender or investor
is a party providing for the leasing by such Person of any property or
asset of such Person which has been or is being sold or transferred by such
Person more than 90 days after the acquisition thereof or the completion of
construction or commencement of operation thereof to such lender or
investor or to any person to whom funds have been or are to be advanced by
such lender or investor on the security of such property or asset.
"Securities" means securities designated in the first paragraph
of the RECITALS OF THE COMPANY.
"Securities Act" means the U.S. Securities Act of 1933 and
(unless the context otherwise requires) includes the rules and regulations
of the Commission promulgated thereunder.
"Shareholders' Agreement" means the Shareholders' Agreement
dated as of June 16, 1994 among the Company, Wasserstein Perella Partners,
Wasserstein Offshore Partners, Richard L. Gelfond and Bradley J. Wechsler,
and certain other parties, as amended in the manner contemplated by a
letter agreement, dated August 25, 1998, among Wasserstein & Co., Inc.,
Bradley J. Wechsler and Richard L. Gelfond and as such agreement may be
amended, modified or supplemented from time to time.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc., and its successors.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 307.
"Special Subsidiary" means a Subsidiary of the Company whose
primary business is other than systems design, manufacturing and/or leasing
as lessor of the Company's projection and sound systems, and which is so
designated pursuant to an Officer's Certificate; provided that neither the
Company nor any of its other Subsidiaries (i) provides credit support for,
or guarantee of, any Indebtedness of such Subsidiary or any Subsidiary of
such Subsidiary (including any undertaking, agreement or instrument
evidencing such Indebtedness) or (ii) is directly or indirectly liable for
any Indebtedness of such Subsidiary or any Subsidiary or such Subsidiary ad
(b) no default with respect to any Indebtedness of such Subsidiary or any
Subsidiary of such Subsidiary (including any right which the holders
thereof may have to take enforcement action against such Subsidiary) would
permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company and its Subsidiaries to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity.
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"Stated Maturity," when used with respect to any Security or any
instalment of interest thereon, means the date specified in such Security
as the fixed date on which the principal of such Security or such
instalment of interest is due and payable.
"Strategic Equity Placement" means an issuance of common shares
with aggregate proceeds of at least $30.0 million to a person which is (or
a controlled Affiliate of any person which is) engaged in a Related
Business and has Total Common Equity of at least $600.0 million.
"Subordinated Indebtedness" means Indebtedness of the Company
that is subordinated in right of payment to the Notes in any respect or has
a stated maturity on or after the Stated Maturity.
"Subsidiary" means, with respect to any person, (i) any
corporation, association or other business entity of which more than 50% of
the total voting power of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly
or indirectly, by such person or one or more of the other Subsidiaries of
that person (or a combination thereof), (ii) any partnership (a) the sole
general partner or the managing general partner of which is such person or
a Subsidiary of such person or (b) the only general partners of which are
such person or of one or more Subsidiaries of such person (or any
combination thereof) or (iii) any other person not described in clauses (i)
and (ii) above in which such person, or one more other Subsidiaries of such
person or such person and one or more other Subsidiaries thereof, directly
or indirectly, has a 50% ownership and the power, pursuant to a written
contract or agreement, to direct the policies and management or the
financial and other affairs thereof.
"Taxes" has the meaning specified in Section 1016.
"Total Common Equity" of any person means, as of any of
determination, the product of (i) the aggregate number of outstanding
primary shares of Capital Stock of such person on such day (which shall not
include any options or warrants on, or securities convertible or
exchangeable into, shares of Capital Stock of such person) and (ii) the
average Closing Price of such Capital Stock over the 20 consecutive Trading
Days immediately preceding such day. If no such Closing Price exists with
respect to shares of any such class, the value of such shares for purposes
of clause (ii) of the preceding sentence shall be determined by the Board
of Directors of the Company in good faith and evidenced by a resolution of
the Board of Directors filed with the Trustee.
"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity
(as compiled and published in the most recent Federal Reserve Statistical
Release H.15(519) which has become publicly available at least five
Business Days prior to the date fixed for repayment (or, if such
Statistical Release is no longer published, any publicly available source
of similar market data)) most nearly equal to the then remaining Weighted
Average Life to Maturity of the Security
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(calculated as if the first date on which the Security can be redeemed at
the option of the Company were the final maturity of the Security);
provided, however, that if such Weighted Average Life to maturity of the
Securities is not equal to the constant maturity of a United States
Treasury security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which yields are given, except that if such
Weighted Average Life to Maturity of the Securities is less than one year,
the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed, except as
provided in Section 905; provided, however, that in the event the Trust
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Indenture Act of 1939 is amended after such date, "Trust Indenture Act"
means, to the extent required by any such amendment, the Trust Indenture
Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become
such pursuant to the applicable provisions of this Indenture, and
thereafter "Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (i) any Subsidiary designated by
the Board of Directors of the Company as an Unrestricted Subsidiary and
(ii) any Subsidiary of an Unrestricted Subsidiary. An Unrestricted
Subsidiary may be designated pursuant to an Officers' Certificate
(including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary so long as; (i) neither the Company nor any
Subsidiary (a) provides credit support for, or guarantee of, and
Indebtedness of such Subsidiary or any Subsidiary of such Subsidiary,
(including any undertaking or agreement in respect of such debt) or (b) is
directly or indirectly liable for any Indebtedness of such Subsidiary or
any Subsidiary of such Subsidiary, (ii) no default with respect to any
Indebtedness of such Subsidiary or any Subsidiary of such Subsidiary would
permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of the Company of any Subsidiary to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity, (iii) any Investment in such
Subsidiary made as a result of designating such Subsidiary an Unrestricted
Subsidiary will not violate the provisions of Section 1009, (iv) neither
the Company nor any Subsidiary has a contract, agreement, arrangement,
understanding or obligation of any kind, whether written or oral, with such
Subsidiary other than those that might be obtained at the time from persons
who are not Affiliates of the Company, and (v) neither the Company nor any
other Subsidiary, has any obligation (a) to subscribe for additional Equity
Interests in such Subsidiary, or (b) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve
certain levels of operating results. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by filing a
certified resolution with the Trustee giving effect to such designation.
The Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Subsidiary if, immediately after giving effect to such
designation, there would be no Default or Event of Default under this
Indenture and the Company could incur $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio test under Section 1008.
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"U.S. Government Obligations" means direct non-callable
obligations of the United States of America for the payment of which the
full faith and credit of the United States is pledged.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or
a word or words added before or after the title "vice president".
"Wasserstein Offshore Partners" means Wasserstein Perella
Offshore Partners, L.P., a Delaware limited partnership.
"Wasserstein Perella Partners" means Wasserstein Perella
Partners, L.P., a Delaware limited partnership.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment, by (ii)
the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" means a Subsidiary all the Equity
Interests of which are owned by the Company or one or more wholly owned
Subsidiaries of the Company.
SECTION 12. Compliance Certificates and Opinions.
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Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company shall furnish
to the Trustee an Officers' Certificate stating that all conditions precedent,
if any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent, if any, have been complied with,
except that, in the case of any such application or request as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
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(3) a statement that, in the opinion of each such individual, he
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 complied with which, in the case of an Opinion of Counsel may be
limited to reliance on an Officers' Certificate as to matters of fact; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 13. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 14. Acts of Holders; Record Date.
----------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 601) conclusive in favor of the Trustee and the Company,
if made in the manner provided in this Section.
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The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
The ownership of Securities shall be proved by the Security Register.
Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given, made or taken by
Holders of Securities, provided that the Company may not set a record date for,
--------
and the provisions of this paragraph shall not apply with respect to, the giving
or making of any notice, declaration, request or direction referred to in the
next paragraph. If not set by the Company prior to the first solicitation of a
Holder made by any Person in respect of any such matter referred to in the
foregoing sentence, the record date for any such matter shall be the 30th day
(or, if later, the date of the most recent list of Holders required to be
provided pursuant to Section 701) prior to such first solicitation. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities on such record date, and no other Holders, shall be entitled to take
the relevant action, whether or not such Holders remain Holders after such
record date; provided that no such action shall be effective hereunder unless
--------
taken on or prior to the applicable Expiration Date by Holders of the requisite
principal amount of Outstanding Securities on such record date. Nothing in this
paragraph shall be construed to prevent the Company from setting a new record
date for any action for which a record date has previously been set pursuant to
this paragraph (whereupon the record date previously set shall automatically and
with no action by any Person be cancelled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities on the date such
action is taken. Promptly after any record date is set pursuant to this
paragraph, the Company, at its own expense, shall cause notice of such record
date, the proposed action by Holders and the applicable Expiration Date to be
given to the Trustee in writing and to each Holder of Securities in the manner
set forth in Section 106.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the giving
or making of (i) any Notice of Default, (ii) any declaration of acceleration
referred to in Section 502, (iii) any request to institute proceedings referred
to in Section 507(2) or (iv) any direction referred to in Section 512. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities on such record date, and no other Holders, shall be entitled to join
in such notice, declaration, request or direction, whether or not such Holders
remain Holders after such record date. Nothing in this paragraph shall be
construed to prevent the Trustee from
25
<PAGE>
setting a new record date for any action for which a record date has previously
been set pursuant to this paragraph (whereupon the record date previously set
shall automatically and with no action by any Person be cancelled and of no
effect), and nothing in this paragraph shall be construed to render ineffective
any action taken by Holders of the requisite principal amount of Outstanding
Securities on the date such action is taken. Promptly after any record date is
set pursuant to this paragraph, the Trustee, at the Company's expense, shall
cause notice of such record date and the proposed action by Holders to be given
to the Company in writing and to each Holder of Securities in the manner set
forth in Section 106.
Without limiting the foregoing, a Holder entitled hereunder to take
any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any part of such principal amount.
SECTION 15. Notices. Etc., to Trustee and Company.
-------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office or to it at U.S. Bank
Trust National Association, 111 East Wacker Drive, Suite 3000, Chicago,
Illinois, 60601.
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this instrument or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 16. Notice to Holders: Waiver.
-------------------------
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
26
<PAGE>
SECTION 17. Conflict with Trust Indenture Act
---------------------------------
This Indenture is subject to and governed by the Trust Indenture
Act. If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act that is required under such Act to be a part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
that may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
SECTION 18. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 19. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities 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 111. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, and the Holders of Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
-------------
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
SECTION 113. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date,
Purchase Date or Stated Maturity of any Security shall not be a Business Day,
then (notwithstanding any other provision of this Indenture or of the
Securities) payment of interest or principal (and premium, if any) need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date, Redemption Date
or Purchase Date, or at the Stated Maturity,
27
<PAGE>
provided that no interest shall accrue for the period from and after such
Interest Payment Date, Redemption Date or Purchase Date or Stated Maturity, as
the case may be.
SECTION 114. Consent to Service; Jurisdiction.
--------------------------------
The Company and the Trustee agree that any legal suit, action or
proceeding arising out of or relating to this Indenture, and the Company agrees
that any legal suit, action or proceeding arising out of or relating to the
Securities, may be instituted in any federal or state court in the Borough of
Manhattan, The City of New York, waives any objection which it may now or
hereafter have to the laying of the venue of any such legal suit, action or
proceeding, waives any immunity from jurisdiction or to service of process in
respect of any such suit, action or proceeding, and irrevocably submits to the
jurisdiction of any such court in any such suit, action or proceeding. The
Company further submits to the jurisdiction of the courts of its own corporate
domicile in any legal suit, action or proceeding arising out of or relating to
this Indenture or the Securities. The Company hereby designates and appoints
Imax U.S.A. Inc., 110 E. 59th Street, Suite 2100, New York, New York 10022 as
its authorized agent upon which process may be served in any legal suit, action
or proceeding arising out of or relating to this Indenture or the Securities
which may be instituted in any federal or state court in the Borough of
Manhattan, The City of New York, New York, and agrees that service of process
upon such agent, and written notice of said service to the Company by the Person
serving the same, shall be deemed in every respect effective service of process
upon the Company in any such suit, action or proceeding and further designates
its domicile, the domicile of Imax U.S.A. Inc. specified above and any domicile
Imax U.S.A. Inc. may have in the future as its domicile to receive any notice
hereunder (including service of process). If for any reason Imax U.S.A. Inc. (or
any successor agent for this purpose) shall cease to act as agent for service of
process as provided above, the Company will promptly appoint a successor agent
for this purpose reasonably acceptable to the Trustee. The Company agrees to
take any and all actions as may be necessary to maintain such designation and
appointment of such agent in full force and effect.
SECTION 115. Conversion of Currency.
----------------------
The Company covenants and agrees that the following provisions
shall apply to conversion of currency in the case of the Securities and this
Indenture.
(a) (i) If for the purpose of obtaining judgment in, or
enforcing the judgment of, any court in any country, it becomes necessary to
convert into any other currency (the "judgment currency") an amount due in such
coin or currency of the United States of America which as at the time of payment
is legal tender for payment of public and private debts ("U.S. Dollars"), then
the conversion shall be made at the rate of exchange prevailing on the Business
Day before the day on which the judgment is given or the order of enforcement is
made, as the case may be (unless a court shall otherwise determine).
(ii) If there is a change in the rate of exchange prevailing
between the Business Day before the day on which the judgment is given or an
order of enforcement is made, as the case may be (or such other date as a court
shall determine), and the date of receipt of the amount due, the Company will
pay such additional (or, as the case may be, such lesser) amount, if any, as may
be necessary so that the amount paid in the judgment currency when converted at
the rate of exchange prevailing on the date of receipt will produce the amount
in U.S. Dollars originally due.
28
<PAGE>
(b) In the event of the winding-up of the Company at any time
while any amount or damages owing under the Securities and this Indenture, or
any judgment or order rendered in respect thereof, shall remain outstanding, the
Company shall indemnify and hold the Holders and the Trustee harmless against
any deficiency arising or resulting from any variation in rates of exchange
between (1) the date as of which the equivalent of the amount in U.S. Dollars
due or contingently due under the Securities and this Indenture (other than
under this Subsection (b)) is calculated for the purposes of such winding-up and
(2) the final date for the filing of proof of claim in such winding-up. For the
purpose of this Subsection (b), the final date for the filing of proofs of claim
in the winding-up of the Company shall be the date fixed by the liquidator or
otherwise in accordance with the relevant provisions of applicable law as being
the latest practicable date as at which liabilities of the Company may be
ascertained for such winding-up prior to payment by the liquidator or otherwise
in respect thereto.
(c) The obligations contained in Subsections (a)(ii) and (b) of
this Section 115 shall constitute separate and independent obligations of the
Company from its other obligations under the Securities and this Indenture,
shall give rise to separate and independent causes of action against the
Company, shall apply irrespective of any waiver or extension granted by any
Holder or the Trustee or any of them from time to time and shall continue in
full force and effect notwithstanding any judgment or order or the filing of any
proof of claim in the winding-up of the Company for a liquidated sum in respect
of amounts due hereunder (other than under Subsection (b) above) or under any
such judgment or order. Any such deficiency as aforesaid shall be deemed to
constitute a loss suffered by the Holders and no proof or evidence of any actual
loss shall be required by the Company or the liquidator or otherwise or any of
them. In the case of Subsection (b) above, the amount of such deficiency shall
not be deemed to be increased or reduced, as the case may be, by any variation
in rates of exchange occurring between the said final date and the date of any
liquidating distribution.
(d) The term "rate(s) of exchange" shall mean the noon spot rate
of exchange for Canadian interbank transactions applied in converting any other
currency into U.S. dollars published by the Bank of Canada for the date of
determination.
SECTION 116. Currency Equivalent.
-------------------
Except as provided in Section 115, for purposes of the
construction of the terms of this Indenture or of the Securities, in the event
that any amount is stated herein in the currency of one nation (the "First
Currency"), as of any date such amount shall also be deemed to represent the
amount in the currency of any other relevant nation (the "Other Currency") which
is required to purchase such amount in the First Currency at the noon spot rate
of exchange for Canadian interbank transactions applied in converting the Other
Currency into the First Currency published by the Bank of Canada for the date of
determination.
SECTION 117. Shareholders, Officers and Directors
Exemption from Individual Liability.
-----------------------------------
No recourse under or upon any obligation, covenant or agreement
contained in this Indenture, or in any Security, or because of any indebtedness
evidenced thereby, shall be had against any past, present or future shareholder,
officer or director, as such, of the Company or of any successor, either
directly or through the Company or any successor, under any rule of law, statute
or constitutional
29
<PAGE>
provision or by the enforcement of any assessment or by any legal or equitable
proceeding or otherwise, all such liability being expressly waived and released
by the acceptance of the Securities by the Holders thereof and as part of the
consideration for the issue of the Securities.
30
<PAGE>
ARTICLE II
Security Forms
SECTION 118. Forms Generally.
---------------
The Securities and the Trustee's certificates of authentication
shall be in substantially the forms set forth in this Article, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by 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 the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities.
The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner provided that such manner is
permitted by the rules of any securities exchange on which the Securities may be
listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
SECTION 119. Form of Face of Security.
------------------------
IMAX CORPORATION
7 7/8 % Senior Notes due 2005
CUSIP No. 45245E AE 9
No. $____________________
Imax Corporation, a corporation duly organized and existing under the
laws of Canada (herein called the "Company", which term includes any successor
Person under this Indenture hereinafter referred to), for value received, hereby
promises to pay to , or registered assigns, the principal sum of
Dollars on December 1, 2005, and to pay interest thereon from December 4, 1998
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, semi-annually on December 1 and June 1 in each year,
commencing June 1, 1999, at the rate of 7.875% per annum, until the principal
hereof is paid or made available for payment, and (to the extent that the
payment of such interest shall be legally enforceable) at the rate of 8.875% per
annum on any overdue principal and premium and on any overdue installment of
interest until paid. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the May 15 or November 15 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities
31
<PAGE>
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under this Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: December 4, 1998
Imax Corporation
[Seal]
By____________________________________
Title:
By____________________________________
Title:
SECTION 120. Form of Reverse of Security.
---------------------------
This Security is one of a duly authorized issue of Securities of
the Company designated as its 7 7/8% Senior Notes due 2005 (herein called the
"Securities"), limited (except as otherwise provided in this Indenture referred
to below) in aggregate principal amount to $400,000,000, issued and to be issued
under an Indenture, dated as of December 4, 1998 (herein called the
"Indenture"), between the Company and U.S. Bank Trust National Association, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which the Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
32
<PAGE>
The Company will pay to each Holder, other than an Excluded
Holder, certain Additional Amounts in the event of the withholding or deduction
of certain Canadian taxes as described in the Indenture.
The Company does not have the right to redeem any Securities
prior to December 1, 2002, except as described in the next following paragraphs.
The Securities are redeemable for cash at the option of the Company, in whole or
in part, at any time on or after December 1, 2002, upon not less than 30 days
nor more than 60 days notice to each holder of Securities, at the following
redemption prices (expressed as percentages of the principal amount) if redeemed
during the 12-month period commencing December 1 of the years indicated below,
in each case (subject to the right of Holders of record on a Record Date to
receive interest due on an Interest Payment Date that is on or prior to such
Redemption Date) together with accrued and unpaid interest thereon to the
Redemption Date:
Year Percentage
---------------------- --------------
2002..................... 103.938%
2003..................... 101.969%
2004 and ........ 100.000%
thereafter......
Until December 1, 2001 upon a Public Equity Offering or
Strategic Equity Placement of common shares of the Company for cash, up to $70
million aggregate principal amount of the Securities may be redeemed at the
option of the Company within 90 days of such Public Equity Offering or Strategic
Equity Placement, on not less than 30 days, but not more than 60 days, notice to
each Holder of the Securities to be redeemed, with cash from the Net Cash
Proceeds of such Public Equity Offering or Strategic Equity Placement, at
107.875 % of the principal amount thereof (subject to the right of Holders of
record on a Record Date to receive interest due on an Interest Payment Date that
is on or prior to such Redemption Date) together with accrued and unpaid
interest thereon to the date of redemption; provided, however, that immediately
following such redemption not less than $130 million aggregate principal amount
of the Securities are outstanding.
The Securities are also subject to redemption at any time or
from time to time prior to December 1, 2002 upon not less than 30 nor more than
60 days' notice to each Holder of Securities redeemed, at the option of the
Company, in whole or in part, in integral multiples of $1,000, at a redemption
price equal to 100% of the principal amount thereof plus the applicable Make-
Whole Premium (subject to the right of Holders of record on a Record Date to
receive interest due on an Interest Payment Date that is on or prior to such
Redemption Date) plus accrued and unpaid interest to but excluding the
Redemption Date.
The Company also may, at its option, redeem the Securities, in
whole but not in part, at a redemption price equal to 100% of the principal
amount of the Securities, together with accrued and unpaid interest to the
redemption date, if the Company has become or would become obligated to pay, on
the next date on which any amount would be payable under or with respect to the
Securities, any Additional Amounts as a result of certain changes affecting
Canadian withholding taxes which are specified in the Indenture at a Redemption
Price equal to 100% of the principal amount of the Securities, together with
accrued interest to but excluding the Redemption Date, provided that interest
installments whose Stated Maturity is on or prior to such Redemption Date will
be payable to the Holders of such Securities, or one or more Predecessor
Securities, of record at the close of business on the relevant Regular Record
Dates referred to on the face hereof, all as provided in the Indenture.
33
<PAGE>
In the case of a partial redemption, the Trustee shall select the
Securities or portions thereof for redemption on a pro rata basis, by lot or in
such other manner it deems appropriate and fair. The Securities may be redeemed
in part in multiples of $1,000 only.
The Securities will not have the benefit of any sinking fund.
In the event of redemption or purchase pursuant to an Offer to
Purchase of this Security in part only, a new Security or Securities for the
unredeemed or unpurchased portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture provides that, subject to certain conditions, if (i)
certain Excess Proceeds are available to the Company as a result of Asset Sales
or (ii) a Change of Control occurs, the Company shall be required to make an
Offer to Purchase for all or a specified portion of the Securities.
The Indenture contains provisions for defeasance at any time of (i)
the entire indebtedness of this Security or (ii) certain restrictive covenants
and Events of Default with respect to this Security, in each case upon
compliance with certain conditions set forth therein.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
As provided for in the Indenture, the Company may, subject to certain
limitations, from time to time, without notice to or the consent of the Holders,
create and issue Additional Securities so that such Additional Securities shall
be consolidated and form a single series with the Securities initially issued by
the Company and shall have the same terms as to status, redemption or otherwise
as the Securities originally issued. Any Additional Securities shall be issued
with the benefit of an indenture supplemental to the Indenture.
34
<PAGE>
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
The Indenture and this Security shall be governed by and construed in
accordance with the laws of the State of New York.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased in its entirety
by the Company pursuant to Section 1013 or 1015 of the Indenture, check the box:
[ ]
If you want to elect to have only a part of this Security purchased by
the Company pursuant to Section 1013 or 1015 of the Indenture, state the amount:
$
Dated: Your Signature:
--------------------------------------------------
(Sign exactly as name appears on the other side of
this Security)
Signature Guarantee:
---------------------------------
(Signature must be guaranteed by
a member firm of the New York Stock
Exchange or a commercial bank or
trust company)
SECTION 121. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
This is one of the Securities referred to in the within-mentioned
Indenture.
U.S. Bank Trust National Association,
35
<PAGE>
as Trustee
By
------------------------------------
Authorized Officer
SECTION 122. Form of Legend for Global Securities.
------------------------------------
Every Global Security authenticated and delivered hereunder shall bear
a legend in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A
SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE
REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
ARTICLE III
The Securities
SECTION 123. Title and Terms.
---------------
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $400,000,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 906 or 1107 or in connection with an Offer to Purchase pursuant to
Section 1013 or 1015.
The Securities shall be known and designated as the "7 7/8% Senior
Notes due 2005" of the Company. Their Stated Maturity shall be December 1, 2005
and they shall bear interest at the rate of 7.875% per annum, from December 4,
1998 or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, as the case may be, payable semi-annually on December
1 and June 1, commencing June 1, 1999, until the principal thereof is paid or
made available for payment.
The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Company in The City of New York,
New York maintained for such purpose and at any other office or agency
maintained by the Company for such purpose; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
The Securities shall be subject to repurchase by the Company pursuant
to an Offer to Purchase as provided in Section 1013 or 1015.
Additional Securities ranking pari passu with the Securities issued
the date hereof may be created and issued from time to time by the Company
without notice or consent to the Holders and shall be consolidated with and form
a single series with the Securities initially issued and shall have the same
terms as to status, redemption or otherwise as the Securities originally issued,
provided that, the aggregate principal amount of Securities issued shall be no
more than U.S $400,000,000; any Additional
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Securities shall be issued and the benefit of an indenture supplemental to this
Indenture.
The Securities shall be redeemable as provided in Article Eleven.
The Securities shall be subject to defeasance at the option of the
Company as provided in Article Twelve.
SECTION 124. Denominations.
-------------
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 125. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its President or one of its Vice Presidents, under its
corporate seal reproduced thereon attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the Securities
may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
In case the Company, pursuant to Article Eight, shall be amalgamated,
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of substantially all of its properties and assets to
any Person, and the successor Person resulting from such amalgamation,
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the successor Person which shall have received a conveyance,
transfer, lease or other disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Trustee pursuant to Article Eight, any of
the Securities authenticated or delivered prior to such amalgamation,
consolidation, merger, conveyance, transfer, lease or other disposition may,
from time to time, at the request of the successor Person, be exchanged for
other Securities executed in the name of the successor Person with such changes
in phraseology and form as may be appropriate, but otherwise in substance of
like tenor as the Securities surrendered for such exchange and of like principal
amount; and the Trustee upon Company Order of the successor Person, shall
authenticate and deliver replacement Securities as
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specified in such request for the purpose of such exchange. If replacement
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of any Holder but without expense to such Holder, shall provide for the
exchange of all Securities at the time outstanding held by such Holder for
Securities authenticated and delivered in such new name.
SECTION 126. Temporary Securities.
--------------------
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities of
authorized denominations. Until so exchanged the temporary Securities shall in
all respects be entitled to the same benefits under this Indenture as definitive
Securities.
SECTION 127. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is hereby
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate principal
amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Security Registrar)
be duly endorsed, or be accompanied by a
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written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed, by the Holder thereof or his attorney duly
authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1107 or in accordance with any Offer
to Purchase pursuant to Section 1013 or 1015 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
The provisions of Clauses (1), (2), (3) and (4) below shall apply only
to Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary or a nominee thereof and delivered
to the Depositary or a nominee thereof or custodian therefor, and each such
Global Security shall constitute a single Security for all purposes of this
Indenture.
(2) Notwithstanding any other provision in this Indenture or the
Securities, no Global Security may be exchanged in whole or in part for
Securities registered, and no transfer of a Global Security in whole or in
part may be registered, in the name of any Person other than the Depositary
or a nominee thereof unless (A) such Depositary (i) has notified the
Company that it is unwilling or unable to continue as Depositary for such
Global Security or (ii) has ceased to be a clearing agency registered under
the Exchange Act and in either case the Company thereupon fails to appoint
a successor depositary within 120 days of such notice, (B) the Company, at
its option, executes and delivers to the Trustee a Company Order that such
Global Security shall be exchanged in whole for Securities that are not
Global Securities, or (C) there shall have occurred and be continuing an
Event of Default with respect to such Global Security.
(3) Securities issued in exchange for a Global Security or any portion
thereof pursuant to clause (2) above shall be issued in definitive, fully
registered form, without interest coupons, shall have an aggregate
principal amount equal to that of such Global Security or portion thereof
to be so exchanged, shall be registered in such names and be in such
authorized denominations as the Depositary shall designate and shall bear
any legends required hereunder. Any Global Security to be exchanged in
whole shall be surrendered by the Depositary to the Trustee, as Security
Registrar. With regard to any Global Security to be exchanged in part,
either such Global Security shall be so surrendered for exchange or, if the
Trustee is acting as custodian for the Depositary or its nominee with
respect to such Global Security, the principal amount thereof shall be
reduced, by an amount equal to the portion thereof to be so exchanged, by
means of an appropriate adjustment made on the records of the Trustee.
Upon any such surrender or adjustment, the Trustee shall authenticate and
deliver the Security issuable on such exchange to or upon the order of the
U.S. Depositary or an authorized representative thereof.
(4) In the event of the occurrence of any of the events specified in
clause (2) above, the Company will promptly make available to the Trustee a
reasonable supply of certificated
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Securities in definitive, fully registered form, without interest coupons.
(5) Neither any members of, or participants in, the U.S. Depositary
("Agent Members") nor any other Persons on whose behalf Agent Members may
act shall have any rights under this Indenture with respect to any Global
Security, or under any Global Security, and the Depositary or such nominee,
as the case may be, may be treated by the Company, the Trustee and any
agent of the Company or the Trustee as the absolute owner and Holder of
such Global Security 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 by the Depositary or
such nominee, as the case may be, or impair, as between the Depositary, its
Agent Members and any other person on whose behalf an Agent Member may act,
the operation of customary practices of such Persons governing the exercise
of the rights of a Holder of any Security.
SECTION 128. Mutilated, Destroyed, Lost and Stolen Securities.
------------------------------------------------
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the mutilation, destruction, loss or theft of
any Security and (ii) such security or indemnity as may be required by them to
save each of them and any agent of either of them harmless, then, in the absence
of notice to the Company or the Trustee that such Security has been acquired by
a bona fide purchaser, the Company shall execute and upon its request the
Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or
stolen Security, a new Security of like tenor and principal amount and bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section 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 Securities.
SECTION 129. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
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Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder at his address as it appears in the Security Register, not
less than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor
having been so mailed, such Defaulted Interest shall be paid to the Persons
in whose names the Securities (or their respective Predecessor Securities)
are registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may
be required by such exchange, if, after notice given by the Company to the
Trustee of the proposed payment pursuant to this Clause, such manner of
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 130. Persons Deemed Owners.
---------------------
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal of (and premium, if
any) and (subject to Section 307) interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any
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agent of the Company or the Trustee shall be affected by notice to the contrary.
SECTION 131. Cancellation.
------------
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any Offer to Purchase pursuant to
Section 1013 or 1015 shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly cancelled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities cancelled as provided in this Section,
except as expressly permitted by this Indenture. All cancelled Securities held
by the Trustee shall be disposed of by the Trustee in accordance with its
customary procedures and certification of their disposal delivered to the
Company unless by Company Order the Company shall direct that cancelled
Securities be returned to it.
SECTION 132. Computation of Interest.
-----------------------
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
ARTICLE IV
Satisfaction and Discharge
SECTION 133. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Securities herein
expressly provided for), and the Trustee, upon a Company Order, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture
(including, but not limited to Article Twelve hereof), when
(1) either
(1) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306 and
(ii) Securities for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation; or
(2) all such Securities not theretofore delivered to the
Trustee for cancellation
(2) have become due and payable, or
(3) will become due and payable at their Stated Maturity within
one year, or
(4) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
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and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to
the Trustee for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of Securities which
have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent provided
for in this Indenture relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article Four, the obligations of the Company to the Trustee under Section
607 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this Section, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.
SECTION 134. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
ARTICLE V
Remedies
SECTION 135. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) the failure by the Company to pay any installment of interest on the
Securities as and when the same becomes due and payable and the continuance
of any such failure for 30 days;
(2) the failure by the Company to pay all or any part of the principal, or
premium, if any, on the Securities when and as the same becomes due and
payable at maturity, redemption, by acceleration or otherwise, including,
without limitation, payment of the Change of Control Purchase Price or the
Asset Sale Offer Price, or otherwise;
(3) the failure by the Company or any Subsidiary to observe or perform any
other covenant or agreement contained in the Securities or this Indenture
and the continuance of such
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failure for a period of 30 days after written notice is given to the
Company by the Trustee or to the Company and the Trustee by the Holders of
at least 25% in aggregate principal amount of the Securities outstanding;
(4) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any Subsidiary in
an involuntary case or proceeding under any applicable U.S. Federal or
State, Canadian Federal or Provincial or other applicable bankruptcy,
insolvency, reorganization or other similar law or (B) a decree or order
adjudging the Company or any Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or any Subsidiary
under any applicable U.S. Federal or State, Canadian Federal or Provincial
or other applicable law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or
any Subsidiary or of any substantial part of the property of the Company or
any Subsidiary, or ordering the winding up or liquidation of the affairs of
the Company or any Subsidiary, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in effect
for a period of 60 consecutive days; the commencement by the Company or
any Subsidiary of a voluntary case or proceeding under any applicable U.S.
Federal or State, Canadian Federal or Provincial or other applicable
bankruptcy, insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by the Company or any Subsidiary to the entry of a decree or order
for relief in respect of the Company or Subsidiary in an involuntary case
or proceeding under any applicable U.S. Federal or State, Canadian Federal
or Provincial or other applicable bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency
case or proceeding against the Company or Subsidiary, or the filing by the
Company or any Subsidiary of a petition or answer or consent seeking
reorganization or relief under any applicable U.S. Federal or State,
Canadian Federal or Provincial or other applicable law, or the consent by
the Company or any Restricted Subsidiary to the filing of such petition or
to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of the
Company or any Subsidiary or of any substantial part of the property of the
Company or Subsidiary, or the making by the Company or any Subsidiary of an
assignment for the benefit of creditors, or the admission by the Company or
any Subsidiary in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Company or any
Subsidiary in furtherance of any such action.
(5) failure to perform or comply with the provisions described under
"Limitation on Merger, Sale or Consolidation";
(6) a default in Indebtedness of the Company or any of its Subsidiaries
with an aggregate principal amount in excess of $10 million (a) resulting
from the failure to pay principal or interest or (b) as a result of which
the maturity of such Indebtedness has been accelerated prior to its stated
maturity; and
(7) final unsatisfied judgments not covered by insurance aggregating in
excess of $10 million, at any one time rendered against the Company or any
of its Subsidiaries and not stayed, bonded or discharged within 60 days.
SECTION 136. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default occurs and is continuing (other than an Event
of Default specified in Section 501(4) relating to the Company or any
Subsidiary), then in every such case, unless the
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principal of all of the Securities shall have already become due and payable,
either the Trustee or the Holders of 25% in aggregate principal amount of the
Securities then outstanding, by notice in writing to the Company (and to the
Trustee if given by Holders) (an "Acceleration Notice"), may declare all
principal and premium, if any, determined as set forth below, and accrued
interest thereon to be due and payable immediately. If an Event of Default
specified in Section 501(4) relating to the Company or any Subsidiary occurs,
all principal and premium, if any, and accrued interest thereon will be
immediately due and payable on all outstanding Notes without any declaration or
other act on the part of the Trustee or the Holders.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Securities pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Securities.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in aggregate principal amount of Securities, by written notice to the Company
and the Trustee, at the time outstanding generally are authorized to rescind
such acceleration if
(1) the Company has paid or deposited with the Trustee a sum sufficient to
pay
(1) all overdue interest on all Securities,
(2) the principal of (and premium, if any, on) any Securities which
have become due otherwise than by such declaration of acceleration
(including any Securities required to have been purchased on the
Purchase Date pursuant to an Offer to Purchase made by the Company)
and, to the extent that payment of such interest is lawful, interest
thereon at the rate provided by the Securities,
(3) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate provided by the Securities, and
(4) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all existing Events of Default, other than the non-payment of the
principal of, premium, if any, and interest on the Securities which have
become due solely by such acceleration, have been cured or waived, except
on default with respect to any provision requiring the approval of the
Holder of each outstanding Security affected to amend.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 137. Collection of Indebtedness and Suits for Enforcement by Trustee.
---------------------------------------------------------------
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If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 138. Trustee May File Proofs of Claim.
--------------------------------
In case of any judicial proceeding relative to the Company (or any
other obligor upon the Securities), its property or its creditors, the Trustee
shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official 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 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 607.
No provision of this Indenture 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
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 139. Trustee May Enforce Claims Without Possession of Securities.
-----------------------------------------------------------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 140. Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607; and
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal (and premium, if
any) and interest, respectively; and
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THIRD: The balance, if any, to the Company.
SECTION 141. Limitation on Suits.
-------------------
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding;
and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 142. Unconditional Right of Holders to Receive Principal, Premium and
Interest
----------------------------------------------------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 307) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date or in the case of an Offer to Purchase made by the Company and required to
be accepted as to such Security, on the Purchase Date) and to institute suit for
the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
SECTION 143. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
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SECTION 144. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 145. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 146. Control by Holders.
------------------
Subject to all provisions of the Indenture and applicable law, the
Holders of a majority in aggregate principal amount of the Outstanding
Securities shall have the right to 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 the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 147. Waiver of Past Defaults.
-----------------------
Prior to the declaration of acceleration of the maturity of the
Securities, the Holders of a majority in aggregate principal amount of the
Outstanding Securities may waive on behalf of all Holders any default, except a
default
(1) in the payment of principal of or interest on any Security not
yet cured; or
(2) with respect to any covenant or provision which cannot be
modified or amended without the consent of the Holder of each outstanding
Security affected.
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 not such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 148. 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, suffered or
omitted by it as Trustee, a court may require
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any party litigant in such suit to file an undertaking to pay the costs of such
suit, and may assess costs against any such party litigant, in the manner and to
the extent provided in the Trust Indenture Act; provided, that neither this
Section nor the Trust Indenture Act shall be deemed to authorize any court to
require such an undertaking or to make such an assessment in any suit instituted
by the Company.
SECTION 149. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which 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 or any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
The Trustee
SECTION 150. Certain Duties and Responsibilities.
-----------------------------------
The duties and responsibilities of the Trustee shall be as provided by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
SECTION 151. Notice of Defaults.
------------------
Within 90 days after the occurrence of any default hereunder, the
Trustee shall give the Holders notice of any default hereunder as and to the
extent provided by the Trust Indenture Act; provided, however, that in the case
of any default of the character specified in Section 501(3), no such notice to
Holders shall be given until at least 30 days after the occurrence thereof. For
the purpose of this Section, the term "default" means any event which is, or
after notice or lapse of time or both would become, an Event of Default.
SECTION 152. Certain Rights of Trustee.
-------------------------
Subject to the provisions of Section 601:
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate or
any other certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to
be genuine and to have been signed or presented by the proper party or
parties;
(2) any request or direction of the Company mentioned herein shall be
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sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by
a Board Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior
to taking, suffering or omitting any action hereunder, the Trustee
(unless other evidence be herein specifically prescribed) may, in the
absence of bad faith on its part, rely upon an Officers' Certificate,
including (i) as evidence of the truth of any statements of fact, and
(ii) to the effect that any particular dealing or transaction or step
or thing is, in the opinion of the Officers so certifying, expedient,
as evidence that it is expedient; provided that the Trustee may in its
sole discretion require from the Company or otherwise further evidence
or information before acting or relying on such certificate
(4) such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may
see fit, and, if the Trustee shall determine to make such further
inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company, personally or by agent or
attorney; and
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents
or attorneys and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
SECTION 153. Not Responsible for Recitals or Issuance of Securities.
------------------------------------------------------
The recitals contained herein and in the Securities, except the
Trustee's certificate of authentication, shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder and that the statements made by
it in a Statement of Eligibility on Form T-1 supplied to the Company are true
and accurate, subject to the qualifications set forth therein. The Trustee shall
not be accountable for the use or application by the Company of Securities or
the proceeds thereof.
SECTION 154. May Hold Securities.
-------------------
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The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
SECTION 155. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 156. Compensation and Reimbursement.
------------------------------
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses (including
the reasonable fees and expenses of its agents and counsel) of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
SECTION 157. Corporate Trustee Required; Eligibility.
---------------------------------------
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 158. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to the Trust Indenture Act to act as such. Any
successor Trustee shall have a combined capital and surplus of at least
$50,000,000. If such Person publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign
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<PAGE>
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 159. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(1) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective
until the acceptance of appointment by the successor Trustee under
Section 611.
(2) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation, the resigning Trustee
may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
(3) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered
to the Trustee and to the Company.
(4) If at any time:
(2) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(3) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(4) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the
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<PAGE>
Trustee and each appointment of a successor Trustee to all Holders in the
manner provided in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 160. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 161. Merger, Conversion, Consolidation or Succession to Business.
-----------------------------------------------------------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 162. Preferential Collection of Claims Against Company.
-------------------------------------------------
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 163. Appointment of Authenticating Agent.
-----------------------------------
The Trustee may appoint an Authenticating Agent or Agents which shall
be authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer, partial
conversion or partial redemption or pursuant to Section 306, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the authentication
and delivery of Securities by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the
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<PAGE>
Trustee by an Authenticating Agent and a certificate of authentication executed
on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent
shall be acceptable to the Company and shall at all times be a corporation
organized and doing business under the laws of the United States of America, any
State thereof or the District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and subject to supervision or examination by Federal or State
authority. If such Authenticating Agent publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such Authenticating Agent shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time an Authenticating Agent shall cease to be eligible in
accordance with the provisions to this Section, such Authenticating Agent shall
resign immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall otherwise be eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 607.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities described in the within-mentioned
Indenture.
U.S. Bank Trust National Association
As Trustee
By
------------------------------------
As Authenticating Agent
54
<PAGE>
By
------------------------------------
Authorized Officer
ARTICLE VII
Holders' Lists and Reports by Trustee and Company
SECTION 164. Company to Furnish Trustee Names and Addresses of Holders.
---------------------------------------------------------
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
- ---------
capacity as Security Registrar.
SECTION 165. Preservation of Information; Communications to Holders.
------------------------------------------------------
(1) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained
in the most recent list furnished to the Trustee as provided in
Section 701 and the names and addresses of Holders received by the
Trustee in its capacity as Security Registrar. The Trustee may destroy
any list furnished to it as provided in Section 701 upon receipt of a
new list so furnished.
(2) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities
and the corresponding rights and duties of the Trustee, shall be
provided by the Trust Indenture Act.
(3) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor
the Trustee nor any agent of either of them shall be held accountable
by reason of any disclosure of information as to the names and
addresses of Holders made pursuant to Section 312 of the Trust
Indenture Act regardless of the source from which such information was
derived.
SECTION 166. Reports by Trustee.
------------------
55
<PAGE>
(1) Within 60 days of each Regular Record Date, the Trustee shall
transmit to Holders such reports concerning the Trustee and its
actions under this Indenture as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant
thereto.
(2) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock
exchange upon which the Securities are listed, with the Commission and
with the Company. The Company will notify the Trustee when the
Securities are listed on any stock exchange.
SECTION 167. Reports by Company.
------------------
The Company shall:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934; or, if the Company is not required to file
information, documents or reports pursuant to either of said Sections, then
it shall file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act in respect of a
security listed and registered on a national securities exchange as may be
prescribed from time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
(3) transmit by mail to all Holders, in the manner and to the extent
provided in Section 313(c) of the Trust Indenture Act, within 30 days after
the filing thereof with the Trustee, such summaries of any information,
documents and reports required to be filed by the Company pursuant to
paragraphs (1) and (2) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission.
ARTICLE VIII
Limitation on Merger, Sale or Consolidation
SECTION 168. Company May Consolidate, Etc. Only on Certain Terms.
---------------------------------------------------
The Company shall not, directly or indirectly, consolidate or
amalgamate with or merge with or into another person or sell, lease, transfer or
otherwise convey all or substantially all of its assets (computed on a
consolidated basis), whether in a single transaction or a series of related
transactions, to another person or group of affiliated persons or adopt a Plan
of Liquidation, unless (i) either (a) the Company is the continuing entity or
(b) the resulting, surviving or transferee entity or, in the case of a Plan of
Liquidation, the entity which receives the greatest value from such Plan of
Liquidation is a corporation organized under the laws of the United States of
America, or any state thereof or the District
56
<PAGE>
of Columbia, or Canada or any province or territory thereof and expressly
assumes by supplemental indenture all of the obligations of the Company in
connection with the Securities and this Indenture; (ii) no Default or Event of
Default shall exist or shall occur immediately after giving effect on a pro
forma basis to such transaction; (iii) immediately after giving effect to such
transaction on a pro forma basis, the Consolidated Net Worth of the consolidated
surviving or transferee entity or, in the case of a Plan of Liquidation, the
entity which receives the greatest value from such Plan of Liquidation is at
least equal to the Consolidated Net Worth of the Company immediately prior to
such transaction; and (iv) immediately after giving effect to such transaction
on a pro forma basis, the consolidated resulting, surviving or transferee entity
or, in the case of a Plan of Liquidation, the entity which receives the greatest
value from such Plan of Liquidation would immediately thereafter be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence
Ratio set forth in Section 1008 hereof.
SECTION 169. Successor Substituted
---------------------
Upon any consolidation, amalgamation or merger or any transfer of all
or substantially all of the assets of the Company or consummation of a Plan of
Liquidation in accordance with Section 801, the successor corporation formed by
such consolidation or amalgamation or into which the Company is merged or to
which such transfer is made or, in the case of a Plan of Liquidation, the entity
which receives the greatest value from such Plan of Liquidation shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such successor
corporation had been named therein as the Company, and the Company shall be
released from the obligations under the Securities and this Indenture except
with respect to any obligations that arise from, or are related to, such
transaction.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise) of all or substantially all of the properties and assets of
one or more Subsidiaries, the Company's interest in which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
For purposes of the Sections 801 and 802, the transfer (by lease,
assignment, sale or otherwise) of all or substantially all of the properties and
assets of one or more Subsidiaries, the Company's interest in which constitutes
all or substantially all of the properties and assets of the Company shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company.
ARTICLE IX
Supplemental Indentures
SECTION 170. Supplemental Indentures Without Consent of Holders
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders or to
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surrender any right or power herein conferred upon the Company; or
(3) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities and to add
to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trust hereunder by
more than one Trustee, pursuant to the requirements of Section 611; or
(4) to supplement any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the defeasance and
discharge of the Securities pursuant to Sections 401, 1202 and 1203;
provided that any such action shall not adversely affect the interests of
the Holders of Securities in any material respect.; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the provisions of
this Indenture, provided such action pursuant to this Clause (5) shall not
adversely affect the interests of the Holders in any material respect; or
(6) to issue Additional Securities as provided in Section 301.
SECTION 171. Supplemental Indentures with Consent of Holders
-----------------------------------------------
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(1) to change the Stated Maturity of the principal of, or any
instalment of interest on, any Security, or reduce the principal amount
thereof or the rate (or extend the time for payment) of interest thereon or
any premium payable upon the redemption thereof, or change the place of
payment where, or the coin or currency in which, any Security or any
premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or reduce the Change of Control Purchase Price or the
Asset Sale Offer Price or alter the provisions (including the defined terms
used therein) regarding the right of the Company to redeem the Securities
in a manner adverse to the Holders, or
(2) to reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
amendment, supplemental indenture or waiver provided for in this Indenture,
or
(3) to modify any of the provision of this Section, Section 513 or
Section 1021, except to increase any required percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby, or
(4) cause the Securities to become subordinate in right of payment to
any other
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Indebtedness.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 172. Execution of Supplemental Indentures
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 173. Effect of Supplemental Indentures
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 174. Conformity with Trust Indenture Act
-----------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act.
SECTION 175. Reference in Securities to Supplemental Indentures
--------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 176. Notice of Supplemental Indentures
---------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Security affected,
in the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
ARTICLE X
Covenants
SECTION 177. Payment of Principal, Premium and Interest
------------------------------------------
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The Company will duly and punctually pay the principal of (and
premium, if any) and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
SECTION 178. Maintenance of Office or Agency
-------------------------------
The Company will maintain in the Borough of Manhattan, The City of New
York, an office or agency where Securities may be presented or surrendered for
payment, where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Company will 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, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the Borough of Manhattan, The City of New
York) where the Securities 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 will 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.
SECTION 179. Money for Security Payments to be Held in Trust
-----------------------------------------------
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or interest
on any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal of (and premium, if any) or interest on
any Securities, deposit with a Paying Agent a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be held
in trust for the benefit of the Persons entitled to such principal, premium or
interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
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(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
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 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 a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in The City of New York, 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 publication, any unclaimed balance of such money then
remaining will be repaid to the Company.
SECTION 180. Existence
---------
Subject to Article Eight and Section 1013 the Company will do or cause
to be done all things necessary to preserve and keep in full force and effect
its existence, rights (charter and statutory) and franchises; provided, however,
that the Company shall not be required to preserve any such right or franchise
if the Board of Directors in good faith shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
that the loss thereof is not disadvantageous in any material respect to the
Holders.
SECTION 181. Maintenance of Properties
-------------------------
The Company will cause all properties used or useful in the conduct of
its business or the business of any Subsidiary of the Company to be maintained
and kept in good condition, repair and working order and supplied with all
necessary equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is judged by the Company to be desirable in the conduct of its
business or the business of any Subsidiary and not disadvantageous in any
material respect to the Holders.
SECTION 182. Payment of Taxes and Other Claims
---------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
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Subsidiaries or upon the income, profits or property of the Company or any of
its Subsidiaries, and (2) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien upon the property of the Company or
any of its Subsidiaries; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
SECTION 183. Maintenance of Insurance
------------------------
The Company shall, and shall cause its Subsidiaries to, keep at all
times all of their properties which are of an insurable nature insured against
loss or damage with insurers believed by the Company to be responsible to the
extent that property of similar character is usually so insured by corporations
similarly situated and owning like properties in accordance with good business
practice. The Company shall, and shall cause its Subsidiaries to, use the
proceeds from any such insurance policy to repair, replace or otherwise restore
the property to which such proceeds relate.
SECTION 184. Limitation on Incurrence of Additional Indebtedness
---------------------------------------------------
Except as set forth in this covenant, the Company shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly, issue, assume,
guaranty, incur, become directly or indirectly liable with respect to (including
as a result of an Acquisition), or otherwise become responsible for,
contingently or otherwise (individually and collectively, to "incur" or, as
appropriate, an "incurrence"), any Indebtedness (including Acquired
Indebtedness) other than Permitted Indebtedness.
The immediately preceding paragraph will not prohibit (A) the Company
from incurring Indebtedness if (i) no Default or Event of Default shall have
occurred and be continuing at the time of, or would occur after giving effect on
a pro forma basis to, such incurrence of Indebtedness and (ii) on the date of
incurrence of such Indebtedness (the "Incurrence Date"), after giving effect on
a pro forma basis to such incurrence and the use of proceeds thereof (including,
if applicable, the Investment of such proceeds in Cash Equivalents), the
Consolidated Coverage Ratio of the Company for the Reference Period immediately
preceding the Incurrence Date would be at least 2.50 to 1 (the "Debt Incurrence
Ratio") and (B) any Special Subsidiary from incurring Indebtedness if (i) no
Default or Event Default shall have occurred and be continuing at the time of,
or would occur after giving effect on a pro forma basis to, such incurrence of
Indebtedness and (ii) on the Incurrence Date, after giving effect on a pro
forma basis to such incurrence and the use of proceeds thereof (including, if
applicable, the Investment of such proceeds in Cash Equivalents), (1) the
Company could incur at least $1.00 of additional Indebtedness pursuant to clause
A(ii) of this paragraph and (2) the ratio of the aggregate principal amount of
Indebtedness of all Special Subsidiaries to Consolidated EBITDA of the Company
for the Reference Period immediately preceding the Incurrence Date would be no
more than 1.25 to 1. The accretion of original issue discount and any accruals
of interest on any Indebtedness shall not be deemed an incurrence of
Indebtedness for purposes of this Section.
SECTION 185. Limitation on Restricted Payments
---------------------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, make any Restricted Payment if, after giving effect
to such Restricted Payment on a pro forma basis, (1) a Default or an Event of
Default shall have occurred and be continuing, (2) the Company is not permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Debt
Incurrence Ratio set forth in Section 1008 hereof, or (3) the aggregate amount
of all Restricted Payments made by the Company and its Subsidiaries, including
after giving effect to such proposed Restricted Payment, from and after the
Issue Date, would exceed the sum of (a) 50% of the aggregate Consolidated
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Net Income of the Company and its Subsidiaries for the period (taken as one
accounting period), commencing on the first day of the first full fiscal quarter
commencing after the Issue Date, to and including the last day of the fiscal
quarter ended immediately prior to the date of each such calculation (or, in the
event Consolidated Net Income for such period is a deficit, then minus 100% of
such deficit), (b) the aggregate Net Cash Proceeds received by the Company from
the sale of its Qualified Capital Stock (including Qualified Capital Stock
issued upon the exercise of options, warrants, or rights to purchase Qualified
Capital Stock) or options, warrants or rights to purchase Qualified Capital
Stock or of debt securities of the Company that have been converted into
Qualified Capital Stock (other than (i) to a Subsidiary of the Company or (ii)
to the extent applied in connection with a Qualified Exchange) after the Issue
Date, (c) the aggregate principal amount of the Company's Convertible
Subordinated Notes, which has been converted into common shares of the Company
after the Issue Date, (d) an amount equal to the net reduction in Investments
(including by way of dividends) by the Company and its Subsidiaries subsequent
to the Issue Date in any Unrestricted Subsidiary, but only to the extent such
amount is not included in Consolidated Net Income, and (e) $60 million.
The immediately preceding paragraph, however, shall not prohibit (t)
the conversion of the Convertible Subordinated Notes; (u) so long as no Default
or Event of Default shall have occurred and be continuing or should occur as a
consequence thereof, any Refinancing of Indebtedness otherwise permitted by
clause (c) of the definition of "Permitted Indebtedness"; (v) the repurchase of
Capital Stock of the Company or options to purchase Capital Stock of the Company
from employees of the Company or any Subsidiary of the Company pursuant to the
forms of agreements under which employees may purchase or are granted the option
to purchase, shares of Capital Stock of the Company, (w) a Qualified Exchange,
(x) Investments, other than Permitted Investments, in an amount not to exceed
$25 million in the aggregate, (y) the purchase, redemption or other acquisition
or retirement for value of any Equity Interests of a Subsidiary not owned by the
Company or a Subsidiary, provided that at the time of such purchase, redemption,
acquisition or retirement and after giving effect thereto, the Company would be
able to incur $1.00 of additional Indebtedness pursuant to the Debt Incurrence
Ratio set forth in Section 1008 hereof, or (z) the payment of any dividend on
Capital Stock within 60 days after the date of its declaration if such dividend
could have been made on the date of such declaration in compliance with the
foregoing provisions. The full amount of any payment made pursuant to clause
(v), (x), and (z) (but not pursuant to clauses (t), (u), (w) or (y)) of the
immediately preceding sentence will be treated as Restricted Payments for
purposes of calculating the aggregate amount of Restricted Payments made
pursuant to the immediately preceding paragraph.
SECTION 186. Limitation on Dividends and Other Payment Restrictions
------------------------------------------------------
Affecting Subsidiaries
----------------------
The Company shall not, and shall not permit any of its Core
Subsidiaries to, directly or indirectly, create, assume or suffer to exist any
restriction on the ability of any Core Subsidiary of the Company to pay
dividends or make other distributions to or on behalf of, or to pay any
obligation to or on behalf of, or otherwise to transfer assets or property to or
on behalf of, or make or pay loans or advances to or on behalf of, the Company
or any Subsidiary of the Company, except (a) restrictions imposed by the
Securities or this Indenture, (b) restrictions imposed by applicable law, (c)
existing restrictions under Indebtedness outstanding on the Issue Date and which
are set forth in a schedule to this Indenture, (d) restrictions under any
Acquired Indebtedness not incurred in violation of this Indenture or any
agreement relating to any property, asset, or business acquired by the Company
or any of its Subsidiaries, which restrictions are not applicable to any person,
other than the person acquired, or to any property, asset or business, other
than the property, assets and business so acquired, (e) any such restriction or
requirement imposed by Indebtedness incurred under paragraph (b) of the
definition of "Permitted Indebtedness" provided such restriction or requirement
is no more restrictive than that imposed by the Revolving Credit Facility as of
the Issue Date, (f) restrictions with respect solely to a
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Core Subsidiary of the Company imposed pursuant to a binding agreement which has
been entered into for the sale or disposition of all or substantially all of the
Equity Interests or assets of such Subsidiary, provided such restrictions apply
solely to the Equity Interests or assets of such Subsidiary which are being
sold, (g) customary restrictions on transfers of property contained in any
security agreement (including a Capital Lease Obligation) securing Indebtedness
of the Company or a Subsidiary otherwise permitted under this Indenture, and (h)
in connection with and pursuant to permitted Refinancings, replacements of
restrictions imposed pursuant to clauses (a), (c) or (d) of this paragraph that
are not more restrictive than those being replaced and do not apply to any other
person or assets than those that would have been covered by the restrictions in
the Indebtedness so refinanced. Notwithstanding the foregoing, neither (a)
customary provisions restricting subletting or assignment of any lease entered
into in the ordinary course of business, consistent with industry practice, nor
(b) Liens permitted under the terms of this Indenture shall in and of themselves
be considered a restriction on the ability of the applicable Core Subsidiary to
transfer such agreement or assets, as the case may be.
SECTION 187. Limitation on Liens Securing Indebtedness
-----------------------------------------
The Company shall not, and shall not permit any of its Core
Subsidiaries to, create, incur, assume or suffer to exist any Lien of any kind,
other than Permitted Liens, upon any of their respective assets now owned or
acquired on or after the Issue Date or upon any income or profits therefrom (any
such Lien, the "Initial Lien"), unless the Company provides, and causes its
Subsidiaries to provide, concurrently therewith, that the Securities are equally
and ratably so secured. Any such Lien thereby created in favor of the Securities
will be automatically and unconditionally released and discharged upon the
release and discharge of the Initial Lien to which it relates.
SECTION 188. Limitation on Sale and Leaseback Transactions
---------------------------------------------
The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, enter into any Sale and Leaseback Transaction unless (a)
immediately after giving pro forma effect to such Sale and Leaseback Transaction
(the Attributable Value of such Sale and Leaseback Transaction being deemed to
be Indebtedness of the Company, if not otherwise treated so pursuant to the
definition of Indebtedness), the Company could incur at least $1.00 of
additional Indebtedness pursuant to the Debt Incurrence Ratio set forth set
forth in Section 1008 hereof, (b) such Sale and Leaseback Transaction complies
with Section 1013 hereof and (c) the Company or such Subsidiary could incur a
Lien to secure Indebtedness in the amount of the Attributable Value of the Sale
and Leaseback Transaction without equally and ratably securing the Securities.
SECTION 189. Limitation on Sale of Assets
----------------------------
The Company shall not, and shall not permit any of its Subsidiaries to
convey, sell, transfer, assign or otherwise dispose of, directly or indirectly,
any of its property, business or assets, including by merger or consolidation
(in the case of a Subsidiary of the Company), and including any sale or other
transfer or issuance of any Equity Interests of any Subsidiary of the Company,
whether by the Company or a Subsidiary or through the issuance, sale or transfer
of Equity Interests by a Subsidiary of the Company, and including any Sale and
Leaseback Transaction, in a single transaction or through a series of related
transactions, for an aggregate consideration net of out-of-pocket costs relating
thereto (including without limitation, legal, accounting and investment banking
fees and sales commissions), in excess of $1 million (any of the foregoing, an
"Asset Sale"), unless (1) within 12 months after the date of such Asset Sale,
(a) an amount equal to the Net Cash Proceeds therefrom is applied to the
optional redemption of the Securities in accordance with the terms of this
Indenture or to the repurchase of the Securities pursuant to an irrevocable,
unconditional cash offer (the "Asset Sale Offer") to repurchase
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Securities at a purchase price of 100% of the principal amount thereof (the
"Asset Sale Offer Price") together with accrued and unpaid interest to the date
of payment or (b) an amount equal to the Asset Sale Offer Amount is (i) invested
in assets and property (other than notes, bonds, obligations and securities,
except in connection with the acquisition of a Subsidiary) which in the good
faith reasonable judgment of the Board of Directors will immediately constitute
or be a part of a Related Business of the Company or such Subsidiary (if it
continues to be a Subsidiary) immediately following such transaction or (ii)
used to permanently reduce Indebtedness permitted pursuant to paragraph (b) of
the definition "Permitted Indebtedness" (including that in the case of a
revolver or similar arrangement that makes credit available, such commitment is
also permanently reduced by such amount), (2) at least 80% of the total
consideration received for such Asset Sale or series of related Asset Sales
consists of Cash or Cash Equivalents; provided that the Company and its
Subsidiaries may engage in Asset Sales for consideration not in the form of cash
or Cash Equivalents in amounts in excess of that permitted in this clause (2),
so long as (x) such excess consideration is in the form of Fully Traded Common
Stock, (y) the aggregate market value of such Fully Traded Common Stock received
by the Company and its Subsidiaries (measured as of the date of receipt) from
all Asset Sales in reliance on this proviso since the date of this Indenture
that has not been converted into cash or Cash Equivalents does not exceed $10
million and (z) any Fully Traded Common Stock that is converted into cash or
Cash Equivalents shall be applied as provided in this Section, (3) no Default or
Event of Default shall have occurred and be continuing at the time of, or would
occur after giving effect, on a pro forma basis, to, such Asset Sale, and (4)
the Board of Directors of the Company determines in good faith that the Company
or such Subsidiary, as applicable, receives fair market value for such Asset
Sale.
An acquisition of Securities pursuant to an Asset Sale Offer may be
deferred until the accumulated Net Cash Proceeds from Asset Sales not applied to
the uses set forth in clause (1)(b) of the immediately preceding paragraph (the
"Excess Proceeds") exceeds $10.0 million and that each Asset Sale Offer shall
remain open for 20 Business Days following its commencement (the "Asset Sale
Offer Period"). Upon expiration of the Asset Sale Offer Period, the Company
shall apply the Excess Proceeds plus an amount equal to accrued and unpaid
interest to the purchase of all Securities properly tendered (on a pro rata
basis if the Excess Proceeds are insufficient to purchase all Securities so
tendered) at the Asset Sale Offer Price (together with accrued interest). To the
extent that the aggregate amount of Securities tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any remaining
Net Cash Proceeds for general corporate purposes as otherwise permitted by this
Indenture and following each Asset Sale Offer the Excess Proceeds amount shall
be reset to zero. For purposes of clause (2) of the immediately preceding
paragraph, total consideration received means the total consideration received
for such Asset Sales minus the amount of (a) Indebtedness which is not
Subordinated Indebtedness assumed by a transferee which assumption permanently
reduces the amount of Indebtedness outstanding on the Issue Date or permitted
pursuant to paragraph (b), (d) or (e) of the definition "Permitted Indebtedness"
(including that in the case of a revolver or similar arrangement that makes
credit available, such commitment is so reduced by such amount) and (b) property
that within 30 days of such Asset Sale is converted into Cash or Cash
Equivalents.
The Company and its Subsidiaries may undertake the following actions
without complying with the prior two paragraphs:
(1) the Company and its Subsidiaries may, in the ordinary course
of business, convey, sell, transfer, assign or otherwise dispose of
inventory, receivables and notes receivable acquired and held for
resale in the ordinary course of business;
(2) the sale, lease, transfer or other conveyance of all or
substantially all of the assets of the Company, on a consolidated
basis, will be governed by the provisions described under Section 1015
and Section 801 and Section 802 and not by the provisions
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of this Section;
(3) the Company and its Subsidiaries may sell or dispose of
damaged, worn out or other obsolete property in the ordinary course of
business so long as such property is no longer necessary for the
proper conduct of the business of the Company or such Subsidiary, as
applicable;
(4) the Company and its Subsidiaries may convey, sell, transfer,
assign or otherwise dispose of assets to the Company or a Subsidiary;
(5) the Company and its Subsidiaries may securitize their
accounts receivable under long term system leases;
(6) the Company and its Subsidiaries may simultaneously exchange
property or assets for other property or assets, provided that the
property or assets received by the Company or Subsidiary have at least
substantially equal fair market value to the Company or Subsidiary as
the property or assets exchanged (as determined by the Board of
Directors evidenced by a Board Resolution filed with the Trustee) and
will immediately constitute or be part of a Related Business of the
Company or such Subsidiary;
(7) the Company may sell its real estate located at Isabella
Street, Toronto, Ontario and Invicta Drive, Oakville, Ontario;
(8) the Company and its Subsidiaries may make Investments in
Permitted Joint Ventures that qualify as Permitted Investments
pursuant to clause (e) of the definition of Permitted Investments;
(9) a Special Subsidiary may issue Equity Interests of such
Special Subsidiary; and
(10) the Company may sell lease, transfer or otherwise convey,
including by means of a merger or consolidation, all or any part of
its motion simulation and attractions business, provided that it
complies with the requirements of clause (4) of the first paragraph of
this covenant.
All Net Cash Proceeds from an Event of Loss shall be invested, used
for prepayment of Indebtedness, or used to repurchase Securities, all within the
period and as otherwise provided above in clause 1(a) or 1(b) of the first
paragraph of this Section.
Any Asset Sale Offer shall be made in compliance with all applicable
laws, rules, and regulations, including, if applicable, Regulation 14E of the
Exchange Act and the rules and regulations thereunder and all other applicable
Federal and state securities laws. To the extent that the provisions of any
securities laws or regulations conflict with the terms hereof, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations hereunder by virtue thereof.
SECTION 190. Limitation on Transactions with Affiliates
------------------------------------------
Neither the Company nor any of its Subsidiaries shall on or after the
Issue Date enter
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into or suffer to exist any contract, agreement, arrangement or transaction with
any Affiliate (an "Affiliate Transaction"), or any series of related Affiliate
Transactions, (other than Exempted Affiliate Transactions) (i) unless it is
determined that the terms of such Affiliate Transaction are fair and reasonable
to the Company, and no less favorable to the Company than could have been
obtained in an arm's length transaction with a non-Affiliate and, (ii) if
involving consideration to either party in excess of $2 million, unless such
Affiliate Transaction(s) is evidenced by an Officers' Certificate addressed and
delivered to the Trustee certifying that such Affiliate Transaction(s) has been
approved by a majority of the members of the Board of Directors that are
disinterested in such transaction and (iii) if involving consideration to either
party in excess of $10 million, unless in addition the Company, prior to the
consummation thereof, obtains a written favorable opinion as to the fairness of
such transaction to the Company from a financial point of view from an
independent investment banking firm of national reputation.
SECTION 191. Repurchase of Securities at the Option of the Holder
----------------------------------------------------
Upon A Change of Control
------------------------
In the event that a Change of Control has occurred, each Holder of
Securities shall have the right, at such Holder's option, pursuant to an
irrevocable and unconditional offer by the Company (the "Change of Control
Offer"), to require the Company to repurchase all or any part of such Holder's
Securities (provided, that the principal amount of such Securities must be
$1,000 or an integral multiple thereof) on a date (the "Change of Control
Purchase Date") that is no later than 60 Business Days after the occurrence of
such Change of Control, at a cash price equal to 101% of the principal amount
thereof (the "Change of Control Purchase Price"), together with accrued and
unpaid interest to the Change of Control Purchase Date. The Change of Control
Offer shall be made within 10 Business Days following a Change of Control and
shall remain open for 30 Business Days following its commencement (the "Change
of Control Offer Period"). Upon expiration of the Change of Control Offer
Period, the Company promptly shall purchase all Securities properly tendered in
response to the Change of Control Offer.
"Change of Control" means (i) any merger, amalgamation or
consolidation of the Company with or into any person or any sale, lease transfer
or other conveyance, whether direct or indirect, of all or substantially all of
the assets of the Company, on a consolidated basis, in one transaction or a
series of related transactions, if, immediately after giving effect to such
transaction(s), any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) (other
than an Excluded Person) is or becomes the "beneficial owner," directly or
indirectly, of more than 50% of the total voting power in the aggregate normally
entitled to vote in the election of directors, managers, or trustees, as
applicable, of the transferee(s) or surviving entity or entities, (ii) any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable) (other than an Excluded
Person) is or becomes the "beneficial owner," directly or indirectly, of more
than 50% of the total voting power in the aggregate of all classes of Capital
Stock of the Company then outstanding normally entitled to vote in elections of
directors, or (iii) during any period of 12 consecutive months after the Issue
Date, individuals who at the beginning of any such 12-month period constituted
the Board of Directors of the Company (together with any new directors whose
election by such Board or whose nomination for election by the shareholders of
the Company was approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then in
office, other than as a result of the Shareholders Agreement as in effect on the
Issue Date, as the same may be amended as contemplated by the letter agreement,
dated August 25, 1998, among Wasserstein & Co., Inc., Bradley J. Wechsler and
Richard L. Gelfond.
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On or before the Change of Control Purchase Date, the Company shall
(i) accept for payment Securities or portions thereof properly tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent cash
sufficient to pay the Change of Control Purchase Price (together with accrued
and unpaid interest) of all Securities so tendered and (iii) deliver to the
Trustee Securities so accepted together with an Officers' Certificate listing
the Securities or portions thereof being purchased by the Company. The Paying
Agent promptly will pay the Holders of Securities so accepted an amount equal to
the Change of Control Purchase Price (together with accrued and unpaid
interest), and the Trustee promptly will authenticate and deliver to such
Holders a new Security equal in principal amount to any unpurchased portion of
the Security surrendered. Any Securities not so accepted will be delivered
promptly by the Company to the Holder thereof. The Company publicly shall
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Purchase Date.
The Change of Control purchase feature of the Securities may make more
difficult or discourage a takeover of the Company, and, thus, the removal of
incumbent management.
SECTION 192. Payment of Additional Amounts
-----------------------------
All amounts paid or credited by the Company with respect to the
Securities will be made free and clear of and without withholding or deduction
for or on account of any present or future tax, duty, levy, impost, assessment,
or other governmental charge imposed or levied by or on behalf of the Government
of Canada or of any province or territory thereof or by any authority or agency
therein or thereof having power to tax (hereinafter "Taxes"), unless the Company
is required to withhold or deduct Taxes by law or by the interpretation or
administration thereof. If the Company is so required to withhold or deduct any
amount from, for or on account of Taxes from any payment or credit made under or
with respect to the Securities, the Company will pay such additional amounts
(the "Additional Amounts") as may be necessary so that the net payment or credit
received by each owner of a beneficial interest in the Securities (including
Additional Amounts) after such withholding or deduction will not be less than
the amount the Holder or owner of a beneficial interest in the Securities would
have received if such Taxes had not been withheld or deducted; provided that no
Additional Amounts will be payable with respect to a payment or credit made to
an owner of a beneficial interest in the Securities (i) with whom the Company
does not deal at arm's length (within the meaning of the Income Tax Act
(Canada)) at the time of making such payment or credit, (ii) which is subject to
such Taxes by reason of its being connected with Canada or any province or
territory thereof otherwise than by the mere holding of the Securities or the
receipt of payments or credits thereunder or (iii) which is subject to such
Taxes by reason of its failure to comply with any certification, identification,
information, documentation or other reporting requirement if compliance is
required by law, regulation, administrative practice or an applicable treaty as
a precondition to exemption from, or a reduction in the rate of deduction or
withholding of, such Taxes (in each case referred to herein as an "Excluded
Holder"). The Company will also (1) make such withholding or deduction and (2)
remit the full amount deducted or withheld to the relevant authority in
accordance with applicable law. The Company will furnish the Holders of the
Securities, within 30 days after the date the payment of any Taxes is due
pursuant to applicable law, certified copies of tax receipts evidencing such
payment by the Company. In the event that the Company fails to remit any taxes
in respect of which Additional Amounts are payable, the Company will indemnify
and hold harmless each owner of a beneficial interest in the Securities (other
than an Excluded Holder) and upon written request reimburse such owner of a
beneficial interest in the Securities for the amount of (i) any Taxes levied on
and paid by, such owner of a beneficial interest in the Securities as a result
of payment made with respect to the Securities (including penalties, interest
and expenses arising from or with respect to such Taxes) and (ii) any Taxes
imposed with respect to payment of Additional Amounts or any reimbursement
pursuant to this sentence.
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At least 30 days prior to each date on which any payment under or with
respect to the Securities is due and payable, if the Company will be obligated
to pay Additional Amounts with respect to such payments, the Company will
deliver to the Trustee an Officers' Certificate stating the fact that such
Additional Amounts will be payable and the amounts so payable and setting forth
such other information necessary to enable the Trustee to pay such Additional
Amounts to Holders or owners of a beneficial interest in the Securities, as the
case may be, on the payment date.
The obligations of the Company under this Section 1016 shall survive
the termination of this Indenture and the payment of all amounts under or with
respect to the Securities.
SECTION 193. Limitation on Status as Investment Company
------------------------------------------
The Company and its Subsidiaries shall not be required to register as
an "investment company" (as that term is defined in the Investment Company Act
of 1940, as amended), or from otherwise becoming subject to regulation under the
Investment Company Act.
SECTION 194. Payments for Consent
--------------------
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Securities for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Securities unless such consideration is offered to be
paid or agreed to be paid to all holders of the Securities who so consent, waive
or agree to amend in the time frame set forth in solicitation documents relating
to such consent, waiver or agreement, which solicitation documents will be
mailed to all Holders of the Securities a reasonable amount of time prior to the
expiration of such solicitation.
SECTION 195. Reports
-------
The Company shall file with the Trustee, to be provided to Holders of
Securities, within 15 days of the required date of filing with the Commission,
copies of its annual and quarterly reports and of the information, documents and
reports which the Company or any Subsidiary is required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act. To the extent
that the Company is not subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company shall file with the Commission and
provide to the Trustee, to be provided to the holders of the Securities, at the
same time as if it were subject to such requirements, such annual and quarterly
reports and such information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may by rules and regulations
prescribe) which it would be required to file with the Commission if it were
subject to such requirements. The Company shall also make such reports available
to prospective purchasers of the Securities, securities analysts and broker-
dealers upon their request.
SECTION 196. Statement By Officers as to Default; Compliance Certificates
------------------------------------------------------------
(1) The Company shall deliver to the Trustee, within 90 days
after the end of each fiscal year, of the Company ending after the
date hereof an Officers' Certificate, stating whether or not to the
best knowledge of the signers thereof the Company is in default in the
performance and observance of any of the terms, provisions and
conditions of Section 801 and Sections 1004 to 1020, inclusive, and if
the Company shall be in default, specifying all such defaults and the
nature and status thereof of which they may have knowledge.
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(2) The Company shall deliver to the Trustee, as soon as possible
and in any event within 10 days after the Company becomes aware or
should reasonably become aware of the occurrence of an Event of
Default or an event which, with notice or the lapse of time or both,
would constitute an Event of Default, an Officers' Certificate setting
forth the details of such Event of Default or default, and the action
which the Company proposes to take with respect thereto.
SECTION 197. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Section 801 and Sections 1005 to 1019, if
before the time for such compliance the Holders of at least a majority in
principal amount of the Outstanding Securities shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance with
such covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect; provided, however, with respect to an Asset Sale Offer or
Change of Control Offer as to which an offer has been mailed, no such waiver may
be made or shall be effective against any Holder tendering Securities pursuant
to such offer, and the Company may not omit to comply with the terms of such
offer as to such Holder.
SECTION 198. Limitation on Applicability of Certain Covenants
------------------------------------------------
During any period of time that (i) the ratings assigned to the
Securities by each of S&P and Moody's are no less than BBB- and Baa3,
respectively (the "Investment Grade Ratings"), and (ii) no Default or Event of
Default has occurred and is continuing (the occurrence of the events described
in the foregoing clauses (i) and (ii) being referred to as the "Fall-away
Event"), the Company and its Subsidiaries will not be subject to the covenants
set forth in Sections 1008, 1009, 1010, clause (a) of Sections 1012, 1013, 1014
and 1015 and clauses (iii) and (iv) of Section 801 (collectively, the "Suspended
Covenants"); provided that the Company delivers to the Trustee (A) an Officers'
Certificate certifying that the Fall-away Event has occurred, (b) an Opinion of
Counsel pursuant to Section 102 stating, among other things, that No Event of
Default has occurred and is continuing and (C) a letter from each of the Rating
Agencies certifying the rating on the Securities.
If one or both Rating Agencies withdraws its rating or downgrades its
rating so that its rating is no longer an Investment Grade Rating, then
thereafter the Company and its Subsidiaries will be subject, on a prospective
basis, to the Suspended Covenants (until both the Rating Agencies have again
assigned Investment Grade Ratings to the Securities).
ARTICLE XI
Redemption of Securities
SECTION 199. Right of Redemption
-------------------
(1) Except as set forth in paragraphs (b) and (c) of this Section
1101, the Company shall not have the option to redeem the Securities
prior to December 1, 2002. Thereafter, the Company shall have the
option to redeem the Securities for cash, in
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whole or in part, upon not less than 30 days' 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 Redemption Date if redeemed during the twelve-month
period beginning on December 1 of the years indicated below:
(1)
Year Percentage
---- ----------
2002 .............................. 103.938%
2003 .............................. 101.969%
2004 and thereafter ............... 100.000%
(2) Notwithstanding the provisions of paragraph (a) of this
Section 1101, at any time or from time to time on or prior to December
1,, 2001, the Company may (but shall not have the obligation to)
redeem in the aggregate up to $70 million principal amount of the
Securities originally outstanding, upon not less than 30 nor more than
60 days notice at a redemption price of 107.875% of the aggregate
principal amount so redeemed (subject to the right of Holders of
record on a Record Date to receive interest due on an Interest Payment
Date that is on or prior to such Redemption Date) together with
accrued and unpaid interest thereon to the Redemption Date out of the
Net Cash Proceeds of a Public Equity Offering or Strategic Equity
Placement; provided, however, that immediately following such
redemption not less than $130 million aggregate principal amount of
the Securities are outstanding, and provided, further, that such
redemption shall occur within 90 days of the closing of such Public
Equity Offering or Strategic Equity Placement.
(3) Notwithstanding the provisions of paragraph (a) of this
Section 1101, the Securities will also be subject to redemption at any
time or from time to time prior to December 1,, 2002 upon not less
than 30 nor more than 60 days' notice to each Holder of Securities
redeemed, at the option of the Company, in whole or in part, in
integral multiples of $1,000, at a redemption price equal to 100% of
the principal amount thereof plus the applicable Make-Whole Premium
(subject to right of Holders of record on a Record Date) to receive
interest due on an Interest Payment Date that is on or prior to such
Redemption Date plus accrued and unpaid interest to but excluding the
Redemption Date.
(4) If, as a result of any change in, or amendment to, the laws
(or any regulations promulgated thereunder) of Canada (or any
political subdivision or taxing authority thereof or therein), or any
change in or amendment to any official position or administration or
assessing practices regarding the application or interpretation of
such laws or regulations, which change or amendment is announced or
becomes effective on or after the date hereof, the Company has become
or would become obligated to pay, on the next date on which any amount
would be payable under or with respect to the Securities, any
Additional Amounts to a Holder (other than an Excluded Holder) in
accordance with Section 1016 hereof, then the Company may, at its
option at any time thereafter (provided the obligation to pay such
Additional Amounts still exists at such time), redeem the Securities,
as a whole but not in part, at a redemption price equal to 100% of
their principal amount, together with interest accrued thereon to the
Redemption Date provided that the Company determines, in its business
judgment, that the obligation to pay such Additional Amounts cannot be
avoided by the use of reasonable measures available to the Company
which would not involve any liability of any kind to the Company,
except for any cost or expense which is minimal, not including
substitution of the obligor under the Securities.
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SECTION 1100. No Mandatory Redemption
-----------------------
The Company shall not be required to make mandatory redemption
payments with respect to the Securities.
SECTION 1101. Election to Redeem; Notice to Trustee
--------------------------------------
If the Company elects to redeem Securities pursuant to the optional
redemption provisions of Section 1101 hereof, it shall furnish to the Trustee,
at least 30 days (unless a shorter period is acceptable to the Trustee) but not
more than 60 days before a redemption date, an Officers' Certificate setting
forth (a) the clause of this Indenture pursuant to which the redemption shall
occur, (b) the Redemption Date, (c) the principal amount of Securities to be
redeemed and (d) the redemption price.
SECTION 1102. Selection by Trustee of Securities to Be Redeemed
-------------------------------------------------
If fewer than all of the Securities are to be redeemed at any time,
the Trustee shall select the Securities to be redeemed among the Holders of the
Securities in compliance with the requirements of the principal national
securities exchange, if any, on which the Securities are listed or, if the
Securities are not so listed, on a pro rata basis, by lot or in accordance with
any other method the Trustee considers fair and appropriate. In the event of
partial redemption by lot, the particular Securities 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 Securities
not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed. Securities
and portions of Securities selected shall be in amounts of $1,000 or integral
multiples of $1,000; except that if all of the Securities of a Holder are to be
redeemed, the entire outstanding amount of Securities held by such Holder, even
if not an integral multiple of $1,000, shall be redeemed. Except as provided in
the preceding sentence, provisions of this Indenture that apply to Securities
called for redemption also apply to portions of Securities called for
redemption.
SECTION 1103. Notice of Redemption
--------------------
Subject to the provisions of Section 1101 hereof, 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
Securities are to be redeemed at its registered address.
The notice shall identify the Securities (including applicable CUSIP
numbers) to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any of the Securities are being redeemed in part, the
portion of the principal amount of such Security to be redeemed and
that, after the redemption date upon surrender of such Security, a new
Security or Securities in principal amount equal to the unredeemed
portion shall be issued upon cancellation of the original Security;
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(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payments
pursuant to the terms of this Indenture, interest on Securities (or
portions thereof) called for redemption ceases to accrue on and after
the Redemption Date;
(7) the paragraph of the Securities and/or the Section of this
Indenture pursuant to which the Securities called for redemption are
being redeemed; and
(8) that no representation is made as to the correctness or
accuracy of the CUSIP or ISIN number, if any, listed in such notice or
printed on the Securities.
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 a Responsible Officer of the Trustee, at least
45 days (unless a shorter period is acceptable to the Trustee) prior to the
redemption date, 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.
Once notice of redemption is mailed in accordance with Section 1105,
Securities called for redemption become irrevocably due and payable on the
Redemption Date at the redemption price stated in the notice. Failure to give
notice or any defect in the notice to any Holder shall not affect the validity
of the notice to any other Holder.
SECTION 1104. Deposit of Redemption Price
---------------------------
On or prior to the Redemption Date, the Company shall deposit with the
Trustee or with the Paying Agent money sufficient to pay the redemption price of
and accrued interest on all Securities to be redeemed on that date other than
Securities or portions of Securities called for redemption which have been
delivered by the Company to the Trustee for cancellation. The Trustee or the
Paying Agent shall promptly return to the Company any money deposited with the
Trustee or the Paying Agent by the Company in excess of the amounts necessary to
pay the redemption price of, and accrued interest on, all Securities to be
redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the Redemption Date, interest shall cease to accrue on
the Securities or the portions of Securities called for redemption. If a
Security 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 Security was registered at the close of
business on such record date. If any Security 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 unpaid 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 Securities and in Section 307 hereof.
SECTION 1105. Securities Redeemed in Part
---------------------------
Upon surrender of a Security 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
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Company a new Security equal in principal amount to the unredeemed portion of
the Security surrendered.
ARTICLE XII
Defeasance and Covenant Defeasance
SECTION 1106. Company's Option to Effect Defeasance or Covenant Defeasance.
------------------------------------------------------------
The Company may at its option by Board Resolution, at any time, elect
to have either Section 1202 or Section 1203 applied to all Outstanding
Securities upon compliance with the conditions set forth below in this Article
Twelve.
SECTION 1107. Defeasance and Discharge
------------------------
Upon the Company's exercise of the option provided in Section 1201
applicable to this Section 1202, the Company shall, subject to the satisfaction
of the conditions set forth in Section 1204 hereof, be deemed to have been
discharged from its obligations with respect to all Outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall
be deemed to have paid and discharged the entire indebtedness represented by the
Outstanding Securities, which shall thereafter be deemed to be "outstanding"
only for the purposes of Section 1205 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 Securities and this Indenture (and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (A) the rights of Holders of such Outstanding
Securities to receive, solely from the trust fund described in Section 1204, and
as more fully set forth in such Section, payments in respect of the principal of
(and premium, if any) and interest on such Securities when such payments are
due, (B) the Company's obligations with respect to such Securities under
Sections 304, 305, 306, 1002 and 1003 (C) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and the Company's obligations in connection
therewith and (D) this Article Twelve. Subject to compliance with this Article
Twelve, the Company may exercise its option under this Section 1202
notwithstanding the prior exercise of its option under Section 1203.
SECTION 1108. Covenant Defeasance
-------------------
Upon the Company's exercise of the option provided in Section 1201
applicable to this Section 1203, (i) the Company shall, subject to the
satisfaction of the conditions set forth in Section 1204 hereof, be released
from its obligations under Sections 1005 through 1015, inclusive, Sections 1019
and 1020 and Clauses (iii) and (iv) of Section 801, and (ii) the occurrence of
an event specified in Sections 501(3) (with respect to Sections 1005 through
1017, inclusive, and Sections 1019 and 1020), 501(5) (with respect to Clauses
(iii) or (iv) of Section 801), 501(6) and 501(7) shall not be deemed to be an
Event of Default (hereinafter "covenant defeasance"). For this purpose, such
covenant defeasance means that 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 Section, Clause or Article, whether directly or indirectly by reason of
any reference elsewhere herein to any such Section, Clause or Article or by
reason of any reference in any such Section, Clause or Article to any other
provision herein or in any other document, but the remainder of this Indenture
and such Securities shall be unaffected thereby.
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SECTION 1109. Conditions to Defeasance or Covenant Defeasance
-----------------------------------------------
The following shall be the conditions to application of either Section
1202 or Section 1203 to the then Outstanding Securities:
(1) The Company must irrevocably deposit with the Trustee (or another
trustee satisfying the requirements of Section 609 who shall agree to
comply with the provisions of this Article Twelve applicable to it), in
trust, for the benefit of the Holders of such Securities, (A) U.S. legal
tender, or (B) U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof in accordance with
their terms will provide, not later than one day before the due date of any
payment, money in an amount, or (C) a combination thereof, in such amounts
as will be 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 and discharge, and which shall be applied
by the Trustee (or other qualifying trustee) to pay and discharge, the
principal of (premium, if any,) and interest on such Securities on the
applicable redemption date or such principal or installment of principal or
interest on such Securities, and the Holders of Securities must have a
valid, perfected, exclusive security interest in such trust.
(2) In the case of an election under Section 1202, the Company shall
have delivered to the Trustee an Opinion of Counsel qualified to practice
law in the United States reasonably acceptable to the Trustee confirming
that (x) the Company has received from, or 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 U.S. federal income tax law, in
either case to the effect that, and based thereon such Opinion of Counsel
shall confirm that, the Holders of such Securities will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of
such defeasance and will be subject to U.S. federal income tax on the same
amount, in the same manner and at the same times as would have been the
case if such defeasance had not occurred.
(3) In the case of an election under Section 1203, the Company shall
have delivered to the Trustee an Opinion of Counsel qualified to practice
law in the United States reasonably acceptable to the Trustee confirming
that the Holders of such Securities will not recognize income, gain or loss
for U.S. Federal income tax purposes as a result of such covenant
defeasance and will be subject to U.S. federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred.
(4) In the case of an election under Section 1202 or Section 1203, the
Company shall have delivered to the Trustee an Opinion of Counsel qualified
to practice law in Canada reasonably acceptable to the Trustee confirming
that (x) that the Holders of such Securities will not recognize gain or
loss for Canadian federal or provincial income tax purposes as a result of
such deposit, defeasance or covenant defeasance or discharge, as
applicable, and will be subject to Canadian federal or provincial income
tax and other tax on the same amounts, in the same manner and at the same
times as would have been the case had such deposit, defeasance or covenant
defeasance and discharge, as the case may be, not occurred and (y) the
interest, principal and other amounts paid or credited in respect of such
Securities will not be subject to Canadian withholding tax as a result of
such deposit, defeasance or covenants defeasance or discharge (and for the
purposes of such opinion, such Canadian counsel shall assume that Holders
of the Securities include Holders who are not resident in Canada).
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(5) No Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, insofar as Events of Default
from bankruptcy or insolvency are concerned, at any time in the period
ending on the 91st day after the date of deposit;
(6) Such defeasance or covenant defeasance will not result in a breach
or violation of, or constitute a default under, this Indenture or any other
material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound;
(7) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of such Securities over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others; and
(8) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that the conditions
precedent provided for, in the case of the Officer's Certificate, clauses
(1) through (7) and, in the case of the Opinion of Counsel, clauses (1)
(with respect to the validity and perfection of the security interest),
(2), (3), (4) and (6) of this subsection relating to the defeasance or
covenant defeasance, as applicable, have been complied with.
SECTION 1110. Deposited Money and U.S. Government Obligations to be Held in
-------------------------------------------------------------
Trust: Other Miscellaneous Provisions
--------------------------------------
Subject to the provisions of Section 1206, 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
1205, the "Trustee") pursuant to Section 1204 in respect of the Securities shall
be held in trust and applied by the Trustee, in accordance with the provisions
of such Securities and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as its own Paying Agent)
as the Trustee may determine, to the Holders of such Securities, of all sums due
and to become due thereon in respect of principal (and 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 Section 1204 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 Securities.
Anything in this Article Twelve 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 Section 1204 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be opinion delivered under Section 1204(a)
hereof), are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent defeasance or covenant defeasance.
SECTION 1111. Repayment to Company
--------------------
Any money deposited with the Trustee or any Paying Agent, or then held
by the
76
<PAGE>
Company, in trust for the payment of the principal of, premium, if any, or
interest on any Security and remaining unclaimed for two years after such
principal, and 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) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
a secured 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 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 1112. Reinstatement
-------------
If the funds deposited with the Trustee to apply to either Section
1202 or 1203 are insufficient to pay the principal of, premium, if any, and
interest on the Securities due, or if the Trustee or the Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with Section
1202 or 1203 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 Securities shall be
revived and reinstated as though no deposit had occurred pursuant to this
Article Thirteen until such time as the Trustee or Paying Agent is permitted to
apply all such money in accordance with Section 1202 or 1203, and no such
defeasance will be deemed to have occurred; provided, however, that if the
Company makes any payment of principal of (and premium, if any) or interest on
any Security following the reinstatement of its obligations, the Company shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or the Paying Agent.
----------------------------------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
77
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
IMAX CORPORATION
By
/s/ RICHARD L. GELFOND
----------------------------------
Name: Richard L. Gelfond
Title: Vice-Chairman and Co-CEO
By
/s/ BRADLEY J. WECHSLER
----------------------------------
Name: Bradley J. Wechsler
Title: Chairman and Co-CEO
U.S. BANK TRUST NATIONAL ASSOCIATION
By
/s/ MICHAEL T. GOODWIN
----------------------------------
Name: Michael T. Goodwin
Title: Assistant Vice President
78
<PAGE>
SCHEDULE I
Debt outstanding on date of Indenture
5 3/4% Convertible subordinated notes due 2003 $100,000,000
10% Senior notes due 2001 $65,000,000
TOTAL DEBT OUTSTANDING $165,000,000
<PAGE>
SCHEDULE II
Limitation on Payments
affecting Restricted Subsidiaries
Limitation on Restricted Payments covenant contained in the indenture dated
March 1, 1994 between WGIM Acquisition Corporation (predecessor to the Company)
and Continental Bank, National Association relating to the Company's 10% Senior
Notes due 2001.
<PAGE>
SCHEDULE III
Liens existing on the date of this Indenture
1. LIENS HELD BY TORONTO-DOMINION BANK:
Registered General Security Agreement
Registered General Assignment of Book Debts
Registered All Purpose Collateral First Mortgage in the amount of
C $10,000,000 against real property known municipally as 2525 Speakman
Drive, Mississauga, Ontario.
Specific assignment of cash balances or investments in an amount of
$US 1,428,000.
2. OTHER
Security Interest in favor of the State of Kuwait re: "Fires of Kuwait"
giving the state of Kuwait priority over all accounts receivable related to
the film "Fires of Kuwait" and the film itself.
Security Interest in favor of ANM (1991) III Limited Partnership re: "Into
the Deep" giving the limited partnership priority over all accounts
receivable related to the film "Into the Deep" and on the film itself.
<PAGE>
EXHIBIT 4.10
EXECUTION COPY
SECOND AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
This SECOND AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT (this
"Agreement"), dated as of February 9, 1999, by and among Wasserstein Perella
- ----------
Partners, L.P., a Delaware limited partnership ("WPLP"), Wasserstein Perella
----
Offshore Partners, L.P., a Delaware limited partnership ("WPOP"), WPPN, Inc., a
----
Delaware corporation ("WPPN"), the Michael J. Biondi Voting Trust (together with
----
WPLP, WPOP and WPPN, "WP"), Bradley J. Wechsler ("Wechsler"), Richard L. Gelfond
-- --------
("Gelfond" and, together with Wechsler, the "GW Shareholders") and Imax
------- ---------------
Corporation, a corporation organized under the laws of Canada (the "Company").
-------
W I T N E S S E T H:
-------------------
WHEREAS, WP is the beneficial holder of common shares of the Company
("Common Shares");
-------------
WHEREAS, the GW Shareholders are the beneficial holders of Common
Shares and options to purchase Common Shares ("Options"); and
-------
WHEREAS, certain of the parties hereto entered into an Amended and
Restated Shareholders' Agreement dated June 16, 1994 (the "1994 Shareholders'
------------------
Agreement") and now desire to further amend such agreement;
- ---------
WHEREAS, contemporaneously herewith, certain of the parties hereto are
entering into an Amended and Restated Standstill Agreement (the "1999 Standstill
---------------
Agreement") and a Registration Rights Agreement (the "1999 Registration Rights
- --------- ------------------------
Agreement").
- ---------
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements set forth herein and for other good and valuable consideration,
the receipt and legal sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
Section 1. Definitions.
-----------
The terms set forth below shall have the following definitions:
"1994 Shareholders' Agreement" has the meaning set forth in the
----------------------------
Recitals hereto.
"1998 Employment Agreements" means the employment agreements dated as
--------------------------
of July 1, 1998 between the Company and each of Gelfond and Wechsler.
"1999 Registration Rights Agreement" has the meaning set forth in the
----------------------------------
Recitals hereto.
<PAGE>
2
"1999 Standstill Agreement" has the meaning set forth in the Recitals
-------------------------
hereto.
"Acceptance Notice" has the meaning set forth in Section 2(b) hereof.
-----------------
"Affiliate" of any Person means a Person that directly, or indirectly
---------
through one or more intermediaries, controls, is controlled by or is under
common control with such Person, and, in the case of a Person who is a
natural person, such natural person's family, including any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law
or sister-in-law, and shall include adoptive relationships, and any
personal representatives. A Person shall be deemed to "control" (including
the correlative meanings, the terms "controlling", "controlled by", and
"under common control with") another Person if the controlling Person
possesses, directly or indirectly, the power to direct or cause the
direction of the management or policies of the controlled Person, whether
through ownership of voting securities, by contract or otherwise.
"Best Efforts" shall mean an undertaking by a party to perform or
------------
satisfy an obligation or duty or otherwise act in a manner calculated to
obtain the intended result; provided, that the foregoing shall not include
--------
efforts which require the performing party to, among other things, expend
any funds in an amount disproportionate, unreasonably burdensome or
otherwise unreasonable under the circumstances or to institute litigation.
"Come-Along Notice" has the meaning set forth in Section
-----------------
2(c) hereof.
"Common Shares" has the meaning set forth in the Recitals hereto.
-------------
"Company" has the meaning set forth in the introductory paragraph
-------
hereto.
"Convertible Notes" means the 5 3/4% Convertible Subordinated Notes
-----------------
due April 1, 2003 issued by the Company.
"Designated Directors" has the meaning set forth in Section 3(c)(i).
--------------------
"Exempted Transfer" has the meaning set forth in Section 2(d) hereof.
-----------------
"Gelfond" has the meaning set forth in the introductory paragraph
-------
hereto.
"GW Designated Director" has the meaning set forth in Section 3(c)(iv)
----------------------
hereof.
"GW Shareholders" has the meaning set forth in the introductory
---------------
paragraph hereto.
"GW Shareholders' Standstill Agreement" has the meaning set forth in
-------------------------------------
Section 3(c)(iv) hereof.
<PAGE>
3
"GW Shares" means (i) all Common Shares beneficially owned by the GW
---------
Shareholders and their Affiliates, including, without limitation, all
restricted Common Shares, all Common Shares subject to outstanding Options
and warrants and all Common Shares subject to options to be granted
pursuant to Section 1(h) of the 1998 Employment Agreements, (ii) all
Liquidation Shares and (iii) all Phantom Shares.
"Independent Person" means an individual who, at all times during such
------------------
person's term as a director of the Company, meets each of the following
three criteria: (a) an individual who is not, and has not previously been
within the past three years, an employee of the Company, Wasserstein & Co.,
any Affiliate of the Company or Wasserstein & Co. or any entity in which
Wasserstein & Co., the GW Shareholders or any of their Affiliates owns or
previously has owned more than five percent of the outstanding voting
securities or other ownership interests; (b) an individual who does not
have, and has not had, any substantial business relationship with and has
not been a partner with, employee of, or a service provider to, the
Company, Wasserstein & Co., the GW Shareholders or any of their respective
Affiliates within the past three years; and (c) an individual who will not,
through relationship, business dealings or otherwise, be susceptible to
influence from the Company, Wasserstein & Co., the GW Shareholders or any
of their respective Affiliates.
"IPO Closing" means the closing of the Company's initial public
-----------
offering of Common Shares.
"IPO Shares" means the Liquidation Shares and the Common Shares,
----------
including Common Shares subject to Options and warrants, beneficially owned
by the parties on the date of the IPO Closing, subject to adjustment to
reflect any stock dividend, stock split, reverse stock split,
recapitalization or other similar transaction after the IPO Closing.
"Liquidation Shares" means, for purposes of this Agreement only, the
------------------
deemed equivalent of 180,000 Common Shares held by the GW Shareholders
representing the rights of the GW Shareholders to receive special bonuses
pursuant to their employment agreements dated as of March 1, 1994, until
such special bonuses are paid.
"Options" has the meaning set forth in the Recitals hereto.
-------
"Person" means any individual, corporation, partnership, joint
------
venture, trust, unincorporated or governmental organization or any agency
or political subdivision thereof.
"Phantom Shares" means, for purposes of this Agreement only, the
--------------
deemed equivalent of 30,000 Common Shares held by the GW Shareholders
representing the right to receive certain payments pursuant to Section 1(g)
of the 1998 Employment Agreements, until such payments are made.
"Prospective Transferee" has the meaning set forth in Section 2(b)
----------------------
hereof.
"Replacement Director" has the meaning set forth in Section 3(c)(iii)
--------------------
hereof.
<PAGE>
4
"resident Canadian" has the meaning as defined in Section 2(1) of the
-----------------
Canada Business Corporations Act, as amended.
"Securities" means the Common Shares, the Convertible Notes, Options
----------
and any securities of the Company entitled to vote generally in the
election of directors or any securities convertible into or exchangeable
for any of the foregoing.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Shareholders" means the GW Shareholders together with WP.
------------
"Subsidiary" means any corporation or other entity of which securities
----------
or other ownership interests having ordinary voting power to elect a
majority of the board of directors or their equivalents of such Person
shall, at the time as of which any determination is being made, be owned by
the Company, either directly or through Subsidiaries.
"Take-Along Notice" has the meaning set forth in Section 2(b) hereof.
-----------------
"transfer" has the meaning set forth in Section 2(a) hereof.
--------
"Wasserstein & Co." means Wasserstein & Co., Inc., a Delaware
-----------------
corporation.
"Wechsler" has the meaning set forth in the introductory paragraph
--------
hereto.
"WP" has the meaning set forth in the introductory paragraph hereto.
--
"WP Employee Designees" has the meaning set forth in Section 3(b)(i)
---------------------
hereof.
"WP Shares" means all outstanding Common Shares owned by WP and its
---------
Affiliates and all Common Shares owned by current or former limited
partners of WPLP or WPOP and over which WP or its Affiliates retain both
dispositive power and a right to control voting on all matters submitted to
the shareholders of the Company.
"WPLP" has the meaning set forth in the introductory paragraph hereto.
----
"WPOP" has the meaning set forth in the introductory paragraph hereto.
----
Section 2. Restrictions on Transfers of Securities and Rights of Co-
--------------------------------------------------------
Sale.
- ----
(a) Restrictions on Transfers of Securities. No transfer, sale,
---------------------------------------
assignment, pledge or other hypothecation or disposition, voluntary or
involuntary (each, a "transfer"), of Securities by any of the parties hereto
--------
shall be valid unless the terms and conditions of this Agreement shall have been
complied with. Any attempted transfer in violation of the terms and conditions
of this Agreement shall be ab initio void.
-- ------
(b) Take-Along Right. If WP owns at least 10% of the IPO Shares owned
----------------
by it at the time of the IPO Closing and WP proposes to sell or transfer any
Securities held by it
<PAGE>
5
(including for these purposes WP Shares) in one or more related transactions
which will result in a transfer by WP of 50% or more of the WP Shares
outstanding at such time, then WP shall promptly give written notice thereof (a
"Take-Along Notice") to the GW Shareholders at least 30 days prior to the
-----------------
closing of such sale or transfer. The Take-Along Notice shall describe in
reasonable detail the proposed sale or transfer by WP, including, without
limitation, the number and type of the Securities to be sold or transferred, the
name and address of the prospective purchaser or transferee of the Securities (a
"Prospective Transferee"), the proposed amount and form of the consideration to
----------------------
be paid and the terms and conditions of payment thereof offered by the
Prospective Transferee, that the Prospective Transferee has been informed of the
take-along right in this Section 2(b) and has agreed to purchase Securities in
accordance with the terms hereof and any other material terms or conditions of
the sale or transfer. Each GW Shareholder shall have the right, exercisable
upon written notice (the "Acceptance Notice") delivered to WP within 15 days
-----------------
after such receipt of the Take-Along Notice, to participate in such sale on the
same terms and conditions as set forth in the Take-Along Notice. The Acceptance
Notice shall state that such GW Shareholder wishes to transfer Securities to the
Prospective Transferee on the terms described in the Take-Along Notice, and
shall state the number of Securities thereof that such GW Shareholder wishes to
include in the proposed transfer. If such GW Shareholder has delivered a timely
Acceptance Notice it shall have the right to sell a number of Securities equal
to the product obtained by multiplying (i) the aggregate number of Securities
covered by the Take-Along Notice by (ii) a fraction the numerator of which is
the number of GW Shares at the time of the sale or transfer and the denominator
of which is the number of WP Shares and GW Shares at the time of such sale or
transfer. Notwithstanding the foregoing, WP shall not be required to comply
with the provisions of this Section 2(b) if the GW Shareholders have received an
offer for their Securities on identical terms to those received by WP and WP and
the GW Shareholders shall have had an opportunity to close on the offer on
identical terms.
(c) Come-Along Right. If (i) WP holds at least 35% of the IPO Shares
----------------
held by it at the time of the IPO Closing, (ii) holders of a majority of the
Securities desire to sell their
<PAGE>
6
Securities and (iii) WP determines to sell or transfer all of the WP Shares in
one or more related transactions and it would like to require the GW
Shareholders to sell their Securities in such sale, then WP shall give written
notice thereof (the "Come-Along Notice") to the GW Shareholders at least 20 days
-----------------
prior to such sale. Such notice shall describe in reasonable detail the
proposed sale or transfer by WP, including, without limitation, the name and
address of the Prospective Transferee, the number and type of the Securities
proposed to be sold or transferred, the proposed amount and form of the
consideration to be paid to WP in connection with such sale or transfer and the
terms and conditions of payment of such consideration offered by the Prospective
Transferee and any other material terms or conditions of the sale or transfer.
Each GW Shareholder shall be required to sell all of its Securities to such
third party or parties concurrently with the sale by WP of the WP Shares, on the
terms and conditions approved by WP subject to the consideration to be received
by each GW Shareholder being identical on a pro rata basis to the consideration
being received by WP.
(d) Exempted Transfers. The provisions of Section 2 hereof shall not
------------------
apply to transfers of Securities (including for these purposes WP Shares) (i) by
a party to an Affiliate of such party, (ii) pursuant to an effective
registration statement under the Securities Act or under Rule 144 under the
Securities Act (or any similar or successor rule), (iii) pursuant to a
prospectus filed with any Canadian securities regulatory authority or qualified
for distribution in any province of Canada or a distribution exempt from the
prospectus and registration requirements under applicable Canadian law, (iv)
upon the merger, consolidation or liquidation of a party or an Affiliate of such
party, (v) in which a warrant or warrants are exercised for Common Shares, (vi)
by WP to (a) any of its partners in accordance with its partnership agreement as
then in effect or (b) to any employee partnership of which WP or any of its
Affiliates is the general partner, or of which any of their respective executive
officers is the general partner or to any such executive officer or (vii) by
either GW Shareholder to a Person by will or the laws of descent and
distribution or by gift of any kind for tax or estate planning purposes (each,
an "Exempted Transfer"). Notwithstanding the foregoing, each party to this
-----------------
Agreement agrees that it will not directly or indirectly make any Exempted
Transfer of any Securities held by such party pursuant to clause (i) or (vii) of
the first sentence of this Section 2(d) or pursuant to clause (vi) of the first
sentence of this Section 2(d) if such partner is party to any agreement with WP
or one of its Affiliates, or any other partner of WP or one of its Affiliates
with respect to the voting or disposition of such Securities, unless, prior to
the consummation of any such Exempted Transfer, the prospective transferee
executes and delivers to the Company an agreement, in form and substance
reasonably satisfactory to the Company, whereby such prospective transferee
confirms that, with respect to the Securities that are the subject of such
transfer, it shall be deemed to be a party to this Agreement for the purposes of
this Agreement and agrees to be bound by all the terms of this Agreement. Upon
the execution and delivery by such prospective transferee of the agreement
referred to in the immediately preceding sentence, such prospective transferee
shall be deemed a party to this Agreement for the purposes of this Agreement,
and shall, except as provided below, have the rights and be subject to the
obligations of a party to this Agreement with respect to the Securities
transferred to such prospective transferee. Notwithstanding the foregoing, any
transferee of any of the Securities of the GW Shareholders (other than to a
Person in a transfer of Securities of the type referred to in clause (i) or
(vii) of the first sentence of this Section 2(d)) shall not succeed to any of
the GW Shareholder's rights pursuant to this Agreement other than pursuant to
Section 3 hereof and any transferee of any of WP's Securities (including for
these purposes WP Shares) (other than to a Person in a transfer of Securities of
the type
<PAGE>
7
referred to in clause (i) or (vi) of the first sentence of this Section
2(d) or to a Person pursuant to a transfer in which WP retains the voting
interest, if any, in the Securities transferred and a significant economic
interest in the Company) shall not succeed to any of WP's rights pursuant to
this Agreement other than pursuant to Section 3 hereof.
Section 3. Certain Agreements.
------------------
(a) Composition of Board of Directors. The GW Shareholders shall have
---------------------------------
the right to be elected, and each of WP and the GW Shareholders shall have the
right to designate individuals to be elected, as directors and officers of the
Company as provided in this Section 3.
(b) (i) WP Designees for the Board of Directors. WP shall be
---------------------------------------
entitled to, but not required to, designate individuals as directors of the
Company as follows: (x) so long as there are 3,685,759 or more WP Shares, six
nominees for director, of which (A) three may be employees of WP and its
Affiliates ("WP Employee Designees"), and (B) three shall be Independent Persons
---------------------
and, so long as the Company is required to have "resident Canadian" directors,
resident Canadians; (y) so long as there are 1,842,879 or more but less than
3,685,759 WP Shares, four nominees for director, of which (A) two may be WP
Employee Designees, and (B) two shall be Independent Persons and, so long as the
Company is required to have "resident Canadian" directors, "resident Canadians"
and (z) so long as there are more than 921,439 but less than 1,842,879 WP
Shares, two nominees for director of which (A) one may be a WP Employee
Designee, and (B) one shall be an Independent Person and, so long as the Company
is required to have "resident Canadian" directors, a "resident Canadian." The
designees of WP who are Independent Persons shall be approved by the GW
Shareholders, which approval will not be unreasonably withheld. WP agrees that
one of its initial designees who is an Independent Person shall be Murray
Koffler. The GW Shareholders hereby approve of Mr. Koffler.
(ii) GW Shareholders Designees for the Board of Directors. Gelfond and
----------------------------------------------------
Wechsler each shall be entitled to be a director of the Company so long as (x)
he serves as either Co-Chief Executive Officer or Chief Executive Officer of the
Company or (y) the GW Shareholders own more than 375,000 GW Shares. The GW
Shareholders shall collectively be entitled to, but not required to, designate
individuals as directors of the Company as follows: (x) so long as the GW
Shareholders own 1,628,000 or more GW Shares, three nominees for director, all
of whom shall be Independent Persons and, so long as the Company is required to
have "resident Canadian" directors, "resident Canadians"; (y) so long as the GW
Shareholders own 1,075,000 or more and less than 1,628,000 GW Shares, two
nominees for director, both of whom shall be Independent Persons and, so long as
the Company is required to have "resident
<PAGE>
8
Canadian" directors, "resident Canadians"; and (z) if the GW Shareholders own at
least 375,000 but less than 1,075,000 GW Shares, one nominee for director who
shall be an Independent Person and, so long as the Company is required to have
"resident Canadian" directors, a "resident Canadian." WP shall have the right
to approve each individual, other than the GW Shareholders, designated by the GW
Shareholders to serve as a director, such approval to be in WP's sole discretion
for the first individual designated to serve each such position, and thereafter,
not to be unreasonably withheld by WP. The GW Shareholders agree that one of
their initial designees who is an Independent Person shall be Gary Girvan. WP
hereby approves the designation of Mr. Girvan; provided, however, that such
-------- -------
approval shall not establish a precedent for the interpretation of Independent
Person.
(iii) Each of WP and the GW Shareholders shall only designate
pursuant to Section 3(b)(i) or (ii) individuals who they believe in good faith
(A) are qualified to serve as directors of the Company and (B) meet the criteria
established in such sections.
(c) (i) Each of WP and the GW Shareholders shall use its Best
Efforts to cause each of the individuals designated in accordance with Sections
3(b)(i), 3(b)(ii) and 3(c)(ii) (the "Designated Directors") to be elected or
--------------------
appointed as a director of the Company at the appropriate meeting of
shareholders of the Company following the date hereof and prior to the
expiration of the 1999 Standstill Agreement, such Best Efforts to include,
without limitation, voting all of its Common Shares in favor of each person
designated to serve as a director in accordance with this Section 3. Each of WP
and the GW Shareholders shall reasonably cooperate with each other to allocate
the Designated Directors among the three terms of office for directors. If, at
the time of the mailing of the proxy materials for the Company's 1999 Annual
Shareholders' Meeting, either WP or the GW Shareholders have not designated all
of the individuals they are entitled to designate pursuant to Section 3(b)
hereof, such party shall be entitled to designate such individuals as promptly
as practicable after the Company's 1999 Annual Shareholders' Meeting. In
furtherance of the foregoing, the parties hereto shall thereafter cooperate to
elect or appoint such individuals as directors of the Company in an orderly and
timely fashion.
(ii) If any of the Designated Directors shall at any time cease to
meet any of the qualifications specified in Section 3(b) of this Agreement
(e.g., he shall no longer be an Independent Person or "resident Canadian"),
----
then, each of WP and the GW Shareholders shall use its Best Efforts to cause
such Designated Director to resign or otherwise to be removed as a director of
the Company. In addition, if the number of GW Shares or WP Shares drops below
any numerical thresholds set forth in Section 3(b), then the GW Shareholders and
WP each shall use its Best Efforts to cause one or more directors to resign or
to be removed as a director so that the number of Designated Directors
designated by WP or the GW Shareholders drops to a number corresponding with the
then current shareholdings of WP or the GW Shareholders, as the case may be, and
the Company, WP and the GW Shareholders each shall use its Best Efforts to cause
such person to be replaced as a director by an individual nominated by the
Nominating Committee; provided, however, that in the event that the number of WP
-------- -------
Shares drops below 3,685,759 one of the two WP Designated Directors to be
replaced as a result shall be replaced by an Independent Person who shall be
designated by WP and approved by the GW Shareholders, such approval not to be
unreasonably withheld.
<PAGE>
9
(iii) Until such time as the 1999 Standstill Agreement expires, in
the event of the resignation, death, disqualification under the Canada Business
Corporations Act or of the expiration of the term of any Designated Director or
Replacement Director or the removal of any Designated Director or Replacement
Director pursuant to the first sentence of Section 3(c)(ii) of this Agreement,
the party who designated such director shall have the right to designate a
replacement for such director who meets the qualifications set forth in Section
3(b) of this Agreement (who may, in the case of the expiration of the term of
any Designated Director or Replacement Director, be the existing director) (a
"Replacement Director") if the then current share ownership of such party would
- ---------------------
entitle such party to designate a number of Independent Persons, or, in the case
of WP, WP Employee Designees, that exceeds the aggregate number of such
directors designated by such person who are then serving as such directors
following such resignation or removal, and each of WP and the GW Shareholders
shall use its Best Efforts to cause each of the individuals designated in
accordance with this Section 3(c)(iii) to be elected or appointed as a director
of the Company, such Best Efforts to include, without limitation, voting all
Common Shares in favor of each such individual.
(iv) In the event that WP does not extend the term of the 1999
Standstill Agreement, the GW Shareholders may, at their option to be exercised
within the 10 business day period following the expiration of the 1999
Standstill Agreement, enter into a standstill agreement with the Company (the
"GW Shareholders' Standstill Agreement") on the terms set forth in Sections 1,
- --------------------------------------
2, 3 and 5 of the 1999 Standstill Agreement, which agreement shall have a term
of one year subject to the ability of the GW Shareholders from time to time to
extend the term of such agreement beyond such termination for additional one
year terms until March 1, 2004 upon written notice delivered to the Company and
WP within 10 business days prior to the expiration of the term as it may be
extended from time to time. Until such time as the GW Shareholders' Standstill
Agreement expires, in the event of the resignation, death, disqualification
under the Canada Business Corporations Act or of the expiration of the term of
any Designated Director who had been designated by the GW Shareholders or any
Replacement Director who had been designated by the GW Shareholders, (each of
whom, having been designated by the GW Shareholders, a "GW Designated Director")
----------------------
or the removal of any GW Designated Director pursuant to the first sentence of
Section 3(c)(ii) of this Agreement, the GW Shareholders shall have the right to
designate a replacement for such director who meets the qualifications set forth
in Section 3(b) of this Agreement if the then current share ownership of the GW
Shareholders would entitle them to designate a number of Independent Persons
that exceeds the aggregate number of such directors designated by the GW
Shareholders who are then serving as such directors following such resignation
or removal, and WP shall use its Best Efforts to cause each of the individuals
designated in accordance with this Section 3(c)(iv) to be elected or appointed
as a director of the Company, such Best Efforts to include, without limitation,
voting all Common Shares in favor of each such individual.
(d) The Company shall, and each of WP and the GW Shareholders shall
use its Best Efforts to cause the Company to, establish a nominating committee
of the Board of Directors of the Company (the "Nominating Committee"),
--------------------
consisting of two directors, one designated by WP and one designated by the GW
Shareholders.
(e) Chairman of the Board; Committees of the Board of Directors.
-----------------------------------------------------------
<PAGE>
10
(i) Subject to the approval of the GW Shareholders, such approval not
to be unreasonably withheld, WP shall be entitled to designate a WP Employee
Designee for appointment by the Board as the Non-Executive Chairman of the Board
of the Company, so long as there are at least 2,948,607 WP Shares. The GW
Shareholders hereby approve the designation of Michael J. Biondi as the Non-
Executive Chairman of the Board and will use their Best Efforts to ensure his
appointment by the Board. If Mr. Biondi shall no longer hold such position, WP
shall then present to the GW Shareholders three individuals to replace him and
the GW Shareholders shall select one of such individuals for appointment as the
Non-Executive Chairman of the Board of the Company and the GW Shareholders will
use their Best Efforts to ensure his appointment by the Board.
(ii) So long as either Gelfond or Wechsler serves as a Co-Chief
Executive Officer or Chief Executive Officer, he shall also be entitled to be
appointed to serve as a Co-Chairman or Chairman of the Company and WP shall use
its Best Efforts to ensure his appointment by the Board.
(iii) The duties and powers of the Non-Executive Chairman of the
Board and the Co-Chief Executive Officers shall be as set forth in the Bylaws of
the Company, including without limitation, the requirement that the following
actions be approved by the Non-Executive Chairman of the Board and at least one
of the Co-Chief Executive Officers: (x) setting the dates and times of the
meetings of the Board and the shareholders of the Company (other than the
Board's normal quarterly meetings and annual shareholder meetings, which shall
be established by the Board), (y) setting the agenda of such meetings and (z)
appointing members of the committees of the Board other than persons designated
by WP and the GW Shareholders pursuant to Section 3(e)(iv) below. The Co-Chief
Executive Officers shall preside at meetings of the Board and the shareholders
of the Company. None of Gelfond, Wechsler or the Non-Executive Chairman of the
Board may use the rights granted pursuant to this Section 3(e) to frustrate the
interests of the Company.
(iv) Each of WP and the GW Shareholders shall have the right to
designate one individual director to serve on each committee of the Board. Each
such person shall meet the requirements of the NASDAQ National Market System and
The Toronto Stock Exchange and any other exchange on which the Common Shares are
traded, and no person serving on the compensation committee shall be an employee
of the Company.
(f) CEO Advisors. Each of WP and the GW Shareholders shall use its
------------
Best Efforts to cause there to no longer be CEO Advisors as of the date on which
all of the WP Employee Designees are elected as directors of the Company.
Thereafter, none of WP or the GW Shareholders shall take any action to
reestablish the CEO Advisors.
Section 4. Miscellaneous.
-------------
(a) Binding Effect. Unless otherwise provided herein, the provisions
--------------
of this Agreement shall be binding upon and accrue to the benefit of the parties
hereto and their respective successors, assigns and transferees.
<PAGE>
11
(b) Entire Agreement. This Agreement, together with the 1999
----------------
Standstill Agreement and the 1999 Registration Rights Agreement, represents the
entire understanding and agreement between the parties hereto with respect to
the subject matter hereof and supersedes all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties with respect to the subject matter hereof, including,
without limitation, the 1994 Shareholders' Agreement and the Standstill
Agreement dated June 16, 1994 among the Company and certain of the parties
hereto.
(c) Amendments, Etc. This Agreement can be amended, supplemented or
---------------
changed, and any provision hereof can be waived, only by written instrument
signed by the party against whom enforcement of any such amendment, supplement,
modification or waiver is sought.
(d) Severability. If any provision of this Agreement is invalid or
------------
unenforceable, the balance of this Agreement shall remain in full force and
effect and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
(e) Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
(f) Notices. All communications provided for under this Agreement
-------
shall be in writing and shall be delivered by hand, by telecopy, telegram or
telex, or by mail (registered or certified mail, postage prepaid, return receipt
requested) to the following addresses, or such other addresses as shall be given
by notice delivered hereunder, and shall be deemed to have been given on the day
of such hand delivery thereof or the third business day after such mailing:
If to WPLP, WPOP, WPPN or
the Michael J. Biondi Voting Trust, to such party:
c/o Wasserstein Perella Management Partners, Inc.
31 West 52nd Street
26th Floor
New York, New York 10019
Telecopier: (212) 969-7836
Attention: W. Townsend Ziebold
with a copy to:
Stikeman, Elliott
Suite 5300
Commerce Court West
Toronto, Ontario
M5L1B9
Telecopier: (416) 947-0866
Attention: Marvin Yontef/Mihkel Voore
<PAGE>
12
and a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Telecopier: (212) 735-2000
Attention: Robert Chilstrom/Avinash Ganatra
If to Wechsler, to:
Bradley J. Wechsler
88 East Middle Patent Road
Bedford, New York 10506
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Peter D. Lyons
If to Gelfond, to:
Richard L. Gelfond
2 Squabble Lane
Southampton, New York 11969
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Peter D. Lyons
If to the Company, to:
Imax Corporation
110 East 59th Street
Suite 2100
New York, New York 10022
Telecopier: (212) 371-5510
Attention: Chief Executive Officer
with a copy to:
<PAGE>
13
Imax Corporation
2525 Speakman Drive
Mississauga, Ontario
L5K 1B1 Canada
Telecopier: (905) 403-6468
Attention: Corporate Secretary
and a copy to:
McCarthy Tetrault
Suite 4700
Toronto Dominion Bank Tower
Toronto Dominion Centre
Toronto, Ontario
M5K 1E6 Canada
Telecopier: (416) 868-0673
Attention: Garth M. Girvan
and a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Peter D. Lyons
or to such other Persons or at such other addresses as shall be furnished by any
such party by like notice given to the other parties of this Agreement.
(g) Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the Province of Ontario and the laws of Canada
without regard to principles of conflicts of laws.
(h) Injunctive Relief. The Company and the Shareholders recognize
-----------------
that in the event they fail to perform, observe or discharge any of their
respective obligations or liabilities under this Agreement, no remedy at law
will provide adequate relief to the injured parties, and agree that the injured
parties shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages and without being
required to post a bond or other security.
(i) Termination. The provisions of this Agreement shall terminate on
-----------
March 1, 2004, except as otherwise provided therein.
(j) Limitation of Liability. No personal liability or responsibility
-----------------------
of either GW Shareholder or any partner or shareholder of WP shall at any time
be enforceable against either GW Shareholder or any partner or shareholder of WP
on account of any representation, warranty, undertaking, covenant or agreement
made by it hereunder, either express or implied, all such personal liability, if
any, being expressly waived by each party to this Agreement and by all
<PAGE>
14
Persons claiming by, through or under any such party, provided that any party
--------
to this Agreement making claim hereunder may realize upon the Securities held by
either the GW Shareholder and each partner or shareholder of WP at such time for
satisfaction of the same.
(k) Execution in Counterparts. This Agreement may be executed and
-------------------------
delivered (including by facsimile transmission) in counterparts, each of which
shall be deemed an original and all of which shall constitute one and the same
instrument.NYDOCS02/435926 14
<PAGE>
15
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the day and year first above written.
WASSERSTEIN PERELLA PARTNERS, L.P.
By WASSERSTEIN PERELLA MANAGEMENT
CK PARTNERS, INC., its General Partner
By: /s/ W. Townsend Ziebold
-----------------------
Name: W. Townsend Ziebold
Title: Vice President
WASSERSTEIN PERELLA OFFSHORE
PARTNERS, L.P.
By WASSERSTEIN PERELLA MANAGEMENT
CK PARTNERS, INC., its General Partner
By: /s/ W. Townsend Ziebold
-----------------------
Name: W. Townsend Ziebold
Title: Vice President
WPPN, INC.
By: /s/ James C. Kingsbury
----------------------
Name: James C. Kingsbury
Title: Treasurer and Secretary
MICHAEL J. BIONDI VOTING TRUST
By: /s/ James C. Kingsbury
----------------------
Name: James C. Kingsbury
Title: Attorney-in-Fact
/s/ Richard L Gelfond
---------------------
Richard L. Gelfond
/s/ Bradley J. Wechsler
------------------------
Bradley J. Wechsler
IMAX CORPORATION
By: /s/ John M. Davison
-------------------
Name: John M. Davison
Title: Director
By: /s/ Garth M. Girvan
-------------------
Name: Garth M. Girvan
Title: Director
<PAGE>
EXBIHIT 4.11
EXECUTION COPY
AMENDED AND RESTATED STANDSTILL AGREEMENT
This STANDSTILL AGREEMENT (this "Agreement") dated as of February 9,
---------
1999 among Wasserstein Perella Partners, L.P., a Delaware limited partnership
("WPLP"), Wasserstein Perella Offshore Partners, L.P., a Delaware limited
- ------
partnership ("WPOP"), WPPN, Inc., a Delaware corporation ("WPPN") and the
---- ----
Michael J. Biondi Voting Trust (together with WPPN, WPOP and WPLP, "WP"), Imax
--
Corporation, a corporation organized under the laws of Canada (the "Company"),
-------
Richard L. Gelfond ("Gelfond") and Bradley J. Wechsler ("Wechsler").
------- --------
WHEREAS, WP is beneficial owner of common shares of the Company
("Common Shares");
- ---------------
WHEREAS, certain of the parties hereto entered into a Standstill
Agreement dated June 16, 1994 (the "1994 Standstill Agreement") and now desire
-------------------------
to amend such agreement; and
WHEREAS, contemporaneously herewith, WP, Gelfond, Wechsler and the
Company are entering into a Second Amended and Restated Shareholders' Agreement
(the "1999 Shareholders' Agreement") and the parties hereto are also entering
----------------------------
into a Registration Rights Agreement (the "1999 Registration Rights Agreement").
----------------------------------
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements set forth herein and for other good and valuable consideration,
the receipt and legal sufficiency of which are hereby acknowledged, the parties
do hereto agree as follows:
SECTION 1. COVENANTS OF WP.
---------------
Prohibited Transactions Involving the Company. WP agrees with the
---------------------------------------------
Company and Messrs. Gelfond and Wechsler that it will not, and will cause each
"affiliate" "controlled" by WP, as such terms are defined in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (each
------------
referred to herein as an "Affiliate") (whether or not such person or entity is
---------
such an Affiliate or associate on the date hereof), not to, directly or
indirectly:
(i) make, or in any way participate in, directly or indirectly, any
solicitation of proxies, or become a "participant" in any solicitation or
"election contest" (as such terms are defined or used in Regulation 14A
under the Exchange Act), with respect to the Company or any successor or
seek to influence any person or group (within the meaning of Section
13(d)(3) of the Exchange Act) with respect to the voting of any voting
securities of the Company or any successor;
<PAGE>
2
(ii) initiate, propose or otherwise solicit shareholders of the
Company or any successor for the approval of one or more proposals
submitted to the shareholders for a vote with respect to the Company or any
successor;
(iii) deposit any voting securities of the Company or any successor
in a voting trust or subject any such voting securities to any agreement or
arrangement with respect to the voting of such voting securities, other
than any such trust, agreement or arrangement whereby WP or any Affiliate
controlled by WP or employees of WP have the right to vote such securities
and continue to be bound by this Agreement or other arrangements entered
into for tax purposes whereby the party having the right to vote such
securities agrees to be bound by the terms of this Agreement;
(iv) acquire or affect, or attempt to acquire or affect, control of
the Company or any successor or directly or indirectly participate in, or
encourage the formation of, any group (within the meaning of Section
13(d)(3) of the Exchange Act) which owns or seeks to acquire beneficial
ownership of voting securities of the Company or any successor, or to
acquire or affect control of the Company or any successor;
(v) except through normal procedures of the Board of Directors (the
"Board") or the CEO Advisors (the "CEO Advisors"), so long as the CEO
------ ------------
Advisors shall remain in existence, of the Company or any successor,
otherwise act, alone or in concert with others, to seek to control or to
influence in any manner the management, Board, policies or affairs of the
Company or any successor, or propose or seek to effect any form of business
combination transaction with the Company, any successor or any Affiliate
thereof or any restructuring, recapitalization or similar transaction with
respect to any thereof; provided, however, that action taken by WP
-------- -------
consistent with the terms of any engagement of WP as a financial advisor to
the Company shall not be a breach of this Section 1(a)(v); or
(vi) encourage or render advice to or make any recommendation or
proposal to any person or group (within the meaning of Section 13(d)(3) of
the Exchange Act) to engage in any of the actions covered by clauses (i)
through (v) of this Section l(a), or render advice with respect to voting
securities of the Company or any successor, without the consent of the
Company or any successor.
Nothing herein shall restrict WP from acquiring any Common Shares of
the Company unless, following such acquisition, WP is the beneficial owner of
more than 15,900,000 Common Shares, as such number shall be adjusted to take
into account any stock dividend, stock split, reverse stock split,
recapitalization or other similar transaction after the date hereof.
For purposes of this Agreement, the term "voting securities" shall
mean (x) any securities which are entitled to vote generally in the election of
directors of the Company or any successor, and (y) any options, warrants, rights
or securities of the Company or any successor
<PAGE>
3
which by their terms may be convertible into or exchangeable for any security
described in clause (x) above.
(b) Voting of Voting Securities. WP agrees with the Company and
---------------------------
Messrs. Gelfond and Wechsler that it will, and will cause each Affiliate it
controls to:
(i) be present, in person or by proxy, at all meetings of shareholders
of the Company or any successor, so that all voting securities beneficially
owned by WP or any of its Affiliates may be counted for the purpose of
determining the presence of a quorum at such meetings;
(ii) vote or cause to be voted at any meeting of shareholders of the
Company or any successor any voting securities owned by WP or any of its
Affiliates in favor of each person nominated by the Board or any successor
for election as a director of the Company or any successor; and
(iii) not to vote or cause to be voted at any meeting of shareholders
of the Company or any successor any voting securities owned by WP or any of
its Affiliates in any way that is inconsistent with this Agreement or the
1999 Shareholders' Agreement.
(c) Spin-Offs. WP agrees with the Company and Messrs. Gelfond and
---------
Wechsler that it will not directly or indirectly make any Spin-Off (as
hereinafter defined) of any voting securities held by it or transfer any voting
securities to any Affiliate of WP, unless prior to the consummation of any such
Spin-Off, the prospective transferees execute and deliver to the Company an
agreement, in form and substance reasonably satisfactory to the Company, whereby
such prospective transferees confirm that, with respect to the voting securities
that are the subject of such transfer, they shall be deemed to be parties to
this Agreement for the purposes of this Agreement and agree to be bound by all
the terms of this Agreement. For purposes of this provision, "Spin-Off" means
--------
the transfer of voting securities by WP (a) to any of its partners in accordance
with its respective partnership agreement as then in effect if any such partner
or any of its Affiliates enter into any agreement with either, WP, any of its
Affiliates or any other partner of such partnership or any Affiliate of such
other partner with respect to the voting or transfer of such securities or (b)
to any employee partnership of which WP or any of its Affiliates is the general
partner, or of which any of their respective executive officers is the general
partner or to any such executive officer.
SECTION 2. CEO ADVISORS, ETC.
-----------------
(a) The Company, (i) shall cause there to no longer be CEO Advisors
effective as of the date on which all of the WP Employee Designees (as defined
in the 1999 Shareholders' Agreement) are elected as directors of the Company and
(ii) thereafter, shall not take any action to reestablish the role of the CEO
Advisors as contemplated by Section 5.1 of the Bylaws.
<PAGE>
4
(b) Each of the Company, Gelfond, Wechsler and WP shall use its Best
Efforts (as defined in the 1999 Shareholders' Agreement) to amend the Articles
of Incorporation and By-law No. 1 of the Company as provided in Exhibit 2(b) as
of the date on which all of the WP Employee Designees (as defined in the 1999
Shareholders' Agreement) are elected or appointed as directors of the Company.
The Company shall, at its 1999 Annual Shareholders' Meeting, submit to the vote
of its shareholders a resolution to amend the Company's Articles of
Incorporation and a resolution to adopt a by-law each as provided in Exhibit
2(b), and each of WP, Gelfond and Wechsler shall use its Best Efforts (as
defined in the 1999 Shareholders' Agreement), to cause such resolutions to be
approved by such Shareholders, including, without limitation, voting and causing
their Affiliates to vote all their Common Shares in favor of such resolutions.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
------------------------------
Each of the Company, Gelfond, Wechsler and WP represents and
warrants to the other parties to this Agreement that (a) it is duly authorized
to execute and deliver, and to perform its obligations under, this Agreement;
(b) this Agreement has been duly executed and delivered by such party and
constitutes a valid and binding obligation of such party, enforceable against
such party in accordance with its terms; and (c) the execution and delivery of
this Agreement by such party does not, and the performance by such party of its
obligations hereunder will not (i) constitute a violation of, conflict with or
result in a default under any contract, commitment, agreement, instrument,
understanding, arrangement or restriction of any kind to which it is a party or
by which it is bound or any judgment, decree or order applicable to it, or (ii)
violate any provision of law applicable to it or require any consent or approval
of, or filing with or notice to any public body or authority under any provision
of law applicable to it.
SECTION 4. TERM OF AGREEMENT.
-----------------
(a) This Agreement shall be effective from the date hereof and
shall terminate on the earlier of (i) June 30, 2001, unless extended by WP
pursuant to Section 4(b) below, and (ii) such date as WP and its Affiliates and
any group of which they are a member shall beneficially own (as defined pursuant
to Section 13(d) of the Exchange Act) less than 700,000 Common Shares (including
the WP Shares); provided, however, if such ownership exceeds 700,000 at any time
-------- -------
prior to June 30, 2001, then this Agreement shall immediately be reinstated.
(b) WP may, from time to time, extend the term of this Agreement
beyond June 30, 2001 for additional one year terms until March 1, 2004 upon
written notice delivered to the Company and the GW Shareholders 10 business days
prior to the expiration of the term (as it may be extended from time to time) of
this Agreement.
SECTION 5. MISCELLANEOUS.
-------------
<PAGE>
5
(a) Specific Performance. The parties hereto acknowledge that in the
--------------------
event of any breach of the provisions of this Agreement, the nonbreaching party
would be irreparably harmed and could not be made whole by monetary damages. It
is accordingly agreed that, in addition to any other remedy to which a party may
be entitled at law or in equity, the obligations of the parties hereunder shall
be specifically enforceable and no party shall take any action to impede the
other from seeking to enforce such right of specific performance.
(b) Binding Effect. This Agreement shall inure to the benefit of and
--------------
be binding upon the parties hereto and their directors, officers, heirs, legal
representatives, successors and assigns.
(c) Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be effective upon receipt, shall be in writing
and shall be delivered in person, by telecopy, telegram or telex, or by mail
(registered or certified mail, postage prepaid, return receipt requested) as
follows:
If to WPLP, WPOP, WPPN, or
the Michael J. Biondi Voting Trust, to such party:
c/o Wasserstein Perella Management Partners, Inc.
31 West 52nd Street
26th Floor
New York, New York 10019
Telecopier: (212) 969-7836
Attention: W. Townsend Ziebold
with a copy to:
Stikeman, Elliott
Suite 5300
Commerce Court West
Toronto, Ontario
M5L1B9
Telecopier: (416) 947-0866
Attention: Marvin Yontef/Mihkel Voore
<PAGE>
6
and a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Telecopier: (212) 735-2000
Attention: Robert Chilstrom/Avinash Ganatra
If to the Company, to:
Imax Corporation
110 East 59th Street
Suite 2100
New York, New York 10022
Telecopier: (212) 371-5510
Attention: Chief Executive Officer
with a copy to:
Imax Corporation
2525 Speakman Drive
Mississauga, Ontario
L5K 1B1 Canada
Telecopier: (905) 403-6468
Attention: Corporate Secretary
and a copy to:
McCarthy Tetrault
Suite 4700
Toronto Dominion Bank Tower
Toronto Dominion Centre
Toronto, Ontario
M5K IE6 Canada
Telecopier: (416) 868-0673
Attention: Garth M. Girvan
and a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Peter D. Lyons
<PAGE>
7
If to Gelfond, to:
Richard L. Gelfond
2 Squabble Lane
Southampton, New York 11969
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Peter D. Lyons
If to Wechsler, to:
Bradley J. Wechsler
88 East Mile Patent Road
Bedford, New York 10506
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Peter D. Lyons
or to such other address as either party may have furnished to the other in
writing in accordance herewith.
(d) Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the Province of Ontario and the laws of Canada
without regard to principles of conflicts of laws.
(e) Counterparts. This Agreement may be executed and delivered
------------
(including by facsimile transmission) in counterparts, each of which shall be an
original, but all of which together shall constitute one and the same agreement.
(f) Entire Agreement; Amendment; Waiver. This Agreement, together
-----------------------------------
with the 1999 Shareholders' Agreement and the 1999 Registration Rights
Agreement, constitutes the entire agreement and supersedes all prior agreements
and understandings, whether oral or written, among the parties hereto with
respect to the subject matter hereof, including, without limitation, the
Shareholders' Agreement dated June 16, 1994 among the Company and certain of the
parties hereto and the 1994 Standstill Agreement. No amendment or waiver of any
provision of this Agreement or consent to departure therefrom shall be effective
unless in writing and
<PAGE>
8
signed by the Company Gelfond, Wechsler and WP in the case of an amendment or by
the party which is the beneficiary of any such provision in the case of a waiver
or a consent to departure therefrom. Any waiver by a party of a breach of any
provision of this Agreement shall not operate as, or be construed to be, a
waiver of any other breach of such provision or any breach of any other
provision of this Agreement. The failure of a party to insist upon strict
adherence to any term of this Agreement or one or more sections shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
<PAGE>
9
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto all as of the day and year first above written.
IMAX CORPORATION
By /s/ John M. Davison
-------------------
Name: John M. Davison
Title: Director
By /s/ Garth M. Girvan
-------------------
Name: Garth M. Girvan
Title: Director
/s/ Richard L. Gelfond
----------------------
Richard L. Gelfond
/s/ Bradley J. Wechsler
------------------------
Bradley J. Wechsler
WASSERSTEIN PERELLA PARTNERS, L.P.
By WASSERSTEIN PERELLA
MANAGEMENT PARTNERS, INC.,
its General Partner
By /s/ W. Townsend Ziebold
-----------------------
Name: W. Townsend Ziebold
Title: Vice President
<PAGE>
10
WASSERSTEIN PERELLA
OFFSHORE PARTNERS, L.P.
By WASSERSTEIN PERELLA
MANAGEMENT PARTNERS, INC.,
its General Partner
By /s/ W. Townsend Ziebold
-----------------------
Name: W. Townsend Ziebold
Title: Director
WPPN, INC.
By /s/ James C. Kingsbury
----------------------
Name: James C. Kingsbury
Title: Treasurer and Secretary
MICHAEL J. BIONDI VOTING TRUST
By /s/ James C. Kingsbury
----------------------
Name: James C. Kingsbury
Title: Attorney-in-Fact
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EXHIBIT 4.12
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
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February 9, 1999, by and among Imax Corporation, a corporation organized under
the laws of Canada (the "Company"), Wasserstein Perella Partners, L.P., a
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Delaware limited partnership ("WPLP"), Wasserstein Perella Offshore Partners,
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L.P., a Delaware limited partnership ("WPOP"), WPPN, Inc., a Delaware
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corporation ("WPPN"), the Michael J. Biondi Voting Trust (together with WPLP,
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WPOP and WPPN, "WP"), Bradley J. Wechsler ("Wechsler") and Richard L. Gelfond
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("Gelfond" and, together with Wechsler, the "GW Shareholders").
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W I T N E S S E T H:
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WHEREAS, WP is the beneficial holder of common shares of the Company
("Common Shares");
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WHEREAS, the GW Shareholders are the beneficial holders of Common
Shares and options to purchase Common Shares ("Options"); and
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WHEREAS, contemporaneously herewith, the parties are entering into a
Second Amended and Restated Shareholders' Agreement (the "1999 Shareholders'
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Agreement") and the parties are entering into an Amended and Restated Standstill
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Agreement (the "1999 Standstill Agreement").
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NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements set forth herein and for other good and valuable consideration,
the receipt and legal sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
Section 1. Definitions.
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The terms set forth below shall have the following definitions:
"1999 Shareholders' Agreement" has the meaning set forth in the
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Recitals hereto.
"1999 Standstill Agreement" has the meaning set forth in the Recitals
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hereto.
"Advice" has the meaning set forth in Section 3(c) hereof.
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"Affiliate" of any Person means a Person that directly, or indirectly
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through one or more intermediaries, controls, is controlled by or is under
common control with such
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2
Person, and, in the case of a Person who is a natural person, such natural
person's family, including any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law or sister-in-law, and shall
include adoptive relationships, and any personal representatives. A Person
shall be deemed to "control" (including the correlative meanings, the terms
"controlling", "controlled by", and "under common control with") another
Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies of the
controlled Person, whether through ownership of voting securities, by
contract or otherwise.
"Best Efforts" shall mean an undertaking by a party to perform or
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satisfy an obligation or duty or otherwise act in a manner reasonably
calculated to obtain the intended result by action not disproportionate,
unreasonably burdensome or otherwise unreasonable under the circumstances;
provided, that the foregoing shall not include efforts which require the
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performing party to, among other things, expend any funds in an amount
disproportionate, unreasonably burdensome or otherwise unreasonable under
the circumstances or to institute litigation.
"Business Day" means a day of the year other than a day on which banks
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are authorized or obligated to be closed in New York, New York.
"Canadian Offering" has the meaning set forth in Section 3(a)(1)
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hereof.
"Commission" has the meaning set forth in Section 3(b)(1) hereof.
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"Common Shares" has the meaning set forth in the Recitals hereto.
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"Company" has the meaning set forth in the introductory paragraph
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hereto.
"Demand Notice" has the meaning set forth in Section 3(b)(1) hereof.
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"Demand Registration" has the meaning set forth in Section 3(b)(1)
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hereof.
"Exchange Act" has the meaning set forth in Section 3(f)(1) hereof.
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"Gelfond" has the meaning set forth in the introductory paragraph
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hereto.
"GW Shareholders" has the meaning set forth in the introductory
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paragraph hereto.
"Inspectors" has the meaning set forth in Section 3(c)(14) hereof.
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"IPO Closing" means the closing of the Company's initial public
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offering of Common Shares.
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3
"IPO Shares" means the Liquidation Shares and the Common Shares,
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including Common Shares subject to Options and warrants, beneficially owned
by the parties on the date of the IPO Closing, subject to adjustment to
reflect any stock dividend, stock split, reverse stock split,
recapitalization or other similar transaction after the date of the IPO
Closing.
"Liquidation Notice" has the meaning set forth in Section 2(c).
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"Liquidation Shares" has the meaning set forth in the 1999
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Shareholders' Agreement.
"Majority Amount" has the meaning set forth in Section 3(a) hereof.
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"NASD" means the National Association of Securities Dealers, Inc.
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"Note Purchase Agreement" means the Note Purchase Agreement, dated as
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of January 3, 1994, by and among WPOP, WPLP and the Company, as amended.
"Options" has the meaning set forth in the Recitals hereto.
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"Person" means any individual, corporation, partnership, joint
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venture, trust, unincorporated or governmental organization or any agency
or political subdivision thereof.
"Piggyback Registration" has the meaning set forth in Section 3(a)
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hereof.
"Proposed Registration" has the meaning set forth in Section 3(a)
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hereof.
"Records" has the meaning set forth in Section 3(c) hereof.
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"Registrable Securities" means the Common Shares (including the Common
----------------------
Shares issuable upon exercise of options and all WP Shares), but with
respect to any such Common Share, only so long as such Common Share
continues to be a Restricted Security or the holder of such share is an
Affiliate of the Company.
"Registration Expenses" has the meaning set forth in Section 3(e)
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hereof.
"Restricted Security" means a Common Share, (or a Common Share
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issuable upon exercise of an Option) until such time as such Common Share
or Option (i) has been effectively registered under the Securities Act or
qualified for distribution in Canada pursuant to Canadian law in
circumstances exempt under the Securities Act or when the Securities Act
does not apply and disposed of in accordance with the registration
statement or prospectus, as the case may be, covering it, (ii) has been
sold publicly pursuant to Rule 144 under the Securities Act (or any similar
provision in force, including any similar provision under the Securities
Act or under any relevant Canadian law), or
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4
(iii) has been otherwise transferred and the Company has delivered a new
certificate or other evidence of ownership for it not subject to any legal
or other restriction and not bearing a legend restricting its transfer
without registration or an exemption therefrom.
"Securities" means the Common Shares, including the Common Shares
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issuable upon exercise of the Options.
"Securities Act" means the Securities Act of 1933, as amended.
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"Shareholders" means the GW Shareholders together with WP.
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"Subsidiary" means any corporation or other entity of which securities
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or other ownership interests having ordinary voting power to elect a
majority of the Board of Directors of their equivalents of such Person
shall, at the time as of which any determination is being made, be owned by
the Company, either directly or through Subsidiaries.
"Wechsler" has the meaning set forth in the introductory paragraph
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hereto.
"Working Capital Facility" has the meaning set forth in the Note
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Purchase Agreement.
"WP" has the meaning set forth in the introductory paragraph hereto.
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"WP Shares " has the meaning set forth in the 1999 Shareholders'
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Agreement.
"WPLP" has the meaning set forth in the introductory paragraph hereto.
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"WPOP" has the meaning set forth in the introductory paragraph
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thereto.
Section 2. Issuance of Securities; Share Certificates; Miscellaneous
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Agreements
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(a) Legend. (i) The Company shall be entitled to affix to each
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certificate evidencing Restricted Securities held by a party to this Agreement a
legend in substantially the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. NO TRANSFER OF SUCH SECURITIES MAY
BE MADE UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH ACT DOES NOT APPLY.
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5
(ii) In the event that any Securities held by a party to this
Agreement shall cease to be Restricted Securities, the Company shall, upon the
written request of the holder thereof, issue to such holder a new certificate
evidencing such Securities without the legend required by Section 2(a) endorsed
thereon.
(b) Exclusive Right to Negotiate. In the event that (i) the GW
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Shareholders own at least 25% of the IPO Shares owned by them at the time of the
IPO Closing, (ii) WP has received cash distributions in an amount such that on a
compounded annual basis it shall have received a return on its original
investment in the Company (including amounts invested to purchase securities
pursuant to the Working Capital Facility) as well as a 30% compounded annual
return on such investment (and such distributions shall not be subject to return
by it to the Company) and (iii) WP, rather than the Board of Directors of the
Company, initiates the sale of the Company as an entirety, the Company shall
give the GW Shareholders written notice thereof. WP agrees that for 60 days
after receipt by the GW Shareholders of such written notice it will not solicit,
initiate or encourage submission of inquiries, proposals or offers or negotiate
with any party other than the GW Shareholders with regard to the sale of the
Company and that for 120 days after receipt by the GW Shareholders of such
written notice it will not enter into any agreement for any such sale to any
party other than the GW Shareholders.
(c) Liquidating Rights of GW Shareholders. If the GW Shareholders
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desire to exercise the rights set forth in this Section 2(c), they shall send
written notice of such desire to the Company and WP between March 1 and March 31
of any of 1999, 2000 or 2001 (the "Liquidation Notice"). The GW Shareholders
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shall only be entitled to send one Liquidation Notice pursuant to this Section
2(c). The Company shall then use its Best Efforts to cause at its option either
(i) the sale of the Company within a period of 180 days from its receipt of such
Liquidation Notice, which in the case of a sale to WP or an Affiliate of WP, or
in the case of a sale in a transaction where the fees to be received by WP or an
Affiliate of WP are not customary fees charged by comparable entities for
similar services, shall be at a price per Common Share deemed to be fair by a
nationally recognized investment banking firm that is not Affiliated with WP or
any Person holding an interest in any fund of WP, (ii) the filing of a
registration statement pursuant to the Securities Act within a period of 120
days from its receipt of such Liquidation Notice pursuant to which the GW
Shareholders may sell all of their Securities; or (iii) subject to applicable
Canadian law, the Company to purchase all of the GW Shareholders' Securities for
cash within the time and at the fair market value thereof determined as set
forth below. The Company shall have 30 days after receipt of such Liquidation
Notice to notify the GW Shareholders in writing which of the foregoing
provisions it will use Best Efforts to comply with.
If the Company elects to use Best Efforts to pursue the purchase of
the Securities as set forth in clause (iii) above, the GW Shareholders shall
have 10 days from their receipt of such notice from the Company to notify the
Company in writing of what they believe to be the fair market value of such
Securities. The Company shall have 10 days from its receipt of such notice from
the GW Shareholders to notify the GW Shareholders in writing that it does not
concur with their determination of the fair market value for such Securities.
If the Company notifies the GW Shareholders in writing within such period that
it objects to such valuation, the GW Shareholders shall have an additional 30
days to notify the Company of the fair market value
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6
of the Securities as determined by a nationally recognized investment banking
firm selected by the GW Shareholders. The GW Shareholders shall include with
such notification a copy of the valuation opinion delivered to them by such
investment banking firm. The Company shall have 10 days from the receipt of such
notification and valuation opinion to notify the GW Shareholders in writing that
it does not concur with the fair market value for such Securities as set forth
in such opinion. If the Company notifies the GW Shareholders in writing within
such period that it objects to such valuation, it shall have an additional 30
days to notify the GW Shareholders of the fair market value of the Securities as
determined by a nationally recognized investment banking firm selected by the
Company. The Company shall include with such notification a copy of the
valuation opinion delivered to it by such investment banking firm. If the fair
market value of the Securities as determined by the nationally recognized
investment banking firm selected by the Company is greater than or equal to 95%
of the fair market value of the Securities as determined by the nationally
recognized investment banking firm selected by the GW Shareholders, the fair
market value of the Securities shall be equal to half of the sum of the fair
market values of such Securities as set forth in such opinions. If the
provisions of the preceding sentence do not apply and if within 10 days of the
GW Shareholders' receipt of notice from the Company of the fair market value of
the Securities as determined by the nationally recognized investment banking
firm selected by the Company, the GW Shareholders and the Company are still
unable to agree on such fair market value, then the two investment banking firms
will select a third investment banking firm who will have 30 days to deliver its
opinion to the Company and the GW Shareholders as to its determination of the
fair market value of the Securities. The determination by such third investment
banking firm shall be conclusive and binding on the Company and the GW
Shareholders; provided that in no event will such value be less than the value
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determined by the investment banking firm selected by the Company or more than
the value determined by the investment banking firm selected by the GW
Shareholders. All determinations of the value of the GW Shareholders' Securities
made by investment banking firms in connection with the Company's election to
purchase the GW Shareholders' Securities pursuant to this Section 2(c) shall
value such Securities by reference to such Securities' pro rata portion of the
going concern equity value of the Company as of the date of such determination,
considered in the context of a hypothetical purchase of the Company negotiated
between a willing buyer and a willing seller, neither of whom is under a
compulsion to act, without any discount for a minority interest, transfer
restrictions, illiquidity or other similar factors. The GW Shareholders shall
bear the fees, costs and expenses of the investment banking firm retained by
them and WP shall bear the fees, costs and expenses of the investment banking
firm retained by the Company. The fees, costs and expenses of the third
investment banking firm, if any, shall be borne 50% by WP, on the one hand, and
50% by the GW Shareholders, on the other hand. The Company shall be obligated to
purchase the Securities on a date no later than 10 days after the fair market
value thereof is agreed to as set forth above.
Section 3. Registration Rights.
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(a) Piggyback Registration Rights.
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(1) Right to Piggyback. Subject to the last sentence of this
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paragraph (1), whenever the Company proposes to register any Common Shares under
the Securities Act, other
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than a registration statement on Form S-4 or S-8 (or any successor forms or
comparable foreign forms) or filed in connection with an exchange offer or an
offering of securities solely to the Company's existing stockholders (a
"Proposed Registration") and the registration form to be used may be used for
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the registration of the Registrable Securities (a "Piggyback Registration"), the
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Company will give prompt written notice to WP and the GW Shareholders of its
intention to effect such a registration and will, subject to Section 3(a)(2)
hereof, include in such Piggyback Registration all Registrable Securities with
respect to which the Company has received written requests for inclusion therein
from WP and the GW Shareholders within 15 days after receipt of the Company's
notice, provided that if, at any time after giving written notice of its
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intention to register any Common Shares and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
shares, the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities and, thereupon, (a) in
the case of a determination not to register, shall be relieved of its obligation
to register any Registrable Securities in connection with such registration, and
(b) in the case of delay in registering, shall be permitted to delay registering
any Registrable Securities for the same period as the delay in registering such
other shares. Except as may otherwise be provided in this Agreement, Registrable
Securities with respect to which such request for registration has been received
will be registered by the Company and offered to the public pursuant to this
Section 3 on the same terms and subject to the same conditions applicable to
similar securities of the Company included in the
Proposed Registration.
If the Company proposes, in conjunction with a Piggyback Registration,
to file a prospectus with any Canadian securities regulatory authority or
otherwise to qualify the Common Shares for distribution in any province of
Canada (a "Canadian Offering"), each holder of Registrable Securities shall be
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entitled, subject to applicable Canadian securities law, to participate in such
Canadian Offering to the same extent and on the same terms and conditions
(before, during and after the Canadian Offering), mutatis mutandis, as such
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holder is entitled to participate in the Piggyback Registration under this
Agreement.
(2) Priority of Piggyback Registrations. If the managing underwriter
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or underwriters advise the Company in writing that in its or their opinion the
number or type of securities proposed to be sold in a registration statement
exceeds the number or type which can be sold in such offering (a) at a price
reasonably related to the then current market value of such securities, or (b)
without otherwise materially and adversely affecting the entire offering, then
the Company will include in such registration the number or type of Registrable
Securities which, in the opinion of such underwriter or underwriters, can be
sold as follows: (i) first, the securities that the Company proposes to sell
for its own account or is required to register on behalf of any Person
exercising demand registration rights, and (ii) second, to the extent that the
number of securities described in clause (i) above is less than the number of
securities that the Company has been advised can be sold in such offering
without the adverse effect referred to above, the Registrable Securities of WP
and the GW Shareholders which have been requested to be included in such
registration under this Section 3(a) and all Common Shares requested to be
included by third parties exercising rights similar to those granted in this
Section 3(a), on a pro rata basis (which, in the case of Common Shares, shall be
based on the number of shares of
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8
Common Shares then owned by each holder of Registrable Securities and each such
other party assuming exercise of all of their exchange, conversion and
subscription rights with respect to all securities of the Company).
(3) Selection of Underwriters. If any Piggyback Registration is an
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underwritten offering, the Company will select a managing underwriter or
underwriters to administer the offering, which managing underwriter or
underwriters will be of nationally recognized standing and which will be
reasonably acceptable (A) to WP (after consultation with the GW Shareholders) if
the Piggyback Registration is being made in connection with the exercise by WP
of its Demand Registration Rights under Section 3(b), (B) to the GW Shareholders
(after consultation with WP) if such Piggyback Registration is being made in
connection with the exercise by the GW Shareholders of their Demand Registration
rights under Section 3(b), (C) if the foregoing clauses (A) and (B) do not
apply, to WP (after consultation with the GW Shareholders), so long as WP is a
participant in such underwritten offering and either (i) holds at least 75% of
the IPO Shares held by it at the time of the IPO Closing or (ii) holds more of
the Securities (in each case assuming exercise of all exchange, conversion or
subscription rights with respect to all securities of the Company then held by
it) than any other holder, or (D) if the foregoing clauses (A), (B) and (C) do
not apply, to persons holding a majority of each type of the Registrable
Securities to be included in such registration statement (a "Majority Amount").
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(b) Demand Registration Rights.
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(1) Right to Demand. WP or the GW Shareholders may make a written
---------------
request to the Company for registration with the Securities and Exchange
Commission (the "Commission") under and in accordance with the provisions of the
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Securities Act of all or part of its Registrable Securities. Within 10 days
after receipt of any such request, the Company will serve written notice (the
"Demand Notice") of such registration request to WP and the GW Shareholders and
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the Company will include in such registration all Registrable Securities of WP
and the GW Shareholders with respect to which the Company has received written
requests for inclusion therein within 15 Business Days after the receipt by the
applicable holder of the Demand Notice. All requests made pursuant to this
Section 3(b)(1) (each, a "Demand Registration") will specify the aggregate
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number and type of the Registrable Securities to be registered and will also
specify the intended methods of disposition thereof. WP shall be entitled to
four Demand Registrations and the GW Shareholders shall be entitled to two
Demand Registrations.
(2) Priority on Demand Registrations. If the managing underwriter or
--------------------------------
underwriters of a Demand Registration (or, in the case of a Demand Registration
not being underwritten, if (A) WP (after consultation with the GW Shareholders)
if such Demand Registration is being made at the request of WP pursuant to
Section 3(b), (B) the GW Shareholders (after consultation with WP) if such
Demand Registration is being made at the request of the GW Shareholders pursuant
to Section 3(b), (C) if the foregoing clauses (A) and (B) do not apply, WP so
long as WP either (i) holds at least 75% of the IPO Shares held by it at the
time of the IPO Closing or (ii) holds more of the Securities (in each case
assuming exercise of all
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exchange, conversion and subscription rights with respect to all securities of
the Company) than any other holder or (D) if the foregoing clauses (A), (B) and
(C) do not apply, a Majority Amount of each type of holders registering
Registrable Securities therein) advise the Company in writing that in its or
their opinion the number or type of securities proposed to be sold in such
Demand Registration exceeds the number which can be sold in such offering (a) at
a price reasonably related to the then current market value of such securities,
or (b) without otherwise materially and adversely affecting the entire offering,
then the Company will include in such registration only the number or type of
securities which, in the opinion of such underwriter or underwriters (or
holders, as the case may be) can be sold in such offering without the adverse
effect referred to above, (x) first, Registrable Securities requested to be
included in such offering by the party or parties exercising a right to a Demand
Registration, and (y) second, other securities of the Company proposed to be
included in such offering, in accordance with the priorities then existing among
the Company and the holders of such other securities.
(3) Selection of Underwriters. If any Demand Registration is an
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underwritten offering, (A) WP (after consultation with the GW Shareholders) if
such Demand Registration is being made at the request of WP pursuant to Section
3(b), (B) the GW Shareholders (after consultation with WP) if such Demand
Registration is being made at the request of the GW Shareholders pursuant to
Section 3(b), (C) if the foregoing clauses (A) and (B) do not apply, WP (after
consultation with the GW Shareholders), so long as WP is a participant in such
underwritten offering and either (i) holds at least 75% of the IPO Shares held
by it at the time of the IPO Closing or (ii) holds more of the Securities (in
each case assuming exercise of all exchange, conversion and subscription rights
with respect to all securities of the Company) than any other holder or (D) if
the foregoing clauses (A), (B) and (C) do not apply, the holders of a Majority
Amount of each type of the Registrable Securities to be included in such Demand
Registration will select a managing underwriter or underwriters to administer
the offering.
(c) Registration Procedures. With respect to any Piggyback or Demand
-----------------------
Registration, the Company will, as expeditiously as practicable:
(1) prepare and file with the Commission a registration statement
which includes the Registrable Securities and use its best efforts to cause
such registration statement to become effective; provided that before
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filing a registration statement or prospectus or any amendments or
supplements thereto, including documents incorporated by reference after
the initial filing of the registration statement, the Company will furnish
to the holders of the Registrable Securities covered by such Registration
Statement and the underwriters, if any, draft copies of all such documents
proposed to be filed at least five (5) business days prior thereto, which
documents will be subject to the reasonable review of such holders and
underwriters, and the Company will not file any registration statement or
amendment thereto or any prospectus or any supplement thereto (including
such documents incorporated by reference) to which (A) WP (after
consultation with the GW Shareholders), if such registration is a Demand
Registration being made at the request of WP pursuant to Section 3(b), (B)
the GW Shareholders (after consultation with WP), if such registration is a
Demand Registration being made at the request of the GW Shareholders
pursuant to Section 3(b), (C) if the foregoing clauses (A) and (B) do not
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10
apply, WP so long as WP is a participant in such underwritten offering and
either (i) holds at least 75% of the IPO Shares held by it at the time of
the IPO Closing or (ii) holds more of the Securities (in each case assuming
exercise of all exchange, conversion and subscription rights with respect
to all securities of the Company then held by it) than any other holder or
(D) if the foregoing clauses (A), (B) and (C) do not apply, holders of a
Majority Amount of each type of the Registrable Securities covered by such
registration statement or the underwriters, if any, shall reasonably
object, and will notify each holder of the Registrable Securities of any
stop order issued or threatened by the Commission in connection therewith
and take all reasonable actions required to prevent the entry of such stop
order or to remove it if entered;
(2) 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 a period of not less than 90
days (or such shorter period which will terminate when all Registrable
Securities covered by such registration statement have been sold or
withdrawn, but not prior to the expiration of the 90-day period referred to
in Section 4(3) of the Securities Act and Rule 174 thereunder, if
applicable); cause the prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 under the Securities Act; and comply with the provisions of the
Securities Act applicable to it with respect to the disposition of all
securities covered by such registration statement during the applicable
period in accordance with intended methods of disposition by the sellers
thereof set forth in such registration statement or supplement to the
prospectus. The Company shall not be deemed to have used its best efforts
to keep a registration statement effective during the applicable period if
it voluntarily takes any action that would result in selling holders of the
Registrable Securities covered thereby not being able to sell such
Registrable Securities during that period unless such action is required
under applicable law;
(3) furnish to any holder of Registrable Securities included in such
registration statement and the underwriter or underwriters, if any, without
charge, at least one signed copy of the registration statement and any
post-effective amendment thereto, upon request, and such number of
conformed copies thereof and such number of copies of the prospectus
(including each preliminary prospectus) and any amendments or supplements
thereto, and any documents incorporated by reference therein, as such
holder or underwriter may request in order to facilitate the disposition of
the Registrable Securities being sold by such holder (it being understood
that the Company consents to the use of the prospectus and any amendment or
supplement thereto by each holder holding Registrable Securities covered by
the registration statement and the underwriter or underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered
by the prospectus or any amendment or supplement thereto); provided that
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before filing a registration statement or prospectus or any amendment or
supplements thereto, the Company will furnish to one counsel selected by
(A) WP (after consultation with the GW Shareholders) if such registration
is a Demand Registration being made at the request of WP pursuant to
Section 3(b), (B) the GW Shareholders (after consultation with WP), if such
registration is a Demand Registration being made at the request of the GW
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11
Shareholders pursuant to Section 3(b), (C) if the foregoing clauses (A) and
(B) do not apply, WP so long as WP is a participant in such underwritten
offering and either (i) holds at least 75% of the IPO Shares held by it at
the time of the IPO Closing or (ii) holds more of the Securities (in each
case assuming exercise of all exchange, conversion and subscription rights
with respect to all securities of the Company then held by it) than any
other holder or (D) if the foregoing clauses (A), (B) or (C) do not apply,
the holders of a Majority Amount of each type of the Registrable Securities
covered by such registration statement, copies of all documents proposed to
be filed which documents will be subject to the review and comments of such
counsel;
(4) notify each holder of Registrable Securities included in such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, when the Company becomes
aware of the occurrence of any event as a result of which the prospectus
included in such registration statement (as then in effect) contains any
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein (in the case of the prospectus or
any preliminary prospectus, in light of the circumstances under which they
were made) not misleading and, as promptly as practicable thereafter,
prepare and file with the Commission and furnish a supplement or amendment
to such prospectus so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading;
(5) use its Best Efforts to cause all Registrable Securities included
in such registration statement to be listed, by the date of the first sale
of Registrable Securities pursuant to such registration statement, on each
securities exchange on which the Common Shares are then listed or proposed
to be listed, if any;
(6) make generally available to its security holders an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act
no later than 45 days after the end of the 12-month period beginning with
the first day of the Company's first fiscal quarter commencing after the
effective date of the registration statement, which earnings statement
shall cover said 12-month period;
(7) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the earliest
possible moment;
(8) if requested by the managing underwriter or underwriters or any
holder of Registrable Securities covered by the registration statement,
promptly incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters or such holder
requests to be included therein, including, without limitation, with
respect to the number of Registrable Securities, being sold by such holder
to such underwriter or underwriters, the purchase price being paid therefor
by such underwriter or underwriters and with respect to any other terms of
the underwritten
<PAGE>
12
offering of the Registrable Securities to be sold in such offering; and
promptly make all required filings of such prospectus supplement or post-
effective amendment;
(9) as promptly as practicable after filing with the Commission of any
document which is incorporated by reference into a registration statement,
deliver a copy of such document to each holder of Registrable Securities
covered by such registration statement;
(10) on or prior to the date on which the registration statement is
declared effective, use its Best Efforts to register or qualify, and
cooperate with the holders of Registrable Securities included in such
registration statement, the underwriter or underwriters, if any, and their
counsel, in connection with the registration or qualification of the
Registrable Securities covered by the registration statement for offer and
sale under the securities or blue sky laws of each state and other
jurisdiction as any such holder or underwriter reasonably requests in
writing, to use its best efforts to keep each such registration or
qualification effective, including through new filings, or amendments or
renewals, during the period such registration statement is required to be
kept effective and to do any and all other acts or things necessary or
advisable to enable the disposition in all such jurisdictions of the
Registrable Securities covered by the applicable registration statement;
provided that the Company will not be required to qualify generally to do
--------
business in any jurisdiction where it is not then so qualified or to take
any action which would subject it to general service of process in any such
jurisdiction where it is not then so subject;
(11) cooperate with the holders of Registrable Securities covered by
the registration statement and the managing underwriter or underwriters, if
any, to facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing securities to be sold under
the registration statement, and enable such securities to be in such
denominations and registered in such names as the managing underwriter or
underwriters, if any, or such holders may request;
(12) use its Best Efforts to cause the Registrable 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 or underwriters, if any,
to consummate the disposition of such securities;
(13) enter into such customary agreements (including, without
limitation, an underwriting agreement in customary form) and take all such
other actions (A) WP (after consultation with the GW Shareholders), if such
registration is a Demand Registration being made at the request of WP
pursuant to Section 3(b), (B) the GW Shareholders (after consultation with
WP) if such registration is a Demand Registration being made at the request
of the GW Shareholders pursuant to Section 3(b), (C) if the foregoing
clauses (A) or (B) do not apply, WP so long as WP is a participant in such
underwritten offering and either (i) holds at least 75% of the IPO Shares
held by it at the time of the IPO Closing or (ii) holds more of the
Securities (in each case assuming exercise of all exchange,
<PAGE>
13
conversion and subscription rights with respect to all securities of the
Company then held by it) than any other holder or (D) if the foregoing
clauses (A), (B) and (C) do not apply, the holders of a Majority Amount of
each type of the Registrable Securities being sold or the underwriters
retained by the holders participating in an underwritten public offering,
if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities;
(14) make available for inspection by any holder of Registrable
Securities included in such registration statement, any underwriter
participating in any disposition pursuant to such registration statement,
and any attorney, accountant or other agent retained by any such seller or
underwriter (collectively, the "Inspectors"), all financial and other
----------
records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable
-------
the Inspectors to exercise their due diligence responsibility, and cause
the Company's officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such
registration statement; provided that Records which the Company determines,
--------
in good faith, to be confidential and which it notifies the Inspectors are
confidential shall not be disclosed to the Inspectors unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement
or omission in the registration statement or (ii) the release of such
records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction; provided further, however, that any decision not to
-------- ------- -------
disclose information pursuant to clause (i) shall be made after
consultation with counsel for the Company and counsel for such Inspectors;
and each holder of Registrable Securities included in such registration
statement agrees that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at the Company's expense to undertake
appropriate action to prevent disclosure of the Records deemed
confidential;
(15) use its Best Efforts to obtain a cold comfort letter from the
Company's independent public accountants and an opinion of outside counsel
to the Company, each in customary form and covering such matters of the
type customarily covered by cold comfort letters or opinions of counsel, as
the case may be, as (A) WP, if such registration is a Demand Registration
being made at the request of WP pursuant to Section 3(b), (B) the GW
Shareholders, if such registration is a Demand Registration being made at
the request of the GW Shareholders pursuant to Section 3(b), (C) if the
foregoing clauses (A) and (B) do not apply, WP so long as WP is a
participant in such underwritten Offering and either (i) holds at least 75%
of the IPO Shares held by it at the time of the IPO Closing or (ii) holds
more of the Securities (in each case assuming exercise of all exchange,
conversion and subscription rights with respect to all securities of the
Company then held by it) than any other holder or (D) if the foregoing
clauses (A), (B) and (C) do not apply, the holders of a Majority Amount of
each type of the Registrable Securities being sold reasonably request;
<PAGE>
14
(16) cooperate with each seller of Registrable Securities and each
underwriter participating in the disposition of such Registrable Securities
and their respective counsel in connection with any filings required to be
made with the NASD; and
(17) use its reasonable efforts to take all other steps necessary to
effect the registration of the Registrable Securities contemplated hereby.
Each holder of Registrable Securities, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
3(c)(4) will forthwith discontinue disposition of the Registrable Securities
until such holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(c)(4) or until it is advised in writing
(the "Advice") by the Company that the use of the prospectus may be resumed and
has received copies of any additional or supplemental filings which are
incorporated by reference in the prospectus, and, if so directed by the Company,
such holder will, or will request the managing underwriter or underwriters, if
any, to deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time periods
mentioned in Section 3(c)(2) shall be extended by the number of days during the
period from and including the date of the giving of such notice to and including
the date when each seller of Registrable Securities covered by each registration
statement shall have received the copies of the supplemented or amended
prospectus contemplated by Section 3(c)(4) or the Advice.
(d) Holdback Arrangements.
---------------------
(1) Restrictions on Public Sale by Holders of Registrable Securities.
----------------------------------------------------------------
To the extent not inconsistent with applicable law, each holder whose
Registrable Securities are included in an underwritten registration statement
agrees not to effect any public sale or distribution of the securities being
registered or a similar security of the Company, or any securities convertible
into or exchangeable or exercisable for such securities, including a sale
pursuant to Rule 144 under the Securities Act, during the 14 days prior to, and
during the 30-day period beginning on, the effective date of such registration
statement, if and to the extent requested by the managing underwriter or
underwriters of such underwritten public offering, other than pursuant to such
underwritten public offering.
(2) Restrictions on Public Sale by the Company and Others. The
-----------------------------------------------------
Company and the Shareholders agree (i) not to effect any public sale or
distribution of any securities similar to those being registered, or any
securities convertible into or exchangeable or exercisable for such securities
(other than any such sale or distribution of such securities pursuant to
registration of such securities on Form S-4 or S-8 or any successor forms or
comparable foreign forms or any such sale or distribution of such securities in
connection with any merger or consolidation involving the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of the capital
equity or substantially all of the assets of any other Person), during the 14
days prior to, and during the 30-day period beginning on, the effective date of
any registration statement except as part of such registration statement; and
(ii) that any agreement entered into after the date of
<PAGE>
15
this Agreement pursuant to which the Company issues or agrees to issue any
privately placed securities shall contain a provision under which holders of
such securities agree not to effect any public sale or distribution of any such
securities during the periods described in (i) above, in each case including a
sale pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act (except as part of any such registration, if permitted);
provided, however, that the provisions of this Section 3(d)(2) shall not
- -------- -------
prevent the conversion or exchange of any securities pursuant to their terms
into or for other securities.
(3) Other Registrations. If the Company has previously filed a
-------------------
registration statement with respect to any of its Registrable Securities, and if
such previous registration has not been withdrawn or abandoned, the Company will
not file or cause to be effected any other registration of any of its
Registrable Securities under the Securities Act (except on Form S-4 or S-8 or
any successor forms or comparable foreign forms), whether on its own behalf or
at the request of any holder or holders of Registrable Securities, until a
period of at least six months has elapsed from the effective date of such
previous registration (provided that in the case of a Demand Registration such
--------
period shall commence on the date the Company is first served the Notice and
shall continue until at least six months have elapsed from the effective date of
such Demand Registration).
(e) Registration Expenses. All of the costs and expenses of each
---------------------
registration hereunder, including, without limitation, all registration and
filing fees, all fees and expenses associated with filings required to be made
with the NASD (including, if applicable, the fees and expenses of any "qualified
independent underwriter" as such term is defined in Schedule E of the By-laws of
the NASD, and of its counsel), as may be required by the rules and regulations
of the NASD, fees and expenses of compliance with securities or blue sky laws of
any jurisdiction (including reasonable fees and disbursements of counsel in
connection with blue sky qualifications of the Registrable Securities), printing
expenses, messenger and delivery expenses, the Company's internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the fees and expenses incurred
in connection with the listing of the securities to be registered on any
securities exchange, and fees and disbursements of counsel for the Company and
its independent certified public accountants (including the expenses of any
special audit or comfort letters required by or incident to such performance),
Securities Act liability insurance (if the Company elects to obtain such
insurance), the fees and expenses of any special experts retained by the Company
in connection with such registration, fees and expenses of other persons
retained by the Company, reasonable fees and expenses of one counsel for the
holders of the Registrable Securities in connection with each registration
hereunder (but not including any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities which shall be for the
account of such holders) and any reasonable out-of-pocket expenses of the
holders of the Registrable Securities (or agents who manage their accounts) (all
such expenses being herein called "Registration Expenses"), will be borne by the
---------------------
Company.
(f) Indemnification; Contribution.
-----------------------------
(1) Indemnification by the Company. The Company agrees to indemnify
------------------------------
<PAGE>
16
and hold harmless each selling holder of Registrable Securities, its officers,
directors, agents, employees, partners and Affiliates and each Person, if any,
who controls such selling holder within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), from and against any and all losses, claims, damages,
------------
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission based upon information with respect
to such selling holder furnished in writing to the Company by such selling
holder expressly for use therein. The Company also agrees to indemnify any
underwriters of the Registrable Securities, their officers, directors, agents,
employees, partners and Affiliates and each Person who controls such
underwriters on substantially the same basis as that of the indemnification of
the selling holders provided in this Section 3(f).
(2) Conduct of Indemnification Proceedings. If any action or
--------------------------------------
proceeding (including any governmental investigation) shall be brought or
asserted against any selling holder (or any of its officers, directors, agents,
employees, partners or Affiliates) or any Person controlling any such selling
holder in respect of which indemnity may be sought from the Company, the Company
shall be permitted, unless in the reasonable judgment of such indemnified party
a conflict of interest may exist between such indemnified party and the Company
with respect to such claim, to assume the defense thereof, including the
employment of counsel reasonably satisfactory to such selling holder, and shall
assume the payment of all expenses. Whether or not such defense is assumed by
the Company, the Company shall not be liable for any settlement of any such
action or proceeding effected without its written consent (but such consent will
not be unreasonably withheld). The Company will not consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation. If the
Company is not entitled to, or elects not to, assume the defense of a claim, it
will not be obligated to pay the fees and expenses of more than one counsel with
respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim, in which event the
Company shall be obligated to pay the fees and expenses of such additional
counsel or counsels. Any selling holder entitled to indemnification hereunder
agrees to give prompt written notice to the Company after the receipt by such
selling holder of any written notice of the commencement of any action, suit,
proceeding or investigation or threat thereof made in writing for which such
selling holder will claim indemnification or contribution pursuant to this
Agreement.
(3) Indemnification by Holders of Registrable Securities. Each
----------------------------------------------------
selling holder of Registrable Securities agrees to indemnify and hold harmless
the Company, its officers, directors, agents, employees, partners and
Affiliates, and each Person, if any, who controls the
<PAGE>
17
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Company to the selling holders of Registrable Securities, but only with respect
to information furnished in writing by such selling holder with respect to such
selling holder expressly for use in any registration statement or prospectus
relating to the Registrable Securities which contained a material misstatement
of fact or omission of a material fact, or any amendment or supplement thereto,
or any preliminary prospectus. In no event shall the liability of any selling
holder hereunder be greater in amount than the dollar amount of the proceeds
received by such selling holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation. In case any action or proceeding
shall be brought against the Company or its officers, directors, agents,
employees, partners or Affiliates, or any such controlling Person, in respect of
which indemnity may be sought against any selling holder, such selling holder
shall have the rights and duties given to the Company, and the Company or its
officers, directors, agents, employees, partners or Affiliates, or such
controlling Person shall have the rights and duties given to such selling
holders by Section 3(f)(2). Each selling holder of Registrable Securities also
agrees to indemnify and hold harmless underwriters of the Registrable
Securities, their officers, directors, agents, employees, partners and
Affiliates, and each Person who controls such underwriters on substantially the
same basis as that of the indemnification of the Company provided in this
Section 3(f)(3).
(4) Contribution. If the indemnification provided for in this Section
------------
3(f) is unavailable to the Company, the selling holders or the underwriters in
respect of any losses, claims, damages, liabilities or judgments referred to
herein, then each such indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities and
judgements in such proportion as is appropriate to reflect the relative fault of
the indemnifying parties and indemnified parties in connection with such
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
parties 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 such party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 3(f)(4) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable consideration referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities, or, judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 3(f)(4), no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
<PAGE>
18
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no selling holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities of such selling holder were
offered to the public exceeds the amount of any damages which such selling
holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
(g) Participation in Underwritten Registrations. No holder of
-------------------------------------------
Registrable Securities may participate in any underwritten registration
hereunder unless such holder (a) agrees to sell its securities on the basis
provided in any underwriting arrangements approved by the holders as provided
herein and (b) completes and executes all questionnaires, powers of attorneys,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements and these registration rights.
(h) Rule 144 Etc. The Company covenants that it will file any reports
------------
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the Commission thereunder (or, if the Company
is not required to file such reports, it will, upon the request of any holder of
Registrable Securities, make publicly available other information so long as
necessary to permit sales under Rule 144, Rule 144A and Regulation S under the
Securities Act) that it will take such further action as the holders of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable the holders of Registrable Securities to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144, Rule 144A or Regulation S under the
Securities Act, as such Rules or such Regulation may be amended from time to
time, or (b) any similar rule or regulation hereafter adopted by the Commission.
(i) Other Registration Rights. The Company will not grant any Person
-------------------------
any demand or piggyback registration rights with respect to its securities other
than registration rights that would not be inconsistent with the terms of this
Section 3. The Company will not have the right to piggyback on any Demand
Registration and the Company will not grant any registration rights that would
permit any Person the right to piggyback on any Demand Registration.
(j) Termination. This Section 3 shall continue in full force and
-----------
effect until none of the Securities are Registrable Securities, except that
paragraph (f) shall survive any termination of this Section 3.
<PAGE>
19
Section 4. Miscellaneous.
-------------
(a) Stop Transfer Order. The Company may enter a stop transfer order
-------------------
with the transfer agent or agents of voting securities against the transfer of
voting securities except in compliance with the requirements of this Agreement.
The Company agrees to remove promptly any stop transfer order with respect to
certificates for any voting securities that are no longer subject to the
restrictions contained in this Agreement.
(b) Binding Effect. Unless otherwise provided herein, the provisions
--------------
of this Agreement shall be binding upon and accrue to the benefit of the parties
hereto and their respective successors, assigns and transferees.
(c) Entire Agreement. This Agreement, together with the 1999
----------------
Shareholders' Agreement and the 1999 Standstill Agreement, represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties, including, without limitation, the Amended and Restated Shareholders'
Agreement, dated as of June 16, 1994, among WP, the GW Shareholders and the
Company.
(d) Amendments, Etc. This Agreement can be amended, supplemented or
---------------
changed, and any provision hereof can be waived, only by written instrument
signed by the party against whom enforcement of any such amendment, supplement,
modification or waiver is sought.
(e) Severability. If any provision of this Agreement is invalid or
------------
unenforceable, the balance of this Agreement shall remain in full force and
effect and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
(f) Descriptive Headings. The descriptive headings of this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
(g) Notices. All communications provided for under this Agreement
-------
shall be in writing and shall be delivered by hand, by telecopy, telegram or
telex, or by mail (registered or certified mail, postage prepaid, return receipt
requested) to the following addresses, or such other addresses as shall be given
by notice delivered hereunder, and shall be deemed to have been given on the day
of such hand delivery thereof or the third business day after such mailing:
If to WPLP, WPOP, WPPN or
the Michael J. Biondi Voting Trust, to such party:
c/o Wasserstein Perella Management Partners, Inc.
31 West 52nd Street
26th Floor
<PAGE>
20
New York, New York 10019
Telecopier: (212) 969-7836
Attention: W. Townsend Ziebold
with a copy to:
Stikeman, Elliott
Suite 5300
Commerce Court West
Toronto, Ontario
M5L1B9
Telecopier: (416) 947-0866
Attention: Marvin Yontef/Mihkel Voore
and a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Telecopier: (212) 735-2000
Attention: Robert Chilstrom/Avinash Ganatra
If to Wechsler, to:
Bradley J. Wechsler
88 East Middle Patent Road
Bedford, New York 10506
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Peter D. Lyons
If to Gelfond, to:
Richard L. Gelfond
2 Squabble Lane
Southampton, New York 11969
with a copy to:
Shearman & Sterling
<PAGE>
21
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Peter D. Lyons
If to the Company, to:
Imax Corporation
110 East 59th Street
Suite 2100
New York, New York 10022
Telecopier: (212) 371-5510
Attention: Chief Executive Officer
With a copy to:
Imax Corporation
2525 Speakman Drive
Mississauga, Ontario
L5K 1B1 Canada
Telecopier: (905) 403-6468
Attention: Corporate Secretary
and a copy to:
McCarthy Tetrault
Suite 4700
Toronto Dominion Bank Tower
Toronto Dominion Centre
Toronto, Ontario
M5K 1E6 Canada
Telecopier: (416) 868-0673
Attention: Garth M. Girvan
<PAGE>
22
and a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Peter D. Lyons
or to such other Persons or at such other addresses as shall be furnished by any
such party by like notice given to the other parties of this Agreement.
(h) Governing Law; Submission to Jurisdiction. This Agreement shall
-----------------------------------------
be governed by, and construed in accordance with, the laws of the State of New
York without regard to principles of conflicts of laws. Each of the parties
hereto hereby irrevocably consents to personal jurisdiction and venue in any
court of the State of New York or any Federal court sitting in the Southern
District of New York for the purposes of any suit, action or other proceeding
arising out of this Agreement or any of the agreements or transactions
contemplated hereby, which is brought by or against such party, and hereby
agrees that all claims in respect of any such suit, action or proceeding may be
heard and determined in any such court. Each of the parties hereto hereby
irrevocably consents to the service of process of any of the aforementioned
courts in any such suit, action or proceeding by the mailing of copies thereof
by registered or certified mail, postage prepaid, to such party at its address
set forth above, such service to become effective ten (10) days after such
mailing. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR ACTION ARISING
OUT OF THIS AGREEMENT OR CONDUCT IN CONNECTION WITH THIS AGREEMENT IS HEREBY
WAIVED.
(i) Injunctive Relief. The Company and the Shareholders recognize
-----------------
that in the event they fail to perform, observe or discharge any of their
respective obligations or liabilities under this Agreement, no remedy at law
will provide adequate relief to the injured parties, and agree that the injured
parties shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages and without being
required to post a bond or other security.
(j) Termination. This Agreement shall terminate if at any time WP
-----------
ceases to own at least 10% of the IPO Shares owned by them at the time of the
IPO Closing, except that (i) the provisions of Section 2(c) shall terminate on
April 1, 2001 and (ii) the provisions of Section 3 hereof shall terminate as
provided in Section 3(j), except as otherwise provided therein.
(k) Limitation of Liability. No personal liability or responsibility
-----------------------
of either GW Shareholder or any partner or shareholder of WP shall at any time
be enforceable against either GW Shareholder or any partner or shareholder of WP
on account of any representation, warranty, undertaking, covenant or agreement
made by it hereunder, either express or implied, all such
<PAGE>
23
personal liability, if any, being expressly waived by each party to this
Agreement and by all Persons claiming by, through or u
nder any such party, provided that any party to this Agreement making claim
--------
hereunder may realize upon the Securities held by either the GW Shareholder and
each partner or shareholder of WP at such time for satisfaction of the same.
(l) Execution in Counterparts. This Agreement may be executed and
-------------------------
delivered (including by facsimile transmission) in counterparts, each of which
shall be deemed an original and all of which shall constitute one and the same
instrument.
<PAGE>
24
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the day and year first above written.
WASSERSTEIN PERELLA PARTNERS, L.P.
By WASSERSTEIN PERELLA MANAGEMENT
CK PARTNERS, INC., its General Partner
By: /s/ W. Townsend Ziebold
-----------------------
Name: W. Townsend Ziebold
Title: Vice President
WASSERSTEIN PERELLA OFFSHORE
PARTNERS, L.P.
By WASSERSTEIN PERELLA MANAGEMENT
CK PARTNERS, INC., its General Partner
By: /s/ W. Townsend Ziebold
-----------------------
Name: W. Townsend Ziebold
Title: Vice President
WPPN, INC.
By: /s/ James C. Kingsbury
----------------------
Name: James C. Kingsbury
Title: Treasurer and Secretary
MICHAEL J. BIONDI VOTING TRUST
By: /s/ James C. Kingsbury
----------------------
Name: James C. Kingsbury
Title: Attorney-in-Fact
/s/ Richard L. Gelfond
----------------------
Richard L. Gelfond
<PAGE>
25
/s/ Bradley J. Wechsler
-----------------------
Bradley J. Wechsler
IMAX CORPORATION
By: /s/ John M. Davison
-------------------
Name: John M. Davison
Title: Director
By: /s/ Garth M. Girvan
-------------------
Name: Garth M. Girvan
Title: Director
<PAGE>
EXHIBIT 10.11
110 East 59th Street
Suite 2100
New York, New York USA 10022
Telephone: (212) 821-0100 Fax: (212) 371-5510
IMAX CORPORATION
October 8, 1998
Andrew Gellis
17333 Rancho Street
Encino, California, 91316
Dear Andy,
Re: Employment with Imax Corporation
We have agreed that you will continue your employment with Imax Corporation
("Imax"). From January 1, 1998, your employment with Imax will be on the terms
noted below.
1. Position: Senior Vice President, Film, performing services as a
writer, and acting as an executive producer.
2. Duties: To have overall responsibility for the development and
production of 15/70 format live action film for Imax,
including (i) overseeing the development of scripts for,
and the production of, live action films in the 15/70
format; (ii) collaborating with other senior managers of
Imax in the development of film technologies and production
techniques for films in the 15/70 format; and (iii)
performing other duties commensurate with your position
with Imax as are reasonably designated by the senior
operating officer(s) of Imax.
<PAGE>
-2-
3. Other Activities: Imax will engage Andrew Gellis Productions, Inc. f/s/o
Andrew Gellis ("AGP"), during the term to provide the
services of writing scripts based on original ideas, or re-
writing the scripts of others, in each case for films in
the IMAX(R) 15/70 format and upon request by Imax. Imax
will pay AGP a minimum in each year of the term of
US$50,000 for such services, on the basis of US$30,000 for
each completed first draft script, US$15,000 for each
completed second draft script and US$5,000 for polishing a
script, with treatments and concepts to be provided at no
charge. Imax will also pay minimum WGA pension and health
and welfare (of 12.5%) contributions on such payments. If
Imax has not paid AGP for such services at least US$25,000
by June 30, and at least US$50,000 by December 1, of each
year of the term, Imax will pay the difference to each such
amount on June 30 and December 1, as the case may be. Any
payments on such dates in excess of the value of the
services actually rendered shall be advanced against such
services to be rendered at some date in the future by AGP,
provided that such services are requested by Imax during
the term. In addition to these payments, Imax will also pay
a car allowance of US$750 per month to AGP; Imax will not
be required to make any WGA contributions on such
allowance. The services to be rendered by AGP do not
include reviewing and making notes on scripts of others
which are part of your duties as Senior VP, Film.
4. Term: 2 years.
5. Salary: US$225,000 for 1998 and US$250,000 for 1999, subject to
increase at the discretion of the Board of Directors of
Imax.
6. Bonus: Participation in the Imax management bonus plan, with a
target bonus of 30% of salary. Guaranteed minimum bonus of
US$50,000 per year.
7. Credit: You shall have producer or executive producer credit on
films upon which you work, at the sole discretion of Imax.
<PAGE>
-3-
8. Reporting: You will report to the chief executive, operating, or film
officer(s) of Imax, as Imax shall designate.
9. Location: Imax office in Los Angeles, California, with reasonably
extensive travel to Imax's offices in New York and
Mississauga.
10. Benefits/Perquisites: (a) 4 weeks paid vacation per year;
(b) car allowance of US$750 per month;
(c) standard Imax benefits for U.S. resident
employees;
(d) full time assistant at a salary of approximately
US$750 per week.
11. Termination: Imax shall be entitled to terminate your employment at any
time for cause without payment of any amounts attributable
to any period after the date of termination of employment.
If your employment is terminated by Imax other than for
cause, you will be paid your salary, guaranteed bonus and
benefits (but not stock options) for the balance of the
term, subject to your obligation to seek alternate
comparable employment (e.g. as a film executive at another
company, or as an independent writer &/or producer, whether
for Imax or otherwise) and the set-off of any amounts
earned from amounts to be paid by Imax. If your employment
is terminated by Imax other than for cause in connection
with a change in control (i.e. the completion of any
transaction(s) which result in any person or group of
persons acting in concert holding, directly or indirectly,
securities of Imax to which are attached more than 50% of
the votes which may be cast to elect Directors of Imax) of
Imax, you will be paid your salary, guaranteed bonus and
benefits (but not stock options) for the greater of the
balance of the term and 6 months, subject to your
obligation (as set forth above) to seek alternate
comparable employment and the set-off of any amounts earned
from amounts to be paid by Imax.
<PAGE>
-4-
12. Non-compete, etc.: You shall be bound by the non-solicitation, non-
competition and other covenants attached to this letter.
13. Representation: You represent that you are under no restriction or
competing interest affecting your ability to perform your
responsibilities for Imax.
14. Governing Law: Your employment and this letter agreement shall be governed
by the law of New York.
If the above is acceptable to you, please indicate by signing a copy of this
letter and returning it to us.
Yours very truly,
Bradley J. Wechsler
Chairman and Co-Chief Executive Officer
/s/ Andrew Gellis
- --------------------------------
Andrew Gellis
Date: 11/3/98
--------------------------
<PAGE>
-5-
Attachment to Andrew Gellis Employment Letter
---------------------------------------------
NON-SOLICITATION, CONFIDENTIALITY, NON-COMPETITION
(a) Non-solicitation. During the term and for one year thereafter,
----------------
regardless of whether your employment is terminated with or without cause or
whether you resign, you shall not directly or indirectly without the prior
written consent of Imax, (i) solicit any person who is, or, during the then
most recent 12-month period, was employed by, or had served as an agent or key
consultant of, Imax or any of its subsidiaries or affiliates, or (ii) solicit
or interfere in any commercial relationship of Imax or any of its subsidiaries
or affiliates with any person who is, or was within the then most recent 12-
month period, a customer or client (or reasonably anticipated to become a
customer or client) and with whom you had dealings during your employment with
Imax.
(b) Non Competition. Without the prior written consent of Imax:
---------------
(i) During the term of your employment with Imax and for one year
thereafter, regardless of whether your employment is terminated with or
without cause or whether you resign, you shall not directly or indirectly
without the prior written consent of Imax, anywhere within Canada, the
United States, Europe or Asia (the "Territory"), be engaged in any
capacity by a competitor (or any person or entity that is, at the time
you would otherwise commence rendering services to or become, affiliated
with such person or entity, reasonably anticipated to become a
competitor) of Imax or any of its subsidiaries or affiliates (a
"Competitor"), which is engaged or reasonably anticipated to become
engaged in designing or supplying large screen theaters or motion
simulation theaters;
(ii) During the term of your employment with Imax and for one year
thereafter if you resign during that term or for the period of time
during which Imax is continuing to pay your salary if Imax has terminated
your employment without cause, you shall not directly or indirectly
without the prior written consent of Imax, anywhere within the Territory,
be engaged as a film executive by a Competitor of Imax which is engaged
or reasonably anticipated to become engaged in owning or operating large
screen theaters or motion simulation theaters. Notwithstanding the
foregoing, Imax agrees that it will not unreasonably withhold its consent
to such an engagement if the Competitor uses IMAX(R) projection systems
or IMAX(R) Ridefilm(TM) motion simulation systems in its theater
operations; and
(iii) Notwithstanding the foregoing, Imax expressly acknowledges that you
will not be restricted hereunder after the termination of your employment
by Imax in any way in writing scripts or producing or developing films in
any format.
<PAGE>
-6-
(c) Confidentiality. You will not at any time during the term or thereafter
---------------
use or disclose to any third party any information relating to the private or
confidential affairs of Imax or relating to any secrets of Imax, other than for
the purposes of Imax. You confirm that all confidential information is and
shall remain the exclusive property of Imax. All business records, papers and
documents regardless of the form of their recordal kept or made by you relating
to the business of Imax shall be and remain the property of Imax, and shall be
promptly returned by you to Imax upon any termination of employment.
(d) Grant of Rights. You hereby: (i) grant to Imax all copyrights, patent
---------------
rights and other rights in all work furnished or created by you or AGP pursuant
to this Agreement; (ii) agree to sign all documents which may be required to
confirm Imax's absolute ownership of such work; (iii) waive the moral rights
associated with such work; and (iv) grant to Imax the rights to and to license
others to use the name, likeness, biography and other identifications of you in
connection with any and all uses and promotions of such work and derivatives
thereof. Without limiting the generality of the foregoing, all rights of
whatsoever nature and kind (nor or hereafter known) in any and all film
projects developed or contributed to by you and/or AGP pursuant to this
Agreement shall be, from the inception of the creation thereof, the exclusive
property of Imax, and for the purposes of the United States Copyright Act shall
be deemed to constitute "works made for hire".
(e) Reasonableness. You confirm that all of the restrictions referred to
--------------
above are reasonable and valid and waive all defences to the strict enforcement
thereof. You also confirm that you are making the above covenants on behalf of
yourself and of AGP.
(f) Injunctive Relief. Without intending to limit the remedies available to
-----------------
Imax, you acknowledge that a material breach of any of the covenants contained
above will result in material and irreparable injury to Imax or its affiliates
or subsidiaries for which there is no adequate remedy at law, that it will not
be possible to measure damages for such injuries precisely and that, in the
event of such a breach or threat thereof, Imax shall be entitled to seek a
temporary restraining order and/or a preliminary, interim or permanent
injunction restraining you from engaging in activities prohibited hereby or
such other relief as may be required specifically to enforce any of the
covenants herein. You waive any defences to the strict enforcement by Imax of
the covenants contained herein. If for any reason, it is held that the
restrictions hereunder are not reasonable or that consideration therefor is
inadequate, such restrictions shall be interpreted or modified to include as
much of the duration and scope identified herein as will render such
restrictions valid and enforceable.
<PAGE>
EXHIBIT 10.12
AMENDING AGREEMENT
This Amending Agreement dated and effective as of August 8, 1998 (the "Amending
Agreement") is made between IMAX CORPORATION, a corporation organized under the
laws of Canada (the "Company") and CHRISTIAN H. JORG, (the "Executive").
WHEREAS, the Company wishes to enter into this Amending Agreement to amend and
extend the Employment Agreement dated as of August 8, 1995 (the "Agreement"),
whereunder the Executive provides services to the Company, and the Executive
wishes to so continue such engagement, as hereinafter set forth;
NOW, THEREFORE, in consideration of good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follow:
1. Section 1.1 of the Agreement shall be deleted and replaced with the
following:
"Section 1.1 Employment. The Executive agrees to serve as the Chief
-----------
Operating Officer, IMAX(R) Attractions and Senior Vice President, Imax
Corporation. The Executive's primary responsibilities in this role shall be:
(a) to have responsibility for the development of the Company's
Attractions business, inclusive of Ridefilm Corporation, including but not
limited to conducting presentations to potential clients for the purpose of
developing Attractions concepts throughout the world; and
(b) to perform other duties commensurate with the position as are
reasonably designated by the co-Chief Executive Officers.
The Executive agrees to serve the Company faithfully and to the best of his
ability under the direction of the co-Chief Executive Officers of the Company.
The Executive shall report to the co-Chief Executive Officers of the Company."
2. Section 1.3 of the Agreement shall be deleted and replaced with the
following:
"Section 1.3 Term of Employment. The Executive's employment under this
-------------------
Agreement commenced on August 8, 1995 (the "Commencement Date") and shall
terminate upon the termination of the Executive's employment pursuant to this
Agreement. The period commencing as of the Commencement Date and ending on the
date of termination pursuant to this Agreement is hereinafter referred to as the
"Employment Term"."
3. Section 2.1 of the Agreement shall be deleted and replaced with the
following:
"Section 2.1. Base Salary. During the Employment Term, the Executive shall be
------------
paid a base annual salary (the "Base Salary") of US$ 215,000, payable no less
frequently than monthly, in accordance with the Company's payroll practices."
4. Section 4.1.1 of the Agreement shall be deleted and replaced with the
following:
"Section 4.1.1. General. During the Employment Term, the Company may terminate
--------
the Executive's employment Without Cause, provided the Company gives the
Executive ninety (90) days written notice of termination (the "Severance
Period"). In the event that the Company gives the Executive any such notice of
termination, the Company shall either continue to have the Executive be employed
by the Company during some or all of the Severance Period and pay the Executive
the Base Salary and Automobile Allowance during such time at the intervals it
has paid those sums to the Executive in the past or have the Executive cease
being employed by the Company and pay him those amounts, or the balance of those
amounts for the remainder of the Severance Period, as the case may be, in a lump
sum within 7 days from the date his employment ceases. The Company shall also
pay to the Executive the
<PAGE>
-2-
Termination Payment within 30 days of the date of termination. For greater
certainty, regardless of whether the Company elects to have the Executive
employed for all, some or none of the Severance Period, he shall receive the
Base Salary and Automobile Allowance with respect to the entire Severance
Period. Upon such termination, the Executive shall also be entitled to continue
to receive, for the duration of the Severance Period, his employment benefits at
the Company's expense (to the extent paid for by the Company as at the date of
termination), other than those set forth in clauses 3.1 (ii), (iii) and (iv).
The Executive shall not be entitled to payment after the date of termination of
any bonus not already due to be paid at the date of termination, it being
understood that a bonus shall be considered "due to be paid" once the period to
which it applies has been completed. The Executive acknowledges that any stock
options granted to him which are not exercisable at the date of termination of
employment for any reason shall be forfeited, without compensation to the
Executive, as provided in the Option Plan. The Executive agrees that the Company
may deduct from any payment of Base Salary to be made during the Severance
Period the benefit plan contributions which are to be made by the Executive
during the Severance Period in accordance with the terms of all benefit plans
for the minimum period prescribed by law. The Executive shall have no further
right to receive any other compensation or benefits after such termination of
employment except as are necessary under the terms of the employee benefit plans
or programs of the Company or as required by the Ontario Employment Standards
Act. Payment of Base Salary and the Automobile Allowance and the continuation of
the aforementioned employee benefits during the Severance Period outlined above
shall be deemed to include all termination and severance pay to which the
Executive is entitled pursuant to the Ontario Employment Standards Act and
common law."
5. (a) Section 4.2 of the Agreement shall be amended by the addition of the
following language after the second sentence of such Section:
"In addition, the Executive may resign from his employment hereunder by giving
the Company at least 14 days written notice of his intention to do so."
(b) Section 4.2 of the Agreement shall be further amended by deleting the
words after "delivered to the Company," in Section 4.2(ii) and replacing them
with the following:
"the date on which the Executive ceases reporting to work."
6. The Agreement shall be amended by deleting Section 6.
7. Section 8.1 of the Agreement shall be deleted and replaced with the
following:
"Section 8.1 Notices. All notices or communications hereunder shall be in
--------
writing, addressed as follows:
To the Company:
Imax Corporation
2525 Speakman Drive
Mississauga, Ontario, Canada L5K 1B1
Telecopier No.: 905-403-6468
Attention: General Counsel
To the Executive:
Christian H. Jorg
Apt. 14D, 127 East 30th Street
New York, New York
10016
with a copy to:
<PAGE>
-3-
Steven Rand, Esq.
Suite 416
230 Park Avenue
New York, New York
10169
Telecopier No.: 212-697-2521
All such notices shall be conclusively deemed to be received and shall be
effective, (i) if sent by hand delivery, upon receipt or (ii) if sent by
registered or certified mail, on the fifth day after the day on which such
notice is mailed."
8. Except as amended herein, all other terms of the Agreement shall remain in
full force, unamended.
IN WITNESS WHEREOF, the Company and the Executive have duly executed and
delivered this Amending Agreement as of the day and year first above written.
IMAX CORPORATION
By: /s/ John M. Davison
-------------------------------
Title: Executive Vice President and
Chief Financial Officer
----------------------------
By: /s/ Peter J. Chilibeck
-------------------------------
Title: Sr. Vice President and
General Counsel
----------------------------
SIGNED SEALED AND DELIVERED
in the presence of:
/s/ Christian H. Jorg l.s.
- -------------------------- -------------------------------
Witness Christian H. Jorg
<PAGE>
EXHIBIT 21
IMAX CORPORATION
- --------------------------------------------------------------------------------
Significant and other major subsidiary companies of the Registrant at December
31, 1998 were:
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Percentage held by
- ----------------------------------------- ------------------ ----------------------
Organization Registrant
------------------ ----------------------
<S> <C> <C>
Imax Ltd. Ontario 100%
David Keighley Productions 70MM Inc. Delaware 100%
Sonics Associates, Inc. Alabama 51%
Oxmoor Corporation Alabama 49%
Ridefilm Corporation Delaware 100%
1236627 Ontario Inc. Ontario 100%
Imax Japan Inc. Japan 100%
Imax Entertainment Pte.Ltd. Singapore 100%
Imax (Netherlands) B.V. Netherlands 100%
Imax U.S.A. Inc. Delaware 100%
Nyack Theatre U.S. Delaware 100%
Arizona Big Frame Theatres, L.L.C. Delaware 50%
Starboard Theaters Ltd. Canada 100%
Forum Ride Associates Nevada 50%
Big Frame Theatre Ltd. Partnership Arizona 50%
</TABLE>
<PAGE>
EXHIBIT 23
PricewaterhouseCoopers LLP
Chartered Accountants
145 King Street West
Toronto Ontario
Canada M5H 1V8
Telephone +1 (416) 869 1130
Facsimile +1 (416) 863 0926
March 30, 1999
Consent of Independent Chartered Accountants
We hereby consent to the incorporation in the Imax Corporation Annual Report
("Annual Report") on Form 10-K for the fiscal year ended December 31, 1998, of
our Auditors' Report to Shareholders (the "Report") dated February 9, 1999,
which appears on page 31 of the Annual Report.
We further consent to the incorporation by reference of our Report in the
following registration statements: Registration Statement on Form S-8
(No. 333-2076); Registration Statement on Form S-8 (No. 333-5720);
Post-Effective Amendment No. 1 to Form S-8 (No. 333-5720), Amendment No. 1 to
Form F-3 (333-5212); and Amendment No. 1 to Form F-10 (No. 333-9670).
Chartered Accountants
Toronto, Ontario
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
Each of the persons whose signature appears below hereby constitutes
and appoints John M. Davison and G. Mary Ruby, and each of them severally, as
his true and lawful attorney or attorneys with power of substitution and re-
substitution to sign in his name, place and stead in any and all such capacities
the 10-K, including the French language version thereof, and any and all
amendments thereto and documents in connection therewith, and to file the same
with the SEC and such other regulatory authorities as may be required, each of
said attorneys to have power to act with or without the other, and to have full
power and authority to do and perform, in the name and on behalf of each of the
directors of the Corporation, every act whatsoever which such attorneys, or
either of them, may deem necessary or desirable to be done in connection
therewith as fully and to all intents and purposes as such director of the
Corporation might or could do in person.
Dated this 30th day of March, 1999
----
Signature Title
--------- -----
"Bradley J. Wechsler" Chairman of the Board and Co-Chief
- ----------------------- Executive Officer (Principal Executive
Bradley J. Wechsler Officer)
"Richard L. Gelfond" Vice Chairman of the Board and Co-Chief
- ----------------------- Executive Officer
Richard L. Gelfond
"Graeme Ferguson" Director
- ----------------------
Graeme Ferguson
"Michael Fuchs" Director
- ----------------------
Michael Fuchs
"Garth M. Girvan" Director
- ----------------------
Garth M. Girvan
<PAGE>
- 2 -
Signature Title
--------- -----
"Murray B. Koffler" Director
- ----------------------
Murray B. Koffler
"Philip C. Moore" Director
- ----------------------
Philip C. Moore
"Miles S. Nadal" Director
- ----------------------
Miles S. Nadal
"Marc A. Utay" Director
- ----------------------
Marc A. Utay
"John M. Davison" Chief Operating Officer and
- ---------------------- Chief Financial Officer
John M. Davison (Principal Financial Officer)
"Mark J. Thornley" Vice President, Finance
- ---------------------- (Principal Accounting Officer)
Mark J. Thornley
