UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
Commission File Number: 001-33401
CINEMARK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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20-5490327
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(State or other jurisdiction
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(I.R.S. Employer
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of incorporation or organization)
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Identification No.)
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3900 Dallas Parkway
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Suite 500
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Plano, Texas
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75093
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code: (972) 665-1000
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
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
þ
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes
o
No
þ
As of July 31, 2008, 107,455,096 shares of common stock were outstanding.
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
2
Cautionary Statement Regarding Forward-Looking Statements
Certain matters within this Quarterly Report on Form 10Q include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements included in this Form 10Q, other than
statements of historical fact, may constitute forward-looking statements. Forward-looking
statements can be identified by the use of words such as may, should, will, could,
estimates, predicts, potential, continue, anticipates, believes, plans, expects,
future and intends and similar expressions. Forward-looking statements may involve known and
unknown risks, uncertainties and other factors that may cause the actual results or performance to
differ from those projected in the forward-looking statements. These statements are not guarantees
of future performance and are subject to risks, uncertainties and other factors, some of which are
beyond our control and difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements. For a description of the
risk factors, please review the Risk Factors section or other sections in the Companys Annual
Report on Form 10-K filed March 28, 2008 and quarterly reports on Form 10-Q, filed with the
Securities and Exchange Commission. All forward-looking statements are expressly qualified in their
entirety by such risk factors. We undertake no obligation, other than as required by law, to update
or revise any forward-looking statements, whether as a result of new information, future events or
otherwise.
3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data, unaudited)
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June 30,
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December 31,
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2008
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2007
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ASSETS
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CURRENT ASSETS
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Cash and cash equivalents
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$
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396,270
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$
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338,043
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Inventories
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8,195
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7,000
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Accounts receivable
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33,353
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35,368
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Income tax receivable
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18,339
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Current deferred tax asset
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5,441
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5,215
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Prepaid expenses and other
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7,194
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10,070
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Total current assets
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450,453
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414,035
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THEATRE PROPERTIES AND EQUIPMENT
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1,890,966
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1,818,505
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Less accumulated depreciation and amortization
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588,586
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504,439
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Theatre properties and equipment net
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1,302,380
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1,314,066
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OTHER ASSETS
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Goodwill
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1,148,487
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1,134,689
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Intangible assets net
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351,832
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353,047
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Investments in and advances to affiliates
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22,058
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3,662
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Deferred charges and other assets net
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57,831
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77,393
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Total other assets
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1,580,208
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1,568,791
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TOTAL ASSETS
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$
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3,333,041
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$
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3,296,892
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LIABILITIES AND STOCKHOLDERS EQUITY
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CURRENT LIABILITIES
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Current portion of long-term debt
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$
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12,770
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$
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9,166
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Current portion of capital lease obligations
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5,203
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4,684
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Income tax payable
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3,763
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Accounts payable and accrued expenses
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203,676
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204,472
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Total current liabilities
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225,412
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218,322
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LONG-TERM LIABILITIES
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Long-term debt, less current portion
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1,517,877
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1,514,579
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Capital lease obligations, less current portion
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121,601
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116,486
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Deferred income taxes
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154,872
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168,475
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Long-term portion FIN 48 liability
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16,490
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15,500
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Deferred lease expenses
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21,444
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19,235
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Deferred revenue NCM
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190,823
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172,696
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Other long-term liabilities
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33,634
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36,214
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Total long-term liabilities
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2,056,741
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2,043,185
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COMMITMENTS AND CONTINGENCIES (see Note 19)
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MINORITY INTERESTS IN SUBSIDIARIES
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18,296
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16,182
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STOCKHOLDERS EQUITY
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Common stock, $0.001 par value: 300,000,000 shares authorized and
106,983,684 shares issued and outstanding at December 31,
2007 and
107,457,584 shares issued and outstanding at June 30, 2008
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107
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107
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Additional paid-in-capital
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942,038
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939,327
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Retained earnings
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29,225
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47,074
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Accumulated other comprehensive income
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61,222
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32,695
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Total stockholders equity
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1,032,592
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1,019,203
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
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$
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3,333,041
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$
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3,296,892
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The accompanying notes are an integral part of the condensed consolidated financial statements.
4
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, unaudited)
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Three months ended June 30,
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Six months ended June 30,
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2008
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2007
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2008
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2007
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REVENUES
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Admissions
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$
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294,425
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$
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283,117
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$
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556,792
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$
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527,107
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Concession
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141,474
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138,448
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263,631
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253,535
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Other
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21,335
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18,471
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37,827
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37,416
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Total revenues
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457,234
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440,036
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858,250
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818,058
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COST OF OPERATIONS
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Film rentals and advertising
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163,799
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159,084
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301,939
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287,378
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Concession supplies
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23,205
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22,668
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41,954
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40,125
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Salaries and wages
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45,321
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45,444
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87,908
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85,626
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Facility lease expense
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56,124
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53,253
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112,446
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104,898
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Utilities and other
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50,411
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48,219
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98,576
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92,412
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General and administrative expenses
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24,495
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18,381
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45,067
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37,114
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Termination of profit participation agreement
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6,952
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6,952
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Depreciation and amortization
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37,840
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36,720
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75,247
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73,595
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Amortization of favorable leases
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699
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625
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1,403
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1,559
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Impairment of long-lived assets
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1,342
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7,036
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5,829
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56,766
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(Gain) loss on sale of assets and other
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1,109
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(1,864
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)
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910
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(1,559
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)
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Total cost of operations
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404,345
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396,518
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771,279
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784,866
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OPERATING INCOME
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52,889
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43,518
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86,971
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33,192
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OTHER INCOME (EXPENSE)
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Interest expense
|
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(30,061
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)
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(35,301
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)
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(62,134
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)
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(76,798
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)
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Interest income
|
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2,940
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|
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4,454
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6,684
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8,237
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Gain on NCM transaction
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210,773
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Gain on Fandango transaction
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9,205
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9,205
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Foreign currency exchange gain (loss)
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(24
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)
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(57
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)
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(240
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)
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163
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Loss on early retirement of debt
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(123
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)
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(40
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)
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(7,952
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)
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Distributions from NCM
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3,403
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1,362
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8,585
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1,362
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Equity in loss of affiliates
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(692
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)
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(265
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)
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(1,327
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)
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(1,496
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)
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Minority interests in income of subsidiaries
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(1,092
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)
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(606
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)
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(2,244
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)
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(895
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)
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Total other income (expense)
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(25,526
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)
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(21,331
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)
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(50,716
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)
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142,599
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INCOME BEFORE INCOME TAXES
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27,363
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22,187
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36,255
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175,791
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|
|
|
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Income taxes
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|
11,840
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|
|
(25,683
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)
|
|
|
15,481
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|
|
|
9,710
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|
|
|
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NET INCOME
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$
|
15,523
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$
|
47,870
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$
|
20,774
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|
$
|
166,081
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|
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WEIGHTED AVERAGE SHARES OUTSTANDING
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Basic
|
|
|
107,141
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|
|
|
102,950
|
|
|
|
106,982
|
|
|
|
97,784
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|
|
|
|
|
|
|
|
|
|
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|
|
|
Diluted
|
|
|
109,467
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|
|
|
105,292
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|
|
|
109,178
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|
|
|
100,123
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|
|
|
|
|
|
|
|
|
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|
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|
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NET EARNINGS PER SHARE
|
|
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|
|
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Basic
|
|
$
|
0.14
|
|
|
$
|
0.46
|
|
|
$
|
0.19
|
|
|
$
|
1.70
|
|
|
|
|
|
|
|
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|
|
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|
Diluted
|
|
$
|
0.14
|
|
|
$
|
0.45
|
|
|
$
|
0.19
|
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
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|
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|
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
20,774
|
|
|
$
|
166,081
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
73,244
|
|
|
|
71,566
|
|
Amortization of intangible and other assets
|
|
|
3,406
|
|
|
|
3,588
|
|
Amortization of long-term prepaid rents
|
|
|
829
|
|
|
|
511
|
|
Amortization of debt issue costs
|
|
|
2,338
|
|
|
|
2,363
|
|
Amortization of debt premium
|
|
|
|
|
|
|
(678
|
)
|
Amortization of deferred revenues, deferred lease incentives and other
|
|
|
(1,748
|
)
|
|
|
(875
|
)
|
Impairment of long-lived assets
|
|
|
5,829
|
|
|
|
56,766
|
|
Share based awards compensation expense
|
|
|
2,078
|
|
|
|
1,449
|
|
Gain on NCM Transaction
|
|
|
|
|
|
|
(210,773
|
)
|
Gain on Fandango Transaction
|
|
|
|
|
|
|
(9,205
|
)
|
(Gain) loss on sale of assets and other
|
|
|
910
|
|
|
|
(1,559
|
)
|
Write-off of unamortized bond premiums and unamortized debt issue costs
related to the early retirement of debt
|
|
|
193
|
|
|
|
(17,098
|
)
|
Accretion of interest on senior discount notes
|
|
|
20,039
|
|
|
|
21,150
|
|
Deferred lease expenses
|
|
|
2,146
|
|
|
|
3,311
|
|
Deferred income tax expenses
|
|
|
(14,506
|
)
|
|
|
(126,443
|
)
|
Equity in loss of affiliates
|
|
|
1,327
|
|
|
|
1,496
|
|
Minority interests in income of subsidiaries
|
|
|
2,244
|
|
|
|
895
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
(1,195
|
)
|
|
|
(728
|
)
|
Accounts receivable
|
|
|
2,015
|
|
|
|
(2,256
|
)
|
Prepaid expenses and other
|
|
|
2,876
|
|
|
|
300
|
|
Other assets
|
|
|
(4,778
|
)
|
|
|
(2,144
|
)
|
Advances with affiliates
|
|
|
223
|
|
|
|
250
|
|
Accounts payable and accrued expenses
|
|
|
547
|
|
|
|
(21,070
|
)
|
Interest paid on repurchased senior discount notes
|
|
|
(2,929
|
)
|
|
|
|
|
Increase in deferred revenues related to NCM Transaction
|
|
|
|
|
|
|
174,001
|
|
Increase in deferred revenues related to Fandango Transaction
|
|
|
|
|
|
|
5,000
|
|
Other long-term liabilities
|
|
|
14
|
|
|
|
(5,171
|
)
|
Income tax receivable/payable
|
|
|
23,092
|
|
|
|
55,867
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
138,968
|
|
|
|
166,594
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Additions to theatre properties and equipment
|
|
|
(51,916
|
)
|
|
|
(73,148
|
)
|
Proceeds from sale of theatre properties and equipment
|
|
|
2,224
|
|
|
|
13,915
|
|
Increase in escrow deposits due to like-kind exchange
|
|
|
(2,089
|
)
|
|
|
|
|
Return of escrow deposits
|
|
|
23,439
|
|
|
|
|
|
Acquisition of one theatre
|
|
|
(5,011
|
)
|
|
|
|
|
Investment in joint venture DCIP
|
|
|
(1,000
|
)
|
|
|
(1,500
|
)
|
Net proceeds from sale of NCM stock
|
|
|
|
|
|
|
214,842
|
|
Net proceeds from sale of Fandango stock
|
|
|
|
|
|
|
11,347
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
(34,353
|
)
|
|
|
165,456
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net proceeds from initial public offering
|
|
|
|
|
|
|
245,978
|
|
Proceeds from stock option exercises
|
|
|
633
|
|
|
|
117
|
|
Dividends paid to stockholders
|
|
|
(38,598
|
)
|
|
|
|
|
Repurchase of senior discount notes
|
|
|
(6,174
|
)
|
|
|
|
|
Retirement of senior subordinated notes
|
|
|
|
|
|
|
(332,066
|
)
|
Repayments of long-term debt
|
|
|
(4,050
|
)
|
|
|
(7,200
|
)
|
Payments on capital leases
|
|
|
(2,363
|
)
|
|
|
(1,760
|
)
|
Other
|
|
|
(340
|
)
|
|
|
(208
|
)
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(50,892
|
)
|
|
|
(95,139
|
)
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS
|
|
|
4,504
|
|
|
|
2,527
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
58,227
|
|
|
|
239,438
|
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
338,043
|
|
|
|
147,099
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
396,270
|
|
|
$
|
386,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION (See Note 16)
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
1. The Company and Basis of Presentation
Cinemark Holdings, Inc. and subsidiaries (the Company) are leaders in the motion picture
exhibition industry in terms of both revenues and the number of screens in operation, with theatres
in the United States (U.S.), Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras,
El Salvador, Nicaragua, Costa Rica, Panama and Colombia. The Company also managed additional
theatres in the U.S., Brazil, and Colombia during the six months ended June 30, 2008.
On August 2, 2006, Cinemark Holdings, Inc. was formed as the Delaware holding company of
Cinemark, Inc. On August 7, 2006, the Cinemark, Inc. stockholders entered into a share exchange
agreement pursuant to which they agreed to exchange their shares of Class A common stock for an
equal number of shares of common stock of Cinemark Holdings, Inc. (Cinemark Share Exchange). The
Cinemark Share Exchange was completed on October 5, 2006 and facilitated the acquisition of Century
Theatres, Inc. (the Century Acquisition). On October 5, 2006, Cinemark, Inc. became a wholly
owned subsidiary of Cinemark Holdings, Inc. On April 24, 2007, Cinemark Holdings, Inc. completed an
initial public offering of its common stock.
The condensed consolidated financial statements have been prepared by the Company, without
audit, according to the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, these interim financial statements reflect all adjustments necessary to
state fairly the financial position and results of operations as of, and for, the periods
indicated. Majority-owned subsidiaries that the Company controls are consolidated while those
subsidiaries of which the Company owns between 20% and 50% and does not control are accounted for
as affiliates under the equity method. Those subsidiaries of which the Company owns less than 20%
are generally accounted for as affiliates under the cost method, unless the Company is deemed to
have the ability to exercise significant influence over the affiliate, in which case the Company
would account for its investment under the equity method. The results of these subsidiaries and
affiliates are included in the condensed consolidated financial statements effective with their
formation or from their dates of acquisition. Significant intercompany balances and transactions
are eliminated in consolidation.
These condensed consolidated financial statements should be read in conjunction with the
audited annual consolidated financial statements and the notes thereto for the year ended December
31, 2007, included in the Annual Report on Form 10-K filed March 28, 2008 by the Company under the
Securities Exchange Act of 1934, as amended (the Exchange Act). Operating results for the six
months ended June 30, 2008, are not necessarily indicative of the results to be achieved for the
full year.
2. New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements.
Among other
requirements, this statement defines fair value, establishes a framework for using fair value to
measure assets and liabilities, and expands disclosures about fair value measurements. The
statement applies whenever other statements require or permit assets or liabilities to be measured
at fair value. SFAS No. 157 became effective for the Company beginning January 1, 2008 (January 1,
2009 for nonfinancial assets and liabilities). Adoption of this statement did not have a
significant impact on the Companys condensed consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets
and Financial Liabilities.
This statement provides companies with an option to report selected
financial assets and liabilities at fair value that are currently not required to be measured at
fair value. SFAS No. 159 establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement attributes for similar
types of assets and liabilities. SFAS No. 159 is effective for the Company beginning January 1,
2009. The Company has elected not to measure eligible items at fair value upon initial adoption.
Adoption of this statement is not expected to have a significant impact on the Companys condensed
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
. This statement
requires all business combinations completed after the effective date to be accounted for by
applying the acquisition method (previously referred to as the purchase method); expands the
definition of transactions and events that qualify as business combinations; requires that the
acquired assets and liabilities, including contingencies, be recorded at the fair value determined on the acquisition date and changes thereafter reflected in income, not goodwill;
changes the recognition
7
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
timing for restructuring costs; and requires acquisition costs to be
expensed as incurred. Adoption of SFAS No. 141(R) is required for business combinations that occur
after December 15, 2008. Early adoption and retroactive application of SFAS No. 141 (R) to fiscal
years preceding the effective date is not permitted. The Company is evaluating the impact of SFAS
No. 141(R) on its condensed consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interest in Consolidated
Financial Statements
. This statement establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically,
this statement requires the recognition of a noncontrolling interest (minority interest) as equity
in the consolidated financial statements and separate from the parents equity. The amount of net
income attributable to the noncontrolling interest will be included in consolidated net income on
the face of the income statement. SFAS No. 160 clarifies that changes in a parents ownership
interest in a subsidiary that do not result in deconsolidation are equity transactions if the
parent retains its controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or
loss will be measured using the fair value of the noncontrolling equity investment on the
deconsolidation date. SFAS No. 160 also includes expanded disclosure requirements regarding the
interests of the parent and its noncontrolling interest. SFAS No. 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after December 15, 2008.
Earlier adoption is prohibited. The Company is evaluating the impact of SFAS No. 160 on its
condensed consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161
Disclosures about Derivative Instruments and
Hedging Activities-an Amendment of FASB Statement No. 133
. This statement intends to improve
financial reporting about derivative instruments and hedging activities by requiring enhanced
disclosures about their impact on an entitys financial position, financial performance, and cash
flows. SFAS No. 161 requires disclosures regarding the objectives for using derivative instruments,
the fair values of derivative instruments and their related gains and losses, and the accounting
for derivatives and related hedged items. SFAS No. 161 is effective for fiscal years and interim
periods beginning after November 15, 2008, with early adoption permitted. The Companys adoption of
SFAS No. 161 will not impact its condensed consolidated financial statements, however the Company
is evaluating the impact of SFAS No. 161 on its disclosures.
In May 2008, the FASB issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting
Principles.
This statement identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting principles in the
United States. The issuance of SFAS No. 162 is not expected to have a significant impact on the
Companys condensed consolidated financial statements.
3. Initial Public Offering
On April 24, 2007, the Company completed an initial public offering of its common stock. The
Company and selling stockholders sold a combined 28,000,000 shares of their common stock at a price
of $17.955 ($19 per share less underwriting discounts). The net proceeds, before expenses, received
by the Company were $249,375 and the Company paid approximately $3,397 in legal, accounting and
other fees during the six months ended June 30, 2007, all of which were recorded in additional
paid-in-capital. On May 21, 2007, the underwriters purchased an additional 269,100 shares out of an
additional 2,800,000 shares that were authorized for sale by the selling stockholders. The Company
did not receive any proceeds from the sale of shares by the selling stockholders. The Company has
utilized and expects to continue to utilize the net proceeds to repurchase a portion of the
remaining 9
3
/
4
% senior discount notes or repay debt outstanding under the senior secured credit
facility. The Company has significant flexibility in applying the net proceeds from the initial
public offering. The Company has invested the remaining net proceeds in short-term,
investment-grade marketable securities or money market funds.
8
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
4. Earnings Per Share
Basic earnings per share is computed by dividing income by the weighted average number of
shares of all classes of common stock outstanding during the reported period. Diluted earnings per
share is computed by dividing income by the weighted average number of shares of common stock and
potentially dilutive common equivalent shares outstanding determined under the treasury stock
method. The following table sets forth the computation of basic and diluted earnings per share
(shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
Net income
|
|
$
|
15,523
|
|
|
$
|
47,870
|
|
|
$
|
20,774
|
|
|
$
|
166,081
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
107,141
|
|
|
|
102,950
|
|
|
|
106,982
|
|
|
|
97,784
|
|
|
|
|
|
|
Net income per common share
|
|
$
|
0.14
|
|
|
$
|
0.46
|
|
|
$
|
0.19
|
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
107,141
|
|
|
|
102,950
|
|
|
|
106,982
|
|
|
|
97,784
|
|
Common equivalent shares for stock options
|
|
|
2,184
|
|
|
|
2,342
|
|
|
|
2,196
|
|
|
|
2,339
|
|
Common equivalent shares for restricted
stock and restricted stock units
(1)
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common
equivalent shares outstanding
|
|
|
109,467
|
|
|
|
105,292
|
|
|
|
109,178
|
|
|
|
100,123
|
|
|
|
|
|
|
Net income per common and common equivalent share
|
|
$
|
0.14
|
|
|
$
|
0.45
|
|
|
$
|
0.19
|
|
|
$
|
1.66
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Common equivalent shares for restricted stock of 413 and restricted stock units of
135 were excluded from the diluted earnings per share calculation for the six months ended
June 30, 2008 because they were anti-dilutive.
|
5. Dividend Payment
In August 2007, the Company initiated a quarterly dividend policy. On February 26, 2008, the
Companys board of directors declared a cash dividend for the fourth quarter of 2007 in the amount
of $0.18 per share of common stock payable to stockholders of record on March 6, 2008. The dividend
was paid on March 14, 2008 in the total amount of approximately $19,270. On May 9, 2008, the
Companys board of directors declared a cash dividend for the first quarter of 2008 in the amount
of $0.18 per share of common stock payable to stockholders of record on May 30, 2008. The dividend
was paid on June 12, 2008 in the total amount of approximately $19,328.
6. Investment in National CineMedia and Transaction Related to its Initial Public Offering
In March 2005, Regal Entertainment Inc. (Regal) and AMC Entertainment Inc. (AMC) formed
National CineMedia, LLC, or NCM, and on July 15, 2005, the Company joined NCM, as one of the
founding members. NCM operates the largest digital in-theatre network in the U.S. for providing
cinema advertising and non-film events and combines the cinema advertising and non-film events
businesses of the three largest motion picture companies in the U.S. Upon joining NCM, the Company
and NCM entered into an Exhibitor Services Agreement, pursuant to which NCM provides advertising,
promotion and event services to the Companys theatres. On February 13, 2007, National CineMedia,
Inc. (NCM, Inc.), a newly formed entity that now serves as a member and the sole manager of NCM,
completed an initial public offering of its common stock. In connection with the NCM, Inc. initial
public offering, the Company amended its operating agreement with NCM and the Exhibitor Services
Agreement pursuant to which NCM provides advertising, promotion and event services to the Companys
theatres. In connection with NCM Inc.s initial public offering and the transactions described
below (the NCM Transaction), the Company received an aggregate of $389,003.
9
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Prior to pricing the initial public offering of NCM, Inc., NCM completed a recapitalization
whereby (1) each issued and outstanding Class A unit of NCM was split into 44,291 Class A units,
and (2) following such split of Class A Units, each issued and outstanding Class A Unit was
recapitalized into one common unit and one preferred unit. As a result, the Company received
14,159,437 common units and 14,159,437 preferred units. All existing preferred units of NCM, or
55,850,951 preferred units, held by Regal, AMC and the Company were redeemed on a pro-rata
basis on February 13, 2007. NCM utilized the proceeds of its new $725,000 term loan facility and a
portion of the proceeds it received from NCM, Inc. from its initial public offering to redeem all
of its outstanding preferred units. Each preferred unit was redeemed for $13.7782 and the Company
received approximately $195,092 as payment in full for redemption of all of the Companys preferred
units in NCM. Upon payment of such amount, each preferred unit was cancelled and the holders of the
preferred units ceased to have any rights with respect to the preferred units.
At the closing of the initial public offering, the underwriters exercised their over-allotment
option to purchase additional shares of common stock of NCM, Inc. at the initial public offering
price, less underwriting discounts and commissions. In connection with the over-allotment option
exercise, Regal, AMC and the Company each sold to NCM, Inc. common units of NCM on a pro-rata basis
at the initial public offering price, less underwriting discounts and expenses. The Company sold
1,014,088 common units to NCM, Inc. for proceeds of $19,910, and upon completion of this sale of
common units, the Company owned 13,145,349 common units of NCM. The net proceeds of $215,002 from
the above described stock transactions were applied against the Companys existing investment basis
in NCM of $4,069 until such basis was reduced to $0 with the remaining $210,933 of proceeds net of
$160 of transaction related costs, recorded as a gain of $210,773 in the condensed consolidated
statement of income for the six months ended June 30, 2007.
NCM also paid the Company a portion of the proceeds it received from NCM, Inc. in the initial
public offering for agreeing to modify NCMs payment obligation under the prior Exhibitor Services
Agreement. The modification agreed to by the Company reflects a shift from circuit share expense
under the prior Exhibitor Services Agreement, which obligated NCM to pay the Company a percentage
of revenue, to the monthly theatre access fee described below. The theatre access fee significantly
reduced the contractual amounts paid to the Company by NCM. In exchange for the Company agreeing to
so modify the agreement, NCM paid the Company approximately $174,001 upon modification of the
Exhibitor Services Agreement on February 13, 2007, the proceeds of which were recorded as deferred
revenue on the Companys condensed consolidated balance sheet. The Company believes this payment
approximates the fair value of the Exhibitor Services Agreement modification. The deferred revenue
is being amortized into other revenues over the life of the agreement using the units of revenue
method. Regal and AMC similarly amended their exhibitor service arrangements with NCM.
In consideration for NCMs exclusive access to the Companys theatre attendees for on-screen
advertising and use of off-screen locations within the Companys theatres for the lobby
entertainment network and lobby promotions, the Company receives a monthly theatre access fee under
the Exhibitor Services Agreement. The theatre access fee is composed of a fixed payment per patron,
initially seven cents, and a fixed payment per digital screen, which may be adjusted for certain
enumerated reasons. The payment per theatre patron will increase by 8% every five years, with the
first such increase taking effect after the end of fiscal 2011, and the payment per digital screen,
initially eight hundred dollars per digital screen per year, will increase annually by 5%,
beginning after 2007. For 2008, the annual payment per digital screen is eight hundred forty
dollars. The theatre access fee paid in the aggregate to Regal, AMC and the Company will not be
less than 12% of NCMs Aggregate Advertising Revenue (as defined in the Exhibitor Services
Agreement), or it will be adjusted upward to reach this minimum payment. Additionally, with respect
to any on-screen advertising time provided to the Companys beverage concessionaire, the Company is
required to purchase such time from NCM at a negotiated rate. The exhibitor services agreement has,
except with respect to certain limited services, a term of 30 years.
Prior to the initial public offering of NCM Inc. common stock, the Companys ownership
interest in NCM was approximately 25% and subsequent to the completion of the offering the Company
held a 14% interest in NCM. Subsequent to NCM, Inc.s initial public offering, the Company
continues to account for its investment in NCM under the equity method of accounting due to its
ability to exercise significant control over NCM. The Company has substantial rights as a founding
member, including the right to designate a total of two nominees to the ten-member Board of
Directors of NCM Inc., the sole manager. So long as the Company owns at least 5% of NCMs
membership interests, approval of at least 90% (80% if the board has less than 10 directors) will
be required before NCM, Inc. may take certain actions including but not limited to mergers and
acquisitions, issuance of common or preferred shares, approval of
10
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NCMs budget, incurrence of indebtedness, entering into or terminating material agreements,
and modifications to its articles of incorporation or bylaws. Additionally, if any of the Companys
director designees are not appointed to the Board of Directors of NCM, Inc., nominated by NCM, Inc.
or elected by NCM, Inc.s stockholders, then the Company (so long as the Company continues to own
at least 5% of NCMs membership interest) will be entitled to approve certain actions of NCM
including without limitation, approval of the budget, incurrence of indebtedness, consummating or
amending material agreements, approving dividends, amending the NCM operating agreement, hiring or
termination of the chief executive officer, chief financial officer, chief technology officer or
chief marketing officer of NCM and the dissolution or liquidation of NCM.
In 2008, NCM performed a common unit adjustment calculation in accordance with the Common Unit
Adjustment Agreement dated as of February 13, 2007 between NCM, Inc. and the Company, Regal and
AMC. The common unit adjustment is based on the change in the number of screens operated by and
attendance of the Company, AMC and Regal. As a result of the common unit adjustment calculation,
the Company received an additional 846,303 common units of NCM, each of which is convertible into
one share of NCM, Inc. common stock. The Company recorded the additional common units received at
fair value as an investment with a corresponding adjustment to deferred revenue of $19,020. The
common unit adjustment resulted in an increase in the Companys ownership percentage in NCM from
approximately 14.0% to approximately 14.5%.
During May 2008, Regal completed an acquisition of another theatre circuit that required an
extraordinary common unit adjustment calculation by NCM in accordance with the Common Unit
Adjustment Agreement. As a result of this extraordinary common unit adjustment, Regal was granted
additional common units of NCM, which resulted in dilution of the Companys ownership interest in
NCM from 14.5% to 14.1%. The Company recognized a change of interest loss of approximately $75
during the three and six months ended June 30, 2008 as a result of this extraordinary common unit
adjustment, which is reflected in (gain) loss on sale of assets and other on the condensed
consolidated statement of income.
As of June 30, 2008, the Company owned a total of 13,991,652 common units.
During the six months ended June 30, 2007 and 2008, the Company recorded equity income
(losses) in NCM of ($1,284) and $37, respectively. The Company
recognized $4,961 and $1,814 of other
revenue from NCM during the six months ended June 30, 2007 and 2008, respectively. The Company had
a receivable due from NCM of $225 and $126 as of December 31, 2007 and June 30, 2008, respectively,
related to screen advertising and other ancillary revenue. The Company is entitled to receive
mandatory quarterly distributions of excess cash from NCM. During the six months ended June 30,
2007 and 2008, the Company received distributions of approximately $1,362 and $8,585, respectively,
which were in excess of the carrying value of its investment in NCM and are reflected as
distributions from NCM on the condensed consolidated statement of income.
Below is summary financial information for NCM for the three and six month periods ended June
26, 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 26, 2008
|
|
June 26, 2008
|
Gross revenues
|
|
$
|
86,736
|
|
|
$
|
149,388
|
|
Operating income
|
|
$
|
39,086
|
|
|
$
|
57,354
|
|
Net earnings
|
|
$
|
26,670
|
|
|
$
|
30,916
|
|
11
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
7. Investment in Digital Cinema Implementation Partners
On February 12, 2007, the Company, AMC and Regal entered into a joint venture known as Digital
Cinema Implementation Partners LLC (DCIP) to facilitate the implementation of digital cinema in
the Companys theatres and to establish agreements with major motion picture studios for the
financing of digital cinema. Future digital cinema developments will be managed by DCIP, subject to
the Companys approval along with the Companys partners, AMC and Regal. During June 2007, the
Company invested $1,500 for a one-third ownership interest in DCIP. During February 2008, the
Company, AMC and Regal each invested an additional $1,000 in DCIP.
The Company is accounting for its investment in DCIP under the equity method of accounting.
During the six months ended June 30, 2007 and 2008, the Company recorded equity losses in DCIP of
$235 and $1,343, respectively, relating to this investment. The Companys investment basis in DCIP
was $260 and $(83) at December 31, 2007 and June 30, 2008, respectively, which is included in
investments in and advances to affiliates on the condensed consolidated balance sheets.
During July 2008, the Company, AMC and Regal each invested an additional $1,500 in DCIP.
8. Sale of Investment in Fandango, Inc.
In May 2007, Fandango, Inc., an on-line ticketing distributor, executed a merger agreement,
which resulted in the Company selling its investment in stock of Fandango, Inc. for approximately
$14,147 of consideration (the Fandango Transaction). As a result of the sale of its investment,
the Company recorded a gain of $9,205 in the condensed consolidated statement of income for the
three and six months ended June 30, 2007.
As part of the sale of its investment in stock of Fandango, Inc., the Company amended its
exclusive ticketing and distribution agreement with Fandango, Inc and received proceeds of $5,000.
The proceeds were recorded as deferred revenue on the Companys condensed consolidated balance
sheet and are being amortized over the term of the amended ticketing and distribution agreement.
9. Share Based Awards
During September 2004, Cinemark, Inc.s board of directors approved the 2004 Long Term
Incentive Plan (the 2004 Plan), under which 9,097,360 shares of Class A common stock were made
available for issuance to selected employees, directors and consultants of the Company. The 2004
Plan provided for restricted share grants, incentive option grants and nonqualified option grants.
On August 2, 2006, Cinemark Holdings, Inc. was formed as the Delaware holding company of
Cinemark, Inc. and the Cinemark Share Exchange was completed on October 5, 2006.
In November 2006, the Companys board of directors amended the 2004 Plan to provide that no
additional awards may be granted under the 2004 Plan. At that time, the board of directors and the
majority of its stockholders approved the Cinemark Holdings, Inc. 2006 Long Term Incentive Plan
(the 2006 Plan) and all options to purchase shares of Cinemark, Inc.s Class A common stock under
the 2004 Plan were exchanged for an equal number of options to purchase shares of Cinemark
Holdings, Inc.s common stock under the 2006 Plan. The 2006 Plan is substantially similar to the
2004 Plan.
During September 2007, the Company filed a registration statement with the Securities and
Exchange Commission on Form S-8 for purposes of registering shares available for issuance under the
2006 Plan.
During October 2007, the Companys board of directors recommended and the stockholders
approved an amendment to the 2006 Plan to provide for the ability to exercise an option on a
cashless basis, by decreasing the number of shares deliverable upon the exercise of such option by
an amount equal to the number of shares having an aggregate fair market value equal to the
aggregate exercise price of such option.
12
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
During March 2008, the Companys board of directors approved the Amended and Restated Cinemark
Holdings, Inc. 2006 Long Term Incentive Plan (the Restated Incentive Plan). The Restated
Incentive Plan amends and restates the 2006 Plan, to (i) increase the number of shares reserved for
issuance from 9,097,360 shares of common stock to 19,100,000 shares of common stock and (ii) permit
the compensation committee of the Companys board of directors (the Compensation Committee) to
award participants restricted stock units and performance awards. The right of a participant to
exercise or receive a grant of a restricted stock unit or performance award may be subject to the
satisfaction of such performance or objective business criteria as determined by the Compensation
Committee. With the exception of the changes identified in (i) and (ii) above, the Restated
Incentive Plan does not materially differ from the 2006 Plan. The Restated Incentive Plan was
approved by the Companys stockholders at its annual meeting of stockholders held on May 15, 2008.
Stock Options
A summary of stock option activity and related information for the six months
ended June 30, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Number
|
|
Average
|
|
|
of
|
|
Exercise
|
|
|
Options
|
|
Price
|
Outstanding at December 31, 2007
|
|
|
6,323,429
|
|
|
$
|
7.63
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(82,992
|
)
|
|
$
|
7.63
|
|
Forfeited
|
|
|
(11,276
|
)
|
|
$
|
7.63
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
6,229,161
|
|
|
$
|
7.63
|
|
|
|
|
Options exercisable at June 30, 2008
|
|
|
5,228,073
|
|
|
$
|
7.63
|
|
|
|
|
The Company recorded compensation expense of $1,432 and a tax benefit of approximately $550
during the six months ended June 30, 2008, related to the outstanding stock options. As of June 30,
2008, the remaining unrecognized compensation expense related to outstanding stock options was
$2,148 and the weighted average period over which this remaining compensation expense will be
recognized is approximately nine months. All options outstanding at June 30, 2008 have an average
remaining contractual life of approximately 6.25 years. The aggregate intrinsic value of stock
options outstanding and stock options exercisable at June 30, 2008 was $33,824 and $28,388,
respectively.
Restricted Stock
- During October 2007, the Company granted 21,880 shares of restricted stock
to its independent directors at a purchase price of $0.001 per share. The fair value of the shares
was approximately $400 based on the market value of the Companys stock on the date of grant, which
was $18.28 per share. These restricted stock awards fully vested on June 29, 2008. The Company
recorded compensation expense of $200 related to these awards during the six months ended June 30,
2008.
During the six months ended June 30, 2008, the Company granted 390,908 shares of restricted
stock to independent directors and employees of the Company. The fair value of the shares of
restricted stock was determined based on the market value of the Companys stock on the dates of
grant, which ranged from $12.89 to $14.65 per share. The Company assumed forfeiture rates ranging
from zero to 2% for the restricted stock awards. The restricted stock vests over periods ranging
from one year to four years based on continued service by the independent director or employee. The
Company recorded compensation expense of $339 related to these restricted stock awards during the
six months ended June 30, 2008. As of June 30, 2008, the remaining unrecognized compensation
expense related to these restricted stock awards was approximately $4,800 and the weighted average
period over which this remaining compensation expense will be recognized is approximately 3.2
years. Upon vesting, the Company receives an income tax deduction. The recipients of restricted
stock are entitled to receive dividends and to vote their respective shares, however the sale and
transfer of the restricted shares is prohibited during the restriction period.
13
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
A summary of restricted stock activity for the six months ended June 30, 2008 is as follows:
|
|
|
|
|
|
|
Shares of
|
|
|
Restricted
|
|
|
Stock
|
Outstanding at December 31, 2007
|
|
|
21,880
|
|
Granted
|
|
|
390,908
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
412,788
|
|
|
|
|
|
|
Unvested restricted stock at June 30, 2008
|
|
|
390,908
|
|
|
|
|
|
|
Restricted Stock Units
- During the six months ended June 30, 2008, the Company granted
restricted stock units representing 204,361 hypothetical shares of common stock under the Restated
Incentive Plan. The restricted stock units vest based on a combination of financial performance
factors and continued service. The financial performance factors are based on an implied equity
value concept that determines an internal rate of return (IRR) during the three fiscal year
period ending December 31, 2010 based on a formula utilizing a multiple of Adjusted EBITDA subject
to certain specified adjustments (as defined in the restricted stock unit award agreement). The
financial performance factors for the restricted stock units have a threshold, target and maximum
level of payment opportunity. If the IRR for the three year period is at least 8.5%, which is the
threshold, one-third of the restricted stock units vest. If the IRR for the three year period is at
least 10.5%, which is the target, two-thirds of the restricted stock units vest. If the IRR for the
three year period is at least 12.5%, which is the maximum, 100% of the restricted stock units vest.
All payouts of restricted stock units that vest are subject to an additional one year service
requirement and will be paid in the form of common stock if the participant continues to provide
services through the fourth anniversary of the grant date. Restricted stock unit award participants
are eligible to receive dividend equivalent payments if and at the time the restricted stock unit
awards become vested.
Below is a table summarizing the potential restricted stock unit awards at each of the three
levels of financial performance (excluding forfeiture assumptions):
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Shares
|
|
Value at
|
|
|
Vesting
|
|
Grant
|
at IRR of at least 8.5%
|
|
|
68,116
|
|
|
$
|
885
|
|
at IRR of at least 10.5%
|
|
|
136,239
|
|
|
$
|
1,771
|
|
at IRR of at least 12.5%
|
|
|
204,361
|
|
|
$
|
2,656
|
|
Due to the fact that the IRR for the three year period ending December 31, 2010 could not be
determined at the time of grants, the Company estimated that the most likely outcome is the
achievement of the mid-point IRR level. As a result, the total compensation expense to be recorded
for the restricted stock unit awards is $1,755 assuming a total of
135,027 units will vest at the
end of the four year period, using a forfeiture rate ranging from zero to 2%. If during the service
period, additional information becomes available to lead the Company to believe a different IRR
level will be achieved for the three year period ending December 31, 2010, the Company will
reassess the number of units that will vest and adjust its compensation expense accordingly on a
prospective basis over the remaining service period. The fair value of the number of units expected
to vest was determined based on the market value of the Companys stock on the dates of grant,
which ranged from $12.89 to $13.14 per share. The Company recorded compensation expense of $107
related to these awards during the six months ended June 30, 2008. As of June 30, 2008, the
remaining unrecognized compensation expense related to these restricted stock unit awards was
$1,648 and the weighted average period over which this remaining compensation expense will be
recognized is approximately 3.7 years.
14
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
10. Early Retirement of Long-Term Debt
On March 6, 2007, the Company commenced an offer to purchase for cash, on the terms and
subject to the conditions set forth in an Offer to Purchase and Consent Solicitation Statement, any
and all of its 9% senior subordinated notes, of which $332,250 aggregate principal amount remained
outstanding. In connection with the tender offer, the Company solicited consents for certain
proposed amendments to the indenture to remove substantially all restrictive covenants and certain
events of default provisions. On March 20, 2007, the early settlement date, approximately $332,000
aggregate principal amount of the 9% senior subordinated notes were tendered and repurchased by the
Company for approximately $360,164, including accrued interest and premiums paid. On April 3, 2007,
the Company repurchased an additional $66 aggregate principal amount of the 9% senior subordinated
notes tendered after the early settlement date. The Company funded the repurchases with the net
proceeds received from the NCM Transaction (see Note 6). The Company recorded a loss on early
retirement of debt of $7,952 during the six months ended June 30, 2007, which consisted of tender
offer repurchase costs, including premiums paid and other fees, and the write-off of unamortized
debt issue costs, partially offset by the write-off of the unamortized bond premium.
On March 20, 2008, in one open market purchase, the Company repurchased $10,000 aggregate
principal amount at maturity of its 9
3
/
4
% senior discount notes for approximately $8,950, including
accreted interest of $2,929. The Company funded the transaction with proceeds from the initial
public offering of its common stock. As a result of the transaction, the Company recorded a loss on
early retirement of debt of $40 during the six months ended June 30, 2008, which primarily includes
the write-off of unamortized debt issue costs partially offset by a discount on the repurchased
senior discount notes.
11. Interest Rate Swap Agreements
During March 2007, the Company entered into two interest rate swap agreements with effective
dates of August 13, 2007 and terms of five years each. The interest rate swaps were designated to
hedge approximately $500,000 of the Companys variable rate debt obligations under its senior
secured credit facility. Under the terms of the interest rate swap agreements, the Company pays
fixed rates of 4.918% and 4.922% on $375,000 and $125,000, respectively, of variable rate debt and
receives interest at a variable rate based on the 3-month LIBOR. The 3-month LIBOR rate on each
reset date determines the variable portion of the interest rate swaps for the three-month period
following the reset date. No premium or discount was incurred upon the Company entering into the
interest rate swaps because the pay and receive rates on the interest rate swaps represented
prevailing rates for each counterparty at the time the interest rate swaps were consummated. The
interest rate swaps qualify for cash flow hedge accounting treatment in accordance with SFAS No.
133,
Accounting for Derivative Instruments and Hedging Activities
, and as such, the Company has
effectively hedged its exposure to variability in the future cash flows attributable to the 3-month
LIBOR on $500,000 of variable rate debt. The change in the fair values of the interest rate swaps
is recorded on the Companys condensed consolidated balance sheet as an asset or liability with the
effective portion of the interest rate swaps gains or losses reported as a component of other
comprehensive income and the ineffective portion reported in earnings. The Company estimates the
fair values of the interest rate swaps by comparing estimated future interest payments to be made
under forecasted future 3-month LIBOR to the fixed rates in accordance with the interest rate
swaps.
As of June 30, 2008, the aggregate fair value of the interest rate swaps was a liability of
approximately $16,658, which has been recorded as a component of other long-term liabilities. A
corresponding cumulative amount of $10,261, net of taxes, has been recorded as a decrease in
accumulated other comprehensive income on the Companys condensed consolidated balance sheet as of
June 30, 2008. The interest rate swaps exhibited no ineffectiveness during the six months ended
June 30, 2008.
15
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
12. Goodwill and Other Intangible Assets
The Companys goodwill was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
International
|
|
|
|
|
|
|
Operating
|
|
Operating
|
|
|
|
|
|
|
Segment
|
|
Segment
|
|
Total
|
Balance at December 31, 2007
|
|
$
|
979,148
|
|
|
$
|
155,541
|
|
|
$
|
1,134,689
|
|
Acquisition of one theatre
(1)
|
|
|
2,892
|
|
|
|
|
|
|
|
2,892
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
10,906
|
|
|
|
10,906
|
|
|
|
|
Balance at June 30, 2008
|
|
$
|
982,040
|
|
|
$
|
166,447
|
|
|
$
|
1,148,487
|
|
|
|
|
|
|
|
(1)
|
|
The Company acquired one theatre during 2008 for approximately $5,011, which
resulted in $2,892 of goodwill and $2,119 of theatre properties and equipment. The theatre
is included in the Companys U.S. operating segment.
|
In accordance with SFAS No. 142,
Goodwill and Other Intangible Assets
, the Company evaluates
goodwill for impairment on an annual basis at fiscal year-end or whenever events or changes in
circumstances indicate the carrying value of goodwill might exceed its estimated fair value. The
Company evaluates goodwill for impairment at the reporting unit level and has allocated goodwill to
the reporting unit based on an estimate of its relative fair value. The goodwill impairment
evaluation is a two-step approach requiring the Company to compute the estimated fair value of a
reporting unit and compare it with its carrying value. If the carrying value exceeds the estimated
fair value, a second step is performed to measure the potential goodwill impairment. Fair values
are determined based on a multiple of cash flows, which was eight times for the evaluations
performed during 2007. Significant judgment is involved in estimating cash flows and fair value.
Managements estimates are based on historical and projected operating performance as well as
recent market transactions. Prior to January 1, 2008, the Company considered its theatres reporting
units for purposes of evaluating goodwill for impairment. Recent changes in the organization,
including changes in the structure of the Companys executive management team, the Companys
initial public offering, the resulting changes in the level at which the Companys management team
evaluates the business on a regular basis, and the Century Acquisition that increased the size of
the Companys theatre base by approximately 25%, led the Company to conclude that its U.S. regions
and international countries are now more reflective of how it manages and operates its business.
Accordingly, the Companys U.S. regions and international countries represent the appropriate
reporting units for purposes of evaluating goodwill for impairment. Consequently, effective January
1, 2008, the Company changed the reporting unit to sixteen regions in the U.S. and eight countries
internationally from approximately four hundred theatres. The goodwill impairment test performed
during December 2007 that resulted in the recording of impairment charges during the year ended
December 31, 2007 reflects the final calculation utilizing theatres as reporting units.
16
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
Translation
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
|
|
|
|
Adjustments
|
|
|
June 30,
|
|
|
|
2007
|
|
|
Amortization
|
|
|
& Other
|
|
|
2008
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized licensing fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
5,138
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,138
|
|
Accumulated amortization
|
|
|
(1,565
|
)
|
|
|
(213
|
)
|
|
|
|
|
|
|
(1,778
|
)
|
|
|
|
Net carrying amount
|
|
|
3,573
|
|
|
|
(213
|
)
|
|
|
|
|
|
|
3,360
|
|
|
|
|
Vendor contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
56,973
|
|
|
|
|
|
|
|
875
|
|
|
|
57,848
|
|
Accumulated amortization
|
|
|
(23,342
|
)
|
|
|
(1,717
|
)
|
|
|
|
|
|
|
(25,059
|
)
|
|
|
|
Net carrying amount
|
|
|
33,631
|
|
|
|
(1,717
|
)
|
|
|
875
|
|
|
|
32,789
|
|
|
|
|
Net favorable leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
20,691
|
|
|
|
|
|
|
|
305
|
|
|
|
20,996
|
|
Accumulated amortization
|
|
|
(15,581
|
)
|
|
|
(1,403
|
)
|
|
|
13
|
|
|
|
(16,971
|
)
|
|
|
|
Net carrying amount
|
|
|
5,110
|
|
|
|
(1,403
|
)
|
|
|
318
|
|
|
|
4,025
|
|
|
|
|
Other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
69
|
|
|
|
|
|
|
|
2
|
|
|
|
71
|
|
Accumulated amortization
|
|
|
(20
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
Net carrying amount
|
|
|
49
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
49
|
|
|
|
|
Total net intangible assets with finite lives
|
|
|
42,363
|
|
|
|
(3,335
|
)
|
|
|
1,195
|
|
|
|
40,223
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename
|
|
|
310,681
|
|
|
|
|
|
|
|
925
|
|
|
|
311,606
|
|
Other unamortized intangible assets
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
Total intangible assets net
|
|
$
|
353,047
|
|
|
$
|
(3,335
|
)
|
|
$
|
2,120
|
|
|
$
|
351,832
|
|
|
|
|
Aggregate amortization expense of $3,406 for the six months ended June 30, 2008 consisted of
$3,335 of amortization of intangible assets and $71 of amortization of other assets. Estimated
aggregate future amortization expense for intangible assets is as follows:
|
|
|
|
|
For the six months ended December 31, 2008
|
|
$
|
3,065
|
|
For the twelve months ended December 31, 2009
|
|
|
5,278
|
|
For the twelve months ended December 31, 2010
|
|
|
4,996
|
|
For the twelve months ended December 31, 2011
|
|
|
4,542
|
|
For the twelve months ended December 31, 2012
|
|
|
3,677
|
|
Thereafter
|
|
|
18,665
|
|
|
|
|
|
Total
|
|
$
|
40,223
|
|
|
|
|
|
17
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
13. Impairment of Long-Lived Assets
In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets
, the Company reviews long-lived assets for impairment on a quarterly basis or whenever
events or changes in circumstances indicate the carrying amount of the assets may not be fully
recoverable.
The Company considers actual theatre level cash flows, future years budgeted theatre level
cash flows, theatre property and equipment carrying values, amortizing intangible assets carrying
values, the age of a recently built theatre, competitive theatres in the marketplace, changes in
foreign currency exchange rates, the impact of recent ticket price changes, available lease renewal
options and other factors in its assessment of impairment of individual theatre assets. Long-lived
assets are evaluated for impairment on an individual theatre basis, which the Company believes is
the lowest applicable level for which there are identifiable cash flows. The impairment evaluation
is based on the estimated cash flows from continuing use through the remainder of the theatres
useful life. The remainder of the useful life correlates with the available remaining lease period,
which includes the probability of renewal periods for leased properties and a period of twenty
years for fee owned properties. If the estimated cash flows are not sufficient to recover a
long-lived assets carrying value, the Company then compares the carrying value of the asset group
(theatre) with its estimated fair value. Fair value is determined based on a multiple of cash
flows, which was eight times for the evaluations performed during the six months ended June 30,
2007 and June 30, 2008. When estimated fair value is determined to be lower than the carrying value
of the asset group (theatre), the asset group (theatre) is written down to its estimated fair
value. Significant judgment is involved in estimating cash flows and fair value. Managements
estimates are based on historical and projected operating performance as well as recent market
transactions.
The Companys long-lived asset impairment losses of $5,829 for the six months ended June 30,
2008 were primarily for U.S. theatre properties. The Companys long-lived asset impairment losses
of $56,766 for the six months ended June 30, 2007 consisted of $7,958 for theatre properties,
$45,108 of goodwill related to theatre properties and $3,700 of intangible assets associated with
theatre properties. As a result of the NCM Transaction discussed in Note 6, and more specifically
the modification of the NCM Exhibitor Services Agreement with the Company, which significantly
reduced the contractual amounts paid to the Company, the Company evaluated the carrying value of
its goodwill as of March 31, 2007 leading to a majority of the goodwill impairment charges recorded
during the six months ended June 30, 2007.
14. Foreign Currency Translation
The accumulated other comprehensive income account in stockholders equity of $32,695 and
$61,222 at December 31, 2007 and June 30, 2008, respectively, includes the cumulative foreign
currency adjustments from translating the financial statements of the Companys international
subsidiaries into U.S. dollars.
In 2007 and 2008, all foreign countries where the Company has operations were deemed
non-highly inflationary. Thus, any fluctuation in the currency results in a cumulative foreign
currency translation adjustment to the accumulated other comprehensive income account recorded as
an increase in, or reduction of, stockholders equity.
On June 30, 2008, the exchange rate for the Brazilian real was 1.61 reais to the U.S. dollar
(the exchange rate was 1.77 reais to the U.S. dollar at December 31, 2007). As a result, the effect
of translating the June 30, 2008 Brazilian financial statements into U.S. dollars is reflected as a
cumulative foreign currency translation adjustment to the accumulated other comprehensive income
account as an increase in stockholders equity of $19,148. At June 30, 2008, the total assets of
the Companys Brazilian subsidiaries were U.S. $236,194.
On June 30, 2008, the exchange rate for the Mexican peso was 10.31 pesos to the U.S. dollar
(the exchange rate was 10.92 pesos to the U.S. dollar at December 31, 2007). As a result, the
effect of translating the June 30, 2008 Mexican financial statements into U.S. dollars is reflected
as a cumulative foreign currency translation adjustment to the accumulated other comprehensive
income account as an increase in stockholders equity of $7,472. At June 30, 2008, the total assets
of the Companys Mexican subsidiaries were U.S. $167,814.
18
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
15. Comprehensive Income
SFAS No. 130,
Reporting Comprehensive Income
, establishes standards for the reporting and
display of comprehensive income and its components in the condensed consolidated financial
statements. The Companys comprehensive income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
Net income
|
|
$
|
15,523
|
|
|
$
|
47,870
|
|
|
$
|
20,774
|
|
|
$
|
166,081
|
|
Fair value
adjustments on
interest rate swap
agreements (see Note
11)
|
|
|
13,045
|
|
|
|
7,629
|
|
|
|
1,086
|
|
|
|
6,422
|
|
Foreign currency
translation
adjustment (see Note
14)
|
|
|
18,552
|
|
|
|
15,257
|
|
|
|
27,440
|
|
|
|
17,127
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
47,120
|
|
|
$
|
70,756
|
|
|
$
|
49,300
|
|
|
$
|
189,630
|
|
|
|
|
|
|
16. Supplemental Cash Flow Information
The following is provided as supplemental information to the condensed consolidated statements
of cash flows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
2008
|
|
2007
|
Cash paid for interest
|
|
$
|
42,931
|
|
|
$
|
69,477
|
|
Cash paid for income taxes, net of refunds received
|
|
$
|
7,504
|
|
|
$
|
80,158
|
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Change in construction lease obligations related to construction of theatres
|
|
$
|
|
|
|
$
|
(2,429
|
)
|
Change in
accounts payable and accrued expenses for the acquisition of theatre properties and equipment
|
|
$
|
(3,349
|
)
|
|
$
|
(845
|
)
|
Theatre properties acquired under capital lease
|
|
$
|
7,911
|
|
|
$
|
2,943
|
|
Investment in NCM (see Note 6)
|
|
$
|
19,020
|
|
|
$
|
|
|
Dividends accrued on unvested restricted stock unit awards (see Note 9)
|
|
$
|
(25
|
)
|
|
$
|
|
|
During December 2007, the Company elected to use the proceeds of approximately $22,739 from
the sale of real property to purchase a like-kind property in accordance with the Internal Revenue
Code and as a result, the proceeds were deposited to an escrow account. During March 2008, the
Company elected to use the proceeds of approximately $700 from the sale of real property to
purchase a like-kind property in accordance with the Internal Revenue Code and as a result, the
proceeds were deposited to an escrow account. The Company did not purchase like-kind properties and
the deposits of approximately $23,439 were returned to the Company during the six months ended June
30, 2008.
19
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
17. Segments
At June 30, 2008, the Company operates its international market and its U.S. market as
separate reportable operating segments. The international segment consists of operations in Mexico,
Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and
Colombia. The U.S. segment includes U.S. and Canada operations. Each segments revenue is derived
from admissions and concession sales and other ancillary revenues, primarily screen advertising.
The primary measure of segment profit and loss the Company uses to evaluate performance and
allocate its resources is Adjusted EBITDA, as defined in the reconciliation table below. The
Companys management evaluates the performance of its assets on a consolidated basis.
Below is a breakdown of selected financial information by reportable operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
360,247
|
|
|
$
|
349,043
|
|
|
$
|
669,047
|
|
|
$
|
655,418
|
|
International
|
|
|
97,900
|
|
|
|
91,790
|
|
|
|
191,009
|
|
|
|
164,051
|
|
Eliminations
|
|
|
(913
|
)
|
|
|
(797
|
)
|
|
|
(1,806
|
)
|
|
|
(1,411
|
)
|
|
|
|
|
|
Total Revenues
|
|
$
|
457,234
|
|
|
$
|
440,036
|
|
|
$
|
858,250
|
|
|
$
|
818,058
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
78,815
|
|
|
$
|
76,173
|
|
|
$
|
143,691
|
|
|
$
|
142,874
|
|
International
|
|
|
21,023
|
|
|
|
20,871
|
|
|
|
40,307
|
|
|
|
34,264
|
|
|
|
|
|
|
Total Adjusted EBITDA
|
|
$
|
99,838
|
|
|
$
|
97,044
|
|
|
$
|
183,998
|
|
|
$
|
177,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
12,490
|
|
|
$
|
28,148
|
|
|
$
|
38,385
|
|
|
$
|
53,045
|
|
International
|
|
|
8,625
|
|
|
|
12,935
|
|
|
|
13,531
|
|
|
|
20,103
|
|
|
|
|
|
|
Total Capital Expenditures
|
|
$
|
21,115
|
|
|
$
|
41,083
|
|
|
$
|
51,916
|
|
|
$
|
73,148
|
|
|
|
|
|
|
The following table sets forth a reconciliation of net income to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
Net income
|
|
$
|
15,523
|
|
|
$
|
47,870
|
|
|
$
|
20,774
|
|
|
$
|
166,081
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
11,840
|
|
|
|
(25,683
|
)
|
|
|
15,481
|
|
|
|
9,710
|
|
Interest expense
(1)
|
|
|
30,061
|
|
|
|
35,301
|
|
|
|
62,134
|
|
|
|
76,798
|
|
Gain on NCM Transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(210,773
|
)
|
Gain on Fandango Transaction
|
|
|
|
|
|
|
(9,205
|
)
|
|
|
|
|
|
|
(9,205
|
)
|
Loss on early retirement of debt
|
|
|
|
|
|
|
123
|
|
|
|
40
|
|
|
|
7,952
|
|
Other income
(2)
|
|
|
(1,132
|
)
|
|
|
(3,526
|
)
|
|
|
(2,873
|
)
|
|
|
(6,009
|
)
|
Termination of profit participation agreement
|
|
|
|
|
|
|
6,952
|
|
|
|
|
|
|
|
6,952
|
|
Depreciation and amortization
|
|
|
37,840
|
|
|
|
36,720
|
|
|
|
75,247
|
|
|
|
73,595
|
|
Amortization of favorable leases
|
|
|
699
|
|
|
|
625
|
|
|
|
1,403
|
|
|
|
1,559
|
|
Impairment of long-lived assets
|
|
|
1,342
|
|
|
|
7,036
|
|
|
|
5,829
|
|
|
|
56,766
|
|
(Gain) loss on sale of assets and other
|
|
|
1,109
|
|
|
|
(1,864
|
)
|
|
|
910
|
|
|
|
(1,559
|
)
|
Deferred lease expenses
|
|
|
914
|
|
|
|
1,704
|
|
|
|
2,146
|
|
|
|
3,311
|
|
Amortization of long-term prepaid rents
|
|
|
425
|
|
|
|
275
|
|
|
|
829
|
|
|
|
511
|
|
Share based awards compensation expense
|
|
|
1,217
|
|
|
|
716
|
|
|
|
2,078
|
|
|
|
1,449
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
99,838
|
|
|
$
|
97,044
|
|
|
$
|
183,998
|
|
|
$
|
177,138
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes amortization of debt issue costs.
|
|
(2)
|
|
Includes interest income, foreign currency exchange gain (loss), equity in loss
of affiliates and minority interests in income of subsidiaries and excludes distributions
from NCM.
|
20
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Financial Information About Geographic Areas
The Company has operations in the U.S., Canada, Mexico, Argentina, Brazil, Chile, Ecuador,
Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia, which are reflected in the
condensed consolidated financial statements. Below is a breakdown of selected financial information
by geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Revenues
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
U.S. and Canada
|
|
$
|
360,247
|
|
|
$
|
349,043
|
|
|
$
|
669,047
|
|
|
$
|
655,418
|
|
Brazil
|
|
|
47,000
|
|
|
|
41,613
|
|
|
|
91,634
|
|
|
|
76,025
|
|
Mexico
|
|
|
21,002
|
|
|
|
21,209
|
|
|
|
40,404
|
|
|
|
37,888
|
|
Other foreign countries
|
|
|
29,898
|
|
|
|
28,968
|
|
|
|
58,971
|
|
|
|
50,138
|
|
Eliminations
|
|
|
(913
|
)
|
|
|
(797
|
)
|
|
|
(1,806
|
)
|
|
|
(1,411
|
)
|
|
|
|
Total
|
|
$
|
457,234
|
|
|
$
|
440,036
|
|
|
$
|
858,250
|
|
|
$
|
818,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
Theatre Properties and Equipment-net
|
|
2008
|
|
2007
|
|
|
|
U.S. and Canada
|
|
$
|
1,118,816
|
|
|
$
|
1,137,244
|
|
Brazil
|
|
|
78,943
|
|
|
|
72,635
|
|
Mexico
|
|
|
60,839
|
|
|
|
59,201
|
|
Other foreign countries
|
|
|
43,782
|
|
|
|
44,986
|
|
|
|
|
Total
|
|
$
|
1,302,380
|
|
|
$
|
1,314,066
|
|
|
|
|
18. Related Party Transactions
The Company leases one theatre from Plitt Plaza Joint Venture (Plitt Plaza) on a
month-to-month basis. Plitt Plaza is indirectly owned by Lee Roy Mitchell, who owns approximately
12% of the Companys issued and outstanding shares of common stock. Annual rent is approximately
$118 plus certain taxes, maintenance expenses and insurance. The Company recorded $62 and $63 of
facility lease and other operating expenses payable to Plitt Plaza joint venture during the six
months ended June 30, 2007 and 2008, respectively.
The Company manages one theatre for Laredo Theatre, Ltd. (Laredo). The Company is the sole
general partner and owns 75% of the limited partnership interests of Laredo. Lone Star Theatres,
Inc. owns the remaining 25% of the limited partnership interests in Laredo and is 100% owned by Mr.
David Roberts, Lee Roy Mitchells son-in-law. Under the agreement, management fees are paid by
Laredo to the Company at a rate of 5% of annual theatre revenues up to $50,000 and 3% of annual
theatre revenues in excess of $50,000. The Company recorded $39 and $48 of management fee revenues
during the six months ended June 30, 2007 and 2008, respectively. All such amounts are included in
the Companys condensed consolidated financial statements with the intercompany amounts eliminated
in consolidation.
The Company leases 24 theatres and two parking facilities from Syufy Enterprises, LP (Syufy)
or affiliates of Syufy, which owns approximately 8% of the Companys issued and outstanding shares
of common stock. Raymond Syufy is one of the Companys directors and is an officer of the general
partner of Syufy. Of these 26 leases, 21 have fixed minimum annual rent in an aggregate amount of
approximately $22,059. The five leases without minimum annual rent have rent based upon a specified
percentage of gross sales as defined in the lease with no minimum annual rent. The Company also has
an office lease with Syufy for corporate office space in San Rafael, California. The lease will
expire in September 2008. The lease has a fixed minimum annual rent of approximately $300.
21
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The Company entered into an amended and restated profit participation agreement on March 12,
2004 with its CEO, Alan Stock, which became effective on April 2, 2004, and amended the profit
participation agreement with Mr. Stock in effect since May 2002. Under the agreement, Mr. Stock
received a profit interest in two theatres once the Company recovered its capital investment in
these theatres plus its borrowing costs. During the six months ended June 30, 2007, the Company
recorded $114 in profit participation expense payable to Mr. Stock, which is included in general
and administrative expenses on the Companys condensed consolidated statement of income. After the
Companys initial public offering in April 2007, the Company exercised its option to terminate the
amended and restated profit participation agreement and purchased Mr. Stocks interest in the
theatres on May 3, 2007 for a price of $6,853 pursuant to the terms of the agreement. The Company
also paid payroll taxes of approximately $99 related to the payment made to terminate the amended
and restated profit participation agreement. The agreement with Mr. Stock was terminated effective
May 3, 2007.
19. Commitments and Contingencies
Effective June 16, 2008, the Company entered into new employment agreements (the New
Employment Agreements) with Alan W. Stock, Timothy Warner, Robert Copple and Michael Cavalier. Each of Messers. Stock, Warner, Copple and Cavalier had an
employment agreement with the Companys principal subsidiary, Cinemark, Inc. which became effective
as of March 12, 2004 (the Original Employment Agreements). The New Employment Agreements replace
the Original Employment Agreements. The New Employment Agreements have an initial term of three
years, ending on June 16, 2011, subject to an automatic extension for a one-year period, unless the
employment agreements are terminated. Messers. Stock, Warner, Copple and Cavalier will receive base
salaries of $603, $442, $416, and $338, respectively, during 2008, which are subject to review
during the term of the employment agreements for increase (but not decrease) each year by the
Companys Compensation Committee. In addition, Messers. Stock, Warner, Copple and Cavalier are
eligible to receive annual cash incentive bonuses upon the Company meeting certain performance
targets established by its Compensation Committee for the fiscal year. Messers. Stock, Warner,
Copple and Cavalier qualify for the Companys 401(k) matching program and are also entitled to
certain additional benefits including life insurance and disability insurance. The New Employment
Agreements provide for severance payments upon termination of employment, the amount and nature of
which depends upon the reason for the termination of employment. Effective June 16, 2008, the
Company terminated its employment agreement with Tandy Mitchell.
From time to time, the Company is involved in various legal proceedings arising from the
ordinary course of its business operations, such as personal injury claims, employment matters,
landlord-tenant disputes and contractual disputes, some of which are covered by insurance. The
Company believes its potential liability with respect to proceedings currently pending is not
material, individually or in the aggregate, to the Companys financial position, results of
operations and cash flows.
20. Subsequent Event Dividend Declaration
On August 7, 2008, the Companys board of directors declared a cash dividend in the amount of
$0.18 per common share payable to stockholders of record on August 25, 2008. The dividend will be
paid on September 12, 2008.
21. Subsequent Event Share Exchange with Minority Partners
During May 2008, the Companys partners in Central America (the Central American Partners)
exercised an option available to them under an Exchange Option Agreement dated February 7, 2007
between the Company and the Central American Partners. Under this option, which was triggered by
completion of an initial public offering by the Company, the Central American Partners are entitled
to exchange their shares in Cinemark Equity Holdings Corporation, which is the Companys Central
American holding company, for shares of the Companys common stock. The number of shares to be
exchanged is determined based on the Companys equity value and the equity value of the Central
American Partners interest in Cinemark Equity Holdings Corporation, both of which are defined in
the Exchange Option Agreement. As a result of this exchange, the Company will issue 902,981 shares
of its common stock to its Central American Partners. The exchange of shares is expected to occur
during August 2008. The Company will account for the transaction as a step acquisition. The
purchase price of the shares in Cinemark Equity Holdings Corporation will be recorded based on the
fair value of the shares issued plus related transaction costs. Prior to the exchange, the Company
owned 51% of the shares in Cinemark Equity Holdings Corporation and subsequent to the exchange, the
Company will
22
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
own 100% of the shares in Cinemark Equity Holdings Corporation.
During July 2008, the Companys partners in Ecuador (the Ecuador Partners) exercised an
option available to them under an Exchange Option Agreement dated February 7, 2007 between the
Company and the Ecuador Partners. Under this option, which was triggered by completion of an
initial public offering by the Company, the Ecuador Partners are entitled to exchange their shares
in Cinemark del Ecuador S.A. for shares of the Companys common stock. The number of shares to be
exchanged is determined based on the Companys equity value and the equity value of the Ecuador
Partners interest in Cinemark del Ecuador S.A., both of which are defined in the Exchange Option
Agreement. The equity values will be determined and the exchange of shares is expected to occur
during August 2008. The Company will account for the transaction as a step acquisition. The
purchase price of the shares in Cinemark del Ecuador S.A. will be recorded based on the fair value
of the shares issued plus related transaction costs. Prior to the exchange, the Company owned 60%
of the shares in Cinemark del Ecuador S.A. and subsequent to the exchange, the Company will own
100% of the shares in Cinemark del Ecuador S.A.
22. Subsequent Event Investment in DCIP
During July 2008, the Company, AMC and Regal each invested an additional $1,500 in DCIP.
23
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our condensed
consolidated financial statements and related notes and schedules included elsewhere in this
report.
We are one of the leaders in the motion picture exhibition industry, in terms of both revenues
and the number of screens in operation, with theatres in the U.S., Canada, Mexico, Argentina,
Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Colombia.
For financial reporting purposes at June 30, 2008, we have two reportable operating segments, our
U.S. operations and our international operations.
We generate revenues primarily from box office receipts and concession sales with additional
revenues from screen advertising sales and other revenue streams, such as vendor marketing
programs, pay phones, ATM machines and electronic video games located in some of our theatres. Our
investment in NCM has assisted us in expanding our offerings to advertisers, exploring ancillary
revenue sources such as digital video monitor advertising, third party branding, and the use of
theatres for non-film events. In addition, we are able to use theatres during non-peak hours for
concerts, sporting events, and other cultural events. Successful films released during the six
months ended June 30, 2008 included
Iron Man, Indiana Jones and the Kingdom of the Crystal Skull,
Kung Fu Panda, Horton Hears a Who, Sex and the City, Incredible Hulk, Get Smart
and Disneys latest
Pixar installment,
WALL-E,
which was released on June 27, 2008. Film releases scheduled for the
remainder of 2008 include
Hancock, The Dark Knight, The Mummy: Tomb of the Dragon Emperor, Quantum
of Solace, Madagascar: Escape 2 Africa, Harry Potter and the Half-Blood Prince
and the release of
3-D movies including
Journey to the Center of the Earth
and
Bolt.
In 2009, a broad slate of 3-D
films is expected, including
Monsters vs. Aliens, Ice Age 3: Dawn of the Dinosaurs, Avatar
and
Disneys next Pixar installment,
Up.
Our revenues are affected by changes in attendance and average
admissions and concession revenues per patron. Attendance is primarily affected by the quality and
quantity of films released by motion picture studios.
Film rental costs are variable in nature and fluctuate with our admissions revenues. Film
rental costs as a percentage of revenues are generally higher for periods in which more blockbuster
films are released. Film rental costs can also vary based on the length of a films run. Film
rental rates are negotiated on a film-by-film and theatre-by-theatre basis. Advertising costs,
which are expensed as incurred, are primarily fixed at the theatre level as daily movie directories
placed in newspapers represent the largest component of advertising costs. The monthly cost of
these advertisements is based on, among other things, the size of the directory and the frequency
and size of the newspapers circulation.
Concession supplies expense is variable in nature and fluctuates with our concession revenues.
We purchase concession supplies to replace units sold. We negotiate prices for concession
supplies directly with concession vendors and manufacturers to obtain bulk rates.
Although salaries and wages include a fixed cost component (i.e. the minimum staffing costs to
operate a theatre facility during non-peak periods), salaries and wages move in relation to
revenues as theatre staffing is adjusted to address
changes in attendance.
Facility lease expense is primarily a fixed cost at the theatre level as most of our facility
leases require a fixed monthly minimum rent payment. Certain of our leases are subject to
percentage rent only while others are subject to percentage rent in addition to their fixed monthly
rent if a target annual revenue level is achieved. Facility lease expense as a percentage of
revenues is also affected by the number of theatres under operating leases versus the number of
theatres under capital leases and the number of fee-owned theatres.
Utilities and other costs include certain costs that are fixed such as property taxes, certain
costs that are variable such as liability insurance, and certain costs that possess both fixed and
variable components such as utilities, repairs and maintenance and security services.
Recent Developments
On August 7, 2008, our board of directors declared a cash dividend in the amount of $0.18 per
common share payable to stockholders of record on August 25, 2008. The dividend will be paid on
September 12, 2008.
During July 2008, we, AMC and Regal each invested an additional $1.5 million in DCIP.
24
Results of Operations
The following table sets forth, for the periods indicated, the percentage of revenues
represented by certain items reflected in our condensed consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Operating data (in millions):
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Admissions
|
|
$
|
294.4
|
|
|
$
|
283.1
|
|
|
$
|
556.8
|
|
|
$
|
527.1
|
|
Concession
|
|
|
141.5
|
|
|
|
138.4
|
|
|
|
263.6
|
|
|
|
253.5
|
|
Other
|
|
|
21.3
|
|
|
|
18.5
|
|
|
|
37.8
|
|
|
|
37.4
|
|
|
|
|
|
|
Total revenues
|
|
$
|
457.2
|
|
|
$
|
440.0
|
|
|
$
|
858.2
|
|
|
$
|
818.0
|
|
|
|
|
|
|
Theatre operating costs
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising
|
|
$
|
163.8
|
|
|
$
|
159.1
|
|
|
$
|
301.9
|
|
|
$
|
287.4
|
|
Concession supplies
|
|
|
23.2
|
|
|
|
22.7
|
|
|
|
42.0
|
|
|
|
40.1
|
|
Salaries and wages
|
|
|
45.3
|
|
|
|
45.4
|
|
|
|
87.9
|
|
|
|
85.6
|
|
Facility lease expense
|
|
|
56.1
|
|
|
|
53.3
|
|
|
|
112.4
|
|
|
|
104.9
|
|
Utilities and other
|
|
|
50.4
|
|
|
|
48.2
|
|
|
|
98.6
|
|
|
|
92.4
|
|
|
|
|
|
|
Total theatre operating costs
|
|
$
|
338.8
|
|
|
$
|
328.7
|
|
|
$
|
642.8
|
|
|
$
|
610.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating data as a percentage of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions
|
|
|
64.4
|
%
|
|
|
64.3
|
%
|
|
|
64.9
|
%
|
|
|
64.4
|
%
|
Concession
|
|
|
30.9
|
%
|
|
|
31.5
|
%
|
|
|
30.7
|
%
|
|
|
31.0
|
%
|
Other
|
|
|
4.7
|
%
|
|
|
4.2
|
%
|
|
|
4.4
|
%
|
|
|
4.6
|
%
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatre operating costs
(1) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising
|
|
|
55.6
|
%
|
|
|
56.2
|
%
|
|
|
54.2
|
%
|
|
|
54.5
|
%
|
Concession supplies
|
|
|
16.4
|
%
|
|
|
16.4
|
%
|
|
|
15.9
|
%
|
|
|
15.8
|
%
|
Salaries and wages
|
|
|
9.9
|
%
|
|
|
10.3
|
%
|
|
|
10.2
|
%
|
|
|
10.5
|
%
|
Facility lease expense
|
|
|
12.3
|
%
|
|
|
12.1
|
%
|
|
|
13.1
|
%
|
|
|
12.8
|
%
|
Utilities and other
|
|
|
11.0
|
%
|
|
|
11.0
|
%
|
|
|
11.5
|
%
|
|
|
11.3
|
%
|
Total theatre operating costs
|
|
|
74.1
|
%
|
|
|
74.7
|
%
|
|
|
74.9
|
%
|
|
|
74.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average screen count (month end average)
|
|
|
4,683
|
|
|
|
4,521
|
|
|
|
4,672
|
|
|
|
4,504
|
|
|
|
|
|
|
Revenues per average screen (in dollars)
|
|
$
|
97,642
|
|
|
$
|
97,326
|
|
|
$
|
183,701
|
|
|
$
|
181,612
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Excludes depreciation and amortization expense.
|
|
(2)
|
|
All costs are expressed as a percentage of total revenues, except film
rentals and advertising, which are expressed as a percentage of admissions revenues
and concession supplies, which are expressed as a percentage of concession revenues.
|
25
Three months ended June 30, 2008 and 2007
Revenues.
Total revenues increased $17.2 million to $457.2 million for the three months ended
June 30, 2008 (second quarter of 2008) from $440.0 million for the three months ended June 30,
2007 (second quarter of 2007), representing a 3.9% increase. The table below, presented by
reportable operating segment, summarizes our year-over-year revenue performance and certain key
performance indicators that impact our revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Operating Segment
|
|
International Operating
Segment
|
|
Consolidated
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
%
|
|
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
Admissions revenues (in millions)
|
|
$
|
234.3
|
|
|
$
|
225.2
|
|
|
|
4.0
|
%
|
|
$
|
60.1
|
|
|
$
|
57.9
|
|
|
|
3.8
|
%
|
|
$
|
294.4
|
|
|
$
|
283.1
|
|
|
|
4.0
|
%
|
Concession revenues (in millions)
|
|
$
|
114.3
|
|
|
$
|
112.7
|
|
|
|
1.4
|
%
|
|
$
|
27.2
|
|
|
$
|
25.7
|
|
|
|
5.8
|
%
|
|
$
|
141.5
|
|
|
$
|
138.4
|
|
|
|
2.2
|
%
|
Other revenues (in millions)
(1)
|
|
$
|
10.7
|
|
|
$
|
10.3
|
|
|
|
3.9
|
%
|
|
$
|
10.6
|
|
|
$
|
8.2
|
|
|
|
29.3
|
%
|
|
$
|
21.3
|
|
|
$
|
18.5
|
|
|
|
15.1
|
%
|
Total revenues (in millions)
(1)
|
|
$
|
359.3
|
|
|
$
|
348.2
|
|
|
|
3.2
|
%
|
|
$
|
97.9
|
|
|
$
|
91.8
|
|
|
|
6.6
|
%
|
|
$
|
457.2
|
|
|
$
|
440.0
|
|
|
|
3.9
|
%
|
Attendance (in millions)
|
|
|
38.6
|
|
|
|
38.9
|
|
|
|
(0.8
|
%)
|
|
|
14.8
|
|
|
|
16.8
|
|
|
|
(11.9
|
%)
|
|
|
53.4
|
|
|
|
55.7
|
|
|
|
(4.1
|
%)
|
Revenues per screen (in dollars)
(1)
|
|
$
|
97,871
|
|
|
$
|
97,870
|
|
|
|
0.0
|
%
|
|
$
|
96,811
|
|
|
$
|
95,317
|
|
|
|
1.6
|
%
|
|
$
|
97,642
|
|
|
$
|
97,326
|
|
|
|
0.3
|
%
|
|
|
|
(1)
|
|
U.S. operating segment revenues include eliminations of intercompany transactions
with the international operating segment. See Note 17 of our condensed consolidated financial
statements.
|
Consolidated.
The increase in admissions revenues of $11.3 million was primarily
attributable to an 8.3% increase in average ticket price from $5.09 for the second quarter of
2007 to $5.51 for the second quarter of 2008, partially offset by a 4.1% decline in
attendance. The increase in concession revenues of $3.1 million was primarily attributable to
a 6.4% increase in concession revenues per patron from $2.49 for the second quarter of 2007 to
$2.65 for the second quarter of 2008, partially offset by the decline in attendance. The
increases in average ticket price and concession revenues per patron were primarily due to
price increases and the favorable impact of exchange rates in certain countries in which we
operate. The 15.1% increase in other revenues was primarily due to increased screen
advertising and other ancillary revenues in certain of our international locations and the
favorable impact of exchange rates in certain countries in which we operate.
U.S.
The increase in admissions revenues of $9.1 million was primarily attributable
to a 4.8% increase in average ticket price from $5.79 for the second quarter of 2007 to $6.07
for the second quarter of 2008, partially offset by a 0.8% decline in attendance. The increase
in concession revenues of $1.6 million was primarily attributable to a 2.1% increase in
concession revenues per patron from $2.90 for the second quarter of 2007 to $2.96 for the
second quarter of 2008, partially offset by the decline in attendance. The increases in
average ticket price and concession revenues per patron were primarily due to price increases.
International.
The increase in admissions revenues of $2.2 million was primarily
attributable to a 17.3% increase in average ticket price from $3.46 for the second quarter of
2007 to $4.06 for the second quarter of 2008, partially offset by an 11.9% decline in
attendance. The increase in concession revenues of $1.5 million was primarily attributable to
a 19.5% increase in concession revenues per patron from $1.54 for the second quarter of 2007
to $1.84 for the second quarter of 2008, partially offset by the decline in attendance. The
increases in average ticket price and concession revenues per patron were primarily due to
price increases and the favorable impact of exchange rates in certain countries in which we
operate. The decline in attendance was primarily related to a shift in the holiday calendar,
as Easter fell in March of this year versus April of last year, and a shift in the timing of
certain key film releases in international markets. The 29.3% increase in other revenues was
primarily due to increased screen advertising and other ancillary revenues and the favorable
impact of exchange rates in certain countries in which we operate.
Theatre Operating Costs (excludes depreciation and amortization expense).
Theatre operating
costs were $338.8 million, or 74.1% of revenues, for the second quarter of 2008 compared to $328.7
million, or 74.7% of revenues, for the second quarter of 2007. The table below, presented by
reportable operating segment, summarizes our year-over-year theatre operating costs.
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Operating
|
|
|
|
|
U.S. Operating Segment
|
|
Segment
|
|
Consolidated
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Film rentals and advertising
|
|
$
|
134.4
|
|
|
$
|
129.7
|
|
|
$
|
29.4
|
|
|
$
|
29.4
|
|
|
$
|
163.8
|
|
|
$
|
159.1
|
|
Concession supplies
|
|
|
16.3
|
|
|
|
16.3
|
|
|
|
6.9
|
|
|
|
6.4
|
|
|
|
23.2
|
|
|
|
22.7
|
|
Salaries and wages
|
|
|
37.4
|
|
|
|
38.6
|
|
|
|
7.9
|
|
|
|
6.8
|
|
|
|
45.3
|
|
|
|
45.4
|
|
Facility lease expense
|
|
|
41.3
|
|
|
|
40.3
|
|
|
|
14.8
|
|
|
|
13.0
|
|
|
|
56.1
|
|
|
|
53.3
|
|
Utilities and other
|
|
|
36.5
|
|
|
|
36.3
|
|
|
|
13.9
|
|
|
|
11.9
|
|
|
|
50.4
|
|
|
|
48.2
|
|
|
|
|
Total theatre operating costs
|
|
$
|
265.9
|
|
|
$
|
261.2
|
|
|
$
|
72.9
|
|
|
$
|
67.5
|
|
|
$
|
338.8
|
|
|
$
|
328.7
|
|
|
|
|
Consolidated.
Film rentals and advertising costs were $163.8 million, or 55.6% of
admissions revenues, for the second quarter of 2008 compared to $159.1 million, or 56.2% of
admissions revenues, for the second quarter of 2007. The increase in film rentals and
advertising costs of $4.7 million is due to an $11.3 million increase in admissions revenues,
which contributed $6.3 million, partially offset by a decrease in our film rental and
advertising rate, which reduced costs by $1.6 million. Concession supplies expense was $23.2
million, or 16.4% of concession revenues, for the second quarter of 2008 compared to $22.7
million, or 16.4% of concession revenues, for the second quarter of 2007.
Salaries and wages decreased to $45.3 million for the second quarter of 2008 from $45.4 million
for the second quarter of 2007. Facility lease expense increased to $56.1 million for the second
quarter of 2008 from $53.3 million for the second quarter of 2007 primarily due to new theatre
openings and the impact of exchange rates in certain countries in which we operate. Utilities
and other costs increased to $50.4 million for the second quarter of 2008 from $48.2 million for
the second quarter of 2007 primarily due to new theatre openings and the impact of exchange
rates in certain countries in which we operate.
U.S.
Film rentals and advertising costs were $134.4 million, or 57.4% of admissions
revenues, for the second quarter of 2008 compared to $129.7 million, or 57.6% of admissions
revenues, for the second quarter of 2007. The increase in film rentals and advertising costs
of $4.7 million is due to a $9.1 million increase in admissions revenues, partially offset by
a decrease in our film rentals and advertising rate. Concession supplies expense was $16.3
million, or 14.3% of concession revenues, for the second quarter of 2008 compared to $16.3
million, or 14.5% of concession revenues, for the second quarter of 2007.
Salaries and wages decreased to $37.4 million for the second quarter of 2008 from $38.6 million
for the second quarter of 2007 primarily due to improved operating efficiencies. Facility lease
expense increased to $41.3 million for the second quarter of 2008 from $40.3 million for the
second quarter of 2007 primarily due to new theatre openings. Utilities and other costs
increased to $36.5 million for the second quarter of 2008 from $36.3 million for the second
quarter of 2007 primarily due to new theatre openings.
International.
Film rentals and advertising costs were $29.4 million, or 48.9% of
admissions revenues, for the second quarter of 2008 compared to $29.4 million, or 50.8% of
admissions revenues, for the second quarter of 2007. The decrease in our film rental and
advertising rate was primarily due to the type and performance of films during the second
quarter of 2008 versus 2007. Concession supplies expense was $6.9 million, or 25.4% of
concession revenues, for the second quarter of 2008 compared to $6.4 million, or 24.9% of
concession revenues, for the second quarter of 2007. The increase in concession supplies
expense is primarily due to increased concession revenues.
Salaries and wages increased to $7.9 million for the second quarter of 2008 from $6.8 million
for the second quarter of 2007 primarily due to new theatre openings and the impact of exchange
rates in certain countries in which we operate. Facility lease expense increased to $14.8
million for the second quarter of 2008 from $13.0 million for the second quarter of 2007
primarily due to new theatre openings and the impact of exchange rates in certain countries in
which we operate. Utilities and other costs increased to $13.9 million for the second quarter of
2008 from $11.9 million for the second quarter of 2007 primarily due to new theatre openings and
the impact of exchange rates in certain countries in which we operate.
27
General and Administrative Expenses.
General and administrative expenses increased to $24.5
million for the second quarter of 2008 from $18.4 million for the second quarter of 2007. The
increase was primarily due to increased incentive compensation expense, increased share based award
compensation expense, increased service charges related to increased credit card activity and
increased legal and professional fees, including audit fees related to compliance with the
Sarbanes-Oxley Act of 2002 (SOX). Legal fees increased as a result of the preparation of our
first proxy statement and related disclosures required under the
Securities Exchange Act of 1934, as
amended, particularly relating to compensation discussion and analysis, and defense costs related
to a lawsuit which we have been vigorously defending and has been dismissed with prejudice.
Termination of Profit Participation Agreement.
Upon consummation of our initial public
offering on April 24, 2007, we exercised our option to terminate the amended and restated profit
participation agreement with our CEO Alan Stock and purchased Mr. Stocks interest in the theatres
on May 3, 2007 for a price of $6.9 million pursuant to the terms of the agreement. In addition,
the Company incurred $0.1 million of payroll taxes related to the termination. See Note 18 to our
condensed consolidated financial statements.
Depreciation and Amortization.
Depreciation and amortization expense, including amortization
of favorable leases, was $38.5 million for the second quarter of 2008 compared to $37.3 million for
the second quarter of 2007 primarily due to new theatre openings.
Impairment of Long-Lived Assets
. We recorded asset impairment charges on assets held and used
of $1.3 million for the second quarter of 2008 compared to $7.0 million during the second quarter
of 2007. Impairment charges for the second quarter of 2008 were primarily for U.S. theatre
properties. Impairment charges for the second quarter of 2007 consisted of $1.6 million of theatre
properties, $4.3 million of goodwill and $1.1 million of intangible assets associated with theatre
properties.
(Gain) Loss on Sale of Assets and Other.
We recorded a loss on sale of assets and other of
$1.1 million during the second quarter of 2008 compared to a gain of $1.9 million during the second
quarter of 2007. The loss recorded during the second quarter of 2008 was primarily due to the
write-off of theatre equipment that was replaced. The gain recorded during the second quarter of
2007 was primarily due to a gain on the sale of two U.S. theatres.
Interest Expense.
Interest costs incurred, including amortization of debt issue costs, were
$30.1 million for the second quarter of 2008 compared to $35.3 million for the second quarter of
2007. The decrease was primarily due to the repurchase of a portion of our 9
3
/
4
% senior discount
notes since the second quarter of 2007 and a reduction in the variable interest rates on a portion
of our long-term debt.
Interest Income.
We recorded interest income of $2.9 million during the second quarter of 2008
compared to $4.5 million during the second quarter of 2007. The decrease was primarily due to
lower interest rates earned on our cash investments.
Gain on Fandango transaction.
We recorded a gain of $9.2 million as a result of the sale of
our stock of Fandango, Inc in the second quarter of 2007. See Note 8 to our condensed consolidated
financial statements.
Distributions from NCM.
We recorded distributions from NCM of $3.4 million during the second
quarter of 2008 and $1.4 million during the second quarter of 2007, which were in excess of the
carrying value of our investment. See Note 6 to our condensed consolidated financial statements.
Income Taxes.
Income tax expense of $11.8 million was recorded for the second quarter of 2008
compared to an income tax benefit of $25.7 million for the second quarter of 2007. The effective
tax rate was 43.3% for the second quarter of 2008 compared to a benefit of 115.8% for the second
quarter of 2007. The change in the effective rate from the second quarter of 2007 was primarily due
to the gain related to the NCM Transaction in 2007. Income tax provisions for interim (quarterly)
periods are based on estimated annual income tax rates and are adjusted for the effects of
significant, infrequent or unusual items occurring during the interim period. As a result, the
interim rate may vary significantly from the normalized annual rate.
28
Six months ended June 30, 2008 and 2007
Revenues.
Total revenues increased $40.2 million to $858.2 million for the six months ended
June 30, 2008 (the 2008 period) from $818.0 million for the six months ended June 30, 2007 (the
2007 period), representing a 4.9% increase. The table below, presented by reportable operating
segment, summarizes our year-over-year revenue performance and certain key performance indicators
that impact our revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Operating Segment
|
|
International Operating
Segment
|
|
Consolidated
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
%
|
|
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
|
2008
|
|
2007
|
|
Change
|
Admissions revenues (in millions)
|
|
$
|
437.1
|
|
|
$
|
422.7
|
|
|
|
3.4
|
%
|
|
$
|
119.7
|
|
|
$
|
104.4
|
|
|
|
14.7
|
%
|
|
$
|
556.8
|
|
|
$
|
527.1
|
|
|
|
5.6
|
%
|
Concession revenues (in millions)
|
|
$
|
211.0
|
|
|
$
|
208.2
|
|
|
|
1.3
|
%
|
|
$
|
52.6
|
|
|
$
|
45.3
|
|
|
|
16.1
|
%
|
|
$
|
263.6
|
|
|
$
|
253.5
|
|
|
|
4.0
|
%
|
Other revenues (in millions)
(1)
|
|
$
|
19.1
|
|
|
$
|
23.1
|
|
|
|
(17.3
|
%)
|
|
$
|
18.7
|
|
|
$
|
14.3
|
|
|
|
30.8
|
%
|
|
$
|
37.8
|
|
|
$
|
37.4
|
|
|
|
1.1
|
%
|
Total revenues (in millions)
(1)
|
|
$
|
667.2
|
|
|
$
|
654.0
|
|
|
|
2.0
|
%
|
|
$
|
191.0
|
|
|
$
|
164.0
|
|
|
|
16.5
|
%
|
|
$
|
858.2
|
|
|
$
|
818.0
|
|
|
|
4.9
|
%
|
Attendance (in millions)
|
|
|
72.9
|
|
|
|
73.9
|
|
|
|
(1.4
|
%)
|
|
|
30.2
|
|
|
|
31.0
|
|
|
|
(2.6
|
%)
|
|
|
103.1
|
|
|
|
104.9
|
|
|
|
(1.7
|
%)
|
Revenues per screen (in dollars)
(1)
|
|
$
|
182,264
|
|
|
$
|
184,569
|
|
|
|
(1.2
|
%)
|
|
$
|
188,904
|
|
|
$
|
170,709
|
|
|
|
10.7
|
%
|
|
$
|
183,701
|
|
|
$
|
181,612
|
|
|
|
1.2
|
%
|
|
|
|
(1)
|
|
U.S. operating segment revenues include eliminations of intercompany transactions
with the international operating segment. See Note 17 of our condensed consolidated financial
statements.
|
Consolidated.
The increase in admissions revenues of $29.7 million was primarily
attributable to a 7.4% increase in average ticket price from $5.03 for the 2007 period to
$5.40 for the 2008 period, partially offset by a 1.7% decline in attendance. The increase in
concession revenues of $10.1 million was primarily attributable to a 5.8% increase in
concession revenues per patron from $2.42 for the 2007 period to $2.56 for the 2008 period,
partially offset by the decline in attendance. The increases in average ticket price and
concession revenues per patron were primarily due to price increases and the favorable impact
of exchange rates in certain countries in which we operate.
U.S.
The increase in admissions revenues of $14.4 million was primarily attributable
to a 4.9% increase in average ticket price from $5.72 for the 2007 period to $6.00 for the
2008 period, partially offset by a 1.4% decline in attendance. The increase in concession
revenues of $2.8 million was primarily attributable to a 2.5% increase in concession revenues
per patron from $2.82 for the 2007 period to $2.89 for the 2008 period, partially offset by
the decline in attendance. The increases in average ticket price and concession revenues per
patron were primarily due to price increases. The $4.0 million, or 17.3%, decrease in other
revenues was primarily attributable to reduced screen advertising revenues earned under the
amended Exhibitor Services Agreement with NCM. See Note 6 to the condensed consolidated
financial statements.
International.
The increase in admissions revenues of $15.3 million was primarily
attributable to a 17.5% increase in average ticket price from $3.37 for the 2007 period to
$3.96 for the 2008 period, partially offset by a 2.6% decline in attendance. The increase in
concession revenues of $7.3 million was primarily attributable to a 19.2% increase in
concession revenues per patron from $1.46 for the 2007 period to $1.74 for the 2008 period,
partially offset by the decline in attendance. The increases in average ticket price and
concession revenues per patron were primarily due to price increases and the favorable impact
of exchange rates in certain countries in which we operate. The increase in other revenues of
$4.4 million was primarily due to increased screen advertising and other ancillary revenues
and the favorable impact of exchange rates in certain countries in which we operate.
29
Theatre Operating Costs (excludes depreciation and amortization expense).
Theatre operating
costs were $642.8 million, or 74.9% of revenues, for the 2008 period compared to $610.4 million, or
74.6% of revenues, for the 2007 period. The table below, presented by reportable operating segment,
summarizes our year-over-year theatre operating costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Operating
|
|
|
|
|
U.S. Operating Segment
|
|
Segment
|
|
Consolidated
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Film rentals and advertising
|
|
$
|
243.2
|
|
|
$
|
235.2
|
|
|
$
|
58.7
|
|
|
$
|
52.2
|
|
|
$
|
301.9
|
|
|
$
|
287.4
|
|
Concession supplies
|
|
|
28.8
|
|
|
|
28.7
|
|
|
|
13.2
|
|
|
|
11.4
|
|
|
|
42.0
|
|
|
|
40.1
|
|
Salaries and wages
|
|
|
72.8
|
|
|
|
73.0
|
|
|
|
15.1
|
|
|
|
12.6
|
|
|
|
87.9
|
|
|
|
85.6
|
|
Facility lease expense
|
|
|
82.8
|
|
|
|
80.2
|
|
|
|
29.6
|
|
|
|
24.7
|
|
|
|
112.4
|
|
|
|
104.9
|
|
Utilities and other
|
|
|
71.7
|
|
|
|
70.6
|
|
|
|
26.9
|
|
|
|
21.8
|
|
|
|
98.6
|
|
|
|
92.4
|
|
|
|
|
Total theatre operating costs
|
|
$
|
499.3
|
|
|
$
|
487.7
|
|
|
$
|
143.5
|
|
|
$
|
122.7
|
|
|
$
|
642.8
|
|
|
$
|
610.4
|
|
|
|
|
Consolidated.
Film rentals and advertising costs were $301.9 million, or 54.2% of
admissions revenues, for the 2008 period compared to $287.4 million, or 54.5% of admissions
revenues, for the 2007 period. The increase in film rentals and advertising costs of $14.5
million is due to a $29.7 million increase in admissions revenues, which contributed $15.6
million, partially offset by a decrease in our film rental and advertising rate, which reduced
costs by $1.1 million. Concession supplies expense was $42.0 million, or 15.9% of concession
revenues, for the 2008 period, compared to $40.1 million, or 15.8% of concession revenues, for
the 2007 period.
Salaries and wages increased to $87.9 million for the 2008 period from $85.6 million for the
2007 period primarily due to new theatre openings and the impact of exchange rates in certain
countries in which we operate. Facility lease expense increased to $112.4 million for the 2008
period from $104.9 million for the 2007 period primarily due to new theatre openings and the
impact of exchange rates in certain countries in which we operate. Utilities and other costs
increased to $98.6 million for the 2008 period from $92.4 million for the 2007 period primarily
due to new theatre openings and the impact of exchange rates in certain countries in which we
operate.
U.S.
Film rentals and advertising costs were $243.2 million, or 55.6% of admissions
revenues, for the 2008 period compared to $235.2 million, or 55.6% of admissions revenues, for
the 2007 period. The increase in film rentals and advertising costs of $8.0 million is due to
a $14.4 million increase in admissions revenues. Concession supplies expense was $28.8
million, or 13.6% of concession revenues, for the 2008 period, compared to $28.7 million, or
13.8% of concession revenues, for the 2007 period.
Salaries and wages decreased to $72.8 million for the 2008 period from $73.0 million for the
2007 period primarily due to improved operating efficiencies. Facility lease expense increased
to $82.8 million for the 2008 period from $80.2 million for the 2007 period primarily due to new
theatre openings. Utilities and other costs increased to $71.7 million for the 2008 period from
$70.6 million for the 2007 period primarily due to new theatre openings.
International.
Film rentals and advertising costs were $58.7 million, or 49.0% of
admissions revenues, for the 2008 period compared to $52.2 million, or 50.0% of admissions
revenues, for the 2007 period. The increase in film rentals and advertising costs is primarily
due to increased admissions revenues. Concession supplies expense was $13.2 million, or 25.1%
of concession revenues, for the 2008 period compared to $11.4 million, or 25.2% of concession
revenues, for the 2007 period. The increase in concession supplies expense is primarily due to
increased concession revenues.
Salaries and wages increased to $15.1 million for the 2008 period from $12.6 million for the
2007 period primarily due to new theatre openings and the impact of exchange rates in certain
countries in which we operate. Facility lease expense increased to $29.6 million for the 2008
period from $24.7 million for the 2007 period primarily due to new theatre openings and the
impact of exchange rates in certain countries in which we operate. Utilities and other costs
increased to $26.9 million for the 2008 period from $21.8 million for the 2007 period primarily
due to new theatre openings and the impact of exchange rates in certain countries in which we
operate.
30
General and Administrative Expenses.
General and administrative expenses increased to $45.1
million for the 2008 period from $37.1 million for the 2007 period. The increase was primarily due
to increased incentive compensation expense, increased share based award compensation expense,
increased service charges related to increased credit card activity and increased legal and
professional fees, including audit fees related to SOX compliance. Legal fees increased as a result
of the preparation of our first proxy statement and related disclosures required under the
Securities Exchange Act of 1934, as amended, particularly relating to compensation discussion and analysis,
and defense costs related to a lawsuit which we have been vigorously defending and has been
dismissed with prejudice.
Termination of Profit Participation Agreement.
Upon consummation of our initial public
offering on April 24, 2007, we exercised our option to terminate the amended and restated profit
participation agreement with our CEO Alan Stock and purchased Mr. Stocks interest in the theatres
on May 3, 2007 for a price of $6.9 million pursuant to the terms of the agreement. In addition,
the Company incurred $0.1 million of payroll taxes related to the termination. See Note 18 to our
condensed consolidated financial statements.
Depreciation and Amortization.
Depreciation and amortization expense, including amortization
of favorable leases, was $76.7 million for the 2008 period compared to $75.2 million for the 2007
period primarily due to new theatre openings.
Impairment of Long-Lived Assets
. We recorded asset impairment charges on assets held and used
of $5.8 million for the 2008 period compared to $56.8 million during the 2007 period. Impairment
charges for the 2008 period were primarily for U.S. theatre properties. Impairment charges for the
2007 period consisted of $8.0 million of theatre properties, $45.1 million of goodwill associated
with theatre properties and $3.7 million of intangible assets associated with theatre properties.
As a result of the NCM Transaction and more specifically the modification of the NCM Exhibitor
Services Agreement, which significantly reduced the contractual amounts paid to us, we evaluated
the carrying value of our goodwill as of March 31, 2007, leading to a majority of the goodwill
impairment charges recorded during the 2007 period (see Note 6).
(Gain) Loss on Sale of Assets and Other.
We recorded a loss on sale of assets and other of
$0.9 million during the 2008 period compared to a gain of $1.6 million during the 2007 period. The
loss recorded during the 2008 period was primarily due to the write-off of theatre equipment that
was replaced and the write-off of prepaid rent for an international theatre, partially offset by a
gain on sale of land parcels. The gain recorded during the 2007 period was primarily due to a gain
on the sale of real property associated with one of our U.S. theatres.
Interest Expense.
Interest costs incurred, including amortization of debt issue costs, were
$62.1 million for the 2008 period compared to $76.7 million for the 2007 period. The decrease was
primarily due to the repurchase of substantially all of our outstanding 9% senior subordinated
notes that occurred during March 2007, the repurchase of a portion of our 9
3
/
4
% senior discount
notes since the second quarter of 2007, and a reduction in the variable interest rates on a portion
of our long-term debt.
Interest Income.
We recorded interest income of $6.7 million during the 2008 period compared
to interest income of $8.2 million during the 2007 period. The decrease in interest income was
primarily due to lower interest rates earned on our cash investments.
Gain on NCM transaction.
We recorded a gain of $210.8 million on the sale of a portion of our
equity investment in NCM in conjunction with the initial public offering of NCM, Inc. during the
2007 period. Our ownership interest in NCM was reduced from approximately 25% to approximately 14%
as part of this sale of stock in the offering. See Note 6 to our condensed consolidated financial
statements.
Gain on Fandango transaction.
We recorded a gain of $9.2 million as a result of the sale of
our investment in stock of Fandango, Inc in the 2007 period. See Note 8 to our condensed
consolidated financial statements.
Distributions from NCM.
We recorded distributions from NCM of $8.6 million during the 2008
period and $1.4 million during the 2007 period, which were in excess of the carrying value of our
investment. See Note 6 to our condensed consolidated financial statements.
31
Income Taxes.
Income tax expense of $15.5 million was recorded for the 2008 period compared to
$9.7 million for the 2007 period. The effective tax rate was 42.7% for the 2008 period compared to
5.5% for the 2007 period. The change in the effective rate from the 2007 period was primarily due
to the gain related to the NCM Transaction in 2007. Income tax provisions for interim (quarterly)
periods are based on estimated annual income tax rates and are adjusted for the effects of
significant, infrequent or unusual items occurring during the interim period. As a result, the
interim rate may vary significantly from the normalized annual rate.
Liquidity and Capital Resources
Operating Activities
We primarily collect our revenues in cash, mainly through box office receipts and the sale of
concession supplies. In addition, a majority of our theatres provide the patron a choice of using a
credit card, in place of cash, which we convert to cash over a range of one to six days. Because
our revenues are received in cash prior to the payment of related expenses, we have an operating
float and historically have not required traditional working capital financing. Cash provided by
operating activities was $139.0 million for the six months ended June 30, 2008 compared to $166.6
million for the six months ended June 30, 2007. Cash provided by operating activities for the six
months ended June 30, 2007 included the proceeds received from NCM for the modification of our
Exhibitor Services Agreement. See Note 6 to our condensed consolidated financial statements for
further discussion of the NCM Transaction.
We issued our 9
3
/
4
% senior discount notes on March 31, 2004. Interest on the 9
3
/
4
% senior
discount notes has accreted rather than been paid in cash, which has benefited our operating cash
flows for the periods presented. Interest will be paid in cash commencing September 15, 2009, at
which time our operating cash flows will be impacted.
Investing Activities
Our investing activities have been principally related to the development and acquisition of
additional theatres. New theatre openings and acquisitions historically have been financed with
internally generated cash and by debt financing, including borrowings under our senior secured
credit facility. Cash used for investing activities was $34.4 million for the six months ended June
30, 2008 compared to cash provided by investing activities of $165.5 million for the six months
ended June 30, 2007. Cash provided by investing activities for the six months ended June 30, 2007
included proceeds received from the sale of a portion of our investment in NCM. See Note 6 to our
condensed consolidated financial statements for further discussion of the NCM Transaction.
Capital expenditures for the six months ended June 30, 2008 and 2007 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
|
|
Existing
|
|
|
Period
|
|
Theatres
|
|
Theatres
|
|
Total
|
Six Months Ended June 30, 2008
|
|
$
|
36.4
|
|
|
$
|
15.5
|
|
|
$
|
51.9
|
|
Six Months Ended June 30, 2007
|
|
$
|
52.2
|
|
|
$
|
20.9
|
|
|
$
|
73.1
|
|
We continue to expand our U.S. theatre circuit. We acquired two theatres with 28 screens,
built three theatres with 48 screens and closed three theatres with 42 screens during the six
months ended June 30, 2008, bringing our total domestic screen count to 3,688. At June 30, 2008,
we had signed commitments to open seven new theatres with 80 screens in domestic markets during
2008 and open eight new theatres with 120 screens subsequent to 2008. We estimate the remaining
capital expenditures for the development of these 200 domestic screens will be approximately $87
million. Actual expenditures for continued theatre development and acquisitions are subject to
change based upon the availability of attractive opportunities.
We continue to expand our international theatre circuit. We built two theatres with 11 screens
and closed four screens during the six months ended June 30, 2008, bringing our total international
screen count to 1,018. At June 30, 2008, we had signed
commitments to open four new theatres with
27 screens in international markets during 2008. We estimate the remaining capital expenditures for
the development of these 27 international screens will be
approximately $9 million. Actual
expenditures for continued theatre development and acquisitions are subject to change based upon
the availability of attractive opportunities.
32
We plan to fund capital expenditures for our continued development with cash flow from
operations, borrowings under our senior secured credit facility, subordinated note borrowings,
proceeds from sale leaseback transactions and/or sales of excess real estate.
Financing Activities
Cash used for financing activities was $50.9 million for the six months ended June 30, 2008
compared to $95.1 million for the six months ended June 30, 2007. Cash used for financing
activities for the six months ended June 30,2007 reflected the repurchase of $332.1 million
aggregate principal amount of our 9% senior subordinated notes and the net proceeds of
approximately $246.0 million from an initial public offering of our common stock.
In August 2007, we initiated a quarterly dividend policy. On February 26, 2008, our board of
directors declared a cash dividend for the fourth quarter of 2007 in the amount of $0.18 per share
of common stock payable to stockholders of record on March 6, 2008. The dividend was paid on March
14, 2008 in the total amount of $19.3 million. On May 9, 2008, our board of directors declared a
cash dividend for the first quarter of 2008 in the amount of $0.18 per share of common stock
payable to stockholders of record on May 30, 2008. The dividend was paid on June 12, 2008 in the
total amount of $19.3 million.
On March 20, 2008, in one open market purchase, we repurchased $10.0 million aggregate
principal amount at maturity of our 9
3
/
4
% senior discount notes for approximately $9.0 million,
including accreted interest of $2.9 million. We funded the transaction with proceeds from our
initial public offering.
We may from time to time, subject to compliance with our debt instruments, purchase on the
open market our debt securities depending upon the availability and prices of such securities.
Long-term debt consisted of the following as of June 30, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30, 2008
|
|
2007
|
Cinemark, Inc. 9
3
/
4
% senior discount notes due 2014
|
|
$
|
426,705
|
|
|
$
|
415,768
|
|
Cinemark USA, Inc. term loan
|
|
|
1,100,400
|
|
|
|
1,101,686
|
|
Cinemark USA, Inc. 9% senior subordinated notes due 2013
|
|
|
181
|
|
|
|
184
|
|
Other long-term debt
|
|
|
3,361
|
|
|
|
6,107
|
|
|
|
|
Total long-term debt
|
|
|
1,530,647
|
|
|
|
1,523,745
|
|
Less current portion
|
|
|
12,770
|
|
|
|
9,166
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
1,517,877
|
|
|
$
|
1,514,579
|
|
|
|
|
As of June 30, 2008, we had borrowings of $1,100.4 million outstanding on the term loan under
our senior secured credit facility, $426.7 million accreted principal amount outstanding under our
9
3
/
4
% senior discount notes and approximately $0.2 million aggregate principal amount outstanding
under the 9% senior subordinated notes, respectively, and had approximately $149.9 million in
available borrowing capacity under our revolving credit facility. We were in full compliance with
all covenants governing our outstanding debt at June 30, 2008.
33
As of June 30, 2008, our long-term debt obligations, scheduled interest payments on long-term
debt, future minimum lease obligations under non-cancelable operating and capital leases, scheduled
interest payments under capital leases, outstanding letters of credit, obligations under employment
agreements and purchase commitments for each period indicated are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
(in millions)
|
|
|
|
|
|
|
Less Than
|
|
1 - 3
|
|
4 - 5
|
|
After
|
Contractual Obligations
|
|
Total
|
|
One Year
|
|
1 - 3 Years
|
|
4 - 5 Years
|
|
5 Years
|
Long-term debt
1
|
|
$
|
1,560.4
|
|
|
$
|
12.8
|
|
|
$
|
24.2
|
|
|
$
|
803.8
|
|
|
$
|
719.6
|
|
Scheduled interest payments on long-term debt
2
|
|
|
$502.0
|
|
|
|
60.5
|
|
|
|
208.0
|
|
|
|
193.6
|
|
|
|
39.9
|
|
Operating lease obligations
|
|
$
|
1,938.0
|
|
|
|
182.8
|
|
|
|
357.3
|
|
|
|
335.5
|
|
|
|
1,062.4
|
|
Capital lease obligations
|
|
$
|
126.8
|
|
|
|
5.2
|
|
|
|
12.1
|
|
|
|
13.0
|
|
|
|
96.5
|
|
Scheduled interest payments on capital leases
|
|
$
|
112.0
|
|
|
|
12.5
|
|
|
|
23.5
|
|
|
|
21.4
|
|
|
|
54.6
|
|
Letters of credit
|
|
$
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment agreements
|
|
$
|
9.6
|
|
|
|
3.2
|
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
Purchase commitments
3
|
|
$
|
110.3
|
|
|
|
47.0
|
|
|
|
62.2
|
|
|
|
1.0
|
|
|
|
0.1
|
|
|
|
|
Total obligations
4
|
|
$
|
4,359.2
|
|
|
$
|
324.1
|
|
|
$
|
693.7
|
|
|
$
|
1,368.3
|
|
|
$
|
1,973.1
|
|
|
|
|
|
|
|
1
|
|
Includes the 9
3
/
4
% senior discount notes in the aggregate principal amount at maturity
of $456.4 million.
|
|
2
|
|
Amounts include scheduled interest payments on fixed rate and variable rate debt
agreements. Estimates for the variable rate interest payments were based on interest rates in
effect on June 30, 2008. The average interest rates on our fixed rate and variable rate debt were
8.1% and 4.5%, respectively, as of June 30, 2008.
|
|
3
|
|
Includes estimated capital expenditures associated with the construction of new theatres to
which we were committed as of June 30, 2008.
|
|
4
|
|
The contractual obligations table excludes the Companys FIN 48 liabilities of $16.5
million because the Company cannot make a reliable estimate of the timing of the related cash
payments.
|
Cinemark, Inc. 9
3
/
4
% Senior Discount Notes
On March 31, 2004, Cinemark, Inc. issued $577.2 million aggregate principal amount at maturity
of 9
3
/
4
% senior discount notes due 2014. Interest on the notes accretes until March 15, 2009 up to
their aggregate principal amount. Cash interest will accrue and be payable semi-annually in arrears
on March 15 and September 15, commencing on September 15, 2009. Payments of principal and interest
under these notes will be dependent on loans, dividends and other payments from Cinemark, Inc.s
subsidiaries. Cinemark, Inc. may redeem all or part of the 9
3
/
4
% senior discount notes on or after
March 15, 2009.
Prior to 2007, Cinemark, Inc. repurchased on the open market a total of $41.6 million
aggregate principal amount at maturity of its 9
3
/
4
% senior discount notes for approximately $33.0
million, including accreted interest. Cinemark, Inc. funded these transactions with available cash
from its operations.
During July and August 2007, Cinemark, Inc. repurchased in six open market purchases a total
of $47.0 million aggregate principal amount at maturity of its 9
3
/
4
% senior discount notes for
approximately $42.8 million, including accreted interest of $10.9 million and a cash premium of
$2.5 million. During November 2007, as part of an open market purchase, Cinemark, Inc. repurchased
$22.2 million aggregate principal amount at maturity of its 9
3
/
4
% senior discount notes for
approximately $20.9 million, including accreted interest of $5.7 million and a cash premium of $1.5
million. On March 20, 2008, in one open market purchase, Cinemark, Inc. repurchased $10.0 million
aggregate principal amount at maturity of its 9
3
/
4
% senior discount notes for approximately $9.0
million, including accreted interest of $2.9 million. We funded the 2007 and 2008 transactions
with proceeds from our initial public offering.
As of June 30, 2008, the accreted principal balance of the notes was approximately $426.7
million and the aggregate principal amount at maturity was approximately $456.4 million.
The indenture governing the 9
3
/
4
% senior discount notes contains covenants that limit, among
other things, dividends, transactions with affiliates, investments, sales of assets, mergers,
repurchases of our capital stock, liens and additional indebtedness. The dividend restriction
contained in the indenture prevents Cinemark, Inc. from paying a dividend or otherwise distributing
cash to its stockholders unless (1) it is not in default, and the distribution would not
34
cause it
to be in default, under the indenture; (2) it would be able to incur at least $1.00 more of
indebtedness without the ratio of its consolidated cash flow to its fixed charges (each as defined
in the indenture, and calculated on a pro forma basis for the most recently ended four full fiscal
quarters for which internal financial statements are available, using certain assumptions and
modifications specified in the indenture, and including the additional indebtedness then being
incurred) falling below two to one (the senior notes debt incurrence ratio test); and (3) the
aggregate amount of distributions made since March 31, 2004, including the distribution proposed,
is less than the sum of (a) half of its
consolidated net income (as defined in the indenture) since February 11, 2003, (b) the net
proceeds to it from the issuance of stock since April 2, 2004, and (c) certain other amounts
specified in the indenture, subject to certain adjustments specified in the indenture. The dividend
restriction is subject to certain exceptions specified in the indenture.
Upon certain specified types of change of control of Cinemark, Inc., Cinemark, Inc. would be
required under the indenture to make an offer to repurchase all of the 9
3
/
4
% senior discount notes
at a price equal to 101% of the accreted value of the notes plus accrued and unpaid interest, if
any, through the date of repurchase.
Senior Secured Credit Facility
On October 5, 2006, in connection with the Century Acquisition, the Companys wholly-owned
subsidiary, Cinemark USA, Inc., entered into a senior secured credit facility. The senior secured
credit facility provides for a seven year term loan of $1.12 billion and a $150 million revolving
credit line that matures in six years unless our 9% senior subordinated notes have not been
refinanced by August 1, 2012 with indebtedness that matures no earlier than seven and one-half
years after the closing date of the senior secured credit facility, in which case the maturity date
of the revolving credit line becomes August 1, 2012. The net proceeds of the term loan were used to
finance a portion of the $531.2 million cash portion of the Century Acquisition, repay in full the
$253.5 million outstanding under the former senior secured credit facility, repay $360.0 million of
existing indebtedness of Century and to pay for related fees and expenses. The revolving credit
line was left undrawn at closing. The revolving credit line is used for our general corporate
purposes.
At June 30, 2008, there was $1,100.4 million outstanding under the term loan and no borrowings
outstanding under the revolving credit line. Approximately $149.9 million was available for
borrowing under the revolving credit line, after giving effect to a $0.1 million letter of credit
outstanding. The average interest rate on outstanding borrowings under the senior secured credit
facility at June 30, 2008 was 5.5% per annum.
Under the term loan, principal payments of $2.8 million are due each calendar quarter
beginning December 31, 2006 through September 30, 2012 and increase to $263.2 million each calendar
quarter from December 31, 2012 to maturity at October 5, 2013. Prior to the amendment to the senior
secured credit facility discussed below, the term loan accrued interest, at Cinemark USA, Inc.s
option, at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the
British Banking Association Telerate page 5 or (2) the federal funds effective rate from time to
time plus 0.50%, plus a margin that ranges from 0.75% to 1.00% per annum, or (B) a eurodollar
rate plus a margin that ranges from 1.75% to 2.00% per annum, in each case as adjusted pursuant to
Cinemark USA, Inc.s corporate credit rating. Borrowings under the revolving credit line bear
interest, at Cinemark USA, Inc.s option, at: (A) a base rate equal to the higher of (1) the prime
lending rate as set forth on the British Banking Association Telerate page 5 and (2) the federal
funds effective rate from time to time plus 0.50%, plus a margin that ranges from 0.50% to 1.00%
per annum, or (B) a eurodollar rate plus a margin that ranges from 1.50% to 2.00% per annum, in
each case as adjusted pursuant to Cinemark USA, Inc.s consolidated net senior secured leverage
ratio as defined in the credit agreement. Cinemark USA, Inc. is required to pay a commitment fee
calculated at the rate of 0.50% per annum on the average daily unused portion of the revolving
credit line, payable quarterly in arrears, which rate decreases to 0.375% per annum for any fiscal
quarter in which Cinemark USA, Inc.s consolidated net senior secured leverage ratio on the last
day of such fiscal quarter is less than 2.25 to 1.0.
On March 14, 2007, Cinemark USA, Inc. amended its senior secured credit facility to, among
other things, modify the interest rate on the term loans under the senior secured credit facility,
modify certain prepayment terms and covenants, and facilitate the tender offer for the 9% senior
subordinated notes. The term loans now accrue interest, at Cinemark USA, Inc.s option, at: (A) the
base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking
Association Telerate page 5, or (2) the federal funds effective rate from time to time plus 0.50%,
plus a margin that ranges from 0.50% to 0.75% per annum, or (B) a eurodollar rate plus a margin
that ranges from 1.50% to 1.75%, per annum. In each case, the margin is a function of the corporate
credit rating applicable to the borrower. The interest rate on the revolving credit line was not
amended. Additionally, the amendment removed any obligation to prepay amounts outstanding under the
senior secured credit facility in an amount equal to the amount of the net cash proceeds received
from the NCM transaction or from excess cash flows, and imposed a 1% prepayment premium for one
year on certain
35
prepayments of the term loans.
Cinemark USA, Inc.s obligations under the senior secured credit facility are guaranteed by
Cinemark Holdings, Inc., Cinemark, Inc., and certain of Cinemark USA, Inc.s domestic subsidiaries
and are secured by mortgages on certain fee and leasehold properties and security interests in
substantially all of Cinemark USA, Inc.s and the guarantors personal property, including, without
limitation, pledges of all of Cinemark USA, Inc.s capital stock, all of the capital stock of
Cinemark, Inc., and certain of Cinemark USA, Inc.s domestic subsidiaries and 65% of the voting
stock of certain of its foreign subsidiaries.
The senior secured credit facility contains usual and customary negative covenants for
transactions of this type, including, but not limited to, restrictions on Cinemark USA, Inc.s
ability, and in certain instances, its subsidiaries and Cinemark Holdings, Inc.s and Cinemark,
Inc.s ability, to consolidate or merge or liquidate, wind up or dissolve; substantially change the
nature of its business; sell, transfer or dispose of assets; create or incur indebtedness; create
liens; pay dividends, repurchase stock and voluntarily repurchase or redeem the 9
3
/
4
% senior
discount notes; and make capital expenditures and investments. The senior secured credit facility
also requires Cinemark USA, Inc. to satisfy a consolidated net senior secured leverage ratio
covenant as determined in accordance with the senior secured credit facility. The dividend
restriction contained in the senior secured credit facility prevents us and any of our subsidiaries
from paying a dividend or otherwise distributing cash to its stockholders unless (1) we are not in
default, and the distribution would not cause us to be in default, under the senior secured credit
facility; and (2) the aggregate amount of certain dividends, distributions, investments,
redemptions and capital expenditures made since October 5, 2006, including the distribution
currently proposed, is less than the sum of (a) the aggregate amount of cash and cash equivalents
received by Cinemark Holdings, Inc. or Cinemark USA, Inc. as common equity since October 5, 2006,
(b) Cinemark USA, Inc.s consolidated EBITDA minus 1.75 times its consolidated interest expense,
each as defined in the senior secured credit facility, since October 1, 2006, (c) $150 million and
(d) certain other amounts specified in the senior secured credit facility, subject to certain
adjustments specified in the senior secured credit facility. The dividend restriction is subject to
certain exceptions specified in the senior secured credit facility.
The senior secured credit facility also includes customary events of default, including, among
other things, payment default, covenant default, breach of representation or warranty, bankruptcy,
cross-default, material ERISA events, certain types of change of control, material money judgments
and failure to maintain subsidiary guarantees. If an event of default occurs, all commitments under
the senior secured credit facility may be terminated and all obligations under the senior secured
credit facility could be accelerated by the lenders, causing all loans outstanding (including
accrued interest and fees payable thereunder) to be declared immediately due and payable. The
Cinemark Holdings, Inc. initial public offering is not considered a change of control under the
senior secured credit facility.
During March 2007, we entered into two interest rate swap agreements with effective dates of
August 13, 2007 and terms of five years each. The interest rate swaps were designated to hedge
approximately $500.0 million of our variable rate debt obligations. Under the terms of the interest
rate swap agreements, we pay fixed rates of 4.918% and 4.922% on $375.0 million and $125.0 million,
respectively, of variable rate debt and receive interest at a variable rate based on the 3-month
LIBOR. The 3-month LIBOR rate on each reset date determines the variable portion of the interest
rate-swaps for the three-month period following the reset date. No premium or discount was incurred
upon us entering into the interest rate swaps because the pay and receive rates on the interest
rate swaps represented prevailing rates for each counterparty at the time the interest rate swaps
were consummated. The interest rate swaps qualify for cash flow hedge accounting treatment in
accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
, and
as such, we have effectively hedged our exposure to variability in the future cash flows
attributable to the 3-month LIBOR on approximately $500.0 million of debt. The change in the fair
value of the interest rate swaps is recorded on our condensed consolidated balance sheet as an
asset or liability with the effective portion of the interest rate swaps gains or losses reported
as a component of other comprehensive income and the ineffective portion reported in earnings. At
June 30, 2008, the estimated aggregate fair value of the interest rate swaps was a liability of
approximately $16.7 million.
Cinemark USA, Inc. 9% Senior Subordinated Notes
On February 11, 2003, Cinemark USA, Inc. issued $150 million aggregate principal amount of 9%
senior subordinated notes due 2013 and on May 7, 2003, Cinemark USA, Inc. issued an additional $210
million aggregate principal amount of 9% senior subordinated notes due 2013, collectively referred
to as the 9% senior subordinated notes. Interest is payable on February 1 and August 1 of each
year.
Prior to 2007, Cinemark USA, Inc. repurchased a total of $27.8 million aggregate principal
amount of its 9% senior subordinated notes. The transactions were funded by Cinemark USA, Inc. with
available cash from operations.
36
On March 6, 2007, Cinemark USA, Inc. commenced an offer to purchase for cash any and all of
its then outstanding $332.2 million aggregate principal amount of 9% senior subordinated notes. In
connection with the tender offer, Cinemark USA, Inc. solicited consents for certain proposed
amendments to the indenture to remove substantially all restrictive covenants and certain events of
default provisions. On March 20, 2007, the early settlement date, Cinemark USA, Inc. repurchased
$332.0 million aggregate principal amount of 9% senior subordinated notes and executed a
supplemental indenture removing substantially all of the restrictive covenants and certain events
of default. Cinemark USA, Inc. used the proceeds from the NCM transaction and cash on hand to
purchase the 9% senior subordinated notes
tendered pursuant to the tender offer and consent solicitation. On March 20, 2007, we and the
Bank of New York Trust Company, N.A.. as trustee to the Indenture dated February 11, 2003, executed
the Fourth Supplemental Indenture. The Fourth Supplemental Indenture became effective on March 20,
2007 and it amends the Indenture by eliminating substantially all restrictive covenants and certain
events of default provisions. On April 3, 2007, the Company repurchased an additional $0.1 million
aggregate principal amount of the 9% senior subordinated notes tendered after the early settlement
date.
As of June 30, 2008, Cinemark USA, Inc. had outstanding approximately $0.2 million aggregate
principal amount of 9% senior subordinated notes. Cinemark USA, Inc. may redeem the remaining 9%
senior subordinated notes at its option at any time.
Seasonality
Our revenues have historically been seasonal, coinciding with the timing of releases of motion
pictures by the major distributors. Generally, the most successful motion pictures have been
released during the summer, extending from May to mid-August, and during the holiday season,
extending from the beginning of November through year-end. The unexpected emergence of a hit film
during other periods can alter this seasonality trend. The timing of such film releases can have a
significant effect on our results of operations, and the results of one quarter are not necessarily
indicative of results for the next quarter or for the same period in the following year.
37
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have exposure to financial market risks, including changes in interest rates, foreign
currency exchange rates and other relevant market prices.
Interest Rate Risk
We are currently party to variable rate debt facilities. An increase or decrease in interest
rates would affect interest costs relating to our variable rate debt facilities. At June 30, 2008,
there was an aggregate of approximately $603.8 million of variable rate debt outstanding under
these facilities. Based on the interest rate levels in effect on the variable rate debt
outstanding at June 30, 2008, a 100 basis point increase in market interest rates would increase
our annual interest expense by approximately $6.0 million.
During March 2007, we entered into two interest rate swap agreements with effective dates of
August 13, 2007 and terms of five years each. The interest rate swaps were designated to hedge
approximately $500.0 million of our variable rate debt obligations. Under the terms of the interest
rate swap agreements, we pay fixed rates of 4.918% and 4.922% on $375.0 million and $125.0 million,
respectively, of variable rate debt and receive interest at a variable rate based on the 3-month
LIBOR. The 3-month LIBOR rate on each reset date determines the variable portion of the interest
rate-swaps for the three-month period following the reset date. No premium or discount was incurred
upon us entering into the interest rate swaps because the pay and receive rates on the interest
rate swaps represented prevailing rates for each counterparty at the time the interest rate swaps
were consummated. The interest rate swaps qualify for cash flow hedge accounting treatment in
accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
, and
as such, we have effectively hedged our exposure to variability in the future cash flows
attributable to the 3-month LIBOR on approximately $500.0 million of debt. The change in the fair
values of the interest rate swaps is recorded on our condensed consolidated balance sheet as an
asset or liability with the effective portion of the interest rate swaps gains or losses reported
as a component of other comprehensive income and the ineffective portion reported in earnings. At
June 30, 2008, the estimated aggregate fair value of the interest rate swaps was a liability of
approximately $16.7 million.
The tables below provide information about our fixed rate and variable rate long-term debt
agreements as of June 30, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity as of June 30, 2008
|
|
|
|
|
(in millions)
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
Interest
|
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
|
Total
|
|
Value
|
|
Rate
|
Fixed rate
(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
237.0
|
|
|
$
|
719.6
|
|
|
$
|
956.6
|
|
|
$
|
944.0
|
|
|
|
8.1
|
%
|
Variable rate
|
|
|
12.8
|
|
|
|
12.8
|
|
|
|
11.4
|
|
|
|
11.2
|
|
|
|
555.6
|
|
|
|
|
|
|
|
603.8
|
|
|
|
605.8
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
12.8
|
|
|
$
|
12.8
|
|
|
$
|
11.4
|
|
|
$
|
11.2
|
|
|
$
|
792.6
|
|
|
$
|
719.6
|
|
|
$
|
1,560.4
|
|
|
$
|
1,549.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity as of December 31, 2007
|
|
|
|
|
(in millions)
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
Interest
|
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
Total
|
|
Value
|
|
Rate
|
Fixed rate
(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
966.6
|
|
|
$
|
966.6
|
|
|
$
|
940.1
|
|
|
|
8.2
|
%
|
Variable rate
|
|
|
9.2
|
|
|
|
13.8
|
|
|
|
12.4
|
|
|
|
11.2
|
|
|
|
271.6
|
|
|
|
289.6
|
|
|
|
607.8
|
|
|
|
612.8
|
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
9.2
|
|
|
$
|
13.8
|
|
|
$
|
12.4
|
|
|
$
|
11.2
|
|
|
$
|
271.6
|
|
|
$
|
1,256.2
|
|
|
$
|
1,574.4
|
|
|
$
|
1,552.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes $500.0 million of the Cinemark USA, Inc. term loan, which represents the
debt hedged with the Companys interest rate swap agreements.
|
38
Foreign Currency Exchange Rate Risk
We are also exposed to market risk arising from changes in foreign currency exchange rates as
a result of our international operations. Generally, we export from the U.S. certain of the
equipment and construction interior finish items and other operating supplies used by our
international subsidiaries. Principally all the revenues and operating expenses of our
international subsidiaries are transacted in the countrys local currency. Generally accepted
accounting principles in the U.S. require that our subsidiaries use the currency of the primary
economic environment in which they operate as their functional currency. If our subsidiaries
operate in a highly inflationary economy, generally accepted accounting principles in the U.S.
require that the U.S. dollar be used as the functional currency for the subsidiary. Currency
fluctuations result in us reporting exchange gains (losses) or foreign currency translation
adjustments relating to our international subsidiaries depending on the inflationary environment of
the country in which we operate. Based upon our equity ownership in our international subsidiaries
as of June 30, 2008, holding everything else constant, a 10% immediate, simultaneous, unfavorable
change in all of the foreign currency exchange rates to which we are exposed would decrease the net
book value of our investments in our international subsidiaries by approximately $40 million and
would decrease the aggregate net income of our international subsidiaries by approximately $2
million.
Item 4T. Controls and Procedures
Evaluation of the Effectiveness of Disclosure Controls and Procedures
We have established a system of controls and other procedures designed to ensure that
information required to be disclosed in our periodic reports filed under the Exchange Act, is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms. These disclosure controls and procedures have been
evaluated under the direction of our Chief Executive Officer and Chief Financial Officer for the
period covered by this report. Based on such evaluations, the Chief Executive Officer and Chief
Financial Officer have concluded that the disclosure controls and procedures are effective in
alerting them in a timely basis to material information relating to the Company and its
consolidated subsidiaries required to be included in our reports filed or submitted under the
Exchange Act.
Changes in Internal Controls Over Financial Reporting
There have been no material changes in our system of internal controls over financial
reporting or in other factors that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting within the period covered by this report.
39
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Previously reported under Business Legal Proceedings in the Companys Annual Report on
Form 10-K filed March 28, 2008.
Item 1A. Risk Factors
There have been no material changes from risk factors previously disclosed in Risk Factors
in the Companys Annual Report on Form 10-K filed March 28, 2008.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its annual meeting of stockholders for 2008 on May 15, 2008 (the Annual
Meeting) at the Cinemark Legacy Theatre located at 7201 Central Expressway, Plano, Texas 75025.
(b) The proposals that were voted upon at the Annual Meeting are as follows:
|
i)
|
|
Election of Directors ;
|
|
|
ii)
|
|
Approval and ratification of the appointment of the Companys independent, registered
public accounting firm Deloitte & Touche, LLP;
|
|
|
iii)
|
|
Approval of the Cinemark Holdings, Inc. Performance Bonus Plan; and
|
|
|
iv)
|
|
Approval of the Amended and Restated Cinemark Holdings, Inc. 2006 Long Term Incentive
Plan.
|
All the proposals voted upon at the Annual meeting required the affirmative vote of a majority of
the shares of common stock outstanding and entitled to vote as of the record date of the Companys
Annual Meeting. The table set forth below states the number of votes cast for, against or
withheld, as well as the number of abstentions and broker non-votes for each of the management
proposals voted upon at the Annual Meeting.
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker Non-
|
Description of Matter
|
|
For
|
|
Against
|
|
Withheld
|
|
Abstentions
|
|
Votes
|
Election of Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven P. Rosenberg
|
|
|
104,263,794
|
|
|
|
n/a
|
|
|
|
1,179,736
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Enrique F. Senior
|
|
|
105,409,625
|
|
|
|
n/a
|
|
|
|
33,905
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Donald G. Soderquist
|
|
|
105,409,281
|
|
|
|
n/a
|
|
|
|
34,249
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Roger T. Staubach
|
|
|
105,409,715
|
|
|
|
n/a
|
|
|
|
33,815
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker Non-
|
Description of Matter
|
|
For
|
|
Against
|
|
Withheld
|
|
Abstentions
|
|
Votes
|
Ratification of the
appointment of the
Companys
independent,
registered public
accounting firm
Deloitte & Touche
LLP.
|
|
|
94,244,647
|
|
|
|
11,198,883
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Approval of the
Cinemark Holdings,
Inc. Performance
Bonus Plan
|
|
|
103,319,534
|
|
|
|
212,853
|
|
|
|
n/a
|
|
|
|
1,234,861
|
|
|
|
676,282
|
|
Approval of the
Amended and Restated
Cinemark Holdings,
Inc. 2006 Long Term
Incentive Plan
|
|
|
79,052,685
|
|
|
|
24,479,602
|
|
|
|
n/a
|
|
|
|
1,234,961
|
|
|
|
676,282
|
|
40
Item 6. Exhibits
|
|
|
*10.1
|
|
Employment Agreement, dated as of June 16, 2008, between Cinemark
Holdings, Inc. and Alan Stock.
|
|
|
|
*10.2
|
|
Employment Agreement, dated as of June 16, 2008, between Cinemark
Holdings, Inc. and Robert Copple.
|
|
|
|
*10.3
|
|
Employment Agreement, dated as of June 16, 2008, between Cinemark
Holdings, Inc. and Tim Warner.
|
|
|
|
*10.4
|
|
Employment Agreement, dated as of June 16, 2008, between Cinemark
Holdings, Inc. and Michael Cavalier.
|
|
|
|
*10.5
|
|
Termination Agreement, dated as of June 16, 2008, between Cinemark
Holdings, Inc. and Tandy Mitchell.
|
|
|
|
*31.1
|
|
Certification of Alan Stock, Chief Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*31.2
|
|
Certification of Robert Copple, Chief Financial Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*32.1
|
|
Certification of Alan Stock, Chief Executive Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*32.2
|
|
Certification of Robert Copple, Chief Financial Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
41
SIGNATURES
Pursuant to the requirements 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.
|
|
|
|
|
|
CINEMARK HOLDINGS, INC.
Registrant
|
|
|
DATE:
August 8, 2008
|
|
|
|
|
/s/ Alan W. Stock
|
|
|
Alan W. Stock
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
/s/ Robert Copple
|
|
|
Robert Copple
|
|
|
Chief Financial Officer
|
|
|
42
EXHIBIT INDEX
|
|
|
*10.1
|
|
Employment Agreement, dated as of June 16, 2008, between Cinemark
Holdings, Inc. and Alan Stock.
|
|
|
|
*10.2
|
|
Employment Agreement, dated as of June 16, 2008, between Cinemark
Holdings, Inc. and Robert Copple.
|
|
|
|
*10.3
|
|
Employment Agreement, dated as of June 16, 2008, between Cinemark
Holdings, Inc. and Tim Warner.
|
|
|
|
*10.4
|
|
Employment Agreement, dated as of June 16, 2008, between Cinemark
Holdings, Inc. and Michael Cavalier.
|
|
|
|
*10.5
|
|
Termination Agreement, dated as of June 16, 2008, between Cinemark
Holdings, Inc. and Tandy Mitchell.
|
|
|
|
*31.1
|
|
Certification of Alan Stock, Chief Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*31.2
|
|
Certification of Robert Copple, Chief Financial Officer, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*32.1
|
|
Certification of Alan Stock, Chief Executive Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
*32.2
|
|
Certification of Robert Copple, Chief Financial Officer, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|
Exhibit
10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this
Agreement
) is made and entered into as of June 16, 2008, by
and between Cinemark Holdings, Inc., a Delaware corporation (the
Company
), and Alan W. Stock
(
Executive
).
WITNESSETH:
WHEREAS
, Cinemark, Inc., a wholly owned subsidiary of the Company, and Executive are parties
to an Employment Agreement dated as of March 12, 2004, as amended to the date hereof relating to
Executive, which arrangement sets forth the terms and conditions of Executives employment with
Cinemark, Inc. (the
Original Agreement
); and
WHEREAS
, the parties desire to enter into this Agreement to replace and supersede the Original
Agreement;
NOW
,
THEREFORE
, in consideration of the mutual promises and covenants set forth herein, the
parties hereto agree as follows:
1.
Employment
.
1.1
Title and Duties
. The Company hereby employs Executive as Chief Executive Officer of the Company. Executives duties, responsibilities and
authority shall be consistent with Executives position and titles and shall include serving in a
similar capacity with certain of the Companys Subsidiaries (as hereinafter defined) and such other
duties, responsibilities and authority as may be assigned to Executive by the Board of Directors of
the Company (the
Board
). Executive shall report directly to the Chief Executive Officer of the
Company.
1.2
Services and Exclusivity of Services
. The Company and Executive recognize that
the services to be rendered by Executive are of such a nature as to be peculiarly rendered by
Executive, encompass the individual ability, managerial skills and business experience of Executive
and cannot be measured exclusively in terms of hours or services rendered in any particular period.
Executive shall devote Executives full business time and shall use Executives best efforts,
energy and ability exclusively toward advancing the business, affairs and interests of the Company
and its Subsidiaries, and matters related thereto. Nothing in this Agreement shall preclude
Executive from serving on boards of directors of up to one other company which is not competitive
to the Company upon the Boards approval not to be unreasonably withheld or participating on a
board of or in trade organizations, charitable, community, school or religious activities that do
not substantially interfere with his duties and responsibilities hereunder or conflict with the
interests of the Company.
1.3
Location of Office
. The Company shall make available to Executive an office and
support services at the Companys headquarters in Dallas/Plano, Texas area. Executives main
office shall be at such location.
1.4
Subsidiaries; Person
. For purposes of this Agreement,
Subsidiary
or
Subsidiaries
means, as to any Person, any other Person (i) of which such Person or any other
Subsidiary of such Person is a general partner, (ii) of which such Person, any one or more of
its other Subsidiaries of such Person, or such Person and any one or more of its other
Subsidiaries, directly or indirectly owns or controls securities or other equity interests
representing more than fifty percent (50%) of the aggregate voting power, or (iii) of which such
Person, any one or more of its other Subsidiaries of such Person, or such Person and any one or
more its other Subsidiaries, possesses the right to elect more than fifty percent (50%) of the
board of directors or Persons holding similar positions; and
Person
means any individual,
corporation, partnership, limited liability company, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, or other entity or group (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended).
2.
Term
. The term of Executives employment under this Agreement (the
Term
) shall
commence on the Effective Date (as defined in Section 19) and shall continue for a period of three
(3) years thereafter; provided, however, that at the end of each year of the Term, the Term shall
be extended for an additional one-year period unless Executives employment with the Company is
terminated in accordance with Section 5. References in this Agreement to the balance of the Term
shall mean the period of time remaining on the scheduled Term after giving effect to the most
recent extension of the Term occurring prior to any termination of the Term.
3.
Compensation
.
3.1
Base Salary
. During the Term, the Company will pay to Executive a base salary at
the rate of $603,200 per year, payable in accordance with the Companys practices in effect from
time to time (
Base Salary
). Amounts payable shall be reduced by standard withholding and other
authorized deductions. Such Base Salary shall be reviewed during the Term for increase (but not
decrease) in the sole discretion of the Board, or such individual, group or committee that the
Board may select as its delegate, not less frequently than annually during the Term. In conducting
any such review, the Board or such delegate shall consider and take into account, among other
things, any change in Executives responsibilities, performance of Executive, the compensation of
other similarly situated executives of comparable companies and other pertinent factors. Once
increased, Executives Base Salary shall not be decreased except upon mutual agreement between the
parties, and, as so increased, shall constitute Base Salary hereunder.
3.2
Bonuses; Incentive, Savings and Retirement Plans; Welfare Benefit Plans
.
(a) Executive shall be entitled to participate in all annual and long-term bonuses and
incentive, savings and retirement plans generally available to other similarly situated executive
employees of the Company. Executive, and Executives family as the case may be, shall be eligible
to participate in and receive all benefits under welfare benefit plans, practices, programs and
policies provided to the Chief Executive Officer, the President, other Executive Vice Presidents
and other Senior Vice Presidents of the Company, including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs. The Company reserves the right to modify,
suspend or discontinue any and all of its benefits referred to in this
-2-
Section 3.2 at any time without recourse by Executive so long as such action is taken
generally with respect to other executives and does not single out Executive.
(b) In addition to his Base Salary, for each fiscal year ending during the Term, Executive
will be entitled to participate in the Cinemark Holdings, Inc. Performance Bonus Plan (the
Annual
Bonus Plan
), as such Annual Bonus Plan may be amended from time to time, or pursuant to the terms
of any successor plan. If the performance targets specified by the Compensation Committee of the
Board are satisfied, Executive will receive an annual incentive cash bonus (the
Annual Bonus
)
based upon the award opportunity parameters and performance targets established by the Compensation
Committee of the Board pursuant to the terms of the Annual Bonus Plan. The amount of the Annual
Bonus award opportunity and the performance targets that must be satisfied to receive such Annual
Bonus award will be established by the Compensation Committee, in its sole discretion, each fiscal
year pursuant to the terms of the Annual Bonus Plan. All such Annual Bonus award payments will be
payable as specified pursuant to the terms of the Annual Bonus Plan and will be reduced by standard
withholding and other authorized deductions.
(c)
Equity Awards
. Executive will be eligible to participate in and receive grants of
equity incentive awards (
Equity Awards
) under the Companys Amended and Restated 2006 Long Term
Incentive Plan (the
Equity Incentive Plan
), as such Equity Incentive Plan may be amended from
time to time, or pursuant to the terms of any successor plan. Equity Awards to Executive may be
granted at such times and subject to such terms and conditions as the Equity Incentive Plan
administrator shall determine. Executive has received prior grants of Stock Options which shall
continue to be subject to the terms of this Agreement provided herein. Upon the consummation of a
Sale of the Company, Executives Equity Awards will accelerate and become fully vested (assuming
Executive is then, and has been continuously, employed by the Company or any of its Subsidiaries).
For purposes hereof,
Sale of the Company
is defined and has the meaning specified in the Equity
Incentive Plan.
3.3
Fringe Benefits
. Executive shall be entitled to receive fringe benefits
consistent with Executives duties and position, and in accordance with the benefits provided to
other similarly situated executive employees of the Company. The Company reserves the right to
modify, suspend or discontinue any and all of its fringe benefits referred to in this Section 3.3
at any time without recourse by Executive so long as such action is taken generally with respect to
other similarly situated peer executives and does not single out Executive.
3.4
Travel and Expenses
. Executive shall be entitled to reimbursement for expenses
incurred in the furtherance of the business of the Company in accordance with the Companys
practices and procedures, as they may exist from time to time. Executive may, in his discretion,
elect to purchase, and be reimbursed for, business class tickets on any international flights for
which scheduled flight time exceeds five hours. Executive shall keep complete and accurate records
of all expenditures such that Executive may substantiate and fully account for such expenses
according to the Companys practices and procedures.
3.5
Vacation
. Executive shall be entitled to no less than twenty (20) days paid
vacation and other absences from work in accordance with the Companys vacation and absence
-3-
policy in effect at the time of such vacations or absences which shall be taken at such times
as are consistent with Executives responsibilities hereunder.
3.6
Payment of Compensation and Benefits
. Executive acknowledges and agrees that all
payments required to be paid to Executive and benefits to be provided to Executive may be paid or
provided by the Company, its successor or any other Subsidiary of the Company.
4.
Confidential Information; Non-Competition; Non-Solicitation
.
4.1
General
. Executive acknowledges that during his employment and as a result of his
relationship with the Company and its affiliates, Executive has obtained and will obtain knowledge
of, and has been given and will be given access to, information, including, but not limited to,
information regarding the business, operations, services, proposed services, business processes,
advertising, marketing and promotional plans and materials, price lists, pricing policies, ticket
sales, film licensing, purchasing, real estate acquisition and leasing, other financial information
and other trade secrets, confidential information and proprietary material of the Company and its
affiliates or designated as being confidential by the Company or its affiliates which are not
generally known to non-Company personnel, including information and material originated, discovered
or developed in whole or in part by Executive (collectively referred to herein as
Confidential
Information
). The term Confidential Information does not include any information which (i) at
the time of disclosure is generally available to the public (other than as a result of a disclosure
by Executive in breach of this Agreement), or (ii) was available to Executive on a non-confidential
basis from a source (other than the Company or its Affiliates or their representatives) that is not
and was not prohibited from disclosing such information to Executive by a contractual, legal or
fiduciary obligation. Executive agrees that during the Term and, to the fullest extent permitted
by law, thereafter, Executive will, in a fiduciary capacity for the benefit of the Company and its
affiliates, hold all Confidential Information strictly in confidence and will not directly or
indirectly reveal, report, disclose, publish or transfer any of such Confidential Information to
any Person, or utilize any of the Confidential Information for any purpose, except in furtherance
of Executives employment under this Agreement and except to the extent that Executive may be
required by law to disclose any Confidential Information. Executive acknowledges that the Company
and its affiliates are providing Executive additional Confidential Information that Executive was
not given prior to execution of this Agreement, as further consideration to Executive for executing
this Agreement, including the promises and covenants made by Executive in this Section 4.
4.2
Non-Competition
. In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that during the course of his employment with the
Company and its Subsidiaries, he has, and will, become familiar with the trade secrets of the
Company and its Subsidiaries and with other Confidential Information concerning the Company and its
Subsidiaries and that his services have been and shall continue to be of special, unique and
extraordinary value to the Company and its Subsidiaries. Therefore, Executive agrees that, during
Executives employment hereunder and for one year after the date of termination of employment (the
Non-compete Period
), he shall not directly or indirectly own any interest in, manage, control,
participate in, consult with, render services for, be employed in an executive, managerial or
administrative capacity by, or in any manner engage in, any Competing Business.
-4-
For purposes hereof,
Competing Business
means any business that owns, operates or manages
any movie theatre within a 25-mile radius (if such theatre is outside of a Major DMA) or a 10-mile
radius (if such theatre is within a Major DMA) of any theatre (i) being operated by the Company or
any of its Subsidiaries during Executives employment hereunder (but excluding any theatres which
the Company and its Subsidiaries have ceased to operate as of the date of the termination of
Executives employment hereunder), or (ii) under consideration by the Company or any of its
Subsidiaries for opening as of the date of termination of employment;
Major DMA
means a
Designated Market Area with a number of households in excess of 700,000;
Designated Market Area
means each of those certain geographic market areas for the United States designated as such by
Nielsen Media Research, Inc. (
Nielsen
), as modified from time to time by Nielsen, whereby Nielsen
divides the United States into non-overlapping geography for planning, buying and evaluating
television audiences across various markets and whereby a county in the United States is
exclusively assigned, on the basis of the television viewing habits of the people residing in the
county, to one and only one Designated Market Area; and all theatres operated by the Company and
its Subsidiaries in Canada shall be treated as being outside of a Major DMA. Nothing herein shall
prohibit Executive from (i) being a passive owner of not more than five percent (5%) of the
outstanding stock of any class of a corporation which is publicly traded, so long as Executive has
no active participation in the business of such corporation, or (ii) during the one year period
following the termination of Executives employment, owning, operating or investing in up to five
(5) movie theatres, so long as each such theatre is outside of a 25-mile radius of the theatres
being operated by the Company or any of its Subsidiaries or under consideration by the Company or
any of its Subsidiaries for opening, in each case, as of the time of termination of Executives
employment. During the one-year period following the termination of Executives employment for any
reason, Executive shall provide reasonable notice to the Company of his plans for acquiring
ownership in, commencing operations of, or investing in, any movie theatre prior to any such event.
Notwithstanding the foregoing, Executives obligations under this Section 4.2 shall terminate and
become null and void if Executive terminates his employment with Good Reason.
4.3
Proprietary Interest
. All inventions, designs, improvements, patents, copyrights
and discoveries conceived by Executive during Executives employment by the Company or its
affiliates that are useful in or directly or indirectly related to the business of the Company and
its affiliates or to any experimental work carried on by the Company or its affiliates, shall be
the property of the Company and its affiliates. Executive will promptly and fully disclose to the
Company or its affiliates all such inventions, designs, improvements, patents, copyrights and
discoveries (whether developed individually or with other persons) and shall take all steps
necessary and reasonably required to assure the Companys or such affiliates ownership thereof and
to assist the Company and its affiliates in protecting or defending the Companys or such
affiliates proprietary rights therein.
4.4
Return of Materials
. Executive expressly acknowledges that all data, books,
records and other Confidential Information of the Company and its affiliates obtained in connection
with the Companys business is the exclusive property of the Company or its affiliates and that
upon the termination of Executives employment by the Company or its affiliates, Executive will
immediately surrender and return to the Company or its affiliates all such items and all other
property belonging to the Company or its affiliates then in the possession of Executive, and
Executive shall not make or retain any copies thereof.
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4.5
Property of the Company
. Executive acknowledges that from time to time in the
course of providing services pursuant to this Agreement, Executive shall have the opportunity to
inspect and use certain property, both tangible and intangible, of the Company and its affiliates
and Executive hereby agrees that such property shall remain the exclusive property of the Company
and its affiliates. Executive shall have no right or proprietary interest in such property, whether
tangible or intangible, including, without limitation, Executives customer and supplier lists,
contract forms, books of account, computer programs and similar property.
4.6
Reasonable in Scope and Duration; Consideration
. Executive agrees and
acknowledges that the restrictions contained in this Section 4 are reasonable in scope and duration
and are necessary to protect the business interests and Confidential Information of the Company and
its affiliates after the Effective Date of this Agreement, and Executive further agrees and
acknowledges that he has reviewed the provisions of this Agreement with his legal counsel.
Executive acknowledges and agrees that Executive will receive substantial, valuable consideration
from the Company for the covenants contained in this Section 4, including without limitation,
compensation and other benefits.
5.
Termination
.
5.1
Termination Prior to Expiration of Term
. Notwithstanding anything to the contrary
contained in Section 2, Executives employment may be terminated prior to the expiration of the
Term only as provided in this Section 5.
5.2
Death or Disability
.
(a) The Company may terminate Executives employment hereunder due to death or Disability (as
defined below). If Executives employment hereunder is terminated as a result of death or
Disability, Executive (or Executives estate or personal representative in the event of death)
shall be entitled to receive (i) all Base Salary due to Executive through the date of termination,
(ii) the actual bonus, if any, he would have received in respect of the fiscal year in which his
termination occurs, prorated by a fraction, the numerator of which is the number of days in such
fiscal year prior to the date of Executives termination and the denominator of which is 365,
payable at the same time as any Annual Bonus payments are made to other similarly situated active
executives pursuant to the terms of the Annual Bonus Plan and subject to satisfaction of the
performance targets for such fiscal year, (iii) any previously vested Equity Awards and benefits,
such as retirement benefits and vacation pay, in accordance with the terms of the plan or agreement
pursuant to which such Equity Awards or benefits were granted to Executive (items (i) through (iii)
above collectively referred to as
Accrued Employment Entitlements
), (iv) a lump sum payment equal
to twelve (12) months of Executives full Base Salary, which shall be payable as soon as
practicable following the date of termination but not later than March 15 of the first calendar
year following the year of such termination; provided, that in the case of Disability such payment
shall be offset by the amount of Base Salary paid by the Company to Executive or Executives
personal representative from the date on which Executive was first unable substantially to perform
Executives duties through the date of such termination, and (v) any benefits payable to Executive
or Executives beneficiaries, as applicable, in accordance with the terms of the applicable benefit
plan. At the Companys expense, Executive and/or Executives dependents shall be entitled to
continue to
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participate in the Companys welfare benefit plans and programs on the same terms as similarly
situated actively-employed executives for a period of twelve (12) months from the date of such
termination. Executive and/or Executives dependents shall thereafter be entitled to any
continuation of such benefits provided under such benefit plans or by applicable law. Following
the death or Disability of Executive, Executives participation under any Equity Award or other
incentive compensation plan (other than Annual Bonuses included in the definition of Accrued
Employment Entitlements) shall be governed by the terms of such plans.
(b)
Disability
shall mean if, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous
period of not less than twelve (12) months, Executive is either (i) unable to engage in any
substantial gainful activity; or (ii) receiving income replacement benefits for a period of not
less than three (3) months under an accident and health plan covering Company employees.
Executives Disability shall be determined by the Company, in good faith, based upon information
supplied by Executive and the physician mutually agreed upon by the Company and Executive.
Executive agrees to submit to physical exams and diagnostic tests reasonably recommended by such
physician.
5.3
Termination by the Company for Cause or by Executive because of a Voluntary
Termination
.
(a) Executives employment hereunder may be terminated by the Company for Cause (as
hereinafter defined) or by Executive under a Voluntary Termination (as hereinafter defined). If
Executives employment hereunder is terminated under this
Section 5.3
, Executive shall be
entitled to receive all Base Salary due to Executive through the date of termination. Furthermore,
all previously vested rights of Executive under an Equity Award or similar incentive compensation
plan or program shall be treated in accordance with the terms of such plan or program. Except as
specifically set forth in this
Section 5.3
, the Company shall have no further obligations
to Executive following a termination for Cause, or a Voluntary Termination.
(b)
Cause
shall mean (i) subject to clause (ii) below, a felony which results in a
conviction, a guilty plea or a plea of nolo contendere, (ii) engaging in conduct involving moral
turpitude that causes the Company and its affiliates material and demonstrable public disrepute or
material and demonstrable economic harm; (iii) a willful material breach of this Agreement by
Executive and/or Executives gross neglect of Executives duties hereunder which is not cured to
the Boards reasonable satisfaction within fifteen (15) days after notice thereof is given to
Executive by the Board; or (iv) the intentional wrongful damage to or misappropriation or
conversion of material property of the Company or its affiliates. No act or failure to act by the
Executive shall be deemed willful or intentional if done, or omitted to be done, by him in good
faith and with the reasonable belief that his action or omission was in the best interest of the
Company. Notwithstanding the foregoing, the Company shall not be entitled to terminate Executive
for Cause under clause (ii) above, unless (A) the Board shall have made a good faith investigation
and can produce demonstrable evidence of the existence of the commission of the fraud, embezzlement
or theft which would serve as the basis of Executives termination for Cause under clause (ii)
above, during which investigation the Company may place Executive on a paid administrative leave of
absence and (B) no less than 2/3 of the
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members of the Board (excluding Executive if Executive is then a member of the Board) shall
have made a good faith determination that the Company is entitled to terminate Executive for Cause
under clause (ii) above.
(c)
Voluntary Termination
shall mean a termination of employment by Executive on Executives
own initiative other than (i) a termination due to Disability or (ii) a termination for Good
Reason.
5.4
Termination by the Company without Cause or by Executive for Good Reason
. The
Company may terminate Executives employment hereunder without Cause, and Executive shall be
permitted to terminate Executives employment hereunder for Good Reason (as hereinafter defined).
If the Company terminates Executives employment hereunder without Cause, other than due to death
or Disability, or if Executive effects a termination for Good Reason, Executive shall be entitled
to receive the payments and benefits set forth in this Section 5.4.
(a) If Executives employment hereunder is terminated by the Company without Cause, so long as
Executive has not breached any of the terms contained in
Section 4
, Executive shall be
entitled to each of the following:
(i) Executives Accrued Employment Entitlements;
(ii) two times Executives annual Base Salary in effect as of the date of such
termination, payable in accordance with the Companys normal payroll practices for a period
of twenty-four (24) months following any such termination; provided, however, that if
Executive is, as of the date of such termination, a specified employee within the meaning
of Section 409A of the Internal Revenue Code of 1986, as amended (the
Code
), any amount
that is (1) not treated as a short-term deferral within the meaning of Treas. Regs.
§1.409A-1(b)(4), and (2) exceeds the separation pay limit under Treas. Regs.
§1.409A-1(b)(9)(iii)(A) (two times the lesser of (A) the sum of Executives annualized
compensation based on Executives annual Base Salary for the calendar year preceding the
calendar year in which termination occurs (adjusted for any increase during that year that
was expected to continue indefinitely if Executives employment had not been terminated), or
(B) the maximum amount that may be taken into account under a qualified plan pursuant to
Code Section 401(a)(17) for the year in which such termination occurs), will not be paid
before the date that is six (6) months after such date of termination, or if earlier, the
date of Executives death. Any payments or benefits to which Executive would otherwise be
entitled during such non-payment period will be accumulated and paid or otherwise provided
to Executive on the first day of the seventh month following such date of termination, or if
earlier, within 30 days of Executives death to his surviving spouse (or to his estate if
Executives spouse does not survive him). For purposes of this Section 5.4(a)(ii) and
Section 5.4(b), any amount that is paid as a short-term deferral within the meaning of
Treas. Regs. §1.409A-1(b)(4), or within the separation pay limit under Treas. Regs.
§1.409A-1(b)(9)(iii)(A) shall be treated as a separate payment, provided the aggregate of
the separate payments under this Section 5.4(a)(ii) shall not exceed an amount equal to two
times the Executives annual
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Base Salary in effect as of the date of such termination or for a period in excess of
twenty-four (24) months following any such termination.
(iii) an amount equal to the most recent Annual Bonus received by Executive for any
fiscal year ended prior to the date of such termination (determined without regard to any
performance goals), payable in a lump sum within thirty (30) days following such termination
of employment; provided further, that if such termination or resignation occurs within
thirty (30) days prior to the calendar year end, the payment, without interest, of the
amount paid for a termination by the Company without Cause shall be paid no earlier than
January 1 of the next year; and
(iv) Executive and Executives dependents shall be entitled to continue to participate
in the Companys welfare benefit plans and insurance programs on the same terms as similarly
situated active employees for a period of twenty-four months from the termination date.
Following the expiration of such period, Executive and/or Executives dependents shall be
entitled to any continuation of benefits as are provided under such benefit plans by the
Company or as are required to be provided in accordance with applicable law.
(b) If Executives employment hereunder is terminated by the Executive for Good Reason, so
long as Executive has not breached any of the terms contained in Section 4, Executive shall be
entitled to the benefits provided in Section 5.4(a), except the severance benefit specified in
Section 5.4(a)(ii) (the
Regular Severance Benefit
) shall be payable in a lump sum (the
Permitted
Lump Sum Benefit
) to the extent it is (1) treated as a short-term deferral within the meaning of
Treas. Regs. §1.409A-1(b)(4), or (2) does not exceed the separation pay limit under Treas. Regs.
§1.409A-1(b)(9)(iii)(A) (two times the lesser of (A) the sum of Executives annualized compensation
based on Executives annual Base Salary for the calendar year preceding the calendar year in which
termination occurs (adjusted for any increase during that year that was expected to continue
indefinitely if Executives employment had not been terminated), or (B) the maximum amount that may
be taken into account under a qualified plan pursuant to Code Section 401(a)(17) for the year in
which such termination occurs), as described in Section 5.4(a)(ii). The Permitted Lump Sum Benefit
shall be payable within thirty (30) days following such termination of employment; provided
further, that if such termination or resignation occurs within thirty (30) days prior to the
calendar year end, the payment, without interest, of the Permitted Lump Sum Benefit paid for a
termination by Executive for Good Reason shall be paid no earlier than January 1 of the next year
and any remaining amount shall be payable in installments in accordance with the Regular Severance
Benefit provisions of Section 5.4(a)(ii).
(c) Any outstanding stock options granted to Executive shall be vested and/or exercisable for
the period through the date of such termination of employment, and shall remain exercisable, in
accordance with the terms contained in the plan and the agreement pursuant to which such option
awards were granted. Any outstanding Equity Award (other than stock options) with time based
vesting provisions granted to Executive shall be vested on a prorata basis based on the percentage
determined by dividing (i) the number of days from and including the grant date of such Equity
Award through the termination date of Executives employment, by (ii) the number of days from the
grant date of such Equity Award to the full
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vesting date of such Equity Awards. Any Equity Awards with performance based vesting
provisions shall remain outstanding through the remainder of the applicable performance period
(without regard to any continued employment requirement) and if or to the extent the performance
provisions are attained shall become vested without regard to any continued employment requirement
on a prorata basis based upon the percentage determined by dividing (i) the number of days from and
including the grant date of such Equity Award through the termination date of Executives
employment, by (ii) the number of days from the grant date to the end of the applicable performance
period without regard to any continued employment requirement.
(d) For purposes of the calculation of Executives benefits under any supplemental defined
benefit plan in which Executive participates, Executive shall be credited with one additional year
of service as a result of termination pursuant to this Section 5.4.
(e)
Good
Reason
means and shall be deemed to exist if, without the prior written consent of Executive, (i) Executive suffers a significant reduction in duties,
responsibilities or effective authority associated with Executives titles and
positions as set forth and described in this Agreement or is assigned any duties or
responsibilities inconsistent in any material respect therewith (other than in connection
with a termination for Cause); (ii) the Company fails to pay Executive any amounts or
provide any benefits required to be paid or provided under this Agreement or is otherwise
in material breach of this Agreement; (iii) the Company adversely changes
Executives titles or reporting requirements; (iv) Executives compensation
(other than Base Salary, which is governed by Section 3.1) or benefits provided for
hereunder are decreased other than as part of reductions affecting the Companys
executives generally; (v) without the approval of Executive, the Board authorizes or
otherwise directs the exhibition at any theatres owned or managed by the Company or its
Subsidiaries films that are either not rated or rated NC-17, X or other rating
more restrictive than an R rating by The Motion Picture Association of America
or any successor industry organization that regularly publishes film ratings or the sale of
alcoholic beverages to patrons at any theatres owned or managed by the Company or its
Subsidiaries; or (vi) the Company transfers Executives primary workplace from the
Companys headquarters in Dallas/Plano, Texas area. No termination by Executive shall be
for Good Reason unless written notice of such termination setting forth in particular
the event(s) constituting Good Reason is delivered to the Company within thirty (30) days
following the date on which the event constituting Good Reason occurs and the Company fails
to cure or remedy the event(s) identified in the notice within fifteen (15) days after
receipt of such notice; provided, however, violations of (v) above may not be cured by the
Company, and Executives termination for Good Reason upon such violation shall be final
and binding.
5.5
Termination During a Change of Control
. Notwithstanding Section 5.4, if within one
year after a Change of Control (as defined below), executives employment is terminated by the
Company (other than for Disability, death or Cause) or Executive resigns for Good Reason, Executive
shall receive the payments and benefits set forth in this Section 5.5:
(a) Executives Accrued Employment Entitlements; plus
(b) An amount (the
Section 5.5 Termination Amount
) in addition to any other cash
compensation beyond that provided in (a) above, which amount shall be equal to
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the sum of two times Executives annual Base Salary; plus an amount equal to one and one half times the most recent Annual Bonus received by Executive for any fiscal year ended prior to the date of such termination (determined without regard to any performance goals), payable in a lump sum within thirty (30) days following such termination of employment provided further, that if such termination or resignation
occurs within thirty (30) days prior to the calendar year end, the payment, without interest, the amount shall be paid no earlier than January 1 of the next year; and
(c) Executive and Executives dependents shall be entitled to continue to participate in the
Companys, a successors or acquirors welfare benefit plans and insurance programs on the same
terms as similarly situated active employees for a period of thirty (30) months from the
termination date. Following the expiration of such thirty (30) month period, Executive and/or
Executives dependents shall be entitled to any continuation of benefits as are provided under such
benefit plans by the Company or as are required to be provided in accordance with applicable law.
(d) Any outstanding Equity Awards granted to Executive shall be fully vested and/or
exercisable as of the date of such termination of employment and shall remain exercisable, in each
case, in accordance with the terms contained in the plan and the agreement pursuant to which such
compensation awards were granted, but in no event shall Executives rights under any such Equity
Awards be less favorable than the terms applicable to a Sale of the Company or other change in
control contained in the plan and the agreement pursuant to which such Equity Awards were granted.
(e) For purposes of the calculation of Executives benefits under any supplemental defined
benefit plan in which Executive participates, Executive shall be credited with one additional year
of service as a result of termination pursuant to this
Section 5.5
.
(f) A
Change of Control
shall be deemed to have occurred upon (i) the date that (A) any
individual, entity or group (within the meaning both of Section 1.409A-3(i)(5)(vi)(D) of the
Treasury Regulations and of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the
Exchange Act
), other than Madison Dearborn Capital Partners or any entity or
organization controlled by Madison Dearborn Capital Partners (collectively, the
MDP Entities
) or
the Mitchell Family (as defined below), acquires (or has acquired during the 12-month period ending
on the date of the most recent acquisition by such individual, entity or group), beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent
(30%) or more of the total combined voting power of the voting securities of the Company entitled
to vote generally in the election of directors (
Voting Power
); and (B) such beneficial ownership
(as so defined) by such individual, entity or group of more than thirty percent (30%) of the Voting
Power then exceeds the combined beneficial ownership (as so defined) of Voting Power of the MDP
Entities and the Mitchell Family, (ii) a majority of the members of the Companys Board of
Directors shall not be Continuing Directors (as defined below) or (iii) the sale of all or
substantially all of the Companys assets.
(g) Continuing Director shall mean with respect to any 12-month period, individuals that at
the beginning of such period constituted the Board of Directors of the
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Company (together with any
new directors whose election by such board or whose nomination for election by the stockholders of
the Company was approved by a vote of at least a majority of the directors of the Company then
still in office who were either directors at the beginning of such period or whose election or
nomination was previously so approved).
(h) Mitchell Family shall mean (a) Lee Roy or Tandy Mitchell, or the estate of Lee Roy
Mitchell or Tandy Mitchell and (b) any trust or other arrangement for the benefit of a Mitchell.
5.6
General Release
. Except where the termination is the result of Executives death
and notwithstanding the foregoing, no payment shall be made by the Company to Executive under this
Section 5 unless otherwise required by state, local or federal law, until Executive executes a
general release of all claims in a form reasonably approved by the Company. The terms of any such
general release will not, without the written consent of the Executive, terminate any continuing
payment or benefit obligations hereunder by the Company to the Executive. Notwithstanding the
foregoing, if the Company fails to deliver a form of general release to the Executive by the
forty-fifth (45th) day following the date of termination, the Executive will be deemed to have
satisfied the condition of this Section 5.6(a) without being required to execute a general release.
5.7
Office Support
. Upon the termination of Executives employment hereunder for any
reason except for Cause, the Company shall make available to Executive, at the Companys expense,
an office and support services, (including, without limitation, telephone, telefax and internet
access), at the Companys election, either at the Companys main office or at another suitable
office space in the Dallas/Plano area, for a period not to exceed three (3) months following the
date of such termination.
6.
Arbitration
.
6.1
General
. Any dispute, controversy or claim arising out of or relating to this
Agreement, the breach hereof or the coverage or enforceability of this arbitration provision shall
be settled by arbitration in Dallas, Texas (or such other location as the Company and Executive may
mutually agree), conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, as such rules are in effect in Dallas/Fort Worth, Texas on the date of
delivery of demand for arbitration. The arbitration of any such issue, including the determination
of the amount of any damages suffered by either party hereto by reason of the acts or omissions of
the other, shall be to the exclusion of any court of law. Notwithstanding the foregoing, either
party hereto may seek any equitable remedy in a court to enforce the provisions of this Agreement,
including but not limited to an action for injunctive relief or attachment, without waiving the
right to arbitration.
6.2
Procedure
.
(a) Either party may demand such arbitration by giving notice of that demand to the other
party. The party demanding such arbitration is referred to herein as the
Demanding Party
, and
the party adverse to the Demanding Party is referred to herein as the
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Responding Party
. The
notice shall state (x) the matter in controversy, and (y) the name of the arbitrator selected by
the party giving the notice.
(b) Not more than fifteen (15) days after such notice is given, the Responding Party shall
give notice to the Demanding Party of the name of the arbitrator selected by the Responding Party.
If the Responding Party shall fail to timely give such notice, the arbitrator that the Responding
Party was entitled to select shall be named by the Arbitration Committee of the American
Arbitration Association. Not more than fifteen (15) days after the second arbitrator is so named;
the two arbitrators shall select a third arbitrator. If the two
arbitrators shall fail to timely select a third arbitrator, the third arbitrator shall be
named by the Arbitration Committee of the American Arbitration Association.
(c) The dispute shall be arbitrated at a hearing that shall be concluded within ten days
immediately following the date the dispute is submitted to arbitration unless a majority of the
arbitrators shall elect to extend the period of arbitration. Any award made by a majority of the
arbitrators (x) shall be made within ten days following the conclusion of the arbitration hearing,
(y) shall be conclusive and binding on the parties, and (z) may be made the subject of a judgment
of any court having jurisdiction.
(d) Any amount to which Executive is entitled under this Agreement (including any disputed
amount) which is not paid when due shall bear interest from the date due but not paid at a rate
equal to the lesser of eight percent (8%) per annum and the maximum lawful rate.
6.3
Costs and Expenses
. All administrative and arbitration fees, costs and expenses
shall be borne by the Company.
7.
Indemnification
. To the fullest extent permitted by the indemnification provisions
of the certificate of incorporation and bylaws of the Company in effect as of the date of this
Agreement and the indemnification provisions of the corporation statute of the jurisdiction of the
Companys incorporation in effect from time to time (collectively, the
Indemnification
Provisions
), and in each case subject to the conditions thereof, the Company shall (i) indemnify
Executive, as a director and/or officer of the Company or a subsidiary of the company or a trustee
or fiduciary of an employee benefit plan of the Company or a subsidiary of the Company, or, if
Executive shall be serving in such capacity at the Companys written request, as a director or
officer of any other corporation (other than a subsidiary of the company) or as a trustee or
fiduciary of an employee benefit plan not sponsored by the Company or a subsidiary of the Company,
against all liabilities and reasonable expenses that may be incurred by Executive in any
threatened, pending, or completed action, suit or proceeding, whether civil, criminal or
administrative, or investigative and whether formal or informal (collectively, Claims), because
Executive is or was a director or officer of the Company, a director or officer of such other
corporation or a trustee or fiduciary of such employee benefit plan, and against which Executive
may be indemnified by the Company, and (ii) pay for or reimburse within twenty (20) days after
request by Executive of the reasonable expenses incurred from time to time by Executive in the
defense of any proceeding to which Executive is a party because Executive is or was a director or
officer of the Company, a director or officer of such other corporation or a trustee or fiduciary
of such employee benefit plan. The Company shall have the right to defend Executive against a
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Claim with counsel of its choice reasonably acceptable to Executive so long as (i) the Claim
involves primarily money damages, (ii) the Company conducts the defense of the Claim actively and
diligently and (iii) there are no conflicts of such counsel representing both the Company and the
Executive. So long as the Company is conducting the defense of the Claim, (i) Executive may retain
separate co-counsel at his sole cost and expense and participate in the defense of the Claim, (ii)
the Company shall not consent to the entry of any judgment or enter into any settlement with
respect to the Claim, nor take any voluntary action prejudicial to the determination of the Claim,
without the prior written consent of the Executive, such consent not to be unreasonably withheld
and (iii) the Company will not consent to the entry of any judgment
or enter into any settlement with respect to the Claim unless a written agreement from the
party asserting the Claim is obtained releasing the Executive from all liability thereunder. The
rights of Executive under the Indemnification Provisions and this Section 7 shall survive the
termination of the employment of Executive by the Company.
8.
Assignment
. This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of Executive and the assigns and successors of the Company, but neither
this Agreement nor any rights or obligations hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of intestate succession) or
by the Company, except that the Company may assign this Agreement to any successor (whether by
merger, purchase or otherwise) to all or substantially all of the stock, assets or businesses of
the Company, if such successor expressly agrees to assume the obligations of the Company hereunder.
9.
Remedies
. Executive acknowledges that the services Executive is to render under
this Agreement are of a unique and special nature, the loss of which cannot reasonably or
adequately be compensated for in monetary damages, and that irreparable injury and damage will
result to the Company and its Subsidiaries in the event of any default or breach of this Agreement
by Executive. The parties agree and acknowledge that the breach by Executive of any of the terms
of this Agreement will cause irreparable damage to the Company and its affiliates, and upon any
such breach, the Company shall be entitled to injunctive relief, specific performance, or other
equitable relief (without posting a bond or other security); provided, however, that this shall in
no way limit any other remedies which the Company and its affiliates may have (including, without
limitations, the right to seek monetary damages).
10.
Survival
. The provisions of Sections 4 through 20 shall survive the expiration or
earlier termination of the Term.
11.
Taxes
. All payments to Executive under this Agreement shall be reduced by all
applicable withholding required by Federal, state or local law.
12.
No Obligation to Mitigate; No Rights of Offset
.
12.1
No Obligation to Mitigate
. Executive shall not be required to mitigate the
amount of any payment or other benefit required to be paid to Executive pursuant to this Agreement,
whether by seeking other employment or otherwise, nor shall the amount of any such payment or other
benefit be reduced on account of any compensation earned by Executive as a result of employment by
another person; provided that Executive and Executives
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dependents shall not be entitled to
continue to participate in the welfare benefit plans of the Company and its Subsidiaries if
Executive is covered by the welfare benefit plans of another employer.
12.2
No Rights of Offset
. The Companys obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may
have against Executive or others.
13.
Notices
. Any notice or other communications relating to this Agreement shall be
in writing and delivered personally or mailed by certified mail, return receipt requested, or sent
by overnight courier, to the party concerned at the address set forth below:
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If to Company:
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3900 Dallas Parkway, Suite 500
Plano, Texas 75093
Attn: Chief Executive Officer
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If to Executive:
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At Executives residence address as maintained by the Company in
the regular course of its business for payroll purposes.
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Either party may change the address for the giving of notices at any time by written notice
given to the other party under the provisions of this
Section 13
. If notice is given by
personal delivery or overnight courier, said notice shall be conclusively deemed given at the time
of such delivery or upon receipt of such couriered notice. If notice is given by mail, such notice
shall be conclusively deemed given upon deposit thereof in the United States mail.
14.
Entire Agreement
. This Agreement constitutes the entire agreement between the
parties and supersedes all prior written and oral and all contemporaneous oral agreements,
understandings and negotiations with respect to the subject matter hereof. Without limiting the
generality of the foregoing sentence, this Agreement supersedes any prior employment agreement,
oral or written, including the Employment Agreement, dated as of March 12, 2004, between the
Company and Executive, as amended, which shall terminate and be cancelled as of the Effective Date,
except for any breaches thereof by Executive prior to the Effective Date which shall survive such
termination. This Agreement may not be changed orally, but only by an agreement in writing signed
by both parties.
15.
Counterparts
. This Agreement may be executed in counterparts, each of which shall
be an original, but all of which together shall constitute one agreement.
16.
Construction
. This Agreement shall be governed under and construed in accordance
with the laws of the State of Texas, without regard to the principles of conflicts of laws. The
paragraph headings and captions contained herein are for reference purposes and convenience only
and shall not in any way affect the meaning or interpretation of this Agreement. It is intended by
the parties that this Agreement be interpreted in accordance with its fair and simple meaning, not
for or against either party, and neither party shall be deemed to be the drafter of this Agreement.
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17.
Severability
. The parties agree that if any provision of this Agreement as
applied to any party or to any circumstance is adjudged by a court or arbitrator to be invalid or
unenforceable, the same will in no way affect any other circumstance or the validity or
enforceability of this Agreement. Without limiting the generality of the foregoing, in particular,
if any provision in Section 4, or any part thereof, is held to be unenforceable because of the
duration of such provision or the area covered thereby, the parties agree that the court or
arbitrator making such determination shall have the power to reduce the duration and/or area of
such provision, and/or to delete specific words or phrases, and in its reduced form, such
provision shall then be enforceable and shall be enforced. In addition, in the event of a
breach or violation by Executive of Section 4, the Non-compete Period and the Non-solicitation
Period shall be automatically extended respectively by the amount of time between the initial
occurrence of the breach or violation and when such breach or violation has been duly cured.
18.
Binding Effect
. Subject to Section 8 hereof, the rights and obligations of the
parties under this Agreement shall be binding upon and inure to the benefit of the permitted
successors, assigns, heirs, administrators, executors and personal representatives of the parties.
19.
Effective Date; Effect on Prior Agreement
. This Agreement shall become effective
as of the date first above written. This Agreement contains the entire understanding between the
parties hereto and supersedes in all respects any prior or other agreement or understanding between
the Company or any affiliate of the Company and Executive, including, without limitation, the
Employment Agreement, dated as of March 12, 2004, as amended to the date hereof (the
Prior
Agreement
), by and between Cinemark, Inc. and Executive, which agreement shall terminate in all
respects upon the Effective Date.
20.
Executives Cooperation
. During the Term and for five (5) years thereafter,
Executive shall cooperate with the Company and its Subsidiaries in any internal investigation, any
administrative, regulatory or judicial proceeding or investigation or any material dispute with a
third party, in each case as reasonably requested by the Company (including, without limitation,
Executives being reasonably available to the Company upon reasonable notice for interviews and
factual investigations, appearing at the Companys request to give testimony without requiring
service of subpoena or other legal process, volunteering to the Company all pertinent information
and turning over to the Company all relevant documents which are or may come into Executives
possession, all at times and on schedules that are reasonably consistent with Executives other
activities and commitments), in each case limited to the extent that such cooperation (a) becomes
unduly burdensome for Executive (including in terms of the time commitments required by Executive
in connection with such cooperation), (b) in the event that such cooperation is required after the
Term, unreasonably interferes with Executives duties under his then current employment, (c) causes
Executive to breach in any material respect any material agreement by which he is bound, or (d) is
limited to the extent Executive is advised by legal counsel that such cooperation would not be in
Executives best interests. In the event that the Company requires Executives cooperation in
accordance with this paragraph, the Company shall reimburse Executive solely for: (i) his
reasonable out-of-pocket expenses (including travel, lodging and meals) upon submission of receipts
and (ii) any reasonable attorneys fees incurred by Executive to the extent that, after
consultation with the Company, Executive deems it advisable to seek the advice of legal counsel
regarding his obligations hereunder.
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21.
Beneficiaries; References
. Executive shall be entitled to select (and change, to
the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any
compensation or benefit payable hereunder following Executives death, and may change such
election, in either case by giving the Company written notice thereof. In the event of Executives
death or a judicial determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal
representative, and the Company shall pay amounts payable under this Agreement, unless otherwise
provided herein, in accordance with the terms of this Agreement, to Executives
personal or legal representatives, executors, administrators, heirs, distributees, devisees,
legatees or estate, as the case may be.
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IN WITNESS WHEREOF
, the parties have executed this Employment Agreement on the day and in the
year first written above.
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COMPANY:
CINEMARK HOLDINGS, INC.
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By:
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/s/ Lee Roy Mitchell
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Name:
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Lee Roy Mitchell
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Title:
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Chairman of the Board
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EXECUTIVE:
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/s/ Alan W. Stock
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Alan W. Stock
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-18-
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this
Agreement
) is made and entered into as of June 16, 2008, by
and between Cinemark Holdings, Inc., a Delaware corporation (the
Company
), and Robert Copple
(
Executive
).
WITNESSETH:
WHEREAS
, Cinemark, Inc., a wholly owned subsidiary of the Company, and Executive are parties
to an Employment Agreement dated as of March 12, 2004, as amended to the date hereof relating to
Executive, which arrangement sets forth the terms and conditions of Executives employment with
Cinemark, Inc. (the
Original Agreement
); and
WHEREAS
, the parties desire to enter into this Agreement to replace and supersede the Original
Agreement;
NOW
,
THEREFORE
, in consideration of the mutual promises and covenants set forth herein, the
parties hereto agree as follows:
1.
Employment
.
1.1
Title and Duties
. The Company hereby employs Executive as Executive Vice
President and Chief Financial Officer of the Company. Executives duties, responsibilities and
authority shall be consistent with Executives position and titles and shall include serving in a
similar capacity with certain of the Companys Subsidiaries (as hereinafter defined) and such other
duties, responsibilities and authority as may be assigned to Executive by the Board of Directors of
the Company (the
Board
). Executive shall report directly to the Chief Executive Officer of the
Company.
1.2
Services and Exclusivity of Services
. The Company and Executive recognize that
the services to be rendered by Executive are of such a nature as to be peculiarly rendered by
Executive, encompass the individual ability, managerial skills and business experience of Executive
and cannot be measured exclusively in terms of hours or services rendered in any particular period.
Executive shall devote Executives full business time and shall use Executives best efforts,
energy and ability exclusively toward advancing the business, affairs and interests of the Company
and its Subsidiaries, and matters related thereto. Nothing in this Agreement shall preclude
Executive from serving on boards of directors of up to one other company which is not competitive
to the Company upon the Boards approval not to be unreasonably withheld or participating on a
board of or in trade organizations, charitable, community, school or religious activities that do
not substantially interfere with his duties and responsibilities hereunder or conflict with the
interests of the Company.
1.3
Location of Office
. The Company shall make available to Executive an office and
support services at the Companys headquarters in Dallas/Plano, Texas area. Executives main
office shall be at such location.
1.4
Subsidiaries; Person
. For purposes of this Agreement,
Subsidiary
or
Subsidiaries
means, as to any Person, any other Person (i) of which such Person or any other
Subsidiary of such Person is a general partner, (ii) of which such Person, any one or more of
its other Subsidiaries of such Person, or such Person and any one or more of its other
Subsidiaries, directly or indirectly owns or controls securities or other equity interests
representing more than fifty percent (50%) of the aggregate voting power, or (iii) of which such
Person, any one or more of its other Subsidiaries of such Person, or such Person and any one or
more its other Subsidiaries, possesses the right to elect more than fifty percent (50%) of the
board of directors or Persons holding similar positions; and
Person
means any individual,
corporation, partnership, limited liability company, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, or other entity or group (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended).
2.
Term
. The term of Executives employment under this Agreement (the
Term
) shall
commence on the Effective Date (as defined in Section 19) and shall continue for a period of three
(3) years thereafter; provided, however, that at the end of each year of the Term, the Term shall
be extended for an additional one-year period unless Executives employment with the Company is
terminated in accordance with Section 5. References in this Agreement to the balance of the Term
shall mean the period of time remaining on the scheduled Term after giving effect to the most
recent extension of the Term occurring prior to any termination of the Term.
3.
Compensation
.
3.1
Base Salary
. During the Term, the Company will pay to Executive a base salary at
the rate of $416,000 per year, payable in accordance with the Companys practices in effect from
time to time (
Base Salary
). Amounts payable shall be reduced by standard withholding and other
authorized deductions. Such Base Salary shall be reviewed during the Term for increase (but not
decrease) in the sole discretion of the Board, or such individual, group or committee that the
Board may select as its delegate, not less frequently than annually during the Term. In conducting
any such review, the Board or such delegate shall consider and take into account, among other
things, any change in Executives responsibilities, performance of Executive, the compensation of
other similarly situated executives of comparable companies and other pertinent factors. Once
increased, Executives Base Salary shall not be decreased except upon mutual agreement between the
parties, and, as so increased, shall constitute Base Salary hereunder.
3.2
Bonuses; Incentive, Savings and Retirement Plans; Welfare Benefit Plans
.
(a) Executive shall be entitled to participate in all annual and long-term bonuses and
incentive, savings and retirement plans generally available to other similarly situated executive
employees of the Company. Executive, and Executives family as the case may be, shall be eligible
to participate in and receive all benefits under welfare benefit plans, practices, programs and
policies provided to the Chief Executive Officer, the President, other Executive Vice Presidents
and other Senior Vice Presidents of the Company, including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs. The Company reserves the right to modify,
suspend or discontinue any and all of its benefits referred to in this
-2-
Section 3.2 at any time without recourse by Executive so long as such action is taken
generally with respect to other executives and does not single out Executive.
(b) In addition to his Base Salary, for each fiscal year ending during the Term, Executive
will be entitled to participate in the Cinemark Holdings, Inc. Performance Bonus Plan (the
Annual
Bonus Plan
), as such Annual Bonus Plan may be amended from time to time, or pursuant to the terms
of any successor plan. If the performance targets specified by the Compensation Committee of the
Board are satisfied, Executive will receive an annual incentive cash bonus (the
Annual Bonus
)
based upon the award opportunity parameters and performance targets established by the Compensation
Committee of the Board pursuant to the terms of the Annual Bonus Plan. The amount of the Annual
Bonus award opportunity and the performance targets that must be satisfied to receive such Annual
Bonus award will be established by the Compensation Committee, in its sole discretion, each fiscal
year pursuant to the terms of the Annual Bonus Plan. All such Annual Bonus award payments will be
payable as specified pursuant to the terms of the Annual Bonus Plan and will be reduced by standard
withholding and other authorized deductions.
(c)
Equity Awards
. Executive will be eligible to participate in and receive grants of
equity incentive awards (
Equity Awards
) under the Companys Amended and Restated 2006 Long Term
Incentive Plan (the
Equity Incentive Plan
), as such Equity Incentive Plan may be amended from
time to time, or pursuant to the terms of any successor plan. Equity Awards to Executive may be
granted at such times and subject to such terms and conditions as the Equity Incentive Plan
administrator shall determine. Executive has received prior grants of Stock Options which shall
continue to be subject to the terms of this Agreement provided herein. Upon the consummation of a
Sale of the Company, Executives Equity Awards will accelerate and become fully vested (assuming
Executive is then, and has been continuously, employed by the Company or any of its Subsidiaries).
For purposes hereof,
Sale of the Company
is defined and has the meaning specified in the Equity
Incentive Plan.
3.3
Fringe Benefits
. Executive shall be entitled to receive fringe benefits
consistent with Executives duties and position, and in accordance with the benefits provided to
other similarly situated executive employees of the Company. The Company reserves the right to
modify, suspend or discontinue any and all of its fringe benefits referred to in this Section 3.3
at any time without recourse by Executive so long as such action is taken generally with respect to
other similarly situated peer executives and does not single out Executive.
3.4
Travel and Expenses
. Executive shall be entitled to reimbursement for expenses
incurred in the furtherance of the business of the Company in accordance with the Companys
practices and procedures, as they may exist from time to time. Executive may, in his discretion,
elect to purchase, and be reimbursed for, business class tickets on any international flights for
which scheduled flight time exceeds five hours. Executive shall keep complete and accurate records
of all expenditures such that Executive may substantiate and fully account for such expenses
according to the Companys practices and procedures.
3.5
Vacation
. Executive shall be entitled to no less than twenty (20) days paid
vacation and other absences from work in accordance with the Companys vacation and absence
-3-
policy in effect at the time of such vacations or absences which shall be taken at such times
as are consistent with Executives responsibilities hereunder.
3.6
Payment of Compensation and Benefits
. Executive acknowledges and agrees that all
payments required to be paid to Executive and benefits to be provided to Executive may be paid or
provided by the Company, its successor or any other Subsidiary of the Company.
4.
Confidential Information; Non-Competition; Non-Solicitation
.
4.1
General
. Executive acknowledges that during his employment and as a result of his
relationship with the Company and its affiliates, Executive has obtained and will obtain knowledge
of, and has been given and will be given access to, information, including, but not limited to,
information regarding the business, operations, services, proposed services, business processes,
advertising, marketing and promotional plans and materials, price lists, pricing policies, ticket
sales, film licensing, purchasing, real estate acquisition and leasing, other financial information
and other trade secrets, confidential information and proprietary material of the Company and its
affiliates or designated as being confidential by the Company or its affiliates which are not
generally known to non-Company personnel, including information and material originated, discovered
or developed in whole or in part by Executive (collectively referred to herein as
Confidential
Information
). The term Confidential Information does not include any information which (i) at
the time of disclosure is generally available to the public (other than as a result of a disclosure
by Executive in breach of this Agreement), or (ii) was available to Executive on a non-confidential
basis from a source (other than the Company or its Affiliates or their representatives) that is not
and was not prohibited from disclosing such information to Executive by a contractual, legal or
fiduciary obligation. Executive agrees that during the Term and, to the fullest extent permitted
by law, thereafter, Executive will, in a fiduciary capacity for the benefit of the Company and its
affiliates, hold all Confidential Information strictly in confidence and will not directly or
indirectly reveal, report, disclose, publish or transfer any of such Confidential Information to
any Person, or utilize any of the Confidential Information for any purpose, except in furtherance
of Executives employment under this Agreement and except to the extent that Executive may be
required by law to disclose any Confidential Information. Executive acknowledges that the Company
and its affiliates are providing Executive additional Confidential Information that Executive was
not given prior to execution of this Agreement, as further consideration to Executive for executing
this Agreement, including the promises and covenants made by Executive in this Section 4.
4.2
Non-Competition
. In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that during the course of his employment with the
Company and its Subsidiaries, he has, and will, become familiar with the trade secrets of the
Company and its Subsidiaries and with other Confidential Information concerning the Company and its
Subsidiaries and that his services have been and shall continue to be of special, unique and
extraordinary value to the Company and its Subsidiaries. Therefore, Executive agrees that, during
Executives employment hereunder and for one year after the date of termination of employment (the
Non-compete Period
), he shall not directly or indirectly own any interest in, manage, control,
participate in, consult with, render services for, be employed in an executive, managerial or
administrative capacity by, or in any manner engage in, any Competing Business.
-4-
For purposes hereof,
Competing Business
means any business that owns, operates or manages
any movie theatre within a 25-mile radius (if such theatre is outside of a Major DMA) or a 10-mile
radius (if such theatre is within a Major DMA) of any theatre (i) being operated by the Company or
any of its Subsidiaries during Executives employment hereunder (but excluding any theatres which
the Company and its Subsidiaries have ceased to operate as of the date of the termination of
Executives employment hereunder), or (ii) under consideration by the Company or any of its
Subsidiaries for opening as of the date of termination of employment;
Major DMA
means a
Designated Market Area with a number of households in excess of 700,000;
Designated Market Area
means each of those certain geographic market areas for the United States designated as such by
Nielsen Media Research, Inc. (
Nielsen
), as modified from time to time by Nielsen, whereby Nielsen
divides the United States into non-overlapping geography for planning, buying and evaluating
television audiences across various markets and whereby a county in the United States is
exclusively assigned, on the basis of the television viewing habits of the people residing in the
county, to one and only one Designated Market Area; and all theatres operated by the Company and
its Subsidiaries in Canada shall be treated as being outside of a Major DMA. Nothing herein shall
prohibit Executive from (i) being a passive owner of not more than five percent (5%) of the
outstanding stock of any class of a corporation which is publicly traded, so long as Executive has
no active participation in the business of such corporation, or (ii) during the one year period
following the termination of Executives employment, owning, operating or investing in up to five
(5) movie theatres, so long as each such theatre is outside of a 25-mile radius of the theatres
being operated by the Company or any of its Subsidiaries or under consideration by the Company or
any of its Subsidiaries for opening, in each case, as of the time of termination of Executives
employment. During the one-year period following the termination of Executives employment for any
reason, Executive shall provide reasonable notice to the Company of his plans for acquiring
ownership in, commencing operations of, or investing in, any movie theatre prior to any such event.
Notwithstanding the foregoing, Executives obligations under this Section 4.2 shall terminate and
become null and void if Executive terminates his employment with Good Reason.
4.3
Proprietary Interest
. All inventions, designs, improvements, patents, copyrights
and discoveries conceived by Executive during Executives employment by the Company or its
affiliates that are useful in or directly or indirectly related to the business of the Company and
its affiliates or to any experimental work carried on by the Company or its affiliates, shall be
the property of the Company and its affiliates. Executive will promptly and fully disclose to the
Company or its affiliates all such inventions, designs, improvements, patents, copyrights and
discoveries (whether developed individually or with other persons) and shall take all steps
necessary and reasonably required to assure the Companys or such affiliates ownership thereof and
to assist the Company and its affiliates in protecting or defending the Companys or such
affiliates proprietary rights therein.
4.4
Return of Materials
. Executive expressly acknowledges that all data, books,
records and other Confidential Information of the Company and its affiliates obtained in connection
with the Companys business is the exclusive property of the Company or its affiliates and that
upon the termination of Executives employment by the Company or its affiliates, Executive will
immediately surrender and return to the Company or its affiliates all such items and all other
property belonging to the Company or its affiliates then in the possession of Executive, and
Executive shall not make or retain any copies thereof.
-5-
4.5
Property of the Company
. Executive acknowledges that from time to time in the
course of providing services pursuant to this Agreement, Executive shall have the opportunity to
inspect and use certain property, both tangible and intangible, of the Company and its affiliates
and Executive hereby agrees that such property shall remain the exclusive property of the Company
and its affiliates. Executive shall have no right or proprietary interest in such property, whether
tangible or intangible, including, without limitation, Executives customer and supplier lists,
contract forms, books of account, computer programs and similar property.
4.6
Reasonable in Scope and Duration; Consideration
. Executive agrees and
acknowledges that the restrictions contained in this Section 4 are reasonable in scope and duration
and are necessary to protect the business interests and Confidential Information of the Company and
its affiliates after the Effective Date of this Agreement, and Executive further agrees and
acknowledges that he has reviewed the provisions of this Agreement with his legal counsel.
Executive acknowledges and agrees that Executive will receive substantial, valuable consideration
from the Company for the covenants contained in this Section 4, including without limitation,
compensation and other benefits.
5.
Termination
.
5.1
Termination Prior to Expiration of Term
. Notwithstanding anything to the contrary
contained in Section 2, Executives employment may be terminated prior to the expiration of the
Term only as provided in this Section 5.
5.2
Death or Disability
.
(a) The Company may terminate Executives employment hereunder due to death or Disability (as
defined below). If Executives employment hereunder is terminated as a result of death or
Disability, Executive (or Executives estate or personal representative in the event of death)
shall be entitled to receive (i) all Base Salary due to Executive through the date of termination,
(ii) the actual bonus, if any, he would have received in respect of the fiscal year in which his
termination occurs, prorated by a fraction, the numerator of which is the number of days in such
fiscal year prior to the date of Executives termination and the denominator of which is 365,
payable at the same time as any Annual Bonus payments are made to other similarly situated active
executives pursuant to the terms of the Annual Bonus Plan and subject to satisfaction of the
performance targets for such fiscal year, (iii) any previously vested Equity Awards and benefits,
such as retirement benefits and vacation pay, in accordance with the terms of the plan or agreement
pursuant to which such Equity Awards or benefits were granted to Executive (items (i) through (iii)
above collectively referred to as
Accrued Employment Entitlements
), (iv) a lump sum payment equal
to twelve (12) months of Executives full Base Salary, which shall be payable as soon as
practicable following the date of termination but not later than March 15 of the first calendar
year following the year of such termination; provided, that in the case of Disability such payment
shall be offset by the amount of Base Salary paid by the Company to Executive or Executives
personal representative from the date on which Executive was first unable substantially to perform
Executives duties through the date of such termination, and (v) any benefits payable to Executive
or Executives beneficiaries, as applicable, in accordance with the terms of the applicable benefit
plan. At the Companys expense, Executive and/or Executives dependents shall be entitled to
continue to
-6-
participate in the Companys welfare benefit plans and programs on the same terms as similarly
situated actively-employed executives for a period of twelve (12) months from the date of such
termination. Executive and/or Executives dependents shall thereafter be entitled to any
continuation of such benefits provided under such benefit plans or by applicable law. Following
the death or Disability of Executive, Executives participation under any Equity Award or other
incentive compensation plan (other than Annual Bonuses included in the definition of Accrued
Employment Entitlements) shall be governed by the terms of such plans.
(b)
Disability
shall mean if, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous
period of not less than twelve (12) months, Executive is either (i) unable to engage in any
substantial gainful activity; or (ii) receiving income replacement benefits for a period of not
less than three (3) months under an accident and health plan covering Company employees.
Executives Disability shall be determined by the Company, in good faith, based upon information
supplied by Executive and the physician mutually agreed upon by the Company and Executive.
Executive agrees to submit to physical exams and diagnostic tests reasonably recommended by such
physician.
5.3
Termination by the Company for Cause or by Executive because of a Voluntary
Termination
.
(a) Executives employment hereunder may be terminated by the Company for Cause (as
hereinafter defined) or by Executive under a Voluntary Termination (as hereinafter defined). If
Executives employment hereunder is terminated under this
Section 5.3
, Executive shall be
entitled to receive all Base Salary due to Executive through the date of termination. Furthermore,
all previously vested rights of Executive under an Equity Award or similar incentive compensation
plan or program shall be treated in accordance with the terms of such plan or program. Except as
specifically set forth in this
Section 5.3
, the Company shall have no further obligations
to Executive following a termination for Cause, or a Voluntary Termination.
(b)
Cause
shall mean (i) subject to clause (ii) below, a felony which results in a
conviction, a guilty plea or a plea of nolo contendere, (ii) engaging in conduct involving moral
turpitude that causes the Company and its affiliates material and demonstrable public disrepute or
material and demonstrable economic harm; (iii) a willful material breach of this Agreement by
Executive and/or Executives gross neglect of Executives duties hereunder which is not cured to
the Boards reasonable satisfaction within fifteen (15) days after notice thereof is given to
Executive by the Board; or (iv) the intentional wrongful damage to or misappropriation or
conversion of material property of the Company or its affiliates. No act or failure to act by the
Executive shall be deemed willful or intentional if done, or omitted to be done, by him in good
faith and with the reasonable belief that his action or omission was in the best interest of the
Company. Notwithstanding the foregoing, the Company shall not be entitled to terminate Executive
for Cause under clause (ii) above, unless (A) the Board shall have made a good faith investigation
and can produce demonstrable evidence of the existence of the commission of the fraud, embezzlement
or theft which would serve as the basis of Executives termination for Cause under clause (ii)
above, during which investigation the Company may place Executive on a paid administrative leave of
absence and (B) no less than 2/3 of the
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members of the Board (excluding Executive if Executive is then a member of the Board) shall
have made a good faith determination that the Company is entitled to terminate Executive for Cause
under clause (ii) above.
(c)
Voluntary Termination
shall mean a termination of employment by Executive on Executives
own initiative other than (i) a termination due to Disability or (ii) a termination for Good
Reason.
5.4
Termination by the Company without Cause or by Executive for Good Reason
. The
Company may terminate Executives employment hereunder without Cause, and Executive shall be
permitted to terminate Executives employment hereunder for Good Reason (as hereinafter defined).
If the Company terminates Executives employment hereunder without Cause, other than due to death
or Disability, or if Executive effects a termination for Good Reason, Executive shall be entitled
to receive the payments and benefits set forth in this Section 5.4.
(a) If Executives employment hereunder is terminated by the Company without Cause, so long as
Executive has not breached any of the terms contained in
Section 4
, Executive shall be
entitled to each of the following:
(i) Executives Accrued Employment Entitlements;
(ii) two times Executives annual Base Salary in effect as of the date of such
termination, payable in accordance with the Companys normal payroll practices for a period
of twenty-four (24) months following any such termination; provided, however, that if
Executive is, as of the date of such termination, a specified employee within the meaning
of Section 409A of the Internal Revenue Code of 1986, as amended (the
Code
), any amount
that is (1) not treated as a short-term deferral within the meaning of Treas. Regs.
§1.409A-1(b)(4), and (2) exceeds the separation pay limit under Treas. Regs.
§1.409A-1(b)(9)(iii)(A) (two times the lesser of (A) the sum of Executives annualized
compensation based on Executives annual Base Salary for the calendar year preceding the
calendar year in which termination occurs (adjusted for any increase during that year that
was expected to continue indefinitely if Executives employment had not been terminated), or
(B) the maximum amount that may be taken into account under a qualified plan pursuant to
Code Section 401(a)(17) for the year in which such termination occurs), will not be paid
before the date that is six (6) months after such date of termination, or if earlier, the
date of Executives death. Any payments or benefits to which Executive would otherwise be
entitled during such non-payment period will be accumulated and paid or otherwise provided
to Executive on the first day of the seventh month following such date of termination, or if
earlier, within 30 days of Executives death to his surviving spouse (or to his estate if
Executives spouse does not survive him). For purposes of this Section 5.4(a)(ii) and
Section 5.4(b), any amount that is paid as a short-term deferral within the meaning of
Treas. Regs. §1.409A-1(b)(4), or within the separation pay limit under Treas. Regs.
§1.409A-1(b)(9)(iii)(A) shall be treated as a separate payment, provided the aggregate of
the separate payments under this Section 5.4(a)(ii) shall not exceed an amount equal to two
times the Executives annual
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Base Salary in effect as of the date of such termination or for a period in excess of
twenty-four (24) months following any such termination.
(iii) an amount equal to the most recent Annual Bonus received by Executive for any
fiscal year ended prior to the date of such termination (determined without regard to any
performance goals), payable in a lump sum within thirty (30) days following such termination
of employment; provided further, that if such termination or resignation occurs within
thirty (30) days prior to the calendar year end, the payment, without interest, of the
amount paid for a termination by the Company without Cause shall be paid no earlier than
January 1 of the next year; and
(iv) Executive and Executives dependents shall be entitled to continue to participate
in the Companys welfare benefit plans and insurance programs on the same terms as similarly
situated active employees for a period of twenty-four months from the termination date.
Following the expiration of such period, Executive and/or Executives dependents shall be
entitled to any continuation of benefits as are provided under such benefit plans by the
Company or as are required to be provided in accordance with applicable law.
(b) If Executives employment hereunder is terminated by the Executive for Good Reason, so
long as Executive has not breached any of the terms contained in Section 4, Executive shall be
entitled to the benefits provided in Section 5.4(a), except the severance benefit specified in
Section 5.4(a)(ii) (the
Regular Severance Benefit
) shall be payable in a lump sum (the
Permitted
Lump Sum Benefit
) to the extent it is (1) treated as a short-term deferral within the meaning of
Treas. Regs. §1.409A-1(b)(4), or (2) does not exceed the separation pay limit under Treas. Regs.
§1.409A-1(b)(9)(iii)(A) (two times the lesser of (A) the sum of Executives annualized compensation
based on Executives annual Base Salary for the calendar year preceding the calendar year in which
termination occurs (adjusted for any increase during that year that was expected to continue
indefinitely if Executives employment had not been terminated), or (B) the maximum amount that may
be taken into account under a qualified plan pursuant to Code Section 401(a)(17) for the year in
which such termination occurs), as described in Section 5.4(a)(ii). The Permitted Lump Sum Benefit
shall be payable within thirty (30) days following such termination of employment; provided
further, that if such termination or resignation occurs within thirty (30) days prior to the
calendar year end, the payment, without interest, of the Permitted Lump Sum Benefit paid for a
termination by Executive for Good Reason shall be paid no earlier than January 1 of the next year
and any remaining amount shall be payable in installments in accordance with the Regular Severance
Benefit provisions of Section 5.4(a)(ii).
(c) Any outstanding stock options granted to Executive shall be vested and/or exercisable for
the period through the date of such termination of employment, and shall remain exercisable, in
accordance with the terms contained in the plan and the agreement pursuant to which such option
awards were granted. Any outstanding Equity Award (other than stock options) with time based
vesting provisions granted to Executive shall be vested on a prorata basis based on the percentage
determined by dividing (i) the number of days from and including the grant date of such Equity
Award through the termination date of Executives employment, by (ii) the number of days from the
grant date of such Equity Award to the full
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vesting date of such Equity Awards. Any Equity Awards with performance based vesting
provisions shall remain outstanding through the remainder of the applicable performance period
(without regard to any continued employment requirement) and if or to the extent the performance
provisions are attained shall become vested without regard to any continued employment requirement
on a prorata basis based upon the percentage determined by dividing (i) the number of days from and
including the grant date of such Equity Award through the termination date of Executives
employment, by (ii) the number of days from the grant date to the end of the applicable performance
period without regard to any continued employment requirement.
(d) For purposes of the calculation of Executives benefits under any supplemental defined
benefit plan in which Executive participates, Executive shall be credited with one additional year
of service as a result of termination pursuant to this Section 5.4.
(e)
Good Reason
means and shall be deemed to exist if, without the prior written consent of
Executive, (i) Executive suffers a significant reduction in duties, responsibilities or effective
authority associated with Executives titles and positions as set forth and described in this
Agreement or is assigned any duties or responsibilities inconsistent in any material respect
therewith (other than in connection with a termination for Cause); (ii) the Company fails to pay
Executive any amounts or provide any benefits required to be paid or provided under this Agreement
or is otherwise in material breach of this Agreement; (iii) the Company adversely changes
Executives titles or reporting requirements; (iv) Executives compensation opportunity (other than
Base Salary, which is governed by
Section 3.1
) or benefits provided for hereunder are
materially decreased; or (v) the Company transfers Executives primary workplace from the Companys
headquarters in Dallas/Plano, Texas area. No termination by Executive shall be for Good Reason
unless written notice of such termination setting forth in particular the event(s) constituting
Good Reason is delivered to the Company within thirty (30) days following the date on which the
event constituting Good Reason occurs and the Company fails to cure or remedy the event(s)
identified in the notice within thirty (30) days after receipt of such notice.
5.5
Termination During a Change of Control
. Notwithstanding Section 5.4, if within one
year after a Change of Control (as defined below), executives employment is terminated by the
Company (other than for Disability, death or Cause) or Executive resigns for Good Reason, Executive
shall receive the payments and benefits set forth in this Section 5.5:
(a) Executives Accrued Employment Entitlements; plus
(b) An amount (the
Section 5.5 Termination Amount
) in addition to any other cash
compensation beyond that provided in (a) above, which amount shall be equal to the sum of two times
Executives annual Base Salary; plus an amount equal to one and one half times the most recent
Annual Bonus received by Executive for any fiscal year ended prior to the date of such termination
(determined without regard to any performance goals), payable in a lump sum within thirty (30) days
following such termination of employment provided further, that if such termination or resignation
occurs within thirty (30) days prior to the calendar year end, the payment, without interest, the
amount shall be paid no earlier than January 1 of the next year; and
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(c) Executive and Executives dependents shall be entitled to continue to participate in the
Companys, a successors or acquirors welfare benefit plans and insurance programs on the same
terms as similarly situated active employees for a period of thirty (30) months from the
termination date. Following the expiration of such thirty (30) month period, Executive and/or
Executives dependents shall be entitled to any continuation of benefits as are provided under such
benefit plans by the Company or as are required to be provided in accordance with applicable law.
(d) Any outstanding Equity Awards granted to Executive shall be fully vested and/or
exercisable as of the date of such termination of employment and shall remain exercisable, in each
case, in accordance with the terms contained in the plan and the agreement pursuant to which such
compensation awards were granted, but in no event shall Executives rights under any such Equity
Awards be less favorable than the terms applicable to a Sale of the Company or other change in
control contained in the plan and the agreement pursuant to which such Equity Awards were granted.
(e) For purposes of the calculation of Executives benefits under any supplemental defined
benefit plan in which Executive participates, Executive shall be credited with one additional year
of service as a result of termination pursuant to this
Section 5.5
.
(f) A
Change of Control
shall be deemed to have occurred upon (i) the date that (A) any
individual, entity or group (within the meaning both of Section 1.409A-3(i)(5)(vi)(D) of the
Treasury Regulations and of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the
Exchange Act
), other than Madison Dearborn Capital Partners or any entity or
organization controlled by Madison Dearborn Capital Partners (collectively, the
MDP Entities
) or
the Mitchell Family (as defined below), acquires (or has acquired during the 12-month period ending
on the date of the most recent acquisition by such individual, entity or group), beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent
(30%) or more of the total combined voting power of the voting securities of the Company entitled
to vote generally in the election of directors (
Voting Power
); and (B) such beneficial ownership
(as so defined) by such individual, entity or group of more than thirty percent (30%) of the Voting
Power then exceeds the combined beneficial ownership (as so defined) of Voting Power of the MDP
Entities and the Mitchell Family, (ii) a majority of the members of the Companys Board of
Directors shall not be Continuing Directors (as defined below) or (iii) the sale of all or
substantially all of the Companys assets.
(g) Continuing Director shall mean with respect to any 12-month period, individuals that at
the beginning of such 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 stockholders of
the Company was approved by a vote of at least a majority of the directors of the Company then
still in office who were either directors at the beginning of such period or whose election or
nomination was previously so approved).
(h) Mitchell Family shall mean (a) Lee Roy or Tandy Mitchell, or the estate of Lee Roy
Mitchell or Tandy Mitchell and (b) any trust or other arrangement for the benefit of a Mitchell.
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5.6
General Release
. Except where the termination is the result of Executives death
and notwithstanding the foregoing, no payment shall be made by the Company to Executive under this
Section 5 unless otherwise required by state, local or federal law, until Executive executes a
general release of all claims in a form reasonably approved by the Company. The terms of any such
general release will not, without the written consent of the Executive, terminate any continuing
payment or benefit obligations hereunder by the Company to the Executive. Notwithstanding the
foregoing, if the Company fails to deliver a form of general release to the Executive by the
forty-fifth (45th) day following the date of termination, the Executive will be deemed to have
satisfied the condition of this Section 5.6(a) without being required to execute a general release.
5.7
Office Support
. Upon the termination of Executives employment hereunder for any
reason except for Cause, the Company shall make available to Executive, at the Companys expense,
an office and support services, (including, without limitation, telephone, telefax and internet
access), at the Companys election, either at the Companys main office or at another suitable
office space in the Dallas/Plano area, for a period not to exceed three (3) months following the
date of such termination.
6.
Arbitration
.
6.1
General
. Any dispute, controversy or claim arising out of or relating to this
Agreement, the breach hereof or the coverage or enforceability of this arbitration provision shall
be settled by arbitration in Dallas, Texas (or such other location as the Company and Executive may
mutually agree), conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, as such rules are in effect in Dallas/Fort Worth, Texas on the date of
delivery of demand for arbitration. The arbitration of any such issue, including the determination
of the amount of any damages suffered by either party hereto by reason of the acts or omissions of
the other, shall be to the exclusion of any court of law. Notwithstanding the foregoing, either
party hereto may seek any equitable remedy in a court to enforce the provisions of this Agreement,
including but not limited to an action for injunctive relief or attachment, without waiving the
right to arbitration.
6.2
Procedure
.
(a) Either party may demand such arbitration by giving notice of that demand to the other
party. The party demanding such arbitration is referred to herein as the
Demanding Party
, and
the party adverse to the Demanding Party is referred to herein as the
Responding Party
. The
notice shall state (x) the matter in controversy, and (y) the name of the arbitrator selected by
the party giving the notice.
(b) Not more than fifteen (15) days after such notice is given, the Responding Party shall
give notice to the Demanding Party of the name of the arbitrator selected by the Responding Party.
If the Responding Party shall fail to timely give such notice, the arbitrator that the Responding
Party was entitled to select shall be named by the Arbitration Committee of the American
Arbitration Association. Not more than fifteen (15) days after the second arbitrator is so named;
the two arbitrators shall select a third arbitrator. If the two
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arbitrators shall fail to timely select a third arbitrator, the third arbitrator shall be
named by the Arbitration Committee of the American Arbitration Association.
(c) The dispute shall be arbitrated at a hearing that shall be concluded within ten days
immediately following the date the dispute is submitted to arbitration unless a majority of the
arbitrators shall elect to extend the period of arbitration. Any award made by a majority of the
arbitrators (x) shall be made within ten days following the conclusion of the arbitration hearing,
(y) shall be conclusive and binding on the parties, and (z) may be made the subject of a judgment
of any court having jurisdiction.
(d) Any amount to which Executive is entitled under this Agreement (including any disputed
amount) which is not paid when due shall bear interest from the date due but not paid at a rate
equal to the lesser of eight percent (8%) per annum and the maximum lawful rate.
6.3
Costs and Expenses
. All administrative and arbitration fees, costs and expenses
shall be borne by the Company.
7.
Indemnification
. To the fullest extent permitted by the indemnification provisions
of the certificate of incorporation and bylaws of the Company in effect as of the date of this
Agreement and the indemnification provisions of the corporation statute of the jurisdiction of the
Companys incorporation in effect from time to time (collectively, the
Indemnification
Provisions
), and in each case subject to the conditions thereof, the Company shall (i) indemnify
Executive, as a director and/or officer of the Company or a subsidiary of the company or a trustee
or fiduciary of an employee benefit plan of the Company or a subsidiary of the Company, or, if
Executive shall be serving in such capacity at the Companys written request, as a director or
officer of any other corporation (other than a subsidiary of the company) or as a trustee or
fiduciary of an employee benefit plan not sponsored by the Company or a subsidiary of the Company,
against all liabilities and reasonable expenses that may be incurred by Executive in any
threatened, pending, or completed action, suit or proceeding, whether civil, criminal or
administrative, or investigative and whether formal or informal (collectively, Claims), because
Executive is or was a director or officer of the Company, a director or officer of such other
corporation or a trustee or fiduciary of such employee benefit plan, and against which Executive
may be indemnified by the Company, and (ii) pay for or reimburse within twenty (20) days after
request by Executive of the reasonable expenses incurred from time to time by Executive in the
defense of any proceeding to which Executive is a party because Executive is or was a director or
officer of the Company, a director or officer of such other corporation or a trustee or fiduciary
of such employee benefit plan. The Company shall have the right to defend Executive against a
Claim with counsel of its choice reasonably acceptable to Executive so long as (i) the Claim
involves primarily money damages, (ii) the Company conducts the defense of the Claim actively and
diligently and (iii) there are no conflicts of such counsel representing both the Company and the
Executive. So long as the Company is conducting the defense of the Claim, (i) Executive may retain
separate co-counsel at his sole cost and expense and participate in the defense of the Claim, (ii)
the Company shall not consent to the entry of any judgment or enter into any settlement with
respect to the Claim, nor take any voluntary action prejudicial to the determination of the Claim,
without the prior written consent of the Executive, such consent not to be unreasonably withheld
and (iii) the Company will not consent to the entry of any judgment
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or enter into any settlement with respect to the Claim unless a written agreement from the
party asserting the Claim is obtained releasing the Executive from all liability thereunder. The
rights of Executive under the Indemnification Provisions and this Section 7 shall survive the
termination of the employment of Executive by the Company.
8.
Assignment
. This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of Executive and the assigns and successors of the Company, but neither
this Agreement nor any rights or obligations hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of intestate succession) or
by the Company, except that the Company may assign this Agreement to any successor (whether by
merger, purchase or otherwise) to all or substantially all of the stock, assets or businesses of
the Company, if such successor expressly agrees to assume the obligations of the Company hereunder.
9.
Remedies
. Executive acknowledges that the services Executive is to render under
this Agreement are of a unique and special nature, the loss of which cannot reasonably or
adequately be compensated for in monetary damages, and that irreparable injury and damage will
result to the Company and its Subsidiaries in the event of any default or breach of this Agreement
by Executive. The parties agree and acknowledge that the breach by Executive of any of the terms
of this Agreement will cause irreparable damage to the Company and its affiliates, and upon any
such breach, the Company shall be entitled to injunctive relief, specific performance, or other
equitable relief (without posting a bond or other security); provided, however, that this shall in
no way limit any other remedies which the Company and its affiliates may have (including, without
limitations, the right to seek monetary damages).
10.
Survival
. The provisions of Sections 4 through 20 shall survive the expiration or
earlier termination of the Term.
11.
Taxes
. All payments to Executive under this Agreement shall be reduced by all
applicable withholding required by Federal, state or local law.
12.
No Obligation to Mitigate; No Rights of Offset
.
12.1
No Obligation to Mitigate
. Executive shall not be required to mitigate the
amount of any payment or other benefit required to be paid to Executive pursuant to this Agreement,
whether by seeking other employment or otherwise, nor shall the amount of any such payment or other
benefit be reduced on account of any compensation earned by Executive as a result of employment by
another person; provided that Executive and Executives dependents shall not be entitled to
continue to participate in the welfare benefit plans of the Company and its Subsidiaries if
Executive is covered by the welfare benefit plans of another employer.
12.2
No Rights of Offset
. The Companys obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may
have against Executive or others.
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13.
Notices
. Any notice or other communications relating to this Agreement shall be
in writing and delivered personally or mailed by certified mail, return receipt requested, or sent
by overnight courier, to the party concerned at the address set forth below:
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If to Company:
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3900 Dallas Parkway, Suite 500
Plano, Texas 75093
Attn: Chief Executive Officer
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If to Executive:
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At Executives residence address as maintained by the Company in
the regular course of its business for payroll purposes.
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Either party may change the address for the giving of notices at any time by written notice
given to the other party under the provisions of this
Section 13
. If notice is given by
personal delivery or overnight courier, said notice shall be conclusively deemed given at the time
of such delivery or upon receipt of such couriered notice. If notice is given by mail, such notice
shall be conclusively deemed given upon deposit thereof in the United States mail.
14.
Entire Agreement
. This Agreement constitutes the entire agreement between the
parties and supersedes all prior written and oral and all contemporaneous oral agreements,
understandings and negotiations with respect to the subject matter hereof. Without limiting the
generality of the foregoing sentence, this Agreement supersedes any prior employment agreement,
oral or written, including the Employment Agreement, dated as of March 12, 2004, between the
Company and Executive, as amended, which shall terminate and be cancelled as of the Effective Date,
except for any breaches thereof by Executive prior to the Effective Date which shall survive such
termination. This Agreement may not be changed orally, but only by an agreement in writing signed
by both parties.
15.
Counterparts
. This Agreement may be executed in counterparts, each of which shall
be an original, but all of which together shall constitute one agreement.
16.
Construction
. This Agreement shall be governed under and construed in accordance
with the laws of the State of Texas, without regard to the principles of conflicts of laws. The
paragraph headings and captions contained herein are for reference purposes and convenience only
and shall not in any way affect the meaning or interpretation of this Agreement. It is intended by
the parties that this Agreement be interpreted in accordance with its fair and simple meaning, not
for or against either party, and neither party shall be deemed to be the drafter of this Agreement.
17.
Severability
. The parties agree that if any provision of this Agreement as
applied to any party or to any circumstance is adjudged by a court or arbitrator to be invalid or
unenforceable, the same will in no way affect any other circumstance or the validity or
enforceability of this Agreement. Without limiting the generality of the foregoing, in particular,
if any provision in Section 4, or any part thereof, is held to be unenforceable because of the
duration of such provision or the area covered thereby, the parties agree that the court or
arbitrator making such determination shall have the power to reduce the duration and/or area of
such provision, and/or to delete specific words or phrases, and in its reduced form, such
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provision shall then be enforceable and shall be enforced. In addition, in the event of a
breach or violation by Executive of Section 4, the Non-compete Period and the Non-solicitation
Period shall be automatically extended respectively by the amount of time between the initial
occurrence of the breach or violation and when such breach or violation has been duly cured.
18.
Binding Effect
. Subject to Section 8 hereof, the rights and obligations of the
parties under this Agreement shall be binding upon and inure to the benefit of the permitted
successors, assigns, heirs, administrators, executors and personal representatives of the parties.
19.
Effective Date; Effect on Prior Agreement
. This Agreement shall become effective
as of the date first above written. This Agreement contains the entire understanding between the
parties hereto and supersedes in all respects any prior or other agreement or understanding between
the Company or any affiliate of the Company and Executive, including, without limitation, the
Employment Agreement, dated as of March 12, 2004, as amended to the date hereof (the
Prior
Agreement
), by and between Cinemark, Inc. and Executive, which agreement shall terminate in all
respects upon the Effective Date.
20.
Executives Cooperation
. During the Term and for five (5) years thereafter,
Executive shall cooperate with the Company and its Subsidiaries in any internal investigation, any
administrative, regulatory or judicial proceeding or investigation or any material dispute with a
third party, in each case as reasonably requested by the Company (including, without limitation,
Executives being reasonably available to the Company upon reasonable notice for interviews and
factual investigations, appearing at the Companys request to give testimony without requiring
service of subpoena or other legal process, volunteering to the Company all pertinent information
and turning over to the Company all relevant documents which are or may come into Executives
possession, all at times and on schedules that are reasonably consistent with Executives other
activities and commitments), in each case limited to the extent that such cooperation (a) becomes
unduly burdensome for Executive (including in terms of the time commitments required by Executive
in connection with such cooperation), (b) in the event that such cooperation is required after the
Term, unreasonably interferes with Executives duties under his then current employment, (c) causes
Executive to breach in any material respect any material agreement by which he is bound, or (d) is
limited to the extent Executive is advised by legal counsel that such cooperation would not be in
Executives best interests. In the event that the Company requires Executives cooperation in
accordance with this paragraph, the Company shall reimburse Executive solely for: (i) his
reasonable out-of-pocket expenses (including travel, lodging and meals) upon submission of receipts
and (ii) any reasonable attorneys fees incurred by Executive to the extent that, after
consultation with the Company, Executive deems it advisable to seek the advice of legal counsel
regarding his obligations hereunder.
21.
Beneficiaries; References
. Executive shall be entitled to select (and change, to
the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any
compensation or benefit payable hereunder following Executives death, and may change such
election, in either case by giving the Company written notice thereof. In the event of Executives
death or a judicial determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal
representative, and the Company shall pay amounts payable under this Agreement, unless otherwise
provided herein, in accordance with the terms of this Agreement, to Executives
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personal or legal representatives, executors, administrators, heirs, distributees, devisees,
legatees or estate, as the case may be.
-17-
IN WITNESS WHEREOF
, the parties have executed this Employment Agreement on the day and in the
year first written above.
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COMPANY:
CINEMARK HOLDINGS, INC.
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By:
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/s/ Alan W. Stock
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Name:
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Alan W. Stock
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Title:
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CEO
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EXECUTIVE:
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/s/ Robert Copple
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Robert Copple
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-18-
Exhibit
10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this
Agreement
) is made and entered into as of June 16, 2008, by
and between Cinemark Holdings, Inc., a Delaware corporation (the
Company
), and Timothy Warner
(
Executive
).
WITNESSETH:
WHEREAS
, Cinemark, Inc., a wholly owned subsidiary of the Company, and Executive are parties
to an Employment Agreement dated as of March 12, 2004, as amended to the date hereof relating to
Executive, which arrangement sets forth the terms and conditions of Executives employment with
Cinemark, Inc. (the
Original Agreement
); and
WHEREAS
, the parties desire to enter into this Agreement to replace and supersede the Original
Agreement;
NOW
,
THEREFORE
, in consideration of the mutual promises and covenants set forth herein, the
parties hereto agree as follows:
1.
Employment
.
1.1
Title and Duties
. The Company hereby employs Executive as President and Chief
Operating Officer of the Company. Executives duties, responsibilities and authority shall be
consistent with Executives position and titles and shall include serving in a similar capacity
with certain of the Companys Subsidiaries (as hereinafter defined) and such other duties,
responsibilities and authority as may be assigned to Executive by the Board of Directors of the
Company (the
Board
). Executive shall report directly to the Chief Executive Officer of the
Company.
1.2
Services and Exclusivity of Services
. The Company and Executive recognize that
the services to be rendered by Executive are of such a nature as to be peculiarly rendered by
Executive, encompass the individual ability, managerial skills and business experience of Executive
and cannot be measured exclusively in terms of hours or services rendered in any particular period.
Executive shall devote Executives full business time and shall use Executives best efforts,
energy and ability exclusively toward advancing the business, affairs and interests of the Company
and its Subsidiaries, and matters related thereto. Nothing in this Agreement shall preclude
Executive from serving on boards of directors of up to one other company which is not competitive
to the Company upon the Boards approval not to be unreasonably withheld or participating on a
board of or in trade organizations, charitable, community, school or religious activities that do
not substantially interfere with his duties and responsibilities hereunder or conflict with the
interests of the Company.
1.3
Location of Office
. The Company shall make available to Executive an office and
support services at the Companys headquarters in Dallas/Plano, Texas area. Executives main
office shall be at such location.
1.4
Subsidiaries; Person
. For purposes of this Agreement,
Subsidiary
or
Subsidiaries
means, as to any Person, any other Person (i) of which such Person or any other
Subsidiary of such Person is a general partner, (ii) of which such Person, any one or more of
its other Subsidiaries of such Person, or such Person and any one or more of its other
Subsidiaries, directly or indirectly owns or controls securities or other equity interests
representing more than fifty percent (50%) of the aggregate voting power, or (iii) of which such
Person, any one or more of its other Subsidiaries of such Person, or such Person and any one or
more its other Subsidiaries, possesses the right to elect more than fifty percent (50%) of the
board of directors or Persons holding similar positions; and
Person
means any individual,
corporation, partnership, limited liability company, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, or other entity or group (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended).
2.
Term
. The term of Executives employment under this Agreement (the
Term
) shall
commence on the Effective Date (as defined in Section 19) and shall continue for a period of three
(3) years thereafter; provided, however, that at the end of each year of the Term, the Term shall
be extended for an additional one-year period unless Executives employment with the Company is
terminated in accordance with Section 5. References in this Agreement to the balance of the Term
shall mean the period of time remaining on the scheduled Term after giving effect to the most
recent extension of the Term occurring prior to any termination of the Term.
3.
Compensation
.
3.1
Base Salary
. During the Term, the Company will pay to Executive a base salary at
the rate of $442,000 per year, payable in accordance with the Companys practices in effect from
time to time (
Base Salary
). Amounts payable shall be reduced by standard withholding and other
authorized deductions. Such Base Salary shall be reviewed during the Term for increase (but not
decrease) in the sole discretion of the Board, or such individual, group or committee that the
Board may select as its delegate, not less frequently than annually during the Term. In conducting
any such review, the Board or such delegate shall consider and take into account, among other
things, any change in Executives responsibilities, performance of Executive, the compensation of
other similarly situated executives of comparable companies and other pertinent factors. Once
increased, Executives Base Salary shall not be decreased except upon mutual agreement between the
parties, and, as so increased, shall constitute Base Salary hereunder.
3.2
Bonuses; Incentive, Savings and Retirement Plans; Welfare Benefit Plans
.
(a) Executive shall be entitled to participate in all annual and long-term bonuses and
incentive, savings and retirement plans generally available to other similarly situated executive
employees of the Company. Executive, and Executives family as the case may be, shall be eligible
to participate in and receive all benefits under welfare benefit plans, practices, programs and
policies provided to the Chief Executive Officer, the President, other Executive Vice Presidents
and other Senior Vice Presidents of the Company, including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs. The Company reserves the right to modify,
suspend or discontinue any and all of its benefits referred to in this
-2-
Section 3.2 at any time without recourse by Executive so long as such action is taken
generally with respect to other executives and does not single out Executive.
(b) In addition to his Base Salary, for each fiscal year ending during the Term, Executive
will be entitled to participate in the Cinemark Holdings, Inc. Performance Bonus Plan (the
Annual
Bonus Plan
), as such Annual Bonus Plan may be amended from time to time, or pursuant to the terms
of any successor plan. If the performance targets specified by the Compensation Committee of the
Board are satisfied, Executive will receive an annual incentive cash bonus (the
Annual Bonus
)
based upon the award opportunity parameters and performance targets established by the Compensation
Committee of the Board pursuant to the terms of the Annual Bonus Plan. The amount of the Annual
Bonus award opportunity and the performance targets that must be satisfied to receive such Annual
Bonus award will be established by the Compensation Committee, in its sole discretion, each fiscal
year pursuant to the terms of the Annual Bonus Plan. All such Annual Bonus award payments will be
payable as specified pursuant to the terms of the Annual Bonus Plan and will be reduced by standard
withholding and other authorized deductions.
(c)
Equity Awards
. Executive will be eligible to participate in and receive grants of
equity incentive awards (
Equity Awards
) under the Companys Amended and Restated 2006 Long Term
Incentive Plan (the
Equity Incentive Plan
), as such Equity Incentive Plan may be amended from
time to time, or pursuant to the terms of any successor plan. Equity Awards to Executive may be
granted at such times and subject to such terms and conditions as the Equity Incentive Plan
administrator shall determine. Executive has received prior grants of Stock Options which shall
continue to be subject to the terms of this Agreement provided herein. Upon the consummation of a
Sale of the Company, Executives Equity Awards will accelerate and become fully vested (assuming
Executive is then, and has been continuously, employed by the Company or any of its Subsidiaries).
For purposes hereof,
Sale of the Company
is defined and has the meaning specified in the Equity
Incentive Plan.
3.3
Fringe Benefits
. Executive shall be entitled to receive fringe benefits
consistent with Executives duties and position, and in accordance with the benefits provided to
other similarly situated executive employees of the Company. The Company reserves the right to
modify, suspend or discontinue any and all of its fringe benefits referred to in this Section 3.3
at any time without recourse by Executive so long as such action is taken generally with respect to
other similarly situated peer executives and does not single out Executive.
3.4
Travel and Expenses
. Executive shall be entitled to reimbursement for expenses
incurred in the furtherance of the business of the Company in accordance with the Companys
practices and procedures, as they may exist from time to time. Executive may, in his discretion,
elect to purchase, and be reimbursed for, business class tickets on any international flights for
which scheduled flight time exceeds five hours. Executive shall keep complete and accurate records
of all expenditures such that Executive may substantiate and fully account for such expenses
according to the Companys practices and procedures.
3.5
Vacation
. Executive shall be entitled to no less than twenty (20) days paid
vacation and other absences from work in accordance with the Companys vacation and absence
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policy in effect at the time of such vacations or absences which shall be taken at such times
as are consistent with Executives responsibilities hereunder.
3.6
Payment of Compensation and Benefits
. Executive acknowledges and agrees that all
payments required to be paid to Executive and benefits to be provided to Executive may be paid or
provided by the Company, its successor or any other Subsidiary of the Company.
4.
Confidential Information; Non-Competition; Non-Solicitation
.
4.1
General
. Executive acknowledges that during his employment and as a result of his
relationship with the Company and its affiliates, Executive has obtained and will obtain knowledge
of, and has been given and will be given access to, information, including, but not limited to,
information regarding the business, operations, services, proposed services, business processes,
advertising, marketing and promotional plans and materials, price lists, pricing policies, ticket
sales, film licensing, purchasing, real estate acquisition and leasing, other financial information
and other trade secrets, confidential information and proprietary material of the Company and its
affiliates or designated as being confidential by the Company or its affiliates which are not
generally known to non-Company personnel, including information and material originated, discovered
or developed in whole or in part by Executive (collectively referred to herein as
Confidential
Information
). The term Confidential Information does not include any information which (i) at
the time of disclosure is generally available to the public (other than as a result of a disclosure
by Executive in breach of this Agreement), or (ii) was available to Executive on a non-confidential
basis from a source (other than the Company or its Affiliates or their representatives) that is not
and was not prohibited from disclosing such information to Executive by a contractual, legal or
fiduciary obligation. Executive agrees that during the Term and, to the fullest extent permitted
by law, thereafter, Executive will, in a fiduciary capacity for the benefit of the Company and its
affiliates, hold all Confidential Information strictly in confidence and will not directly or
indirectly reveal, report, disclose, publish or transfer any of such Confidential Information to
any Person, or utilize any of the Confidential Information for any purpose, except in furtherance
of Executives employment under this Agreement and except to the extent that Executive may be
required by law to disclose any Confidential Information. Executive acknowledges that the Company
and its affiliates are providing Executive additional Confidential Information that Executive was
not given prior to execution of this Agreement, as further consideration to Executive for executing
this Agreement, including the promises and covenants made by Executive in this Section 4.
4.2
Non-Competition
. In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that during the course of his employment with the
Company and its Subsidiaries, he has, and will, become familiar with the trade secrets of the
Company and its Subsidiaries and with other Confidential Information concerning the Company and its
Subsidiaries and that his services have been and shall continue to be of special, unique and
extraordinary value to the Company and its Subsidiaries. Therefore, Executive agrees that, during
Executives employment hereunder and for one year after the date of termination of employment (the
Non-compete Period
), he shall not directly or indirectly own any interest in, manage, control,
participate in, consult with, render services for, be employed in an executive, managerial or
administrative capacity by, or in any manner engage in, any Competing Business.
-4-
For purposes hereof,
Competing Business
means any business that owns, operates or manages
any movie theatre within a 25-mile radius (if such theatre is outside of a Major DMA) or a 10-mile
radius (if such theatre is within a Major DMA) of any theatre (i) being operated by the Company or
any of its Subsidiaries during Executives employment hereunder (but excluding any theatres which
the Company and its Subsidiaries have ceased to operate as of the date of the termination of
Executives employment hereunder), or (ii) under consideration by the Company or any of its
Subsidiaries for opening as of the date of termination of employment;
Major DMA
means a
Designated Market Area with a number of households in excess of 700,000;
Designated Market Area
means each of those certain geographic market areas for the United States designated as such by
Nielsen Media Research, Inc. (
Nielsen
), as modified from time to time by Nielsen, whereby Nielsen
divides the United States into non-overlapping geography for planning, buying and evaluating
television audiences across various markets and whereby a county in the United States is
exclusively assigned, on the basis of the television viewing habits of the people residing in the
county, to one and only one Designated Market Area; and all theatres operated by the Company and
its Subsidiaries in Canada shall be treated as being outside of a Major DMA. Nothing herein shall
prohibit Executive from (i) being a passive owner of not more than five percent (5%) of the
outstanding stock of any class of a corporation which is publicly traded, so long as Executive has
no active participation in the business of such corporation, or (ii) during the one year period
following the termination of Executives employment, owning, operating or investing in up to five
(5) movie theatres, so long as each such theatre is outside of a 25-mile radius of the theatres
being operated by the Company or any of its Subsidiaries or under consideration by the Company or
any of its Subsidiaries for opening, in each case, as of the time of termination of Executives
employment. During the one-year period following the termination of Executives employment for any
reason, Executive shall provide reasonable notice to the Company of his plans for acquiring
ownership in, commencing operations of, or investing in, any movie theatre prior to any such event.
Notwithstanding the foregoing, Executives obligations under this Section 4.2 shall terminate and
become null and void if Executive terminates his employment with Good Reason.
4.3
Proprietary Interest
. All inventions, designs, improvements, patents, copyrights
and discoveries conceived by Executive during Executives employment by the Company or its
affiliates that are useful in or directly or indirectly related to the business of the Company and
its affiliates or to any experimental work carried on by the Company or its affiliates, shall be
the property of the Company and its affiliates. Executive will promptly and fully disclose to the
Company or its affiliates all such inventions, designs, improvements, patents, copyrights and
discoveries (whether developed individually or with other persons) and shall take all steps
necessary and reasonably required to assure the Companys or such affiliates ownership thereof and
to assist the Company and its affiliates in protecting or defending the Companys or such
affiliates proprietary rights therein.
4.4
Return of Materials
. Executive expressly acknowledges that all data, books,
records and other Confidential Information of the Company and its affiliates obtained in connection
with the Companys business is the exclusive property of the Company or its affiliates and that
upon the termination of Executives employment by the Company or its affiliates, Executive will
immediately surrender and return to the Company or its affiliates all such items and all other
property belonging to the Company or its affiliates then in the possession of Executive, and
Executive shall not make or retain any copies thereof.
-5-
4.5
Property of the Company
. Executive acknowledges that from time to time in the
course of providing services pursuant to this Agreement, Executive shall have the opportunity to
inspect and use certain property, both tangible and intangible, of the Company and its affiliates
and Executive hereby agrees that such property shall remain the exclusive property of the Company
and its affiliates. Executive shall have no right or proprietary interest in such property, whether
tangible or intangible, including, without limitation, Executives customer and supplier lists,
contract forms, books of account, computer programs and similar property.
4.6
Reasonable in Scope and Duration; Consideration
. Executive agrees and
acknowledges that the restrictions contained in this Section 4 are reasonable in scope and duration
and are necessary to protect the business interests and Confidential Information of the Company and
its affiliates after the Effective Date of this Agreement, and Executive further agrees and
acknowledges that he has reviewed the provisions of this Agreement with his legal counsel.
Executive acknowledges and agrees that Executive will receive substantial, valuable consideration
from the Company for the covenants contained in this Section 4, including without limitation,
compensation and other benefits.
5.
Termination
.
5.1
Termination Prior to Expiration of Term
. Notwithstanding anything to the contrary
contained in Section 2, Executives employment may be terminated prior to the expiration of the
Term only as provided in this Section 5.
5.2
Death or Disability
.
(a) The Company may terminate Executives employment hereunder due to death or Disability (as
defined below). If Executives employment hereunder is terminated as a result of death or
Disability, Executive (or Executives estate or personal representative in the event of death)
shall be entitled to receive (i) all Base Salary due to Executive through the date of termination,
(ii) the actual bonus, if any, he would have received in respect of the fiscal year in which his
termination occurs, prorated by a fraction, the numerator of which is the number of days in such
fiscal year prior to the date of Executives termination and the denominator of which is 365,
payable at the same time as any Annual Bonus payments are made to other similarly situated active
executives pursuant to the terms of the Annual Bonus Plan and subject to satisfaction of the
performance targets for such fiscal year, (iii) any previously vested Equity Awards and benefits,
such as retirement benefits and vacation pay, in accordance with the terms of the plan or agreement
pursuant to which such Equity Awards or benefits were granted to Executive (items (i) through (iii)
above collectively referred to as
Accrued Employment Entitlements
), (iv) a lump sum payment equal
to twelve (12) months of Executives full Base Salary, which shall be payable as soon as
practicable following the date of termination but not later than March 15 of the first calendar
year following the year of such termination; provided, that in the case of Disability such payment
shall be offset by the amount of Base Salary paid by the Company to Executive or Executives
personal representative from the date on which Executive was first unable substantially to perform
Executives duties through the date of such termination, and (v) any benefits payable to Executive
or Executives beneficiaries, as applicable, in accordance with the terms of the applicable benefit
plan. At the Companys expense, Executive and/or Executives dependents shall be entitled to
continue to
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participate in the Companys welfare benefit plans and programs on the same terms as similarly
situated actively-employed executives for a period of twelve (12) months from the date of such
termination. Executive and/or Executives dependents shall thereafter be entitled to any
continuation of such benefits provided under such benefit plans or by applicable law. Following
the death or Disability of Executive, Executives participation under any Equity Award or other
incentive compensation plan (other than Annual Bonuses included in the definition of Accrued
Employment Entitlements) shall be governed by the terms of such plans.
(b)
Disability
shall mean if, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous
period of not less than twelve (12) months, Executive is either (i) unable to engage in any
substantial gainful activity; or (ii) receiving income replacement benefits for a period of not
less than three (3) months under an accident and health plan covering Company employees.
Executives Disability shall be determined by the Company, in good faith, based upon information
supplied by Executive and the physician mutually agreed upon by the Company and Executive.
Executive agrees to submit to physical exams and diagnostic tests reasonably recommended by such
physician.
5.3
Termination by the Company for Cause or by Executive because of a Voluntary
Termination
.
(a) Executives employment hereunder may be terminated by the Company for Cause (as
hereinafter defined) or by Executive under a Voluntary Termination (as hereinafter defined). If
Executives employment hereunder is terminated under this
Section 5.3
, Executive shall be
entitled to receive all Base Salary due to Executive through the date of termination. Furthermore,
all previously vested rights of Executive under an Equity Award or similar incentive compensation
plan or program shall be treated in accordance with the terms of such plan or program. Except as
specifically set forth in this
Section 5.3
, the Company shall have no further obligations
to Executive following a termination for Cause, or a Voluntary Termination.
(b)
Cause
shall mean (i) subject to clause (ii) below, a felony which results in a
conviction, a guilty plea or a plea of nolo contendere, (ii) engaging in conduct involving moral
turpitude that causes the Company and its affiliates material and demonstrable public disrepute or
material and demonstrable economic harm; (iii) a willful material breach of this Agreement by
Executive and/or Executives gross neglect of Executives duties hereunder which is not cured to
the Boards reasonable satisfaction within fifteen (15) days after notice thereof is given to
Executive by the Board; or (iv) the intentional wrongful damage to or misappropriation or
conversion of material property of the Company or its affiliates. No act or failure to act by the
Executive shall be deemed willful or intentional if done, or omitted to be done, by him in good
faith and with the reasonable belief that his action or omission was in the best interest of the
Company. Notwithstanding the foregoing, the Company shall not be entitled to terminate Executive
for Cause under clause (ii) above, unless (A) the Board shall have made a good faith investigation
and can produce demonstrable evidence of the existence of the commission of the fraud, embezzlement
or theft which would serve as the basis of Executives termination for Cause under clause (ii)
above, during which investigation the Company may place Executive on a paid administrative leave of
absence and (B) no less than 2/3 of the
-7-
members of the Board (excluding Executive if Executive is then a member of the Board) shall
have made a good faith determination that the Company is entitled to terminate Executive for Cause
under clause (ii) above.
(c)
Voluntary Termination
shall mean a termination of employment by Executive on Executives
own initiative other than (i) a termination due to Disability or (ii) a termination for Good
Reason.
5.4
Termination by the Company without Cause or by Executive for Good Reason
. The
Company may terminate Executives employment hereunder without Cause, and Executive shall be
permitted to terminate Executives employment hereunder for Good Reason (as hereinafter defined).
If the Company terminates Executives employment hereunder without Cause, other than due to death
or Disability, or if Executive effects a termination for Good Reason, Executive shall be entitled
to receive the payments and benefits set forth in this Section 5.4.
(a) If Executives employment hereunder is terminated by the Company without Cause, so long as
Executive has not breached any of the terms contained in
Section 4
, Executive shall be
entitled to each of the following:
(i) Executives Accrued Employment Entitlements;
(ii) two times Executives annual Base Salary in effect as of the date of such
termination, payable in accordance with the Companys normal payroll practices for a period
of twenty-four (24) months following any such termination; provided, however, that if
Executive is, as of the date of such termination, a specified employee within the meaning
of Section 409A of the Internal Revenue Code of 1986, as amended (the
Code
), any amount
that is (1) not treated as a short-term deferral within the meaning of Treas. Regs.
§1.409A-1(b)(4), and (2) exceeds the separation pay limit under Treas. Regs.
§1.409A-1(b)(9)(iii)(A) (two times the lesser of (A) the sum of Executives annualized
compensation based on Executives annual Base Salary for the calendar year preceding the
calendar year in which termination occurs (adjusted for any increase during that year that
was expected to continue indefinitely if Executives employment had not been terminated), or
(B) the maximum amount that may be taken into account under a qualified plan pursuant to
Code Section 401(a)(17) for the year in which such termination occurs), will not be paid
before the date that is six (6) months after such date of termination, or if earlier, the
date of Executives death. Any payments or benefits to which Executive would otherwise be
entitled during such non-payment period will be accumulated and paid or otherwise provided
to Executive on the first day of the seventh month following such date of termination, or if
earlier, within 30 days of Executives death to his surviving spouse (or to his estate if
Executives spouse does not survive him). For purposes of this Section 5.4(a)(ii) and
Section 5.4(b), any amount that is paid as a short-term deferral within the meaning of
Treas. Regs. §1.409A-1(b)(4), or within the separation pay limit under Treas. Regs.
§1.409A-1(b)(9)(iii)(A) shall be treated as a separate payment, provided the aggregate of
the separate payments under this Section 5.4(a)(ii) shall not exceed an amount equal to two
times the Executives annual
-8-
Base Salary in effect as of the date of such termination or for a period in excess of
twenty-four (24) months following any such termination.
(iii) an amount equal to the most recent Annual Bonus received by Executive for any
fiscal year ended prior to the date of such termination (determined without regard to any
performance goals), payable in a lump sum within thirty (30) days following such termination
of employment; provided further, that if such termination or resignation occurs within
thirty (30) days prior to the calendar year end, the payment, without interest, of the
amount paid for a termination by the Company without Cause shall be paid no earlier than
January 1 of the next year; and
(iv) Executive and Executives dependents shall be entitled to continue to participate
in the Companys welfare benefit plans and insurance programs on the same terms as similarly
situated active employees for a period of twenty-four months from the termination date.
Following the expiration of such period, Executive and/or Executives dependents shall be
entitled to any continuation of benefits as are provided under such benefit plans by the
Company or as are required to be provided in accordance with applicable law.
(b) If Executives employment hereunder is terminated by the Executive for Good Reason, so
long as Executive has not breached any of the terms contained in Section 4, Executive shall be
entitled to the benefits provided in Section 5.4(a), except the severance benefit specified in
Section 5.4(a)(ii) (the
Regular Severance Benefit
) shall be payable in a lump sum (the
Permitted
Lump Sum Benefit
) to the extent it is (1) treated as a short-term deferral within the meaning of
Treas. Regs. §1.409A-1(b)(4), or (2) does not exceed the separation pay limit under Treas. Regs.
§1.409A-1(b)(9)(iii)(A) (two times the lesser of (A) the sum of Executives annualized compensation
based on Executives annual Base Salary for the calendar year preceding the calendar year in which
termination occurs (adjusted for any increase during that year that was expected to continue
indefinitely if Executives employment had not been terminated), or (B) the maximum amount that may
be taken into account under a qualified plan pursuant to Code Section 401(a)(17) for the year in
which such termination occurs), as described in Section 5.4(a)(ii). The Permitted Lump Sum Benefit
shall be payable within thirty (30) days following such termination of employment; provided
further, that if such termination or resignation occurs within thirty (30) days prior to the
calendar year end, the payment, without interest, of the Permitted Lump Sum Benefit paid for a
termination by Executive for Good Reason shall be paid no earlier than January 1 of the next year
and any remaining amount shall be payable in installments in accordance with the Regular Severance
Benefit provisions of Section 5.4(a)(ii).
(c) Any outstanding stock options granted to Executive shall be vested and/or exercisable for
the period through the date of such termination of employment, and shall remain exercisable, in
accordance with the terms contained in the plan and the agreement pursuant to which such option
awards were granted. Any outstanding Equity Award (other than stock options) with time based
vesting provisions granted to Executive shall be vested on a prorata basis based on the percentage
determined by dividing (i) the number of days from and including the grant date of such Equity
Award through the termination date of Executives employment, by (ii) the number of days from the
grant date of such Equity Award to the full
-9-
vesting date of such Equity Awards. Any Equity Awards with performance based vesting
provisions shall remain outstanding through the remainder of the applicable performance period
(without regard to any continued employment requirement) and if or to the extent the performance
provisions are attained shall become vested without regard to any continued employment requirement
on a prorata basis based upon the percentage determined by dividing (i) the number of days from and
including the grant date of such Equity Award through the termination date of Executives
employment, by (ii) the number of days from the grant date to the end of the applicable performance
period without regard to any continued employment requirement.
(d) For purposes of the calculation of Executives benefits under any supplemental defined
benefit plan in which Executive participates, Executive shall be credited with one additional year
of service as a result of termination pursuant to this Section 5.4.
(e)
Good Reason
means and shall be deemed to exist if, without the prior written consent of
Executive, (i) Executive suffers a significant reduction in duties, responsibilities or effective
authority associated with Executives titles and positions as set forth and described in this
Agreement or is assigned any duties or responsibilities inconsistent in any material respect
therewith (other than in connection with a termination for Cause); (ii) the Company fails to pay
Executive any amounts or provide any benefits required to be paid or provided under this Agreement
or is otherwise in material breach of this Agreement; (iii) the Company adversely changes
Executives titles or reporting requirements; (iv) Executives compensation opportunity (other than
Base Salary, which is governed by
Section 3.1
) or benefits provided for hereunder are
materially decreased; or (v) the Company transfers Executives primary workplace from the Companys
headquarters in Dallas/Plano, Texas area. No termination by Executive shall be for Good Reason
unless written notice of such termination setting forth in particular the event(s) constituting
Good Reason is delivered to the Company within thirty (30) days following the date on which the
event constituting Good Reason occurs and the Company fails to cure or remedy the event(s)
identified in the notice within thirty (30) days after receipt of such notice.
5.5
Termination During a Change of Control
. Notwithstanding Section 5.4, if within one
year after a Change of Control (as defined below), executives employment is terminated by the
Company (other than for Disability, death or Cause) or Executive resigns for Good Reason, Executive
shall receive the payments and benefits set forth in this Section 5.5:
(a) Executives Accrued Employment Entitlements; plus
(b) An amount (the
Section 5.5 Termination Amount
) in addition to any other cash
compensation beyond that provided in (a) above, which amount shall be equal to the sum of two times
Executives annual Base Salary; plus an amount equal to one and one half times the most recent
Annual Bonus received by Executive for any fiscal year ended prior to the date of such termination
(determined without regard to any performance goals), payable in a lump sum within thirty (30) days
following such termination of employment provided further, that if such termination or resignation
occurs within thirty (30) days prior to the calendar year end, the payment, without interest, the
amount shall be paid no earlier than January 1 of the next year; and
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(c) Executive and Executives dependents shall be entitled to continue to participate in the
Companys, a successors or acquirors welfare benefit plans and insurance programs on the same
terms as similarly situated active employees for a period of thirty (30) months from the
termination date. Following the expiration of such thirty (30) month period, Executive and/or
Executives dependents shall be entitled to any continuation of benefits as are provided under such
benefit plans by the Company or as are required to be provided in accordance with applicable law.
(d) Any outstanding Equity Awards granted to Executive shall be fully vested and/or
exercisable as of the date of such termination of employment and shall remain exercisable, in each
case, in accordance with the terms contained in the plan and the agreement pursuant to which such
compensation awards were granted, but in no event shall Executives rights under any such Equity
Awards be less favorable than the terms applicable to a Sale of the Company or other change in
control contained in the plan and the agreement pursuant to which such Equity Awards were granted.
(e) For purposes of the calculation of Executives benefits under any supplemental defined
benefit plan in which Executive participates, Executive shall be credited with one additional year
of service as a result of termination pursuant to this
Section 5.5
.
(f) A
Change of Control
shall be deemed to have occurred upon (i) the date that (A) any
individual, entity or group (within the meaning both of Section 1.409A-3(i)(5)(vi)(D) of the
Treasury Regulations and of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the
Exchange Act
), other than Madison Dearborn Capital Partners or any entity or
organization controlled by Madison Dearborn Capital Partners (collectively, the
MDP Entities
) or
the Mitchell Family (as defined below), acquires (or has acquired during the 12-month period ending
on the date of the most recent acquisition by such individual, entity or group), beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent
(30%) or more of the total combined voting power of the voting securities of the Company entitled
to vote generally in the election of directors (
Voting Power
); and (B) such beneficial ownership
(as so defined) by such individual, entity or group of more than thirty percent (30%) of the Voting
Power then exceeds the combined beneficial ownership (as so defined) of Voting Power of the MDP
Entities and the Mitchell Family, (ii) a majority of the members of the Companys Board of
Directors shall not be Continuing Directors (as defined below) or (iii) the sale of all or
substantially all of the Companys assets.
(g) Continuing Director shall mean with respect to any 12-month period, individuals that at
the beginning of such 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 stockholders of
the Company was approved by a vote of at least a majority of the directors of the Company then
still in office who were either directors at the beginning of such period or whose election or
nomination was previously so approved).
(h) Mitchell Family shall mean (a) Lee Roy or Tandy Mitchell, or the estate of Lee Roy
Mitchell or Tandy Mitchell and (b) any trust or other arrangement for the benefit of a Mitchell.
-11-
5.6
General Release
. Except where the termination is the result of Executives death
and notwithstanding the foregoing, no payment shall be made by the Company to Executive under this
Section 5 unless otherwise required by state, local or federal law, until Executive executes a
general release of all claims in a form reasonably approved by the Company. The terms of any such
general release will not, without the written consent of the Executive, terminate any continuing
payment or benefit obligations hereunder by the Company to the Executive. Notwithstanding the
foregoing, if the Company fails to deliver a form of general release to the Executive by the
forty-fifth (45th) day following the date of termination, the Executive will be deemed to have
satisfied the condition of this Section 5.6(a) without being required to execute a general release.
5.7
Office Support
. Upon the termination of Executives employment hereunder for any
reason except for Cause, the Company shall make available to Executive, at the Companys expense,
an office and support services, (including, without limitation, telephone, telefax and internet
access), at the Companys election, either at the Companys main office or at another suitable
office space in the Dallas/Plano area, for a period not to exceed three (3) months following the
date of such termination.
6.
Arbitration
.
6.1
General
. Any dispute, controversy or claim arising out of or relating to this
Agreement, the breach hereof or the coverage or enforceability of this arbitration provision shall
be settled by arbitration in Dallas, Texas (or such other location as the Company and Executive may
mutually agree), conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, as such rules are in effect in Dallas/Fort Worth, Texas on the date of
delivery of demand for arbitration. The arbitration of any such issue, including the determination
of the amount of any damages suffered by either party hereto by reason of the acts or omissions of
the other, shall be to the exclusion of any court of law. Notwithstanding the foregoing, either
party hereto may seek any equitable remedy in a court to enforce the provisions of this Agreement,
including but not limited to an action for injunctive relief or attachment, without waiving the
right to arbitration.
6.2
Procedure
.
(a) Either party may demand such arbitration by giving notice of that demand to the other
party. The party demanding such arbitration is referred to herein as the
Demanding Party
, and
the party adverse to the Demanding Party is referred to herein as the
Responding Party
. The
notice shall state (x) the matter in controversy, and (y) the name of the arbitrator selected by
the party giving the notice.
(b) Not more than fifteen (15) days after such notice is given, the Responding Party shall
give notice to the Demanding Party of the name of the arbitrator selected by the Responding Party.
If the Responding Party shall fail to timely give such notice, the arbitrator that the Responding
Party was entitled to select shall be named by the Arbitration Committee of the American
Arbitration Association. Not more than fifteen (15) days after the second arbitrator is so named;
the two arbitrators shall select a third arbitrator. If the two
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arbitrators shall fail to timely select a third arbitrator, the third arbitrator shall be
named by the Arbitration Committee of the American Arbitration Association.
(c) The dispute shall be arbitrated at a hearing that shall be concluded within ten days
immediately following the date the dispute is submitted to arbitration unless a majority of the
arbitrators shall elect to extend the period of arbitration. Any award made by a majority of the
arbitrators (x) shall be made within ten days following the conclusion of the arbitration hearing,
(y) shall be conclusive and binding on the parties, and (z) may be made the subject of a judgment
of any court having jurisdiction.
(d) Any amount to which Executive is entitled under this Agreement (including any disputed
amount) which is not paid when due shall bear interest from the date due but not paid at a rate
equal to the lesser of eight percent (8%) per annum and the maximum lawful rate.
6.3
Costs and Expenses
. All administrative and arbitration fees, costs and expenses
shall be borne by the Company.
7.
Indemnification
. To the fullest extent permitted by the indemnification provisions
of the certificate of incorporation and bylaws of the Company in effect as of the date of this
Agreement and the indemnification provisions of the corporation statute of the jurisdiction of the
Companys incorporation in effect from time to time (collectively, the
Indemnification
Provisions
), and in each case subject to the conditions thereof, the Company shall (i) indemnify
Executive, as a director and/or officer of the Company or a subsidiary of the company or a trustee
or fiduciary of an employee benefit plan of the Company or a subsidiary of the Company, or, if
Executive shall be serving in such capacity at the Companys written request, as a director or
officer of any other corporation (other than a subsidiary of the company) or as a trustee or
fiduciary of an employee benefit plan not sponsored by the Company or a subsidiary of the Company,
against all liabilities and reasonable expenses that may be incurred by Executive in any
threatened, pending, or completed action, suit or proceeding, whether civil, criminal or
administrative, or investigative and whether formal or informal (collectively, Claims), because
Executive is or was a director or officer of the Company, a director or officer of such other
corporation or a trustee or fiduciary of such employee benefit plan, and against which Executive
may be indemnified by the Company, and (ii) pay for or reimburse within twenty (20) days after
request by Executive of the reasonable expenses incurred from time to time by Executive in the
defense of any proceeding to which Executive is a party because Executive is or was a director or
officer of the Company, a director or officer of such other corporation or a trustee or fiduciary
of such employee benefit plan. The Company shall have the right to defend Executive against a
Claim with counsel of its choice reasonably acceptable to Executive so long as (i) the Claim
involves primarily money damages, (ii) the Company conducts the defense of the Claim actively and
diligently and (iii) there are no conflicts of such counsel representing both the Company and the
Executive. So long as the Company is conducting the defense of the Claim, (i) Executive may retain
separate co-counsel at his sole cost and expense and participate in the defense of the Claim, (ii)
the Company shall not consent to the entry of any judgment or enter into any settlement with
respect to the Claim, nor take any voluntary action prejudicial to the determination of the Claim,
without the prior written consent of the Executive, such consent not to be unreasonably withheld
and (iii) the Company will not consent to the entry of any judgment
-13-
or enter into any settlement with respect to the Claim unless a written agreement from the
party asserting the Claim is obtained releasing the Executive from all liability thereunder. The
rights of Executive under the Indemnification Provisions and this Section 7 shall survive the
termination of the employment of Executive by the Company.
8.
Assignment
. This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of Executive and the assigns and successors of the Company, but neither
this Agreement nor any rights or obligations hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of intestate succession) or
by the Company, except that the Company may assign this Agreement to any successor (whether by
merger, purchase or otherwise) to all or substantially all of the stock, assets or businesses of
the Company, if such successor expressly agrees to assume the obligations of the Company hereunder.
9.
Remedies
. Executive acknowledges that the services Executive is to render under
this Agreement are of a unique and special nature, the loss of which cannot reasonably or
adequately be compensated for in monetary damages, and that irreparable injury and damage will
result to the Company and its Subsidiaries in the event of any default or breach of this Agreement
by Executive. The parties agree and acknowledge that the breach by Executive of any of the terms
of this Agreement will cause irreparable damage to the Company and its affiliates, and upon any
such breach, the Company shall be entitled to injunctive relief, specific performance, or other
equitable relief (without posting a bond or other security); provided, however, that this shall in
no way limit any other remedies which the Company and its affiliates may have (including, without
limitations, the right to seek monetary damages).
10.
Survival
. The provisions of Sections 4 through 20 shall survive the expiration or
earlier termination of the Term.
11.
Taxes
. All payments to Executive under this Agreement shall be reduced by all
applicable withholding required by Federal, state or local law.
12.
No Obligation to Mitigate; No Rights of Offset
.
12.1
No Obligation to Mitigate
. Executive shall not be required to mitigate the
amount of any payment or other benefit required to be paid to Executive pursuant to this Agreement,
whether by seeking other employment or otherwise, nor shall the amount of any such payment or other
benefit be reduced on account of any compensation earned by Executive as a result of employment by
another person; provided that Executive and Executives dependents shall not be entitled to
continue to participate in the welfare benefit plans of the Company and its Subsidiaries if
Executive is covered by the welfare benefit plans of another employer.
12.2
No Rights of Offset
. The Companys obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may
have against Executive or others.
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13.
Notices
. Any notice or other communications relating to this Agreement shall be
in writing and delivered personally or mailed by certified mail, return receipt requested, or sent
by overnight courier, to the party concerned at the address set forth below:
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If to Company:
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3900 Dallas Parkway, Suite 500
Plano, Texas 75093
Attn: Chief Executive Officer
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If to Executive:
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At Executives residence address as maintained by the
Company in the regular course of its business for payroll
purposes.
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Either party may change the address for the giving of notices at any time by written notice
given to the other party under the provisions of this
Section 13
. If notice is given by
personal delivery or overnight courier, said notice shall be conclusively deemed given at the time
of such delivery or upon receipt of such couriered notice. If notice is given by mail, such notice
shall be conclusively deemed given upon deposit thereof in the United States mail.
14.
Entire Agreement
. This Agreement constitutes the entire agreement between the
parties and supersedes all prior written and oral and all contemporaneous oral agreements,
understandings and negotiations with respect to the subject matter hereof. Without limiting the
generality of the foregoing sentence, this Agreement supersedes any prior employment agreement,
oral or written, including the Employment Agreement, dated as of March 12, 2004, between the
Company and Executive, as amended, which shall terminate and be cancelled as of the Effective Date,
except for any breaches thereof by Executive prior to the Effective Date which shall survive such
termination. This Agreement may not be changed orally, but only by an agreement in writing signed
by both parties.
15.
Counterparts
. This Agreement may be executed in counterparts, each of which shall
be an original, but all of which together shall constitute one agreement.
16.
Construction
. This Agreement shall be governed under and construed in accordance
with the laws of the State of Texas, without regard to the principles of conflicts of laws. The
paragraph headings and captions contained herein are for reference purposes and convenience only
and shall not in any way affect the meaning or interpretation of this Agreement. It is intended by
the parties that this Agreement be interpreted in accordance with its fair and simple meaning, not
for or against either party, and neither party shall be deemed to be the drafter of this Agreement.
17.
Severability
. The parties agree that if any provision of this Agreement as
applied to any party or to any circumstance is adjudged by a court or arbitrator to be invalid or
unenforceable, the same will in no way affect any other circumstance or the validity or
enforceability of this Agreement. Without limiting the generality of the foregoing, in particular,
if any provision in Section 4, or any part thereof, is held to be unenforceable because of the
duration of such provision or the area covered thereby, the parties agree that the court or
arbitrator making such determination shall have the power to reduce the duration and/or area of
such provision, and/or to delete specific words or phrases, and in its reduced form, such
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provision shall then be enforceable and shall be enforced. In addition, in the event of a
breach or violation by Executive of Section 4, the Non-compete Period and the Non-solicitation
Period shall be automatically extended respectively by the amount of time between the initial
occurrence of the breach or violation and when such breach or violation has been duly cured.
18.
Binding Effect
. Subject to Section 8 hereof, the rights and obligations of the
parties under this Agreement shall be binding upon and inure to the benefit of the permitted
successors, assigns, heirs, administrators, executors and personal representatives of the parties.
19.
Effective Date; Effect on Prior Agreement
. This Agreement shall become effective
as of the date first above written. This Agreement contains the entire understanding between the
parties hereto and supersedes in all respects any prior or other agreement or understanding between
the Company or any affiliate of the Company and Executive, including, without limitation, the
Employment Agreement, dated as of March 12, 2004, as amended to the date hereof (the
Prior
Agreement
), by and between Cinemark, Inc. and Executive, which agreement shall terminate in all
respects upon the Effective Date.
20.
Executives Cooperation
. During the Term and for five (5) years thereafter,
Executive shall cooperate with the Company and its Subsidiaries in any internal investigation, any
administrative, regulatory or judicial proceeding or investigation or any material dispute with a
third party, in each case as reasonably requested by the Company (including, without limitation,
Executives being reasonably available to the Company upon reasonable notice for interviews and
factual investigations, appearing at the Companys request to give testimony without requiring
service of subpoena or other legal process, volunteering to the Company all pertinent information
and turning over to the Company all relevant documents which are or may come into Executives
possession, all at times and on schedules that are reasonably consistent with Executives other
activities and commitments), in each case limited to the extent that such cooperation (a) becomes
unduly burdensome for Executive (including in terms of the time commitments required by Executive
in connection with such cooperation), (b) in the event that such cooperation is required after the
Term, unreasonably interferes with Executives duties under his then current employment, (c) causes
Executive to breach in any material respect any material agreement by which he is bound, or (d) is
limited to the extent Executive is advised by legal counsel that such cooperation would not be in
Executives best interests. In the event that the Company requires Executives cooperation in
accordance with this paragraph, the Company shall reimburse Executive solely for: (i) his
reasonable out-of-pocket expenses (including travel, lodging and meals) upon submission of receipts
and (ii) any reasonable attorneys fees incurred by Executive to the extent that, after
consultation with the Company, Executive deems it advisable to seek the advice of legal counsel
regarding his obligations hereunder.
21.
Beneficiaries; References
. Executive shall be entitled to select (and change, to
the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any
compensation or benefit payable hereunder following Executives death, and may change such
election, in either case by giving the Company written notice thereof. In the event of Executives
death or a judicial determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal
representative, and the Company shall pay amounts payable under this Agreement, unless otherwise
provided herein, in accordance with the terms of this Agreement, to Executives
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personal or legal representatives, executors, administrators, heirs, distributees, devisees,
legatees or estate, as the case may be.
-17-
IN WITNESS WHEREOF
, the parties have executed this Employment Agreement on the day and in the
year first written above.
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COMPANY:
CINEMARK HOLDINGS, INC.
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By:
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/s/ Alan W. Stock
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Name:
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Alan W. Stock
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Title:
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CEO
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EXECUTIVE:
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/s/ Timothy Warner
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Timothy Warner
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-18-
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this
Agreement
) is made and entered into as of June 16, 2008, by
and between Cinemark Holdings, Inc., a Delaware corporation (the
Company
), and Michael Cavalier
(
Executive
).
WITNESSETH:
WHEREAS
, Cinemark, Inc., a wholly owned subsidiary of the Company, and Executive are parties
to an Employment Agreement dated as of March 12, 2004, as amended to the date hereof relating to
Executive, which arrangement sets forth the terms and conditions of Executives employment with
Cinemark, Inc. (the
Original Agreement
); and
WHEREAS
, the parties desire to enter into this Agreement to replace and supersede the Original
Agreement;
NOW
,
THEREFORE
, in consideration of the mutual promises and covenants set forth herein, the
parties hereto agree as follows:
1.
Employment
.
1.1
Title and Duties
. The Company hereby employs Executive as Senior Vice President,
General Counsel and Secretary of the Company. Executives duties, responsibilities and authority
shall be consistent with Executives position and titles and shall include serving in a similar
capacity with certain of the Companys Subsidiaries (as hereinafter defined) and such other duties,
responsibilities and authority as may be assigned to Executive by the Board of Directors of the
Company (the
Board
). Executive shall report directly to the Chief Executive Officer of the
Company.
1.2
Services and Exclusivity of Services
. The Company and Executive recognize that
the services to be rendered by Executive are of such a nature as to be peculiarly rendered by
Executive, encompass the individual ability, managerial skills and business experience of Executive
and cannot be measured exclusively in terms of hours or services rendered in any particular period.
Executive shall devote Executives full business time and shall use Executives best efforts,
energy and ability exclusively toward advancing the business, affairs and interests of the Company
and its Subsidiaries, and matters related thereto. Nothing in this Agreement shall preclude
Executive from serving on boards of directors of up to one other company which is not competitive
to the Company upon the Boards approval not to be unreasonably withheld or participating on a
board of or in trade organizations, charitable, community, school or religious activities that do
not substantially interfere with his duties and responsibilities hereunder or conflict with the
interests of the Company.
1.3
Location of Office
. The Company shall make available to Executive an office and
support services at the Companys headquarters in Dallas/Plano, Texas area. Executives main
office shall be at such location.
1.4
Subsidiaries; Person
. For purposes of this Agreement,
Subsidiary
or
Subsidiaries
means, as to any Person, any other Person (i) of which such Person or any other
Subsidiary of such Person is a general partner, (ii) of which such Person, any one or more of its
other Subsidiaries of such Person, or such Person and any one or more of its other Subsidiaries,
directly or indirectly owns or controls securities or other equity interests representing more than
fifty percent (50%) of the aggregate voting power, or (iii) of which such Person, any one or more
of its other Subsidiaries of such Person, or such Person and any one or more its other
Subsidiaries, possesses the right to elect more than fifty percent (50%) of the board of directors
or Persons holding similar positions; and
Person
means any individual, corporation, partnership,
limited liability company, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, or other entity or group (as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended).
2.
Term
. The term of Executives employment under this Agreement (the
Term
) shall
commence on the Effective Date (as defined in Section 19) and shall continue for a period of three
(3) years thereafter; provided, however, that at the end of each year of the Term, the Term shall
be extended for an additional one-year period unless Executives employment with the Company is
terminated in accordance with Section 5. References in this Agreement to the balance of the Term
shall mean the period of time remaining on the scheduled Term after giving effect to the most
recent extension of the Term occurring prior to any termination of the Term.
3.
Compensation
.
3.1
Base Salary
. During the Term, the Company will pay to Executive a base salary at
the rate of $338,000 per year, payable in accordance with the Companys practices in effect from
time to time (
Base Salary
). Amounts payable shall be reduced by standard withholding and other
authorized deductions. Such Base Salary shall be reviewed during the Term for increase (but not
decrease) in the sole discretion of the Board, or such individual, group or committee that the
Board may select as its delegate, not less frequently than annually during the Term. In conducting
any such review, the Board or such delegate shall consider and take into account, among other
things, any change in Executives responsibilities, performance of Executive, the compensation of
other similarly situated executives of comparable companies and other pertinent factors. Once
increased, Executives Base Salary shall not be decreased except upon mutual agreement between the
parties, and, as so increased, shall constitute Base Salary hereunder.
3.2
Bonuses; Incentive, Savings and Retirement Plans; Welfare Benefit Plans
.
(a) Executive shall be entitled to participate in all annual and long-term bonuses and
incentive, savings and retirement plans generally available to other similarly situated executive
employees of the Company. Executive, and Executives family as the case may be, shall be eligible
to participate in and receive all benefits under welfare benefit plans, practices, programs and
policies provided to the Chief Executive Officer, the President, other Executive Vice Presidents
and other Senior Vice Presidents of the Company, including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs. The Company
reserves the right to modify, suspend or discontinue any and all of its benefits referred to
in this
-2-
Section 3.2 at any time without recourse by Executive so long as such action is taken
generally with respect to other executives and does not single out Executive.
(b) In addition to his Base Salary, for each fiscal year ending during the Term, Executive
will be entitled to participate in the Cinemark Holdings, Inc. Performance Bonus Plan (the
Annual
Bonus Plan
), as such Annual Bonus Plan may be amended from time to time, or pursuant to the terms
of any successor plan. If the performance targets specified by the Compensation Committee of the
Board are satisfied, Executive will receive an annual incentive cash bonus (the
Annual Bonus
)
based upon the award opportunity parameters and performance targets established by the Compensation
Committee of the Board pursuant to the terms of the Annual Bonus Plan. The amount of the Annual
Bonus award opportunity and the performance targets that must be satisfied to receive such Annual
Bonus award will be established by the Compensation Committee, in its sole discretion, each fiscal
year pursuant to the terms of the Annual Bonus Plan. All such Annual Bonus award payments will be
payable as specified pursuant to the terms of the Annual Bonus Plan and will be reduced by standard
withholding and other authorized deductions.
(c)
Equity Awards
. Executive will be eligible to participate in and receive grants of
equity incentive awards (
Equity Awards
) under the Companys Amended and Restated 2006 Long Term
Incentive Plan (the
Equity Incentive Plan
), as such Equity Incentive Plan may be amended from
time to time, or pursuant to the terms of any successor plan. Equity Awards to Executive may be
granted at such times and subject to such terms and conditions as the Equity Incentive Plan
administrator shall determine. Executive has received prior grants of Stock Options which shall
continue to be subject to the terms of this Agreement provided herein. Upon the consummation of a
Sale of the Company, Executives Equity Awards will accelerate and become fully vested (assuming
Executive is then, and has been continuously, employed by the Company or any of its Subsidiaries).
For purposes hereof,
Sale of the Company
is defined and has the meaning specified in the Equity
Incentive Plan.
3.3
Fringe Benefits
. Executive shall be entitled to receive fringe benefits
consistent with Executives duties and position, and in accordance with the benefits provided to
other similarly situated executive employees of the Company. The Company reserves the right to
modify, suspend or discontinue any and all of its fringe benefits referred to in this Section 3.3
at any time without recourse by Executive so long as such action is taken generally with respect to
other similarly situated peer executives and does not single out Executive.
3.4
Travel and Expenses
. Executive shall be entitled to reimbursement for expenses
incurred in the furtherance of the business of the Company in accordance with the Companys
practices and procedures, as they may exist from time to time. Executive may, in his discretion,
elect to purchase, and be reimbursed for, business class tickets on any international flights for
which scheduled flight time exceeds five hours. Executive shall keep complete and accurate records
of all expenditures such that Executive may substantiate and fully account for such expenses
according to the Companys practices and procedures.
3.5
Vacation
. Executive shall be entitled to no less than twenty (20) days paid
vacation and other absences from work in accordance with the Companys vacation and absence
-3-
policy in effect at the time of such vacations or absences which shall be taken at such times
as are consistent with Executives responsibilities hereunder.
3.6
Payment of Compensation and Benefits
. Executive acknowledges and agrees that all
payments required to be paid to Executive and benefits to be provided to Executive may be paid or
provided by the Company, its successor or any other Subsidiary of the Company.
4.
Confidential Information; Non-Competition; Non-Solicitation
.
4.1
General
. Executive acknowledges that during his employment and as a result of his
relationship with the Company and its affiliates, Executive has obtained and will obtain knowledge
of, and has been given and will be given access to, information, including, but not limited to,
information regarding the business, operations, services, proposed services, business processes,
advertising, marketing and promotional plans and materials, price lists, pricing policies, ticket
sales, film licensing, purchasing, real estate acquisition and leasing, other financial information
and other trade secrets, confidential information and proprietary material of the Company and its
affiliates or designated as being confidential by the Company or its affiliates which are not
generally known to non-Company personnel, including information and material originated, discovered
or developed in whole or in part by Executive (collectively referred to herein as
Confidential
Information
). The term Confidential Information does not include any information which (i) at
the time of disclosure is generally available to the public (other than as a result of a disclosure
by Executive in breach of this Agreement), or (ii) was available to Executive on a non-confidential
basis from a source (other than the Company or its Affiliates or their representatives) that is not
and was not prohibited from disclosing such information to Executive by a contractual, legal or
fiduciary obligation. Executive agrees that during the Term and, to the fullest extent permitted
by law, thereafter, Executive will, in a fiduciary capacity for the benefit of the Company and its
affiliates, hold all Confidential Information strictly in confidence and will not directly or
indirectly reveal, report, disclose, publish or transfer any of such Confidential Information to
any Person, or utilize any of the Confidential Information for any purpose, except in furtherance
of Executives employment under this Agreement and except to the extent that Executive may be
required by law to disclose any Confidential Information. Executive acknowledges that the Company
and its affiliates are providing Executive additional Confidential Information that Executive was
not given prior to execution of this Agreement, as further consideration to Executive for executing
this Agreement, including the promises and covenants made by Executive in this Section 4.
4.2
Non-Competition
. In further consideration of the compensation to be paid to
Executive hereunder, Executive acknowledges that during the course of his employment with the
Company and its Subsidiaries, he has, and will, become familiar with the trade secrets of the
Company and its Subsidiaries and with other Confidential Information concerning the Company and its
Subsidiaries and that his services have been and shall continue to be of special, unique and
extraordinary value to the Company and its Subsidiaries. Therefore, Executive agrees that, during
Executives employment hereunder and for one year after the date of termination of employment (the
Non-compete Period
), he shall not directly or indirectly own any interest in, manage, control,
participate in, consult with, render services for, be employed in an executive, managerial or
administrative capacity by, or in any manner engage in, any Competing Business.
-4-
For purposes hereof,
Competing Business
means any business that owns, operates or manages
any movie theatre within a 25-mile radius (if such theatre is outside of a Major DMA) or a 10-mile
radius (if such theatre is within a Major DMA) of any theatre (i) being operated by the Company or
any of its Subsidiaries during Executives employment hereunder (but excluding any theatres which
the Company and its Subsidiaries have ceased to operate as of the date of the termination of
Executives employment hereunder), or (ii) under consideration by the Company or any of its
Subsidiaries for opening as of the date of termination of employment;
Major DMA
means a
Designated Market Area with a number of households in excess of 700,000;
Designated Market Area
means each of those certain geographic market areas for the United States designated as such by
Nielsen Media Research, Inc. (
Nielsen
), as modified from time to time by Nielsen, whereby Nielsen
divides the United States into non-overlapping geography for planning, buying and evaluating
television audiences across various markets and whereby a county in the United States is
exclusively assigned, on the basis of the television viewing habits of the people residing in the
county, to one and only one Designated Market Area; and all theatres operated by the Company and
its Subsidiaries in Canada shall be treated as being outside of a Major DMA. Nothing herein shall
prohibit Executive from (i) being a passive owner of not more than five percent (5%) of the
outstanding stock of any class of a corporation which is publicly traded, so long as Executive has
no active participation in the business of such corporation, or (ii) during the one year period
following the termination of Executives employment, owning, operating or investing in up to five
(5) movie theatres, so long as each such theatre is outside of a 25-mile radius of the theatres
being operated by the Company or any of its Subsidiaries or under consideration by the Company or
any of its Subsidiaries for opening, in each case, as of the time of termination of Executives
employment. During the one-year period following the termination of Executives employment for any
reason, Executive shall provide reasonable notice to the Company of his plans for acquiring
ownership in, commencing operations of, or investing in, any movie theatre prior to any such event.
Notwithstanding the foregoing, Executives obligations under this Section 4.2 shall terminate and
become null and void if Executive terminates his employment with Good Reason.
4.3
Proprietary Interest
. All inventions, designs, improvements, patents, copyrights
and discoveries conceived by Executive during Executives employment by the Company or its
affiliates that are useful in or directly or indirectly related to the business of the Company and
its affiliates or to any experimental work carried on by the Company or its affiliates, shall be
the property of the Company and its affiliates. Executive will promptly and fully disclose to the
Company or its affiliates all such inventions, designs, improvements, patents, copyrights and
discoveries (whether developed individually or with other persons) and shall take all steps
necessary and reasonably required to assure the Companys or such affiliates ownership thereof and
to assist the Company and its affiliates in protecting or defending the Companys or such
affiliates proprietary rights therein.
4.4
Return of Materials
. Executive expressly acknowledges that all data, books,
records and other Confidential Information of the Company and its affiliates obtained in connection
with the Companys business is the exclusive property of the Company or its affiliates and that
upon the termination of Executives employment by the Company or its affiliates, Executive will
immediately surrender and return to the Company or its affiliates all such items and all other
property belonging to the Company or its affiliates then in the possession of Executive, and
Executive shall not make or retain any copies thereof.
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4.5
Property of the Company
. Executive acknowledges that from time to time in the
course of providing services pursuant to this Agreement, Executive shall have the opportunity to
inspect and use certain property, both tangible and intangible, of the Company and its affiliates
and Executive hereby agrees that such property shall remain the exclusive property of the Company
and its affiliates. Executive shall have no right or proprietary interest in such property, whether
tangible or intangible, including, without limitation, Executives customer and supplier lists,
contract forms, books of account, computer programs and similar property.
4.6
Reasonable in Scope and Duration; Consideration
. Executive agrees and
acknowledges that the restrictions contained in this Section 4 are reasonable in scope and duration
and are necessary to protect the business interests and Confidential Information of the Company and
its affiliates after the Effective Date of this Agreement, and Executive further agrees and
acknowledges that he has reviewed the provisions of this Agreement with his legal counsel.
Executive acknowledges and agrees that Executive will receive substantial, valuable consideration
from the Company for the covenants contained in this Section 4, including without limitation,
compensation and other benefits.
5.
Termination
.
5.1
Termination Prior to Expiration of Term
. Notwithstanding anything to the contrary
contained in Section 2, Executives employment may be terminated prior to the expiration of the
Term only as provided in this Section 5.
5.2
Death or Disability
.
(a) The Company may terminate Executives employment hereunder due to death or Disability (as
defined below). If Executives employment hereunder is terminated as a result of death or
Disability, Executive (or Executives estate or personal representative in the event of death)
shall be entitled to receive (i) all Base Salary due to Executive through the date of termination,
(ii) the actual bonus, if any, he would have received in respect of the fiscal year in which his
termination occurs, prorated by a fraction, the numerator of which is the number of days in such
fiscal year prior to the date of Executives termination and the denominator of which is 365,
payable at the same time as any Annual Bonus payments are made to other similarly situated active
executives pursuant to the terms of the Annual Bonus Plan and subject to satisfaction of the
performance targets for such fiscal year, (iii) any previously vested Equity Awards and benefits,
such as retirement benefits and vacation pay, in accordance with the terms of the plan or agreement
pursuant to which such Equity Awards or benefits were granted to Executive (items (i) through (iii)
above collectively referred to as
Accrued Employment Entitlements
), (iv) a lump sum payment equal
to twelve (12) months of Executives full Base Salary, which shall be payable as soon as
practicable following the date of termination but not later than March 15 of the first calendar
year following the year of such termination; provided, that in the case of Disability such payment
shall be offset by the amount of Base Salary paid by the Company to Executive or Executives
personal representative from the date on which Executive was first unable substantially to perform
Executives duties through the date of such termination, and (v) any benefits payable to Executive
or Executives beneficiaries, as applicable, in accordance with the terms of the applicable benefit
plan. At the Companys expense, Executive and/or Executives dependents shall be entitled to
continue to
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participate in the Companys welfare benefit plans and programs on the same terms as similarly
situated actively-employed executives for a period of twelve (12) months from the date of such
termination. Executive and/or Executives dependents shall thereafter be entitled to any
continuation of such benefits provided under such benefit plans or by applicable law. Following
the death or Disability of Executive, Executives participation under any Equity Award or other
incentive compensation plan (other than Annual Bonuses included in the definition of Accrued
Employment Entitlements) shall be governed by the terms of such plans.
(b)
Disability
shall mean if, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last for a continuous
period of not less than twelve (12) months, Executive is either (i) unable to engage in any
substantial gainful activity; or (ii) receiving income replacement benefits for a period of not
less than three (3) months under an accident and health plan covering Company employees.
Executives Disability shall be determined by the Company, in good faith, based upon information
supplied by Executive and the physician mutually agreed upon by the Company and Executive.
Executive agrees to submit to physical exams and diagnostic tests reasonably recommended by such
physician.
5.3
Termination by the Company for Cause or by Executive because of a Voluntary
Termination
.
(a) Executives employment hereunder may be terminated by the Company for Cause (as
hereinafter defined) or by Executive under a Voluntary Termination (as hereinafter defined). If
Executives employment hereunder is terminated under this
Section 5.3
, Executive shall be
entitled to receive all Base Salary due to Executive through the date of termination. Furthermore,
all previously vested rights of Executive under an Equity Award or similar incentive compensation
plan or program shall be treated in accordance with the terms of such plan or program. Except as
specifically set forth in this
Section 5.3
, the Company shall have no further obligations
to Executive following a termination for Cause, or a Voluntary Termination.
(b)
Cause
shall mean (i) subject to clause (ii) below, a felony which results in a
conviction, a guilty plea or a plea of nolo contendere, (ii) engaging in conduct involving moral
turpitude that causes the Company and its affiliates material and demonstrable public disrepute or
material and demonstrable economic harm; (iii) a willful material breach of this Agreement by
Executive and/or Executives gross neglect of Executives duties hereunder which is not cured to
the Boards reasonable satisfaction within fifteen (15) days after notice thereof is given to
Executive by the Board; or (iv) the intentional wrongful damage to or misappropriation or
conversion of material property of the Company or its affiliates. No act or failure to act by the
Executive shall be deemed willful or intentional if done, or omitted to be done, by him in good
faith and with the reasonable belief that his action or omission was in the best interest of the
Company. Notwithstanding the foregoing, the Company shall not be entitled to terminate Executive
for Cause under clause (ii) above, unless (A) the Board shall have made a good faith investigation
and can produce demonstrable evidence of the existence of the commission of the fraud, embezzlement
or theft which would serve as the basis of Executives termination for Cause under clause (ii)
above, during which investigation the Company may place Executive on a paid administrative leave of
absence and (B) no less than 2/3 of the
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members of the Board (excluding Executive if Executive is then a member of the Board) shall
have made a good faith determination that the Company is entitled to terminate Executive for Cause
under clause (ii) above.
(c)
Voluntary Termination
shall mean a termination of employment by Executive on Executives
own initiative other than (i) a termination due to Disability or (ii) a termination for Good
Reason.
5.4
Termination by the Company without Cause or by Executive for Good Reason
. The
Company may terminate Executives employment hereunder without Cause, and Executive shall be
permitted to terminate Executives employment hereunder for Good Reason (as hereinafter defined).
If the Company terminates Executives employment hereunder without Cause, other than due to death
or Disability, or if Executive effects a termination for Good Reason, Executive shall be entitled
to receive the payments and benefits set forth in this Section 5.4.
(a) If Executives employment hereunder is terminated by the Company without Cause, so long as
Executive has not breached any of the terms contained in
Section 4
, Executive shall be
entitled to each of the following:
(i) Executives Accrued Employment Entitlements;
(ii) two times Executives annual Base Salary in effect as of the date of such
termination, payable in accordance with the Companys normal payroll practices for a period
of twenty-four (24) months following any such termination; provided, however, that if
Executive is, as of the date of such termination, a specified employee within the meaning
of Section 409A of the Internal Revenue Code of 1986, as amended (the
Code
), any amount
that is (1) not treated as a short-term deferral within the meaning of Treas. Regs.
§1.409A-1(b)(4), and (2) exceeds the separation pay limit under Treas. Regs.
§1.409A-1(b)(9)(iii)(A) (two times the lesser of (A) the sum of Executives annualized
compensation based on Executives annual Base Salary for the calendar year preceding the
calendar year in which termination occurs (adjusted for any increase during that year that
was expected to continue indefinitely if Executives employment had not been terminated), or
(B) the maximum amount that may be taken into account under a qualified plan pursuant to
Code Section 401(a)(17) for the year in which such termination occurs), will not be paid
before the date that is six (6) months after such date of termination, or if earlier, the
date of Executives death. Any payments or benefits to which Executive would otherwise be
entitled during such non-payment period will be accumulated and paid or otherwise provided
to Executive on the first day of the seventh month following such date of termination, or if
earlier, within 30 days of Executives death to his surviving spouse (or to his estate if
Executives spouse does not survive him). For purposes of this Section 5.4(a)(ii) and
Section 5.4(b), any amount that is paid as a short-term deferral within the meaning of
Treas. Regs. §1.409A-1(b)(4), or within the separation pay limit under Treas. Regs.
§1.409A-1(b)(9)(iii)(A) shall be treated as a separate payment, provided the aggregate of
the separate payments under this Section 5.4(a)(ii) shall not exceed an amount equal to two
times the Executives annual
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Base Salary in effect as of the date of such termination or for a period in excess of
twenty-four (24) months following any such termination.
(iii) an amount equal to the most recent Annual Bonus received by Executive for any
fiscal year ended prior to the date of such termination (determined without regard to any
performance goals), payable in a lump sum within thirty (30) days following such termination
of employment; provided further, that if such termination or resignation occurs within
thirty (30) days prior to the calendar year end, the payment, without interest, of the
amount paid for a termination by the Company without Cause shall be paid no earlier than
January 1 of the next year; and
(iv) Executive and Executives dependents shall be entitled to continue to participate
in the Companys welfare benefit plans and insurance programs on the same terms as similarly
situated active employees for a period of twenty-four months from the termination date.
Following the expiration of such period, Executive and/or Executives dependents shall be
entitled to any continuation of benefits as are provided under such benefit plans by the
Company or as are required to be provided in accordance with applicable law.
(b) If Executives employment hereunder is terminated by the Executive for Good Reason, so
long as Executive has not breached any of the terms contained in Section 4, Executive shall be
entitled to the benefits provided in Section 5.4(a), except the severance benefit specified in
Section 5.4(a)(ii) (the
Regular Severance Benefit
) shall be payable in a lump sum (the
Permitted
Lump Sum Benefit
) to the extent it is (1) treated as a short-term deferral within the meaning of
Treas. Regs. §1.409A-1(b)(4), or (2) does not exceed the separation pay limit under Treas. Regs.
§1.409A-1(b)(9)(iii)(A) (two times the lesser of (A) the sum of Executives annualized compensation
based on Executives annual Base Salary for the calendar year preceding the calendar year in which
termination occurs (adjusted for any increase during that year that was expected to continue
indefinitely if Executives employment had not been terminated), or (B) the maximum amount that may
be taken into account under a qualified plan pursuant to Code Section 401(a)(17) for the year in
which such termination occurs), as described in Section 5.4(a)(ii). The Permitted Lump Sum Benefit
shall be payable within thirty (30) days following such termination of employment; provided
further, that if such termination or resignation occurs within thirty (30) days prior to the
calendar year end, the payment, without interest, of the Permitted Lump Sum Benefit paid for a
termination by Executive for Good Reason shall be paid no earlier than January 1 of the next year
and any remaining amount shall be payable in installments in accordance with the Regular Severance
Benefit provisions of Section 5.4(a)(ii).
(c) Any outstanding stock options granted to Executive shall be vested and/or exercisable for
the period through the date of such termination of employment, and shall remain exercisable, in
accordance with the terms contained in the plan and the agreement pursuant to which such option
awards were granted. Any outstanding Equity Award (other than stock options) with time based
vesting provisions granted to Executive shall be vested on a prorata basis based on the percentage
determined by dividing (i) the number of days from and including the grant date of such Equity
Award through the termination date of Executives employment, by (ii) the number of days from the
grant date of such Equity Award to the full
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vesting date of such Equity Awards. Any Equity Awards with performance based vesting
provisions shall remain outstanding through the remainder of the applicable performance period
(without regard to any continued employment requirement) and if or to the extent the performance
provisions are attained shall become vested without regard to any continued employment requirement
on a prorata basis based upon the percentage determined by dividing (i) the number of days from and
including the grant date of such Equity Award through the termination date of Executives
employment, by (ii) the number of days from the grant date to the end of the applicable performance
period without regard to any continued employment requirement.
(d) For purposes of the calculation of Executives benefits under any supplemental defined
benefit plan in which Executive participates, Executive shall be credited with one additional year
of service as a result of termination pursuant to this Section 5.4.
(e)
Good Reason
means and shall be deemed to exist if, without the prior written consent of
Executive, (i) Executive suffers a significant reduction in duties, responsibilities or effective
authority associated with Executives titles and positions as set forth and described in this
Agreement or is assigned any duties or responsibilities inconsistent in any material respect
therewith (other than in connection with a termination for Cause); (ii) the Company fails to pay
Executive any amounts or provide any benefits required to be paid or provided under this Agreement
or is otherwise in material breach of this Agreement; (iii) the Company adversely changes
Executives titles or reporting requirements; (iv) Executives compensation opportunity (other than
Base Salary, which is governed by
Section 3.1
) or benefits provided for hereunder are
materially decreased; or (v) the Company transfers Executives primary workplace from the Companys
headquarters in Dallas/Plano, Texas area. No termination by Executive shall be for Good Reason
unless written notice of such termination setting forth in particular the event(s) constituting
Good Reason is delivered to the Company within thirty (30) days following the date on which the
event constituting Good Reason occurs and the Company fails to cure or remedy the event(s)
identified in the notice within thirty (30) days after receipt of such notice.
5.5
Termination During a Change of Control
. Notwithstanding Section 5.4, if within one
year after a Change of Control (as defined below), executives employment is terminated by the
Company (other than for Disability, death or Cause) or Executive resigns for Good Reason, Executive
shall receive the payments and benefits set forth in this Section 5.5:
(a) Executives Accrued Employment Entitlements; plus
(b) An amount (the
Section 5.5 Termination Amount
) in addition to any other cash
compensation beyond that provided in (a) above, which amount shall be equal to the sum of two times
Executives annual Base Salary; plus an amount equal to one and one half times the most recent
Annual Bonus received by Executive for any fiscal year ended prior to the date of such termination
(determined without regard to any performance goals), payable in a lump sum within thirty (30) days
following such termination of employment provided further, that if such termination or resignation
occurs within thirty (30) days prior to the calendar year end, the payment, without interest, the
amount shall be paid no earlier than January 1 of the next year; and
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(c) Executive and Executives dependents shall be entitled to continue to participate in the
Companys, a successors or acquirors welfare benefit plans and insurance programs on the same
terms as similarly situated active employees for a period of thirty (30) months from the
termination date. Following the expiration of such thirty (30) month period, Executive and/or
Executives dependents shall be entitled to any continuation of benefits as are provided under such
benefit plans by the Company or as are required to be provided in accordance with applicable law.
(d) Any outstanding Equity Awards granted to Executive shall be fully vested and/or
exercisable as of the date of such termination of employment and shall remain exercisable, in each
case, in accordance with the terms contained in the plan and the agreement pursuant to which such
compensation awards were granted, but in no event shall Executives rights under any such Equity
Awards be less favorable than the terms applicable to a Sale of the Company or other change in
control contained in the plan and the agreement pursuant to which such Equity Awards were granted.
(e) For purposes of the calculation of Executives benefits under any supplemental defined
benefit plan in which Executive participates, Executive shall be credited with one additional year
of service as a result of termination pursuant to this
Section 5.5
.
(f) A
Change of Control
shall be deemed to have occurred upon (i) the date that (A) any
individual, entity or group (within the meaning both of Section 1.409A-3(i)(5)(vi)(D) of the
Treasury Regulations and of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the
Exchange Act
), other than Madison Dearborn Capital Partners or any entity or
organization controlled by Madison Dearborn Capital Partners (collectively, the
MDP Entities
) or
the Mitchell Family (as defined below), acquires (or has acquired during the 12-month period ending
on the date of the most recent acquisition by such individual, entity or group), beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent
(30%) or more of the total combined voting power of the voting securities of the Company entitled
to vote generally in the election of directors (
Voting Power
); and (B) such beneficial ownership
(as so defined) by such individual, entity or group of more than thirty percent (30%) of the Voting
Power then exceeds the combined beneficial ownership (as so defined) of Voting Power of the MDP
Entities and the Mitchell Family, (ii) a majority of the members of the Companys Board of
Directors shall not be Continuing Directors (as defined below) or (iii) the sale of all or
substantially all of the Companys assets.
(g) Continuing Director shall mean with respect to any 12-month period, individuals that at
the beginning of such 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 stockholders of
the Company was approved by a vote of at least a majority of the directors of the Company then
still in office who were either directors at the beginning of such period or whose election or
nomination was previously so approved).
(h) Mitchell Family shall mean (a) Lee Roy or Tandy Mitchell, or the estate of Lee Roy
Mitchell or Tandy Mitchell and (b) any trust or other arrangement for the benefit of a Mitchell.
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5.6
General Release
. Except where the termination is the result of Executives death
and notwithstanding the foregoing, no payment shall be made by the Company to Executive under this
Section 5 unless otherwise required by state, local or federal law, until Executive executes a
general release of all claims in a form reasonably approved by the Company. The terms of any such
general release will not, without the written consent of the Executive, terminate any continuing
payment or benefit obligations hereunder by the Company to the Executive. Notwithstanding the
foregoing, if the Company fails to deliver a form of general release to the Executive by the
forty-fifth (45th) day following the date of termination, the Executive will be deemed to have
satisfied the condition of this Section 5.6(a) without being required to execute a general release.
5.7
Office Support
. Upon the termination of Executives employment hereunder for any
reason except for Cause, the Company shall make available to Executive, at the Companys expense,
an office and support services, (including, without limitation, telephone, telefax and internet
access), at the Companys election, either at the Companys main office or at another suitable
office space in the Dallas/Plano area, for a period not to exceed three (3) months following the
date of such termination.
6.
Arbitration
.
6.1
General
. Any dispute, controversy or claim arising out of or relating to this
Agreement, the breach hereof or the coverage or enforceability of this arbitration provision shall
be settled by arbitration in Dallas, Texas (or such other location as the Company and Executive may
mutually agree), conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, as such rules are in effect in Dallas/Fort Worth, Texas on the date of
delivery of demand for arbitration. The arbitration of any such issue, including the determination
of the amount of any damages suffered by either party hereto by reason of the acts or omissions of
the other, shall be to the exclusion of any court of law. Notwithstanding the foregoing, either
party hereto may seek any equitable remedy in a court to enforce the provisions of this Agreement,
including but not limited to an action for injunctive relief or attachment, without waiving the
right to arbitration.
6.2
Procedure
.
(a) Either party may demand such arbitration by giving notice of that demand to the other
party. The party demanding such arbitration is referred to herein as the
Demanding Party
, and
the party adverse to the Demanding Party is referred to herein as the
Responding Party
. The
notice shall state (x) the matter in controversy, and (y) the name of the arbitrator selected by
the party giving the notice.
(b) Not more than fifteen (15) days after such notice is given, the Responding Party shall
give notice to the Demanding Party of the name of the arbitrator selected by the Responding Party.
If the Responding Party shall fail to timely give such notice, the arbitrator that the Responding
Party was entitled to select shall be named by the Arbitration Committee of the American
Arbitration Association. Not more than fifteen (15) days after the second arbitrator is so named;
the two arbitrators shall select a third arbitrator. If the two
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arbitrators shall fail to timely select a third arbitrator, the third arbitrator shall be
named by the Arbitration Committee of the American Arbitration Association.
(c) The dispute shall be arbitrated at a hearing that shall be concluded within ten days
immediately following the date the dispute is submitted to arbitration unless a majority of the
arbitrators shall elect to extend the period of arbitration. Any award made by a majority of the
arbitrators (x) shall be made within ten days following the conclusion of the arbitration hearing,
(y) shall be conclusive and binding on the parties, and (z) may be made the subject of a judgment
of any court having jurisdiction.
(d) Any amount to which Executive is entitled under this Agreement (including any disputed
amount) which is not paid when due shall bear interest from the date due but not paid at a rate
equal to the lesser of eight percent (8%) per annum and the maximum lawful rate.
6.3
Costs and Expenses
. All administrative and arbitration fees, costs and expenses
shall be borne by the Company.
7.
Indemnification
. To the fullest extent permitted by the indemnification provisions
of the certificate of incorporation and bylaws of the Company in effect as of the date of this
Agreement and the indemnification provisions of the corporation statute of the jurisdiction of the
Companys incorporation in effect from time to time (collectively, the
Indemnification
Provisions
), and in each case subject to the conditions thereof, the Company shall (i) indemnify
Executive, as a director and/or officer of the Company or a subsidiary of the company or a trustee
or fiduciary of an employee benefit plan of the Company or a subsidiary of the Company, or, if
Executive shall be serving in such capacity at the Companys written request, as a director or
officer of any other corporation (other than a subsidiary of the company) or as a trustee or
fiduciary of an employee benefit plan not sponsored by the Company or a subsidiary of the Company,
against all liabilities and reasonable expenses that may be incurred by Executive in any
threatened, pending, or completed action, suit or proceeding, whether civil, criminal or
administrative, or investigative and whether formal or informal (collectively, Claims), because
Executive is or was a director or officer of the Company, a director or officer of such other
corporation or a trustee or fiduciary of such employee benefit plan, and against which Executive
may be indemnified by the Company, and (ii) pay for or reimburse within twenty (20) days after
request by Executive of the reasonable expenses incurred from time to time by Executive in the
defense of any proceeding to which Executive is a party because Executive is or was a director or
officer of the Company, a director or officer of such other corporation or a trustee or fiduciary
of such employee benefit plan. The Company shall have the right to defend Executive against a
Claim with counsel of its choice reasonably acceptable to Executive so long as (i) the Claim
involves primarily money damages, (ii) the Company conducts the defense of the Claim actively and
diligently and (iii) there are no conflicts of such counsel representing both the Company and the
Executive. So long as the Company is conducting the defense of the Claim, (i) Executive may retain
separate co-counsel at his sole cost and expense and participate in the defense of the Claim, (ii)
the Company shall not consent to the entry of any judgment or enter into any settlement with
respect to the Claim, nor take any voluntary action prejudicial to the determination of the Claim,
without the prior written consent of the Executive, such consent not to be unreasonably withheld
and (iii) the Company will not consent to the entry of any judgment
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or enter into any settlement with respect to the Claim unless a written agreement from the
party asserting the Claim is obtained releasing the Executive from all liability thereunder. The
rights of Executive under the Indemnification Provisions and this Section 7 shall survive the
termination of the employment of Executive by the Company.
8.
Assignment
. This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of Executive and the assigns and successors of the Company, but neither
this Agreement nor any rights or obligations hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of intestate succession) or
by the Company, except that the Company may assign this Agreement to any successor (whether by
merger, purchase or otherwise) to all or substantially all of the stock, assets or businesses of
the Company, if such successor expressly agrees to assume the obligations of the Company hereunder.
9.
Remedies
. Executive acknowledges that the services Executive is to render under
this Agreement are of a unique and special nature, the loss of which cannot reasonably or
adequately be compensated for in monetary damages, and that irreparable injury and damage will
result to the Company and its Subsidiaries in the event of any default or breach of this Agreement
by Executive. The parties agree and acknowledge that the breach by Executive of any of the terms
of this Agreement will cause irreparable damage to the Company and its affiliates, and upon any
such breach, the Company shall be entitled to injunctive relief, specific performance, or other
equitable relief (without posting a bond or other security); provided, however, that this shall in
no way limit any other remedies which the Company and its affiliates may have (including, without
limitations, the right to seek monetary damages).
10.
Survival
. The provisions of Sections 4 through 20 shall survive the expiration or
earlier termination of the Term.
11.
Taxes
. All payments to Executive under this Agreement shall be reduced by all
applicable withholding required by Federal, state or local law.
12.
No Obligation to Mitigate; No Rights of Offset
.
12.1
No Obligation to Mitigate
. Executive shall not be required to mitigate the
amount of any payment or other benefit required to be paid to Executive pursuant to this Agreement,
whether by seeking other employment or otherwise, nor shall the amount of any such payment or other
benefit be reduced on account of any compensation earned by Executive as a result of employment by
another person; provided that Executive and Executives dependents shall not be entitled to
continue to participate in the welfare benefit plans of the Company and its Subsidiaries if
Executive is covered by the welfare benefit plans of another employer.
12.2
No Rights of Offset
. The Companys obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may
have against Executive or others.
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13.
Notices
. Any notice or other communications relating to this Agreement shall be
in writing and delivered personally or mailed by certified mail, return receipt requested, or sent
by overnight courier, to the party concerned at the address set forth below:
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If to Company:
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3900 Dallas Parkway, Suite 500
Plano, Texas 75093
Attn: Chief Executive Officer
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If to Executive:
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At Executives residence address as maintained by the Company in
the regular course of its business for payroll purposes.
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Either party may change the address for the giving of notices at any time by written notice
given to the other party under the provisions of this
Section 13
. If notice is given by
personal delivery or overnight courier, said notice shall be conclusively deemed given at the time
of such delivery or upon receipt of such couriered notice. If notice is given by mail, such notice
shall be conclusively deemed given upon deposit thereof in the United States mail.
14.
Entire Agreement
. This Agreement constitutes the entire agreement between the
parties and supersedes all prior written and oral and all contemporaneous oral agreements,
understandings and negotiations with respect to the subject matter hereof. Without limiting the
generality of the foregoing sentence, this Agreement supersedes any prior employment agreement,
oral or written, including the Employment Agreement, dated as of March 12, 2004, between the
Company and Executive, as amended, which shall terminate and be cancelled as of the Effective Date,
except for any breaches thereof by Executive prior to the Effective Date which shall survive such
termination. This Agreement may not be changed orally, but only by an agreement in writing signed
by both parties.
15.
Counterparts
. This Agreement may be executed in counterparts, each of which shall
be an original, but all of which together shall constitute one agreement.
16.
Construction
. This Agreement shall be governed under and construed in accordance
with the laws of the State of Texas, without regard to the principles of conflicts of laws. The
paragraph headings and captions contained herein are for reference purposes and convenience only
and shall not in any way affect the meaning or interpretation of this Agreement. It is intended by
the parties that this Agreement be interpreted in accordance with its fair and simple meaning, not
for or against either party, and neither party shall be deemed to be the drafter of this Agreement.
17.
Severability
. The parties agree that if any provision of this Agreement as
applied to any party or to any circumstance is adjudged by a court or arbitrator to be invalid or
unenforceable, the same will in no way affect any other circumstance or the validity or
enforceability of this Agreement. Without limiting the generality of the foregoing, in particular,
if any provision in Section 4, or any part thereof, is held to be unenforceable because of the
duration of such provision or the area covered thereby, the parties agree that the court or
arbitrator making such determination shall have the power to reduce the duration and/or area of
such provision, and/or to delete specific words or phrases, and in its reduced form, such
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provision shall then be enforceable and shall be enforced. In addition, in the event of a
breach or violation by Executive of Section 4, the Non-compete Period and the Non-solicitation
Period shall be automatically extended respectively by the amount of time between the initial
occurrence of the breach or violation and when such breach or violation has been duly cured.
18.
Binding Effect
. Subject to Section 8 hereof, the rights and obligations of the
parties under this Agreement shall be binding upon and inure to the benefit of the permitted
successors, assigns, heirs, administrators, executors and personal representatives of the parties.
19.
Effective Date; Effect on Prior Agreement
. This Agreement shall become effective
as of the date first above written. This Agreement contains the entire understanding between the
parties hereto and supersedes in all respects any prior or other agreement or understanding between
the Company or any affiliate of the Company and Executive, including, without limitation, the
Employment Agreement, dated as of March 12, 2004, as amended to the date hereof (the
Prior
Agreement
), by and between Cinemark, Inc. and Executive, which agreement shall terminate in all
respects upon the Effective Date.
20.
Executives Cooperation
. During the Term and for five (5) years thereafter,
Executive shall cooperate with the Company and its Subsidiaries in any internal investigation, any
administrative, regulatory or judicial proceeding or investigation or any material dispute with a
third party, in each case as reasonably requested by the Company (including, without limitation,
Executives being reasonably available to the Company upon reasonable notice for interviews and
factual investigations, appearing at the Companys request to give testimony without requiring
service of subpoena or other legal process, volunteering to the Company all pertinent information
and turning over to the Company all relevant documents which are or may come into Executives
possession, all at times and on schedules that are reasonably consistent with Executives other
activities and commitments), in each case limited to the extent that such cooperation (a) becomes
unduly burdensome for Executive (including in terms of the time commitments required by Executive
in connection with such cooperation), (b) in the event that such cooperation is required after the
Term, unreasonably interferes with Executives duties under his then current employment, (c) causes
Executive to breach in any material respect any material agreement by which he is bound, or (d) is
limited to the extent Executive is advised by legal counsel that such cooperation would not be in
Executives best interests. In the event that the Company requires Executives cooperation in
accordance with this paragraph, the Company shall reimburse Executive solely for: (i) his
reasonable out-of-pocket expenses (including travel, lodging and meals) upon submission of receipts
and (ii) any reasonable attorneys fees incurred by Executive to the extent that, after
consultation with the Company, Executive deems it advisable to seek the advice of legal counsel
regarding his obligations hereunder.
21.
Beneficiaries; References
. Executive shall be entitled to select (and change, to
the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any
compensation or benefit payable hereunder following Executives death, and may change such
election, in either case by giving the Company written notice thereof. In the event of Executives
death or a judicial determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal
representative, and the Company shall pay amounts payable under this Agreement, unless otherwise
provided herein, in accordance with the terms of this Agreement, to Executives
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personal or legal representatives, executors, administrators, heirs, distributees, devisees,
legatees or estate, as the case may be.
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IN WITNESS WHEREOF
, the parties have executed this Employment Agreement on the day and in the
year first written above.
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COMPANY:
CINEMARK HOLDINGS, INC.
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By:
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/s/ Alan W. Stock
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Name:
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Alan W. Stock
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Title:
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CEO
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EXECUTIVE:
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/s/ Michael Cavalier
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Michael Cavalier
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