Agreement to Participate in Profits and Losses - Cinemark USA Inc. and Alan W. Stock
AMENDED AND RESTATED
AGREEMENT TO PARTICIPATE IN PROFITS AND LOSSES
This Amended and Restated Agreement to Participate in Profits and
Losses (this "Restated Agreement") effective as of June 19, 2002, by and between
Cinemark USA, Inc. ("Cinemark") and Alan W. Stock ("Stock").
RECITALS
A. Cinemark is the owner or lessee of properties in the United States
upon which it operates multiplex movie theatres.
B. Cinemark and Stock entered into an Agreement to Participate in the
Profits and Losses effective February 1, 2002, (the "Original Agreement")
pursuant to which Stock participates in the profits and losses of the theatres
listed on Exhibit "A" attached hereto and hereby incorporated by reference (the
"Theatres").
C. Cinemark and Stock desire to amend and restate the Original
Agreement in accordance with the terms and provisions contained herein.
NOW, THEREFORE, in consideration of the above premises and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Cinemark and Stock agree as follows:
AGREEMENTS
1. Term. The term (the "Term") of this Agreement shall equal the term
of the lease entered into by Cinemark for the Theatres, plus the term of any and
all direct or indirect extensions or renewals thereof.
2. Allocations.
(a) Operating Profits and Disposition Profits. Operating
Profits and Disposition Profits for any fiscal year shall be allocated
in the following order of priority:
(i) First, 100% to Cinemark until the cumulative
Operating Profits and Disposition Profits allocated pursuant
to this Section 2(a) hereof are equal to the total Operating
Losses and Distribution Losses allocated pursuant to Section
2(b).
(ii) Second, to Cinemark and Stock in proportion to
the cumulative Distributions of Net Cash from Operations and
Net Cash from Dispositions which they have received (and to
which they are entitled as of the end of the subject fiscal
year) pursuant to Section 3(a) hereof.
(b) Operating., Losses and Disposition Losses. Operating
Losses and Disposition Losses for any fiscal year shall be allocated
100% to Cinemark.
1
<PAGE>
3. Distributions. Subject to Section 5 hereof, Cinemark hereby grants,
bargains, sells, conveys and assigns to Stock a forty nine percent (49%)
participation in the Net Cash from Operations and Net Cash from Dispositions
arising from the operation of the Theatres during the Term, after Cinemark has
recouped one hundred percent (100%) of any investment by Cinemark in the
Theatres plus interest on such amounts as more fully described below. Net Cash
from Operations and Net Cash from Dispositions shall be distributed as follows:
(a) Distribution of Net Cash from Operations. Subject to
Section 5 hereof, Net Cash from Operations from the Theatres, to the
extent reasonably deemed available by Cinemark for distribution, shall
be distributed as follows:
(i) First, 100% of the Net Cash from Operations from
the Theatres to Cinemark until the cumulative Net Cash from
Operations distributed to Cinemark is equal to Cinemark's
Investment plus accrued interest on Cinemark's Investment at
Cinemark's average annual borrowing rate compounded monthly;
and
(ii) Second, 51% of the Net Cash from Operations from
the Theatres to Cinemark and 49% of the Net Cash from
Operations from the Theatres to Stock.
(b) Distributions of Net Cash from Disposition of the
Theatres. Subject to Section 5 hereof, Net Cash Flow from Disposition
of the Theatres, to the extent reasonably deemed available by Cinemark,
shall be distributed as follows:
(i) First, 100% of Net Cash from Dispositions from
the Theatres to Cinemark until the cumulative Net Cash Flow
from Operations from the Theatres distributed to Cinemark
pursuant to 3(a) above, plus any portion of Net Cash from
Disposition of the Theatres received under this 3(b)(i) is
equal to Cinemark's Initial Investment plus accrued interest
on Cinemark's Investment at Cinemark's average annual
borrowing rate compounded monthly; and
(ii) Second, any remaining Net Cash from Disposition
of the Theatres shall be distributed 51% to Cinemark and 49%
to Stock.
(c) With respect to Section 3(a), Net Cash from Operations
shall, to the extent reasonably deemed available, be distributed at
least quarterly and shall at least be an amount equal to Cinemark's and
Stock's income taxes based upon such party's prorata share of Net Cash
from Operations.
4. Option to Purchase Profit Interest. If, at any time, or from time to
time, Cinemark (or a successor company by merger with Cinemark) shall propose to
register with the Securities and Exchange Commission (the "SEC") in a public
offering on its own behalf or on behalf of any other security holder of
Cinemark, or any of Cinemark's affiliates, its capital stock under the
Securities Act of 1933, as amended (other than in connection with a dividend
reinvestment, employee stock purchase, stock option or similar plan or a
registration on Forms S-4 or S-8 or any successor form), Stock hereby grants to
Cinemark the option (the "Call Option") to purchase the Stock profit
participation interest contained herein. The Call Option may be exercised by
Cinemark by delivery of written notice of exercise of the Call Option (the "Call
Notice") to you at any time within thirty (30) days of the filing of any
registration statement with the SEC. The
2
<PAGE>
purchase price shall be the "fair market value" attributable to the profit
participation interests being purchased hereunder. If Cinemark and Stock are
unable to agree, within ten (10) days of Stock's receipt of the Call Notice, as
to the "fair market value" of the profit participation interest, then the "fair
market value" shall be determined by an appraisal undertaken using the Appraisal
Process. The appraisal shall be conducted at the expense of Cinemark. The
closing of the purchase of Stock's profit participation interest shall take
place within thirty (30) days of the determination of the "fair market value."
At the closing, Cinemark shall deliver the purchase price for the profit
participation interest against delivery by Stock of a termination agreement
terminating this Agreement in full.
5. Termination of Employment. In the event Stock's employment with
Cinemark, Inc. or the Company is terminated for other than Cause, as such term
is defined in the Employment Agreement by and between Stock and Cinemark, Inc.,
the distribution contemplated by Section 3(a)(ii) or (b)(ii), as applicable,
following the date of such termination shall be made to Cinemark and Stock in
the specified percentages even if Cinemark has not recouped one hundred percent
(100%) of any investment by Cinemark in the Theatres plus interest on such
amounts, and thereafter such limitation shall be deemed deleted in its entirety
from Section 3.
6. The following definitions shall apply to this Agreement:
"Appraisal Process" means an appraisal undertaken by two independent
appraisers, acting jointly, to determine the fair market value of the Theatre.
One such appraiser shall be appointed by the Company and the other by the
American Arbitration Association (Dallas, Texas) and approved by Stock, and the
deliberations of the appraisers shall commence forthwith following their
appointment and approval, respectively. If the two appraisers cannot agree on
such fair market value within 20 days of the commencement of their
deliberations, they shall select a third appraiser possessing similar
qualifications. If they cannot agree upon a third appraiser with 25 days of the
commencement of their original deliberations to determine fair market value, the
third appraiser shall be selected by said office of the American Arbitration
Association, and such third appraiser, within 20 days of appointment, shall
determine such fair market value, which shall be an amount not more than the
higher of the aforementioned two appraisals, nor less than the lower of such two
appraisals.
"Cinemark's Investment" shall mean the aggregate total of (i) initial
hard and soft costs paid to third parties for designing, developing,
constructing, equipping and permitting for the Theatres (excluding the costs of
day to day operation of the Theatres after opening to the general public for
business), (ii) costs that are capitalized for maintaining, replacing or
repairing capital items in the Theatres and (iii) Cinemark's aggregate
allocation of Operating Losses and Disposition Losses in accordance with Section
2 hereof. Within one hundred twenty (120) days of the opening of a Theatre to
the general public for business, Cinemark shall provide Stock with a summary of
the investment costs relating to (i) of this definition for each Theatre.
"Disposition" shall mean any sale, exchange, assignment, abandonment,
condemnation (without rebuilding), destruction (without rebuilding), foreclosure
or any other taxable disposition, whether voluntary or involuntary, of one or
more of the Theatres.
3
<PAGE>
"Disposition Losses" shall mean all Losses attributable to Disposition
of one or more Theatres.
"Disposition Profits" shall mean all Profits attributable to
Disposition of one or more Theatres.
"Net Cash" means, for each month or any other period for the Theatres
as chosen by Cinemark, the excess of all cash receipts generated at the
Theatres, including without limitation, cash receipts from the operation of the
Theatres and receipts from the sale of the Theatres, plus reserves set aside
during prior periods which are no longer necessary as reserves, less: (a) all
expenditures of Cinemark respecting the Theatres, including without limitation,
all expenses required to operate the Theatres, including without limitation film
rental expense, costs of concession, salaries and benefits, janitorial services
and supplies, general supplies, repairs and maintenance, repairs and
replacements of a capital nature which are made by Cinemark, property taxes,
insurance, common area maintenance, utilities, rent, security, other direct
operating expense at the Theatres and a reasonable allocation to Cinemark for
bulk purchases made by Cinemark for the Theatres' operations, all calculated in
accordance with GAAP, (b) amounts required for payment of all outstanding
current obligations of the Theatres, and (c) amounts set aside for reserves for
the Theatres, as determined by Cinemark.
"Net Cash from Disposition of the Theatres" means Net Cash attributable
to Disposition of one or more Theatres, including all principal and interest
payments with respect to any note or other obligation received by Cinemark in
connection with the Disposition of the Theatres.
"Net Cash from Operations" means all Net Cash other than Net Cash from
Disposition of the Theatres.
"Operating Losses" means all Losses (including each item of income,
expense and deduction comprising such Losses) derived front operations during
the fiscal year, determined without regard to Disposition Profits or Disposition
Losses.
"Operating Profits" means all Profits (including each item of income,
expense and deduction comprising such Profits) derived from operations during
the fiscal year, determined without regard to Disposition Profits or Disposition
Losses.
"Profits" and "Losses" means, for each fiscal year or other period, an
amount equal to Cinemark's taxable income or loss for such year or period
attributable to the Theatres.
7. Management and Operation. Stock shall not, and hereby acknowledges
that he shall not, have any right or authority to participate in the management
or operation of the Theatres, except during any period he is employed by
Cinemark as an executive officer. It is understood and agreed that Cinemark will
operate and manage the Theatres.
8. Ownership. It is understood and agreed by the parties that Cinemark
is granting Stock hereunder solely an interest in the net profits or net losses
of the operation of the Theatre. Nothing herein shall be construed as granting
Stock any right or authority to participate in the ownership, management or
control of the Theatres, the lease agreement with respect to any
4
<PAGE>
Theatre or any equipment at any Theatre or property associated with any Theatre
or any other theatre operated by Cinemark during the term of this Agreement.
9. Assignment. Stock shall not assign, transfer, convey, encumber or
hypothecate the interest granted herein without the prior written consent of
Cinemark which Cinemark may grant or withhold in its sole and absolute
discretion.
10. No Partnership. Nothing herein contained shall be deemed or
construed as creating a relationship of principal or agent, partnership or joint
venture among the parties.
11. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered in person, by receipted
overnight courier, or by registered or certified mail, return receipt requested,
postage and fees prepaid, first class mail:
To: Stock:
Alan W. Stock
4906 St. Lawrence Court
Plano, Texas 75094
To: Cinemark:
Cinemark USA, Inc.
3900 Dallas Parkway, Suite 500
Plano, Texas 75093
Attention: Chief Executive Officer
Telecopy Number: (972) 665-1003
With Copy to:
Cinemark USA, Inc.
3900 Dallas Parkway, Suite 500
Plano, Texas 75093
Attention: General Counsel
Telecopy Number: (972) 665-1004
or such other address as either party may from time to time specify in writing
to the other in the manner aforesaid.
12. Governing Law. This Agreement and all of the rights and duties of
the parties arising from or relating in any way to the subject matter of this
Agreement shall be governed, enforced and construed in accordance with the laws
of the State of Texas.
13. Severability. In the event any of the provisions, or portions
thereof, of this Agreement are held to be unenforceable or invalid by any court
of competent jurisdiction, the validity and enforceability of the remaining
provisions, or portions thereof, shall not be affected thereby. Any provisions
so held unenforceable or invalid shall be reformed by such court to
5
<PAGE>
reflect the construction most nearly approximating the intent of such provision
which shall be valid and enforceable, and the parties hereto hereby agree to
such provision as reformed.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and replaces and
supercedes the Original Agreement which shall hereinafter be deemed terminated
and of no further force or effect.
15. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of all the parties hereto and their respective heirs, legatees,
legal representatives, successors and permitted assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CINEMARK USA, INC.
By: /s/ LEE ROY MITCHELL
-------------------------------------
Name: Lee Roy Mitchell
-----------------------------------
Title: CEO
----------------------------------
/s/ ALAN W. STOCK
----------------------------------------
Alan W. Stock
6
<PAGE>
EXHIBIT "A"
THEATRES
Holiday Village 4
1776 Park Avenue, #4
Box 770-309
Park City, Utah 84060
(4 screens)
Kentucky Oaks Mall (II)
5159 Hinkleville, Unit #010
Paducah, Kentucky 42001
(12 screen)