Filed pursuant to Rule 424(b)(3)
of the Securities Act of 1933
(No. 333-113141)
PROSPECTUS
(IMAX LOGO)
OFFER TO EXCHANGE ALL OUTSTANDING 9 5/8% SENIOR NOTES DUE 2010
ISSUED ON DECEMBER 4, 2003 FOR
UP TO $160,000,000 AGGREGATE PRINCIPAL AMOUNT OF
REGISTERED 9 5/8% SENIOR NOTES DUE 2010
THE OLD NOTES:
$160,000,000 aggregate principal amount of 9 5/8% Senior Notes due December
1, 2010, referred to in this prospectus as the old notes, were originally issued
and sold by IMAX Corporation on December 4, 2003 in a transaction that was
exempt from registration under the Securities Act of 1933, as amended, and
resold to qualified institutional buyers in compliance with Rule 144A. The
payment of principal, premium, if any, and interest on the old notes is fully
and unconditionally guaranteed, jointly and severally, by each of our current
and future North American subsidiaries. The guarantees are general unsecured
obligations of the guarantors and are equal in right of payment with any future
unsecured, unsubordinated indebtedness of the guarantors.
THE NEW NOTES:
The terms of the new notes, referred to in this prospectus as the notes,
are substantially identical to the terms of the old notes, and evidence the same
indebtedness as the old notes, except that the notes will be registered under
the Securities Act, will not contain restrictions on transfer or provisions
relating to special interest under circumstances related to the timing of the
exchange offer, will bear a different CUSIP number from the old notes and will
not entitle their holders to registration rights. The payment of principal,
premium, if any, and interest on the notes will be fully and unconditionally
guaranteed, jointly and severally, by each of our current and future North
American subsidiaries on the same terms as the guarantees in respect of the old
notes.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN RISKS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH TENDERING YOUR OLD NOTES IN THE
EXCHANGE OFFER.
EXCHANGE OFFER:
Our offer to exchange old notes for notes will be open until 5:00 p.m., New
York City time, on November 4, 2004, unless we extend the offer.
Notes will be issued in exchange for an equal principal amount of
outstanding old notes accepted in the exchange offer. The exchange offer is not
conditioned upon any minimum principal amount of old notes being tendered for
exchange. However, the obligation to accept old notes for exchange pursuant to
the exchange offer is subject to certain customary conditions set forth herein.
See "The Exchange Offer -- Conditions."
No public market currently exists for the notes and we do not intend to
apply for their listing on any securities exchange or to arrange for them to be
quoted on any quotation system.
Each broker-dealer that receives notes for its own account pursuant to the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of such notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of notes received in exchange for old notes where the old notes
were acquired as a result of market-making activities or other trading
activities. We have agreed that, for a period of 180 days after the expiration
date of the exchange offer, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES OR PASSED UPON THE ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is October 4, 2004.
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TABLE OF CONTENTS
PAGE
----
SUMMARY................................ 1
RISK FACTORS........................... 13
SPECIAL NOTE REGARDING FORWARD-LOOKING
INFORMATION.......................... 25
USE OF PROCEEDS........................ 26
CAPITALIZATION......................... 27
SELECTED CONSOLIDATED FINANCIAL
INFORMATION.......................... 28
BUSINESS............................... 32
MANAGEMENT............................. 41
THE EXCHANGE OFFER..................... 44
PAGE
----
DESCRIPTION OF NEW CREDIT FACILITY..... 51
DESCRIPTION OF THE NOTES............... 52
BOOK-ENTRY, DELIVERY AND FORM.......... 79
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS....................... 83
PLAN OF DISTRIBUTION................... 85
LEGAL MATTERS.......................... 85
EXPERTS................................ 85
WHERE YOU CAN FIND MORE
INFORMATION.......................... 86
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION IN THIS DOCUMENT AND THE DOCUMENTS INCORPORATED BY REFERENCE MAY
ONLY BE ACCURATE ON THE DATE OF SUCH DOCUMENTS.
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS THAT CONTAIN IMPORTANT
BUSINESS AND FINANCIAL INFORMATION ABOUT THE COMPANY THAT IS NOT INCLUDED OR
DELIVERED WITH THIS PROSPECTUS. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE TO
HOLDERS OF THE NOTES UPON WRITTEN OR ORAL REQUEST TO IMAX CORPORATION AT THE
ADDRESS AND PHONE NUMBER SPECIFIED UNDER "WHERE YOU CAN FIND MORE INFORMATION."
TO OBTAIN TIMELY DELIVERY, HOLDERS OF THE NOTES MUST REQUEST THESE DOCUMENTS NO
LATER THAN FIVE BUSINESS DAYS BEFORE THE EXPIRATION DATE. UNLESS EXTENDED, THE
EXPIRATION DATE IS NOVEMBER 4, 2004.
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Unless the context requires otherwise or otherwise as expressly stated, the
terms "IMAX," "we," "our," "us," and the "company" refer to IMAX Corporation
and, unless the context otherwise requires or otherwise as expressly stated, its
consolidated subsidiaries. Unless otherwise indicated, all references to "$" or
"US$" are to United States dollars.
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i
SUMMARY
The following summary highlights selected information contained elsewhere
in, or incorporated by reference into, this prospectus and does not contain all
of the information that you should consider before exchanging your old notes for
the notes. You should read this summary together with the more detailed
information that is contained in, or incorporated by reference into, this
prospectus, including the risk factors, financial data and financial statements
and notes thereto. In this prospectus, the terms "IMAX," "we," "our," "us" and
the "company" refer to IMAX Corporation and, unless the context otherwise
requires or otherwise expressly stated, its consolidated subsidiaries.
IMAX CORPORATION
We are one of the world's leading entertainment technology companies,
specializing in large-format and three-dimensional, or 3D, film presentations.
Our theatre systems use 15 perforation, 70mm, or 15/70 film, the largest
commercially available film format, which allows IMAX theatres to present
stunning images of exceptional quality and clarity on screens up to one-hundred
feet wide and eight stories tall. These images fill a viewer's peripheral vision
and, together with our proprietary 6-channel digital sound systems and unique
theatre designs, create "The IMAX Experience," which makes audiences feel as if
they are "in the movie." IMAX films have taken viewers to the bottom of the
ocean, in space to the International Space Station and, most recently, inside
some of Hollywood's most exciting blockbuster movies such as Star Wars Episode
II: Attack of the Clones, The Matrix Reloaded and The Matrix Revolutions. The
IMAX brand is world famous and stands for the highest-quality, most immersive
filmed entertainment. It is one of our most valuable assets and it attracts
audiences to IMAX theatres, thereby increasing demand for leases of our theatre
systems. We generate the majority of our revenue through upfront and recurring
payments received in connection with the leasing of our theatre systems to third
party operators. We generally do not own IMAX theatres. For the year ended
December 31, 2003, we generated revenue of $119.3 million, earnings from
operations of $18.1 million and net earnings from continuing operations of $0.2
million.
IMAX created the large-format theatre industry more than 35 years ago. We
estimate that IMAX theatres represent a significant majority of the large-format
theatres in operation and almost all of 15/70 theatres in operation. At December
31, 2003, there were 240 IMAX theatre systems operating in more than 35
countries. For the year ended December 31, 2003, IMAX systems revenue from these
theatres totaled $75.8 million. Our sales backlog, which represented contracts
for 61 theatre systems, totaled $138.1 million at December 31, 2003. We are also
a producer and distributor of large-format films and the largest provider of
large-format post-production services. In addition, we engage in other related
businesses, including renting camera equipment for large-format film production
and owning and operating seven IMAX theatres(as of December 31, 2003).
IMAX theatres are found in some of the most prestigious educational
institutions and destination entertainment centers in the world. However, we
believe that commercial markets, including multiplex theatres and entertainment
destinations, offer the greatest potential for growth of the IMAX network. We
believe that our expansion into these markets will result from the favorable
economics that IMAX theatres can provide to commercial theatre-owners and
filmmakers. These economics have been enhanced by two recent developments:
- IMAX DMR, our new proprietary film conversion technology, which allows us
to digitally re-master virtually any 35mm live-action film into our 15/70
film format at a cost of approximately $2 million to $4 million per film
and gives us the ability to benefit from Hollywood event film releases
and their large marketing budgets.
- IMAX MPX, our new theatre projection system designed specifically for use
in multiplex auditoriums, which reduces the capital and operating costs
required to run an IMAX theatre, while still offering consumers the image
and sound quality of The IMAX Experience.
1
RECENT DEVELOPMENTS
REDEMPTION AND REPURCHASE OF 7 7/8% SENIOR NOTES DUE 2005
In December 2003, we concluded a tender offer and consent solicitation for
$152.8 million outstanding principal amount of our 7 7/8% senior notes due 2005
in which we purchased approximately $123.6 million of such senior notes. On
January 2, 2004, we redeemed all the senior notes not acquired in the tender
offer pursuant to the optional redemption provisions of the senior notes. The
net proceeds from the offering of the old notes, together with cash on hand, was
used to fund the purchase and redemption of the 7 7/8% senior notes due 2005.
NEW CREDIT FACILITY
On February 6, 2004, we entered into a new $20.0 million credit facility
which is secured by all of the assets of IMAX Corporation and certain of its
subsidiaries. Amounts borrowed under this credit facility will constitute
secured indebtedness and will effectively rank senior to the notes to the extent
of the value of the assets securing such indebtedness. See "Description of New
Credit Facility."
AGREEMENT WITH NATIONAL AMUSEMENTS INC.
On August 9, 2004, we entered into an agreement with National Amusements
Inc. ("National Amusements"), an international exhibitor, for the installation
of six of our theatre systems at National Amusements locations between 2004 and
2006. As part of the transaction, the parties also reached agreement on terms
under which National Amusements may purchase up to 12 additional theatre
systems, predominantly in the United Kingdom, beginning in 2005.
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IMAX Corporation is organized under the Canada Business Corporations Act.
Our head and principal office address is 2525 Speakman Drive, Mississauga,
Ontario, Canada L5K 1B1. Our telephone number is (905) 403-6500.
IMAX(R), IMAX(R) Dome, IMAX(R) 3D, IMAX (R) 3D Dome, The IMAX
Experience(R), An IMAX Experience(R), IMAX(R) DMR(R), IMAX(R) MPX(TM), IMAX
Think Big (TM) and Think Big(TM) are our most significant trademarks and trade
names that are registered or otherwise protected under laws of various
jurisdictions. We also own the service mark IMAX Theatre(TM).
2
THE EXCHANGE OFFER
On December 4, 2003, IMAX Corporation completed a private placement of
$160,000,000 principal amount of 9 5/8% Senior Notes due 2010 to a group of
initial purchasers. In this prospectus, we refer to (1) the notes sold in that
original offering as the old notes and (2) the notes offered in this prospectus
in exchange for the old notes as the notes.
Exchange Offer................ You may exchange old notes for notes.
Terms of Notes................ The terms of the notes are substantially
identical to the terms of the old notes, and
evidence the same indebtedness as the old
notes, except that the notes:
- will be registered under the Securities
Act, and, consequently, will be freely
tradeable by persons not affiliated with
us;
- will not bear any legend restricting
transfer under the Securities Act;
- will not be entitled to the rights which
are applicable to the old notes under
the registration rights agreement;
- will not contain provisions relating to
the payment of special interest under
circumstances related to the timing of
the exchange offer; and
- will bear a different CUSIP number from
the old notes.
See "Description of the Notes."
Resale of Notes............... We believe you may offer the notes for resale,
resell and otherwise transfer them without
compliance with the registration or prospectus
delivery provisions of the Securities Act if:
- you are acquiring the notes in the
ordinary course of your business;
- you are not participating or engaged in,
do not intend to participate or engage
in, and have no arrangement or
understanding with any person to
participate in, the distribution of the
notes issued to you; and
- you are not a broker-dealer or an
"affiliate" of ours within the meaning
of Rule 405 under the Securities Act.
You should read the discussion under the
heading "The Exchange Offer" for further
information regarding the exchange offer and
resale of the notes.
Registration Rights
Agreement..................... We have undertaken this exchange offer pursuant
to the terms of a registration rights agreement
entered into with the initial purchasers of the
old notes. See "The Exchange Offer."
Consequences of Failure to
Exchange Old Notes............ You will continue to hold old notes that remain
subject to their existing transfer restrictions
if:
- you do not tender your old notes; or
- you tender your old notes and they are
not accepted for exchange.
3
Subject to certain limited exceptions, we will
have no obligation to register the old notes
after we consummate the exchange offer. See
"The Exchange Offer -- Terms of the Exchange
Offer" and " -- Consequences of Failure to
Exchange." Following the exchange offer, the
transfer restrictions that apply to unexchanged
old notes and the availability of registered
new notes, will likely cause the market for the
unexchanged old notes to be much less liquid
than before the exchange offer.
Expiration Date............... The "expiration date" for the exchange offer is
5:00 p.m., New York City time, on November 4,
2004, unless we extend it, in which case
"expiration date" means the latest date and
time to which the exchange offer is extended.
Accrued Interest on the Notes
and the Old Notes............. The notes will bear interest from the most
recent date to which interest has been paid on
the old notes or, if no interest has been paid
on the old notes, from December 4, 2003.
Conditions to the Exchange
Offer......................... The exchange offer is subject to certain
customary conditions which we may waive. See
"The Exchange Offer -- Conditions."
Procedures for Tendering Old
Notes......................... If you wish to exchange your old notes for
notes pursuant to the exchange offer, you must
submit the required documentation and effect a
tender of old notes pursuant to the procedures
for book-entry transfer (or other applicable
procedures) all in accordance with the
instructions described in this prospectus and
in the relevant letter of transmittal. See "The
Exchange Offer -- Procedures for Tendering,"
"-- Book-Entry Transfer," "-- Exchanging
Book-Entry Notes" and "-- Guaranteed Delivery
Procedures."
Special Procedures for
Beneficial Owners............. If you own a beneficial interest in old notes
that are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee or custodian, and you wish to tender
your old notes in the exchange offer, you
should contact the registered holder as soon as
possible and instruct the registered holder to
tender on your behalf.
Guaranteed Delivery
Procedures.................... If you wish to tender your old notes, but
cannot properly do so prior to the expiration
date, you may tender your old notes according
to the guaranteed delivery procedures described
in "The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights............. Tenders of old notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on
the expiration date. To withdraw a tender of
old notes, a written or facsimile transmission
notice of withdrawal must be received by the
exchange agent at its address set forth in the
letter of transmittal prior to 5:00 p.m., New
York City time, on the expiration date. See
"The Exchange Offer -- Withdrawal Rights."
Acceptance of Old Notes and
Delivery of Notes............. Subject to certain conditions, any and all old
notes that are validly tendered in the exchange
offer prior to 5:00 p.m., New York City time,
on the expiration date will be accepted for
4
exchange. The notes issued pursuant to the
exchange offer will be delivered as promptly as
practicable after the expiration date. See "The
Exchange Offer -- Terms of the Exchange Offer."
Certain U.S. Federal Income
Tax Considerations............ We believe that the exchange of the old notes
for notes should not constitute a taxable
exchange for U.S. federal income tax purposes.
See "Certain Federal Income Tax
Considerations -- U.S. Federal Income Tax
Considerations." You should consult your own
tax advisor to determine the tax consequences
of your decision to participate in the exchange
offer.
Certain Canadian Federal
Income Tax Considerations..... Holders will not be subject to tax under the
Income Tax Act (Canada) on the exchange of old
notes for notes. See "Certain Federal Income
Tax Considerations -- Canadian Federal Income
Tax Considerations." You should consult your
own tax advisor to determine the tax
consequences of your decision to participate in
the exchange offer.
Use of Proceeds............... We will not receive any cash proceeds from the
issuance of the notes in the exchange offer.
See "Use of Proceeds."
Exchange Agent................ U.S. Bank National Association is serving as
the exchange agent.
THE NOTES
The summary below describes the principal terms of the notes. Some of the
terms and conditions below are subject to important limitations and exceptions.
The "Description of the Notes" section of the prospectus contains a more
detailed description of the terms and conditions of the notes.
Issuer........................ IMAX Corporation
Notes Offered................. $160.0 million aggregate principal amount of
9 5/8% Senior Notes due 2010. The indenture
governing the issuance of the notes provides
for the issuance of an unlimited aggregate
principal amount of additional notes having
identical terms and conditions to the notes
offered hereby, subject to compliance with the
covenant restricting the incurrence of
additional indebtedness.
Maturity Date................. December 1, 2010.
Interest Rate and Payment
Dates......................... Interest on the notes will accrue at the rate
of 9 5/8% per annum, payable semiannually in
cash in arrears on each June 1 and December 1,
commencing on June 1, 2004.
Subsidiary Guarantees......... The payment of principal, premium, if any, and
interest on the notes will be fully and
unconditionally guaranteed, jointly and
severally, by each of our current and future
North American subsidiaries. See "Description
of the Notes -- Note Guarantees."
Optional Redemption........... On or after December 1, 2007, we may redeem the
notes at the following redemption prices
(expressed as percentages of the principal
amount) if redeemed during the 12-month period
5
commencing December 1 of the years indicated
below, together with accrued and unpaid
interest thereon to the redemption date:
YEAR PERCENTAGE
---- ----------
2007......................................... 104.813%
2008......................................... 102.406%
2009 and thereafter.......................... 100.000%
See "Description of the Notes -- Optional
Redemption." Prior to December 1, 2006, we may
redeem up to 35% of the notes with the proceeds
of certain equity offerings at 109.625% of the
principal amount, together with accrued and
unpaid interest thereon to the redemption date.
Change of Control............. If we experience a change of control, we will
be required to make an offer to repurchase the
notes at a purchase price of 101% of the
principal amount of the notes, plus accrued and
unpaid interest to the date of the repurchase.
See "Description of the Notes -- Certain
Covenants -- Offer to Repurchase Notes Upon a
Change of Control."
Additional Amounts............ All payments made by or on behalf of IMAX with
respect to the notes will be made without
withholding or deduction for Canadian taxes
unless required by law. If we are required by
law to withhold or deduct for Canadian taxes
with respect to a payment to the holders of
notes, we will pay the additional amounts
necessary so that the net amount received by
the holders of notes after the withholding is
not less than the amount that they would have
received in the absence of the withholding. See
"Description of the Notes -- Additional
Amounts."
Tax Redemption................ We may also redeem the notes, in whole but not
in part, at any time at 100% of the principal
amount of the notes plus accrued and unpaid
interest, if any, to the date of redemption in
the event of changes affecting Canadian
withholding taxes that would require us to pay
additional amounts to holders of the notes. See
"Description of the Notes -- Optional
Redemption."
Ranking....................... The notes will be unsecured obligations. The
notes will rank:
- equally with any existing and future senior
indebtedness of IMAX Corporation (including
any unexchanged old notes);
- effectively junior to secured indebtedness,
including borrowings under our new credit
facility, to the extent of the value of the
assets securing such indebtedness;
- senior to all existing and future
subordinated indebtedness of IMAX
Corporation; and
- effectively subordinated to all existing and
future indebtedness and other liabilities of
our subsidiaries that have not guaranteed the
notes.
As at December 31, 2003, IMAX had approximately
$189.2 million of outstanding senior
indebtedness, consisting of $160.0 million of
outstanding old notes and $29.2 million of
outstanding 7 7/8% senior notes due 2005 (which
were redeemed on January 2, 2004). As at
December 31, 2003, excluding
6
intercompany liabilities, our subsidiaries that
are not guarantors of the notes had
approximately $0.4 million of outstanding
indebtedness and other liabilities, as to which
the notes would have been effectively
subordinated.
The guarantees of the notes will be unsecured
obligations. The guarantees will rank:
- equally with any existing and future senior
indebtedness of the subsidiary guarantors;
- effectively junior to secured indebtedness
of the subsidiary guarantors, including
guarantees issued under IMAX's new credit
facility, to the extent of the value of the
assets securing such indebtedness; and
- senior to all existing and future
subordinated indebtedness of the subsidiary
guarantors.
As of December 31, 2003, the subsidiary
guarantors had no outstanding debt other than
the guarantees of the old notes.
Subject to compliance with the covenants
regarding additional indebtedness and liens,
IMAX and its subsidiaries have the ability to
incur, assume or acquire indebtedness which
would be effectively senior to the notes to the
extent of the assets securing such
indebtedness. See "Description of the
Notes -- Certain Covenants -- Limitation on
Incurrence of Additional Indebtedness" and
"-- Limitation on Liens Securing Indebtedness."
Covenants..................... We will issue the notes under an indenture with
U.S. Bank National Association, as trustee. The
indenture governing the notes, among other
things, restricts our ability to:
- incur additional indebtedness;
- make distributions or certain other
restricted payments;
- grant liens;
- create dividend and other payment
restrictions affecting our subsidiaries;
- sell certain assets or merge with or into
other companies; and
- enter into transactions with affiliates.
For more details, see "Description of the
Notes -- Certain Covenants."
Absence of an Established
Market for the Notes.......... The old notes are not presently listed on any
securities exchange nor are they quoted on any
quotation system. The notes are a new issue of
securities, and currently there is no market
for them. We do not intend to apply for the
notes to be listed on any securities exchange
or to arrange for any quotation system to quote
them. The initial purchasers have advised us
that they intend to make a market for the
notes, but they are not obligated to do so. The
initial purchasers may discontinue any
market-making in the notes or any exchange
notes at any time in their sole discretion.
Accordingly, we cannot assure you that a liquid
market will develop for the notes.
7
RISK FACTORS
OWNING THE NOTES INVOLVES RISKS. YOU SHOULD REFER TO THE SECTION ENTITLED
"RISK FACTORS" ON PAGE 13 OF THIS PROSPECTUS FOR AN EXPLANATION OF THE MATERIAL
RISKS BEFORE TENDERING YOUR OLD NOTES IN THE EXCHANGE OFFER.
8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain summary consolidated financial
information derived from our audited consolidated financial statements for the
years ended December 31, 2001, 2002 and 2003, all of which were prepared in
accordance with United States generally accepted accounting principles.
You should read the following information in conjunction with the section
in our quarterly and annual reports entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the audited
consolidated financial statements and the related notes and the unaudited
interim consolidated financial statements and the related notes, all
incorporated by reference in this prospectus.
YEARS ENDED DECEMBER 31,
---------------------------------------
2001 2002 2003
------------ ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
REVENUE
IMAX systems(1)........................................... $ 76,582 $ 70,959 $75,848
Films..................................................... 29,923 40,556 25,803
Theater operations........................................ 6,540 12,284 13,109
Other..................................................... 4,654 5,303 4,500
--------- -------- -------
Total revenue............................................. 117,699 129,102 119,260
Costs of goods and services(2).............................. 94,969 75,634 67,283
--------- -------- -------
Gross margin................................................ 22,730 53,468 51,977
Selling, general and administrative expenses(3)............. 45,850 34,906 33,312
Research and development.................................... 3,385 2,362 3,794
Amortization of intangibles(4).............................. 3,005 1,418 573
Income from equity-accounted investees(5)................... (73) (283) (2,496)
Receivable provisions (recoveries), net..................... 18,102 (1,233) (2,225)
Restructuring costs and asset impairments (recoveries)(6)... 45,269 (121) 969
--------- -------- -------
Earnings (loss) from operations(1).......................... (92,808) 16,419 18,050
Interest income............................................. 847 413 656
Interest expense............................................ (22,020) (17,564) (15,856)
Gain (loss) on retirement of notes(7)....................... 55,577 11,900 (4,910)
Recovery on (impairment of) long-term investments(8)........ (5,584) -- 1,892
--------- -------- -------
Earnings (loss) from continuing operations before income
taxes..................................................... (63,988) 11,168 (168)
Recovery of (provision for) income taxes(9)................. (27,848) -- 386
--------- -------- -------
Net earnings (loss) from continuing operations.............. (91,836) 11,168 218
Net earnings (loss) from discontinued operations(10)........ (53,278) 804 195
Net earnings (loss) before cumulative effect of changes in
accounting principles..................................... (145,114) 11,972 413
Cumulative effect of changes in accounting principles(11)... -- -- (182)
--------- -------- -------
Net earnings (loss)......................................... $(145,114) $ 11,972 231
========= ======== =======
Basic net earnings (loss) from continuing operations per
common share.............................................. $ (2.97) $ 0.34 $ 0.01
Diluted net earnings (loss) from continuing operations per
common share.............................................. $ (2.97) $ 0.34 $ 0.01
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YEARS ENDED DECEMBER 31,
---------------------------------------
2001 2002 2003
------------ ----------- ----------
(IN THOUSANDS, EXCEPT SYSTEMS AND RATIO
DATA)
OTHER DATA:
Total systems signed(12):
North America............................................. 5 7 9
International............................................. 7 14 16
New systems installed:
North America............................................. 8 6 13
International............................................. 7 10 7
Total systems in operation (period end)..................... 227 232 240
Capital expenditures........................................ $ 9,373 $ 3,958 $ 4,553
Ratio of earnings to fixed charges(13)...................... -- 1.58x --
AS AT DECEMBER 31, 2003
-----------------------------
ACTUAL AS ADJUSTED(14)
-------- ---------------
(IN THOUSANDS)
BALANCE SHEETS DATA:
Cash and cash equivalents................................... $ 47,282 $ 16,193
Restricted cash(15)......................................... $ 4,961 $ 4,961
Total assets................................................ $250,376 $219,078
Total long-term indebtedness................................ $189,234 $160,000
---------------
(1) In the normal course of our business, we each year will have customers who,
for a number of reasons including the inability to obtain certain consents,
approvals or financing, are unable to proceed with theatre construction.
Once the determination is made that the customer will not proceed with
installation, the lease agreement with the customer is generally terminated
by us. Upon the customer and the Company being released from our future
obligations under the agreement, the initial lease payments that the
customer previously made to us are recognized as revenue. Included in
systems revenue is $5.5 million, $5.1 million and $9.6 million in 2001,
2002 and 2003, respectively, for amounts recognized for restructured and/or
terminated lease agreements.
(2) Costs of goods and services during the year ended December 31, 2001
included charges of $4.1 million and $16.5 million relating to a reduced
realizable value of our inventories and reduced fair values of our film
assets, respectively.
(3) Selling, general and administrative expenses for the year ended December
31, 2001 included a $2.6 million non-cash charge for incurred compensation
resulting from a stock grant issuance.
(4) Effective January 1, 2002, we adopted FASB Financial Accounting Standard
No. 142, "Goodwill and other Intangibles" ("FAS 142"), under which goodwill
and intangible assets with indefinite lives are no longer amortized but are
reviewed at least annually for impairment. In accordance with FAS 142, the
effect of this change in accounting principle is reflected prospectively.
Included in amortization of intangibles is goodwill amortization of $2.3
million for 2001.
(5) In 2003, loss (income) from equity-accounted investees included a gain of
$2.3 million from the release of a financial guarantee.
(6) In 2001, restructuring costs and asset impairments (recoveries) included
$16.3 million related to efforts to rationalize the business by reducing
our overall corporate workforce and consolidation of our operations, which
included relocating our sound-system facility to near Toronto, Canada. In
the assessment of the assets, we recorded charges of $26.7 million of fixed
assets, and $3.3 million of other assets.
10
(7) During the year ended December 31, 2001, we and one of our wholly-owned
subsidiaries purchased and cancelled an aggregate of $70.4 million
principal amount of our convertible subordinated notes for $13.7 million,
consisting of $12.5 million in cash from the subsidiary and common shares
issued by us valued at $1.2 million. We recorded a gain of $55.6 million in
connection with this transaction. During 2002, we and one of our
wholly-owned subsidiaries purchased and cancelled an additional aggregate
of $20.5 million principal amount of our convertible subordinated notes for
$8.1 million, consisting of $6.0 million in cash from the subsidiary and
common shares issued by us valued at $2.1 million. We recorded a gain of
$11.9 million in connection with this transaction. During 2003, we recorded
a loss of $4.9 million related to costs associated with the repurchase,
retirement and refinancing of $170.8 million of our 7 7/8% senior notes due
2005.
(8) Recovery on (impairment of) long-term investments represents charges of
$5.6 million relating to the impairment of its long-term investments in
Mainframe Entertainment, Inc. for the year ended December 31, 2001. In
2003, as a result of the Company entering into a settlement agreement with
Mainframe Entertainment, Inc., we recorded a recovery of $1.9 million.
(9) In 2001, the recovery of (provision for) income taxes included a $41.2
million increase in the valuation allowance to reflect uncertainty
associated with realization of our deferred income tax asset.
(10) Net earnings (loss) from discontinued operations consists of our subsidiary
Digital Projection International which was acquired in September 1999 and
sold in December 2001 and the Company's owned and operated Miami theatre
which was opened in 1999 and closed in December 2003.
(11) In 2003, the Company recorded a charge as a cumulative effect of change in
accounting principle of $0.2 million in accordance with SFAS No. 143
"Accounting for Asset Retirement Obligations" which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs.
(12) Represents the number of theatre systems which were the subject of sale or
lease agreements (including joint ventures) we entered into in the periods
indicated.
(13) For the purpose of computing the ratios of earnings to fixed charges,
"earnings" consist of earnings (loss) from continuing operations before
income taxes and minority interest, loss (income) from equity-accounted
investees, capitalized interest, amortization of capitalized interest and
fixed charges. "Fixed charges" consist of interest expense, amortization of
expenses related to indebtedness (which are included in interest expense),
capitalized interest and an estimate of the interest within rental expense,
deemed to be one-third of rental expense. Due to losses we incurred, the
ratio coverage in certain years is less than 1:1. We would have had to
generate additional earnings of $62.7 million in 2001 and $2.6 million in
2003 to achieve a ratio of 1:1 in those periods. This table shows how we
calculate the ratio of earnings to fixed charges.
11
YEARS ENDED DECEMBER 31,
---------------------------------
2001 2002 2003
--------- -------- --------
(IN THOUSANDS EXCEPT RATIO DATA)
Earnings (loss) from continuing operations before income
taxes..................................................... $(63,988) $11,168 $ (168)
Loss (income) from equity-accounted investees............... (73) (283) (2,496)
Capitalized interest........................................ (511) -- --
Amortization of capitalized interest........................ 1,853 26 26
-------- ------- -------
(62,719) 10,911 (2,638)
-------- ------- -------
Fixed Charges:
Interest expense.......................................... 22,020 17,564 15,856
Capitalized interest...................................... 511 -- --
Estimate of the interest within rental expense............ 1,711 1,168 1,321
-------- ------- -------
Total fixed charges....................................... 24,242 18,732 17,177
-------- ------- -------
Earnings.................................................... $(38,477) $29,643 $14,539
======== ======= =======
Ratio of earnings to fixed charges.......................... -- 1.58x --
(14) As adjusted to reflect the redemption of $29.2 million of outstanding
7 7/8% senior notes due 2005 on January 2, 2004 and the application of net
proceeds from the offering of old notes as described under "Use of
Proceeds."
(15) Represents cash collateralized in support of our letters of credit.
12
RISK FACTORS
Investing in the notes involves a high degree of risk. Before deciding
whether to exchange the old notes for notes, you should carefully consider the
following risks in addition to the other information in this prospectus and the
documents incorporated by reference. If any of the risks described below occurs,
our business, operating results and financial condition could be materially
adversely affected.
RISKS RELATED TO THE NOTES
WE ARE HIGHLY LEVERAGED, AND THIS IMPAIRS OUR ABILITY TO OBTAIN FINANCING AND
LIMITS CASH FLOW AVAILABLE FOR OUR OPERATIONS.
We are highly leveraged. As at December 31, 2003, as adjusted to reflect
the retirement in October 2003 of an aggregate principal amount of $15.7 million
of our 7 7/8% senior notes due 2005, the offering of the old notes and the
purchase and redemption of our outstanding 7 7/8% senior notes due 2005, our
total long-term indebtedness would be $160.0 million. At December 31, 2003, our
shareholders' deficiency was $51.8 million. Our high leverage has important
possible consequences. It may:
- make it more difficult for us to satisfy our financial obligations;
- limit our ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes;
- require us to dedicate all or a substantial portion of our cash flow from
operations to the payment of principal and interest on our indebtedness,
resulting in less cash available for our operations and other purposes;
- limit our ability to rapidly adjust to changing market conditions; and
- increase our vulnerability to downturns in our business or in general
economic conditions.
Our ability to satisfy our obligations and to reduce our total debt depends
on our future operating performance. Our future operating performance is subject
to many factors, including economic, financial and competitive factors, which
may be beyond our control. As a result, we may not be able to generate
sufficient cash flow, and future financings may not be available to provide
sufficient net proceeds, to meet these obligations or to execute our business
strategy successfully.
WE MAY STILL BE ABLE TO INCUR MORE INDEBTEDNESS, WHICH COULD FURTHER
EXACERBATE THE RISKS ASSOCIATED WITH OUR SUBSTANTIAL INDEBTEDNESS.
We may be able to incur substantial additional indebtedness in the future.
For example, pursuant to the terms of the indenture governing the notes, we may
issue additional notes. In addition, we can borrow up to $20.0 million under our
new credit facility, subject to a borrowing base calculation which includes the
Company's financing receivables, and certain reserve requirements. Although the
indenture governing the notes and the agreement governing our new credit
facility contain restrictions on the incurrence of additional indebtedness, debt
incurred in compliance with these restrictions could be substantial, and to the
extent such indebtedness is secured, it will effectively rank senior to the
notes to the extent of the value of the assets securing such indebtedness. If
additional indebtedness is added to our current indebtedness levels, the related
risks that we face would be magnified. In addition, the indenture does not
prevent us from incurring obligations that do not constitute indebtedness such
as operating leases. See "Description of the Notes -- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness."
WE MAY NOT GENERATE CASH FLOW SUFFICIENT TO SERVICE ALL OF OUR OBLIGATIONS,
INCLUDING OUR OBLIGATIONS RELATED TO THE NOTES.
Our ability to make payments on and to refinance our indebtedness,
including the notes, and to fund our operations, working capital and capital
expenditures, depends on our ability to generate cash in the future. Our cash
flow is subject to general economic, industry, financial, competitive,
operating, regulatory
13
and other factors, many of which are beyond our control. Our business may not
generate cash flow in an amount sufficient to enable us to repay our
indebtedness, including the notes, or to fund our other liquidity needs. We may
need to refinance all or a portion of our indebtedness, including the notes, on
or before maturity. Our ability to refinance our indebtedness or obtain
additional financing will depend on, among other things:
- our financial condition at the time;
- restrictions in the indenture governing the notes; and
- the condition of the market and industries in which we operate.
As a result, we may not be able to refinance any of our indebtedness,
including the notes, on commercially reasonable terms, or at all. If we do not
generate sufficient cash flow from operations, and additional borrowings or
refinancings or proceeds of asset sales are not available to us, we may not have
sufficient cash to enable us to meet all of our obligations, including payments
on the notes.
THE OLD NOTES ARE, AND THE NOTES WILL BE, UNSECURED AND EFFECTIVELY
SUBORDINATED TO OUR SECURED INDEBTEDNESS AND THE LIABILITIES OF OUR
SUBSIDIARIES THAT ARE NOT GUARANTORS OF THE NOTES.
The old notes are, and the notes will be, our general unsecured
obligations, ranking effectively junior in right of payment to all our existing
and future secured debt to the extent of the collateral securing such debt. As
at December 31, 2003, after giving effect to the offering of the old notes and
the purchase and redemption of our 7 7/8% senior notes due 2005, we would have
had no secured debt outstanding. On February 6, 2004, we entered into a new
$20.0 million credit facility, which is secured by all of the assets of IMAX
Corporation and those of our subsidiaries IMAX U.S.A. Inc., IMAX II U.S.A. Inc.
and 1329507 Ontario Inc. In addition, the indenture governing the notes permits
the incurrence of additional debt, some of which may be secured debt.
In the event that we are declared bankrupt, become insolvent or are
liquidated or reorganized, any secured indebtedness will be entitled to be paid
in full from our assets securing such indebtedness before any payment may be
made with respect to the notes. Holders of the notes will participate ratably in
our remaining assets with all holders of our unsecured indebtedness that is
deemed to rank equally with the notes, and potentially with all of the other
general creditors (including trade creditors), based upon the respective amounts
owed to each holder or creditor. In any of the foregoing circumstances, there
may be insufficient assets to pay amounts due on the notes. As a result, holders
of the notes may receive less, ratably, than holders of our secured
indebtedness.
In addition, the old notes are, and the notes will also be, effectively
subordinated to any existing and future liabilities of our subsidiaries that are
not guarantors of the notes. As at December 31, 2003, such subsidiaries had $0.4
million of liabilities (excluding intercompany liabilities).
THE AGREEMENTS GOVERNING OUR INDEBTEDNESS CONTAIN SIGNIFICANT RESTRICTIONS
THAT LIMIT OUR OPERATING AND FINANCIAL FLEXIBILITY AND MAY AFFECT OUR ABILITY
TO MAKE PAYMENTS ON THE NOTES.
The indenture governing the notes and the agreement governing our new
credit facility contain covenants that, among other things, limit our ability
to:
- incur additional indebtedness;
- pay dividends and make distributions;
- repurchase stock;
- make certain investments;
- transfer or sell assets;
- create liens;
- enter into transactions with affiliates;
- issue or sell stock of subsidiaries;
14
- create dividend or other payment restrictions affecting restricted
subsidiaries; and
- merge, consolidate, amalgamate or sell all or substantially all of our
assets to another person.
These restrictions may limit our ability to execute our business strategy.
Moreover, if operating results fall below current levels, we may be unable to
comply with these covenants. If that occurs, our lenders, including you, could
accelerate our indebtedness. If our indebtedness is accelerated, we may not be
able to repay all of our indebtedness, in which case your notes may not be fully
repaid, if they are repaid at all.
WE MAY BE UNABLE TO PURCHASE NOTES IN THE EVENT OF A CHANGE OF CONTROL.
Upon the occurrence of a change of control, as defined in the indenture, we
will be required to make an offer to purchase notes at a price equal to 101% of
their principal amount, plus accrued and unpaid interest, if any, to the date of
purchase. We may not have sufficient funds to make the required offer to
purchase at the time of such event. Any future debt that we incur may also
contain restrictions on the purchase of the notes.
WE HAVE THE ABILITY TO REDEEM THE NOTES PRIOR TO THEIR MATURITY.
On or after December 1, 2007, we may redeem the notes at the redemption
prices specified under the heading "Description of the Notes -- Optional
Redemption," plus accrued and unpaid interest, if any, to the redemption date.
Prior to December 1, 2006, we may also redeem up to 35% of the notes with the
proceeds of certain equity offerings at 109.625% of the principal amount of the
notes to be redeemed, plus accrued and unpaid interest, if any, to the
redemption date. In addition, we may redeem the notes, in whole but not in part,
at any time at 100% of the principal amount of the notes plus accrued and unpaid
interest, if any, to the redemption date in the event of changes affecting
Canadian withholding taxes that would require us to pay additional amounts to
holders of the notes. The election to redeem the notes under any of these
circumstances is solely in our discretion. If we elect to redeem the notes prior
to their maturity, you will not have the option to retain your notes to maturity
and will not receive any further interest payments. You may not be able to find
an alternative investment with comparable terms to those of the notes.
Furthermore, any of the above redemptions could materially impact our cash
position.
CERTAIN BANKRUPTCY AND INSOLVENCY LAWS MAY IMPAIR THE TRUSTEE'S ABILITY TO
ENFORCE REMEDIES UNDER THE NOTES.
We are incorporated under the laws of Canada, and substantially all of our
assets are located in Canada. Under bankruptcy laws in the United States, courts
typically have jurisdiction over a debtor's property, wherever located,
including property situated in other countries. There can be no assurance,
however, that courts outside the United States would recognize the U.S.
bankruptcy court's jurisdiction. Accordingly, difficulties may arise in
administering a U.S. bankruptcy case involving a Canadian debtor like us with
property located outside the United States, and any orders or judgments of a
bankruptcy court in the United States may not be enforceable in Canada against
us.
The rights of the trustee to enforce remedies may be significantly impaired
by the restructuring provisions of applicable Canadian federal bankruptcy,
insolvency and other restructuring legislation if the benefit of such
legislation is sought with respect to us. For example, both the Bankruptcy and
Insolvency Act (Canada) and the Companies' Creditors Arrangement Act (Canada)
contain provisions enabling an "insolvent person" to obtain a stay of proceeding
as against its creditors and others and to prepare and file a proposal for
consideration by all or some of its creditors to be voted on by the various
classes of its creditors. Such a restructuring proposal, if accepted by the
requisite majorities of creditors and approved by the court, may be binding on
persons, such as holders of the notes, who may not otherwise be willing to
accept it. Moreover, this legislation permits, in certain circumstances, an
insolvent debtor to retain possession and administration of its property, even
though it may be in default under the applicable debt instrument.
15
The powers of the court under the Bankruptcy and Insolvency Act and
particularly under the Companies' Creditors Arrangement Act have been exercised
broadly to protect a restructuring entity from actions taken by creditors and
other parties. Accordingly, if we were to seek protection under such Canadian
insolvency legislation following commencement of or during such a proceeding,
payments under the notes may be discontinued, the trustee may be unable to
exercise its rights under the indenture and holders of the notes may not be
compensated for any delays in payments, if any, of principal and interest and
may have their claims under the notes compromised as part of a restructuring
proposal.
APPLICABLE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID THE
GUARANTEES OF THE NOTES PROVIDED BY CERTAIN OF OUR SUBSIDIARIES.
Our creditors or the creditors of one or more guarantors of the notes could
challenge the guarantees as fraudulent transfers, conveyances or preferences or
on other grounds under applicable U.S. federal or state law or applicable
Canadian federal or provincial law. While the relevant laws vary from one
jurisdiction to another, the entering into the guarantees by certain of our
subsidiaries could be found to be a fraudulent transfer, conveyance or
preference or otherwise void if a court were to determine that:
- a guarantor delivered its guarantee with the intent to defeat, hinder,
delay or defraud its existing or future creditors; or
- the guarantor did not receive fair consideration for the delivery of the
guarantee and the guarantor was insolvent at the time it delivered the
guarantee; or
- the guarantor was rendered insolvent by reason of the guarantee; or
- the guarantor was engaged, or was about to engage, in a business or
transaction for which its remaining assets constituted unreasonably small
capital to carry on its business; or
- the guarantor intended to incur, or believed it would incur, debts beyond
its ability to pay the debts as they matured.
To the extent a court voids a guarantee as a fraudulent transfer,
preference or conveyance or holds it unenforceable for any other reason, holders
of notes would cease to have any direct claim against the guarantor that
delivered a guarantee. If a court were to take this action, the guarantor's
assets would be applied first to satisfy the guarantor's liabilities, including
trade payables and preferred stock claims, if any, before any portion of its
assets could be distributed to us to be applied to the payment of the notes. We
cannot assure you that a guarantor's remaining assets would be sufficient to
satisfy the claims of the holders of notes relating to any voided portions of
the guarantees.
In addition, the corporate statutes governing the guarantors of the notes
may also have provisions that serve to protect each guarantor's creditors from
impairment of its capital from financial assistance given to its corporate
insiders where there are reasonable grounds to believe that, as a consequence of
this financial assistance, the guarantor would be insolvent or the book value,
or in some cases the realizable value, of its assets would be less than the sum
of its liabilities and its issued and paid-up share capital. While the
applicable corporate laws may not generally prohibit financial assistance
transactions and a corporation is generally permitted flexibility in its
financial dealings, the applicable corporate laws may prohibit or restrict each
guarantor's ability to give financial assistance in certain circumstances.
IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES, YOU WILL NOT RECEIVE NOTES IN
THE EXCHANGE OFFER, AND YOU MAY NOT BE ABLE TO SELL YOUR OLD NOTES.
We registered the notes, but not the old notes, under the Securities Act.
The old notes may not be offered or sold except pursuant to an exemption from
the registration requirements of the Securities Act and applicable state
securities laws or pursuant to an effective registration statement. We will
issue notes only in exchange for old notes that are timely received by the
exchange agent, together with all required documents, including a properly
completed and duly signed letter of transmittal. Therefore, you should
16
allow sufficient time to ensure timely delivery of the old notes, and you should
carefully follow the instructions on how to tender your old notes.
Neither we nor the exchange agent is required to tell you of any defects or
irregularities with respect to your tender of the old notes. If you do not
tender your old notes or if we do not accept your old notes because you did not
tender your old notes properly then, after we consummate the exchange offer, you
will continue to hold old notes that are subject to the existing transfer
restrictions. In general, you may not offer or sell the old notes unless they
are registered under the Securities Act or offered or sold in a transaction
exempt from, or not subject to, the registration requirements of the Securities
Act and applicable state securities laws.
Although we may in the future seek to acquire unexchanged old notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise, we have no present plans and are not required to acquire any
unexchanged old notes or to file with the SEC a shelf registration statement to
permit resales of any unexchanged old notes. In addition, holders of old notes
other than the initial purchasers or holders who are prohibited by applicable
law or SEC policy from participating in the exchange offer or who may not resell
the notes acquired in the exchange offer without delivering a prospectus, will
not have any further registration rights and will not have the right to receive
special interest on their old notes.
THE MARKET FOR THE OLD NOTES MAY BE SIGNIFICANTLY MORE LIMITED AFTER THE
EXCHANGE OFFER.
Because we anticipate that most holders of old notes will elect to exchange
their old notes, we expect that the liquidity of the market for any old notes
remaining after the completion of the exchange offer may be substantially
limited. Any old notes tendered and exchanged in the exchange offer will reduce
the aggregate principal amount of the old notes outstanding. Accordingly, the
liquidity of the market for any old notes could be adversely affected and you
may be unable to sell them. The extent of the market for the old notes and the
availability of price quotations would depend on a number of factors, including
the number of holders of old notes remaining outstanding and the interest of
securities firms in maintaining a market in the old notes. An issue of
securities with a smaller number of units available for trading may command a
lower, and more volatile, price than would a comparable issue of securities with
a larger number of units available for trading. Therefore, the market price for
the old notes that are not exchanged may be lower and more volatile as a result
of the reduction in the aggregate principal amount of the old notes outstanding.
THERE IS CURRENTLY NO ACTIVE TRADING MARKET FOR THE NOTES. IF AN ACTIVE
TRADING MARKET DOES NOT DEVELOP FOR THE NOTES, YOU MAY NOT BE ABLE TO RESELL
THEM.
No active trading market currently exists for the notes and an active
trading market may not develop in the future. The notes will not be listed on
any securities exchange. If an active trading market does not develop, it could
have an adverse effect on the market price of, and your ability to sell, the
notes. Historically, the market for non-investment grade debt has been subject
to disruptions that have caused substantial volatility in the prices of
securities similar to the notes. The market for the notes, if any, may be
subject to similar disruptions. The trading price may depend upon prevailing
interest rates, the market for similar securities, and other factors, including
general economic conditions and our financial condition, performance and
prospects. These factors could adversely affect you as a holder of notes.
NON-U.S. HOLDERS OF THE NOTES ARE SUBJECT TO RESTRICTIONS ON THE RESALE OF THE
NOTES.
We sold the old notes in reliance on exemptions from the laws of other
jurisdictions where the notes were offered and sold, and therefore the old notes
may be transferred and resold, including pursuant to the exchange offer, only in
compliance with the laws of those jurisdictions to the extent applicable to the
transaction, the transferor and/or the transferee. Although we registered the
notes under the Securities Act, we did not, and do not intend to, qualify the
notes for distribution in Canada by prospectus and, accordingly, the notes will
remain subject to restrictions on resale in Canada. In addition, non-U.S.
holders
17
will remain subject to restrictions imposed by the jurisdiction in which the
holder is resident. See "The Exchange Offer."
RISKS RELATED TO OUR BUSINESS
OUR THEATRE SYSTEM REVENUE CAN VARY SIGNIFICANTLY FROM OUR CASH FLOWS UNDER
THEATRE SYSTEM SALES AND LEASE AGREEMENTS.
Our theatre system revenue can vary significantly from the associated cash
flows. We generally provide our theatre systems to customers on a long-term
lease basis with initial lease terms of typically 10 to 20 years. Our lease
agreements typically provide for three major sources of cash flow:
- initial rental fees, which are paid in installments commencing upon the
signing of the lease agreement until installation of the system;
- ongoing rental payments, which are paid monthly after system installation
and are generally equal to the greater of a fixed minimum amount per
annum and a percentage of box office receipts; and
- annual maintenance fees, which are generally payable commencing in the
second year of theatre operations.
Initial rental payments generally make up a majority of cash received for a
theatre system lease.
Theatre system leases that transfer substantially all of the benefits and
risks of ownership to customers are classified as sales-type leases. Revenue
from sales-type leases is recorded at the time installation is complete and
other revenue recognition conditions are satisfied. The revenue recorded is
equal to the sum of initial rental payments and the present value of minimum
additional rental fees due under the lease agreement. Cash received from initial
rental fees in advance of installation is recorded as deferred revenue.
Leases that do not transfer substantially all of the benefits and risks of
ownership to the customer are classified as operating leases. For these leases,
initial rental fees and minimum ongoing rental payments are recognized as
revenue on a straight-line basis over the lease term.
Periodically, we sell our theatre systems to customers. These sales
generally provide for initial cash receipts and the receipt of payments over
time, typically 10 to 20 years.
THERE IS COLLECTION RISK ASSOCIATED WITH LEASE PAYMENTS TO BE RECEIVED OVER
THE TERMS OF OUR THEATRE SYSTEM LEASES.
We are dependent in part on the viability of the North American commercial
exhibitor market for collections under long-term leases. In recent years, many
of the North American commercial exhibitor chains faced financial difficulties.
We cannot assure you that commercial exhibitors to whom we lease theatre systems
will not experience financial difficulties in the future. We may not collect all
of our contracted future lease payments. Our revenue can vary significantly from
our cash flows under theatre system sales and lease agreements, and there is
collection risk associated with rental payments to be received over the terms of
our leases.
WE MAY NOT CONVERT ALL OF OUR BACKLOG INTO REVENUE AND CASH FLOWS.
We list signed contracts for theatre system sales and sales-type leases as
sales backlog prior to the time of revenue recognition. Sales backlog represents
the total value of all signed system sales and lease agreements that are
expected to be recognized as revenue in the future and includes initial rental
fees along with the present value of contractual minimum rents due over the
lease term, but excludes maintenance revenues as well as rents in excess of
contractual minimums that might be received in the future. All of our customers
with which we have signed contracts may not accept delivery of theatre systems
that are included in our backlog. Moreover, if we litigate to enforce a
customer's contractual obligations, there are no guarantees that such
obligations will ultimately be deemed to be enforceable. This could adversely
affect our future revenues. We have litigated in the past and are litigating
presently with
18
customers who have refused to honor all of their backlog obligations. In
addition, customers with system obligations in backlog sometimes request that we
agree to modify or reduce such obligations. We have in the past, under certain
circumstances, and are presently, negotiating to restructure backlog obligations
of certain customers. The backlog obligations of other customers may also be
modified, reduced or otherwise restructured in the future, which can adversely
affect our future revenues and cash flows.
WE DEPEND ON COMMERCIAL MOVIE EXHIBITORS TO LEASE OUR IMAX THEATRE SYSTEMS AND
TO PROVIDE ADDITIONAL REVENUES AND VENUES IN WHICH TO EXHIBIT OUR IMAX DMR
FILMS.
A number of our commercial exhibition customers have emerged from
bankruptcy protection in recent years. We are unable to predict if or when they
or other exhibitors will lease or continue to lease IMAX theatre systems from us
or whether other commercial movie exhibitors will experience significant
financial difficulties in the future. A number of the IMAX theatres operated by
commercial exhibitors have been unprofitable in the past. If exhibitors choose
to reduce their levels of expansion or decide not to lease IMAX theatre systems
for their existing or new theatres, our revenues would not increase at an
anticipated rate and motion picture studios may be less willing to reformat
Hollywood 35mm films into our 15/70 film format for exhibition in commercial
IMAX theatres. As a result, our future revenues could be adversely affected.
OUR OPERATING RESULTS AND CASH FLOW CAN VARY SUBSTANTIALLY FROM QUARTER TO
QUARTER AND COULD INCREASE THE VOLATILITY OF OUR SHARE PRICE.
Our operating results and cash flow can fluctuate substantially from
quarter to quarter. In particular, fluctuations in theatre system installations
can materially affect operating results. In addition, theatre system contract
signings are not related to the timing of revenue recognition, and can have a
significant impact on our cash flow. This can make it difficult to accurately
forecast sales and profits or losses. Factors that have affected our operating
results and cash flow in the past, and are likely to affect our operating
results and cash flow in the future include, among other things:
- the timing of signing and installation of new theatre systems;
- demand for, and acceptance of, our products and services;
- revenue recognition of sales and sales-type leases;
- classification of leases as sales-type versus operating leases;
- volume of orders received and that can be fulfilled in the quarter;
- the level of our sales backlog;
- the timing and commercial success of films produced and distributed by us
and others;
- the signing of film distribution agreements;
- the financial performance of IMAX theatres operated by our customers and
by us; and
- the financial difficulties, including bankruptcies, faced by our
customers, particularly our customers in the commercial exhibition
industry.
Most of our operating expenses are fixed in the short term. We may be
unable to rapidly adjust our spending to compensate for any unexpected sales
shortfall, which would harm quarterly operating results. The results of any
quarterly period are not necessarily indicative of our results for any other
quarter or for a full fiscal year.
WE MAY NOT BE ABLE TO GENERATE PROFITS IN THE FUTURE.
We may not be able to generate profits in any future period. Although we
generated a net profit for the years ended December 31, 2003 and 2002, for the
years ended December 31, 2000 and 2001, we had significant net losses and
experienced a decline in our sales and leases of theatre systems and backlog. If
19
we do not generate profits in future periods, we may be unable to finance the
operations of our business or meet our debt obligations.
OUR STRATEGY OF RE-MASTERING 35MM FILMS INTO THE 15/70 FILM FORMAT IS IN ITS
EARLY STAGES OF IMPLEMENTATION AND EXPOSES US TO RISK.
As of August 1, 2004, we had released six live-action 35mm films which had
been reformatted using our IMAX DMR technology; the first live-action film
formatted with IMAX DMR technology into our 15/70 film format was released in
September 2002. The development of our IMAX DMR technology may not translate
into additional Hollywood films being distributed to the IMAX theatre network or
additional demand for IMAX systems. First, motion picture studios could find
either the technology or the potential revenues insufficient to justify
reformatting existing or new films into the 15/70 film format. Second, even if
motion picture studios agree to reformat their films with our IMAX DMR
technology, such studios may be reluctant to release reformatted films to IMAX
theatres contemporaneously with the initial release of such films to commercial
35mm theatres, which is an important element of our commercial strategy. Third,
even the most successful existing or new films may prove to be unsuccessful when
exhibited in IMAX theatres.
If IMAX DMR films released to the IMAX theatre network do not achieve
expected box office results, the revenue generated by our corporate theatres,
and thus our overall revenue, may be negatively impacted.
In addition, motion picture studios could insist upon significant capital
contributions by us to go toward either the costs of reformatting a film, the
marketing of the reformatted film or both. Moreover, actual costs may exceed
their budgets and resulting revenues.
Even though our IMAX DMR technology is patent-pending, such patents may not
be granted or the technology may prove to have low barriers to entry for others.
Other parties could develop similar or superior technology and release
reformatted Hollywood films to IMAX theatres or our competitors, without our
receiving any of the distribution or royalty revenue.
THE SUCCESS OF THE IMAX THEATRE NETWORK IS DIRECTLY RELATED TO THE
AVAILABILITY AND SUCCESS OF 15/70 FORMAT FILMS, OF WHICH WE PRODUCE A SMALL
PERCENTAGE.
An important factor affecting the growth and success of the IMAX theatre
network is the availability of 15/70 format films. We produce only a small
number of 15/70 format films and, as a result, we rely principally on 15/70
format films produced by third party filmmakers or converted from 35mm format
using our IMAX DMR technology. Third party filmmakers may not have sufficient
capital or other resources to continue to produce 15/70 format films or the
15/70 format films they produce may not be commercially successful.
THE PRODUCTION OF 15/70 FORMAT FILMS REQUIRES SIGNIFICANT CAPITAL AND INVOLVES
SUBSTANTIAL RISKS.
The production, completion and distribution of 15/70 format films require a
significant amount of capital and involve substantial financial risks. Actual
costs may exceed budgets and factors such as technology changes, labor disputes
or other disruptions affecting aspects of production may affect third party
filmmakers, IMAX or our co-production partners and cause significant cost
overruns and delay or hamper completion of a production. We are continually
discussing the production or co-production of 15/70 format films, as well as the
reformatting of Hollywood films in connection with our IMAX DMR technology, with
various motion picture studios. However, we may not be able to complete
production or co-production arrangements with motion picture studios, and we may
not earn an adequate return on capital on these investments.
20
OUR REVENUES FROM EXISTING CUSTOMERS ARE DERIVED IN PART FROM FINANCIAL
REPORTING PROVIDED BY OUR CUSTOMERS, WHICH MAY BE INACCURATE OR INCOMPLETE,
RESULTING IN LOST OR DELAYED REVENUES.
A portion of our lease payments and our film license fees are based upon
financial reporting provided by our customers. If such reporting is inaccurate,
incomplete or withheld, our ability to invoice and receive the proper amount
from our customers in a timely fashion will be impaired. Our contractual audits
may not rectify payments lost or delayed as a result of customers not fulfilling
their contractual requirements with respect to financial reporting.
OUR NEWEST THEATRE PROJECTION SYSTEM, IMAX MPX, WHICH IS AN IMPORTANT
COMPONENT OF OUR PLANS TO EXPAND THE NETWORK OF COMMERCIAL IMAX THEATRES, HAS
NOT YET BEEN INSTALLED IN ANY THEATRES AND COULD PERFORM INADEQUATELY,
RESULTING IN THE LOSS OF EXISTING AND FUTURE CONTRACTS.
We depend on our theatre systems technology. In March 2003, we introduced
the IMAX MPX, a new projection system designed for commercial multiplex
operators which, together with IMAX DMR, is an important part of our expansion
plans. The first IMAX MPX system was installed in June 2004 and while we believe
these systems will operate adequately, there are no guarantees that they will do
so. If for some reason a number of the IMAX MPX systems perform inadequately, it
could result in our losing existing contracts and our inability to sign
contracts for IMAX MPX systems in the future, which could adversely affect our
plans to expand the network of commercial IMAX theatres and to have additional
IMAX DMR films released to that network.
WE CONDUCT BUSINESS INTERNATIONALLY WHICH EXPOSES US TO UNCERTAINTIES AND
RISKS THAT COULD NEGATIVELY AFFECT OUR OPERATIONS AND SALES.
A significant portion of our sales are made to customers located outside
the United States and Canada. Approximately 35.5%, 37.0% and 39.7% of our
revenues were derived outside of the United States and Canada in 2001, 2002 and
2003, respectively. We expect our international operations to continue to
account for a significant portion of our revenues in the future and plan to
expand into new markets in the future. We do not have significant experience in
operating in certain foreign countries and are subject to the risks associated
with operating in those countries. We currently have installation and sales
activity projected in countries where economies have been unstable in recent
years. The economies of other foreign countries important to our operations
could also suffer slower economic growth or instability in the future. The
following are among the risks that could negatively affect our operations and
sales in foreign markets:
- new restrictions on access to markets;
- unusual or burdensome foreign laws or regulatory requirements or
unexpected changes to those laws or requirements;
- fluctuations in the value of foreign currency versus the U.S. dollar and
potential currency devaluations;
- new tariffs, trade protection measures, import or export licensing
requirements, trade embargoes and other trade barriers;
- imposition of foreign exchange controls in such foreign jurisdictions;
- dependence on foreign distributors and their sales channels;
- difficulties in staffing and managing foreign operations;
- adverse changes in monetary and/or tax policies;
- poor recognition of intellectual property rights;
- inflation;
21
- requirements to provide performance bonds and letters of credit to
international customers to secure system deliveries; and
- political, economic and social instability in foreign countries.
WE FACE RISKS IN CONNECTION WITH THE EXPANSION OF OUR BUSINESS IN CHINA AND
OTHER PARTS OF ASIA.
The first IMAX projection system in a theatre in China was installed in
December 2001 and seven additional IMAX theatre systems are scheduled to be
installed in China by 2008. We moved our Asian headquarters to Shanghai and
believe that China is an important market for our international expansion plans.
These plans may be unsuccessful in China for a number of reasons including
China's poor recognition of intellectual property rights and its restrictive
regulations regarding the importation of film. Moreover, the geopolitical
instability of the region comprising China, Taiwan, North Korea and South Korea
could result in economic embargoes, disruptions in shipping or even military
hostilities, which could interfere with both the fulfillment of our existing
contracts and our pursuit of additional contracts in China.
In addition, the recent outbreak of severe acute respiratory syndrome, or
SARS, which has had a particularly disruptive impact on business in China, Hong
Kong and Singapore, could have a negative effect on our pursuit of business
opportunities in Asia as a re-emergence of SARS could interfere with travel to
and negotiations with parties in that continent.
THE INTRODUCTION OF NEW PRODUCTS AND TECHNOLOGIES AND CHANGES IN THE WAY OUR
COMPETITORS OPERATE COULD HARM OUR BUSINESS.
The out-of-home entertainment industry is very competitive, and we face a
number of challenges. We compete with other large-format film projection system
manufacturers as well as conventional motion picture exhibitors. In addition to
existing competitors, we may also face competition in the future from companies
in the entertainment industry with substantially greater capital resources. We
also face competition from a number of alternative motion picture distribution
channels such as home video, pay-per-view, video-on-demand, DVD, and syndicated
and broadcast television. We also compete for the public's leisure time and
disposable income with other forms of entertainment, including sporting events,
concerts, live theatre and restaurants.
Furthermore, the out-of-home entertainment industry in general is
undergoing significant changes. Primarily due to technological developments and
changing consumer tastes, numerous companies are developing, and are expected to
continue to develop, new entertainment products for the out-of-home
entertainment industry, which may compete directly with our products.
Competitors may design products which are more attractive to the consumer and/or
more cost effective than ours and may make our products less competitive. The
products that we are currently developing may never be attractive to consumers
or be competitive. As a result of this competition, we could lose market share
as demand for our products declines, which could seriously harm our business and
operating results.
The motion picture exhibition industry is in the early stages of conversion
from film based media to electronic based media. We are similarly in the very
early stages of developing a digital projection system that can be utilized in
IMAX theatres. As any large scale conversion from film to digital, particularly
in the large-format theatre industry, is most likely years away, it is difficult
to assess the risks for us associated with such a conversion. Such risks could
include the need for us to raise additional capital to finance remanufacturing
of theatre systems and associated conversion costs, which capital may not be
available to us on attractive terms, or at all.
AN ECONOMIC DOWNTURN COULD MATERIALLY AFFECT OUR BUSINESS BY REDUCING DEMAND
FOR IMAX THEATRE SYSTEMS AND REVENUE GENERATED FROM BOX OFFICE SALES.
We depend on the sale and lease of IMAX theatre systems to commercial movie
exhibitors to generate a significant portion of our revenues. Most of our lease
agreements provide for additional revenues
22
based on a percentage of theatre box office receipts when attendance at an IMAX
theatre exceeds a minimum threshold. Commercial movie exhibitors generate
revenues from consumer attendance at their theatres, which are subject to
general political, social and economic conditions and the willingness of
consumers to spend discretionary money at movie theatres. If theatre attendance
declines as a result of a prolonged economic downturn, commercial movie
exhibitors will be less willing to invest capital in new theatres resulting in a
decline in demand for new IMAX theatre systems. In addition, any decline in
attendance at commercial IMAX theatres will reduce the additional revenues we
generate from a percentage of theatre box office receipts. Institutional
exhibitors may also experience a decline in attendance given general political,
social and economic conditions, which may result in reduced revenues generated
from receipts attributed to IMAX theatres at such institutions and reduced film
license fees.
WE MAY EXPERIENCE ADVERSE EFFECTS DUE TO EXCHANGE RATE FLUCTUATIONS.
A substantial portion of our revenues is denominated in U.S. dollars, while
a substantial portion of our expenses is denominated in Canadian dollars. We
also generate revenues in Euros and Japanese Yen. From time to time, we enter
into forward contracts to hedge our exposure to exchange rate fluctuations.
However, our strategy may not be successful in reducing our exposure to these
fluctuations. Any material increase in the value of the Canadian dollar in
relation to the U.S. dollar compared to historical levels could have a material
adverse effect on our operating results.
WE ARE SUBJECT TO IMPAIRMENT LOSSES ON OUR ASSETS.
During the past five years, a substantial number of our theatre systems
were leased to commercial movie exhibitors. During 2000 and 2001, we recorded
significant restructuring costs and asset impairments related to the financial
difficulties of commercial movie exhibitors and other related industry factors.
Similar financial difficulties for commercial movie exhibitors and other
industry factors may reoccur in the future which could result in further
write-downs.
We amortize our film assets using the individual film forecast method
whereby the costs of film assets are amortized and participation costs are
accrued for each film in the ratio of revenues earned in the current period to
management's estimate of total revenues ultimately expected to be received for
that title. Management regularly reviews and revises when necessary its
estimates of ultimate revenues on a title-by-title basis, which may result in a
change in the rate of amortization of the film assets and write-downs to film
assets. Results of operations in future years depend upon the amortization of
our film assets and may be significantly affected by periodic adjustments in
amortization rates. In 2000 and 2001, we recorded significant impairment charges
against film assets due to reductions in estimates of ultimate future revenues
that resulted in the fair values of some titles being less than their carrying
values. Given the inherent difficulties in producing successful theatrical films
for release in IMAX theatres, and the uncertainties inherent in the estimation
process, additional impairment charges may be necessary in the future.
WE RELY ON OUR KEY PERSONNEL, AND THE LOSS OF ONE OR MORE OF THOSE PERSONNEL
COULD HARM OUR ABILITY TO CARRY OUT OUR BUSINESS STRATEGY.
Our operations and prospects depend in large part on the performance and
continued service of our senior management team. We may not find qualified
replacements for any of these individuals if their services are no longer
available. The loss of the services of one or more members of our senior
management team could adversely affect our ability to effectively pursue our
business strategy.
OUR ABILITY TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY IS LIMITED, AND
COMPETITORS MAY MISAPPROPRIATE OUR TECHNOLOGY, WHICH COULD WEAKEN OUR
COMPETITIVE POSITION.
We depend on our proprietary knowledge regarding IMAX theatre systems. We
rely principally upon a combination of copyright, trademark, patent and trade
secret laws, restrictions on disclosures and contractual provisions to protect
our proprietary and intellectual property rights. These laws and procedures
23
may not be adequate to prevent unauthorized parties from attempting to copy or
otherwise obtain our technology or deter others from developing similar
technology, which could weaken our competitive position. The protection provided
to our proprietary technology by the laws of foreign jurisdictions may not
protect us as fully as the laws of Canada or the United States. Some of the
underlying technologies of our products and systems are not covered by patents
or patent applications.
We have patents issued, provisional patents and patent applications
pending, including those pending for our digital conversion technology, IMAX
DMR. Our patents are filed in the United States often with corresponding patents
or filed applications in other jurisdictions, such as Canada, Japan, Korea,
France, Germany and the United Kingdom. The patents may not be issued or provide
us with any competitive advantages. The patent applications may also be
challenged by third parties. Several of our issued patents in the United States,
Canada and Japan for improvements to IMAX projection systems, IMAX 3D Dome and
sound systems expire between 2008 and 2018. Any claims or litigation initiated
by us to protect our proprietary technology could be time consuming, costly and
divert the attention of our technical and management resources.
WE ARE SUBJECT TO LAWSUITS THAT COULD DIVERT OUR RESOURCES AND RESULT IN THE
PAYMENT OF SUBSTANTIAL DAMAGES.
Our industry is characterized by frequent claims and related litigation
regarding breach of contract and related issues. We are subject to a number of
legal proceedings and claims that arise in the ordinary course of our business.
We cannot assure you that we will succeed in defending any claims, that
judgments will not be entered against us with respect to any litigation or that
reserves we may set aside will be adequate to cover any such judgments. If any
of these actions or proceedings against us is successful, we may be subject to
significant damages awards. In addition, we are the plaintiff in a number of
material lawsuits in which we seek the recovery of substantial payments. We are
incurring significant legal fees in prosecuting these lawsuits, and we may not
ultimately prevail in such lawsuits or be able to collect on such judgments if
we do. In addition, the defense and prosecution of these claims divert the
attention of our management and other personnel for significant periods of time.
As the largest manufacturer of large-format theatre projection systems in
the world, we have been the subject of anti-trust complaints and investigations
in the past and at present. We may be unsuccessful in defeating the current
claims or potential claims against us, and we may be sued or investigated on
similar grounds in the future.
BECAUSE WE ARE INCORPORATED IN CANADA, IT MAY BE DIFFICULT FOR YOU TO ENFORCE
AGAINST US LIABILITIES BASED SOLELY UPON U.S. FEDERAL SECURITIES LAWS.
We are incorporated under the federal laws of Canada, some of our directors
and officers are residents of Canada and a substantial portion of our assets and
the assets of such directors and officers are located outside the United States.
As a result, it may be difficult for United States holders of the notes to
effect service within the United States upon those directors or officers who are
not residents of the United States, or to realize against them or us in the
United States upon judgments of courts of the United States predicated upon the
civil liability under the United States federal securities laws. In addition, it
may be difficult for such holders to bring an original action outside of the
United States against us to enforce liabilities based solely on U.S. federal
securities laws.
24
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Some of the statements contained in this prospectus and the documents
incorporated by reference constitute forward-looking statements that reflect our
current expectations and projections. These forward-looking statements include,
but are not limited to, references to future capital expenditures (including the
amount and nature of the expenditures), business strategies and measures to
implement strategies, competitive strengths, goals, expansion and growth of our
business and operations, plans and references to our future success and
expectations regarding future operating results. These forward-looking
statements are based on assumptions and analyses made by us in light of our
experience and our perception of historical trends, current conditions and
expected future developments, as well as other factors we believe are
appropriate in the circumstances. However, whether actual results and
developments will conform with our expectations and predictions is subject to a
number of risks and uncertainties, many of which are beyond our control,
including, but not limited to, general economic, market or business conditions;
the opportunities (or lack thereof) that may be presented to and pursued by us;
competitive actions by other companies; conditions in the out-of-home
entertainment industry; changes in laws or regulations; conditions in the
commercial movie exhibition industry; the acceptance of our new technologies;
risks associated with investments and operations in foreign jurisdictions and
any future international expansion, including those related to economic,
political and regulatory policies of local governments and laws and policies of
the United States and Canada; and the potential impact of increased competition
in the markets we operate within. Consequently, all the forward-looking
statements made in this prospectus and the documents incorporated by reference
are qualified by these cautionary statements, including the factors discussed
under "Risk Factors" in this prospectus. Our actual results or anticipated
developments may not be realized or, even if substantially realized, they may
not have the expected consequences to, or effects on, us. We undertake no
obligation to update publicly or otherwise revise any forward-looking
information, whether as a result of new information, future events or otherwise.
This prospectus and the documents incorporated by reference contain
information regarding market share, market position and industry data pertaining
to our business based on data and reports compiled by professional industry
organizations and analysts, and our knowledge of our revenue and markets.
Although we believe these sources are reliable, we have not independently
verified this market data. This market data includes projections that are based
on a number of assumptions. If any one or more of those assumptions turns out to
be incorrect, actual results may differ materially from the projections based on
these assumptions.
25
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange offer. Because we
are exchanging the old notes for the notes, which have substantially identical
terms and evidence the same indebtedness as the old notes, the issuance of the
notes will not result in any increase in our indebtedness. The net proceeds from
the offering of the old notes was $154.0 million, after deducting the initial
purchasers' commissions and offering expenses payable by us. The net proceeds
from the offering of the old notes, together with cash on hand, was used to
purchase and redeem the $152.8 million outstanding principal amount of our
7 7/8% senior notes due 2005, and to pay for all related premiums, fees and
expenses of approximately $3.7 million.
26
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as at December 31, 2003. Our capitalization is presented:
- on an actual basis; and
- on an adjusted basis to reflect the redemption of $29.2 million of
outstanding 7 7/8% senior notes due 2005 on January 2, 2004 and the
application of the net proceeds as described under "Use of Proceeds."
You should read this table in conjunction with the section in our quarterly
and annual reports entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the audited consolidated financial
statements and the related notes and the unaudited interim consolidated
financial statements and the related notes.
AS AT DECEMBER 31, 2003
------------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN THOUSANDS)
Cash and cash equivalents(1)................................ $ 47,282 $ 16,193
Restricted cash(2).......................................... $ 4,961 $ 4,961
======== ========
Long-term debt(3):
7 7/8% senior notes due 2005.............................. $ 29,234 $ --
9 5/8% senior notes offered hereby........................ 160,000 160,000
-------- --------
Total long-term debt...................................... 189,234 160,000
-------- --------
Total shareholders' deficiency(4)......................... (51,776) (52,561)
-------- --------
Total capitalization........................................ $137,458 $107,439
======== ========
---------------
(1) Excludes the payment of $0.2 million of interest on the 7 7/8% senior notes
due 2005 redeemed on January 2, 2004.
(2) Represents cash collateralized in support of our letters of credit.
(3) On February 6, 2004 we entered into a loan agreement for a $20.0 million
secured revolving credit facility with Congress Financial Corporation
(Canada). As of March 31, 2004, we had $nil outstanding under this credit
facility. See "Description of New Credit Facility."
(4) Total shareholders' deficiency as adjusted includes $0.2 million of pretax
charges related to the write-off of deferred financing costs, $0.6 million
of premiums, fees and expenses paid in connection with the purchase and
redemption of $29.2 million of the 7 7/8% senior notes due 2005 on January
2, 2004.
27
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected consolidated financial information
derived from our audited consolidated financial statements for the years ended
December 31, 1999, 2000, 2001, 2002 and 2003, all of which were prepared in
accordance with United States generally accepted accounting principles.
You should read the following information in conjunction with the section
in our quarterly and annual reports entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the audited
consolidated financial statements and the related notes and the unaudited
interim consolidated financial statements and the related notes, all
incorporated by reference in this prospectus.
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1999(1) 2000 2001 2002 2003
-------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Revenue
IMAX systems(2)........................................... $126,826 $113,226 $ 76,582 $ 70,959 $ 75,848
Films..................................................... 47,227 41,711 29,923 40,556 25,803
Theater operations........................................ 7,159 8,467 6,540 12,284 13,109
Other..................................................... 9,393 7,096 4,654 5,303 4,500
-------- -------- --------- -------- --------
Total revenue(1).......................................... 190,605 170,500 117,699 129,102 119,260
Costs of goods and services(3).............................. 94,407 106,429 94,969 75,634 67,283
-------- -------- --------- -------- --------
Gross margin................................................ 96,198 64,071 22,730 53,468 51,977
Selling, general and administrative expenses(4)............. 32,524 42,079 45,850 34,906 33,312
Research and development.................................... 3,136 6,497 3,385 2,362 3,794
Amortization of intangibles(5).............................. 2,159 2,948 3,005 1,418 573
Loss (income) from equity-accounted investees(6)............ 683 4,811 (73) (283) (2,496)
Receivable provisions (recoveries), net..................... 949 13,086 18,102 (1,233) (2,225)
Restructuring costs and asset impairments (recoveries)(7)... -- 11,152 45,269 (121) 969
-------- -------- --------- -------- --------
Earnings (loss) from continuing operations(1)............... 56,747 (16,502) (92,808) 16,419 18,050
-------- -------- --------- -------- --------
Interest income............................................. 9,977 3,285 847 413 656
Interest expense............................................ (21,860) (21,961) (22,020) (17,564) (15,856)
Gain (loss) on retirement of notes(8)....................... -- -- 55,577 11,900 (4,910)
Recovery on (impairment of) long-term investments(9)........ -- (4,133) (5,584) -- 1,892
-------- -------- --------- -------- --------
Earnings (loss) from continuing operations before income
taxes and
minority interest......................................... 44,864 (39,311) (63,988) 11,168 (168)
Recovery of (provision for) income taxes(10)................ (17,175) 11,700 (27,848) -- 386
-------- -------- --------- -------- --------
Earnings (loss) from continuing operations before minority
interest.................................................. 27,689 (27,611) (91,836) 11,168 218
Minority interest........................................... (1,207) -- -- -- --
-------- -------- --------- -------- --------
Net earnings (loss) from continuing operations.............. 26,482 (27,611) (91,836) 11,168 218
Net earnings (loss) from discontinued operations(11)........ (1,249) (4,226) (53,278) 804 195
-------- -------- --------- -------- --------
Net earnings (loss) before cumulative effect of changes in
accounting
principles................................................ 25,233 (31,837) (145,114) 11,972 413
Cumulative effect of changes in accounting principles, net
of income
taxes(12)................................................. -- (61,110) -- -- (182)
-------- -------- --------- -------- --------
Net earnings (loss)(1)...................................... $ 25,233 $(92,947) $(145,114) $ 11,972 $ 231
======== ======== ========= ======== ========
Basic net earnings (loss) from continuing operations per
common share.............................................. $ 0.89 $ (0.93) $ (2.97) $ 0.34 $ 0.01
Diluted net earnings (loss) from continuing operations per
common share.............................................. $ 0.84 $ (0.93) $ (2.97) $ 0.34 $ 0.01
28
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 2000 2001 2002 2003
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT SYSTEMS AND RATIO DATA)
OTHER DATA:
Total systems signed(13):
North America.................................. 16 6 5 7 9
International.................................. 28 26 7 14 16
New systems installed:
North America.................................. 20 9 8 6 13
International.................................. 15 15 7 10 7
Total systems in operation, (period end)......... 208 221 227 232 240
Capital expenditures............................. $40,516 $47,187 $ 9,373 $ 3,958 $ 4,553
Cash provided by (used in) operating
activities..................................... (2,589) (54,089) (2,615) 22,291 (9,183)
Ratio of earnings to fixed charges(14)........... 2.91x -- -- 1.58x --
AS AT DECEMBER 31,
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEETS DATA:
Cash and cash equivalents................... $ 32,470 $ 34,310 $ 20,515 $ 33,801 $ 47,282
Restricted cash............................. -- -- 5,873 3,335 4,961
Total assets(15)............................ 538,237 492,100 261,512 242,976 250,376
Total long-term indebtedness................ 300,000 300,000 229,643 209,143 189,234
---------------
(1) In accordance with the interpretive guidance of SEC Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," effective January 1, 2000, we recognize revenue on theatre
system sales and sales-type leases at the time that installation is
complete. Prior to January 1, 2000, we recognized revenue on theatre
systems at the time of delivery. Pro forma revenue and net earnings (loss)
as if SAB 101 had been applied during 1999 would have been $166.6 million
and $7.7 million, respectively. As the SAB 101 adjustment was reflected in
the statement of operations through a one-time cumulative adjustment in
2000, certain line items in this table may reflect a revenue transaction
twice.
(2) In the normal course of our business, we each year will have customers who,
for a number of reasons including the inability to obtain certain consents,
approvals or financing, are unable to proceed with theatre construction.
Once the determination is made that the customer will not proceed with
installation, the lease agreement with the customer is generally terminated
by us. Upon the customer and the Company being released from our future
obligations under the agreement, the initial lease payments that the
customer previously made to us are recognized as revenue. Included in
systems revenue is $0.7 million, $1.4 million, $5.5 million, $5.1 million
and $9.6 million in 1999, 2000, 2001, 2002 and 2003, respectively for
amounts recognized for restructured and/or terminated lease agreements.
(3) During the year ended December 31, 2000, we recognized an $8.6 million
charge which relates to the write-down of certain films in distribution.
Costs of goods and services during the year ended December 31, 2001
included charges of $4.1 million and $16.5 million relating to a reduced
realizable value of our inventories and reduced fair values of our film
assets, respectively. During the year ended December 31, 2002, we also
recorded charges of $1.2 million for inventories, due to a reduced net
realizable value, and fixed assets of $2.8 million as the carrying value
for the fixed assets exceeded the discounted future cash flows expected
from the assets.
(4) Selling, general and administrative expenses for the year ended December
31, 2001 included a $2.6 million non-cash charge for incurred compensation
resulting from a stock grant issuance.
29
(5) Effective January 1, 2002, we adopted FAS 142, under which goodwill and
intangible assets with indefinite lives are no longer amortized but are
reviewed at least annually for impairment. In accordance with FAS 142, the
effect of this change in accounting principle is reflected prospectively.
Included in amortization of intangibles is goodwill amortization of $2.6
million, $1.8 million and $2.3 million for 1999, 2000 and 2001,
respectively.
(6) In 2000, loss (income) from equity-accounted investees included a $4.0
million provision related to the guarantee of a term loan undertaken by the
Forum Ride Associates joint venture, the principal business of which is the
operation of the "Race for Atlantis" ride in Las Vegas. In 2003, loss
(income) from equity-accounted investees included a gain of $2.3 million
from the release of a financial guarantee.
(7) In 2000, restructuring costs and asset impairments (recoveries) included
charges of $11.2 million relating to fixed assets. In 2001, restructuring
costs and asset impairments (recoveries) includes $16.3 million related to
efforts to rationalize the business by reducing our overall corporate
workforce and consolidation of our operations, which included relocating
our sound-system facility to near Toronto, Canada. In the assessment of the
assets, we recorded charges of $26.7 million of fixed assets, and $3.3
million of other assets to recognize a decline in value considered other
than temporary.
(8) During the year ended December 31, 2001, we and one of our wholly-owned
subsidiaries purchased and cancelled an aggregate of $70.4 million
principal amount of our convertible subordinated notes for $13.7 million,
consisting of $12.5 million in cash from the subsidiary and common shares
issued by us valued at $1.2 million. We recorded a gain of $55.6 million in
connection with this transaction. During 2002, we and one of our
wholly-owned subsidiaries purchased and cancelled an additional aggregate
of $20.5 million principal amount of our convertible subordinated notes for
$8.1 million, consisting of $6.0 million in cash from the subsidiary and
common shares by us valued at $2.1 million. We recorded a gain of $11.9
million, in connection with this transaction. During 2003, we recorded a
loss of $4.9 million related to costs associated with the repurchase,
retirement and refinancing of $170.8 million of our 7 7/8% senior notes due
2005.
(9) Recovery on (impairment of) long-term investments represents charges of
$4.1 million and $5.6 million relating to the impairment of certain of our
long-term investments, for the years ended December 31, 2000 and 2001,
respectively. In 2003, as a result of the Company entering into a
settlement agreement with Mainframe Entertainment, Inc., we recorded a
recovery of $1.9 million.
(10) In 2001, the provision for income taxes included a $41.2 million increase
in the valuation allowance to reflect uncertainty associated with
realization of our deferred income tax asset.
(11) Discontinued operations consisted of our Digital Projections subsidiary
which was acquired in September 1999 and sold in December 2001 and our
owned and operated Miami theatre which was opened in 1999 and closed in
December 2003.
(12) In the year ended December 31, 2000, we recognized a charge of $54.5
million, net of income tax benefit of $33.4 million, in accordance with the
interpretive guidance of SAB 101. We also adopted SOP 00-2 and recorded a
charge of $6.6 million, net of income tax benefit of $3.9 million, to
reflect the adoption of this new pronouncement.
(13) Represents the number of theatre systems for which we reached sale or lease
agreements (including joint ventures) in the periods indicated. The number
of signings indicated for 1999 includes one theatre in which we have an
equity interest.
(14) For the purpose of computing the ratios of earnings to fixed charges,
"earnings" consist of earnings (loss) from continuing operations before
income taxes and minority interest, loss (income) from equity-accounted
investees, capitalized interest, amortization of capitalized interest and
fixed charges. "Fixed charges" consist of interest expense, amortization of
expenses related to indebtedness (which are included in interest expense),
capitalized interest and an estimate of the interest within rental expense,
deemed to be one-third of rental expense. Due to losses we incurred, the
ratio coverage in certain years is less than 1:1. We would have had to
generate additional earnings of
30
$35.4 million in 2000, $62.7 million in 2001 and $2.6 million in 2003 to
achieve a ratio of 1:1 in those periods. This table shows how we calculate
the ratio of earnings to fixed charges.
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1999 2000 2001 2002 2003
------- -------- -------- ------- -------
(IN THOUSANDS EXCEPT RATIO DATA)
Earnings (loss) from continuing operations before income
taxes and minority interest.............................. $44,864 $(39,311) $(63,988) $11,168 $ (168)
Loss (income) from equity-accounted investees.............. 683 4,811 (73) (283) (2,496)
Capitalized interest....................................... (754) (1,393) (511) -- --
Amortization of capitalized interest....................... 44 500 1,853 26 26
------- -------- -------- ------- -------
44,837 (35,393) (62,719) 10,911 (2,638)
------- -------- -------- ------- -------
Fixed Charges:
Interest expense......................................... 21,860 21,961 22,020 17,564 15,856
Capitalized interest..................................... 754 1,393 511 -- --
Estimate of the interest within rental expense........... 822 1,633 1,711 1,168 1,321
------- -------- -------- ------- -------
Total fixed charges...................................... 23,436 24,987 24,242 18,732 17,177
------- -------- -------- ------- -------
Earnings................................................... $68,273 $(10,406) $(38,477) $29,643 $14,539
======= ======== ======== ======= =======
Ratio of earnings to fixed charges......................... 2.91x -- -- 1.58x --
(15) Total assets include the assets of discontinued operations, consisting of
our Digital Projections subsidiary which was acquired in 1999 and sold in
December 2001 and our owned and operated Miami theatre which was opened in
1999 and closed in December 2003.
31
BUSINESS
OUR BUSINESS
We are one of the world's leading entertainment technology companies,
specializing in large-format and three-dimensional, or 3D, film presentations.
IMAX projection systems use the largest commercially available film format,
which allows IMAX theatres to present images of exceptional quality and clarity.
These images, projected on screens that are up to one-hundred feet wide and
eight stories tall, are designed to fill a viewer's peripheral vision and
immerse them in the film. We generate the majority of our revenue through
upfront and recurring payments received in connection with the leasing of our
theatre systems. While many of these theatre systems are located in some of the
world's most prestigious museums and science centers, more recently the growth
in the IMAX network has been most significant at multiplex theatres and other
commercial venues, which we believe is the largest potential market for our
theatre systems.
Our primary business is the design, manufacture and lease of projection and
sound systems for IMAX theatres. The majority of IMAX theatre systems are
operated by third parties under agreements with us. At December 31, 2003, there
were 240 IMAX theatre systems operating in more than 35 countries. We are also a
producer and distributor of large-format films and the largest provider of
large-format post-production services. In addition, we engage in other related
businesses, including renting camera equipment for large-format film production
and owning and operating seven IMAX theatres.
THE INDUSTRY
IMAX created the large-format theatre industry when we were founded in
1967. The large-format theatre industry includes several manufacturers of 5, 8
and 10 perforation, 70mm projection systems. We are the largest participant in
the industry and we estimate that the IMAX theatres in operation represent a
significant majority of the large-format theatres in operation. IMAX theatre
systems exclusively use 15 perforation, 70mm, or 15/70, film, the largest
commercially available film size, which is approximately 10 times larger than
35mm film. Film is measured on the basis of size in terms of millimeters and
perforations. Projectors in conventional theatres use 4 perforation, 35mm film
whereas large-format projectors use film ranging from 5 perforation, 70mm up to
15 perforation, 70mm allowing the use of larger screens and yielding higher
quality images. The size of the film makes 15/70 projection systems difficult to
make and consequently there are very few manufacturers of these projectors. We
estimate that IMAX theatre systems represent almost all of the installed base of
both 15/70 theatre systems and 3D 15/70 film format theatre systems in the
world.
OUR COMPETITIVE ADVANTAGE
We believe that IMAX has a significant competitive advantage because of:
- Brand -- IMAX is one of the few widely recognized brands in filmed
entertainment, and the only such brand in large-format theatres.
- The IMAX Experience -- We believe IMAX theatre systems provide a unique
and immersive film experience with the highest quality images and sound
available.
- Films -- IMAX theatres have exclusive access to our library of 15/70
format films, the largest such library in the world. They will also have
exclusive access to Hollywood films converted to 15/70 film format using
our new and proprietary IMAX DMR technology, such as the last two films
of the Matrix trilogy.
- Innovation -- We have a tradition of innovation and continue to invest in
research and development. In North America, as of December 31, 2003, we
had 43 patents issued with 16 more pending. From the first large-format
projector to 3D projection to IMAX DMR and IMAX MPX, we have a record of
developing new technologies that improve our viewers' entertainment
experience and increase our customers' profitability.
- Reliability -- IMAX theatre systems have historical operating uptimes of
approximately 99.9% based on scheduled shows.
32
OUR BUSINESS STRATEGY
We expect growth in our revenue will be primarily driven by new IMAX
theatre system leases to commercial exhibitors. We remain committed to our
historical roots in museums and science centers, but we believe that the size of
that market is relatively limited compared to the potential in the commercial
multiplex market. As of December 31, 2003, there were approximately 1,900
multiplexes in North America, of which fewer than 35 had IMAX theatres, a
penetration rate below 2%. Internationally, the penetration rate is even lower.
To expand our theatre network, we intend to:
- increase the revenue potential of commercial IMAX theatres and Hollywood
studios by using our proprietary IMAX DMR technology which converts
live-action films into IMAX-quality images and sound;
- reduce the capital and operating costs of leasing an IMAX theatre for
commercial exhibitors with our IMAX MPX theatre system; and
- continue to grow in our existing, traditional customer base of
educational and institutional centers.
INCREASE REVENUE POTENTIAL OF COMMERCIAL IMAX THEATRES AND HOLLYWOOD STUDIOS
The motion picture industry is increasingly producing large-scale Hollywood
blockbuster event films, which have proven to be significant revenue generators
worldwide. IMAX DMR allows us to digitally re-master virtually any 35mm
live-action film into IMAX's 15/70 film format at a cost of approximately $2
million to $4 million per film. We developed IMAX DMR to enable IMAX theatres to
become an additional distribution channel for commercial films developed and
produced by Hollywood studios and we believe that this new proprietary
technology will significantly expand the commercially attractive content
available for exclusive release to IMAX theatres and will increase their
revenues. While IMAX DMR gives us the ability to bring previously released
Hollywood classics to the IMAX network, the centerpiece of the IMAX strategy is
the contemporaneous release of event films in IMAX and 35mm theatres, such as
the November 5, 2003 release of The Matrix Revolutions. This allows the IMAX
release to take advantage of the considerable marketing campaigns studios
traditionally launch in connection with their biggest event films. It is our
primary goal that viewers will want to see these types of event films in IMAX
theatres and pay a premium price for the enhanced experience. In the North
American multiplexes that showed The Matrix Reloaded in 35mm and in IMAX's 15/70
film format, the average ticket price for the IMAX screening was $10.68 versus
$8.65 for the 35mm screening. At its release, the average North American ticket
price for the IMAX screening of The Matrix Revolutions was $11.20 versus $8.66
for the 35mm screening. We believe that the meaningful expansion of Hollywood
content available to IMAX theatres will result in increased attendance and
revenue at IMAX theatres and increased demand for IMAX theatre systems. We also
believe that such increased demand for our theatre systems will encourage
studios to release more films to the expanded IMAX theatre network, and that
this additional film product should further increase demand for IMAX theatre
systems. This increased demand will likely benefit our operations globally since
we anticipate that the Hollywood films distributed to the IMAX theatre network
will be made available to both North American and international IMAX theatres
and, in fact, have negotiated provisions in certain distribution agreements
facilitating the international distribution of such films.
The first major studio film released to IMAX theatres, Fantasia/2000: The
IMAX Experience, released by the Walt Disney Company in January 2000, generated
more than $91 million in theatre box office receipts to date and demonstrated
that the IMAX theatre network was a viable distribution network for Hollywood
films. The first film re-mastered with IMAX DMR technology was Universal
Studios' Apollo 13. Apollo 13: The IMAX Experience was released in September
2002, which demonstrated the appeal of the IMAX DMR technology. This was
followed by the release by 20th Century Fox of Star Wars Episode II: Attack of
the Clones -- The IMAX Experience, which generated more revenue per screen in
its opening weekend than any other film in North America during that period. On
April 22, 2003, we announced an agreement with Warner Bros. Pictures to convert
The Matrix Reloaded and The Matrix
33
Revolutions, the last two films of the Matrix trilogy that began with the 1999
blockbuster film The Matrix, to IMAX's format. The IMAX DMR version of The
Matrix Reloaded ran exclusively on over 70 IMAX screens beginning June 6, 2003,
approximately four weeks after the domestic release of the film to conventional
35mm theatres. Since the IMAX release, IMAX screens have accounted for 27% of
the film's total box office receipts in North America to October 31, 2003
despite accounting for just 7.3% of the screens exhibiting the film in North
America. On November 5, 2003, The Matrix Revolutions became the first-ever
live-action Hollywood film released simultaneously to both IMAX theatres and
35mm theatres. In North America, the film, which did not perform overall as well
as The Matrix Reloaded at 35mm or IMAX theatres, nevertheless grossed
approximately $3.0 million in the first five days of its release on 48 IMAX
screens, representing approximately $63,000 in per screen revenue. In addition,
on December 18, 2003, we announced a further agreement with Warner Bros.
Pictures to convert Harry Potter and the Prisoner of Azkaban, the third
installment of the Harry Potter film series, to IMAX's 15/70 format. The film
was released to 35mm theatres and IMAX theatres in June 2004. The sixth IMAX DMR
film was released to the IMAX theatre network when Sony Pictures' Spiderman 2
was converted to IMAX's 15/70 format and released to IMAX theatres on July 23,
2004. We believe that these events position IMAX theatres as a unique and
separate release window for Hollywood films similar to the type created when
Hollywood studios began including the pay TV and home video industries as
release windows for their films.
During the release of The Matrix Reloaded: The IMAX Experience, we
commissioned a third party research firm to quantify consumer response to IMAX
DMR. The research showed that 88% of the patrons were either extremely or very
satisfied with the experience, that 89% intended to recommend seeing the film at
an IMAX theatre and that 31% had never been to an IMAX theatre before. These
results are consistent with our primary goal of ensuring that consumers will
want to see high-profile event films in IMAX theatres and pay a premium price
for the enhanced experience. Early results from research conducted during the
release of The Matrix Revolutions: The IMAX Experience revealed similar
findings.
REDUCE THE CAPITAL AND OPERATING COSTS FOR COMMERCIAL EXHIBITORS
We have consistently sought to improve the profitability of an IMAX theatre
by reducing theatre capital and operating costs. In the past, we have
successfully reduced our customers' costs by introducing innovations such as the
IMAX SR theatre system, which was designed for smaller markets. Continued
reduction of capital and operating costs remains a focus of our research and
development team. Our most recent achievement has been the development of the
IMAX MPX system, our new lower cost theatre projection system, designed
specifically for use in multiplex auditoriums. The IMAX MPX system reduces the
per-seat capital cost of an IMAX theatre by approximately 35% as compared to the
IMAX SR system and increases the potential market size for IMAX theatres. The
IMAX MPX system also reduces the operating costs required to run an IMAX theatre
by eliminating the need for a specialized projectionist. The IMAX MPX system can
be installed as part of a newly constructed multiplex, as an add-on to an
existing multiplex, or as a retrofit of two existing stadium seat multiplex
auditoriums. We believe that this innovative retrofit option represents a
significant opportunity for commercial operators to both reduce the capital
costs of building an IMAX theatre and improve the profitability of the two
multiplex auditoriums being retrofitted.
Since its launch in early 2003, we reached agreement for the sale or lease
of 13 IMAX MPX systems as of March 31, 2004. The appeal of the IMAX MPX system
has extended beyond the domestic market, with system deals signed in China,
Russia and the Middle East as well as the United States. The first IMAX MPX
system was installed in June 2004 in Orviedo, Spain in advance of the IMAX DMR
release of Harry Potter and the Prisoner of Azkaban. We believe that the
combination of the IMAX MPX system with our IMAX DMR technology gives us the
ability to significantly grow our commercial theatre network by offering
multiplex exhibitors more and better film options for their theatres and an
easier and more cost-efficient system with which to exhibit those films.
34
CONTINUED GROWTH IN OUR EXISTING CUSTOMER SEGMENT
We continue to sell and lease IMAX theatre systems to educational and
institutional centers, particularly in international markets such as China. The
last two years have seen the successful release and development of numerous
traditional large-format films, particularly 3D films, which continue to perform
well in institutional, educational and commercial venues. Our fourth space film,
SPACE STATION, has generated approximately $69 million of gross box office
receipts since its release in April 2002 through to March 31, 2004, and
continues to generate significant weekly gross box office receipts. Our 2002
holiday film, Santa vs. the Snowman, had a successful run in IMAX theatres
during the 2002 holiday season and was shown on 79 IMAX screens during the 2003
holiday season. James Cameron's Ghosts of the Abyss, which was released by
Disney to IMAX theatres in April 2003, also performed well. In March of 2004, we
released NASCAR The IMAX Experience 3D, and we are currently developing
Magnificent Desolation, a film about the men of the Apollo missions who walked
on the moon, in collaboration with Playtone and its principals, Tom Hanks and
Gary Goetzman.
BUSINESS SEGMENTS
THEATRE SYSTEM
Our primary products are our large-format theatre systems. All IMAX theatre
systems include a unique rolling loop 15/70 projector that offers superior image
quality and stability; a 6-channel, digital sound system delivering up to 12,000
watts; a screen with a proprietary coating technology; a digital theatre control
system and extensive theatre planning, design and installation services. All
theatre systems also come with a license for the use of the IMAX brand. We
primarily offer four types of these theatre systems. Our GT theatre systems are
for theatres from 300 seats to up to 550 seats and our SR theatre systems
contain 270 to 300 seats. Our recently introduced IMAX MPX system is targeted
for multiplex complexes and IMAX MPX theatres are expected to have approximately
350 seats. All three of these system types come with "flat" screens that have a
minimum of curvature and tilt and can exhibit both 2D and 3D films. We also
produce a fourth category of theatre systems featuring heavily curved and tilted
screens that are used in dome shaped theatres. These theatre systems are
generally 2D only and are popular with our institutional clients.
Screens in IMAX theatres are as large as one-hundred feet wide and eight
stories tall and we believe are the largest cinema screens in the world. Unlike
standard cinema screens, IMAX screens extend to the edge of a viewer's
peripheral vision to create immersive experiences which, when combined with our
superior sound system, make audiences feel as if they are a part of the
on-screen action in a way that is more intense and exciting than in traditional
theatres, a critical part of The IMAX Experience. Our IMAX 3D theatres further
increase the audience's feeling of immersion in the film by bringing images off
the screen.
Revenue from theatre systems are our largest source of revenue,
representing 65.0%, 55.0% and 63.6% of our total revenue in 2001, 2002 and 2003,
respectively. We generally lease our theatre systems to our clients for initial
terms of 10 to 20 years. As part of the theatre systems leases, our clients make
substantial initial rental payments ranging from $1.0 million to $3.0 million,
the majority of which are paid to us before the theatre system is delivered.
After the theatre opens additional rental payments, generally equal to the
greater of 5% to 7% of theatre box office receipts or a minimum that ranges from
$50,000 to $100,000 per theatre, are due each year. These terms vary in certain
cases, particularly for some of our older theatres. We provide a
maintenance-free period for one year and thereafter provide maintenance service
in return for an annual fee that averages $65,000-$75,000 per year. The
additional rental payments and maintenance fees represent ongoing cash flow for
the duration of the lease.
FILM PRODUCTION AND DISTRIBUTION
We are a producer and distributor of large-format films. Through our
subsidiary David Keighley Productions 70mm Inc., we are also the largest
provider of large-format post-production services, such as editing, quality
control and developing film prints for both IMAX theatres and other large-format
35
customers. Revenue from film production and distribution represented 25.4%,
31.4% and 21.6% of our total revenue in 2001, 2002 and 2003, respectively.
THEATRE OPERATIONS
As of December 31, 2003, we had seven owned and operated theatres. In
addition, we have entered into commercial arrangements with theatres resulting
in the sharing of profits and losses. We also provide management services to two
theatres.
OTHER
Our other sources of revenue primarily consist of IMAX theatres that we
operate and revenue from businesses ancillary to our theatre systems business.
These include the rental of 15/70 cameras and after-market sales of components
for our projector and sound systems. Revenue from this business segment
represented 9.6%, 13.6% and 14.8% of our total revenue in 2001, 2002 and 2003,
respectively.
THE IMAX BRAND
The IMAX brand is world famous and stands for the highest-quality, most
immersive filmed entertainment that combines stunning images of exceptional
quality and clarity on screens up to one-hundred feet wide and eight stories
tall, our proprietary 6-channel digital sound systems and unique theatre
designs. We believe that like Disney, IMAX is one of the few brands generally
recognized by consumers in filmed entertainment. Our research shows that the
IMAX brand is a significant factor in a consumer's decision to go to an IMAX
theatre. In addition, we believe that our significant brand loyalty among
consumers provides us with a strong, sustainable position in the large-format
theatre industry. The IMAX brand name cuts across geographic and demographic
boundaries.
With an increasing number of IMAX theatres based in multiplexes and a
recent history of commercially successful films such as Everest, Fantasia/2000:
The IMAX Experience and recent IMAX DMR releases including the Matrix sequels,
IMAX is rapidly increasing its commercial presence. We believe the strength of
the IMAX brand will be an asset as we seek to become a new release window for
Hollywood event films. We believe that people will see the IMAX presentation of
these films as a special, high-quality experience, and will be willing to pay a
premium price for the enhanced experience.
IMAX DMR
We have developed technology that makes it possible for virtually any 35mm
live-action film to be transformed at a cost of approximately $2 million to $4
million per film into the unparalleled image and sound quality of The IMAX
Experience. This patent-pending, proprietary system, known as IMAX DMR, opens
the IMAX theatre network up to releases from Hollywood's vast library of films
ranging from well-known classics to today's event films. The resulting images
are as large and sharp as the classic IMAX films audiences associate with the
IMAX brand.
The IMAX DMR process involves the following:
- scanning, at the highest resolution possible, each individual frame of
the 35mm film and converting it into a digital image;
- optimizing the image using proprietary image enhancement tools developed
and refined over many years;
- analyzing the information contained within a 35mm frame format and
enhancing the digital image using techniques such as sharpening, color
correction, grain removal and the elimination of unsteadiness; and
- recording the enhanced digital signal onto 15/70 film.
During the re-mastering process, IMAX's DMR technology introduces no
perceptible digital artifacts and the highly automated system allows the process
to meet rigorous film production schedules. We continue to improve the length of
time it takes to reformat a film with our IMAX DMR technology. Apollo 13 was
re-mastered in 16 weeks, Star Wars Episode II: Attack of the Clones was
re-mastered in eight weeks and The Matrix Reloaded was re-mastered in less than
four weeks. The IMAX DMR
36
conversion of The Matrix Revolutions was done in parallel with the movie's
filming and editing, which is necessary for the contemporaneous release of an
IMAX DMR film.
For IMAX DMR releases, the original soundtrack of the 35mm film is
re-mastered for IMAX's six-channel loudspeaker system. Unlike conventional
theatre sound systems, IMAX sound systems are uncompressed, full fidelity and
use proprietary loudspeaker systems that ensure every theatre seat is in a good
listening position with surround sound that puts audiences in the picture. With
IMAX DMR we can create that immersive experience with clear, distortion-free
soundtracks for films originally produced in 35mm. While we can only convert
35mm images into IMAX's 15/70 film format in 2D today, we have a research and
development program underway focused on converting live-action 35mm film to IMAX
3D. However, we currently have the ability to convert computer generated
animation to IMAX 3D and have done so successfully with our 1999 release of
Cyberworld.
SALES BACKLOG
Signed contracts for theatre system leases and sales are listed as sales
backlog prior to the time of revenue recognition. The value of the sales backlog
represents the total value of all signed theatre system sales and sales-type
lease agreements that are expected to be recognized as revenue in the future.
The backlog includes initial rental fees along with the present value of
contractual minimum rents due over the lease term, but excludes maintenance
revenue as well as contingent rents in excess of contractual minimums that might
be received in the future. Sales backlog does not include revenue from theatres
in which we have an equity interest, agreements covered by letters of intent or
conditional theatre commitments.
The Company's backlog can be segregated by both territory of future
installation and by customer type. The percentage of backlog relevant to each
territory (based on installed dollar value of anticipated systems revenue as at
December 31, 2003) is as follows: Europe -- 34%, Asia -- 32%, North America --
15%, South America -- 9% and rest of the world -- 10%. In addition,
approximately 90% of backlog represents future installations to commercial
theatre customers and 10% to institutional customers.
During the year ended December 31, 2003, we reached agreement for the sale
or lease of 25 IMAX theatres, valued at $41.2 million. At December 31, 2003,
sales backlog consisted of contracts for 61 theatre systems with a total value
of $138.1 million versus 63 theatre systems for a total value of $154.9 million
in 2002.
Theatre systems in our backlog are generally recognized as revenue 18 to 36
months after the signing of the contracts for such systems due to the time
necessary for the construction of the theatre. Because of this operating cycle,
as well as other factors such as the settlement and/or termination of certain
agreements in the ordinary course, we estimate that 35 to 45 of the theatre
systems currently in backlog will be recognized subsequent to 2004. We believe
that shorter installation cycles are likely to occur more frequently with the
introduction of our IMAX MPX theatre systems, which require less construction
time due to their design and retrofit capability. We reached agreement for the
sale or lease of nine IMAX MPX systems in 2003 that are included in our December
31, 2003 backlog.
We consider each contract in backlog to represent a valid and binding
agreement with a customer. In the normal course of our business, we will have
customers who, for a number of reasons including the inability to obtain certain
consents, approvals or financing or an ongoing dispute or legal proceeding with
us, do not proceed with theatre construction (please refer to the "Legal
Proceedings" section of our 2003 annual report on Form 10-K for further
details). Once the determination is made that the customer will not proceed with
installation, the lease agreement with the customer is generally terminated by
us and removed from backlog.
MARKETING AND CUSTOMERS
We market our theatre systems through a direct sales force and marketing
staff located in our offices in Canada, the United States, Europe, Singapore,
Japan and Shanghai. We also use agents and consultants in certain locations,
primarily Asia and South America. Because our clients have real estate
development matters to consider before committing to an IMAX theatre system, the
sales process from initial contact
37
to contract signing can take three months to a year or longer. Theatre systems
are typically installed within 36 months after the contract is signed.
We have experienced an increase in the number of commercial theatre
signings and international signings since 1995. The commercial theatre portion
of our theatre network is now our largest component with a total of 60% theatres
opened or in backlog at December 31, 2003. At December 31, 2003, 37.0% of all
opened and in backlog theatres are for locations outside the United States and
Canada. Our institutional customers include science and natural history museums,
zoos, aquaria and other educational and cultural centers. We also lease our
theatre systems to theme parks, tourist destination sites, fairs and
expositions. At December 31, 2003, no one customer represented more than 5.4% of
our installed base of theatres, more than 16% of our backlog or more than 10% of
our consolidated revenue derived from our "Film Production and Distribution" or
"Other" business segments.
The institutional and entertainment destination markets, both domestic and
foreign, provide what we believe to be consistent demand for our theatre
systems. The operators of multiplex theatres have been our fastest growing
customer segment since 1997. The commercial exhibition industry went through
significant financial difficulties in 2000 and 2001, when numerous theatre
chains filed for bankruptcy protection due to over-building of multiplexes and
over-leverage. While this had a significant impact on our business and reported
financial results in 2000 and 2001, most of the companies have now emerged from
such proceedings and have successfully recapitalized. With the emergence of our
commercial strategy featuring IMAX DMR technology and the IMAX MPX system, it is
expected that these exhibitors will be a significant source of growth for us in
the future.
COMPETITION
The out-of-home entertainment industry is very competitive, and we face a
number of challenges. We compete with a number of manufacturers of large-format
film projection systems, most of which utilize smaller film formats, including
8/70 and 10/70. We believe that IMAX theatre systems deliver an image that is
superior to these smaller film format images. The IMAX theatre network and the
number of 15/70 format films to which we have distribution rights are
substantially larger than those of our competitors, and IMAX DMR reformatted
films are available exclusively to the IMAX theatre network.
In addition to existing competitors, we may also face competition in the
future from companies in the entertainment industry with substantially greater
capital resources. We also face competition from a number of alternative motion
picture distribution channels such as home video, pay per-view, video-on-demand,
DVD, and syndicated and broadcast television. We also compete for the public's
leisure time and disposable income with other forms of entertainment, including
sporting events, concerts, live theatre and restaurants.
Furthermore, the out-of-home entertainment industry in general is
undergoing significant changes. Primarily due to technological developments and
changing consumer tastes, numerous companies are developing, and are expected to
continue to develop, new entertainment products for the out-of-home
entertainment industry, which may compete directly with our products.
RESEARCH AND DEVELOPMENT
We believe that through 36 years of research and development, we have
developed the most technologically advanced and highest-quality theatre systems
in the world. We have extensive knowledge and capabilities in analog and digital
imaging and sound and are leaders in the development of new film technologies
and techniques. We employ more than 22 people in research and development who
work to enhance and maintain our technological skills.
We have an established record of innovation that has bolstered our leading
industry position by offering enhanced entertainment experiences, reducing the
cost of IMAX exhibition and serving as a barrier-to-entry to potential
competitors. We introduced the revolutionary rolling loop projection system. The
key to the IMAX projector's superior performance and reliability is our unique
"rolling loop" film movement. The rolling loop advances the film horizontally in
a smooth, wave-like motion, which enhances
38
the stability of the image and greatly reduces wear on the film. In addition, we
introduced the IMAX SR projector, which was designed to fit in small theatre
spaces while still fully delivering The IMAX Experience, and IMAX MPX system,
designed especially for multiplex theatre operators, which lowers the capital
and operating costs of an IMAX theatre. Other notable innovations include our
Personal Sound Environment, a sound technology compatible with 3D viewing;
SANDDE, a 3D animation system using a magnetic wand; and the large-format
industry's first laser film recorder, which transfers digital images files onto
film at much greater speed and quality than the prior technology and is an
important link to our IMAX DMR strategy.
IMAX DMR provides the means to convert Hollywood's vast library of films as
well as new blockbuster releases, and since the invention of the rolling loop
15/70 projector, it may prove to be our most important innovation.
In the last 3 years, we have spent $3.4 million, $2.4 million and $3.8
million on research and development in 2001, 2002 and 2003, respectively, or
2.9%, 1.8% and 3.2% of our total revenue.
MANUFACTURING AND SERVICE
We assemble our projection systems at our Corporate Headquarters and
Technology Center in Mississauga, Canada (just outside Toronto). Most of the
components for our theatre systems are purchased from outside vendors. We depend
on a single source supplier for one of the components included in our
projections systems, but we believe this supplier is financially viable and have
made arrangements to gain access to the supplier's design and manufacturing
documentation in the event of a supply interruption. We develop and design all
the key elements for the proprietary technology involved in our projector and
camera systems. Fabrication of these components is then subcontracted to a group
of pre-qualified suppliers. Manufacture and supply contracts are signed for the
delivery of components on an order-by-order basis. The customer and its
contractors are responsible for physical installation of the theatre system,
while we are responsible for supervising the installation of the IMAX theatre
systems at the client's site. We are dependent on the customer and other third
parties to construct the theatre, the cost of which is borne by the customer,
and we cannot fulfill all our contractual obligations to the customer until the
customer has constructed the theatre.
We believe the quality of our theatre systems is extremely important to our
customers, and we provide key services and support functions for the IMAX
theatre network and for filmmakers. To support the IMAX theatre network, we have
personnel stationed in major markets who provide periodic and emergency service
and maintenance on existing theatre systems throughout the world. Our personnel
typically visit each theatre every three months to service the projection and
sound systems. We also provide theatre design expertise for both the visual and
audio aspects of the theatre, as well as theatre system installation supervision
and equipment training. IMAX theatre systems have had historical operating
uptimes of approximately 99.9% based on scheduled shows.
PATENTS AND TRADEMARKS
Our inventions cover various aspects of our proprietary technology, designs
and methods and many are protected by patents or patent applications filed
throughout the world, most significantly in the United States, Canada, Japan,
Korea, France, Germany and the United Kingdom. In North America, as of December
31, 2003, we held 43 patents and had 16 patents pending. We have corresponding
patents or filed applications in many countries throughout the world and we have
been diligent in the protection of our proprietary interests.
In the theatre systems business segment, our patents cover projection
systems (2D and 3D) and components, theatre design, electronic circuitry and a
unique screen painting process for 3D presentations. Granted patents in this
segment generally expire between 2009 and 2020. In addition, we have applied for
a number of patents covering new technology as well as improvements and
modifications to our existing projection systems. In the film production
segment, our granted patents cover a 3D film production tool, an optical film
printer and image enhancement technology. Granted patents in this segment
generally expire
39
between 2007 and 2019. In addition, we have applied for a number of patents
covering our remastering technology and process. In the other business segment
(which includes our cameral rental and after market sales of components for our
projection and sound systems) granted patents cover methods and designs for our
3D cameras and sound systems. Granted patents in this segment generally expire
between 2007 and 2017. In addition, we have applied for several patents covering
modifications to our 3D sound systems.
We own or otherwise have rights to trademarks and trade names used in
conjunction with the sale of our products and services across all four business
segments. The following trademarks are considered most significant in terms of
our current and contemplated operations: IMAX(R), IMAX(R) Dome, IMAX(R) 3D,
IMAX(R) 3D Dome, The IMAX Experience(R), An IMAX Experience(R), IMAX(R) DMR(R),
IMAX(R) MPX(TM), IMAX Think Big(TM) and Think Big(TM). These trademarks are
widely protected by registration or common law throughout the world. Our
registered trademarks generally come up for renewal between 2004 and 2011.
LEGAL MATTERS
We are subject to legal proceedings and claims that arise in the ordinary
course of our business. Our current litigation is described in note 7 to our
unaudited interim financial statements incorporated by reference into this
prospectus.
EMPLOYEES
As of December 31, 2003, we had 339 employees not including hourly
employees at our owned and operated theatres.
MANAGEMENT INFORMATION SYSTEMS
We utilize a number of management information systems. We anticipate no
major changes to these systems in the near future.
40
MANAGEMENT
The following table and biographies set forth information regarding our
directors and executive officers as of our proxy statement dated April 29, 2004.
NAME AGE POSITION
---- --- --------
Richard L. Gelfond........................ 48 Co-Chairman and Co-Chief Executive Officer
and Director
Bradley J. Wechsler....................... 52 Co-Chairman and Co-Chief Executive Officer
and Director
Neil S. Braun............................. 50 Director
Kenneth G. Copland........................ 65 Director
Michael Fuchs............................. 56 Director
Garth M. Girvan........................... 54 Director
David W. Leebron.......................... 49 Director
Marc A. Utay.............................. 43 Director
Francis T. Joyce.......................... 51 Chief Financial Officer
Greg Foster............................... 41 President, Filmed Entertainment
Robert D. Lister.......................... 35 Executive Vice President, Business & Legal
Affairs and General Counsel
Brian Bonnick............................. 47 Senior Vice President, Technology
David B. Keighley......................... 56 Senior Vice President & President, David
Keighley Productions 70mm Inc.
Larry O'Reilly............................ 41 Senior Vice President, Theatre Development
& Film Distribution
G. Mary Ruby.............................. 46 Deputy General Counsel, Senior Vice
President, Legal Affairs and Corporate
Secretary
Mary C. Sullivan.......................... 40 Senior Vice President, Human Resources &
Administration
Mark Welton............................... 40 Senior Vice President, Theatre Operations
Kathryn A. Gamble......................... 36 Vice President, Finance and Controller
Edward MacNeil............................ 39 Vice President, Finance, Special Projects
Under our articles of incorporation, our board of directors is divided into
three classes, each of which serves for a three year term. The term of Class III
directors, currently composed of Richard L. Gelfond and Bradley J. Wechsler,
expires in 2004. The term of Class II directors, currently composed of Kenneth
G. Copland, Garth M. Girvan, Marc A. Utay and David W. Leebron, expires in 2005.
The term of Class I directors, currently composed of Neil S. Braun and Michael
Fuchs, expires in 2006.
RICHARD L. GELFOND has been our Co-Chairman since 1999 and Co-Chief
Executive Officer since 1996. From March 1994 to June 1999, Mr. Gelfond served
as Vice Chairman. Mr. Gelfond serves as Chairman of the Board of Trustees of the
Stony Brook Foundation, Inc., affiliated with Stony Brook University, and is on
the Board of Directors for Brookhaven Science Associates, the Management Company
of Brookhaven National Laboratories. He is also Vice Chairman of the Executive
Committee at the New York Historical Society. Mr. Gelfond is the Chairman of the
Columbia Shuttle Memorial Trust Steering Committee, which was established in
cooperation with NASA to support the families of the seven crew members of the
STS-107 mission of the Space Shuttle Columbia, which came to a tragic end on
February 1, 2003.
BRADLEY J. WECHSLER has been our Co-Chairman since 1994 and Co-Chief
Executive Officer with Mr. Gelfond since 1996. Mr. Wechsler serves on the boards
of NYU Hospital where he is a Vice Chairman and member of the Executive
Committee, the Kernochan Center for Law, Media and the Arts, and the American
Museum of the Moving Image and the Ethical Culture Fieldston School.
41
NEIL S. BRAUN has been a director since June 2003 and has been the
President of Vanguard Animation Studio since 2001. He was the President of
VastVideo Inc. prior to this and was President of iCast Corporation a
wholly-owned subsidiary of CMGI, Inc. during 1999. From 1994 to 1998, Mr. Braun
was President of NBC Television Network. Mr. Braun also sits on the Share our
Strength and Westhampton Beach Performing Arts Center boards of directors and is
a member of the University of Pennsylvania School of Arts and Sciences Board of
Overseers, all non-profit organizations.
KENNETH G. COPLAND has been a director since 1999, and is the Chairman of
KGC Ltd. Mr. Copland was the Vice-Chairman of BMO Nesbitt Burns Inc. from 1994
to May 2001. He is Chairman of Humber College Foundation and HC Educational
Ventures Limited. Mr. Copland is a director of the Investment Dealers
Association of Canada.
MICHAEL FUCHS has been a director since 2002; previously he was a director
from May 1996 to June 1999. Mr. Fuchs is the Chairman and a director of
Autobytel.com and the Chairman of Bryant Park Restoration Corporation. Mr. Fuchs
held the position of Chairman and Chief Executive Officer of Home Box Office
from October 1984 until November 1995. In May 1995, he also became chairman of
Warner Music Group. Mr. Fuchs is also on the Board of Trustees of the Simon
Wiesenthal Center and a member of the board of the Alzheimer Association.
GARTH M. GIRVAN has been a director since 1994. Mr. Girvan is a director of
Corby Distilleries Limited and is a partner of McCarthy Tetrault LLP, our
Canadian counsel.
DAVID W. LEEBRON has been a director since September 2003. Mr. Leebron has
been the Dean and Lucy G. Moses Professor of Law at Columbia University School
of Law since 1996, and Professor of Law since 1989. Effective July 1, 2004, Mr.
Leebron will become President of Rice University. Mr. Leebron is a member of the
American Bar Association and is on the board of directors of the American Law
Dean's Association.
MARC A. UTAY has been a director since 1996, and has been a Managing Member
of Clarion Capital Partners since November 1999. Prior to joining Clarion, Mr.
Utay was a Managing Director of Wasserstein Perella & Co., Inc. and a member of
Wasserstein Perella's Policy Committee. Mr. Utay was co-head of Wasserstein
Perella's Leveraged Finance, Retailing and Media, Telecommunication and
Entertainment groups. Until December 2002, Mr. Utay was also a Senior Advisor to
Dresdner Kleinwort Wasserstein. Prior to his joining Wasserstein Perella, Mr.
Utay was Managing Director at Bankers Trust Company where he specialized in
leveraged finance and mergers and acquisitions. Mr. Utay is a director of P& F
Industries, Inc.
FRANCIS T. JOYCE joined us in 2001 as Chief Financial Officer. Prior to
joining us, Mr. Joyce held the position of Chief Financial Officer of the
Internet company theglobe.com from 1998 until his employment with us. From 1997
to 1998, Mr. Joyce served as Chief Financial Officer of Reed Travel Group, a
division of Reed Elsevier PLC and from 1994 to 1997 served as Chief Financial
Officer of the Alexander Consulting Group, a division of Alexander and Alexander
Services Inc., an international professional services firm. Mr. Joyce is a
member of Financial Executive International and the American Institute of
Certified Public Accountants.
GREG FOSTER joined us in 2001 as President, Filmed Entertainment. Prior to
joining us, Mr. Foster was Executive Vice-President of Production at MGM/UA.
Prior to that, Mr. Foster held other senior positions including Senior
Vice-President of Motion Picture Marketing Research during his 15 years at
MGM/UA. In 1999, Mr. Foster founded uMogul, a financial services company, and
held the positions of Chairman, Co-Founder and President.
ROBERT D. LISTER joined us in 1999 as Senior Vice President, Legal Affairs
and General Counsel and was appointed Executive Vice President, Business & Legal
Affairs in 2001. Prior to joining us, Mr. Lister was Vice President, General
Counsel and Secretary of Clearview Cinemas, a film exhibitor, from March 1998
until his employment with us. Prior to that, Mr. Lister served as Associate
General Counsel of Merit Behavioral Care Corporation, a behavioral healthcare
company, from March 1996 through March 1998.
42
Mr. Lister serves on the board of the Giant Screen Theater Association. Mr.
Lister is a member of the New York State Bar Association.
BRIAN BONNICK joined us in 1999 as Vice President, Research & Development
and was appointed Senior Vice President, Technology in 2001. Prior to joining
us, Mr. Bonnick was Vice President, Engineering and Operations for Electrohome
Corporation. Prior to that, Mr. Bonnick was Vice President and General Manager
at TSB International Inc. a telecommunications company. Mr. Bonnick is
registered as a professional engineer by the Association of Professional
Engineers of Ontario.
DAVID B. KEIGHLEY has been a Senior Vice President since 1997 and is
President of David Keighley Productions 70mm Inc., an IMAX subsidiary. From 1995
to 1997, Mr. Keighley was a Vice President. He is responsible for motion picture
and digital post-production and image quality assurance for 15/70-format films.
LARRY O'REILLY joined us in 1994 as the Sales Manager, Film Distribution
and was appointed Senior Vice President, Theatre Development & Film Distribution
in 2002. Mr. O'Reilly has held various positions within the Company including
Manager, Business Development: Film; Director, Strategic Partnerships; Director,
Commercial Marketing: The Americas and Vice President, Sales, The Americas.
G. MARY RUBY joined us in 1987 as Associate General Counsel and was
appointed Senior Vice President, Legal Affairs in 2001. Ms Ruby was General
Counsel from 1989 to 1997. Ms. Ruby is Deputy General Counsel and acts as
Corporate Secretary to our board of directors. Ms. Ruby is a member of the
Ontario Bar Association.
MARY C. SULLIVAN joined us in 1996 as Director, Human Resources and was
appointed Vice President, Human Resources and Administration in 1998 and Senior
Vice President, Human Resources and Administration in 2000. Prior to joining us,
Ms. Sullivan was Director, Human Resources of Central Park Lodges. Ms. Sullivan
is a director of the Women's Legal Education and Action Fund and its Foundation.
MARK WELTON joined us in 1997 as Director, Business Affairs and was
appointed Senior Vice President, Theatre Operations in October 2003. Previous to
that Mr. Welton was Senior Vice President, Business Affairs, a position he held
since September 2001. Prior to joining us, Mr. Welton was an associate lawyer at
Stikeman, Elliot from 1994 until his employment with the Company.
KATHRYN A. GAMBLE joined us in 2001 as Vice President, Finance and
Controller. Prior to joining us, Ms. Gamble served as Vice President, Finance
and Chief Financial Officer of an Internet company, Healthyconnect.com Inc. from
2000 until her employment with the Company. From 1996 to 2000, Ms. Gamble served
as Vice President and Chief Financial Officer of Med-Emerg International Inc., a
healthcare company. Ms. Gamble is a member of the Canadian Institute of
Chartered Accountants.
EDWARD MACNEIL joined us in 1994 as Director, Taxation & Treasury and was
appointed Vice President, Finance, Special Projects in 2001. From 1999 to 2001,
Mr. MacNeil held the position of Director and Senior Vice President, Digital
Projection Limited, a former IMAX subsidiary. Prior to joining us, Mr. MacNeil
was a Taxation Manager at PricewaterhouseCoopers LLP. Mr. MacNeil is a member of
the Canadian Institute of Chartered Accountants.
EMPLOYMENT CONTRACTS
Our employment contracts with our two chief executive officers, Mr.
Wechsler and Mr. Gelfond, are summarized in our management proxy circular which
is incorporated by reference into this prospectus. Both agreements were renewed
in April 2002 for a two year period on substantially the same terms. Each
executive will receive a base salary of $500,000 per year, plus a bonus of up to
two times salary. The bonus is at the discretion of our board of directors and
will be based upon our success in achieving the goals and objectives set by our
board after consultation with the two executives. Mr. Wechsler and Mr. Gelfond
will also each be entitled to stock options expiring April 2012 for 532,000
common shares at an exercise price of $4.85 per share and stock options expiring
June 2012 for 68,000 common shares at an exercise price of $7.00 per share.
43
THE EXCHANGE OFFER
GENERAL
In connection with the issuance of the old notes, we and the subsidiary
guarantors entered into a registration rights agreement, dated December 4, 2003,
with the initial purchasers of the old notes. The following contains a summary
of the provisions of the registration rights agreement. It does not contain all
of the information that may be important to you. We refer you to the
registration rights agreement, which has been filed as an exhibit to the
registration statement of which this prospectus is a part.
Under the registration rights agreement, we and the subsidiary guarantors
have agreed to (1) file with the Securities and Exchange Commission, or the SEC,
the registration statement of which this prospectus is a part with respect to a
registered offer to exchange the old notes for the notes, (2) use reasonable
best efforts to have the registration statement declared effective at the
earliest possible time and (3) use reasonable best efforts to complete the
exchange offer within 30 business days after the registration statement is
declared effective. We will keep the exchange offer open for the period required
by applicable law, but in any event for at least 20 business days after the date
notice of the exchange offer is mailed to holders of the old notes. We were not
able to have the registration statement declared effective by the SEC within 180
days after the issuance of the old notes and, therefore, under the registration
rights agreement we must pay special interest on the old notes until the
registration statement is declared effective. From the 180th day after the
issuance of the old notes, special interest accrues in the amount of $0.05 per
week per $1,000 in principal amount of old notes for the first 90 days and
increases by an additional $0.05 per week per $1,000 in principal amount of old
notes for each subsequent 90-day period during which the registration statement
has not been declared effective, up to a maximum amount of special interest of
$0.50 per week per $1,000 in principal amount of old notes.
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, all old notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the expiration date will be
accepted for exchange. Notes will be issued in exchange for an equal principal
amount of outstanding old notes accepted in the exchange offer. Old notes may be
tendered only in integral multiples of $1,000. This prospectus, together with
the letter of transmittal, is being sent to all holders as of October 4, 2004.
The exchange offer is not conditioned upon any minimum principal amount of old
notes being tendered for exchange. However, the obligation to accept old notes
for exchange pursuant to the exchange offer is subject to certain customary
conditions as set forth herein under "-- Conditions."
Old notes shall be deemed to have been accepted as validly tendered when,
as and if we have given oral or written notice thereof to U.S. Bank National
Association, the exchange agent. The exchange agent will act as agent for the
tendering holders of old notes for the purposes of receiving the notes and
delivering notes to such holders.
Based on interpretations by the Staff of the SEC as set forth in no-action
letters issued to third parties (including Exxon Capital Holdings Corporation
(available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5,
1991), K-III Communications Corporation (available May 14, 1993) and Shearman &
Sterling (available July 2, 1993)), we believe that the notes issued pursuant to
the exchange offer may be offered for resale, resold and otherwise transferred
by any holder thereof (other than any such holder that is a broker-dealer or an
"affiliate" of us within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that:
- such notes are acquired in the ordinary course of business;
- at the time of the commencement of the exchange offer such holder is not
participating or engaged in, does not intend to participate or engage in,
and has no arrangement or understanding with any person to participate
in, a distribution of such notes; and
- such holder is not engaged in, and does not intend to engage in, a
distribution of such notes.
44
We have not sought, and do not intend to seek, a no-action letter from the
SEC with respect to the effects of the exchange offer, and we cannot assure you
that the Staff of the SEC would make a similar determination with respect to the
notes as it has in such no-action letters.
By tendering old notes in exchange for notes and executing the letter of
transmittal, each holder will represent to us that:
- any notes to be received by it will be acquired in the ordinary course of
business;
- it has no arrangements or understandings with any person to participate
in the distribution of the old notes or notes within the meaning of the
Securities Act; and
- it is not our "affiliate" as defined in Rule 405 under the Securities
Act.
If such holder is a broker-dealer, it will also be required to represent
that the old notes were acquired as a result of market-making activities or
other trading activities and that it will deliver a prospectus in connection
with any resale of notes. See "Plan of Distribution." Each holder, whether or
not it is a broker-dealer, shall also represent that it is not acting on behalf
of any person that could not truthfully make any of the foregoing
representations contained in this paragraph. If a holder of old notes is unable
to make the foregoing representations, such holder may not rely on the
applicable interpretations of the Staff of the SEC and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction unless such sale is made
pursuant to an exemption from such requirements.
Each broker-dealer that receives notes for its own account in exchange for
old notes where such notes were acquired by such broker-dealer as a result of
market making activity or other trading activity, must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act and that it
has not entered into any arrangement or understanding with us or an affiliate of
ours to distribute the notes in connection with any resale of such notes. See
"Plan of Distribution."
Upon consummation of the exchange offer, any old notes not tendered will
remain outstanding and continue to accrue interest but, subject to certain
limited exceptions, holders of old notes who do not exchange their old notes for
notes in the exchange offer will no longer be entitled to registration rights
and will not be able to offer or sell their old notes, unless such old notes are
subsequently registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Subject to limited exceptions, we will have no
obligation to effect a subsequent registration of the old notes.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The expiration date shall be November 4, 2004 unless we, in our sole
discretion, extend the exchange offer, in which case the expiration date shall
be the latest date to which the exchange offer is extended.
To extend the expiration date, we will notify the exchange agent of any
extension by oral or written notice and will notify the holders of old notes by
means of a press release or other public announcement prior to 9:00 a.m., New
York City time, on the next business day after the previously scheduled
expiration date. Such announcement may state that we are extending the exchange
offer for a specified period of time.
We reserve the right:
- to delay acceptance of any old notes in the event that the exchange offer
is extended, to extend the exchange offer or to terminate the exchange
offer and not accept any old notes for exchange if any of the conditions
set forth under "-- Conditions" shall have occurred and shall not have
been waived by us prior to the expiration date; or
- to amend the terms of the exchange offer in any manner deemed by us to be
advantageous to the holders of the old notes.
45
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice to the exchange
agent and we will also notify holders of old notes by means of a press release
or other public announcement. If the exchange offer is amended in a manner
determined by us to constitute a material change, we will disclose such
amendment by means of a prospectus supplement.
Without limiting the manner in which we may choose to make public
announcement of any delay, extension, amendment or termination of the exchange
offer, we shall have no obligations to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
INTEREST ON THE NOTES
The notes will accrue interest at the rate of 9 5/8% per annum from the
last interest payment date on which interest was paid on the old notes
surrendered in exchange therefor or, if no interest has been paid on such old
notes, from the issue date of such old notes, provided, that if old notes are
surrendered for exchange on or after a record date for an interest payment date
that will occur on or after the date of such exchange and as to which interest
will be paid, interest on the new notes received in exchange therefor will
accrue from the date of such interest payment date. Interest on the notes is
payable on June 1 and December 1, beginning on June 1, 2004.
PROCEDURES FOR TENDERING
To tender in the exchange offer, a holder must complete, sign and date the
letter of transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the letter of transmittal, and mail or otherwise
deliver such letter of transmittal or such facsimile, together with any other
required documents, to the exchange agent prior to 5:00 p.m., New York City
time, on the expiration date. In addition, either:
- certificates of such old notes must be received by the exchange agent
along with the letter of transmittal; or
- a timely confirmation of a book-entry transfer of such old notes, if such
procedure is available, into the exchange agent's account at the
book-entry transfer facility, The Depository Trust Company, pursuant to
the procedure for book-entry transfer described below, must be received
by the exchange agent prior to the expiration date with the applicable
letter of transmittal; or
- the holder must comply with the guaranteed delivery procedures described
below.
The method of delivery of old notes, letters of transmittal and all other
required documents is at the election and risk of the noteholders. If such
delivery is by mail, it is recommended that registered mail, properly insured,
with return receipt requested, be used. In all cases, sufficient time should be
allowed to assure timely delivery. No old notes, letters of transmittal or other
required documents should be sent to us. Delivery of all old notes, if
applicable, letters of transmittal and other documents must be made to the
exchange agent at its address set forth in the letter of transmittal. Holders
may also request their respective brokers, dealers, commercial banks, trust
companies or nominees to effect such tender for such holders.
The tender by a holder of old notes will constitute an agreement between
such holder and us in accordance with the terms and subject to the conditions
set forth herein and in the applicable letter of transmittal. Any beneficial
owner whose old notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who wishes to tender should contact
such registered holder promptly and instruct such registered holder to tender on
its behalf.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
46
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended (referred to in
this prospectus as the "Exchange Act"), or an eligible institution unless the
old notes tendered pursuant thereto are tendered (1) by a registered holder of
old notes who has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the letter of transmittal or (2) for the
account of an eligible institution.
If a letter of transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such person should so indicate
when signing, and unless waived by us, evidence satisfactory to us of their
authority to so act must be submitted with such letter of transmittal.
All questions as to the validity, form, eligibility, time of receipt and
withdrawal of the tendered old notes will be determined by us in our sole
discretion, which determination will be final and binding. We reserve the
absolute right to reject any and all old notes not properly tendered or any old
notes which, if accepted, would, in the opinion of counsel for us, be unlawful.
We also reserve the absolute right to waive any irregularities or conditions of
tender as to particular old notes. We will not waive any condition of the offer
with respect to an individual holder unless we waive that condition for all
holders. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old notes must be cured within such time as we shall
determine. Neither we, the exchange agent nor any other person shall be under
any duty to give notification of defects or irregularities with respect to
tenders of old notes, nor shall any of them incur any liability for failure to
give such notification. Tenders of old notes will not be deemed to have been
made until such irregularities have been cured or waived. Any old note received
by the exchange agent that is not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned without cost to
such holder by the exchange agent, unless otherwise provided in the letter of
transmittal, promptly following the expiration date.
In addition, we reserve the right, in our sole discretion, subject to the
provisions of the indenture pursuant to which the notes are issued:
- to purchase or make offers for any old notes that remain outstanding
subsequent to the expiration date or, as described under "-- Conditions,"
to terminate the exchange offer;
- to redeem old notes as a whole or in part at any time and from time to
time, as described under "Description of the Notes -- Optional
Redemption;" and
- to the extent permitted under applicable law, to purchase old notes in
the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers could differ from the terms of
the exchange offer.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NOTES
As described below, all old notes properly tendered for exchange will
either be exchanged for notes or will be returned promptly after the termination
or withdrawal of the exchange offer. For purposes of the exchange offer, old
notes shall be deemed to have been accepted as validly tendered for exchange
when, as and if we have given oral or written notice thereof to the exchange
agent. For each old note accepted for exchange, the holder of such old note will
receive a new note having a principal amount equal to that of the surrendered
old note.
In all cases, issuance of notes for old notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the exchange agent of:
- certificates for such old notes or a timely book-entry confirmation of
such old notes into the exchange agent's account at the book-entry
transfer facility;
- a properly completed and duly executed letter of transmittal; and
- all other required documents.
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If any tendered old notes are not accepted for any reason described in the
terms and conditions of the exchange offer (including the termination or
withdrawal of the exchange offer), such unaccepted or such nonexchanged old
notes will be returned promptly without expense to the tendering holder thereof
(if in certificated form) or credited to an account maintained with such
book-entry transfer facility after the expiration or termination of the exchange
offer.
BOOK-ENTRY TRANSFER
The exchange agent has established an account with respect to the old notes
at the book-entry transfer facility for purposes of the exchange offer. Any
financial institution that is a participant in the book-entry transfer
facility's systems may make book-entry delivery of old notes by causing the
book-entry transfer facility to transfer such old notes into the exchange
agent's account at the book-entry transfer facility in accordance with such
book-entry transfer facility's procedures for transfer. However, although
delivery of old notes may be effected through book-entry transfer at the
book-entry transfer facility, the letter of transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the exchange agent at the address
set forth in the letter of transmittal on or prior to the expiration date or the
guaranteed delivery procedures described below must be complied with.
EXCHANGING BOOK-ENTRY NOTES
The exchange agent and the book-entry transfer facility have confirmed that
any financial institution that is a participant in the book-entry transfer
facility may utilize the book-entry transfer facility Automated Tender Offer
Program, or ATOP, procedures to tender old notes.
Any participant in the book-entry transfer facility may make book-entry
delivery of old notes by causing the book-entry transfer facility to transfer
such old notes into the exchange agent's account in accordance with the
book-entry transfer facility's ATOP procedures for transfer. However, the
exchange for the old notes so tendered will only be made after a book-entry
confirmation of the book-entry transfer of old notes into the exchange agent's
account, and timely receipt by the exchange agent of an agent's message and any
other documents required by the letter of transmittal. The term "agent's
message" means a message, transmitted by the book-entry transfer facility and
received by the exchange agent and forming part of a book-entry confirmation,
which states that the book-entry transfer facility has received an express
acknowledgment from a participant tendering old notes that are the subject of
such book-entry confirmation that such participant has received and agrees to be
bound by the terms of the letter of transmittal, and that we may enforce such
agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
Holders of old notes whose certificates are not immediately available, or
who are unable to deliver the required confirmations and other documents in a
timely manner on or prior to the expiration date, may effect a tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives by facsimile
transmission, mail or hand delivery from such eligible institution a
properly completed and duly executed letter of transmittal and notice of
guaranteed delivery, substantially in the form provided by us, which:
(i) sets forth the name and address of the holder of old notes and the
amount of old notes tendered;
(ii) states that the tender is being made thereby; and
(iii) guarantees that within three New York Stock Exchange, or NYSE,
trading days after the date of execution of the notice of
guaranteed delivery, the certificates for all physically tendered
old notes, in proper form for transfer, or a book-entry
confirmation, as the case
48
may be, and any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent; and
- the certificates for all physically tendered old notes, in proper form
for transfer, or a book-entry confirmation, as the case may be, and all
other documents required by the letter of transmittal are received by the
exchange agent within three NYSE trading days after the date of execution
of the notice of guaranteed delivery.
WITHDRAWAL OF TENDERS
Tenders of old notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the expiration date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be received by the exchange agent prior to 5:00 p.m.,
New York City time, on the expiration date at the address set forth in the
letter of transmittal. Any such notice of withdrawal must:
- specify the name of the person having tendered the old notes to be
withdrawn;
- identify the old notes to be withdrawn, including the principal amount of
such old notes;
- in the case of old notes tendered by book-entry transfer, specify the
number of the account at the book-entry transfer facility from which the
old notes were tendered and specify the name and number of the account at
the book-entry transfer facility to be credited with the withdrawn old
notes and otherwise comply with the procedures of such facility;
- contain a statement that such holder is withdrawing its election to have
such old notes exchanged;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such old notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer to have the trustee with respect to the old notes
register the transfer of such old notes in the name of the person
withdrawing the tender; and
- specify the name in which such old notes are registered, if different
from the person who tendered such old notes.
All questions as to the validity, form, eligibility and time of receipt of
such notice will be determined by us, which determination shall be final and
binding on all parties. Any old notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the exchange offer. Any old
notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the tendering holder thereof without cost to such
holder, in the case of physically tendered old notes, or credited to an account
maintained with the book-entry transfer facility for the old notes promptly
after withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn old notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering" and "-- Book-Entry
Transfer" above at any time on or prior to 5:00 p.m., New York City time, on the
expiration date.
CONDITIONS
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue notes in exchange for, any old
notes and may terminate or amend the exchange offer if at any time prior to 5:00
p.m., New York City time, on the expiration date, we determine that the exchange
offer violates applicable law or any order of any governmental agency or court
of competent jurisdiction.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our
reasonable discretion. All such conditions must be satisfied or waived by us, as
applicable, at or before the expiration of the exchange offer.
49
In addition, we will not accept for exchange any old notes tendered, and no
notes will be issued in exchange for any such old notes, if at such time any
stop order shall be threatened or in effect with respect to the registration
statement of which this prospectus constitutes a part or the qualification of
the indenture under the Trust Indenture Act of 1939, as amended. We are required
to use our reasonable best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the earliest
possible time.
EXCHANGE AGENT
U.S. Bank National Association has been appointed as exchange agent for the
exchange offer. Questions and requests for assistance and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to the exchange agent as provided in the letter of transmittal.
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the exchange offer will be
borne by us. The principal solicitation for tenders pursuant to the exchange
offer is being made by mail; however, additional solicitations may be made by
telegraph, telephone, telecopy or in person by our officers and regular
employees.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will, however, pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection
therewith. We may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of the prospectus and related documents to the beneficial owners of the
old notes, and in handling or forwarding tenders for exchange.
The expenses to be incurred by us in connection with the exchange offer
will be paid by us, including fees and expenses of the exchange agent and
trustee and accounting, legal, printing and related fees and expenses.
We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. If, however, notes or old notes for
principal amounts not tendered or accepted for exchange are to be registered or
issued in the name of any person other than the registered holder of the old
notes tendered, or if tendered old notes are registered in the name of any
person other than the person signing the letter of transmittal, or if a transfer
tax is imposed for any reason other than the exchange of old notes pursuant to
the exchange offer, then the amount of any such transfer taxes imposed on the
registered holder or any other persons will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the letter of transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who do not exchange their old notes for notes pursuant
to the exchange offer will continue to be subject to the restrictions on
transfer of such old notes as set forth in the legend thereon as a consequence
of the issuance of the old notes pursuant to exemptions from, or in transactions
not subject to, the registration requirements of the Securities Act and
applicable state securities laws. The old notes may not be offered, sold or
otherwise transferred, except in compliance with the registration requirements
of the Securities Act, pursuant to an exemption from registration under the
Securities Act or in a transaction not subject to the registration requirements
of the Securities Act, and in compliance with applicable state securities laws.
We do not currently anticipate that we will register the old notes under the
Securities Act. To the extent that old notes are tendered and accepted in the
exchange offer, the trading market for untendered and tendered but unaccepted
old notes could be adversely affected.
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DESCRIPTION OF NEW CREDIT FACILITY
On February 6, 2004, we entered into a loan agreement for a secured
revolving credit facility with Congress Financial Corporation (Canada). The new
credit facility is a three-year revolving credit facility with yearly renewal
options, permitting maximum aggregate borrowings of $20.0 million, subject to a
borrowing base based on the accounts receivable and certain reserves. Borrowings
under the new credit facility are available by U.S. prime rate loans, Canadian
prime rate loans, Libor rate loans and letters of credit. Interest under the
credit facility will be charged on a sliding scale that depends on the manner of
borrowing and the level of excess availability.
IMAX Corporation is the borrower under the new credit facility, which is
guaranteed by IMAX U.S.A. Inc., IMAX II U.S.A. Inc. and 1329507 Ontario Inc.,
which holds title, as nominee, to the real estate owned by us in Mississauga,
Ontario. The new credit facility is secured by a first priority security
interest in all of the current assets of IMAX Corporation and the aforementioned
guarantors, including IMAX Corporation's ownership interest in its subsidiaries.
Amounts borrowed under the credit facility will constitute secured indebtedness
and will effectively rank senior to the notes to the extent of the value of the
assets securing such indebtedness.
The new credit facility contains typical affirmative and negative
covenants, including covenants that restrict our ability to:
- incur certain additional indebtedness;
- make certain loans, investments or guarantees;
- pay dividends;
- make certain asset sales;
- incur certain liens or other encumbrances;
- conduct certain transactions with affiliates; and
- engage in certain consolidation or amalgamation transactions, or
dissolve.
In addition, the new credit facility contains customary events of default,
including upon an acquisition or a change of control that has a material adverse
effect on our financial condition.
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DESCRIPTION OF THE NOTES
Set forth below is a summary of certain provisions of the new notes offered
pursuant to this prospectus (the "Notes"). The Notes will be issued pursuant to
an indenture (the "Indenture"), dated as of December 4, 2003, by and among the
Company, the Guarantors and U.S. Bank National Association, as trustee (the
"Trustee"). The following summaries of certain provisions of the Indenture and
are summaries only, do not purport to be complete and are qualified in their
entirety by reference to all of the provisions of the Indenture. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned to them in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). Wherever particular provisions of the Indenture are referred to in this
summary, such provisions are incorporated by reference as a part of the
statements made and such statements are qualified in their entirety by such
reference. A copy of the Indenture is filed as an exhibit to the registration
statement of which this prospectus forms a part and may be obtained from the
Trustee upon request. For purposes of this summary, the term "Company" refers
only to IMAX Corporation and not to any of its subsidiaries.
The form and terms of the Notes are substantially identical to the terms of
the old notes, and evidence the same indebtedness as the old notes, except that
the Notes:
- will be registered under the Securities Act, and, consequently, will be
freely tradeable by persons not affiliated with us;
- will not bear any legend restricting transfer under the Securities Act;
- will not be entitled to the rights which are applicable to the old notes
under the registration rights agreement;
- will not contain provisions relating to the payment of special interest
under circumstances related to the timing of the exchange offer; and
- will bear a different CUSIP number from the old notes.
The Notes will be issued solely in exchange for an equal principal amount
of the old notes. As of the date of this prospectus, $160.0 million aggregate
principal amount of the old notes is outstanding.
GENERAL
On December 4, 2003, IMAX Corporation issued $160,000,000 aggregate
principal amount of old notes due December 1, 2010. Pursuant to this prospectus,
IMAX Corporation will issue up to $160,000,000 aggregate principal amount of
Notes due December 1, 2010 in the exchange offer.
The Notes are senior, unsecured, general obligations of the Company,
ranking equally in right of payment with all other senior, unsecured obligations
of the Company. We will initially issue $160.0 million aggregate principal
amount of Notes, which will mature on December 1, 2010. The Indenture provides,
in addition to the $160.0 million aggregate principal amount of Notes issued on
the Issue Date, for the issuance of additional Notes having identical terms and
conditions to the Notes offered hereby (the "Additional Notes"), subject to
compliance with the terms of the Indenture, including the covenant "Limitation
on Incurrence of Additional Indebtedness." The aggregate principal amount of
Notes and Additional Notes will be unlimited in aggregate principal amount
outstanding. Any such Additional Notes would be issued on the same terms as the
Notes and would constitute part of the same series of securities as the Notes
and would vote together as one series on all matters with respect to the Notes.
All references to Notes herein includes the Additional Notes, except as stated
otherwise. The Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and integral multiples thereof.
The term "Subsidiaries," as used herein, does not include Unrestricted
Subsidiaries. As of the date of the Indenture, none of our Subsidiaries were
Unrestricted Subsidiaries. However, under certain circumstances, we will be able
to designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to the restrictive covenants set
forth in the Indenture.
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The Notes will bear interest at the rate of 9 5/8% per annum from December
4, 2003 or from the most recent Interest Payment Date to which interest has been
paid or provided for, payable semi-annually on June 1 and December 1 of each
year, commencing June 1, 2004, to the persons in whose names such Notes are
registered at the close of business on the May 15 or November 15 immediately
preceding such Interest Payment Date. The Notes will bear interest on overdue
principal and premium, if any, and, to the extent permitted by law, overdue
interest at the rate of 10 5/8% per annum. Interest will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be presented for registration of transfer or exchange, at the
office or agency of the Company maintained for such purpose, which office or
agency shall be maintained in the Borough of Manhattan, The City of New York,
except as set forth below. At the option of the Company, payment of interest may
be made by check mailed to the Holders of the Notes at the addresses set forth
upon the registry books of the Company. No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. Until otherwise designated by the Company, the
Company's office or agency will be the corporate trust office of the Trustee
presently located at the office of the Trustee in the Borough of Manhattan, The
City of New York.
NOTE GUARANTEES
The Notes will be guaranteed, jointly and severally, by all of the North
American Subsidiaries of the Company. Each Note Guarantee will be a general
unsecured obligation of the Guarantor and will be equal in right of payment to
any future unsecured, unsubordinated Indebtedness of the Guarantor. The
obligations of each Guarantor under its Note Guarantee will be limited as
necessary to prevent that Note Guarantee from constituting a fraudulent
conveyance under applicable law. See "Risk Factors -- Risks Related to the
Notes -- Applicable statutes allow courts, under specific circumstances, to void
the guarantees of the notes provided by certain of our subsidiaries."
If the Company or any of its Subsidiaries acquires or creates another North
American Subsidiary on or after the date of the Indenture, then that newly
acquired or created North American Subsidiary must become a Guarantor and
execute a supplemental indenture.
Subject to compliance with the covenants described under "-- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness" and
"-- Limitation on Liens Securing Indebtedness" below, the Guarantors can incur,
assume or acquire Indebtedness that will be effectively senior to the Note
Guarantees to the extent of the assets securing such Indebtedness.
OPTIONAL REDEMPTION
The Company will not have the right to redeem any Notes prior to December
1, 2007. The Notes will be redeemable for cash at the option of the Company, in
whole or in part, at any time on or after December 1, 2007, upon not less than
30 days nor more than 60 days notice to each holder of Notes, at the following
redemption prices (expressed as percentages of the principal amount) if redeemed
during the 12-month period commencing December 1 of the years indicated below,
in each case (subject to the right of Holders of record on a Record Date to
receive interest due but not yet paid on an Interest Payment Date that is on or
prior to such Redemption Date) together with accrued and unpaid interest thereon
to the Redemption Date:
YEAR PERCENTAGE
---- ----------
2007........................................................ 104.813%
2008........................................................ 102.406%
2009 and thereafter......................................... 100.000%
53
Until December 1, 2006 upon a Qualified Equity Offering, up to 35% of the
aggregate principal amount of the Notes issued pursuant to the Indenture may be
redeemed at the option of the Company within 90 days of such Qualified Equity
Offering, on not less than 30 days, but not more than 60 days, notice to each
Holder of the Notes to be redeemed, with cash from the Net Cash Proceeds of such
Qualified Equity Offering, at 109.625% of the principal amount thereof (subject
to the right of Holders of record on a Record Date to receive interest due but
not yet paid on an Interest Payment Date that is on or prior to such Redemption
Date) together with accrued and unpaid interest thereon to the date of
redemption; provided, however, that immediately following such redemption not
less than 65% of the aggregate principal amount of the Notes issued on the Issue
Date remain outstanding.
The Company also may, at its option, redeem the Notes, in whole but not in
part, at a redemption price equal to 100% of the principal amount of the Notes,
together with accrued and unpaid interest to the redemption date, if the Company
has become or would become obligated to pay, on the next date on which any
amount would be payable under or with respect to the Notes, any Additional
Amounts as a result of any change in or amendment to the laws (or any
regulations promulgated thereunder) of Canada (or any political subdivision or
taxing authority thereof or therein), or any change in or amendment to any
official position regarding the application or interpretation of such laws or
regulations, which change or amendment is announced or becomes effective on or
after November 19, 2003. See "-- Additional Amounts."
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
The Notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30
days and not more than 60 days prior to the date fixed for redemption to the
Holder of each Note to be redeemed to such Holder's last address as then shown
upon the registry books of the Company. Any notice which relates to a Note to be
redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a new Note or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after the
date of redemption, interest will cease to accrue on the Notes or portions
thereof called for redemption, unless the Company defaults in the payment
thereof.
CERTAIN COVENANTS
OFFER TO REPURCHASE NOTES UPON A CHANGE OF CONTROL
The Indenture provides that in the event that a Change of Control has
occurred, the Company shall make an irrevocable and unconditional offer (the
"Change of Control Offer") to repurchase all or any part of any Notes then
outstanding (provided, that the principal amount of such Notes must be $1,000 or
an integral multiple thereof) on a date (the "Change of Control Purchase Date")
that is no later than 60 Business Days after the occurrence of such Change of
Control, at a cash price equal to 101% of the principal amount thereof (the
"Change of Control Purchase Price"), together with accrued and unpaid interest
to the Change of Control Purchase Date. The Change of Control Offer shall be
made within 10 Business Days following a Change of Control and shall remain open
for 30 Business Days following its commencement (the "Change of Control Offer
Period"). Upon expiration of the Change of Control Offer Period, the Company
promptly shall purchase all Notes properly tendered in response to the Change of
Control Offer.
As used herein, a "Change of Control" means (i) any merger, amalgamation or
consolidation of the Company with or into any person or any sale, lease transfer
or other conveyance, whether direct or indirect, of all or substantially all of
the assets of the Company, on a consolidated basis, in one transaction or a
series of related transactions, if, immediately after giving effect to such
transaction(s), any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act,
54
whether or not applicable) (other than an Excluded Person, which as defined
herein includes Messrs. Bradley J. Wechsler and Richard L. Gelfond, or their
Related Parties) is or becomes the "beneficial owner," directly or indirectly,
of more than 50% of the total voting power in the aggregate normally entitled to
vote in the election of directors, managers, or trustees, as applicable, of the
transferee(s) or surviving entity or entities, (ii) any "person" or "group" (as
such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act, whether or not applicable) (other than an Excluded Person) is or becomes
the "beneficial owner," directly or indirectly, of more than 50% of the total
voting power in the aggregate of all classes of Capital Stock of the Company
then outstanding normally entitled to vote in elections of directors, or (iii)
during any period of 12 consecutive months after the Issue Date, individuals who
at the beginning of any such 12-month period constituted the Board of Directors
of the Company (together with any new directors whose election by such Board or
whose nomination for election by the shareholders of the Company was approved by
a vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest) of all Notes so tendered and (iii) deliver to the Trustee Notes so
accepted together with an Officers' Certificate listing the Notes or portions
thereof being purchased by the Company. The Paying Agent promptly will pay the
Holders of Notes so accepted an amount equal to the Change of Control Purchase
Price (together with accrued and unpaid interest), and the Trustee promptly will
authenticate and deliver to such Holders a new Note equal in principal amount to
any unpurchased portion (but not including accrued but unpaid interest) of the
Note surrendered. Any Notes not so accepted will be delivered promptly by the
Company to the Holder thereof. The Company publicly will announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Purchase Date.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management.
The phrase "all or substantially all" of the assets of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Company has occurred.
No assurance can be given that the Company will have available sufficient
funds to acquire Notes tendered pursuant to a Change of Control Offer. In the
event that the Company is required to purchase outstanding Notes upon the
occurrence of a Change of Control, the Company expects that it would seek third
party financing to the extent that it does not have available funds to meet its
purchase obligations. There can be no assurance that the Company would be able
to obtain such financing.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws. To the extent that the provisions of any securities laws or
regulations conflict with the terms hereof, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the Indenture or the Notes by virtue thereof.
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS
The Indenture provides that, except as set forth in this covenant, the
Company will not, and will not permit any of its Subsidiaries to incur, directly
or indirectly, any Indebtedness (including Acquired Indebtedness) other than
Permitted Indebtedness.
The immediately preceding paragraph will not prohibit the Company or any
Guarantor from incurring Indebtedness if (i) no Default or Event of Default
shall have occurred and be continuing at the time of, or
55
would occur after giving effect on a pro forma basis to, such incurrence of
Indebtedness and (ii) on the date of incurrence of such Indebtedness (the
"Incurrence Date"), after giving effect on a pro forma basis to such incurrence
and the use of proceeds thereof (including, if applicable, the Investment of
such proceeds in Cash Equivalents), the Consolidated Coverage Ratio of the
Company for the Reference Period immediately preceding the Incurrence Date would
be at least 2.0 to 1.0 (the "Debt Incurrence Ratio").
For purpose of determining compliance with this covenant, in the event an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness, or is entitled to be incurred pursuant to
the second paragraph of this covenant, the Company will be permitted to classify
such item of Indebtedness on the date of its incurrence and to reclassify such
item of Indebtedness as of the date of such reclassification in any manner that
complies with the Indenture.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, make any Restricted Payment if,
after giving effect to such Restricted Payment on a pro forma basis, (1) a
Default or an Event of Default shall have occurred and be continuing, (2) the
Company is not permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio in the "Limitation on Incurrence of
Additional Indebtedness" covenant, or (3) the aggregate amount of all Restricted
Payments made by the Company and its Subsidiaries, including after giving effect
to such proposed Restricted Payment, from and after the Issue Date, would exceed
the sum of (a) 50% of the aggregate Consolidated Net Income of the Company and
its Subsidiaries for the period (taken as one accounting period), commencing on
the first day of the first full fiscal quarter commencing after the Issue Date,
to and including the last day of the fiscal quarter ended immediately prior to
the date of each such calculation (or, in the event Consolidated Net Income for
such period is a deficit, then minus 100% of such deficit), (b) the aggregate
Net Cash Proceeds received by the Company from the sale of its Qualified Capital
Stock (including Qualified Capital Stock issued upon the exercise of options,
warrants, or rights to purchase Qualified Capital Stock) or options, warrants or
rights to purchase Qualified Capital Stock or of debt securities of the Company
that have been converted into Qualified Capital Stock (other than (i) to a
Subsidiary of the Company or (ii) to the extent applied in connection with a
Qualified Exchange) after the Issue Date, (c) an amount equal to the net
reduction in Investments (including by way of dividends, dispositions or
repayments, or the release of a guarantee constituting a Restricted Payment) by
the Company and its Subsidiaries subsequent to the Issue Date in any
Unrestricted Subsidiary, but only to the extent such amount is not included in
Consolidated Net Income, and (d) $20.0 million.
The immediately preceding paragraph, however, will not prohibit (w) so long
as no Default or Event of Default shall have occurred and be continuing or
should occur as a consequence thereof, any Refinancing of Indebtedness otherwise
permitted by clause (c) of the definition of "Permitted Indebtedness"; (x) the
repurchase of Capital Stock of the Company or options to purchase Capital Stock
of the Company from employees of the Company or any Subsidiary of the Company
pursuant to the forms of agreements under which employees may purchase or are
granted the option to purchase, shares of Capital Stock of the Company, (y) a
Qualified Exchange, or (z) the payment of any dividend on Capital Stock within
60 days after the date of its declaration if such dividend could have been made
on the date of such declaration in compliance with the foregoing provisions. The
full amount of any payment made pursuant to clauses (x) and (z) (but not
pursuant to clauses (w) or (y)) of the immediately preceding sentence will be
treated as Restricted Payments for purposes of calculating the aggregate amount
of Restricted Payments made pursuant to the immediately preceding paragraph.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, assume or suffer to
exist any consensual restriction on the ability of any Subsidiary of the Company
to pay dividends or make other distributions to or on behalf of, or to pay any
obligation to or on behalf of, or otherwise to transfer assets or property to or
on behalf of, or make or pay loans or advances to or on behalf of, the Company
or any Subsidiary of the Company, except
56
(a) restrictions imposed by the Notes or the Indenture or any other instrument
governing debt securities of the Company incurred in compliance with the
"Limitation on Additional Indebtedness" covenant that are not materially more
restrictive, taken as a whole, than those contained in the Notes and the
Indenture, (b) restrictions imposed by applicable law, (c) existing restrictions
under Indebtedness outstanding on the Issue Date, (d) restrictions under any
Acquired Indebtedness not incurred in violation of the Indenture or any
agreement relating to any property, asset, or business acquired by the Company
or any of its Subsidiaries, which restrictions are not applicable to any person,
other than the person acquired, or to any property, asset or business, other
than the property, assets and business so acquired, (e) any such restriction or
requirement imposed by Indebtedness incurred under paragraph (b) of the
definition of "Permitted Indebtedness" provided such restriction are not
materially more restrictive, taken as a whole, than customary provisions in
comparable financings, (f) restrictions with respect solely to a Subsidiary of
the Company imposed pursuant to a binding agreement which has been entered into
for the sale or disposition of all or substantially all of the Equity Interests
or assets of such Subsidiary, provided such restrictions apply solely to the
Equity Interests or assets of such Subsidiary which are being sold, (g)
customary restrictions on transfers of property contained in any security
agreement (including a Capital Lease Obligation) securing Indebtedness of the
Company or a Subsidiary otherwise permitted under the Indenture, (h) in
connection with and pursuant to permitted Refinancings, replacements of
restrictions imposed pursuant to clauses (a), (c) or (d) of this paragraph that
are not more restrictive than those being replaced and do not apply to any other
person or assets than those that would have been covered by the restrictions in
the Indebtedness so refinanced, and (i) customary limitations on dispositions or
distributions of assets or property that are subject to joint venture agreements
or similar arrangements. Notwithstanding the foregoing, neither (a) customary
provisions restricting subletting or assignment of any lease entered into in the
ordinary course of business, consistent with industry practice, nor (b) Liens
permitted under the terms of the Indenture shall in and of themselves be
considered a restriction on the ability of the applicable Subsidiary to transfer
such agreement or assets, as the case may be.
LIMITATION ON LIENS SECURING INDEBTEDNESS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, create, incur, assume or suffer to exist any Lien of any
kind, other than Permitted Liens, upon any of their respective assets now owned
or acquired on or after the Issue Date or upon any income or profits therefrom,
unless the Company provides, and causes its Subsidiaries to provide,
concurrently therewith, that the Notes are equally and ratably so secured. Any
such Lien thereby created in favor of the Notes will be automatically and
unconditionally released and discharged upon the release and discharge of the
Initial Lien to which it relates.
LIMITATION ON SALE OF ASSETS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, convey, sell, transfer, assign or otherwise dispose of,
directly or indirectly, any of its property, business or assets, including by
merger or consolidation (in the case of a Subsidiary of the Company), and
including any sale or other transfer or issuance of any Equity Interests of any
Subsidiary of the Company, whether by the Company or a Subsidiary or through the
issuance, sale or transfer of Equity Interests by a Subsidiary of the Company,
and including any sale and leaseback transaction, in a single transaction or
through a series of related transactions, for an aggregate consideration net of
out-of-pocket costs relating thereto (including without limitation, legal,
accounting and investment banking fees and sales commissions), in excess of $1.0
million (any of the foregoing, an "Asset Sale"), unless (1) within 12 months
after the date of such Asset Sale, an amount equal to the Net Cash Proceeds
therefrom is (a) applied to the optional redemption of the Notes in accordance
with the terms of the Indenture, (b) applied to the repurchase of the Notes
pursuant to an irrevocable, unconditional cash offer (the "Asset Sale Offer") to
repurchase Notes at a purchase price of 100% of the principal amount thereof
(the "Asset Sale Offer Price") together with accrued and unpaid interest to the
date of payment and to the repurchase or repayment of any Indebtedness that
ranks equally with the Notes that has similar provisions requiring the
repurchase or repayment of such Indebtedness as a result of the Asset Sale;
provided that the offer to repurchase the Notes and the repurchase and repayment
of such other Indebtedness shall be on a
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pro rata basis based upon the aggregate principal amount of Notes and such other
Indebtedness then outstanding or (c) (i) invested in assets and property (other
than notes, bonds, obligations and securities, except in connection with the
acquisition of a Subsidiary) which in the good faith reasonable judgment of the
Board of Directors will immediately constitute or be a part of a Related
Business of the Company or such Subsidiary (if it continues to be a Subsidiary)
immediately following such transaction or (ii) used to permanently reduce
Indebtedness permitted pursuant to paragraph (b) of the definition "Permitted
Indebtedness" (including that in the case of a revolver or similar arrangement
that makes credit available, such commitment is also permanently reduced by such
amount), (2) at least 75% of the total consideration received for such Asset
Sale or series of related Asset Sales consists of Cash or Cash Equivalents;
provided that the Company and its Subsidiaries may engage in Asset Sales for
consideration not in the form of cash or Cash Equivalents in amounts in excess
of that permitted in this clause (2), so long as (x) such excess consideration
is in the form of Fully Traded Common Stock, (y) the aggregate market value of
such Fully Traded Common Stock received by the Company and its Subsidiaries
(measured as of the date of receipt) from all Asset Sales in reliance on this
proviso since the date of the Indenture that has not been converted into cash or
Cash Equivalents does not exceed $10.0 million and (z) any Fully Traded Common
Stock that is converted into cash or Cash Equivalents shall be applied as
provided in this "Limitation on Sales of Assets" covenant, (3) no Default or
Event of Default shall have occurred and be continuing at the time of, or would
occur after giving effect, on a pro forma basis, to, such Asset Sale, and (4)
the Board of Directors of the Company determines in good faith that the Company
or such Subsidiary, as applicable, receives fair market value for such Asset
Sale.
The Indenture provides that an acquisition of Notes pursuant to an Asset
Sale Offer may be deferred beyond the 12 month period stipulated in "Limitation
on Sale of Assets" until the accumulated Net Cash Proceeds from Asset Sales not
applied to the uses set forth in clause (1)(b) of the immediately preceding
paragraph (the "Excess Proceeds") exceeds $10.0 million and that each Asset Sale
Offer shall remain open for 20 Business Days following its commencement (the
"Asset Sale Offer Period"). Upon expiration of the Asset Sale Offer Period, the
Company shall apply the Excess Proceeds plus an amount equal to accrued and
unpaid interest to the purchase of all Notes and other Indebtedness properly
tendered (on a pro rata basis if the Excess Proceeds are insufficient to
purchase all Notes and other Indebtedness so tendered) at the Asset Sale Offer
Price (together with accrued interest) or other applicable price for other
Indebtedness. To the extent that the aggregate amount of Notes tendered pursuant
to an Asset Sale Offer and other Indebtedness tendered pursuant to a similar
offer is less than the Excess Proceeds, the Company may use any remaining Net
Cash Proceeds for general corporate purposes as otherwise permitted by the
Indenture and following each Asset Sale Offer the Excess Proceeds amount shall
be reset to zero. For purposes of clause (2) of the immediately preceding
paragraph, total consideration received means the total consideration received
for such Asset Sales minus the amount of (a) Indebtedness which is not
Subordinated Indebtedness assumed by a transferee which assumption permanently
reduces the amount of Indebtedness outstanding on the Issue Date or permitted
pursuant to paragraph (b) of the definition "Permitted Indebtedness" (including
that in the case of a revolver or similar arrangement that makes credit
available, such commitment is so reduced by such amount) and (b) property that
within 30 days of such Asset Sale is converted into Cash or Cash Equivalents.
The Company and its Subsidiaries may undertake the following actions
without complying with the prior two paragraphs:
(i) the Company and its Subsidiaries may, in the ordinary course of
business, convey, sell, transfer, assign or otherwise dispose of inventory,
receivables and notes receivable acquired and held for resale in the
ordinary course of business;
(ii) the sale, lease, transfer or other conveyance of all or
substantially all of the assets of the Company, on a consolidated basis,
will be governed by the provisions described under the covenants "Offer to
Repurchase Notes Upon a Change of Control" and "Limitation on Merger, Sale
or Consolidation" and not by the provisions of this covenant;
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(iii) the Company and its Subsidiaries may sell or dispose of damaged,
worn out or other obsolete property in the ordinary course of business so
long as such property is no longer necessary for the proper conduct of the
business of the Company or such Subsidiary, as applicable;
(iv) the Company and its Subsidiaries may convey, sell, transfer,
assign or otherwise dispose of assets to the Company or a Subsidiary;
(v) the Company and its Subsidiaries may securitize their accounts
receivable under long term system leases;
(vi) the Company and its Subsidiaries may simultaneously exchange
property or assets for other property or assets, provided that the property
or assets received by the Company or Subsidiary have at least substantially
equal fair market value to the Company or Subsidiary as the property or
assets exchanged (as determined by the Board of Directors evidenced by a
Board Resolution filed with the Trustee) and will immediately constitute or
be part of a Related Business of the Company or such Subsidiary;
(vii) a Subsidiary may issue Equity Interests of such Subsidiary;
(viii) the Company may sell lease, transfer or otherwise convey,
including by means of a merger or consolidation, all or any part of its
motion simulation and attractions business, provided that it complies with
the requirements of clause (4) of the first paragraph of this covenant;
(ix) the Company and its Subsidiaries may sell or liquidate Cash
Equivalents; and
(x) the Company and its Subsidiaries may make Investments in Permitted
Joint Ventures that qualify as Permitted Investments pursuant to clause (l)
of the definition of Permitted Investments.
All Net Cash Proceeds from an Event of Loss shall be invested, used for
prepayment of Indebtedness, or used to repurchase Notes, all within the period
and as otherwise provided above in clause 1(a) or 1(b) of the first paragraph of
this section.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the Exchange
Act and the rules and regulations thereunder and all other applicable Federal
and state securities laws. To the extent that the provisions of any securities
laws or regulations conflict with the terms hereof, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations hereunder by virtue thereof.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture provides that neither the Company nor any of its Subsidiaries
will be permitted on or after the Issue Date to enter into or suffer to exist
any contract, agreement, arrangement or transaction with any Affiliate (an
"Affiliate Transaction"), or any series of related Affiliate Transactions,
(other than Exempted Affiliate Transactions) (i) unless it is determined that
the terms of such Affiliate Transaction are fair and reasonable to the Company,
and no less favorable to the Company than could have been obtained in an arm's
length transaction with a non-Affiliate and, (ii) if involving consideration to
either party in excess of $2.0 million, unless such Affiliate Transaction(s) is
evidenced by an Officers' Certificate addressed and delivered to the Trustee
certifying that such Affiliate Transaction(s) has been approved by a majority of
the members of the Board of Directors that are disinterested in such transaction
and (iii) if involving consideration to either party in excess of $10.0 million,
unless in addition the Company, prior to the consummation thereof, obtains a
written favorable opinion as to the fairness of such transaction to the Company
from a financial point of view from an independent investment banking firm of
national reputation in the United States.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture provides that the Company will not, directly or indirectly,
consolidate or amalgamate with or merge with or into another person or sell,
lease, transfer or otherwise convey all or substantially all of its assets
(computed on a consolidated basis), whether in a single transaction or a series
of related transactions, to another person or group of affiliated persons or
adopt a Plan of Liquidation, unless (i) either (a) the Company is the continuing
entity or (b) the resulting, surviving or transferee entity or,
59
in the case of a Plan of Liquidation, the entity which receives the greatest
value from such Plan of Liquidation is a corporation organized under the laws of
the United States of America, or any state thereof or the District of Columbia,
or Canada or any province or territory thereof and expressly assumes by
supplemental indenture all of the obligations of the Company in connection with
the Notes and the Indenture; (ii) no Default or Event of Default shall exist or
shall occur immediately after giving effect on a pro forma basis to such
transaction; and (iii) immediately after giving effect to such transaction on a
pro forma basis, the consolidated resulting, surviving or transferee entity or,
in the case of a Plan of Liquidation, the entity which receives the greatest
value from such Plan of Liquidation would immediately thereafter be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence
Ratio set forth in the "Limitation on Incurrence of Additional Indebtedness"
covenant.
Notwithstanding the previous paragraph, any Subsidiary may consolidate or
amalgamate with, merge into or transfer all or part of its property and assets
to the Company or another Guarantor.
Upon any consolidation, amalgamation or merger or any transfer of all or
substantially all of the assets of the Company or consummation of a Plan of
Liquidation in accordance with the foregoing, the successor corporation formed
by such consolidation or amalgamation or into which the Company is merged or to
which such transfer is made or, in the case of a Plan of Liquidation, the entity
which receives the greatest value from such Plan of Liquidation shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Indenture with the same effect as if such successor
corporation had been named therein as the Company, and the Company shall be
released from the obligations under the Notes and the Indenture except with
respect to any obligations that arise from, or are related to, such transaction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Company's interest in which constitutes all or
substantially all of the properties and assets of the Company shall be deemed to
be the transfer of all or substantially all of the properties and assets of the
Company.
LIMITATION ON STATUS AS INVESTMENT COMPANY
The Indenture prohibits the Company and its Subsidiaries from being
required to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or from otherwise becoming subject
to regulation under the Investment Company Act.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not permit any
Subsidiary to, directly or indirectly, enter into any Sale and Leaseback
Transaction unless (a) immediately after giving pro forma effect to such Sale
and Leaseback Transaction (the Attributable Value of such Sale and Leaseback
Transaction being deemed to be Indebtedness of the Company, if not otherwise
treated so pursuant to the definition of Indebtedness), the Company could incur
at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio
set forth in the covenant "Limitation on Incurrence of Additional Indebtedness,"
(b) such Sale and Leaseback Transaction complies with the covenant "Limitation
on Sale of Assets" and (c) the Company or such Subsidiary could incur a Lien to
secure Indebtedness in the amount of the Attributable Value of the Sale and
Leaseback Transaction without equally and ratably securing the Notes.
GUARANTEES
If the Company or any of its Subsidiaries acquires or creates another North
American Subsidiary on or after the date of the Indenture, then that newly
acquired or created North American Subsidiary must become a Guarantor and
execute a supplemental indenture.
The Company will not permit any of its Subsidiaries, directly or
indirectly, to Guarantee or pledge any assets to secure the payment of any other
Indebtedness of the Company or any Subsidiary thereof, other than Foreign
Subsidiaries, unless such Subsidiary is a Guarantor or simultaneously executes
and delivers a supplemental indenture providing for the Guarantee of the payment
of the Notes by such
60
Subsidiary, which Guarantee shall be senior or equal to such Subsidiary's
Guarantee of such other Indebtedness.
A Guarantor may not sell or otherwise dispose of all or substantially all
of its assets to, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving person), another person, other than the Company or
another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) the person acquiring the property in any such sale or
disposition or the person formed by or surviving any such consolidation
or merger (if other than the Guarantor) is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia or Canada or any province or territory thereof and
assumes all the obligations of that Guarantor under the Indenture, its
Note Guarantee and the Registration Rights Agreement pursuant to a
supplemental indenture satisfactory to the Trustee; or
(b) such sale or other disposition or consolidation or merger
complies with the covenant described above under the caption
"-- Limitation on Asset Sales."
The Note Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all of the
Capital Stock of a Guarantor to a Person that is not (either before or
after giving effect to such transaction) a Subsidiary of the Company, if
the sale of all such Capital Stock of that Guarantor complies with the
covenant described above under the caption "-- Limitation on Assets Sales;"
(2) if the Company properly designates any Subsidiary that is a
Guarantor as an Unrestricted Subsidiary under the Indenture; or
(3) solely in the case of a Note Guarantee created pursuant to the
second paragraph of this covenant, upon the release or discharge of the
Guarantee which resulted in the creation of such Note Guarantee pursuant to
this covenant "-- Guarantees," except a discharge or release by or as a
result of payment under such Guarantee.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all Holders of the Notes who so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement, which solicitation documents will be mailed to all Holders
of the Notes a reasonable amount of time prior to the expiration of such
solicitation.
REPORTS
The Company will file with the Trustee, to be provided to Holders of Notes,
within 15 days of the required date of filing with the Commission, copies of its
annual and quarterly reports and of the information, documents and reports which
the Company or any Subsidiary is required to file with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act. To the extent that the Company is
not subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission and provide to the Trustee, to be
provided to the holders of the Notes, at the same time as if it were subject to
such requirements, such annual and quarterly reports and such information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) which it would be
required to file with the Commission if it were subject to such requirements.
The Company will also make such reports available to prospective purchasers of
the Notes, securities analysts and broker-dealers upon their request.
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ADDITIONAL AMOUNTS
All amounts paid or credited by the Company under or with respect to the
Notes, or by any Guarantor pursuant to its Note Guarantee, will be made free and
clear of and without withholding or deduction for or on account of any present
or future tax, duty, levy, impost, assessment, or other governmental charge
imposed or levied by or on behalf of the Government of Canada or of any province
or territory thereof or by any authority or agency therein or thereof having
power to tax (hereinafter "Taxes"), unless the Company or such Guarantor, as the
case may be, is required to withhold or deduct Taxes by law or by the
interpretation or administration thereof by the relevant government authority or
agency. If the Company or any Guarantor is so required to withhold or deduct any
amount for or on account of Taxes from any payment or credit made under or with
respect to the Notes or Note Guarantees, the Company or such Guarantor will pay
such additional amounts (the "Additional Amounts") as may be necessary so that
the net payment or credit received by each owner of a beneficial interest in the
Notes (including Additional Amounts) after such withholding or deduction will
not be less than the amount the Holder or owner of a beneficial interest in the
Notes would have received if such Taxes had not been withheld or deducted;
provided that no Additional Amounts will be payable with respect to a payment or
credit made to an owner of a beneficial interest in the Notes (i) with whom the
Company does not deal at arm's length (within the meaning of the Income Tax Act
(Canada)) at the time of making such payment or credit, (ii) which is subject to
such Taxes by reason of its being connected with Canada or any province or
territory thereof otherwise than by the mere holding, use or ownership or deemed
holding, use or ownership of the Notes or the receipt of payments or credits or
enforcing any rights thereunder, (iii) which is subject to such Taxes by reason
of its failure to comply with any certification, identification, information,
documentation or other reporting requirement if compliance is required by law,
regulation, administrative practice or an applicable treaty as a precondition to
exemption from, or a reduction in the rate of deduction or withholding of, such
Taxes, (iv) which failed to duly and timely comply with a timely request by the
Company to provide information, documents, certification or other evidence
concerning such Holder's nationality, residence, entitlement to treaty benefits,
identity or connection with Canada or any political subdivision or authority
thereof, if and to the extent that due and timely compliance with such request
could have resulted in the reduction or elimination of any Taxes as to which
Additional Amounts would otherwise have been payable to such Holder of Notes but
for this clause (iv), (v) which is a fiduciary, a partnership or not the
beneficial owner of any payment on a Note, if and to the extent that any
beneficiary or settlor of such fiduciary, any partner of such partnership or the
beneficial owner of such payment (as the case may be) would not have been
entitled to receive Additional Amounts with respect to such payment if such
beneficiary, settlor, partner or beneficial owner had been the Holder of such
Note or (vi) any combination of the foregoing clauses (i) through (v) (in each
case referred to herein as an "Excluded Holder"). The Company or such Guarantor
will also (1) make such withholding or deduction and (2) remit the full amount
deducted or withheld to the relevant authority in accordance with and in the
time required by applicable law. The Company will furnish the Holders of the
Notes, within 30 days after the date the payment of any Taxes is due pursuant to
applicable law, certified copies of tax receipts evidencing such payment by the
Company, if reasonably available. In the event that the Company or such
Guarantor fails to remit any taxes in respect of which Additional Amounts are
payable, the Company or such Guarantor will indemnify and hold harmless each
owner of a beneficial interest in the Notes (other than an Excluded Holder) and
upon written request reimburse such owner of a beneficial interest in the Notes
for the amount of (i) any Taxes levied on and paid by, such owner of a
beneficial interest in the Notes as a result of payment made with respect to the
Notes (including penalties, interest and expenses arising from or with respect
to such Taxes) and (ii) any Taxes (including penalties, interest and expenses
arising from or with respect to such Taxes) imposed with respect to payment of
Additional Amounts or any reimbursement pursuant to this sentence.
At least 30 days prior to each date on which any payment under or with
respect to the Notes is due and payable, if the Company will be obligated to pay
Additional Amounts with respect to such payments, the Company will deliver to
the Trustee an Officers' Certificate stating the fact that such Additional
Amounts will be payable and the amounts so payable and setting forth such other
information necessary to
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enable the Trustee to pay such Additional Amounts to Holders or owners of a
beneficial interest in the Notes, as the case may be, on the payment date.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will define an Event of Default as:
(i) the failure by the Company to pay any installment of interest on
the Notes as and when the same becomes due and payable and the continuance
of any such failure for 30 days,
(ii) the failure by the Company to pay all or any part of the
principal, or premium, if any, on the Notes when and as the same becomes
due and payable at maturity, redemption, by acceleration or otherwise,
including, without limitation, payment of the Change of Control Purchase
Price or the Asset Sale Offer Price, or otherwise,
(iii) the failure by the Company or any Subsidiary to observe or
perform any other covenant or agreement contained in the Notes or the
Indenture and the continuance of such failure for a period of 30 days after
written notice is given to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least 25% in aggregate principal amount of
the Notes outstanding (except in the case of a failure to make a Change of
Control Offer, which shall constitute an Event of Default with such notice
requirement but without such passage of time requirement),
(iv) certain events of bankruptcy, insolvency or reorganization in
respect of the Company or any of its Subsidiaries,
(v) failure to perform or comply with the provisions described under
"Limitation on Merger, Sale or Consolidation,"
(vi) a default in Indebtedness of the Company or any of its
Subsidiaries with an aggregate principal amount in excess of $10.0 million
(a) resulting from the failure to pay principal or interest (after any
applicable grace period) or (b) as a result of which the maturity of such
Indebtedness has been accelerated prior to its stated maturity,
(vii) final unsatisfied judgments not covered by insurance aggregating
in excess of $10.0 million, at any one time rendered against the Company or
any of its Subsidiaries and not stayed, bonded or discharged within 60
days, and
(viii) except as permitted by the Indenture, any Note Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or
any person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Note Guarantee.
The Indenture provides that if a Default occurs and is continuing, the
Trustee must, within 90 days after the occurrence of such Default, give to the
Holders notice of such Default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv) above relating to the Company or any
Subsidiary), then in every such case, unless the principal of all of the Notes
shall have already become due and payable, either the Trustee or the Holders of
25% in aggregate principal amount of the Notes then outstanding, by notice in
writing to the Company (and to the Trustee if given by Holders) (an
"Acceleration Notice"), may declare all principal and premium, if any,
determined as set forth below, and accrued interest thereon to be due and
payable immediately. If an Event of Default specified in clause (iv), above,
relating to the Company or any Subsidiary occurs, all principal and premium, if
any, and accrued interest thereon will be immediately due and payable on all
outstanding Notes without any declaration or other act on the part of the
Trustee or the Holders. The Holders of a majority in aggregate principal amount
of Notes at the time outstanding generally are authorized to rescind such
acceleration if all existing Events of Default, other than the non-payment of
the principal of, premium, if any, and interest on the Notes which have become
due solely by such acceleration, have been cured or waived, except on default
with respect to any provision requiring the approval of the Holder of each
outstanding Note affected to amend.
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In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any default, except a default
with respect to any provision requiring a supermajority approval to amend, which
default may only be waived by such a supermajority, and except a default in the
payment of principal of or interest on any Note not yet cured or a default with
respect to any covenant or provision which cannot be modified or amended without
the consent of the Holder of each outstanding Note affected. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable security or indemnity. Subject to
all provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the Notes at the time outstanding will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture and the Company is required, upon
becoming aware of any default or Event of Default, to deliver to the Trustee a
statement specifying such default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may, at its option and at any time,
elect to have its obligations discharged with respect to the outstanding Notes
("Legal Defeasance"). Such Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented, and the
Indenture shall cease to be of further effect as to all outstanding Notes and
all Note Guarantees, except as to (i) rights of Holders to receive payments in
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due from the trust funds; (ii) the Company's obligations with
respect to such Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes, and the maintenance of an office or
agency for payment and money for security payments held in trust; (iii) the
rights, powers, trust, duties, and immunities of the Trustee, and the Company's
obligations in connection therewith; and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including nonpayment of principal,
interest or premium, if any, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, U.S. legal tender, U.S. Government Obligations or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such Notes on the stated date for
payment thereof or on the redemption date of such principal or installment of
principal of, premium, if any, or interest on such Notes, and the Holders of
Notes must have a valid, perfected, exclusive security interest in such trust;
(ii) in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (A) the Company has received from, or there has been
published by the Internal Revenue Service, a ruling or (B) since the date of the
Indenture, there has been a change in the applicable U.S. federal income tax
law, in either case to the effect that, and
64
based thereon such opinion of counsel shall confirm that, the Holders of such
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such Legal Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of such Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance had
not occurred; (iv) in the case of Legal Defeasance or Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in Canada
reasonably acceptable to the Trustee confirming that (A) the Holders of such
Notes will not recognize gain or loss for Canadian federal, provincial or
territorial income tax purposes as a result of such deposit, defeasance or
discharge and will be subject to Canadian federal, provincial and territorial
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such deposit, defeasance and discharge had not
occurred and (B) the interest, principal and other amounts paid or credited in
respect of such Notes will not be subject to Canadian withholding tax as a
result of such deposit, defeasance or discharge; (v) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or, in
the case of Legal Defeasance insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (vi) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under, the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vii) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of such Notes over any other creditors of
the Company or with the intent of defeating, hindering, delaying or defrauding
any other creditors of the Company or others; and (viii) the Company shall have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that the conditions precedent provided for in, in the case of the
Officers' Certificate, clauses (i) through (vii) and, in the case of the opinion
of counsel, clauses (i) (with respect to the validity and perfection of the
security interest), (ii), (iii), (iv) and (vi) of this paragraph have been
complied with.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of, premium, if any,
and interest on the Notes when due, then the obligations of the Company under
the Indenture will be revived and no such defeasance will be deemed to have
occurred.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company and the Trustee to
amend the Indenture or enter into a supplemental indenture without the consent
of any Holder to cure any ambiguity, defect or inconsistency in the Indenture;
comply with the provisions described under "Certain Covenants -- Limitation on
Merger, Sale or Consolidation" and "Certain Covenants -- Guarantees"; comply
with the requirements of the SEC in connection with the qualification of the
Indenture under the Trust Indenture Act; evidence and provide for the acceptance
of appointment of a successor Trustee; provide for the issuance of Additional
Notes in accordance with the Indenture; provide for uncertificated Notes in
addition to certificated Notes; comply with the requirements of the Trustee or
the Depositary; or make any change that does not adversely affect the rights of
any Holder in any material respect or that, in the good faith judgment of the
Board of Directors of the Company, would provide any additional benefit or
rights to the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding, the
Company and the Trustee are permitted to amend or supplement the Indenture or
any supplemental indenture or modify the rights of the Holders. Without the
consent of each Holder affected thereby, the Indenture may not be amended or
supplemented: (i) to change the Stated Maturity on any Note, or reduce the
principal amount thereof or the rate (or extend the time for payment) of
interest thereon or any premium payable upon the redemption thereof, or change
the place of
65
payment where, or the coin or currency in which, any Note or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date), or reduce the Change
of Control Purchase Price or the Asset Sale Offer Price or alter the provisions
(including the defined terms used therein) regarding the right of the Company to
redeem the Notes in a manner adverse to the Holders, or (ii) to reduce the
percentage in principal amount of the outstanding Notes, the consent of whose
Holders is required for any such amendment, supplemental indenture or waiver
provided for in the Indenture, or (iii) to modify any of the waiver provisions,
except to increase any required percentage or to provide that certain other
provisions of the Indenture cannot be modified or waived without the consent of
the Holder of each outstanding Note affected thereby, or (iv) cause the Notes to
become subordinate in right of payment to any other Indebtedness, or (v) except
in accordance with the Indenture, release any Guarantor from its obligations
under its Note Guarantee.
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company or any
successor entity shall have any personal liability in respect of the obligations
of the Company under the Indenture or the Notes by reason of his or its status
as such stockholder, employee, officer or director, except to the extent such
person is the Company.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means, with respect to a specified person, (i)
Indebtedness or Disqualified Capital Stock of any person existing at the time
such person becomes a Subsidiary of the specified person, including by
designation, or is merged, amalgamated or consolidated into or with the
specified person or one of its Subsidiaries and (ii) Indebtedness secured by a
Lien encumbering any asset at the time such asset is acquired by such specified
person; provided that Acquired Indebtedness shall not include any Indebtedness
incurred or secured in connection with, or in contemplation of, such other
person merging, amalgamating or consolidating with or into or becoming a
Subsidiary of such specified person.
"Acquisition" means the purchase or other acquisition of any person or
substantially all the assets of any person by any other person, whether by
purchase, merger, amalgamation, consolidation, or other transfer, and whether or
not for consideration.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, the term
"control," as used with respect to any person, means the power to direct the
management and policies of such person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, provided that beneficial ownership of 10% or more of the total
voting power normally entitled to vote in the election of directors, managers or
trustees, as applicable, of a person shall for such purposes be deemed to
constitute control.
"Attributable Value" means, as to any particular lease under which any
person is at the time liable other than a Capitalized Lease Obligation, and at
any date as of which the amount thereof is to be determined, the total net
amount of rent required to be paid by such person under such lease during the
remaining term thereof (whether or not such lease is terminable at the option of
the lessee prior to the end of such term), including any period for which such
lease has been, or may, at the option of the lessor, be extended, discounted
from the last date of such term to the date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capitalized Lease
Obligation with a like term in accordance with generally accepted accounting
principles. The net amount of rent required to be paid under any lease for any
such period shall be the aggregate amount of rent payable by the lessee with
respect to such period after excluding amounts required to be paid on account of
insurance, taxes, assessments, utility, operating and labor costs and similar
charges. "Attributable Value" means, as to a Capitalized Lease Obligation under
which any person is at the time liable and at any date as of which the amount
thereof is to be determined, the discounted present value of the rental
obligations of such person, as lessee, required to be capitalized on the balance
sheet of such person in conformity with generally accepted accounting
principles.
66
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Beneficial Owner" or "beneficial owner" has the meaning attributed to it
in Rules 13d-3 and 13d-5 under the Exchange Act (as in effect on the Issue
Date), whether or not applicable, except that a "person" shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Stock" means (a) with respect to any person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of common stock and preferred stock of such person and (b) with respect to any
person that is not a corporation, any and all partnership, membership or other
equity interests of such person.
"Capitalized Lease Obligation" means, as applied to any person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such person, as lessee, in conformity
with generally accepted accounting principles, is required to be capitalized on
the balance sheet of such person.
"Cash Equivalent" means (a) marketable obligations of or obligations
guaranteed by Canada or the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States of America
or Canada, in each case with a Duration of three years or less, (b) marketable
direct obligations issued by any state of the United States of America, any
province of Canada or any political subdivision thereof having the highest
rating obtainable from either Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P") or Dominion Bond Rating Service, Limited
("DBRS") and having a Duration of three years or less, (c) commercial paper,
bankers acceptances, notes, bonds, debentures, repurchase agreements, call
loans, guaranteed investment certificates and other similar instruments, in each
case having a rating of investment grade by Moody's, S&P or DBRS, and in each
case (other than with respect to commercial paper) having a Duration of three
years or less, (d) certificates of deposit with a Duration of three years or
less issued by United States commercial banks of recognized standing with
capital, surplus and undivided profits aggregating in excess of US$100.0
million, (e) certificates of deposits issued or acceptances accepted by or
guaranteed by a bank to which the Bank Act (Canada) applies or by any company
licensed to carry on the business of a trust company in one or more provinces of
Canada, in each case with capital, surplus and undivided profits aggregating in
excess of Cdn$100.0 million, with a Duration of three years or less, (f) shares
of money market funds that have assets in excess of US$100.0 million and that
invest substantially all of their assets in Cash Equivalents of the kind
described in clauses (a) through (e) above, (g) asset-backed securities rated AA
or higher by Moody's, S&P or DBRS with a Duration of three years or less, and
(h) mortgage-backed securities rated AA or higher by Moody's, S&P or DBRS with a
Duration of 3 years or less; provided that an Investment in (a) through (h) of
this definition shall not be considered to be a Cash Equivalent if, as a result
of giving effect thereto, (A) more than 20% of the aggregate Investments made
pursuant to clauses (a) through (h) of this definition are rated "BBB" or below
or (B) more than 10% of the aggregate Investments made pursuant to clauses (a)
through (h) of this definition are made pursuant to clause (h) of this
definition.
"Consolidated Coverage Ratio" of any person on any date of determination
(the "Transaction Date") means the ratio, on a pro forma basis, of (a) the
aggregate amount of Consolidated EBITDA of such person (exclusive of amounts
attributable to operations and businesses permanently discontinued or disposed
of) for the Reference Period to (b) the aggregate Consolidated Fixed Charges of
such person
67
(exclusive of amounts attributable to operations and businesses permanently
discontinued or disposed of, but only to the extent that the obligations giving
rise to such Consolidated Fixed Charges would no longer be obligations
contributing to such person's Consolidated Fixed Charges subsequent to the
Transaction Date) during the Reference Period; provided, that for purposes of
such calculation, (i) Acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date shall
be assumed to have occurred on the first day of the Reference Period and any
Operating Expense or Cost Reduction with respect to such Acquisition shall be
accounted for in such calculation, (ii) transactions giving rise to the need to
calculate the Consolidated Coverage Ratio shall be assumed to have occurred on
the first day of the Reference Period, (iii) the incurrence of any Indebtedness
or issuance of any Disqualified Capital Stock during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date (and
the application of the proceeds therefrom to the extent used to refinance or
retire other Indebtedness) shall be assumed to have occurred on the first day of
such Reference Period, and (iv) the Consolidated Fixed Charges of such person
attributable to interest on any Indebtedness or dividends on any Disqualified
Capital Stock bearing a floating interest (or dividend) rate shall be computed
on a pro forma basis as if the average rate in effect from the beginning of the
Reference Period to the Transaction Date had been the applicable rate for the
entire period, unless such person or any of its Subsidiaries is a party to an
Interest Swap and Hedging Obligation (which shall remain in effect for the
12-month period immediately following the Transaction Date) that has the effect
of fixing the interest rate on the date of computation, in which case such rate
(whether higher or lower) shall be used.
"Consolidated EBITDA" means, with respect to any person, for any period,
the Consolidated Net Income of such person for such period adjusted to add
thereto (to the extent deducted from net revenues in determining Consolidated
Net Income), without duplication, the sum of (i) consolidated income tax
expense, (ii) consolidated depreciation and amortization expense (including any
non-cash charges related to impairment of goodwill, other intangible assets and
film assets, but excluding pre-paid cash expenses that were paid in a prior
period), (iii) other non-recurring non-cash charges of such person and its
Subsidiaries reducing Consolidated Net Income for such period and (iv)
Consolidated Fixed Charges.
"Consolidated Fixed Charges" of any person means, without duplication, for
any period, as applied to any person, (A) the sum of (a) the aggregate of the
interest expense on Indebtedness of such person and its consolidated
Subsidiaries for such period, on a consolidated basis, including, without
limitation, (i) amortization of debt discount, (ii) the net cost under Interest
Swap and Hedging Obligations (including amortization of discounts), (iii) the
interest portion of any deferred payment obligation and (iv) accrued interest,
plus (b) the interest component of the Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such person and its
consolidated Subsidiaries during such period minus (B) the cash interest income
(exclusive of deferred financing fees) of such person and its consolidated
subsidiaries during such period, in each case as determined in accordance with
generally accepted accounting principles consistently applied.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Subsidiaries (determined on a
consolidated basis in accordance with generally accepted accounting principles)
for such period, adjusted to exclude (only to the extent included in computing
such net income (or loss) and without duplication): (a) net gains or losses in
respect of dispositions of assets other than in the ordinary course of business,
(b) any gains or losses from currency exchange transactions not in the ordinary
course of business consistent with past practice, (c) any gains (but not losses)
attributable to any extraordinary items not covered by clause (a) of this
definition, (d) the net income, if positive, of any person, other than a
Subsidiary, in which such person or any of its Subsidiaries has an interest,
except to the extent of the amount of any dividends or distributions actually
paid in cash or Cash Equivalents to such person or a Subsidiary of such person
during such period, but in any case not in excess of such person's pro rata
share of such person's net income for such period, (e) the net income or loss of
any person acquired in a pooling of interests transaction for any period prior
to the date of such acquisition, (f) the net income, if positive, of any of such
person's Subsidiaries to the extent that the declaration or payment of dividends
or similar distributions is not at the time permitted by
68
operation of the terms of its charter or bylaws or any other agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Subsidiary, (g) the cumulative effects of accounting changes,
(h) deductions resulting from the amortization of purchase accounting
adjustments (i) any write-offs or write-downs of investments in film assets
existing on the Issue Date and of assets comprising the Company's or its
Subsidiaries' motion simulation and attractions business and (j), for purposes
of the "Limitation on Restricted Payments" covenant, any expense attributable to
warrants, options or rights to purchase Qualified Capital Stock issued in
consideration for goods or services provided to the Company or its Subsidiaries.
"Credit Agreement" means any credit agreement in existence on or entered
into after the Issue Date, by and among the Company, certain of its
Subsidiaries, certain financial institutions, providing for term loan facilities
and/or revolving credit facilities, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as such credit agreement and/or related documents may be amended,
restated, supplemented, renewed, replaced or otherwise modified from time to
time whether or not with the same agent, trustee, representative lenders or
holders, and, subject to the proviso to the next succeeding sentence,
irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "Credit Agreement" shall
include agreements in respect of Interest Swap and Hedging Obligations with
lenders (or Affiliates thereof) party to the Credit Agreement and shall also
include any amendment, amendment and restatement, renewal, extension,
restructuring, supplement or modification to any Credit Agreement and all
refundings, refinancings and replacements of any Credit Agreement, including any
credit agreement:
(1) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby,
(2) adding or deleting borrowers or guarantors thereunder, so long as
borrowers and issuers include one or more of the Company and its
Subsidiaries and their respective successors and assigns,
(3) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder; provided, that on the date such
Indebtedness is incurred it would not be prohibited by the covenant
"Limitation on Incurrence of Additional Indebtedness," or
(4) otherwise altering the terms and conditions thereof in a manner
not prohibited by the terms of the Indenture.
"Default" means any event, occurrence or condition that is or with the
passage of time or the giving of notice or both would be an Event of Default.
"Disqualified Capital Stock" means (a) except as set forth in clause (b) of
this definition, with respect to any person, any Equity Interest of such person
that, by its terms or by the terms of any security into which it is convertible,
exercisable or exchangeable, is, or upon the happening of an event or the
passage of time would be, required to be redeemed or repurchased (including at
the option of the holder thereof) by such person or any of its Subsidiaries, in
whole or in part, on or prior to the Stated Maturity of the Notes and (b) with
respect to any Subsidiary of such person (including with respect to any
Subsidiary of the Company), any Equity Interest other than any common equity
with no preference, privileges, or redemption or repayment provisions; provided
that any Equity Interest that would not constitute Disqualified Capital Stock
but for provisions thereof giving holders thereof the right to require such
person to repurchase or redeem such Equity Interest upon the occurrence of an
"asset sale" or "change of control" occurring prior to the Stated Maturity of
the Notes shall not constitute Disqualified Capital Stock if the "asset sale" or
"change of control" provisions applicable to such Equity Interest are no more
favorable to the holders of such Equity Interest than the provisions contained
in "-- Certain Covenants -- Limitations on Sale of Assets" and "-- Certain
Covenants -- Offer to Repurchase Notes Upon a Change of Control" and such Equity
Interest specifically provides that (i) such person will not repurchase or
redeem any such Equity Interest pursuant to such provision prior to the
Company's repurchase of such Notes as are required to be repurchased pursuant to
"-- Certain Covenants -- Limitation on Sale of Assets" and "-- Certain
Covenants -- Offer to Repurchase Notes Upon a Change of Control" and (ii) in the
case of an Asset Sale Offer, such repurchase or redemption shall not exceed such
Excess Proceeds, less the principal amount of Notes tendered in such Asset Sale
Offer.
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"Duration" means, with respect to any given financial instrument, (i) the
weighted average of the time to payment of each payment required to be made on a
date certain with respect to such financial instrument, the weights being the
present value of each such payment (calculated at the financial instrument's
yield as of the date of acquisition by the Company or any Subsidiary) as a
percentage of the total present value all such payments (calculated at the
financial instrument's yield as of the date of acquisition by the Company or any
Subsidiary) divided by (ii) one plus the yield (as of the date of acquisition by
the Company or any Subsidiary) of such financial instrument.
"Equity Interest" of any person means Capital Stock of such person and all
warrants, options or other rights to acquire Capital Stock of such person (but
excluding any debt security that is convertible into, or exchangeable for,
Capital Stock (and which is not otherwise Capital Stock)).
"Event of Loss" means, with respect to any property or asset, any (i) loss,
destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"Excluded Person" means, Messrs. Bradley J. Wechsler and Richard L.
Gelfond, or their Related Parties.
"Exempted Affiliate Transaction" means (a) reasonable fees and compensation
paid and indemnity provided pursuant to (including issuances of securities or
other payments, awards or grants in cash, securities or otherwise) customary
employee compensation arrangements (including, without limitation, stock option
and stock ownership plans) approved by a majority of independent (as to such
transactions) members of the Board of Directors of the Company, (b) Restricted
Payments permitted to be made under the Indenture, (c) transactions solely
between the Company and any of its Subsidiaries or solely among Subsidiaries of
the Company, (d) the payment of reasonable and customary fees to and the
provision of indemnity on behalf of directors of the Company who are not
employees of the Company, (e) payments pursuant to any agreement in effect as of
the Issue Date or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) in any replacement agreement
thereto so long as any such amendment or replacement agreement is not more
disadvantageous to the Company or its Subsidiaries, as the case may be, than the
original agreement as in effect on the Issue Date; (f) loans advanced to
employees and officers of the Company and its Subsidiaries not in excess of $1.0
million at any time outstanding; and (g) sales or other transfers of Qualified
Capital Stock.
"Foreign Subsidiary" means any Subsidiary of the Company that is not a
North American Subsidiary.
"Fully Traded Common Stock" means common stock issued by any corporation if
(A) such common stock is listed on either The New York Stock Exchange, The
American Stock Exchange, The Toronto Stock Exchange, or is included for trading
privileges in the Nasdaq National Market; and (B) such common stock does not
constitute more than 15% of the issued and outstanding common stock of such
corporation held by Persons other than 10% holders of such common stock and
Affiliates and insiders of such corporation.
"Generally accepted accounting principles" means, as at any date of
determination, generally accepted accounting principles in the United States and
which are applicable as of the date of determination.
"Guarantee" means, as to any person, a guarantee other than by endorsement
of negotiable instruments for collection in the ordinary course of business,
direct or indirect, in any manner including, without limitation, by way of a
pledge of assets or through letters of credit or reimbursement agreements in
respect thereof, of all or any part of any Indebtedness of another person.
"Guarantors" means:
(1) each direct or indirect North American Subsidiary of the Company
on the date of the Indenture; and
(2) any other Subsidiary that executes a Note Guarantee in accordance
with the provisions of the Indenture;
70
and their respective successors and assigns until release from their obligations
under their Note Guarantees and the Indenture in accordance with the terms of
the Indenture.
"incur" shall mean to issue, assume, guaranty, incur, become directly or
indirectly liable with respect to (including as a result of an Acquisition), or
otherwise become responsible for, contingently or otherwise, any Indebtedness
(and, as appropriate, an "incurrence" shall have a correlative meaning).
Notwithstanding the foregoing, the accretion or amortization of original issue
discount and any accruals of interest on any Indebtedness shall not be deemed an
incurrence of Indebtedness.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of such person, to the
extent such liabilities and obligations would appear as a liability upon the
consolidated balance sheet of such person in accordance with generally accepted
accounting principles, (i) in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such person or only to a
portion thereof), (ii) evidenced by bonds, notes, debentures or similar
instruments, (iii) representing the balance deferred and unpaid of the purchase
price of any property or services, except those incurred in the ordinary course
of its business that would constitute ordinarily a trade payable or account
payable to trade creditors that are not more than 120 days past their original
due date or which are being contested in good faith by appropriate proceeding,
(iv) evidenced by bankers' acceptances or similar instruments issued or accepted
by banks, (v) relating to any Capitalized Lease Obligation, or (vi) evidenced by
a letter of credit or a reimbursement obligation of such person with respect to
any letter of credit; (b) all net obligations of such person under Interest Swap
and Hedging Obligations; (c) all liabilities and obligations of others of the
kind described in the preceding clause (a) or (b) that such person has
guaranteed or that is otherwise its legal liability or which are secured by any
assets or property of such person; (d) any and all deferrals, renewals,
extensions, refinancing and refundings (whether direct or indirect) of, or
amendments, modifications or supplements to, any liability of the kind described
in any of the preceding clauses (a), (b) or (c), or this clause (d), whether or
not between or among the same parties; and (e) all Disqualified Capital Stock of
such person (measured at the greater of its voluntary or involuntary maximum
fixed repurchase price plus accrued and unpaid dividends). For purposes hereof,
the "maximum fixed repurchase price" of any Disqualified Capital Stock which
does not have a fixed repurchase price shall be calculated in accordance with
the terms of such Disqualified Capital Stock as if such Disqualified Capital
Stock were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value to be determined in good faith by the board of directors of the
issuer (or managing general partner of the issuer) of such Disqualified Capital
Stock. Indebtedness shall not include any (1) obligation of any person arising
from the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently drawn against insufficient funds in the
ordinary course of business, provided that such obligations are extinguished
within five business days, or (2) liability for federal, provincial, state,
local or other taxes except to the extent otherwise included in the definition
of "Indebtedness." Guarantees of (or obligations with respect to letters of
credit supporting) Indebtedness otherwise included in the determination of the
aggregate amount of Indebtedness incurred shall not also be included in such
determination.
"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
71
interests or other securities, including any options or warrants, of such other
person; (b) the making by such person of any deposit with, or advance, loan or
other extension of credit to, such other person (including the purchase of
property from another person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such other person) or any
commitment to make any such advance, loan or extension (but excluding accounts
receivable or deposits arising in the ordinary course of business); (c) other
than guarantees of Indebtedness of the Company to the extent permitted by the
covenant "Limitation on Incurrence of Additional Indebtedness," the entering
into by such person of any guarantee of, or other credit support or contingent
obligation with respect to, Indebtedness or other liability of such other
person; and (d) the making of any capital contribution by such person to such
other person. Any property transferred to an Unrestricted Subsidiary from the
Company or a Subsidiary shall be deemed an Investment valued at its fair market
value at the time of such transfer, provided, however, if in any such case such
fair market value exceeds $1.0 million, such determination of fair market value
shall be certified in an Officer's Certificate.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale of Qualified Capital Stock and by
the Company and its Subsidiaries in respect of an Asset Sale or Event of Loss
plus, in the case of an issuance of Qualified Capital Stock upon any exercise,
exchange or conversion of securities (including options, warrants, rights and
convertible or exchangeable debt) of the Company that were issued for cash on or
after the Issue Date, the amount of cash originally received by the Company upon
the issuance of such securities (including options, warrants, rights and
convertible or exchangeable debt) less, in each case, the sum of all payments,
fees, commissions and expenses (including, without limitation, the fees and
expenses of legal counsel and investment banking fees and expenses) incurred in
connection with such Asset Sale, Event of Loss or sale of Qualified Capital
Stock, and, in the case of an Asset Sale only, less the amount (estimated
reasonably and in good faith by the Company) of income, franchise, sales and
other applicable taxes required to be paid by the Company or any of its
respective Subsidiaries in connection with such Asset Sale and amounts required
to be applied to the repayment of Indebtedness secured by a Lien on the asset or
assets that were the subject of such Asset Sale and amounts deemed, in good
faith, appropriate by the Board of Directors of the Company to be provided as a
reserve, in accordance with generally accepted accounting principles, against
any liabilities associated with such assets that are the subject of such Asset
Sale.
"North American Subsidiary" means any Subsidiary of the Company, as defined
in clauses (i) and (ii) only of the definition of Subsidiary, that was formed
under the laws of the United States or any state of the United States or the
District of Columbia or under the laws of Canada or any province or territory
thereof, excluding Big Frame Theatre Limited Partnership so long as that entity
is not a Subsidiary as defined in clause (i) of the definition of Subsidiary.
"Operating Expense or Cost Reduction" means with respect to the calculation
of a Consolidated Coverage Ratio, an operating expense or cost reduction with
respect to an Acquisition, which, in the good faith estimate of management, will
be realized as a result of such Acquisition, provided that the foregoing
eliminations of operating expenses and realizations of cost reductions shall be
of the types permitted to be given effect to in accordance with Article 11 of
Regulation S-X under the Exchange Act as in effect on the Issue Date.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness of the Company and the Guarantors evidenced by the
Notes and related Note Guarantees and represented by the Indenture, issued
on the Issue Date;
(b) Indebtedness of the Company and its Subsidiaries (including
pursuant to a Credit Agreement and including any Indebtedness issued to
refinance, refund or replace such Indebtedness) provided that the aggregate
principal amount of such Indebtedness outstanding at any time does not
72
exceed the greater of (a) $30.0 million minus the amount of any such
Indebtedness retired with Net Cash Proceeds from any Asset Sale or assumed
by a transferee in an Asset Sale and (b) 15% of Total Assets of the
Company;
(c) Refinancing Indebtedness with respect to (i) any Indebtedness
described in clause (a) of this definition, (ii) incurred under the Debt
Incurrence Ratio test of the covenant "Limitation on Incurrence of
Additional Indebtedness," (iii) incurred under this clause (c) or (iv)
which is outstanding on the Issue Date so long as such Refinancing
Indebtedness, if secured, is secured only by the assets that secured the
Indebtedness so refinanced;
(d) Interest Swap and Hedging Obligations of the Company and its
Subsidiaries that are incurred for the purpose of fixing or hedging
interest rate or currency risk of the Company and its Subsidiaries and not
incurred for the purpose of speculation;
(e) Indebtedness of the Company and its Subsidiaries solely in respect
of performance, surety or appeal bonds (to the extent that such incurrence
does not result in the incurrence of any obligation to repay any obligation
relating to borrowed money of others), and letters of credit and letters of
guarantee, all incurred in the ordinary course of business in accordance
with customary industry practices, in amounts and for the purposes
customary in the Company's industry;
(f) Indebtedness of the Company to any Wholly Owned Subsidiary, and
Indebtedness of a Subsidiary to any other Wholly Owned Subsidiary or to the
Company; provided that, in the case of Indebtedness of the Company, such
obligations shall be unsecured and subordinated in all respects to the
Company's obligations pursuant to the Notes and the date of any event that
causes such Subsidiary to no longer be a Wholly Owned Subsidiary shall be
an Incurrence Date;
(g) Indebtedness of the Company and its Subsidiaries arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from guarantees or letters of credit, surety bonds
or performance bonds securing any obligations of the Company or any
Subsidiary pursuant to such agreements, in any case incurred in connection
with the disposition of any business, assets or Subsidiary, other than
guarantees of Indebtedness incurred by any person acquiring all or any
portion of such business, assets or Subsidiary for the purpose of financing
such acquisition or, in the case of performance bonds, incurred in
connection with the sale or leasing of systems in the ordinary course of
business;
(h) additional Indebtedness of the Company or any Guarantor not to
exceed $35.0 million in aggregate principal amount at any one time
outstanding; and
(i) Indebtedness of the Company and its Subsidiaries existing on the
Issue Date not to exceed the amount outstanding on such date.
"Permitted Investment" means (a) Investments in any of the Notes; (b)
Investments in Cash Equivalents; (c) Investments in intercompany notes to the
extent permitted to be incurred under clause (f) of the definition of "Permitted
Indebtedness"; (d) any Investment in a Subsidiary of the Company, any Investment
in the Company so long as the Company receives the proceeds of such Investment,
or any Investment in a person in a Related Business, which, after such
Investment, becomes a Subsidiary of the Company; (e) loans or advances to
employees of the Company or a Subsidiary made in the ordinary course of
business, (f) stock obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Subsidiary or in satisfaction of judgments, (g) Investments received in
connection with an Asset Sale in accordance with the covenant "Limitation on
Sale of Assets," (h) Investments of the Company or any Subsidiary in effect on
the Issue Date, (i) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers, (j) Investments
the payment for which consists exclusively of Qualified Capital Stock of the
Company, (k) other Investments in any Person or Persons, provided, that after
giving pro forma effect to each such Investment, the aggregate amount of all
such Investments made on and after the Issue Date pursuant to this clause (k)
that are outstanding (after giving effect to any such Investments that are
returned to the Company or the Subsidiary that made such prior Investment,
without restriction, in cash
73
or consideration similar to the consideration originally used to make such
Investment on or prior to the date of any such calculation, but only up to the
amount of the Investment made under this clause (k) in such Person) at any time
does not in the aggregate exceed $25.0 million (measured by the value attributed
to the Investment at the time made), and (l) Investments in Permitted Joint
Ventures pursuant to this clause (l), provided that either (1)(i) the Company or
its Subsidiaries have the ability to liquidate their Investment in such
Permitted Joint Venture, without penalty to the Company or its Subsidiaries,
within three years of giving notice of their intention to do so, (ii) in the
good faith opinion of an executive officer of the Company, each of the other
holders of Equity Interests in the Permitted Joint Venture is contributing
consideration to the Permitted Joint Venture in relation to such holder's
economic interest in the Permitted Joint Venture which is at least equal to the
consideration being contributed to the Permitted Joint Venture by the Company or
a Subsidiary in relation to its economic interest in the Permitted Joint Venture
(provided, that in making his or her determination pursuant to this clause (ii),
such executive officer may take into account better than normal profits which
may be derived from the Company's other businesses as a result of such
Investment), and (iii) the Consolidated Coverage Ratio of the Company for the
Reference Period immediately preceding the date of such Investment, after giving
effect on a pro forma basis to such Investment, would be at least 2.0 to 1 or
(2) the Consolidated Coverage Ratio of the Company for the Reference Period
immediately preceding the date of such Investment, after giving effect on a pro
forma basis to such Investment, would be at least 3.0 to 1.
"Permitted Joint Venture" means any joint venture arrangement (which may be
structured as an unincorporated joint venture, corporation, partnership,
association or limited liability company) (i) in which the Company and its
Subsidiaries own at least 20% but less than 50% of the ownership interest
thereof and (ii) which engages only in a Related Business.
"Permitted Lien" means (a) Liens created in connection with the incurrence
of Indebtedness permitted by clause (b) of the definition "Permitted
Indebtedness"; (b) Liens existing on the Issue Date; (c) Liens imposed by
governmental authorities for taxes, assessments or other charges not yet subject
to penalty or which are being contested in good faith and by appropriate
proceedings, if adequate reserves with respect thereto are maintained on the
books of the Company in accordance with generally accepted accounting
principles; (d) statutory liens of carriers, warehousemen, mechanics,
materialmen, landlords, repairmen or other like Liens arising by operation of
law in the ordinary course of business provided that (i) the underlying
obligations are not overdue for a period of more than 30 days, or (ii) such
Liens are being contested in good faith and by appropriate proceedings and
adequate reserves with respect thereto are maintained on the books of the
Company in accordance with generally accepted accounting principles; (e) Liens
securing the performance of bids, trade contracts (other than borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of business;
(f) easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not in any
case materially detract from the value of the property subject thereto (as such
property is used by the Company or any of its Subsidiaries) or interfere with
the ordinary conduct of the business of the Company or any of its Subsidiaries;
(g) Liens arising by operation of law in connection with judgments, only to the
extent, for an amount and for a period not resulting in an Event of Default with
respect thereto; (h) pledges or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security legislation; (i) Liens securing the Notes; (j) Liens securing
Indebtedness of a person existing at the time such person becomes a Subsidiary
or is merged with or into the Company or a Subsidiary or Liens securing
Indebtedness incurred in connection with an Acquisition, provided that such
Liens were in existence prior to the date of such acquisition, merger or
consolidation, were not incurred in anticipation thereof, and do not extend to
any assets other than those acquired; (k) leases or subleases granted to other
persons in the ordinary course of business not materially interfering with the
conduct of the business of the Company or any of its Subsidiaries or materially
detracting from the value of the relative assets of the Company or any
Subsidiary; (l) Liens arising from precautionary Uniform Commercial Code
financing statement or similar filings regarding operating leases entered into
by the Company or any of its Subsidiaries in the ordinary course of business;
(m) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured
74
in a manner no more adverse to the Holders of the Notes than the terms of the
Liens securing such refinanced Indebtedness provided that the Indebtedness
secured is not increased and the Lien is not extended to any additional assets
or property, (n) Liens in favor of the Company or any Subsidiary, (o) Liens
securing obligations under Interest Swap and Hedging Obligations permitted to be
incurred under the Indenture, (p) Liens created or deposits made to secure the
performance of tenders, bids, leases, statutory obligations, government
contracts, performance bonds and other obligations of a like nature incurred in
the ordinary course of business, (q) Liens in favor of customs and revenue
authorities, arising as a matter of law to secure payment of customs duties in
connection with the importation of goods and (r) Liens in connection with
securitizations of accounts receivable under long term system leases.
"Qualified Capital Stock" means any Capital Stock of the Company that is
not Disqualified Capital Stock.
"Qualified Equity Offering" means any offering of Qualified Capital Stock
of the Company for cash of which the gross proceeds to the Company are at least
$30.0 million.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
with the Net Cash Proceeds received by the Company from the substantially
concurrent sale (other than from or to a Subsidiary or from or to an employee
stock ownership plan financed by loans from the Company or a Subsidiary of the
Company) of Qualified Capital Stock or any exchange of Qualified Capital Stock
for any Capital Stock or Indebtedness of the Company.
"Reference Period" with regard to any person means the most recently ended
four full fiscal quarters, for which financial statements are available
immediately preceding any date upon which any determination is to be made
pursuant to the terms of the Notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal ((a) and (b) above are, collectively, a "Refinancing") of any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of reasonable and customary fees and expenses incurred in connection
with the Refinancing) the (A) lesser of (i) the principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, of the Indebtedness or
Disqualified Capital Stock so Refinanced and (ii) if such Indebtedness being
Refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with generally accepted accounting
principles) at the time of such Refinancing, plus (B) the amount of any premium
required to be paid in connection with such Refinancing pursuant to the terms of
the Indebtedness being so refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such Refinancing by means
of a tender offer or privately negotiated repurchase and plus (C) the expenses
of the Company or the Subsidiary, as the case may be, incurred in connection
with such Refinancing; provided, that (A) such Refinancing Indebtedness of any
Subsidiary of the Company shall only be used to refinance outstanding
Indebtedness or Disqualified Capital Stock of such Subsidiary, (B) such
Refinancing Indebtedness shall (x) not have an Average Life shorter than the
Indebtedness or Disqualified Capital Stock to be so refinanced at the time of
such Refinancing and (y) in all respects, be no less subordinated or junior, if
applicable, to the rights of Holders of the Notes than was the Indebtedness or
Disqualified Capital Stock to be refinanced and (C) such Refinancing
Indebtedness shall have a final stated maturity or redemption date, as
applicable, no earlier than the final stated maturity or redemption date, as
applicable, of the Indebtedness or Disqualified Capital Stock to be so
refinanced.
"Related Business" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the Issue Date and any and
all businesses that in the good faith judgment of the Board of Directors of the
Company are related, similar or ancillary businesses.
75
"Related Party" means: (1) the spouse or an immediate family member, estate
or heir of Bradley J. Wechsler or Richard L. Gelfond; or (2) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of Bradley J. Wechsler, Richard L. Gelfond and/or such
other Persons referred to in the immediately preceding clause (1).
"Restricted Payment" means, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Equity Interests
of such person or any parent or Subsidiary of such person, (b) any payment on
account of the purchase, redemption or other acquisition or retirement for value
of Equity Interests of such person or any Subsidiary or direct or indirect
parent of such person (other than any such Equity Interests owned by such person
or any Subsidiary), (c) other than with the proceeds from the substantially
concurrent sale of, or in exchange for, Refinancing Indebtedness, any purchase,
redemption, or other acquisition or retirement for value of, any payment in
respect of any amendment of the terms of or any defeasance of, any Subordinated
Indebtedness, directly or indirectly, by such person or a parent or Subsidiary
of such person prior to the scheduled maturity, any scheduled repayment of
principal, or scheduled sinking fund payment, as the case may be, of such
Indebtedness and (d) any Investment by such person, other than a Permitted
Investment; provided, however, that the term "Restricted Payment" does not
include (i) any dividend, distribution or other payment on or with respect to
Equity Interests of an issuer to the extent payable solely in shares of
Qualified Capital Stock or in options, warrants or other rights to acquire
Qualified Capital Stock of such issuer; or (ii) any dividend, distribution or
other payment to the Company, or to any of its Subsidiaries, by the Company or
any of its Subsidiaries (or, in the case of payment by any non-Wholly Owned
Subsidiary, to any other holder of Equity Interests of such non-Wholly Owned
Subsidiary on a pro rata basis). If (x) the Company or a Subsidiary of the
Company issues, transfers, conveys, leases or otherwise disposes of any shares
of Capital Stock of a Subsidiary of the Company or securities convertible or
exchangeable into, or options, warrants, rights or any other interest with
respect to, Capital Stock of a Subsidiary of the Company, and as a result of
such transaction or as a result of the exercise, conversion or exchange of such
securities, options, warrants, rights or other interest such Subsidiary would
cease to be a Subsidiary, or (y) the Company or a Subsidiary of the Company
issues, transfers, conveys, leases or otherwise disposes of any shares of
Capital Stock or ownership interests of a Permitted Joint Venture which complies
with the provisions of clauses (l)(1)(i) or (l)(2) of the definition of
Permitted Investment or securities convertible or exchangeable into, or options,
warrants, rights or any other interest with respect to, Capital Stock or
ownership interests of a Permitted Joint Venture, or permits such a Permitted
Joint Venture to issue any shares of Capital Stock or ownership interests of
such Permitted Joint Venture or securities convertible or exchangeable into, or
options, warrants, rights or any other interest with respect to Capital Stock of
or ownership interests, in such Permitted Joint Venture, the Company shall be
deemed to have made a Restricted Payment in an amount equal to its net
investment in such Subsidiary or Permitted Joint Venture unless, after giving
effect to such issuance, transfer, conveyance, lease or disposition, the former
Subsidiary shall be or the Permitted Joint Venture shall continue to be, a
Permitted Joint Venture which complies with the provisions of clauses (l)(1)(i)
or (l)(2) of the definition of Permitted Investment.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 90 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset.
"Stated Maturity," when used with respect to any Note, means December 1,
2010.
"Subordinated Indebtedness" means Indebtedness of the Company that is
subordinated in right of payment to the Notes in any respect.
"Subsidiary" means, with respect to any person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the
76
time owned or controlled, directly or indirectly, by such person or one or more
of the other Subsidiaries of that person (or a combination thereof), (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such person or a Subsidiary of such person or (b) the only general
partners of which are such person or of one or more Subsidiaries of such person
(or any combination thereof) or (iii) any other person not described in clauses
(i) and (ii) above in which such person, or one more other Subsidiaries of such
person or such person and one or more other Subsidiaries thereof, directly or
indirectly, has a 50% ownership and the power, pursuant to a written contract or
agreement, to direct the policies and management or the financial and other
affairs thereof. Notwithstanding the foregoing, an Unrestricted Subsidiary shall
not be a Subsidiary of the Company or of any Subsidiary of the Company.
"Total Assets" means, with respect of any person, as of any date, the
consolidated total assets of such person less the amount by which the goodwill
of such person exceeds 10% of total assets of such person, each as determined in
accordance with generally accepted accounting principles.
"Total Common Equity" of any person means, as of any of determination, the
product of (i) the aggregate number of outstanding primary shares of Capital
Stock of such person on such day (which shall not include any options or
warrants on, or securities convertible or exchangeable into, shares of Capital
Stock of such person) and (ii) the average Closing Price of such Capital Stock
over the 20 consecutive Trading Days immediately preceding such day. If no such
Closing Price exists with respect to shares of any such class, the value of such
shares for purposes of clause (ii) of the preceding sentence shall be determined
by the Board of Directors of the Company in good faith and evidenced by a
resolution of the Board of Directors filed with the Trustee.
"Unrestricted Subsidiary" means (i) any Subsidiary designated by the Board
of Directors of the Company as an Unrestricted Subsidiary and (ii) any
Subsidiary of an Unrestricted Subsidiary. An Unrestricted Subsidiary may be
designated pursuant to an Officers' Certificate (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary so long as; (i)
neither the Company nor any Subsidiary (a) provides credit support for, or
guarantee of, and Indebtedness of such Subsidiary or any Subsidiary of such
Subsidiary, (including any undertaking or agreement in respect of such debt) or
(b) is directly or indirectly liable for any Indebtedness of such Subsidiary or
any Subsidiary of such Subsidiary, (ii) no default with respect to any
Indebtedness of such Subsidiary or any Subsidiary of such Subsidiary would
permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of the Company of any Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity, (iii) any Investment in such Subsidiary made as a result of
designating such Subsidiary an Unrestricted Subsidiary will not violate the
provisions of the "Limitation on Restricted Payments" covenant, (iv) neither the
Company nor any Subsidiary has a contract, agreement, arrangement, understanding
or obligation of any kind, whether written or oral, with such Subsidiary other
than those that might be obtained at the time from persons who are not
Affiliates of the Company, and (v) neither the Company nor any other Subsidiary,
has any obligation (a) to subscribe for additional Equity Interests in such
Subsidiary, or (b) to maintain or preserve such Subsidiary's financial condition
or to cause such Subsidiary to achieve certain levels of operating results. Any
such designation by the Board of Directors of the Company shall be evidenced to
the Trustee by filing a certified resolution with the Trustee giving effect to
such designation. The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Subsidiary if, immediately after giving effect to
such designation, there would be no Default or Event of Default under the
Indenture and the Company could incur $1.00 of additional Indebtedness pursuant
to the Debt Incurrence Ratio test under the "Limitation on Incurrence of
Additional Indebtedness" covenant.
"U.S. Government Obligations" means direct non-callable obligations of the
United States of America for the payment of which the full faith and credit of
the United States is pledged.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the
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nearest one-twelfth) that will elapse between such date and the making of such
payment, by (ii) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" means a Subsidiary all the Equity Interests of
which are owned by the Company or one or more wholly owned Subsidiaries of the
Company.
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BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Notes (as defined in the section entitled
"Description of the Notes") will be issued in registered, global form in minimum
denominations of $1,000 stated principal amount at maturity and integral
multiples of $1,000 in excess of $1,000. Notes will be issued at the closing of
the exchange offer only against surrender of old notes.
The Notes initially will be represented by one or more notes in registered,
global form without interest coupons (collectively, the "Global Notes"). The
Global Notes will be deposited upon issuance with the Trustee as custodian for
The Depository Trust Company ("DTC"), in New York, New York, and registered in
the name of DTC or its nominee, in each case for credit to an account of a
direct or indirect participant in DTC as described below. Except as set forth
below, the Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee. Beneficial
interests in the Global Notes may not be exchanged for notes in certificated
form except in the limited circumstances described below. See "-- Exchange of
Global Notes for Certificated Notes." Except in the limited circumstances
described below, owners of beneficial interests in the Global Notes will not be
entitled to receive physical delivery of the Notes in certificated form.
Transfers of beneficial interests in the Global Notes will be subject to
the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of the Euroclear System
("Euroclear") and Clearstream Banking, S.A. ("Clearstream"), which may change
from time to time.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear and Clearstream are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the respective systems or their participants directly to discuss these
matters. DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between the Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the initial purchasers of the Notes
(the "Initial Purchasers")), banks, trust companies, clearing corporations and
certain other organizations. Access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interests
in, and transfers of ownership interests in, each security held by or on behalf
of DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised the Company that, pursuant to procedures established
by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
the Participants designated by the Initial Purchasers with portions of the
principal amount at maturity of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on,
and the transfer of ownership of these interests will be effected only
through, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other
owners of beneficial interest in the Global Notes).
Investors in the Global Notes who are Participants may hold their interests
therein directly through DTC. Investors in the Global Notes who are not
Participants may hold their interests therein indirectly through organizations
(including Euroclear and Clearstream) which are Participants. All interests in a
Global Note, including those held through Euroclear or Clearstream, may be
subject to the procedures and requirements of DTC. Those interests held through
Euroclear or Clearstream may also be subject to the
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procedures and requirements of such systems. The laws of some states require
that certain Persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer beneficial interests in a
Global Note to such Persons will be limited to that extent. Because DTC can act
only on behalf of the Participants, which in turn act on behalf of the Indirect
Participants, the ability of a Person having beneficial interests in a Global
Note to pledge such interests to Persons that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interests in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
"Holders" thereof under the Indenture for any purpose. Payments in respect of
the principal of, and interest and premium, if any, and additional interest, if
any, on a Global Note registered in the name of DTC or its nominee will be
payable to DTC in its capacity as the registered Holder under the Indenture.
Under the terms of the Indenture, the Company and the Trustee will treat the
Persons in whose names the Notes, including the Global Notes, are registered as
the owners of the Notes for the purpose of receiving payments and for all other
purposes. Consequently, neither the Company, the Trustee nor any of the
Company's or the Trustee's agents has or will have any responsibility or
liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
(2) any other matter relating to the actions and practices of DTC or
any of its Participants or Indirect Participants.
DTC has advised us that its current practice, upon receipt of any payment
in respect of securities such as the Notes (including principal and interest),
is to credit the accounts of the relevant Participants with the payment on the
payment date unless DTC has reason to believe it will not receive payment on
such payment date. Each relevant Participant is credited with an amount
proportionate to its beneficial ownership of an interest in the principal amount
at maturity of the relevant security as shown on the records of DTC. Payments by
the Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee or the Company. Neither the Company
nor the Trustee will be liable for any delay by DTC or any of the Participants
or the Indirect Participants in identifying the beneficial owners of the Notes,
and the Company and the Trustee may conclusively rely on and will be protected
in relying on instructions from DTC or its nominee for all purposes.
Transfers between the Participants will be effected in accordance with
DTC's procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Clearstream will be effected in accordance with
their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes described herein, crossmarket transfers between the Participants, on the
one hand, and Euroclear or Clearstream participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by their respective depositaries, however, such
crossmarket transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant Global Note in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly to the
depositories for Euroclear or Clearstream.
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DTC has advised us that it will take any action permitted to be taken by a
Holder of Notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount at maturity of the Notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Notes, DTC reserves the right
to exchange the Global Notes for legended notes in certificated form, and to
distribute such notes to the Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform such procedures, and may discontinue such
procedures at any time. Neither the Company nor the Trustee nor any of their
respective agents will have any responsibility for the performance by DTC,
Euroclear or Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies the Company that it is unwilling or unable to
continue as depositary for the Global Notes or (b) has ceased to be a
clearing agency registered under the Exchange Act and, in either case, the
Company fails to appoint a successor depositary;
(2) the Company, at its option, notifies the Trustee in writing that
it elects to cause the issuance of the Certificated Notes; or
(3) there has occurred and is continuing a Default or Event of Default
with respect to the Notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the Indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures).
EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the Trustee a written
certificate (in the form provided in the Indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such Notes.
SAME DAY SETTLEMENT AND PAYMENT
The Company will make payments in respect of the Notes represented by the
Global Notes (including principal, premium, if any, interest and additional
interest, if any) by wire transfer of immediately available funds to the
accounts specified by the Holders of the Global Note. The Company will make all
payments of principal, interest and premium, if any, and additional interest, if
any, with respect to Certificated Notes by wire transfer of immediately
available funds to the accounts specified by the Holders of the Certificated
Notes or, if no such account is specified, by mailing a check to each such
Holder's registered address. All payments will be made in United States dollars.
The Notes represented by the Global Notes are expected to be eligible to trade
in The Portal Market and to trade in DTC's Same-Day Funds Settlement System, and
any permitted secondary market trading activity in such Notes will, therefore,
be required by DTC to be settled in immediately available funds. The Company
expects that secondary trading in any Certificated Notes will also be settled in
immediately available funds.
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Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Note from a
Participant will be credited, and any such crediting will be reported to the
relevant Euroclear or Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and Clearstream)
immediately following the settlement date of DTC. DTC has advised the Company
that cash received in Euroclear or Clearstream as a result of sales of interests
in a Global Note by or through a Euroclear or Clearstream participant to a
Participant will be received with value on the settlement date of DTC but will
be available in the relevant Euroclear or Clearstream cash account only as of
the business day for Euroclear or Clearstream following DTC's settlement date.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income tax
consequences of the acquisition, ownership and disposition of notes by a U.S.
Holder (as defined below). This entire discussion constitutes the opinion of
Shearman & Sterling LLP, United States counsel to IMAX Corporation. The written
opinion of Shearman & Sterling LLP has been filed as an exhibit to the
registration statement of which this prospectus forms a part. The discussion
below applies only to notes held as capital assets, within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended, (the "Code"), by
investors who purchase the notes in the offering at the offering price. This
summary is intended for general information only, and does not discuss all of
the tax consequences that may be relevant to a U.S. Holder and does not discuss
the tax consequences applicable to particular classes of U.S. Holders that may
be subject to special tax rules, such as dealers in securities or currencies,
traders in securities that elect mark to market, banks, tax-exempt
organizations, partnerships, S corporations, life insurance companies, persons
that hold notes as part of a hedge, or as part of a straddle or conversion
transaction, taxpayers subject to the alternative minimum tax or whose
functional currency is not the U.S. dollar. This summary also does not address
the tax consequences to shareholders, partners or beneficiaries in any entity
that holds notes. In addition, this summary does not describe any foreign, state
or local tax considerations. Investors who purchase the notes at a price other
than the offering price should consult their tax advisors as to the possible
applicability to them of the amortizable bond premium or market discount rules.
This summary is based on the Code, its legislative history, existing and
proposed U.S. Treasury regulations thereunder, published rulings by the Internal
Revenue Service ("IRS") and court decisions, all as currently in effect and all
subject to change at any time, possibly with retroactive effect.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE CONSEQUENCES, IN
YOUR PARTICULAR CIRCUMSTANCES, UNDER THE CODE AND THE LAWS OF ANY OTHER TAXING
JURISDICTION, OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF NOTES.
For the purposes of this summary, a U.S. Holder is a beneficial owner that
is:
- an individual citizen or resident of the United States for U.S. federal
income tax purposes;
- a corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States or of any political
subdivision of the United States;
- an estate that is subject to U.S. federal income tax without regard to
the source of its income; or
- a trust if (i) a United States court is able to exercise primary
supervision over administration of the trust and one or more United
States persons have authority to control all substantial decisions of the
trust, or (ii) the trust has elected to be treated as a United States
person under applicable U.S. Treasury regulations.
The exchange of an old note for a note in the exchange offer will not be a
taxable exchange for U.S. federal income tax purposes. As a result, a U.S.
Holder will not recognize any gain or loss upon exchanging an old note for a
note. The holding period of the note will include the holding period of the old
note exchanged, and the adjusted tax basis of the note received will be the same
as the adjusted tax basis immediately before the exchange of the old note.
For U.S. federal income tax purposes, interest on a note generally will be
taxable to a U.S. Holder as ordinary income at the time received or accrued, in
accordance with such U.S. Holder's method of accounting for tax purposes. Such
interest will generally constitute foreign source income, and, with certain
exceptions, will be "passive" or "financial services" income for purposes of the
U.S. foreign tax credit.
Upon the sale or exchange of a note (other than the exchange of an old note
for a note, as described above), a U.S. Holder will recognize gain or loss, if
any, for U.S. federal income tax purposes equal to the difference between the
amount realized on such sale or exchange (other than amounts received that are
attributable to accrued but unpaid interest and taxed as interest) and such U.S.
Holder's adjusted tax basis
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in the note. Such gain or loss generally will constitute U.S. source capital
gain or loss, and will be long-term capital gain or loss if the note was held by
such U.S. Holder for more than one year. A U.S. Holder's ability to deduct
capital losses against ordinary income is subject to limitations.
Information reporting of payments of principal and interest within the
United States to non-corporate U.S. Holders generally will be made on Internal
Revenue Service Form 1099, including payments made by wire transfer from outside
the United States to an account in the United States and the payment of proceeds
from the sale of a note effected at a United States office of a broker.
A U.S. Holder may be subject to backup withholding tax with respect to
interest paid on the notes and to proceeds from the sale, exchange, redemption
or retirement of the note, unless the holder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates that
fact or (b) provides a correct taxpayer identification number, certifies that it
has not lost its exemption from backup withholding or has not been notified by
the IRS that it has failed to report any interest or dividends, and otherwise
complies with applicable requirements of the backup withholding rules. A holder
of a note who does not provide us with the holder's correct taxpayer
identification number may be subject to penalties imposed by the IRS.
Backup withholding is not an additional tax. Any amount paid as backup
withholding will be creditable against the holder's U.S. federal income tax
liability.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the principal Canadian federal income tax
considerations under the Income Tax Act (Canada) (the "ITA") as of the date of
this prospectus generally applicable to a holder who acquires notes on the
exchange of old notes (the "Exchange") and who, for the purposes of the ITA and
at all relevant times, is not (and is not deemed to be) resident in Canada,
deals at arm's length with IMAX, does not (and is not deemed to) use or hold the
notes in, or in the course of, carrying on a business in Canada, and is not an
insurer that carries on an insurance business in Canada and elsewhere (a
"Holder"). For the purposes of this summary, any reference to notes shall not
include the Additional Notes (as defined in "Description of the Notes").
This summary is based on the current provisions of the ITA, the regulations
thereunder, all specific proposals to amend the ITA and such regulations
publicly announced by or on behalf of the Minister of Finance (Canada) prior to
the date hereof (which amendments this summary presumes are enacted in their
current form), and IMAX's understanding of the published administrative
practices of the Canada Customs and Revenue Agency. This summary does not
otherwise take into account any change in law or administrative practice,
whether by judicial, governmental, legislative or administrative action, nor
does it take into account provincial, territorial or foreign income tax
consequences, which may vary from the Canadian federal income tax considerations
described herein.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT, AND SHOULD NOT BE
INTERPRETED AS, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER AND NO
REPRESENTATION IS MADE WITH RESPECT TO THE CANADIAN FEDERAL INCOME TAX
CONSEQUENCES TO ANY PARTICULAR HOLDER. ACCORDINGLY, HOLDERS OF NOTES SHOULD
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES.
Under the ITA, the payment by IMAX of interest, principal or premium (if
any) on the notes to a Holder will be exempt from Canadian withholding tax, and
no other taxes on income (including taxable capital gains) under the ITA will be
payable by a Holder in respect of the Exchange, ownership or disposition of the
notes.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives notes for its own account pursuant to the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of such notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of notes received in exchange for old notes where the old notes
were acquired as a result of market-making activities or other trading
activities. We have agreed that, for a period of 180 days after the expiration
date of the exchange offer, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
We will not receive any proceeds from any sale of notes by broker-dealers.
Notes received by broker-dealers for their own account pursuant to the exchange
offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the notes or a combination of those methods of resale, at market
prices prevailing at the time of resale, at prices related to prevailing market
prices or negotiated prices. Any resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
of the notes. Any broker-dealer that resells notes that were received by it for
its own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of the notes may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any resale of notes
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date of the exchange offer,
we will promptly send a reasonable amount of additional copies of this
prospectus and any amendment or supplement to this prospectus to any
broker-dealer that is entitled to use such documents and that requests such
documents in the letter of transmittal. We have agreed to pay all expenses
incident to the exchange offer other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act. We note, however, that in the opinion of the SEC,
indemnification against liabilities under federal securities laws is against
public policy and may be unenforceable.
The notes have not been and will not be qualified for distribution under
the securities laws of any province or territory of Canada and are being offered
and sold in Canada only in reliance on available prospectus exemptions.
LEGAL MATTERS
Certain United States legal matters in connection with the validity of the
notes and the accompanying guarantees will be passed upon for us by Shearman &
Sterling LLP, Toronto, Ontario and New York, New York. We have been advised as
to certain Canadian legal matters by McCarthy Tetrault LLP, Toronto, Ontario and
New York, New York.
EXPERTS
The financial statements as of December 31, 2002 and 2003 and for each of
the three years in the period ended December 31, 2003 incorporated by reference
into this prospectus have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent auditors, given on the authority of said
firm as experts in auditing and accounting.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual reports, quarterly reports, proxy statements and other
information with the SEC under the Exchange Act. You may read and copy this
information, or obtain copies of the information by mail, at the following
location of the SEC:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, DC 20549
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.
The SEC also maintains a web site that contains reports, proxy statements
and other information about issuers, like IMAX, who file electronically with the
SEC. The address of the site is www.sec.gov.
In addition, we are subject to the filing requirements prescribed by the
securities legislation of all Canadian provinces. These filings are available
electronically from the Canadian System for Electronic Document Analysis and
Retrieval at www.sedar.com, which is commonly known by the acronym "SEDAR."
We are "incorporating by reference" into this prospectus certain
information contained in documents we file with the SEC, which means that we are
disclosing important information to you by referring you to those documents. The
information incorporated by reference is deemed to be part of this prospectus.
The following information and documents, which have been filed by us with the
SEC, are incorporated by reference into this prospectus:
- quarterly report on Form 10-Q/A for the fiscal quarter ended June 30,
2004;
- annual report on Form 10-K/A (amendment no. 2) for the fiscal year ended
December 31, 2003;
- definitive proxy statement on Schedule 14A, dated April 29, 2004; and
- current reports on Form 8-K, dated March 11, 2004, May 6, 2004 and August
9, 2004.
All documents that we file with the SEC under Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act from the date of this prospectus until the completion
of the exchange offer shall also be deemed to be incorporated by reference into
and will automatically update information in this prospectus. Current reports on
Form 8-K containing only Regulation FD disclosure furnished pursuant to Item 9
of Form 8-K or disclosure regarding a completed quarterly or annual fiscal
period furnished pursuant to Item 12 of Form 8-K shall not be deemed to be
incorporated by reference into this prospectus except to the extent we
specifically state in such Form 8-K that the disclosure in such report is to be
incorporated by reference into this prospectus.
Any statement made in this prospectus or in a document incorporated or
deemed to be incorporated by reference into this prospectus will be deemed to be
modified or superseded for purposes of this prospectus to the extent that a
statement contained in any other subsequently filed document that is also
incorporated or deemed to be incorporated by reference into this prospectus
modifies or supersedes the original statement. Any statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
You may request a copy of these filings, at no cost, by writing or calling
us at the following address or telephone number:
G. Mary Ruby
Senior Vice President, Legal Affairs and Corporate Secretary
IMAX Corporation
2525 Speakman Drive
Sheridan Park
Mississauga, Ontario, L5K 1B1
Tel: (905) 403-6500
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Exhibits to the filings will not be sent unless those exhibits have
specifically been incorporated by reference into this prospectus.
Except as provided above, no other information, including information on
our website, is incorporated by reference into this prospectus.
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