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10

Jan

Current report No. 2/2014 dated 10 January 2014

Summary

  • The Management Board of Cinema City International N.V., with its registered office in Amsterdam, the Netherlands (the “Company”), hereby announces that on 10 January 2014, the Company and Cineworld Group plc (“Cineworld”) entered into a combination agreement (the "Combination Agreement") to  transfer the entire issued share capital of the Company's wholly-owned subsidiary, Cinema City Holding B.V., the entity which will hold the Company's cinema operations at Completion, to Cineworld based on an enterprise value (on a debt free / cash free basis) of approximately £503 million payable in shares and cash (the "Combination").
  • On completion of the Combination ("Completion"), the current Chief Executive Officer of the Company, Moshe (Mooky) Greidinger, and the current Chief Financial Officer of the Company, Israel Greidinger, will join the board of directors of Cineworld as Chief Executive Officer and Chief Operating Officer respectively. It is intended that on Completion, Moshe Greidinger and Israel Greidinger will step down as managing directors of the Company and will instead become non-executive directors of the Company.
  • The Combination will be funded by Cineworld through a fully underwritten rights issue of Cineworld (the "Rights Issue"), new debt facilities and new Cineworld shares issued as consideration to the Company, representing 24.9% of Cineworld at Completion.
  • An extraordinary general meeting of the Company to approve the Combination is expected to be held at the end of February 2014 and the Combination is expected to complete in March 2014.

The Combination

Pursuant to the Combination Agreement, the Company conditionally agreed to transfer the entire issued share capital of the Company's wholly-owned subsidiary, Cinema City Holding B.V. (the entity which will hold the Company's cinema operations at Completion) to Cineworld.

Conditions

Completion is conditional upon the following things:

  1. Cineworld's shareholders approving the Combination at a general meeting of its shareholders;
  2. the Company's shareholders approving the Combination at an extraordinary general meeting of its shareholders;
  3. approval of the Combination by the President of the Office of Competition and Consumer Protection in Poland (such approval being unconditional or subject to such conditions as are reasonably acceptable to Cineworld) or the expiry of the relevant waiting period under Article 96 of the Polish Act dated 16 February 2007 on Competition and Consumers Protection, without a decision from the Polish antitrust authorities prohibiting the Combination;
  4. the completion of an internal reorganisation of the Company and its subsidiary undertakings (the "Group"), which is intended to result in the cinema business of the Group being owned by Cinema City Holding B.V. and its subsidiaries (the "Target Group") and the real estate business of the Group being owned by subsidiaries of the Company other than the Target Group (the "Remaining Group") and retained by the Remaining Group post-Completion; and
  5. Cineworld receiving the proceeds of its contemplated Rights Issue, which is fully underwritten.

Consideration

The consideration to be received by the Company on Completion under the terms of the Combination Agreement will consist of:

  1. £272 million in cash[1]; and
  2. shares in Cineworld representing 24.9 per cent. of the share capital of Cineworld at Completion,

representing an enterprise value on a debt free/cash free basis of approx. £503 million. In addition, the Company will also receive on Completion under the terms of the Combination:

  1. €14,488,000 in cash; and
  2. the Earnings Consideration.[2]

Other terms of the Combination

(i) Termination Rights

The Combination Agreement may be terminated:

  1. by either the Company or Cineworld if any of the conditions referred to above has not been satisfied (or waived) by 24 April 2014 (or such later date to which Completion may be postponed in accordance with the Combination Agreement);
  2. by the Company if:
    1. Cineworld does not carry out the material obligations required of it under the Combination Agreement at Completion;
    2. a material adverse effect has occurred in respect of Cineworld and its subsidiaries (the "Cineworld Group");
    3. the underwriting agreement between J.P. Morgan Securities plc, Barclays Bank Plc, Investec Bank plc and Cineworld (the "Underwriting Agreement") is terminated before the completion or waiver of the Rights Issue; or
    4. the agreement for the Cineworld Group's new debt facilities in respect of the Combination (the "New Facility Agreement") is terminated or required funds are not made available for draw down by the Cineworld Group under the New Facility Agreement immediately prior to Completion;
  3. by Cineworld if:
    1. the Company does not carry out the material obligations required of it under the Combination Agreement at Completion;
    2. a material adverse effect has occurred in respect of the Target Group;
    3. the Underwriting Agreement is terminated, provided that Cineworld has complied with its obligations to enforce its rights and to satisfy certain obligations and conditions thereunder; or
    4. the New Facility Agreement is terminated or required funds are not made available for draw down by the Cineworld Group under the New Facility Agreement immediately prior to Completion, provided that Cineworld has complied with its obligations to enforce its rights and to satisfy certain obligations and conditions thereunder.

If the Combination Agreement is terminated, the Company will, in certain circumstances, be entitled to be paid a break fee by Cineworld.

(ii) Non-compete and non-solicit

The Company has agreed that, save in certain limited circumstances, the Remaining Group will not compete with the business of the Target Group for two years following Completion and it will not solicit employees of the Target Group for three years following Completion.

(iii) Directors

It is envisaged that upon Completion, Moshe Greidinger and Israel Greidinger will be appointed as Chief Executive Officer and Chief Operating Officer respectively of Cineworld and Scott Rosenblum (the existing chairman of the board of supervisory directors of the Company (the "Supervisory Board")) will be appointed as a non-executive director of Cineworld. It is further envisaged that upon Completion, Scott Rosenblum will step down from the Supervisory Board as a supervisory director and as chairman and Moshe Greidinger and Israel Greidinger will step down as managing directors of the Company and instead will be appointed as non-executive directors of the Company. It is proposed that at the same time, Peter Dudolenski will join the board as an executive director of the Company.

Relationship Agreement

The Company and Cineworld have also entered into a relationship agreement (the "Relationship Agreement"), which is conditional upon Completion occurring, governing the continuing relationship between the Company and Cineworld following Completion. The Relationship Agreement contains, amongst others, provisions: (i) to ensure that the Cineworld Group is capable of carrying on its business independently of the Remaining Group; (ii) permitting the Company to appoint one non-executive director of Cineworld (if none of Moshe Greidinger, Israel Greidinger or Scott Rosenblum is still on the board of directors of Cineworld) for so long as it holds at least 10 per cent. of the voting rights in Cineworld and (iii) relating to restrictions on the disposal by the Company of its shares in Cineworld for 12 months following Completion, together with a requirement for the Company to, where reasonably practicable, consult with and consider the reasonable views of the Chairman or the Senior Independent Director of Cineworld prior to a sale by the Company of its shares in Cineworld after that initial 12-month period.

Shareholder meeting

An extraordinary general meeting of shareholders of the Company (the "EGM") has today been convened for 24 February 2014 in order to, amongst others, vote on the Combination in accordance with Article 2:107a of the Dutch Civil Code. The Convocation Notice, Shareholders' Circular and other relevant documents relating to the EGM will be made available today on the Company's website: www.cinemacity.nl.

The Company's majority shareholder, IT International Theatres Limited, has agreed to enter into an irrevocable undertaking in favour of the Company and Cineworld to support the Combination and, in particular, to vote in favour of the resolution to approve the Combination which is contained in the Shareholders' Circular.



[1] Assuming no repayment or prepayment since 1 October 2013 under the Group's existing debt financing arrangements.

[2] The "Earnings Consideration" is an amount equal to: (i) €25,900,000 if Completion occurs in or before February 2014; and (ii) €28,900,000 if Completion occurs in or after March 2014; in cash, representing 75 per cent. of the forecast accumulated adjusted earnings of the Group's cinema business from 1 October 2013 to the date of Completion (inclusive) (assuming a February or March Completion, respectively), subject to an adjustment post-Completion to reflect the actual accumulated adjusted earnings for the period.