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Mar

Current report No. 6/2010 dated 3 March 2010: Signing of a memorandum of understanding

The Board of Managing Directors of Cinema City International, N.V. (the “Company”) informs that on 3 March 2010 the Company signed a memorandum of understanding (the “MOU”) with Israel Theatres Ltd. (“IT”) in connection with the sale of all of the Company’s assets related to real estate development and related activities in Bulgaria to IT (the “Assets”) (the “Transaction”).
 

The Assets include: the Mall of Ruse project in the city of Ruse which is in an advanced construction stage, the Mall of Stare Zagora which is still in its planning stage and RESB – a real estate development and management company which is involved in building and leasing these assets. In addition, IT will assume all of the Company’s outstanding real estate development related obligations in Bulgaria, including the completion of the Company’s post-sale commitments relating to the Mall of Plovdiv. It is anticipated that the Transaction will be effected through the sale of shares in the wholly-owned subsidiaries of the Company.
 

The purchase price will amount to approximately Euro 85 million and will be based on a valuation performed by an internationally recognized third-party valuator of the properties both in Ruse and Stara Zagora, respectively, obtained by the Company in connection with the preparation of its 2009 audited financial statements and which will be adjusted to take into account the closing balance sheets of the relevant companies.
IT will pay approximately EUR 70 million of the purchase price at the closing of the Transaction, with the remaining amount, approximately EUR 15 million, payable nine months after the opening of the Mall of Ruse, but in no event later than 18 months following the closing of the Transaction.

In connection with IT securing the financing for the Transaction, the Company agrees to refrain from borrowing any additional funds if such borrowings would result in IT, on a fully consolidated basis (together with the Company), breaching the agreed upon EBITDA to debt ratios. This covenant is not expected to impact upon the Company's current cinema development plans. This covenant will remain in force so long as IT remains the majority shareholder of the Company, or until IT repays the debt incurred in connection with securing the financing for the Transaction.
 

In addition, the MOU provides that IT will pay to the Company a percentage of any gains it realizes from the disposal of the Assets at any time within three years of the Transaction – 75% of any gains prior to the first anniversary, 50% of any gains realized between the first and second anniversaries and 25% of any gains realized between the second and third anniversaries of the Transaction. IT will be solely responsible for any losses it may suffer following the Transaction.
In the definitive agreement the Company will agree not to engage in any real estate development business activity in Bulgaria in the future, and that its activities will concentrate on cinema exhibition, film distribution and other related activities.
 

The Transaction remains subject to IT finalizing the financing, the approval of the Company’s supervisory board and agreeing and signing of the definitive binding agreement on sale of the Assets. Since IT indirectly controls the majority of the shares in the Company, the Transaction is treated as a “related party transaction”. Consequently, the supervisory board of the Company will form a special committee of non-related party board members who, together with the Company’s audit committee, will review and vote on the Transaction.
 

The execution of the definitive binding agreements and the closing of the Transaction are expected to take place prior to the end of March 2010.
 

The main aim of the Transaction is to allow the Company to focus on developing its theatre exhibition and film distribution businesses while reducing its outstanding debt.
The Company will continue to be opportunistic in connection with its international theatre development plans and may consider real estate development projects in other territories from time to time as serving the best interests of developing the Company’s movie exhibition and distribution businesses in such territories.
 

The proceed of the transaction will be used to substantially reduce CCI group debt. CCI intends to use the excess cash and freed up leverage to fund the expansion of CCI’s movie theatre activities, both in its current region of operation and potentially to new locations as well.

Legal grounds: Article 5:53 and subsequent of the Dutch Act of 28 September 2006 on rules regarding the financial .markets and their supervision (Act on Financial Supervision – Wft.) in conjunction with Article 56.1.1 and article 56.6 of the Polish Act on Public Offerings, Conditions governing the Introduction of Financial Instruments to Organized Trading and on Public Companies of 29 July 2005