IMAX Corporation has entered into two significant financing transactions, one with Wachovia Capital Finance Corporation and one with the Douglas family, IMAX's largest shareholder.
The deal with Wachovia will be to increase future availability and modify other terms under the company's existing credit facility
The deal with the Douglas family is for the sale of approximately 2.73 million common shares in a private placement at an aggregate purchase price of $18 million.
Proceeds from these transactions will be used to fund the company's IMAX Digital projection roll-out, slated to begin this summer, and for general corporate purposes.
"We have always believed that the attractive returns from existing joint ventures would enable us to finance our broader digital rollout," said IMAX Co-Chairmen and Co-CEO's Richard L. Gelfond and Bradley J. Wechsler in a statement. "Now our bank and our largest shareholder have each stepped forward to provide us with increased availability of credit and cash, which we believe will enable us to effectively execute on our existing plan. Coupled with our cash on hand, we expect that these deals will ultimately provide us with access to roughly $55 to $60 million in funding."
IMAX and Wachovia entered into an amendment on May 5, 2008 which extends the term of the facility to October 31, 2010, removes an EBITDA maintenance covenant provided the company maintains certain minimum liquidity requirements, and is likely to increase the company's borrowing base.
"We believe these changes will ensure our access to more money for a longer period of time, mitigating operating risk," Gelfond and Wechsler said. "The amended terms of the line allow us to draw down approximately $24.4 million today, and we believe that as our borrowing base increases in accordance with the terms of the agreement we may be able to take down close to $30 million."
Additionally, on May 5, 2008, the company entered into an agreement with the Douglas family, IMAX's largest shareholder, for the sale of approximately 2.73 million of the company's common shares for a total purchase price of $18 million, or approximately $6.60 per share (the equivalent of the average closing IMAX common share price over the most recent five trading days).
The Douglas family, which will own 19.9 percent of the company's common shares post-transaction, has agreed to a five-year standstill with the company whereby it will refrain from certain activities, such as increasing its percentage ownership in the company and entering into various arrangements with the company, such as fundamental or change-of-control transactions.
The company has granted the Douglas family registration rights in connection with the newly-acquired shares. The private placement is expected to close on May 8, 2008 and is subject to customary closing conditions.
"The Douglas family has been an extremely supportive shareholder group, and we're pleased that they have recognized the potential in IMAX and the opportunity to invest at this level at this time," said Gelfond and Wechsler. "The good news is that as a result of today's announcements, we do not believe we will need additional financing to fund our digital rollout under the current business model."
Exhibitors and other customers have been extremely enthusiastic in their response to IMAX's pending transition to digital, signing deals for 170 IMAX Digital theatre systems in the last two quarters. In December 2007, IMAX announced a joint venture agreement with AMC Entertainment, Inc. for 100 IMAX Digital theatre systems. In March 2008, IMAX announced a joint venture agreement with Regal Cinemas for 31 IMAX Digital theatre systems.
These deals will dramatically increase the IMAX theater footprint in North America and accelerate the momentum behind IMAX's transition to digital projection technology over the next few years.
The company expects to deliver the first of those digital theater systems and open its initial joint venture theatres with AMC in July 2008.
