<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 333-1742
AMC, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 58-2201031
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
240 PEACHTREE ST., N.W. SUITE 2200, ATLANTA, GA 30303
(Address of principal executive offices) (Zip Code)
(404) 220-2000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K [X]
Neither the Registrant's common stock, par value $1.00 per share (the "Common
Stock"), nor its Fixed Rate Class A Secured Notes due July 31, 2000 has a
trading market. As of November 6, 1998, 39,333,243 shares Common Stock were
held by non-affiliates of the Registrant.
As of November 6, 1998 the Registrant had 62,173,154 shares of common stock,
par value $1 per share outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PART I
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 36
PART III
Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and Management 39
Item 13. Certain Relationships and Related Transactions 40
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 42
</TABLE>
THIS FORM 10-K AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY AMC,
INC. OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY CONSTITUTE "FORWARD
LOOKING STATEMENTS" UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT
EXPECTATIONS OF AMC, INC. AND MEMBERS OF ITS MANAGEMENT TEAM, AS WELL AS THE
ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE INVESTORS ARE
CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES AND THAT ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS.
IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS INCLUDE, BUT MAY
NOT BE LIMITED TO, (A) CHANGES IN THE GENERAL ECONOMIC CLIMATE, (B) CONDITIONS
OF TENANTS, (C) INCREASED OPERATING COSTS AND INTEREST EXPENSE, (D) THE TIMING
OF AND COSTS ASSOCIATED WITH PROPERTY IMPROVEMENTS, (E) CHANGES IN TAXATION OR
ZONING LAWS, (F) GOVERNMENT REGULATIONS, (G) AVAILABILITY OF FINANCING TO REPAY
OUTSTANDING INDEBTEDENSS AND FOR OTHER PURPOSES, (H) POTENTIAL LIABILITY UNDER
ENVIRONMENTAL OR OTHER LAWS OR REGULATIONS, (I) GENERAL COMPETITIVE FACTORS AND
(J) YEAR 2000 COMPLIANCE ISSUES. AMC, INC. UNDERTAKES NO OBLIGATION TO UPDATE
OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE
OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER
TIME.
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
AMC, Inc. (the "Company" or "AMC"), a Georgia Corporation, was organized in
1995 in conjunction with a series of transactions which involved the exchange
of certain assets, debt and equity and the debt restructuring of Mr. John C.
Portman, Jr. ("Mr. Portman") and a group of affiliated entities (collectively,
the "Portman Companies") (these transactions, collectively the "Formation
Transactions"). As a result of these transactions, the initial assets of AMC
included the Atlanta Merchandise Mart (the "Merchandise Mart"), the Atlanta
Apparel Mart (the "Apparel Mart"), the Atlanta Gift Mart (the "Gift Mart"; the
Merchandise Mart, the Apparel Mart and the Gift Mart are referred to
collectively herein as the "Marts"), and the assets of the Atlanta Market
Center Management Company, Inc. ("AMCMC") which operated the Marts and was
merged into AMC. The Company's primary business is the operation of the Marts
and the management of trade shows in conjunction with the Marts, which
historically have generated more than 90% of the Company's revenues from both
rental and trade show revenues. Additionally, the Company manages trade shows
on behalf of third parties at other locations.
For revenue and related financial data, see Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and Item 8,
"Financial Statements and Supplementary Data" included herein. For the history
of the Company and a discussion of the Formation Transactions see "--Formation
Transactions."
RECENT DEVELOPMENTS
See Item 7, under "Liquidity and Capital Resources" for a discussion of the BPLP
Transaction and the FBCC Transaction, as defined therein.
TRADE SHOW AND MART INDUSTRY OVERVIEW
Trade marts are facilities that allow wholesalers, principally manufacturers
and their representatives (collectively, "Manufacturers"), to offer their goods
to a broad range of retailers at a single location. Trade marts offer
Manufacturers permanent showrooms for year round exhibition of their products.
By committing to permanent space, in addition to having the availability of a
year round sales facility, a Manufacturer has the ability to construct
significant tenant improvements and is assured of a specific location and the
ability to participate in the trade shows held at the trade mart during the
lease term. Additional temporary exhibit space is made available to
Manufacturers during periodic industry-specific trade shows. Buyers attend
trade shows because they offer the opportunity to view and compare the latest
industry products of numerous Manufacturers in a time and cost efficient
manner.
Trade shows are held at trade marts or at other exhibition facilities. A trade
show is generally located in a city that offers convenient transportation and
adequate infrastructure to support a large number of attendees. Trade shows are
typically prominent in industries in which products are non-standardized,
change frequently or require physical inspection before purchase. The success
of a trade show depends both upon the breadth of merchandise offered and
participation by a significant group of buyers.
Trade shows are attended by buying groups of large retailers who prefer the
efficiency of purchasing associated therewith over individual meetings with
Manufacturers. Additionally, trade shows are attended by many retailers who
cannot afford to visit numerous Manufacturers and whose purchasing power may
not warrant visits from sales representatives of Manufacturers. For these
reasons, management believes that trade shows represent an essential buying
opportunity for many retail purchasers.
BUSINESS OF THE COMPANY
Each of the Marts primarily focuses on specific industries. The Apparel Mart,
with approximately 1.3 million square feet, houses fashion accessories, jewelry
and women's, children's and men's apparel products. The Gift Mart houses
approximately 1.0 million square feet of permanent giftware. The Merchandise
Mart, which has approximately 2.0 million square feet, houses holiday and
floral products, rugs, home accents, home accents and fine linens and garden
products.
The success of a particular trade mart or trade show depends upon its ability
to attract Manufacturers of a broad range of merchandise, which in turn
attracts a substantial number of buyers. Similarly, a Manufacturer of
merchandise seeks the opportunity to sell its products to the broadest number
of buyers. Accordingly, the Company markets to both Manufacturers and buyers.
3
<PAGE> 4
The Company seeks out Manufacturers primarily through industry lists and
targeted mailings. In addition, the Company identifies Manufacturers at other
trade marts and trade shows in its industries and markets to them as well.
Similarly, the Company attempts to attract new and additional buyers for its
trade shows and Marts by targeted mailings using industry lists. The Company
also keeps records of all persons participating as buyers at its trade shows
and Marts and generally invites them to attend upcoming trade shows through
direct mailings. Further, the Company markets its Marts and trade shows through
industry publications.
Wholesaling activities, on which the Company's revenues depend, are affected by
the general level of economic activity in the United States. Economic factors
which affect retailing such as interest rates, economic growth and consumer
confidence, also have a direct impact on the Company's business. In addition,
economic conditions in the housing industry have a direct impact on the demand
for many of the products offered through the Company's Marts and the trade
shows managed by the Company.
The Company provides many services which are important to attract both
Manufacturers and buyers to its facilities. For example, the Company provides
food services which are used by Manufacturers to entertain buyers.
Additionally, the Company offers services such as seminars, fashion shows,
parties, entertainment, hotel reservation services and negotiated airline
discounts to attract buyers. Such services and promotions are described in
marketing materials prepared by the Company and mailed directly to buyers. The
Company believes its marketing efforts to attract buyers are important to
Manufacturers who evaluate a trade mart based, among other things, upon the
number of buyers who visit it.
The Company also focuses on cross-merchandising opportunities by educating
buyers about the variety of goods available from its various Marts. The Company
continually seeks to introduce new product lines in its Marts. In recent years,
the Marts have focused on product lines which present cross-selling
opportunities with existing product lines because a related line of products
can be introduced more efficiently if a critical mass of related merchandise
already exists. The Company's strategy has also been to expand existing product
lines and, accordingly, the number of Manufacturers represented at its Marts.
For example, in the upcoming year the Company will convert the third and
fifteenth floors of the Merchandise Mart from temporary exhibit space into
permanent showrooms. This conversion represents an expansion of the Rug and
Garden industries located on the fourth to sixth floors and fourteenth floor,
respectively. The Company's goal is to become a cross-category buying
destination where buyers can satisfy their buying requirements in a short
period of time rather than having to travel to a number of different trade
shows. Aerial walkways between the Company's Marts facilitate cross-selling
opportunities and buying efficiency.
During periods when there are no Company sponsored trade shows, the Company
leases its temporary exhibit space to third parties for conventions, meetings
and trade shows (referred to as the "Convention Center Sales" business).
SEASONALITY
The number of trade shows or markets in a particular industry is keyed to the
major sales seasons for such industry. A majority of the Company's trade shows
occur from January through September of each calendar year. Accordingly, the
Company experiences periodic fluctuations in its trade show revenues, with the
lowest revenues occurring in the period from October through December of each
calendar year. Other revenues of the Company, such as parking and advertising
sales, fluctuate periodically with trade show revenues, as these revenues are
significantly impacted by the timing and number of trade shows.
COMPETITION
The Company's Marts and trade shows compete with a variety of other trade marts
and trade shows throughout the United States. In addition, new or additional
trade marts or trade shows may be organized by existing competitors or new
market entrants which may adversely impact the Company's operations.
Existing competitors to the Apparel Mart include the New York garment district
and regional marts located in Dallas, Chicago, San Francisco, Las Vegas and
Miami. Existing competitors to the Gift Mart include regional marts located in
New York, Dallas, Chicago, San Francisco and Los Angeles, as well as trade
shows in New York, Los Angeles, Boston, Washington, D.C., Chicago, and San
Francisco. Existing competitors to the Merchandise Mart include the Surfaces
Show in the area rug industry; mill showrooms and a semi-annual trade show in
New York in the home textile industry; and trade marts in High Point, North
Carolina, Dallas and San Francisco in the home accents and furniture
industries.
4
<PAGE> 5
The Company believes the primary basis on which trade marts compete is the
critical mass of merchandise, the cost of transportation to a trade mart and
the availability and cost of local accommodations, transportation, food and
other services. Because of its location in Atlanta with its favorable air
transportation, infrastructure, accommodations and services, the convenience
and efficiencies of the Marts, and the breadth of its product line in a
concentrated area and emphasis on cross-merchandising, the Company believes it
distinguishes itself from, and is well positioned to compete against, other
marts and trade shows in each of its industries.
FORMATION TRANSACTIONS
Prior to October 2, 1995, the assets and businesses owned by the Company were
included in various partnerships and corporations controlled by Mr. Portman and
the Portman Companies. Mr. Portman and the Portman Companies have been involved
in designing, developing, operating and owning office buildings, hotels, trade
marts and trade shows throughout the world for more than 40 years. In 1991, as
a result of declines in commercial real estate markets, Mr. Portman and the
Portman Companies were unable generally to meet their debt obligations.
Accordingly, Mr. Portman, the Portman Companies and substantially all of their
creditors entered into the Override and Collateral Pool Agreement dated August
23, 1991 (as amended, the "OCPA"). Commencing in 1993, as a result of the
inability to sell or refinance certain assets of the Portman Companies as
contemplated by the OCPA, the parties to the OCPA began discussions to explore
ways to terminate the OCPA and to restructure the debt governed thereby.
In November 1995, a final plan was implemented which involved exchanges of
certain assets, debt and equity, as well as debt restructurings, with an
effective date of October 2, 1995 (the "Formation Date"). In a series of
transactions, the OCPA was terminated and Portman Holdings, L.P., a Georgia
limited partnership ("Portman Holdings"), in which AMC has no ownership
interest, and AMC were formed. Certain assets subject to the OCPA and certain
interests in the Portman Companies were transferred to Portman Holdings, which
is controlled by Mr. Portman. Except for its equity interest in AMC, after
completion of the restructurings, all of the net assets held by Portman
Holdings are assets and liabilities of entities other than the predecessor
companies to AMC. Other assets subject to the OCPA, as more fully described
below, were transferred to AMC.
On the Formation Date there were five classes of creditors (Classes A through
E) under the OCPA holdings claims against Mr. Portman personally. In addition,
each of the Apparel Mart, Merchandise Mart and the Gift Mart were encumbered by
separate mortgage loans. As a part of the OCPA termination, certain of this
debt was forgiven and the remainder was restructured, resulting in an
extraordinary gain of approximately $68.0 million for two of the predecessor
companies, The Atlanta Apparel Mart, L.P. and the Atlanta Merchandise Mart,
L.P. The debt was restructured as follows:
- - Debt outstanding under the Class A Claims of $10,740,239 on the
Formation Date was modified to become (1) the Fixed Rate Class A AMM
Escrow Notes due July 31, 1997 in the principal amount of $1,656,007
(the "AMM Escrow Bonds") and (2) the Class A Elevated Antecedent Debt
Notes due July 31, 2000 in the principal amount of $8,033,600 (the
"Elevated Antecedent Debt Notes");
- - Debt outstanding under the Class B, C and D Claims of $280,329,854 on
the Formation Date, which represented personal obligations of Mr.
Portman, were extinguished in exchange for the transfer by Mr. Portman
of interests in certain assets securing such claims. Such interests were
then contributed to AMC by the claimants for 29,203,000 shares of Common
Stock of AMC; the distribution was regarded as a distribution to Mr.
Portman for accounting purposes;
- - Debt outstanding under the Class E claims of $8,483,953 on the Formation
Date was extinguished with no further consideration;
- - Of the debt outstanding on the then existing Apparel Mart mortgage
financing of approximately $162,000,000 on the Formation Date,
$72,000,000 was forgiven and the balance was transferred to AMC and
modified to become $80,000,000 in principal amount of Private Placement
Notes issued directly to the members of the lending syndicate. In
addition, the members of the lending syndicate received 10,790,000
shares of Common Stock of AMC and warrants to purchase an additional
approximately 8,409,000 shares of Common Stock of AMC;
5
<PAGE> 6
- - Of the debt outstanding on the then existing Merchandise Mart mortgage
financing of approximately $153,000,000 on the Formation Date,
$60,000,000 was forgiven and the balance was transferred to AMC and
modified to become $80,000,000 in principal amount of Private Placement
Notes issued directly to the members of the lending syndicate. In
addition, the members of the lending syndicate received 11,300,000
shares of Common Stock of AMC and warrants to purchase an additional
approximately 8,807,000 shares of Common Stock of AMC (all Private
Placement Notes referred to collectively as the "Mart Bonds"); and
- - Debt outstanding on the then existing Gift Mart mortgage financing of
approximately $107,282,009 on the Formation Date was modified to extend
the term, to increase the interest rate and to reflect numerous other
changes from the original financing (such debt, the "Gift Mart Mortgage
Loan").
The foregoing transactions are referred to collectively as the "Formation." In
the Formation, assets of approximately $214.9 million and liabilities of
approximately $345.4 million, representing all of the assets and liabilities of
the Marts and AMCMC (the "Atlanta Market Center Companies" or the "Predecessor
Companies"), and the AMM Escrow Bonds and the Elevated Antecedent Debt Notes
were transferred to AMC. In addition, AMC received a $3,756,306 Purchase Money
Note of AMC Orlando, Inc., a Florida Corporation ("AMC Orlando"), and a
$446,220 Purchase Money Note of AMC Tampa, Inc., a Florida corporation ("AMC
Tampa"). Further, AMC received all of the common stock of LFGP, Inc., a Georgia
corporation ("LFGP") (which holds a 48.9982% general partnership interest in
Portman Lightfair Associates L.P. ("Portman Lightfair")), and E.C. Holdings,
Inc., a Georgia corporation ("EC Holdings") (which indirectly held an interest
in two mixed use complexes located in San Francisco, California). The
investments in LFGP and EC Holdings had insignificant or no carrying values at
the Formation Date. Finally, AMC received a small parcel of unimproved property
in Atlanta, Georgia (the "Pisa Land") with a carrying value of approximately
$.4 million.
EMPLOYEES
The Company had approximately 224 full-time employees on August 31, 1998. In
addition, the Company hires temporary employees as needed to support its
operations during peak trade shows. No material segment of the Company's
employees are represented by a union or similar organization. The Company
believes its relationships with its employees are satisfactory.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 240 Peachtree Street,
N.W., Suite 2200, Atlanta, Georgia 30303, and its telephone number is (404)
220-2000. The executive offices are located in the Merchandise Mart.
The Company owns or ground leases the parcels of land on which its three Marts
are located. The Marts, which are wholly-owned by the Company, are adjacent to
one another and are connected by aerial walkways.
Apparel Mart
The Apparel Mart, which was opened in 1979 and expanded in 1989, is a 15-story
building located on an approximately 3.6 acre site. The property is comprised
of 11 separate tracts of land, approximately 65% of which is ground leased to
the Company. The facility has approximately 900,000 rentable square feet
currently devoted to permanent space, and approximately 364,000 rentable square
feet currently devoted to temporary exhibit space and conference facilities.
Additionally, the building has a 15-story atrium, a penthouse theater that
seats approximately 1,000, a restaurant and on-site parking, all of which the
Company owns. As of August 31, 1998, approximately 61% of the permanent
showroom space was leased. Additional rental of exhibit space occurs during the
Company's trade shows. The Apparel Mart is subject to a deed to secure debt
which secures the obligations of the Company under a revolving line of credit
(the "Revolving Line of Credit"), and a deed to secure debt which secures the
Mart Bonds.
Merchandise Mart
The Merchandise Mart, a 23-story building which was opened in 1961 and expanded
in 1967 and 1986, is located on an approximately 2.3 acre site. The property is
comprised of eight parcels, seven of which represent 0.6 acre and are ground
leased by the Company. The remaining 1.7 acre parcel is owned by the Company.
The 23-story building has approximately 1.5 million rentable square feet
currently devoted to permanent space and approximately 452,000 rentable square
feet currently devoted to temporary exhibit space. As of August 31, 1998, the
permanent space in the Merchandise Mart was approximately 81% leased.
Additional rental of exhibit space occurs during the Company's
6
<PAGE> 7
trade shows. The Merchandise Mart is subject to a deed to secure debt which
secures the obligations of the Company under the Revolving Line of Credit, and
a deed to secure debt which secures the Mart Bonds.
Gift Mart
The Gift Mart, which was opened in January 1992, is an 18-story building
located on an approximately 1.8 acre site. The Company owns this property,
which is subject to a deed to secure debt which secures the Gift Mart Mortgage
Loan. The building contains approximately 1.0 million rentable square feet,
which is all permanent space, and a five-level parking garage. As of August 31,
1998, approximately 95% of such space was leased.
Periodically, the Company redesignates space in the Marts as rentable,
non-rentable, permanent or temporary.
Other Properties
The Company, through its wholly-owned subsidiary EC Holdings, owns limited
partnership interests in partnerships owning various types of real estate. In
February and May 1998, two of the partnerships sold hotel properties for an
agreed upon number of units in other previously unaffiliated limited
partnerships that had been formed for the purpose of acquiring and operating
hotel properties. The Company's share of the units, which were distributed to EC
Holdings, had a fair value of approximately $6.4 million which has all been
recorded as a gain since the Company had no previously recorded basis in the
interest held by EC Holdings. The limited partnership units are not publicly
traded and are restricted as to transfer for a period of time. The common stock
of EC Holdings and its limited partnership interests collateralizes the Elevated
Antecedent Debt Notes.
The Company also owns the Pisa Land, an approximately 0.3 acre tract of land in
downtown Atlanta. The land currently is used for surface parking, which
generates sufficient net income to cover its operating costs. The Pisa Land
also secures the Elevated Antecedent Debt Notes. Under the terms of the
Elevated Antecedent Debt Notes, since the Company did not liquidate its
interest in EC Holdings or the Pisa Land by October 2, 1997, under certain
conditions the Elevated Antecedent Debt Note holders are entitled to direct the
trustee for the bonds to foreclose upon the Company's interest in EC Holdings
and the Pisa Land.
Leases
The leases for tracts of land that are a part of the Apparel Mart site have
terms expiring from February 2066 to August 2071. The leases for tracts of land
that are a part of the Merchandise Mart site have terms expiring in June 2061.
Under the terms of these leases, the Company may assign, sublet or encumber its
leasehold interests in such properties. The only event of default is the
failure of the Company to pay when due rent, taxes, assessments or other
charges required to be paid to the lessor or to pay premiums for insurance
policies required to be maintained by the Company pursuant to the terms of each
lease. If the Company fails to cure such default within 90 days of receiving a
notice of default, the lessor may take possession of the property.
Management believes that its properties are currently adequate and suitable to
conduct its business and will remain so in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
On April 19, 1993, a former employee of AMCMC (predecessor company) filed suit
against AMCMC for breach of contract and related tort claims. On January 19,
1996, the trial court granted summary judgment in favor of the Company on all
counts. On March 5, 1997, the Georgia Court of Appeals reversed the trial
court, and directed that judgment be entered in favor of the former employee on
the breach of contract count and remanded the case for trial on the tort
claims. The amount awarded for the breach of contract claim for damages, plus
estimated interest, of $400,000 was accrued at August 31, 1998. The Georgia
Supreme Court granted the Company's petition requesting a review of the Court
of Appeals decision. On July 13, 1998 the Supreme Court issued its opinion
affirming the summary judgment on the breach of contract claim, but ruling in
favor of the Company on the tort claims. The case has been remanded to the
trial court to enter a judgment and to determine whether attorneys' fees should
be awarded against either party in the case.
7
<PAGE> 8
The Company is subject to certain other claims in the ordinary course of
business. Management does not believe that the resolution of such claims will
have a material impact on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Company's issued and outstanding Common Stock is not actively traded and
there is not an established public trading market for such shares. As of
November 6, 1998, there were approximately 19 shareholders of the Company's
Common Stock. There were no dividends declared on the Company's Common Stock
during the year ended August 31, 1998. The Company's debt agreements restrict
dividend payments and it has no intention of paying dividends in the
foreseeable future.
8
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth, for the periods and dates indicated, summary
historical consolidated and combined financial data derived from the
consolidated financial statements of the Company and should be read in
conjunction with the consolidated financial statements and related notes
included elsewhere herein. (Due to the Formation Transactions, interest expense
subsequent to October 2, 1995 is not comparable to interest expense prior to
October 2, 1995).
<TABLE>
<CAPTION>
AMC, INC. PREDECESSOR COMPANIES
------------------------------------ ---------------------------------------
PERIOD PERIOD
FROM FROM
OCTOBER 2, JANUARY 1,
YEAR YEAR 1995 1995 YEAR YEAR
ENDED ENDED THROUGH THROUGH ENDED ENDED
AUGUST 31, AUGUST 31, AUGUST 31, OCTOBER 1, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS:
Revenues $ 76,374 $ 70,745 $ 62,767 $ 53,300 $ 63,189 $ 63,177
Operating expenses, exclusive of
depreciation and amortization 41,763 40,986 37,165 27,721 36,681 35,205
Depreciation and amortization 13,082 13,534 11,515 9,559 13,511 14,472
Operating income 21,529 16,225 14,087 16,020 12,997 13,500
Interest expense 8,291 8,375 7,780 25,560 25,946 24,018
Other expenses (income) (6,315) 1,528 (4,396) (346) 373 (310)
Income tax expense 7,465 2,443 3,402 -- -- --
Income before
extraordinary item $ 12,088 $ 3,879 $ 7,301 $ (9,194) $ (13,322) $ (10,208)
Income before extraordinary item
per share - basic $ .19 $ .06 $ .12 $ (a) $ (a) $ (a)
Income before extraordinary item
per share - diluted $ .19 $ .06 $ .12 $ (a) $ (a) $ (a)
BALANCE SHEET DATA:
Total assets $ 224,866 $ 229,521 $ 235,222 $ 214,133 $ 213,675 $ 219,903
Long-term debt and revolving
line of credit $ 297,255 $ 312,145 $ 325,968 $ 354,505 $ 407,532 $ 410,541
Long-term advances from
Affiliate -- -- -- -- $ 12,048 $ 12,048
Deficit $ (87,220) $ (99,308) $(103,187) $(152,165) $(231,015) $(220,210)
OTHER:
Distributions to
shareholders/partners $ -- $ -- $ -- $ 103 $ 1,077 $ 1,694
</TABLE>
(a) Not applicable
9
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
OF OPERATIONS
OVERVIEW
AMC was formed effective October 2, 1995 with a fiscal year end of August 31.
For purposes of discussion of the results of operations of AMC, Inc. and
subsidiaries for the year ended August 31, 1997 compared to the prior period,
audited results for AMC, Inc. and subsidiaries for the period from October 2,
1995 to August 31, 1996, have been combined with the unaudited results for the
Atlanta Market Center Companies (predecessor companies) for the period from
September 1, 1995 to October 1, 1995 ("Combined 1996") and have been set forth
in the table below. The fiscal year for the Atlanta Market Center Companies
ended on December 31. The following discussion and analysis should be read in
conjunction with the accompanying audited consolidated financial statements and
related notes of the Company which provide additional information on financial
activities and conditions. References herein to the Company mean AMC, Inc. after
October 2, 1995 and the Atlanta Market Center Companies prior thereto.
Effective October 2, 1995, Mr. Portman and The Portman Companies entered into a
series of agreements with their lenders to restructure their existing
indebtedness (the "Formation Transactions"). Under the terms of these
agreements, the net assets of the Atlanta Market Center Companies were
contributed to AMC, Inc., which had been formed principally for such purpose. In
exchange for the existing debt reduced by certain amounts forgiven by the
lenders, the creditors of Mr. Portman and certain affiliates, including the
creditors of the Company, received approximately 82.5% of the equity interest in
the Company, the Mart Bonds, the AMM Escrow Bonds, and the Elevated Antecedent
Debt Notes.
This restructuring has been accounted for as a troubled debt restructuring in
accordance with Statement of Financial Accounting Standards No. 15, "Accounting
by Debtors and Creditors for Troubled Debt Restructurings" (SFAS 15). As a
result of this troubled debt restructuring in which the existing debt exceeded
the fair value of the equity interests issued and the total future principal
and interest payments called for under the Mart Bonds, the Mart Bonds have
initially been recorded at an amount equal to the total future cash payments,
including interest, specified by their terms in accordance with SFAS 15. All
future cash payments will be accounted for as a reduction of the carrying
amount of the Mart Bonds, and no interest expense will be recognized on the
Mart Bonds. As a result, interest expense subsequent to October 2, 1995 is not
comparable to interest expense prior to October 2, 1995.
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes certain forward-looking statements about the Company's
business, revenues, expenditures and operating and capital requirements, as
such term is defined in Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. In addition, forward-looking
statements may be included in various other Company documents to be issued in
the future and in various oral statements by Company representatives to
security analysts and investors from time to time. Any such statements are
subject to risks that could cause the actual results to vary materially. The
risks and uncertainties associated with the forward-looking information,
include, but are not limited to, (a) changes in the general economic climate,
(b) conditions of tenants, (c) increased operating costs and interest expense,
(d) the timing of and costs associated with property improvements, (e) changes
in taxation or zoning laws, (f) government regulations, (g) availability of
financing to repay outstanding indebtedness and for other purposes, (h)
potential liability under environmental or other laws or regulations, (i)
general competitive factors and (j) year 2000 compliance issues.
RESULTS OF OPERATIONS
General
The Company's principal sources of revenues are rental revenues from the lease
of showroom and exhibition space in the Marts and trade show revenues which
relate to specific shows staged for related industries. The Company leases
showroom space over terms ranging from one to ten years with rent payable
monthly over the term of the lease. In addition, the Company rents exhibition
space during markets, thereby affording non-tenant Manufacturers and their
representatives an opportunity to exhibit merchandise during a specific trade
show.
The number of trade shows or markets in a particular industry is keyed to the
major sales seasons for such industry. A majority of the trade shows occur from
January through September of each calendar year. Accordingly, the
10
<PAGE> 11
Company experiences periodic fluctuations in its trade show revenues, with the
lowest revenues occurring in the period from October through December of each
calendar year. Other revenues of the Company, such as parking and advertising
sales, fluctuate periodically with trade show revenues as these revenues are
significantly impacted by the timing and number of trade shows.
The Company generally provides for losses on tenant receivables that are more
than 60 days delinquent. Such policy has resulted in bad debt expense that has
been determined to be generally reflective of experienced losses. This policy
ultimately results in larger aggregate allowances as a percentage of total
receivables. The Company does continue to pursue collection of such receivables
once reserved and does not write them off until collection efforts indicate
write-off is appropriate. Rents are due no later than the beginning of each
month and accrued accordingly. There are no individually significant tenant
receivables for which there is an allowance at any of the reporting period-ends,
nor are there any trends, events, or conditions resulting in the allowance which
management expects will materially impact future operating results, liquidity,
or capital resources.
Year ended August 31, 1998 compared to Year ended August 31, 1997.
Rental revenues increased approximately $4,780,000 during 1998 compared to
1997. Rental revenues in the Gift Mart increased approximately $1,146,000 due
to an increase in rental rates, partially offset by a slight decrease in
occupancy. Rental revenues increased approximately $4,843,000 in the
Merchandise Mart, reflecting an increase in both occupancy and rental rates.
The increase in occupancy is primarily associated with the expansion of
permanent showroom space for the Holiday and Floral industry during 1998.
Rental revenues in the Apparel Mart decreased approximately $1,209,000,
reflecting a decrease due to occupancy and rental rates. Trade show revenues
increased approximately $881,000 during 1998 compared to 1997 due to improved
results for the January Gift and Home Furnishings Market and the results of the
Florida Gift Show, which the Company took over in 1998 in lieu of payment on a
note receivable. These increases were offset by a decline in Convention Center
Sales business. Other revenue experienced a slight decline during 1998 compared
to 1997 due to the expiration of the INFORUM management agreement, offset by
increases in both advertising sales and hotel commission revenues.
Building operations expense increased approximately $373,000 in 1998 over 1997
due to increased electrical costs. Trade show expenses increased approximately
$474,000 during 1998 compared to 1997 due to increased registration costs
associated with the Florida Gift Show, and increased temporary labor costs for
both the January and July Gift and Home Furnishings Markets. Marketing expenses
increased approximately $586,000 during 1998 compared to 1997 due to increased
marketing costs associated with the Florida Gift Show, increased publishing
expense as the Company further expanded its trade show-related publishing
operations, and additional expense incurred to market the expansion of
permanent showroom space for the Gardens industry. General and administrative
expenses decreased approximately $444,000 during 1998 compared to 1997
primarily due to decreases in consulting expense and office supplies expense,
offset by an increase in personnel and employee benefits costs. Bad debt
expense decreased approximately $349,000 during 1998 compared to 1997 due to
further improvements in collection efforts during 1998.
Depreciation and amortization expense decreased approximately $452,000 during
1998 compared to 1997. During 1997, certain building and tenant improvements
were written off when two floors of the Merchandise Mart were rebuilt for the
expansion of the Holiday and Floral industry, resulting in greater depreciation
costs in 1997.
Interest expense decreased approximately $84,000 during 1998 as compared to
1997. The decrease in interest expense was due to the reduction of the Gift
Mart Mortgage Loan balance, partially offset by an increase in the Revolving
Line of Credit balance outstanding.
The gain on limited partnership interests of approximately $6,414,000
represents the fair value of the Company's share of limited partnership units
received as a result of the February and May 1998 sales of two hotel properties
owned by limited partnerships in which the Company has interests. The Company
had no previously recorded basis in the interests held by EC Holdings. The
limited partnership units received are not publicly traded, are restricted as
to transfer for a period of time, and are pledged as security for the Elevated
Antecedent Debt Notes.
Other expenses during 1998 decreased by $923,000 compared to 1997. The 1997
expenses included a reserve of approximately $407,000 for an affiliate note
receivable and accrued litigation costs of $320,000 (see Part 3 -- Legal
Proceedings).
11
<PAGE> 12
The increase in income tax expense of approximately $5,022,000 in 1998 compared
to 1997 resulted primarily from the increase in operating income and the gain on
limited partnership interests.
Net income increased approximately $8,209,000 for 1998 compared to 1997 due to
the increase in operating income and the gain on limited partnership interests.
Year ended August 31, 1997 compared to Combined 1996.
AMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED AUGUST 31, 1997 AND FOR THE PERIOD FROM
OCTOBER 2, 1995 TO AUGUST 31, 1996
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
COMBINED STATEMENT OF EARNINGS
FOR THE PERIOD FROM SEPTEMBER 1, 1995 TO OCTOBER 1, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(Predecessor)
Period from Period from
October 2, September 1, (Combined)
Year Ended 1995 to 1995 to Year Ended
August 31, August 31, October 1, August 31,
1997 1996 1995 1996
------------- ------------- ------------- ------------
Revenues: (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Rental $49,538 $43,916 $ 3,883 $ 47,799
Trade Shows 16,818 14,844 866 15,710
Other 4,389 4,007 229 4,236
------- ------- ------- --------
Total Revenues 70,745 62,767 4,978 67,745
Operating Expenses:
Building Operations 9,318 9,256 126 9,382
Trade Shows 2,953 2,703 (222) 2,481
Marketing 5,511 4,210 1,130 5,340
General and Administrative 18,079 15,922 1,927 17,849
Bad Debt 642 933 (1) 932
Property Taxes 4,483 4,141 353 4,494
Depreciation and amortization 13,534 11,515 731 12,246
------- ------- ------- --------
Total Operating Expenses 54,520 48,680 4,044 52,724
------- ------- ------- --------
Operating Income 16,225 14,087 934 15,021
Other Income (Expenses):
Interest Expense (8,375) (7,780) (2,944) (10,724)
Interest Income 443 546 37 583
Proceeds from insurance claim -- 884 -- 884
Olympic related income, net (371) 3,317 -- 3,317
Other (1,600) (351) (268) (619)
------- ------- ------- --------
Income Before Income Taxes 6,322 10,703 (2,241) 8,462
Income Tax Expense 2,443 3,402 (1) 3,401
------- ------- ------- --------
Net Income (Loss) $ 3,879 $ 7,301 $(2,240) $ 5,061
======= ======= ======= ========
</TABLE>
Rental revenues increased approximately $1,739,000 during 1997 compared to
Combined 1996. Rental revenues in the Gift Mart increased approximately $490,000
due to an increase in rental rates, partially offset by a decrease in occupancy.
Rental revenues increased approximately $2,531,000 in the Merchandise Mart,
reflecting an increase in both occupancy and rental rates. Rental revenues in
the Apparel Mart decreased approximately $1,282,000, reflecting a decrease in
occupancy, offset by an increase in rental rates and increased exhibition space
in the Apparel Mart. Trade show revenues increased approximately $1,108,000
during 1997 compared to Combined 1996
12
<PAGE> 13
due to improved results for the January and July Gift and Home Furnishings
Markets and increased exhibition space in the Apparel Mart.
Trade show expenses increased approximately $472,000 during 1997 compared to
Combined 1996 due to increases in costs associated with the gift and apparel
shows. Marketing expenses increased approximately $171,000 during 1997 compared
to Combined 1996 due to an increase in publishing expense as the Company
expanded its trade show-related publishing operations. General and
administrative expenses increased approximately $230,000 during 1997 compared
to Combined 1996 primarily due to an increase in personnel and employee
benefits costs. Bad debt expense decreased approximately $290,000 during 1997
compared to Combined 1996 due to improved collection efforts during 1997.
Depreciation and amortization expense increased approximately $1,288,000 during
1997 compared to Combined 1996 primarily due to the write-off of certain
building and tenant improvements disposed of when two floors of the Merchandise
Mart were rebuilt for the expansion of the Holiday and Floral industry, as well
as other capital improvements made during 1997.
Interest expense decreased approximately $2,349,000 during 1997 as compared to
Combined 1996. This decrease in interest expense was due to the reduction of
the Gift Mart Mortgage Loan balance as well as the fact that, subsequent to the
formation of AMC on October 2, 1995, interest on certain of the Company's debt
obligations is charged against the carrying value of the obligations and no
interest expense is recognized.
The Company received $884,000 during Combined 1996 from the cash settlement of
an insurance claim relating to litigation. Olympic related income represents
revenues, net of direct costs, of business undertaken by the Company
specifically related to the 1996 Centennial Olympic Games. Both the insurance
claim and the Olympic related income are non-recurring in nature.
Other expenses during 1997 increased as a result of a reserve of approximately
$407,000 for an affiliate note receivable, accrued litigation costs of $320,000
(see Part 3 -- Legal Proceedings), and certain other fees.
The decrease in income tax expense to approximately $2,443,000 for 1997 as
compared to $3,401,000 for Combined 1996 resulted from a decrease in income
before income taxes.
Net income was approximately $3,879,000 for 1997 compared to $5,061,000 for
Combined 1996. The decrease in net income is primarily due to the recognition
of non-recurring Olympic related income in Combined 1996, along with
non-recurring Olympic related expenses in 1997.
Liquidity and Capital Resources.
At August 31, 1998, the Company had approximately $297.3 million in total debt
outstanding, as follows (amounts in thousands):
<TABLE>
<CAPTION>
Description Principal Maturity
------------------------------------------------ --------- -------------
<S> <C> <C>
Gift Mart Mortgage Loan $ 95,049 July 31, 1999
Mart Bonds (face amount of $160 million) 188,800 July 31, 2000
Elevated Antecedent Debt Notes 7,303 July 31, 2000
Revolving Line of Credit 6,103 May 31, 2001
---------
Total debt $ 297,255
=========
</TABLE>
The Company's primary sources of cash are operating cash flows and borrowings
under the Revolving Line of Credit. On May 31, 1998, with the approval of the
requisite bondholders, the Company's Revolving Line of Credit was amended to
increase the maximum revolving commitment from $10.0 million to $20.0 million
and to extend the maturity date to May 31, 2001. Amounts under the Revolving
Line of Credit are available for general corporate use, including operating
expenses, working capital, capital improvements, debt service and acquisitions.
The Company intends to use the increased availability under the Revolving Line
of Credit to fund approved capital projects, for working capital purposes, and
for an additional liquidity reserve. At August 31, 1998 approximately $13.9
million was available under the Revolving Line of Credit.
13
<PAGE> 14
The availability of operating cash flows generated by the Gift Mart is limited
by the terms of the Gift Mart Mortgage Loan. Cash flows from operations less
capital improvements of the Gift Mart must be used to repay principal
outstanding on the Gift Mart financing and cannot be used to fund operations or
capital improvements of other properties of the Company. Principal payments on
the Gift Mart financing totaled $3.5 million and $4.4 million for 1998 and 1997,
respectively.
Cash flows from operations, net of cash flows of the Gift Mart, were
approximately $17.7 million during 1998, and $20.7 million during 1997. The
decrease in operating cash flow in 1998 compared to 1997 is primarily
attributable to the timing of the payment of property taxes.
Significant capital expenditures were incurred during the past several years and
ongoing capital expenditures will be necessary to maintain and improve the
Company's properties. Total capital expenditures were approximately $10.0
million in 1998 and $11.9 million in 1997, which included approximately $1.8
million and $.8 million in Gift Mart capital expenditures for 1998 and 1997,
respectively. Capital expenditures, including tenant improvements, of
approximately $17.3 million are budgeted for fiscal year 1999, $3.2 million of
which are for the Gift Mart. There can be no assurance that changes in the
competitive environment, governmental regulations or unforeseen loss or damage
will not cause capital expenditures to exceed management's estimate.
Management believes that cash flows from operations and borrowings under the
Revolving Line of Credit will be sufficient to fund operations, debt service
prior to maturity and approved capital expenditures, provided that the Company
can maintain its operating revenues and expenses at current levels and that no
unforeseen or additional significant capital improvements are required. There
can be no assurance the Company can maintain current revenue levels which are
affected by changing economic conditions in the specific industries represented
at its Marts and trade shows. In addition, there can be no assurance that the
overall level of capital expenditures will not increase as the Marts age. In the
event that operating cash flows and borrowings under the Revolving Line of
Credit are insufficient, the Company would be required to seek additional
financing or to refinance all of its debt obligations prior to maturity. The
Company's ability to seek additional financing is limited under the terms of the
Revolving Line of Credit and its indentures.
Under the terms of the Mart Bonds, the Company is required to use certain
portions of its cash flows to repay its indebtedness. The terms of such debt
also limit the Company's ability to incur additional debt or to create
additional liens. Accordingly, such provisions may limit the Company's ability
to make required capital improvements. Mart Bond repayments totaled
approximately $14.4 million in 1998, and $12.0 million in 1997. Principal
payments to reduce the indebtedness under the Gift Mart financing and the Mart
Bonds are determined based upon cash flows of the Gift Mart and of the Company,
respectively.
The remaining principal balance on the Gift Mart Mortgage Loan is due on July
31, 1999. The Company's Mart Bonds and Elevated Antecedent Debt Notes are due
and payable on July 31, 2000. The Company will not generate sufficient cash to
repay such indebtedness and intends to refinance these debt obligations at or
before maturity. The Company currently does not have a commitment in place to
refinance the amounts currently outstanding, and there can be no assurance that
the Company will be able to extend the maturity dates of any of its indebtedness
or secure alternative financing to fund the repayment thereof. Since the Gift
Mart Mortgage Loan is secured by the operating assets of the Gift Mart,
foreclosure by the lender would seriously impair the Company's ability to
continue as a going concern.
The Company has engaged a financial advisor to assist the Company in the
identification and evaluation of strategic alternatives that may include certain
transactions designed to maximize the value of the Company. The possible
transactions could include a capital restructuring, refinancing, asset
repositioning or a sale of the Company or certain of its assets, in either a
single transaction or a series of related transactions. Other assets of
affiliates of the Company could be included in any such transaction or series of
transactions. There can be no assurance that the financial advisor will
formulate any strategic alternative to maximize the value of the Company or that
the Company will succeed in completing any transaction or series of transactions
recommended by the financial advisor.
In February 1998, one of the holders of the Mart Bonds offered to purchase for
cash a portion of the outstanding Mart Bonds. This offer expired and it is the
understanding of the Company that none of the outstanding Mart Bonds were
purchased pursuant to this offer. In connection with the offer, the offeror
indicated that it intended to engage in discussions with the Company regarding
the refinancing of the Mart Bonds and that another holder also intended to
engage in such discussions with the Company. While the Company has from time to
time engaged in preliminary discussions with certain holders of the Mart Bonds
regarding the refinancing of those Bonds and
14
<PAGE> 15
possible arrangements under which the Company would participate in repurchases
of the Mart Bonds, the Company currently is not a party to any agreement,
understanding or arrangement with respect to the refinancing of the Mart Bonds
or with respect to any repurchase by the Company of the Mart Bonds.
Both the Pisa Land and the stock representing the Company's interests in EC
Holdings, which holds interests in limited partnerships which own various types
of real estate, have been pledged as security for the Elevated Antecedent Debt
Notes. Under the terms of the Elevated Antecedent Debt Notes, since the Company
did not liquidate its interest in EC Holdings or the Pisa Land by October 2,
1997, the Elevated Antecedent Debt Note holders are entitled to direct the
trustee for the bonds to foreclose upon the Company's interest in EC Holdings
and the Pisa Land. As of November 6, 1998, no foreclosure proceedings have been
initiated.
In February and May 1998, two of the partnerships in which EC Holdings has a
limited partnership interest sold hotel properties for an agreed upon number of
units in other previously unaffiliated limited partnerships (the "SHC Units").
The Company's share of the SHC Units, which were distributed to EC Holdings, had
a fair value of approximately $6,414,000 which has all been recorded as a gain
since the Company had no previously recorded basis in the interest held by EC
Holdings. The SHC Units are not publicly traded, restricted as to transfer for a
period of time and pledged as security for the Elevated Antecedent Debt Notes.
In June 1998, the Company entered into an agreement to sell the Pisa Land for
approximately $750,000. There can be no guarantee that the transaction, which is
scheduled to close in the first or second quarter of fiscal 1999, will be
completed or that the transaction will be completed as proposed.
All other properties in which EC Holdings has interests, through its limited
partnership interests, were sold to Boston Properties Limited Partnership
("BPLP") for a combination of preferred limited partnership units in BPLP ("BPLP
Units") and cash in a transaction consummated on November 12, 1998 (the "BPLP
Transaction"). The Company expects the gain resulting from the distribution of
the BPLP Units to the Company to be in the range of $20 to $25 million, pending
completion of the valuation of the BPLP Units to be received. The BPLP Units to
be received are not publicly traded, are restricted as to transfer for a period
of time and will be pledged as security for the Elevated Antecedent Debt Notes.
In connection with the BPLP Transaction, the Company and EC Holdings entered
into an agreement with FBCC Co. ("FBCC"), AMC's largest shareholder, whereby (1)
FBCC agreed to consent to the substitution of the BPLP Units as security for the
Elevated Antecedent Debt Notes (which is required to complete the BPLP
Transaction), (2) EC Holdings agreed to sell to FBCC BPLP Units with a face
value of $8.9 million in consideration for which FBCC will surrender to AMC as
fully redeemed at par its $2.9 million of Elevated Antecedent Debt Notes and
will pay to EC Holdings in cash the sum of $5.1 million and (3) AMC will
simultaneously redeem for cash all of the remaining Elevated Antecedent Debt
Notes at par (the transaction, the "FBCC Transaction"). As of November 10, 1998
approximately $8.0 million principal balance of Elevated Antecedent Debt Notes
was outstanding, which includes approximately $727,000 held by the Atlanta Gift
Mart, L.P. that is eliminated in the presentation of the Company's consolidated
financial position.
Both the SHC Units and the BPLP Units are not publicly traded and are restricted
as to transfer for a period of time. As soon as permitted under the terms of the
SHC Units and the BPLP Units, the Company plans to liquidate its investments in
the units, or use the units to collateralize additional borrowings. Such
borrowings are limited under the terms of the Revolving Line of Credit and the
indentures. Any cash distributions to EC Holdings or cash received upon the sale
or financing of the units or the sale of the Pisa Land must first be used to pay
down the Elevated Antecedent Debt Notes and the Revolving Line of Credit. The
use of any additional cash distributions is limited under the terms of the
Company's debt agreements, and the Company plans to use any available cash
distributions to fund proposed capital expansions and other capital projects, in
addition to budgeted 1999 capital expenditures, totaling approximately $9.2
million.
Inflation
The Company deals with the effects of inflation by adjusting rental rates on new
leases and renewal leases, and by providing for annual rental rate increases in
most leases. In times of higher inflation, the Company's operating
15
<PAGE> 16
results are negatively impacted due to the fact that most lease terms are from
one to ten years while the term of most service contracts is one year or less.
Year 2000 Information
The Year 2000 compliance issue concerns the inability of computerized
information systems to accurately calculate, store or use a date after 1999.
This could result in a system failure or miscalculations causing disruptions of
operations. The Year 2000 issue affects virtually all companies and all
organizations. The Company recognizes the importance of ensuring that its
business operations are not disrupted as a result of Year 2000 related computer
system and software issues.
The Company has conducted an assessment of its computer and telecommunications
information systems ("IT Systems"), as well those computer systems that do not
relate to information technology, including, without limitation, its security
systems, energy management systems and other life safety systems ("Non-IT
Systems"), to identify needed Year 2000 remediation. The Company currently
anticipates that its Year 2000 assessment, remediation, and testing efforts will
be completed by December 31, 1999. The following table outlines the current
status of the Company's Year 2000 efforts as of November 1, 1998:
<TABLE>
<CAPTION>
Time Frame Percent Complete
------------------ --------------------
<S> <C> <C>
IT Systems assessment 8/97 - 2/98 100%
Accounting system remediation and testing 2/98 - 12/98 95%
Telecommunication system remediation and testing 2/98 - 12/98 90%
Other IT System remediation and testing 2/98 - 12/98 100%
Non-IT System assessment 2/98 - 3/98 100%
Non-IT System remediation and testing 3/98 - 12/98 90%
</TABLE>
The Company has also mailed letters to its significant vendors and service
providers to determine the extent to which these entities have addressed Year
2000 compliance issues. As of November 1, 1998, the Company had received
responses from all but one third party. All other third parties have responded
and have provided written assurances that they expect to address all significant
Year 2000 issues on a timely basis. A follow-up mailing to the non-respondent
will be sent, with a response due by December 31, 1998. The Company has not
communicated with its tenants regarding Year 2000 compliance issues, since none
of its tenants is individually significant and the Company receives no
electronic data from its tenants.
Based on the Company's assessments and available information, the Company
believes that its cost to ensure Year 2000 compliance will not exceed $500,000.
As of August 31, 1998, the Company had incurred approximately $65,000 related to
Year 2000 assessment, remediation and testing. The Company believes that the
Year 2000 issue will not pose significant operational problems for the Company.
However, if all Year 2000 issues are not properly identified, or assessment,
remediation and testing are not completed timely, there can be no assurance that
the Year 2000 issue will not materially adversely impact the Company's results
of operations or adversely affect the Company's relationships with tenants,
vendors or others. Additionally, there can be no assurance that the Year 2000
issues of other entities, including, but not limited to, the Company's third
party vendors and service providers and its tenants, will not have a material
adverse impact on the Company's systems or results of operations. The Company
has not engaged an independent expert solely to assist in its Year 2000 efforts.
However, when installing new software, the Company requires year 2000 compliance
assurances from its vendors.
The Company has not yet determined the operational costs and problems that would
be reasonably likely to result from the failure by the Company and certain third
parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. The Company has not developed a contingency plan for dealing with
the most reasonably likely worst case scenario, and such scenario has not yet
been clearly identified. The Company currently plans to complete such analysis
and contingency planning by December 31, 1999.
Readers are cautioned that forward-looking statements regarding Year 2000 issues
should be read in conjunction with the cautionary statement in the Overview
section of this Item 7.
16
<PAGE> 17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's major market risk exposure is the potential loss arising from
changes in interest rates and its impact on variable rate debt instruments. The
following table summarizes information related to the Company's market risk
sensitive debt instruments as of August 31, 1998:
<TABLE>
<CAPTION>
Gift Mart Mortgage Revolving Line of
Loan Credit
----------------------- -----------------------
<S> <C> <C>
Principal balance $95,048,965 $6,102,900
Fair value $95,048,965 $6,102,900
Total availability $95,048,965 $20,000,000
Maturity 7/31/1999 5/31/2001
Interest rates Prime rate plus 1% or Prime rate or
LIBOR plus 2% or LIBOR plus 2.1%, at the
IBOR plus 2%, at the Company's option
Company's option
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements follow immediately and are listed in Item 14 of Part IV of
the report.
17
<PAGE> 18
Independent Auditors' Report
The Board of Directors
AMC, Inc.:
We have audited the accompanying consolidated balance sheets of AMC, Inc. and
subsidiaries (Company) as of August 31, 1998 and 1997, and the related
consolidated statements of earnings, shareholders' deficit, and cash flows for
the years ended August 31, 1998 and 1997 and the period from October 2, 1995
through August 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 1, AMC, Inc. was formed and organized effective October 2,
1995 principally to own and operate the businesses of certain affiliated
companies as part of a restructuring of the existing indebtedness of such
companies. The assets and liabilities of the Company have been recorded at their
historical cost. Included in shareholders' deficit are accumulated net losses of
the Predecessor of approximately $51,116,000.
In our opinion, the aforementioned consolidated financial statements of the
Company present fairly, in all material respects, the financial position of AMC,
Inc. and subsidiaries as of August 31, 1998 and 1997 and the results of their
operations and their cash flows for the years ended August 31, 1998 and 1997,
and the period from October 2, 1995 through August 31, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 7 to the
financial statements, the Gift Mart Mortgage Loan will mature on July 31, 1999.
A significant portion of the Company's operating assets are pledged as
collateral for this note, and foreclosure by the lender would seriously impair
the Company's ability to continue as a going concern. Management's plans in
regard to this matter are described in note 7. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/S/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
October 16, 1998
18
<PAGE> 19
AMC, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
August 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,039,809 $ 520,854
Restricted cash (note 7) 2,678,182 2,598,375
Restricted escrow deposits 4,233,685 4,510,529
Notes receivable (note 6) 939,076 939,076
Receivables, net (note 3) 1,792,865 1,906,218
Deferred income taxes (note 10) 1,819,528 2,425,495
Other current assets 1,042,314 467,078
------------- -------------
Total current assets 13,545,459 13,367,625
Commercial property, net (note 3) 193,941,818 196,979,174
Notes receivable, less current maturities (note 6) -- 939,080
Investment in limited partnerships (note 5) 6,497,450 83,336
Deferred income taxes (note 10) 10,460,611 17,319,644
Other noncurrent assets 420,716 831,823
------------- -------------
$ 224,866,054 $ 229,520,682
============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses (note 3) $ 9,961,499 $ 11,712,664
Deferred revenue 1,452,940 1,901,022
Current portion of long-term debt (note 7) 109,448,965 14,400,000
------------- -------------
Total current liabilities 120,863,404 28,013,686
Long-term debt, less current portion (note 7) 181,703,273 294,665,115
Revolving line of credit (note 8) 6,102,900 3,079,804
Security deposits 3,416,740 2,802,372
Noncurrent loan extension fees -- 268,205
------------- -------------
Total liabilities 312,086,317 328,829,182
Commitments and contingencies (notes 8, 11, 13, and 14)
Shareholders' deficit (note 11):
Common stock - $1 par value; 100,000,000 shares authorized,
62,173,154 shares issued and outstanding 62,173,154 62,173,154
Capital deficit (172,660,875) (172,660,875)
Retained earnings 23,267,458 11,179,221
------------- -------------
Total shareholders' deficit (87,220,263) (99,308,500)
------------- -------------
$ 224,866,054 $ 229,520,682
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 20
AMC, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Years ended August 31, 1998 and 1997 and for the
Period from October 2, 1995 through August 31, 1996
<TABLE>
<CAPTION>
October 2, 1995
Year ended Year ended Through
August 31, August 31, August 31,
1998 1997 1996
------------ ------------ ---------------
<S> <C> <C> <C>
Revenues:
Rental (note 12) $ 54,317,590 $ 49,537,795 $ 43,915,842
Trade shows 17,699,546 16,818,191 14,844,458
Other revenues 4,356,751 4,389,243 4,006,791
------------ ------------ ------------
Total revenues 76,373,887 70,745,229 62,767,091
Operating expenses:
Building operations (note 13) 9,691,032 9,317,618 9,256,018
Trade shows 3,426,971 2,953,339 2,703,534
Marketing 6,096,294 5,510,784 4,209,982
General and administrative 17,635,034 18,079,482 15,922,176
Bad debt expense 292,313 641,772 932,909
Property taxes 4,620,670 4,483,506 4,140,775
Depreciation and amortization 13,081,989 13,533,656 11,514,878
------------ ------------ ------------
Total operating expenses 54,844,303 54,520,157 48,680,272
------------ ------------ ------------
Operating income 21,529,584 16,225,072 14,086,819
Other (income) expenses:
Interest expense (notes 7 and 8) 8,291,325 8,374,876 7,780,170
Interest income (note 6) (438,838) (442,717) (545,747)
Earnings from investment in affiliates (note 5) (239,193) (100,464) (88,738)
Proceeds from insurance claim (note 17) -- -- (883,881)
Expenses (income), net resulting from
one-time event (note 18) -- 371,447 (3,316,512)
Gain on limited partnership interests (note 5) (6,414,114) -- --
Other expense 777,167 1,700,307 439,329
------------ ------------ ------------
Total other expenses, net 1,976,347 9,903,449 3,384,621
------------ ------------ ------------
Income before income taxes 19,553,237 6,321,623 10,702,198
Deferred income tax expense (note 10) 7,465,000 2,443,000 3,401,600
------------ ------------ ------------
Net income $ 12,088,237 $ 3,878,623 $ 7,300,598
============ ============ ============
Net income per share - basic $ .19 $ .06 $ .12
============ ============ ============
Net income per share - diluted $ .19 $ .06 $ .12
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
AMC, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Deficit
For the Years ended August 31, 1998 and 1997 and for the
Period from October 2, 1995 through August 31, 1996
<TABLE>
<CAPTION>
Common Capital Retained
stock Deficit earnings Total
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at October 2, 1995 $ -- $(110,501,288) $ -- $(110,501,288)
Issuance of the Company's common 62,173,154 (62,173,154) -- --
stock on November 17, 1995
(note 11)
Contribution of capital through -- 13,567 -- 13,567
principal repayment on AMM
Escrow Bonds
Net income -- -- 7,300,598 7,300,598
----------- ------------- ----------- -------------
Balance at August 31, 1996 62,173,154 (172,660,875) 7,300,598 (103,187,123)
Net income -- -- 3,878,623 3,878,623
----------- ------------- ----------- -------------
Balance at August 31, 1997 62,173,154 (172,660,875) 11,179,221 (99,308,500)
Net income -- -- 12,088,237 12,088,237
----------- ------------- ----------- -------------
Balance at August 31, 1998 $62,173,154 $(172,660,875) $23,267,458 $ (87,220,263)
=========== ============= =========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
AMC, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years ended August 31, 1998 and 1997 and for the
Period from October 2, 1995 through August 31, 1996
<TABLE>
<CAPTION>
October 2, 1995
Year ended Year ended through
August 31, 1998 August 31, 1997 August 31, 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 12,088,237 $ 3,878,623 $ 7,300,598
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of interest rate agreements 121,458 132,500 143,542
Depreciation and other amortization 13,412,790 14,012,924 11,954,207
Gain on limited partnership interests (6,414,114) -- --
Earnings on investment in affiliates -- -- (88,738)
Deferred income tax expense 7,465,000 2,443,000 3,401,600
Provision for doubtful note receivable -- 390,442 --
Decrease (increase) in receivables 113,353 2,231,948 (1,543,404)
Decrease (increase) in other assets (684,975) 705,743 (439,132)
Increase (decrease) in accounts payable,
accrued expenses and security deposits (1,405,002) 4,568,532 (2,721,670)
Increase (decrease) in deferred revenue (448,082) (325,122) (119,875)
------------ ------------ ------------
Net cash provided by operating activities 24,248,665 28,038,590 17,887,128
------------ ------------ ------------
Cash flows from investing activities:
Decrease (increase) in restricted cash (79,807) 25,153 (82,374)
Principal repayments of notes receivable 939,080 939,076 994,852
Additions to commercial property (9,976,046) (11,907,737) (8,707,226)
Investment in affiliate -- (32,673) --
------------ ------------ ------------
Net cash used in investing activities (9,116,773) (10,976,181) (7,794,748)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from revolving line of credit 3,023,096 3,079,804 --
Principal payments on Gift Mart Mortgage Loan (3,512,877) (4,389,988) (4,330,179)
Principal payments on AMM Escrow Bonds -- (512,703) (1,143,304)
Mart Bond interest payments (14,400,000) (12,000,000) (9,000,000)
Decrease (increase) in restricted escrow deposits 276,844 (3,770,750) 4,025,674
------------ ------------ ------------
Net cash used in financing activities (14,612,937) (17,593,637) (10,447,809)
------------ ------------ ------------
Net increase (decrease) in cash 518,955 (531,228) (355,429)
Cash at beginning of period 520,854 1,052,082 1,407,511
------------ ------------ ------------
Cash at end of period $ 1,039,809 $ 520,854 $ 1,052,082
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 8,224,534 $ 8,212,869 $ 9,272,933
============ ============ ============
Supplemental disclosure of non-cash investing and
financing activities:
Partnership units received upon distribution from
affiliate (note 5) $ 6,414,114 $ -- $ --
============ ============ ============
Net equity resulting from debt restructuring and
formation of AMC, Inc. (note 11) $ -- $ -- $ 41,663,559
============ ============ ============
Principal payment on AMM Escrow Bonds through
contribution from shareholder $ -- $ -- $ 13,567
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
AMC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
AMC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1998 and 1997
(1) Organization and Business
AMC, Inc. ("AMC" or the "Company") was incorporated as a Georgia
corporation on September 29, 1995 and organized effective October 2,
1995. The Company was formed to own and manage trade marts, trade shows,
special events, and consumer shows and activities reasonably related
thereto. AMC's primary wholly owned subsidiaries are GMGP, Inc., Gift
Mart Limited Partner, Inc. (which together own 100% of the partnership
interests of Atlanta Gift Mart, L.P.), AMC Tampa, Inc., LFGP, Inc., and
EC Holdings, Inc. The principal assets of the Company are the Atlanta
Apparel Mart, the Atlanta Merchandise Mart, and the Atlanta Gift Mart
buildings (collectively, the "Marts") containing permanent showroom and
exhibition space. The Company has a fiscal year end of August 31.
Prior to October 2, 1995, the assets and businesses owned by the Company
were included in various partnerships and corporations controlled by
John C. Portman, Jr. ("Portman"). These entities, collectively referred
to as the "Predecessor," included the Atlanta Apparel Mart ("AAM") -- (a
limited partnership); Atlanta Merchandise Mart, L.P. ("AMM") -- (a
limited partnership); Atlanta Gift Mart, L.P. ("AGM") -- (a limited
partnership); and Atlanta Market Center Management Company, Inc.
("AMCMC") -- (an S Corporation).
In 1991, Portman, Portman Properties (a proprietorship of Portman), and
certain other affiliates, including those owning the assets and
businesses discussed above, restructured substantially all of their then
existing indebtedness under an Override and Collateral Pool Agreement
("OCPA"). Portman and certain affiliates subsequently defaulted on
several provisions of the OCPA.
Effective October 2, 1995 (the "Formation Date"), the OCPA was
terminated and existing indebtedness of Portman and affiliates was
further restructured through a series of agreements with the applicable
creditors whereby the Company would be formed to hold Portman's
mart-related and certain other assets. In exchange for certain net
assets, with a deficit book value for accounting purposes, contributed
to the Company by Portman Holdings, L.P. (a partnership indirectly
controlled by Portman), Portman Holdings, L.P. received 17.56%
(10,880,302 shares) of the equity interest in the Company, which for
accounting purposes is regarded as a distribution to Portman of
approximately $10,880,000.
On the Formation Date there were five classes of creditors (Classes A
through E) under the OCPA holding claims against Portman personally. In
addition, each of the Marts was encumbered by separate mortgage loans.
As part of the OCPA termination, certain of this debt was forgiven and
the remainder was restructured, resulting in an extraordinary gain of
approximately $68.0 million for the Predecessor. The debt was
restructured as follows:
- Class A Claims: On the Formation Date, there were two types of
Class A claims under the OCPA. One type, in the aggregate amount
of $2.7 million, was paid down to $1.7 million, which balance was
modified to become the Fixed Rate Class A AMM Escrow Notes due
July 31, 1997 in the principal amount of $1.7 million. Those bonds
were fully repaid during 1997. The other type of Class A claim, in
the aggregate amount of $8.0 million was modified to become the
Class A Elevated Antecedent Debt Notes due July 31, 2000 in the
principal amount of $8.0 million (the "Elevated Antecedent Debt
Notes") (note 7).
- Class B, C, and D Claims: On the Formation Date, the Class B, C,and
D claims under the OCPA, which represented personal obligations of
Portman, were determined to aggregate $280.3 million. These claims
were extinguished in exchange for the transfer by Portman of
interests in certain assets that had previously secured such
claims. Such interests, which had a deficit book value for
accounting purposes, were then
23
<PAGE> 24
contributed to the Company by the claimants for approximately
29,203,000 shares of common stock of the Company. Because the
transfer was in satisfaction of personal obligations, the issuance
of shares to the claimants is regarded as a distribution to
Portman of approximately $29.2 million for accounting purposes.
- Class E Claims: On the Formation Date, the Class E claims under
the OCPA aggregated $8.5 million. These claims were extinguished
for no further consideration.
- Atlanta Apparel Mart Financing: On the Formation Date, the then
existing AAM mortgage financing had an outstanding balance of
approximately $162 million. Approximately $72 million of this debt
(while still an obligation of AAM) was forgiven and the balance of
approximately $90 million was transferred to the Company and
modified to become $80 million in principal amount of the private
placement notes (the "Mart Bonds"). In addition, approximately
10,790,000 shares of common stock of the Company, as well as
warrants to purchase approximately 8,409,000 shares, were
distributed to the debt holders (note 11).
- Atlanta Merchandise Mart Financing: On the Formation Date, the
then existing AMM mortgage financing had an outstanding balance of
approximately $153 million. Approximately $60 million of this debt
(while still an obligation of AMM) was forgiven. Approximately $2
million of this debt constituted a Class A claim. The balance of
approximately $91 million was transferred to the Company and
modified to become the remaining $80 million in principal amount
of the Mart Bonds. In addition, approximately 11,300,000 shares of
common stock of the Company, as well as warrants to purchase
approximately 8,807,000 shares, were distributed to the debt
holders (note 11).
- AGM Financing: On the Formation Date, the then existing Atlanta
Gift Mart mortgage financing (the "Gift Mart Mortgage Loan") had
an outstanding balance of approximately $107 million. On the
Formation Date, this financing was modified to extend the term, to
increase the interest rate, and to reflect numerous other changes
from the original loan documentation (note 7).
This restructuring has been accounted for as a troubled debt
restructuring in accordance with Statement of Financial Accounting
Standards (SFAS) No. 15, Accounting by Debtors and Creditors for
Troubled Debt Restructurings. Accordingly, the assets and liabilities of
the Company have been recorded at their historical cost, and
shareholders' deficit represents the excess of liabilities over assets.
Included in shareholders' deficit are accumulated net losses of and
total partners' excess withdrawals from the Predecessor of approximately
$51,116,000 and $101,049,000, respectively.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries and have been
prepared on the accrual basis of accounting. All significant
intercompany accounts and transactions have been eliminated in the
consolidated statements. Certain prior period amounts have been
reclassified to conform to current presentation.
(b) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes.
Actual results could differ from these estimates.
(c) Cash and Cash Equivalents
Cash equivalents are highly-liquid investments with original
maturities of three months or less.
24
<PAGE> 25
AMC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(d) Restricted Escrow Deposits
Restricted escrow deposits represent deposits for the payment of
property taxes, insurance, and ground lease payments that are
required by the Company's lenders.
(e) Receivables
The Company's receivables primarily relate to billings to tenants
who lease space in the mart buildings. The Company generally
provides for losses on tenant receivables that are more than 60
days delinquent. Provisions for losses on affiliate receivables
are recorded based on specific analysis of the affiliate's ability
to pay.
(f) Commercial Property
Commercial property is carried at cost and is depreciated using
straight-line and accelerated methods over the estimated useful
lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements 15 to 40 years
Tenant improvements 3 to 5 years
Furniture, fixtures, and equipment 5 to 7 years
</TABLE>
Commercial property is reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability is measured by a
comparison of the carrying amount of the asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.
(g) Trade Show Revenue and Expense
Trade show revenues are generally collected in advance and
initially recorded as deferred revenue. Trade show revenues are
recognized in the month the related show occurs. Direct costs of
trade shows are deferred as prepaid expense and recognized in the
month the related trade show occurs.
(h) Management Fees
The Company recognizes management fee income in accordance with
the terms of its management agreements. The Company has entered
into management agreements with certain affiliates, CGS Associates
L.P. and AMC Orlando, Inc.. A management agreement with AMC Tampa,
Inc. was terminated in September 1997 (note 6).
The Company earned approximately $531,000, $554,000, and $446,000
in management fees for the years ended August 31, 1998 and 1997,
and the 335-day period ended August 31, 1996, respectively.
(i) Marketing Costs
The Company incurs costs for various marketing and advertising
efforts. All costs related to marketing and advertising are
expensed in the period incurred or if directly related to specific
trade shows are expensed in the month the related show occurs.
(j) Income Taxes
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"). Under SFAS 109, a deferred income tax liability or asset is
recognized, subject to certain limitations, for the deferred tax
consequences of all temporary basis
25
<PAGE> 26
differences between tax and financial statement assets and
liabilities. The deferred income tax assets or liabilities are
measured by provisions of enacted tax laws.
(k) Income Per Share
The Company has adopted Financial Accounting Standards
Board-issued Statement of Financial Accounting Standards ("SFAS")
No. 128, Earnings Per Share. SFAS 128 replaced the previously
reported primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes the dilutive effects of common
stock equivalents. Diluted earnings per share includes the
dilutive effects of potential common stock. The effect of the
Company's warrants on earnings per share is anti-dilutive. All
earnings per share amounts for all periods have been presented,
and where necessary, restated to conform to the SFAS 128
requirements. The impact of adopting SFAS 128 was not material.
(l) Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130
establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose
financial statements. SFAS 130 was issued to address concerns over
the practice of reporting elements of comprehensive income
directly in shareholders' equity. The term "comprehensive income"
is used in the statement to describe the total of all components
of comprehensive income including items recorded directly in
shareholders' equity, as well as net earnings under current
accounting standards. At the current time, the Company is excluded
from the scope of SFAS 130 as the Company has no items of other
comprehensive income in any period presented in the accompanying
financial statements.
(3) Supplemental Balance Sheet Information
The composition of receivables at August 31, 1998 and 1997 was as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Tenant receivables $2,784,610 $3,087,250
Affiliate receivables (note 4) 29,135 421,602
Other receivables -- 26,225
---------- ----------
2,813,745 3,535,077
Less allowance for doubtful receivables 1,020,880 1,628,859
---------- ----------
$1,792,865 $1,906,218
========== ==========
</TABLE>
The Company leases showroom space to a variety of customers in the gift,
apparel and fashion, floorcoverings, home accents and fine linens,
gardens, and holiday/floral industries. Any change in the economy that
adversely impacts gift retail and home sales could have a negative
impact on the Company's customers. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral, other than a standard security deposit. Lease
payments are due the first of each month. Credit losses have
consistently been within management's expectations.
26
<PAGE> 27
AMC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The composition of commercial property at August 31, 1998 and 1997 was
as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Land $ 19,338,993 $ 19,338,993
Buildings and improvements 264,628,273 257,717,760
Tenant improvements 23,711,859 34,159,480
Furniture, fixtures and equipment 21,289,544 20,429,437
Construction in progress 510,607 1,970,306
------------ ------------
329,479,276 333,615,976
Less accumulated depreciation 135,537,458 136,636,802
------------ ------------
$193,941,818 $196,979,174
============ ============
</TABLE>
Construction in progress primarily relates to building and tenant
improvements under construction. The composition of accounts payable and
accrued expenses at August 31, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Trade payables $ 5,991,032 $ 7,755,716
Accrued liabilities 3,272,010 2,930,619
Accrued interest 673,457 728,124
Affiliate payable 25,000 30,000
Accrued loan extension fees -- 268,205
------------ ------------
$ 9,961,499 $ 11,712,664
============ ============
</TABLE>
(4) Transactions with Affiliates
Transactions with affiliates are summarized as follows:
(a) Accounts Receivable
Accounts receivable from affiliates primarily represent
management fees, cash management advances, and reimbursable
expenses.
During 1996, the Company wrote off approximately $904,000 of
receivables from Portman Apparel Associates, L.P.; Race Events
Joint Venture; and other affiliates, as these accounts were
determined to be uncollectible. As approximately $670,000 of
these amounts had been reserved at October 1, 1995, an
additional approximate $234,000 has been recorded as bad debt
expense in the 1996 consolidated financial statements.
(b) Service Agreements
Effective October 2, 1995, the Company entered into various
services agreements with Portman Holdings, L.P., and other
affiliates. The Company agreed to provide telephone and human
resource services through November 13, 1997 and computer
services through March 31, 1999 at certain defined rates.
Portman Holdings, L.P. has agreed to provide risk management
services to the Company through December 31, 1998 for an annual
fee of $100,000 plus certain other costs and fees. Service
agreements generally provide for automatic one-year extensions
and permit termination with notice.
(c) Other Agreements
The Company has engaged a financial advisor to assist the
Company in the identification and evaluation of strategic
alternatives that may include certain transactions designed to
maximize the value of the Company. The possible transactions
could include a capital restructuring, refinancing, asset
27
<PAGE> 28
AMC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
repositioning or a sale of the Company or certain of its assets,
in either a single transaction or a series of related
transactions. Other assets of affiliates of the Company could be
included in any such transaction or series of transactions. The
fees for the services provided by the financial advisor,
including any success fees which may become payable, will be
borne pro rata by the Company and certain affiliates of the
Company, (namely, Portman Lightfair Associates, L.P., CGS
Associates, L.P., AMC Orlando, Inc. and ADAC, L.P.) as provided
in a separate agreement between the Company and these
affiliates. Under this agreement, based on their respective
EBITDAs for 1997, the Company will contribute approximately 71%
of fees and expenses, with any success fee that becomes payable
to be based on the value of the respective parties' assets. The
agreement with the financial advisor provides for an initial
retainer fee of $250,000 and monthly fees of $50,000 per month
for a minimum of twelve months.
(5) Investment in Limited Partnerships
The Company, through its wholly owned subsidiary EC Holdings, Inc. ("EC
Holdings"), owns limited partnership interests in partnerships owning
various types of real estate. In February and May 1998, two of the
partnerships sold hotel properties for an agreed upon number of units in
other previously unaffiliated limited partnerships that had been formed
for the purpose of acquiring and operating hotel properties. The
Company's share of the units, which were distributed to EC Holdings, had
a fair value of approximately $6,414,000 which has all been recorded as
a gain since the Company had no previously recorded basis in the
interests held by EC Holdings. The limited partnership units are not
publicly traded, are restricted as to transfer for a period of time, and
are pledged as security for the Elevated Antecedent Debt Notes (note 7).
The remaining limited partnership interests previously held by EC
Holdings have no carrying value.
The Company, through LFGP, Inc., owns an approximate 50% general
partnership interest in a limited partnership, Portman Lightfair
Associates, L.P. ("PLALP"). The primary asset of PLALP is its one-third
ownership interest in Lightfair International Associates, a New York
general partnership. The carrying value of this investment is $83,336 at
August 31, 1998 and 1997. Earnings of $239,193, $100,464, and $88,738
for the years ended August 31, 1998 and 1997, the 335-day period ended
August 31, 1996, respectively, related to the Company's indirect
investment in Lightfair International Associates are included in
earnings from investment in affiliates in the accompanying consolidated
financial statements.
The Company accounts for its investments in limited partnerships using
the cost method of accounting.
(6) Notes Receivable
Effective October 2, 1995, Portman redeemed his entire ownership
interest in AMC Orlando, Inc. and AMC Tampa, Inc. in exchange for cash
and notes receivable. The notes receivable were contributed by Portman
to the Company. The AMC Orlando, Inc. note, which matures on October 2,
1999, bears interest at 7.5% per annum and requires quarterly interest
payments and semiannual principal payments. In September 1997, the
Company foreclosed on the AMC Tampa, Inc. note receivable due to
non-payment and assumed control of AMC Tampa, Inc. The related write-off
was recorded in other expense.
Notes receivable are summarized at August 31, 1998 and 1997 as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
AMC Orlando, Inc. $ 939,076 $ 1,878,156
AMC Tampa, Inc. -- 390,442
----------- -----------
939,076 2,268,598
Less allowance for doubtful notes receivable -- 390,442
----------- -----------
$ 939,076 $ 1,878,156
=========== ===========
</TABLE>
28
<PAGE> 29
AMC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Interest income related to these notes of $115,428, $208,100, and
$239,524 for the years ended August 31, 1998 and 1997, and the 335-day
period ended August 31, 1996, respectively, is included in interest
income in the accompanying consolidated financial statements.
(7) Long-Term Debt
Long-term debt at August 31, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Gift Mart Mortgage Loan $ 95,048,965 $ 98,561,842
Mart Bonds (face amount of $160 million) 188,800,000 203,200,000
Elevated Antecedent Debt Notes 7,303,273 7,303,273
------------- -------------
291,152,238 309,065,115
Less current portion 109,448,965 14,400,000
------------- -------------
$ 181,703,273 $ 294,665,115
============= =============
</TABLE>
Gift Mart Mortgage Loan - Represents a mortgage loan payable secured by
a first mortgage on the land, building, and improvements of AGM, along
with AGM's interest as lessor in all existing and future leases of the
property. Originally a construction loan payable, the Gift Mart Mortgage
Loan was restructured effective October 2, 1995, with an original
extension in maturity date to July 31, 1998. As permitted by the
mortgage loan agreement, during 1998 the Company exercised its option to
extend the maturity date of the mortgage loan to July 31, 1999.
The Company is in the process of attempting to refinance the existing
mortgage loan payable. The Company currently does not have a commitment
in place to refinance the amount currently outstanding, and there can be
no assurance that the Company will be able to extend the maturity date
of the Gift Mart Mortgage Loan or secure alternative financing to fund
the repayment thereof. Since the Gift Mart Mortgage Loan is secured by
the operating assets of the Gift Mart, foreclosure by the lender would
seriously impair the Company's ability to continue as a going concern.
The entire principal balance of the Gift Mart Mortgage Loan has been
classified as current as of August 31, 1998.
The loan bears interest at a floating rate equal to the prime rate plus
1% or LIBOR plus 2% or the Interbank Offered Rate plus 2% at the option
of the Company. At August 31, 1998 and 1997, the weighted average
interest rates on the mortgage loan balance outstanding approximated
7.73% and 8.02%, respectively. Over the term of the mortgage loan, net
cash flows of AGM, as defined, plus payments received by AGM on the
$730,327 in Elevated Antecedent Debt Notes it holds (see below), must be
applied to reduce the outstanding principal balance of the mortgage
loan. The mortgage loan is partially guaranteed by Portman.
As part of the restructuring of the mortgage loan, the Company entered
into a Rate Cap Transaction Agreement (the "Rate Cap Agreement") which
defines a guaranteed rate for the payment of interest on the loan. The
Rate Cap Agreement expired on September 1, 1998. Amortization expense
for the years ended August 31, 1998 and 1997, and the 335-day period
ended August 31, 1996 was $121,458, $132,500 and $143,542, respectively.
The mortgage loan agreement requires that AGM maintain specified
quarterly levels of net operating income and obtain approval from its
lenders before making certain capital expenditures or incurring certain
operating costs. The mortgage loan agreement requires that cash of AGM
be held by the lender and restricted for payment of operating expenses
and other costs as approved by the lender based on monthly funding
budgets, and interest and principal on the mortgage loan.
Mart Bonds - Effective October 2, 1995 mortgage loans payable and
related accrued interest totaling $315,219,090 were restructured. As a
result of the restructuring, the Company recorded an extraordinary gain
on debt restructuring of approximately $68 million, and, in exchange for
the mortgage loans payable, issued the Mart Bonds in the face amount of
$160,000,000 and an equity interest in AMC, Inc. (see note 11). The Mart
29
<PAGE> 30
AMC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Bonds were recorded at an amount equal to the total future cash
payments, including interest specified by their terms, in accordance
with SFAS No. 15. All future cash payments will be accounted for as a
reduction of the carrying amount of the Mart Bonds, and no interest
expense will be recognized on the Mart Bonds. The Mart Bonds earn
interest at the rate of 7.5% per annum until July 31, 1997 and 9.0% per
annum thereafter through maturity on July 31, 2000. Interest only is
payable quarterly in arrears. Over the term of the Mart Bonds, 50% of
net cash flows (as defined) in excess of $10,000,000 must be paid as
principal reductions on the Mart Bonds within 120 days after the end of
each fiscal year. Additionally, net proceeds from any future refinancing
of the Gift Mart Mortgage Loan, after repayment of the Elevated
Antecedent Debt Notes discussed below, must be used to reduce principal
on the Mart Bonds. The remaining principal is due at maturity. The Mart
Bonds are secured by a deed to secure debt on both the Atlanta Apparel
Mart and the Atlanta Merchandise Mart properties and a pledge of related
assets, subject to the first lien discussed in note 8. The Mart Bonds
become immediately redeemable at 101% of par upon certain changes in
ownership or management of the Company as defined.
Elevated Antecedent Debt Notes - Effective October 2, 1995, the Company
issued the Elevated Antecedent Debt Notes in the amount of $8,033,600 to
certain other creditors, of which $730,327 in principal amount were
issued to AGM. The Elevated Antecedent Debt Notes are noninterest-bearing
and mature on July 31, 2000. The Elevated Antecedent Debt Notes are
secured by the common stock of EC Holdings and its limited partnership
interests, GMGP, Inc. and Gift Mart Limited Partner, Inc.; Portman's
direct and indirect limited partnership interest in JPA Shanghai
Associates, Ltd.; and certain land ("Pisa Land") owned by the Company.
The Elevated Antecedent Debt Noteholders are entitled to direct that the
trustee for the bonds foreclose upon the aforementioned collateral (with
the exception of the common stock of GMGP, Inc. and Gift Mart Limited
Partner, Inc.) at any time after October 2, 1997 relating to EC Holdings
and the Pisa Land, and at any time after October 2, 1998 for the limited
partnership interest in JPA Shanghai Associates, Ltd., but only if the
noteholders have first exercised their rights to foreclose on the
properties held by EC Holdings and the Pisa Land.
As of August 31, 1998, the Company's debt matures in the following
years: $109,448,965 in 1999 and the balance in 2000.
The Company's debt agreements include various covenants including
required financial ratios and other requirements and restrictions on
additional indebtedness, investments, transactions with affiliated
companies, and payment of dividends.
(8) Revolving Line of Credit
At August 31, 1998 and 1997, the Company had $6,102,900 and $3,079,804,
respectively, outstanding under the Revolving Line of Credit. In May
1998, with the approval of the requisite bondholders, the Company's
Revolving Line of Credit was amended to increase the maximum revolving
commitment from $10,000,000 to $20,000,000 and to extend the maturity
date to May 31, 2001. Under the terms of the amendment, the Revolving
Line of Credit bears interest at the prime rate or LIBOR plus 2.10% at
the Company's option, payable monthly. In addition, a commitment fee of
.375% per annum on the daily unused portion of the Revolving Line of
Credit is payable quarterly in arrears. Amounts under the Revolving Line
of Credit are available for general corporate use, including operating
expenses, working capital, capital improvements, debt service and
acquisitions. Under certain circumstances, the usage of the Revolving
Line of Credit may require the prior approval of one of the Company's
bondholders. Amounts outstanding under the line of credit are secured by
a first lien on the Atlanta Apparel Mart and the Atlanta Merchandise
Mart properties as well as related assets.
The Company's Revolving Line of Credit includes various covenants
including required financial ratios and other requirements and
restrictions on additional indebtedness, investments, transactions with
affiliated companies, and payment of dividends.
30
<PAGE> 31
AMC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(9) Fair Value of Financial Instruments
At August 31, 1998 and 1997, the carrying amounts reported in the
accompanying consolidated balance sheets for restricted escrow deposits,
receivables, accounts payable and accrued expenses, and the revolving
line of credit approximate their fair values due to the short-term
nature of these accounts.
Affiliate notes receivable have been priced based on agreements between
Portman and those affiliates. Accordingly, the resulting fair value is
not separately disclosed as there is no readily determinable fair value
for such transactions between related parties.
The Mart Bonds and Elevated Antecedent Debt Notes resulted from the
troubled debt restructuring discussed in note 1. Accordingly, due to the
unique circumstances leading to the issuance of this debt and since
there is no ready market available for this debt, determination of its
fair value is not practicable.
The carrying value of the Gift Mart Mortgage Loan at August 31, 1998 and
1997 discussed in note 7 is a representative approximation of its fair
value as it was restructured and extended as of October 2, 1995, with
interest accruing at variable rates.
(10) Income Taxes
The provision for income tax expense, principally Federal, consists of
the following:
<TABLE>
<CAPTION>
October 2,
Year ended Year ended 1995 through
August 31, August 31, August 31,
1998 1997 1996
---------- ---------- ------------
<S> <C> <C> <C>
Current expense $ -- $ -- $ --
Deferred expense 7,465,000 2,443,000 3,401,600
---------- ---------- ----------
$7,465,000 $2,443,000 $3,401,600
========== ========== ==========
</TABLE>
Total income tax expense recognized in the consolidated statements of
earnings differs from the amounts computed by applying the U.S. Federal
income tax rate of 34% to pretax income as a result of the following:
<TABLE>
<CAPTION>
October 2,
Year ended Year ended 1995 through
August 31, August 31, August 31,
1998 1997 1996
---------- ---------- ------------
<S> <C> <C> <C>
Computed "expected" income tax expense $6,648,101 $2,149,352 $ 3,638,747
Increase (decrease) in income tax expense
resulting from:
State income taxes, net of Federal benefit 782,086 250,336 428,088
Income recognized by Predecessor partners -- -- (763,073)
Other 34,813 43,312 97,838
---------- ---------- -----------
$7,465,000 $2,443,000 $ 3,401,600
========== ========== ===========
</TABLE>
At August 31, 1998, the Company has a net operating loss carryforward
for Federal income tax purposes of approximately $12,431,000 which is
available to offset future taxable income, if any, through 2013.
Differences between accounting rules and tax laws cause differences
between the bases of certain assets and liabilities for financial
reporting purposes and tax purposes. The tax effects of these
differences, to the extent
31
<PAGE> 32
AMC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
that they are temporary, are recorded as deferred income tax assets and
liabilities. In connection with the formation of the Company as of
October 2, 1995, the Company recorded net deferred tax assets of
$25,589,739. The tax effects of temporary differences that give rise to
significant portions of the net deferred income tax assets at August 31,
1998 and 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts $ 407,302 $ 618,967
Commercial property 27,522,340 27,692,063
Investment in affiliates -- 1,840,354
Mart Bonds 10,709,723 16,297,404
Elevated Antecedent Debt Notes 412,920 573,433
Net operating loss carry forward 4,723,668 4,329,729
Other 523,530 640,153
----------- -----------
Gross deferred income tax assets 44,299,483 51,992,103
Less valuation allowance 31,014,802 31,878,127
----------- -----------
Deferred income tax assets 13,284,681 20,113,976
Deferred income tax liabilities:
Property taxes (437,561) (368,837)
Investment in affiliates (566,981) --
----------- -----------
Gross deferred income tax liabilities (1,004,542) (368,837)
----------- -----------
Net deferred income tax assets $12,280,139 $19,745,139
=========== ===========
</TABLE>
In assessing the realizability of deferred income tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred income tax assets will not be realized. The ultimate
realization of deferred income tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers projected
future taxable income and tax planning strategies in making this
assessment. Based upon the projections of future taxable income over the
periods in which the temporary differences resulting in the deferred
income tax assets are deductible and the uncertainty as to availability
of financing alternatives upon maturity of the Company's debt,
management does not believe it is more likely than not that the Company
will realize the benefits of all of these deductible differences. In
particular, the benefit of the largest deferred income tax asset related
to the commercial property will occur over an extended period of time or
upon disposition of the property, if at all. Accordingly, management has
generally recorded a valuation allowance against all deferred income tax
assets other than those relating to the corporate notes payable and
certain other items, for which projections of taxable income to be
recorded during the periods in which the related differences reverse are
sufficient to support their realizability. Actual results could differ
significantly from these estimates and impact the ultimate realization
of the deferred tax assets.
(11) Shareholders' Deficit
The following is a summary of the components of the beginning
shareholders' deficit of AMC, Inc. as of October 2, 1995:
32
<PAGE> 33
AMC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
<TABLE>
<S> <C>
(Deficit) equity of Predecessor companies:
The Atlanta Apparel Mart $ (47,015,555)
Atlanta Merchandise Mart, L.P. (77,141,641)
Atlanta Gift Mart, L.P. (28,955,019)
Atlanta Market Center Management Company, Inc. 516,419
Pisa Associates, L.P. 397,153
Investment in Portman Lightfair Associates, L.P. 33,796
-------------
(152,164,847)
Equity issued to The Atlanta Apparel Mart and the Atlanta
Merchandise Mart, L.P. lenders in restructuring of
debt (see below) 22,090,121
Assets of other than Predecessor companies contributed -
notes receivable (see note 6) 4,202,526
-------------
Liabilities of other than Predecessor companies assumed:
Elevated Antecedent Debt Notes (see note 7) (7,303,273)
AMM Escrow Notes (see note 1) (1,656,007)
-------------
(8,959,280)
-------------
Assets (liabilities) resulting from formation of AMC, Inc.
and termination of the OCPA (see note 1):
Deferred income taxes 25,589,739
Accrued closing and other costs (3,490,436)
Other 2,230,889
-------------
24,330,192
-------------
Shareholders' deficit as of October 2, 1995 $(110,501,288)
=============
</TABLE>
In connection with the formation of the Company all assets contributed
and liabilities assumed have been recorded at historical cost. The
deferred income tax assets resulting from differing financial statement
and tax bases for assets and liabilities contributed to the Company and
the Company's status as a corporation filing under Subchapter C of the
Internal Revenue Code have been recorded as a component of the capital
deficit, as such deferred income tax assets were effectively contributed
in the restructuring.
In connection with the aforementioned troubled debt restructuring as
discussed in notes 1 and 7, a part of which resulted in the formation of
AMC, Inc. and the issuance of 62,173,154 shares of common stock, $1 par
value per share, to Portman Holdings, L.P. and certain creditors of
Portman and affiliates, the Company has issued warrants to purchase
29,171,178 additional shares of the Company's common stock to Portman
and certain shareholders. The warrants will be exercisable (i) only
during such time as the equity value of the Company (as determined by an
independent valuation) equals or exceeds 150% of its equity value at
formation and (ii) only during the five-year period commencing October
2, 1997. The exercise price for each additional share of the Company's
common stock is $1.
Because the exercisability of the warrants is contingent upon the equity
value of AMC, Inc. exceeding 150% of its value at the time of formation
and at the present time it cannot be assumed that such condition is
likely to occur, the issuance of the warrants has not been recorded in
the Company's financial statements. In the event that such condition is
met in the future or the Company determines it is likely to occur, the
Company will record the cost of the warrants at such time. Such cost
will be the difference between the per share equity value of the Company
at the date this condition is met and the exercise price of $1 per share
multiplied by the number of warrants then outstanding. Such cost will be
amortized as additional interest cost over the remaining terms of
33
<PAGE> 34
AMC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
the corporate notes payable or expensed at the time of determination if
the corporate notes payable have matured.
(12) Rental Revenues
The Company is the lessor of showroom and exhibition space in the Marts.
Approximate annual future rental payments to be received under existing
noncancelable leases for the next five years and thereafter are
summarized below:
<TABLE>
<S> <C>
Fiscal year ending August 31,
1999 $ 49,988,000
2000 41,371,000
2001 31,216,000
2002 21,491,000
2003 16,100,000
Thereafter 26,625,000
------------
$186,791,000
============
</TABLE>
(13) Commitments
The Company is obligated under various long-term operating leases,
primarily land leases. Approximate commitments under noncancelable
long-term leases for the next five years and thereafter are summarized
below:
<TABLE>
<S> <C>
Fiscal year ending August 31,
1999 $ 612,000
2000 326,000
2001 300,000
2002 284,000
2003 284,000
Thereafter 27,768,000
-----------
$29,574,000
===========
</TABLE>
Total rental expense for the years ended August 31, 1998 and 1997, and
the 335-day period ended August 31, 1996, was approximately $565,000,
$667,000, and $463,000, respectively.
(14) Contingencies
On April 19, 1993, a former employee of AMCMC (predecessor company)
filed suit against AMCMC for breach of contract and related tort claims.
On January 19, 1996, the trial court granted summary judgment in favor
of the Company on all counts. On March 5, 1997, the Georgia Court of
Appeals reversed the trial court, and directed that judgment be entered
in favor of the former employee on the breach of contract count and
remanded the case for trial on the tort claims. The amount awarded for
the breach of contract claim for damages, plus estimated interest, of
$400,000 was accrued at August 31, 1998. The Georgia Supreme Court
granted the Company's petition requesting a review of the Court of
Appeals decision. On July 13, 1998 the Supreme Court issued its opinion
affirming the summary judgement on the breach of contract claim, but
ruling in favor of the Company on the tort claims. The case has been
remanded to the trial court to enter a judgement and to determine
whether attorneys' fees should be awarded against either party in the
case.
The Company is subject to certain other claims in the ordinary course of
business. Management does not expect that the resolution of such claims
will have a material impact on the Company's financial position or
results of operations.
34
<PAGE> 35
AMC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(15) Employee Retirement Plans
Employees of the Company or Predecessor participate in defined
contribution retirement plans that cover substantially all employees
over age 21. Retirement plan expense approximated $362,000, $389,000,
and $300,000, for the years ended August 31, 1998 and 1997; and the
335-day period ended August 31, 1996, respectively.
(17) Proceeds from Insurance Claim
The Company received $883,881 during the 335-day period ended August 31,
1996 from the cash settlement of an insurance claim filed by the
Predecessor. The rights to the proceeds of the insurance claim were
assigned to the Company upon its formation.
(18) One-Time Event
During the 335-day period ended August 31, 1996, the Company recorded
income resulting from a one-time event as a result of activities
undertaken by the Company specifically related to the 1996 Centennial
Olympic Games, primarily the rental of space for Olympic-related
operations and events. For the year ended August 31, 1997, the related
expense recorded resulted from the write-off of Olympic-related
receivables that became uncollectible during the year.
35
<PAGE> 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the directors and
executive officers of the Company as of August 31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
John C. Portman, Jr.................... 73 Chairman of the Board, Chief Executive Officer and Director
John M. Ryan........................... 54 President and Director
Jeffrey L. Portman..................... 39 Executive Vice President -- Sales and Marketing
Henry G. Almquist, Jr.................. 40 Senior Vice President -- Finance & Accounting/
Chief Financial Officer
Virginia S. Gorday..................... 53 Senior Vice President -- Operations and Administration
Neal G. Patton......................... 42 Secretary and General Counsel
Lawrence B. Gardner.................... 47 Vice President -- Human Resources
R. Charles Loudermilk, Sr.............. 71 Director
D. Raymond Riddle...................... 64 Director
A. J. Robinson......................... 43 Director
Stanley P. Steinberg................... 65 Director
Andrew Young........................... 66 Director
</TABLE>
John C. Portman, Jr. has served as Chairman of the Board, Chief Executive
Officer and as a director of the Company since its formation. Prior thereto,
Mr. Portman was the principal of the Portman Companies for over 40 years. Mr.
Portman has also served as the Chairman of Portman Properties, Inc., the
managing general partner of Portman Holdings, since its formation. Mr. Portman
was the general partner of Los Angeles Bonaventure Company, which filed a
petition under Chapter 11 of the federal bankruptcy code within the last five
years. Mr. Portman is also President, sole director and sole shareholder of the
general partner of Portman Apparel Associates, L.P. ("Portman Apparel"), whose
principal property was the subject of a receivership action, which action
resulted in foreclosure of such property in April 1996. Mr. Portman is the
father of Jeffrey L. Portman.
John M. Ryan has served as President of the Company and as a director since its
formation. Prior thereto, he had served as President of AMCMC since June 1994,
as Chief Financial Officer and Executive Vice President of the Portman
Companies and Treasurer of related entities from September 1991 through October
1995, and as Executive Vice President of Portman Capital Company, one of the
Portman Companies, for more than five years prior thereto. Mr. Ryan is an
executive officer of the general partner of Portman Apparel, whose principal
property was the subject of a receivership action, which action resulted in
foreclosure of such property in April 1996.
Jeffrey L. Portman has served as Executive Vice President--Sales and Marketing
of the Company since its formation. Prior thereto, he had served as Executive
Vice President--Sales & Marketing for AMCMC since June 1994. He had served as
General Manager of the Atlanta Decorative Arts Center, a company owned and
controlled by Mr. Portman's wife, from July 1989 until June 1994. Jeffrey L.
Portman is the son of John C. Portman, Jr.
Henry G. Almquist, Jr. has served as Senior Vice President - Finance and
Accounting/Chief Financial Officer of the Company since January 8, 1997. Prior
thereto, he had served as a vice president of American Resurgens Management
Corporation from September 1995 to January 1997. Prior thereto, he had served
as a vice president of Citicorp Real Estate, Inc. for more than five years.
Virginia S. Gorday has served as Senior Vice President-Operations and
Administration of the Company since its formation. Prior thereto, she had
served as Senior Vice President-Operations for AMCMC since March 13, 1995. She
served as Deputy Executive Director of Housing for the Atlanta Housing
Authority from November 1994 through
36
<PAGE> 37
March 1995. Prior thereto, she was Vice President-Property Management for
Peachtree Center Management Company, one of the Portman Companies, for more
than five years.
Neal G. Patton has served as Secretary and General Counsel of the Company since
its formation. Prior thereto, he had served as General Counsel of AMCMC since
November 1994. He served as Assistant General Counsel of the Portman Companies
from November 1986 to November 1994.
Lawrence B. Gardner has served as Vice President---Human Resources of the
Company since its formation. Prior thereto, he had served as Vice
President--Human Resources for the Portman Companies for more than five years.
R. Charles Loudermilk, Sr. has served as a director of the Company since its
formation. Mr. Loudermilk has been the Chairman and Chief Executive Officer of
Aaron Rents, Inc., for more than five years and was President until 1997. He is
one of the founders and a director of the Buckhead Community Bank, formerly a
director of the Chattahoochee Bank, and formerly the chairman of Metropolitan
Atlanta Rapid Transit Authority.
D. Raymond Riddle has served as a director of the Company since its formation.
Mr. Riddle retired as Chairman and Chief Executive Officer of National Service
Industries, Inc. ("NSI") in January 1995, and had served as President and Chief
Executive Officer of NSI beginning in January 1993. Prior thereto, he had
served as President and Chief Executive Officer of Wachovia Corporation of
Georgia for more than five years. Mr. Riddle serves on the Boards of Directors
of Atlanta Gas Light Company, Equifax, Inc., Gables Residential Trust and
Atlantic American Corporation.
A. J. Robinson has served as a director of the Company since its formation. In
addition, he has served as the President of Portman Properties, Inc., the
managing general partner of Portman Holdings, since its formation. Prior
thereto, he had been employed by Portman Overseas, one of the Portman
Companies, first as Executive Vice President and then as President, for more
than five years.
Stanley P. Steinberg has served as a director of the Company since its
formation. Mr. Steinberg served as Chairman and Chief Executive Officer of Sony
Retail Entertainment, a subsidiary of Sony Corporation of America, from August
1994 through May 1998. He is currently a member of the Board of Directors of
Loews Cineplex Entertainment and the Electronics Boutique, Inc. He also serves
as an advisor and is responsible for certain special projects for Sony
Corporation of America. Mr. Steinberg was Executive Vice President of Walt
Disney Imagineering, a wholly-owned subsidiary of the Walt Disney Company, from
September 1988 to July 1994. Prior thereto, he was Executive Vice President of
the Portman Companies.
Andrew H. Young has served as a director of the Company since its formation.
Mr. Young has been Co-Chairman and a senior partner of Good Works
International, Inc. since January 1997. He was Vice Chairman of Law Companies
Group, Inc. from 1993 through January 1997, and a director of that company from
August 1995 through January 1997. He was Chairman of Law Companies
International Group, Inc. (a former subsidiary of Law Companies Group, Inc.)
from 1990 to 1993. Mr. Young was Mayor of Atlanta, Georgia from 1982 to 1990,
United States Ambassador to the United Nations from 1977 to 1979, and a member
of the House of Representative of the United States Congress from 1973 to 1977.
Mr. Young is a director of Archer Daniels Midland Company, Cox Communications,
Inc., Film Fabricators, Inc., Host Marriott Corporation, The Argus Board (The
International Advisory Board of Independent Newspapers Holdings Limited) and
Thomas Nelson, Inc. He is Chairman of the Southern Africa Enterprise
Development Fund, a member of the Georgia Tech Advisory Board, and a director
of the Martin Luther King, Jr. Center. He was Co-Chairman of the Atlanta
Committee for the Olympic Games and a member of the Board of the United States
Olympic Committee. Mr. Young also served as the 1996 Chairman of the Greater
Atlanta Chamber of Commerce.
37
<PAGE> 38
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation of
the Company's Chief Executive Officer and the other four most highly
compensated executive officers (the "Named Executive Officers"). Compensation
information prior to the Formation Date relates to AMCMC.
<TABLE>
<CAPTION>
============================================================================================================================
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------
NAME & PRINCIPAL POSITION FISCAL OTHER ANNUAL ALL OTHER
PERIOD SALARY COMPENSATION COMPENSATION
(1) (2) BONUS (3) (4)
============================================================================================================================
<S> <C> <C> <C> <C> <C>
1998 $ 700,000 $ -- $ 3,582 $ 8,000
John C. Portman, Jr.
Chairman of the Board and
Chief Executive Officer
-----------------------------------------------------------------------------------------
1997 700,000 -- 1,312 --
-----------------------------------------------------------------------------------------
1996 527,695 -- 7,446 --
============================================================================================================================
1998 294,021 185,079 13,614 8,000
John M. Ryan
President and Director
-----------------------------------------------------------------------------------------
1997 280,000 91,700 31,900 7,500
-----------------------------------------------------------------------------------------
1996 258,462 100,000 9,554 3,060
============================================================================================================================
1998 183,768 92,322 7,917 8,000
Jeffrey L. Portman
Executive Vice President
Sales and Marketing
-----------------------------------------------------------------------------------------
1997 175,010 45,325 5,294 7,500
-----------------------------------------------------------------------------------------
1996 123,045 50,000 9,606 --
============================================================================================================================
1998 146,352 51,998 2,531 --
Henry G. Almquist, Jr.
Senior Vice President,
Finance & Accounting/Chief
Financial Officer
-----------------------------------------------------------------------------------------
1997 84,747 29,421 309 --
-----------------------------------------------------------------------------------------
(since 1/8/97) 1996 -- -- -- --
============================================================================================================================
1998 140,026 49,690 3,890 7,896
Neal G. Patton
Secretary and General Counsel
-----------------------------------------------------------------------------------------
1997 125,008 28,289 1,908 6,581
-----------------------------------------------------------------------------------------
1996 101,549 5,000 866 3,060
============================================================================================================================
</TABLE>
(1) For the fiscal periods September 1, 1997 to August 31, 1998 ("1998"),
September 1, 1996 to August 31, 1997 ("1997"), and October 2, 1995 to
August 31, 1996 ("1996").
(2) The CEO receives $700,000 annual base compensation, in accordance with a
verbal agreement, for the term of his employment, which term is not
limited. The Company does not have compensation agreements with its
other Named Executive Officers.
(3) Includes club membership reimbursements and executive medical
reimbursements.
(4) Amounts reflect contributions made on behalf of each executive to the AMC
Retirement Plan, a defined contribution retirement plan.
38
<PAGE> 39
COMPENSATION COMMITTEE
The Board of Directors has established a Compensation Committee, upon which
Messrs. Steinberg, Riddle, and Loudermilk serve. Mr. Steinberg is the Chairman
of the Compensation Committee. Each member of the Compensation Committee must
be an independent director. The Compensation Committee administers the
Company's incentive and stock option plans (if any) and other employee benefit
and compensation plans. Additionally, the Compensation Committee reviews, fixes
and determines the compensation paid by the Company and its subsidiaries to all
(1) directors, (2) executive officers, (3) employees whose aggregate annual
compensation (excluding leasing commissions) exceeds $100,000 and (4) employees
who are related to an executive officer or director of the Company or its
subsidiaries.
DIRECTOR COMPENSATION
The Company's independent directors receive an annual fee of $20,000, paid
quarterly, $1,000 for each Board of Directors meeting attended and $500 for
each committee meeting attended. Additionally, Independent Directors are
reimbursed for reasonable expenses incurred in connection with attendance at
such meetings.
ACTION REQUIRING APPROVAL OF INDEPENDENT DIRECTORS
Pursuant to the Company's Bylaws, certain actions of the Company and its
subsidiaries require the affirmative approval of a majority of the independent
directors. These actions include: (1) adoption of the consolidated annual
budget and business plan; (2) any expenditure within the reasonable control of
the Company which would cause a line item in the approved consolidated annual
budget to be exceeded by more than 10%; (3) any transaction not provided for in
the approved consolidated annual budget involving in excess of 10% of the net
worth of the Company; (4) any amendment to the Company's Articles of
Incorporation involving the stated purpose of the Company; (5) the incurrence
or refinancing of debt not contemplated by the approved consolidated annual
budget; (6) with certain exceptions, the issuance of any security of the
Company or any of its subsidiaries or any security convertible into any such
security or the grant of a stock option or right to purchase any such security;
(7) the dissolution, merger, consolidation or liquidation of the Company or any
of its subsidiaries; (8) the election of directors of any subsidiary; and (9)
any amendment to the Bylaws of the Company or of any of the Company's
subsidiaries.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of November 6, 1998, there were 62,173,154 shares of Common Stock
outstanding. The following table sets forth, as of November 6, 1998, certain
information with respect to the beneficial ownership of Common Stock by (i)
each person who owned, at such date, at least 5% of the outstanding Common
Stock, (ii) each director of the Company, (iii) each Named Executive Officer ,
(iv) and all directors and executive officers of the Company as a group. Except
as otherwise noted below, each such person has sole voting and investment power
with respect to all shares shown below.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP NATURE OF BENEFICIAL CLASS
OWNERSHIP
- ---------------------------------------- -------------------- ----------
<S> <C> <C>
FBCC CO.
3419 Westminster, Lock Box 274 26,181,691 42.1109
Dallas, TX 75207
JOHN C. PORTMAN, JR. 11,372,408 (1) (2) 18.2900
Chief Executive Officer and Chairman
240 Peachtree Street, N. W.
Suite 2200
Atlanta, Georgia 30303
JOAN N. PORTMAN 11,343,154 (3) (4) (5) 18.0000
240 Peachtree Street, N. W.
Suite 2200
Atlanta, Georgia 30303
</TABLE>
39
<PAGE> 40
<TABLE>
<S> <C> <C>
PORTMAN HOLDINGS, L. P.
303 Peachtree Street, N. E. 10,880,302 (1) 17.5000
Suite 4600
Atlanta, Georgia 30308
PEACHTREE 400 ASSOCIATES, LTD.
303 Peachtree Street, N. E. 6,863,798 (5) 11.0398
Suite 4600
Atlanta, Georgia 30308
351 HOLDINGS, L. P.
303 Peachtree Street, N. E. 4,375,425 (3) 7.0375
Suite 4600
Atlanta, Georgia 30308
JEFFREY L. PORTMAN
240 Peachtree Street, N. W. 13,935 (6) *
Suite 2200
Atlanta, Georgia 30303
JOHN M. RYAN
240 Peachtree Street, N. W. 3,983 (7) *
Suite 2200
Atlanta, Georgia 30303
STANLEY P. STEINBERG
240 Peachtree Street, N. W. 3,342 (8) *
Suite 2200
Atlanta, Georgia 30303
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP
(12 PERSONS) 11,393,667 18.3257
</TABLE>
* Less than 1%.
(1) Includes 10,880,302 shares which are owned of record by Portman
Holdings, with respect to which John C. Portman, Jr., as sole
shareholder of Portman Properties, Inc., the sole general partner of
Portman Holdings, has sole voting and investment power.
(2) Includes 492,106 shares which are owned of record by Peachtree Hotel
Company, with respect to which John C. Portman, Jr., as sole general
partner of Peachtree Hotel Company, has sole voting and investing power.
(3) Includes 4,375,425 shares owned by 351 Holdings, LP, with respect to
which Joan N. Portman, as sole general partner of 351 Holdings, LP, has
sole investment and voting power.
(4) Includes 103,931 shares owned by CGS Associates, L.P., with respect to
which Joan N. Portman, as sole general partner of CGS Associates, L.P.,
has sole voting and investment power.
(5) Includes 6,863,798 shares owned by Peachtree 400 Associates, Ltd., with
respect to which Joan N. Portman, as sole shareholder of the sole
general partner of Peachtree 400 Associates, Ltd., has sole voting and
investment power.
(6) Such shares are owned of record by AMC Orlando, in which Jeffrey L.
Portman is a shareholder.
(7) Includes 3,342 shares owned of record by AMC Orlando, in which John M.
Ryan is a shareholder.
(8) Such shares are owned of record by AMC Orlando, in which Stanley P.
Steinberg is a shareholder.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
SERVICE AGREEMENTS
Prior to the formation of the Company, the Portman Companies shared personnel
who provided certain services, including risk management, tax services, human
resources services and legal services, to all of such affiliated entities.
Following the formation of the Company, such personnel continue to provide
certain of those services for both the Company and Portman Holdings pursuant to
a series of agreements as described below. The cost of such services was
determined based upon the cost of services obtained from third parties or the
direct personnel expenses of the personnel providing such services. The service
agreements have been approved by the independent directors of the Company.
Additional services may be provided from time to time by Portman Holdings and
the Company to each other during a transition period as the need arises. It is
the Company's intention that such services will also be reimbursed based on the
direct personnel expenses of the personnel providing such services or the cost
to the Company for such services.
40
<PAGE> 41
Services Provided by Portman Holdings
The Company and Portman Holdings entered into an agreement dated December 11,
1996 (the "Risk Management Agreement") whereby Portman Holdings provides risk
management services to the Company. Portman Holdings receives $100,000 in
twelve equal monthly installments for these services. Portman Holdings is also
reimbursed for pre-approved out-of-pocket expenses and receives 50% of any
claims management fee which is reimbursed to the Company by insurance
companies. The current approved extension of the Risk Management Agreement
expires on December 31, 1998. The Risk Management Agreement is subject to
annual renewal by Portman Holdings and the Company.
The Company and Portman Holdings also entered into an agreement dated January
24, 1996 (the "Staff Support Agreement") whereby Portman Holdings provides the
services of two support personnel to assist Mr. Portman. Portman Holdings
received $5,000 per month for these services, which represents approximately
one half of the costs of providing such personnel. The Staff Support Agreement
expired on December 31, 1997.
The Company and Portman Holdings entered into an agreement dated February 1,
1997 (the "Construction Management Services Agreement") whereby Portman
Holdings provided consulting services related to construction management.
Portman Holdings received $5,000 per month for these services. The Construction
Management Services Agreement was terminated effective January 31, 1998.
Services provided by the Company
The Company and Portman Holdings entered into an agreement dated November 13,
1995 (the "Telephone Service Agreement") whereby the Company provides various
telephone services to Portman Holdings, its affiliates and ADAC. The services
include maintenance and consulting services at specified hourly rates,
telephone services based on cost plus a mark-up, and equipment at specified
rates. The Telephone Service Agreement had an initial term of one year, and
automatically extended for a second year. The agreement terminated on November
13, 1997.
The Company and Portman Holdings entered into an agreement dated November 13,
1995 (the "Human Resource Service Agreement") whereby the Company will provide
human resource services to Portman Holdings, its affiliates and ADAC. The fee
for the services is based on a fixed rate per employee per month and is payable
on a monthly basis. On November 13, 1997, the Company and Portman Holdings
entered into a new agreement which extended the original contract to December
31, 1997 and on a month to month basis thereafter. The contract was terminated
on January 31, 1998. The total billings for these services during the Company's
1998 fiscal year were approximately $34,000.
The Company and Portman Holdings have entered into an agreement dated November
13, 1995 (the "Legal Services Agreement") whereby the Company's legal
department will provide legal services to Portman Holdings and its affiliates
on a time available basis at specified hourly rates. The contract is on a month
to month basis. The total billings for these services during the Company's 1998
fiscal year were approximately $25,000.
The Company and Portman Holdings entered into an agreement dated November 13,
1996 (the "Computer Service Agreement") whereby the Company provides computer
services to Portman Holdings, its affiliates and ADAC. The Computer Services
Agreement was amended effective October 8, 1997. Maintenance services are
provided at an hourly rate and access to hardware and software is provided at a
base rate of $7,000 per month subject to increases and additional costs in
certain circumstances. Portman Holdings exercised its option under the amended
agreement to extend the expiration date from August 31, 1998 to March 31, 1999.
The total billings for these services during the Company's 1998 fiscal year
were approximately $55,000.
Interests in Portman Holdings
Mr. Portman is the sole shareholder of Portman Properties, Inc., the sole
general partner of Portman Holdings, and beneficially owns a 49.5709% interest
in such partnership. Joan N. Portman and Jeffrey L. Portman beneficially own
17.2884% and 4.0471% interest, respectively, in Portman Holdings, and the other
adult children of Mr. Portman and a trust, the beneficiaries of which are Mr.
Portman's adult children and their heirs, beneficially own an aggregate
29.0936% interest in Portman Holdings.
41
<PAGE> 42
OTHER AGREEMENTS, INDEBTEDNESS AND INTERESTS
The Company has engaged a financial advisor to assist the Company in the
identification and evaluation of strategic alternatives that may include
certain transactions designed to maximize the value of the Company. The
possible transactions could include a capital restructuring, refinancing, asset
repositioning or a sale of the Company or certain of its assets, in either a
single transaction or a series of related transactions. Other assets of
affiliates of the Company could be included in any such transaction or series
of transactions. There can be no assurance that the financial advisor will
formulate any strategic alternative to maximize the value of the Company or
that the Company will succeed in completing any transaction or series of
transactions recommended by the financial advisor. The fees for the services
provided by the financial advisor, including any success fees which may become
payable, will be borne pro rata by the Company and certain affiliates of the
Company, (namely, Portman Lightfair Associates, L.P., CGS Associates, L.P., AMC
Orlando, Inc. and ADAC, L.P.) as provided in a separate agreement between the
Company and these affiliates. Under this agreement, based on their respective
EBITDAs for 1997, the Company will contribute approximately 71% of fees and
expenses, with any success fee that becomes payable to be based on the value of
the respective parties' assets. The agreement with the financial advisor
provides for an initial retainer fee of $250,000 and monthly fees of $50,000
per month for a minimum of twelve months.
FBCC Co. is a 42% shareholder of the Company, and the Company has entered into
the FBCC Transaction, as discussed in Item 7 under Liquidity and Capital
Resources.
The Company is a party to separate management agreements with AMC Orlando and
CGS Associates, L.P. ("CGS"). Additionally, as part of the formation of the
Company, the Company received a Purchase Money Note of AMC Orlando. This
Purchase Money Note bears interest at the rate of 7.5% per annum and is due and
payable on July 20, 1999. Further, the Company has accounts receivable from
certain affiliates, primarily representing management fees and reimbursable
expenses, upon which interest does not accrue.
AMC Orlando
At August 31, 1998, AMC Orlando owed the Company approximately $8,000 in
addition to the Purchase Money Note in the principal amount of $939,076 with
accrued interest of $15,651. Jeffrey L. Portman beneficially owns an 11.2642%
interest in AMC Orlando, and Messrs. Steinberg and Ryan each beneficially own a
2.7012% interest, in AMC Orlando. Mr. Portman's other adult children
beneficially own an aggregate 60.7239% interest in AMC Orlando.
CGS
At August 31, 1998, the Company owed CGS approximately $37,000. Joan N. Portman
beneficially owns a 54.6983% interest in CGS and Jeffrey L. Portman
beneficially owns a 5.1871% interest in CGS. Mr. Portman's other adult children
beneficially own an aggregate of 29.1511% interest in CGS.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
A. Documents filed as part of this Form 10-K:
1. Financial Statements (included in Part II, Item 8):
AMC, INC. AND SUBSIDIARIES
Independent Auditors' Report
Consolidated Balance Sheets as of August 31, 1998 and 1997
Consolidated Statements of Earnings for the years ended August 31,
1998 and 1997 and for the period from October 2, 1995 through
August 31, 1996
Consolidated Statements of Shareholders' Deficit for the years ended
August 31, 1998 and 1997 and for the period from October 2,
1995 through August 31, 1996
Consolidated Statements of Cash Flows for the years ended August 31,
1998 and 1997 and for the period from October 2, 1995 through
August 31, 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules (included in Part IV):
Report of Independent Auditors S-1
Schedule II Valuation and Qualifying Accounts S-2
42
<PAGE> 43
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is included in
the Financial Statements or notes thereto.
3. Exhibits
Exhibit No. Description
3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to
the Registrant's Registration Statement on Form S-4 No. 333-1742 filed
on May 24, 1996 ("Registration Statement"))
3.2 Articles of Amendment (incorporated by reference to Exhibit 3.2 of the
Registration Statement)
3.3 By-laws (incorporated by reference to Exhibit 3.3 of the Registration
Statement)
4.1 Exchange and Registration Rights Agreement, dated as of October 2,
1995, by and between the Company and the initial holders of the
Private Placement Notes named therein (incorporated by reference to
Exhibit 4.1 of the Registration Statement). (Incorporated by reference
to exhibit 4.1 of the May 31, 1998 quarterly report on form 10-Q.)
4.2 Shareholders Agreement, dated as of October 2, 1995, by and between
the Company and the initial shareholders of the Company named therein,
as amended (incorporated by reference to Exhibit 4.2 of the
Registration Statement). (Incorporated by reference to exhibit 4.2 of
the May 31, 1998 quarterly report on form 10-Q.)
4.3 Indenture dated as of October 2, 1995 between the Company and Reliance
Trust Company as Trustee, relating to the Exchange Notes (including
the form of the Exchange Notes) (incorporated by reference to Exhibit
4.3 of the Registration Statement).
4.4 First Amendment to Indenture, dated as of April 4, 1996, between the
Company and Reliance Trust Company, as Trustee (incorporated by
reference to Exhibit 4.4 of the Registration Statement)
4.5 Form of Warrants (incorporated by reference to Exhibit 4.5 of the
Registration Statement)
4.6 Second Amendment to Indenture dated as of May 31, 1998 by and between
AMC, Inc. and Reliance Trust Company, as Trustee (incorporated by
reference to Exhibit 4.4 to the Registrant's Quarterly Report on Form
10-Q as of May 31, 1998)
4.7 Modification to Deed to Secure Debt and Security Agreement dated as of
May 31, 1998 by AMC, Inc. and the Provident Bank as agent for the
various lenders (incorporated by reference to Exhibit 4.5 to the
Registrant's Quarterly Report on Form 10-Q as of May 31, 1998)
10.1 Amended and Restated Credit Agreement dated as of October 2, 1995, by
and among Atlanta Gift Mart, L.P., Bank of America National Trust and
Savings Association, as Agent, and the other financial institutions
named therein (incorporated by reference to Exhibit 10.1 of the
Registration Statement)
10.2 Rate Cap Transaction Agreement dated as of July 28, 1995, between
Atlanta Gift Mart, L.P. and NationsBank, N.A. (Carolinas)
(incorporated by reference to Exhibit 10.2 of the Registration
Statement)
10.3 Modification and Second Amended and Restated Deed to Secure Debt and
Security Agreement dated as of October 2, 1995, by and among Atlanta
Gift Mart, L.P. and Bank of America National Trust and Savings
Association, as Agent (incorporated by reference to Exhibit 10.3 of
the Registration Statement)
10.4 First Amended and Restated Sequestration Agreement dated as of October
2, 1995, by and among Atlanta Gift Mart, L.P., Bank of America
National Trust and Savings Association, as Agent, and the Company
(incorporated by reference to Exhibit 10.4 of the Registration
Statement)
10.5 Credit Agreement dated as of September 30, 1995, by and among the
Company, The Provident Bank as Agent, and the other lenders named
therein (incorporated by reference to Exhibit 10.5 of the Registration
Statement)
43
<PAGE> 44
10.6 Deed to Secure Debt and Security Agreement dated as of October 2, 1995,
between the Company and The Provident Bank (incorporated by reference
to Exhibit 10.6 of the Registration Statement)
10.7 Risk Management Agreement dated November 13, 1995, between the Company
and Portman Holdings (incorporated by reference to Exhibit 10.7 of the
Registration Statement)
10.8 Executive Office Staff Support Agreement dated January 24, 1996,
between the Company and Portman Holdings (incorporated by reference to
Exhibit 10.9 of the Registration Statement)
10.9 Telephone Service Agreement dated November 13, 1995, between the
Company and Portman Holdings (incorporated by reference to Exhibit
10.12 of the Registration Statement)
10.10 Legal Services Agreement dated November 13, 1995, between the Company
and Portman Holdings (incorporated by reference to Exhibit 10.14 of
the Registration Statement)
10.11 Computer Service Agreement dated November 13, 1995, between the
Company and Portman Holdings (incorporated by reference to Exhibit
10.15 of the Registration Statement)
10.12 First Restatement of Management Agreement dated as of October 2, 1995,
by and between AMC Orlando and AMCMC (incorporated by reference to
Exhibit 10.16 of the Registration Statement)
10.13 First Restatement of Management Agreement dated as of October 2, 1995,
by and between AMC Tampa and AMCMC (incorporated by reference to
Exhibit 10.17 of the Registration Statement)
10.14 First Restatement of Management Agreement dated as of October 2, 1995,
by and between CGS and AMCMC (incorporated by reference to Exhibit
10.18 of the Registration Statement)
10.15 Indenture of Lease dated as of November 1, 1968, by and between Mary
Templis and Belle Frank as Trustees under the terms of the Will of
Louis Templis, as Lessor, and the Company (by virtue of assignment),
as Lessee (incorporated by reference to Exhibit 10.19 of the
Registration Statement)
10.16 Indenture of Lease dated as of December 30, 1966, by and between The
250 Spring Corp., as Lessor, and the Company (by virtue of
assignment), as Lessee (incorporated by reference to Exhibit 10.20 of
the Registration Statement)
10.17 Indenture of Lease dated as of September 1, 1972, by and between
Bonnie Gordon Roe, as Lessor, and the Company (by virtue of
assignment), as Lessee (incorporated by reference to Exhibit 10.21 of
the Registration Statement)
10.18 Indenture of Lease dated as of October 27, 1969, by and between
Shepard Bryan, as Lessor, and the Company (by virtue of assignment),
as Lessee (incorporated by reference to Exhibit 10.22 of the
Registration Statement)
10.19 Indenture of Lease dated as of November 1, 1969, by and between Jules
G. Edwards, as Lessor, and the Company (by virtue of assignment), as
Lessee, as amended by an Amendment to Indenture of Lease dated January
16, 1970 (incorporated by reference to Exhibit 10.23 of the
Registration Statement)
10.20 Indenture of Lease dated as of September 1, 1969, by and between Mrs.
Dorothy Fielder Ewing, Frank K. Ewing, Morris M. Ewing, Nancy C. Ewing
Hembrough, and Trust Company of Georgia, as Trustee, under the Will of
Charles A. Ewing, as Lessor, and the Company (by virtue of assignment),
as Lessee (incorporated by reference to Exhibit 10.24 of the
Registration Statement)
10.21 Indenture of Lease dated as of July 1, 1969, by and between Alice L.
Weeks, and James C. Weeks, as Lessor, and the Company (by virtue of
assignment), as Lessee, as amended by a First Amendment to Indenture
of Lease dated as of February 28, 1987 (incorporated by reference to
Exhibit 10.25 of the Registration Statement)
10.22 Indenture of Lease dated as of September 1, 1968, by and between Paul
A. Clark, as Lessor, and the Company (by virtue of assignment), as
Lessee (incorporated by reference to Exhibit 10.26 of the Registration
Statement)
44
<PAGE> 45
10.23 Indenture of Lease dated as of September 1, 1969, by and between Sara
K. Bernath, Myer Caplan, Elias Margoles, Alvin Saul, and Felice G.
Silberstein, as Lessor, and the Company (by virtue of assignment), as
Lessee (incorporated by reference to Exhibit 10.27 of the Registration
Statement)
10.24 Indenture of Lease dated as of October 16, 1963, by and between
Methodist Children's Home of North Georgia, Inc., as Lessor, and the
Company (by virtue of assignment), as Lessee (incorporated by
reference to Exhibit 10.28 of the Registration Statement)
10.25 Indenture of Lease dated October 1, 1963, by and between Mrs. Eula
Sikes Hamilton, as Lessor, and the Company (by virtue of assignment),
as Lessee (incorporated by reference to Exhibit 10.29 of the
Registration Statement)
10.26 Indenture of Lease dated as of August 1, 1975, by and between William
T. Davis as Lessor, and the Company (by virtue of assignment), as
Lessee (incorporated by reference to Exhibit 10.30 of the Registration
Statement)
10.27 Indenture of Lease dated October 16, 1963, by and between J. W. O'Neal,
as Lessor, and the Company (by virtue of assignment), as Lessee
(incorporated by reference to Exhibit 10.31 of the Registration
Statement)
10.28 Indenture of Lease dated November 7, 1963, by and among Mrs. Anne
Grant Owens, as Lessor, and the Company (by virtue of assignment), as
Lessee (incorporated by reference to Exhibit 10.32 of the Registration
Statement)
10.29 Lease Agreement dated May 20, 1992, by and between Metropolitan
Atlanta Rapid Transit Authority, as Lessor, and the Company (by virtue
of assignment), as Lessee (incorporated by reference to Exhibit 10.33
of the Registration Statement)
10.30 Promissory Note dated October 2, 1995, by and between AMC Orlando,
Inc. and the Company (by virtue of assignment) (incorporated by
reference to Exhibit 10.35 of the Registration Statement)
10.31 Noncompetition Agreement dated as of October 2, 1995, between John C.
Portman, Jr. and the Company (incorporated by reference to Exhibit
10.36 of the Registration Statement)
10.32 Construction Management Services Agreement dated April 1, 1996,
between Portman Holdings and the Company (incorporated by reference to
Exhibit 10.37 of the Registration Statement)
10.33 Amendment dated October 8, 1997 to the Computer Service Agreement
dated November 13, 1995, between the Company and Portman Holdings
(incorporated by reference to Exhibit 10.40 to the Registrant's Annual
Report on Form 10-K as of August 31, 1997)
10.34 Human Resources Services Agreement dated November 13, 1997 between the
Company and Portman Holdings (incorporated by reference to
Exhibit 10.41 to the Registrant's Annual Report on Form 10-K as of
August 31, 1997)
10.35 First Amendment to Credit Agreement dated as of May 31, 1998, by and
among AMC, Inc. and the Provident Bank and various lenders
(incorporated by reference to Exhibit 4.1 to the Registrant's
Quarterly Report on Form 10-Q as of May 31, 1998)
10.36 Amended and Restated Revolving Credit Note dated May 31, 1998
(incorporated by reference to Exhibit 4.2 of the Registrant's
Quarterly Report on Form 10-Q as of May 31, 1998)
10.37 First Amendment to Intercreditor Agreement dated as of May 31, 1998 by
and among The Provident Bank, as agent, and Reliance Trust Company in
its capacity as trustee (incorporated by reference to Exhibit 4.3 to
the Registrant's Quarterly Report on Form 10-Q as of May 31, 1998)
10.38 Agreement dated April 8, 1998 among AMC, Inc., Portman Lightfair
Associates, L.P., CGS Associates, L.P., AMC Orlando, Inc. and ADAC,
L.P. regarding the engagement of Victor Capital Group, L.P.
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q as of May 31, 1998)
10.39 Agreement dated April 7, 1998 regarding the engagement of Victor
Capital Group, L.P. by AMC, Inc. for itself and as agent for Portman
Lightfair Associates, L.P., CGS Associates, L.P., AMC Orlando, Inc.
and ADAC, L.P. (incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q as of May 31, 1998)
45
<PAGE> 46
10.40 Agreement dated November 10, 1998 between FBCC Co., AMC Inc., and
EC Holdings Inc. regarding the EC collateral.
21.1 Subsidiaries of the Company
24.1 Powers of Attorney
27.0 Financial Data Schedule (for SEC use only)
B. No reports on Form 8-K were issued subsequent to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended May 31, 1998.
46
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMC, Inc.
(Registrant)
By: /S/ JOHN C. PORTMAN, JR.
---------------------------------------
John C. Portman, Jr.
Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
/S/ JOHN M. RYAN
---------------------------------------
John M. Ryan
President (Principal Executive Officer)
/S/ HENRY G. ALMQUIST, JR.
---------------------------------------
Henry G. Almquist, Jr.
Sr. Vice President Finance and
Accounting, Chief Financial Officer
(Principal financial and accounting
officer)
November 12, 1998
<PAGE> 48
Pursuant to the requirements of the Securities Act of 1934, this Annual Report
on Form 10-K has been signed by the following persons on November 12, 1998 in
the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
Chairman of the Board, Chief Executive
/S/ JOHN C. PORTMAN, JR. Officer, and Director (principal executive officer)
- -----------------------------------
John C. Portman, Jr.
/S/ JOHN M. RYAN President and Director (principal executive officer)
- -----------------------------------
John M. Ryan
* Director
- -----------------------------------
R. Charles Loudermilk, Sr.
Director
- -----------------------------------
D. Raymond Riddle
* Director
- -----------------------------------
A. J. Robinson
* Director
- -----------------------------------
Stanley P. Steinberg
* Director
- -----------------------------------
Andrew Young
</TABLE>
*The undersigned by signing his name does hereby execute this Annual Report
pursuant to powers of attorney filed as Exhibits 24.1 to the Annual Report.
By: /S/ HENRY G. ALMQUIST, JR.
--------------------------
HENRY G. ALMQUIST, JR
Attorney-in-Fact
<PAGE> 49
Independent Auditors' Report
The Board of Directors
AMC, Inc.:
Under date of October 16, 1998, we reported on the consolidated balance sheets
of AMC, Inc. and subsidiaries (Company) as of August 31, 1998 and 1997, and the
related consolidated statements of earnings, shareholders' deficit and cash
flows for the years ended August 31, 1998 and 1997 and the period from October
2, 1995 through August 31, 1996,which are included elsewhere in this Form 10-K.
In connection with our audits of the aforementioned consolidated financial
statements of the Company , we also audited the related consolidated financial
statement schedule listed in Item 14a(2). This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
The audit report on the consolidated financial statements of the Company
referred to above contains an explanatory paragraph referring to a significant
debt obligation of the Company which has a maturity date of July 31, 1999 and
for which there is uncertainty as to how the obligation will be repaid when
due. This raises substantial doubt about the Company's ability to continue as a
going concern since a significant portion of the Company's operating assets are
pledged as collateral for the loan. The financial statement schedule does not
include any adjustments that might result from the outcome of this uncertainty.
/S/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
October 16, 1998
S-1
<PAGE> 50
AMC, INC. AND SUBSIDIARIES
For the Years ended August 31, 1998 and 1997 and the Period from October 2, 1995
through August 31, 1996
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
========================================================================================================================
Additions
Allowance at Bad Recoveries of Receivables Allowance at end
Beginning of Debt Previous Written off of period
Period Expense Write-offs
- ------------------------------------------------------------------------------------------------------------------------
Allowance for
doubtful receivables:
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 $1,628,859 $292,313 $161,648 $(1,061,940) $1,020,880
- ------------------------------------------------------------------------------------------------------------------------
1997 2,205,797 641,772 208,233 (1,426,943) 1,628,859
- ------------------------------------------------------------------------------------------------------------------------
1996 2,647,816 932,909 93,052 (1,467,980) 2,205,797
========================================================================================================================
</TABLE>
S-2
<PAGE> 1
EXHIBIT 10.40
FBCC CO.
500 CRESCENT COURT, SUITE 300
DALLAS, TEXAS 75201
November 10, 1998
AMC, Inc.
Suite 2200
240 Peachtree Street, N.W.
Atlanta, GA 30303
EC Holdings, Inc.
Suite 2200
240 Peachtree Street, N.W.
Atlanta, GA 30303
Re: Class A Elevated Antecedent Debt Notes due July 31, 2000
Gentlemen:
FBCC has received a form of consent letter (the "Consent Letter") from Reliance
Trust Company (the "Trustee") dated October 29, 1998, requesting that FBCC Co.
("FBCC") consent to a substitution of a part of the collateral (the "EC
Collateral") that secures the Class A Elevated Antecedent Debt Notes due July
31, 2000 (the "Series C Notes") issued by AMC, Inc., a Georgia corporation
("AMC"). The EC Collateral consists of partnerships interests in and the right
to receive distributions from Embarcadero Center Investors Partnership, Two
Embarcadero Center West, and Three Embarcadero Center West, each a California
limited partnership (collectively, the "EC Partnerships"). The EC Collateral is
owned by a wholly-owned subsidiary of AMC, EC Holdings, Inc., a Georgia
corporation ("ECH"), and has been pledged by ECH to partially secure the
obligation of AMC to pay the Series C Notes.
The Consent Letter requests that FBCC agree to a substitution of the EC
Collateral for units of Boston Properties Limited Partnership, a Delaware
limited partnership ("BPLP"). Those units are known as "Series Two Preferred
Units" (the "BPLP Units") and are more particularly described in the BPLP
Certificate of Designations ("Certification of Designations") Establishing and
Fixing the Rights, Limitations and Preferences of a Series of Preferred Units
to be executed by Boston Properties, Inc., as general partner of BPLP. The
substitution of collateral is necessary to facilitate a proposed sale by the EC
Partnerships of all of their assets to BPLP pursuant to the Master Transaction
Agreement entered into among BPLP, ECH, the EC Partnerships et al. (the "Master
Agreement").
This letter sets forth the terms and conditions by which (i) FBCC will deliver
its unconditional consent to a substitution of the EC Collateral for the BPLP
Units and (ii) AMC and ECH will redeem, or cause to be redeemed, all of the
Series C Notes. For and in consideration of the mutual covenants and agreements
set forth in this letter, the sufficiency of which are hereby acknowledged,
FBCC, AMC, and ECH hereby agree as follows:
<PAGE> 2
November 10, 1998
Page 2
1. UNCONDITIONAL DELIVERY OF CONSENT. Upon AMC and ECH executing and
delivering to FBCC a counterpart of this letter, FBCC will countersign the
Consent Letter in the form attached hereto as Exhibit A and immediately
deliver the same to the Trustee.
2. SUBSTITUTION OF COLLATERAL. AMC and ECH will cooperate in good faith with
the Trustee to consummate the substitution of the EC Collateral for the
BPLP Units as soon as reasonably practicable, pursuant to the terms and
conditions set forth in the Certification of Designations and the Master
Agreement. The parties acknowledge that the closing of the above
collateral exchange is dependent upon the closing of all of the
transactions contemplated by the Master Agreement, over which neither of
the parties hereto have control. Neither AMC nor ECH will agree to any
material change, modification, or amendment of any of the terms and
conditions of the Certification of Designations and the Master Agreement
without the prior written consent of FBCC. AMC and ECH will periodically
advise FBCC, but no less frequently than once per week, as to the status
of the substitution of the EC Collateral for the BPLP Units. As soon as
reasonably practicable, but in any event by December 31, 1998, ECH and AMC
will furnish to FBCC final copies of the Master Agreement, BPLP
Partnership Agreement, the Registration Rights and Lock-Up Agreement.
Certificate of Designations, and any other documents affecting the
ownership or disposition of the BPLP Units.
3. REDEMPTION. Promptly after the substitution of the EC Collateral for the
BPLP Units, but in no event later than thirty (30) business days
thereafter, FBCC will purchase from ECH for cash and in redemption of
Series C Notes held by FBCC a sufficient number of BPLP Units to permit
AMC to redeem all of the issued and outstanding Series C Notes. ECH and
AMC have obtained the consent of all necessary persons, including
specifically the consent of the General partner of BPLP, to effectuate and
consummate the transfer of the BPLP Units to FBCC (and the registration of
the BPLP Units in the name of FBCC) as contemplated by this paragraph. No
consent of any other person is required to consummate the transfer of the
BPLP Units to FBCC as contemplated by this paragraph.
As of the date hereof, $7,998,840.36 principal amount of the Series C
Notes are issued and outstanding and, therefore, a total aggregate amount
of $7,998,840.36 in cash would be required to redeem all of the Series C
Notes, including Series C Notes held by FBCC. As of the date hereof, FBCC
owns $2,908,689.13 principal amount of the Series C Notes. The BPLP Units
each have a value of $50.00 and ECH anticipates receiving approximately
600,000 BPLP Units pursuant to the Master Agreement. In order to effect
the redemption of the Series C Notes, ECH will transfer to FBCC 177,762
BPLP Units, having an aggregate face value of $8,887,600.40, in
consideration of which FBCC will surrender to AMC as fully redeemed at par
its $2,908,669.13 of Series C Notes and will pay to ECH in cash the sum of
$5,090,171.38. AMC will simultaneously redeem for cash all of the
remaining Series C Notes at par; provided, however, that in the event FBCC
acquires additional Series C Notes prior to such
<PAGE> 3
November 10, 1998
Page 3
redemption, then such additional Series C Notes so acquired by FBCC will be
exchanged for additional BPLP Units at the same rate of exchange as
provided for in this paragraph. All accrued and unpaid distributions
payable by BPLP with respect to the BPLP Units to be assigned to FBCC will
inure to the benefit of FBCC from and after the date of initial issuance of
the BPLP Units by BPLP. FBCC will take the BPLP Units subject to all the
terms and conditions of, and benefits accruing to BPLP Units, as described
in the Certificate of Designations, the Registration Rights and Lock-Up
Agreement and the partnership agreement of BPLP. The Lock-Up Period for the
BPLP Units is one (1) year from the date of execution of the Registration
Rights and Lock-Up Agreement.
4. MISCELLANEOUS.
a. Entire Agreement. This Agreement contains the entire agreement between
the parties, and no promise, representation, warranty, or covenant not
included in this Agreement or any such referenced agreements has been
or is relied upon by the parties hereto.
b. Liability. EC Holdings, Inc, and AMC are jointly and severally liable
for the obligations under this Agreement.
c. Amendments. No modification or amendment of this Agreement is of any
force or effect unless made in writing and executed by the parties
hereto.
d. Time. Time is of the essence. If the exchange of the EC Collateral for
the BPLP Units is not consummated by December 31, 1998, the Consent
Letter shall be deemed null and void and of no further force and
effect.
e. Jurisdiction. This Agreement will be construed under and in accordance
with the laws of the State of Texas, and all obligations of the parties
created hereunder are performable in Dallas County, Texas.
f. Attorney's Fees. Any party to this Agreement who is the prevailing
party in any legal proceeding against the other party brought under or
with respect to this Agreement will be additionally entitled to recover
court costs and reasonable attorneys' fees from the non-prevailing
party.
g. Counterparts. This Agreement may be executed in any number of
counterparts, each of which is an original, and all of which taken
together constitute one and the same instrument.
h. Authority and Further Acts. This Agreement has been duly authorized
and delivered, and is binding on, both ECH and AMC and is enforceable
in accordance with its terms. In addition to the acts required of the
parties to this Agreement, the parties hereto will take any and all
such further acts as
<PAGE> 4
November 10, 1998
Page 4
may be reasonably necessary to consummate the transactions contemplated hereby.
REMAINDER OF PAGE INTENTIONALLY BLANK
SIGNATURE PAGE FOLLOWS.
<PAGE> 5
November 10, 1998
Page 5
If you agree to be bound by the terms of this Agreement, then please have the
necessary parties execute where indicated below.
Very truly yours,
FBCC CO., a Texas general partnership
By: /s/ PAUL E. ROWSEY, JR.
-------------------------------
Name: Paul E. Rowsey, Jr.
Title: Agent
AGREED TO AND ACCEPTED this
10th day of November, 1998:
EC HOLDINGS, INC.
By: /s/ Henry G. Almquist, Jr.
------------------------------
Name: Henry G. Almquist, Jr.
Title: Treasurer
AGREED TO AND ACCEPTED this
10th day of November, 1998:
AMC, INC.
By: /s/ Henry G. Almquist, Jr.
------------------------------
Name: Henry G. Almquist, Jr.
Title: Chief Financial Officer
SIGNATURE PAGE TO LETTER AGREEMENT
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SUBSIDIARY NAME STATE OF INCORPORATION
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
GMGP, Inc. Georgia
- -------------------------------------------------------------------------------------------------------------------------
Gift Mart Limited Partner, Inc Georgia
- -------------------------------------------------------------------------------------------------------------------------
LFGP, Inc. Georgia
- -------------------------------------------------------------------------------------------------------------------------
E. C. Holdings, Inc. Georgia
- -------------------------------------------------------------------------------------------------------------------------
AMC Tampa, Inc. Florida
=========================================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 24.1
POWERS OF ATTORNEY
KNOW ALL BY THESE PRESENTS THAT I, R. CHARLES LOUDERMILK, a Director of
AMC, Inc. (the "Company"), do hereby appoint JOHN M. RYAN, President and a
Director of the Company, and HENRY G. ALMQUIST, JR., Chief Financial Officer of
the Company, or either of them, my true and lawful attorneys-in-fact for me and
in my name for the purpose of executing on my behalf in any and all capacities
of the Company's Annual Report for the year ended August 31, 1998 on Form 10-K,
or any amendment or supplement thereto, and causing such Annual Report or any
such amendment or supplement to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of November,
1998.
/s/ R. Charles Loudermilk
Director
AMC, Inc.
<PAGE> 2
KNOW ALL BY THESE PRESENTS THAT I, STANLEY STEINBERG, a Director of
AMC, Inc. (the "Company"), do hereby appoint JOHN M. RYAN, President and a
Director of the Company, and HENRY G. ALMQUIST, JR., Chief Financial Officer of
the Company, or either of them, my true and lawful attorneys-in-fact for me and
in my name for the purpose of executing on my behalf in any and all capacities
of the Company's Annual Report for the year ended August 31, 1998 on Form 10-K,
or any amendment or supplement thereto, and causing such Annual Report or any
such amendment or supplement to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of
November, 1998.
/s/ Stanley Steinberg
Director
AMC, Inc.
<PAGE> 3
KNOW ALL BY THESE PRESENTS THAT I, ANDREW YOUNG, a Director of AMC,
Inc. (the "Company"), do hereby appoint JOHN M. RYAN, President and a Director
of the Company, and HENRY G. ALMQUIST, JR., Chief Financial Officer of then
Company, or either of them, my true and lawful attorneys-in-fact for me and in
my name for the purpose of executing on my behalf in any and all capacities of
the Company's Annual Report for the year ended August 31, 1998 on Form 10-K, or
any amendment or supplement thereto, and causing such Annual Report or any such
amendment or supplement to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of
November, 1998.
/s/ Andrew Young
Director
AMC, Inc.
<PAGE> 4
KNOW ALL BY THESE PRESENTS THAT I, A. J. ROBINSON, a Director of AMC,
Inc. (the "Company"), do hereby appoint JOHN M. RYAN, President and a Director
of the Company, and HENRY G. ALMQUIST, JR., Chief Financial Officer of the
Company, or either of them, my true and lawful attorneys-in-fact for me and in
my name for the purpose of executing on my behalf in any and all capacities of
the Company's Annual Report for the year ended August 31, 1998 on Form 10-K, or
any amendment or supplement thereto, and causing such Annual Report or any such
amendment or supplement to be filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, I have hereunto set my hand this 6th day of
November, 1998.
/s/ A. J. Robinson
Director
AMC, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FINANCIAL STATEMENTS FILED FOR THE PERIOD ENDING AUGUST 31, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<CASH> 1,040
<SECURITIES> 0
<RECEIVABLES> 2,814
<ALLOWANCES> 1,021
<INVENTORY> 0
<CURRENT-ASSETS> 13,545
<PP&E> 329,479
<DEPRECIATION> 135,537
<TOTAL-ASSETS> 224,866
<CURRENT-LIABILITIES> 120,863
<BONDS> 181,703
0
0
<COMMON> 62,173
<OTHER-SE> (149,393)
<TOTAL-LIABILITY-AND-EQUITY> 224,866
<SALES> 0
<TOTAL-REVENUES> 76,374
<CGS> 0
<TOTAL-COSTS> 54,552
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 292
<INTEREST-EXPENSE> 8,291
<INCOME-PRETAX> 19,553
<INCOME-TAX> 7,465
<INCOME-CONTINUING> 12,088
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,088
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
