UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission file number 0-12252
PATHE COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-2624802
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 East 40th Street
New York, New York 10016
(Address of principal executive offices) (Zip Code)
(212) 545-1900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock -$.01 par value
</TABLE>
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 Registrant was required to file such reports) and (2) has been
subject to such filing requirements for at least the past 90 days. Yes X
No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Section 229.045 of this chapter) 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 amendment to this Form 10-K.
[ ]
As of March 25, 1994, 116,746,810 shares of Registrant's common
stock were outstanding. The aggregate market value of Registrant's Common
Stock held by non-affiliates is indeterminate because the Registrant's common
stock is no longer listed on a national stock exchange and has not been
traded since July, 1992.
DOCUMENTS INCORPORATED BY REFERENCE
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NONE
ITEM 1. BUSINESS
GENERAL
Pathe Communications Corporation (the "Company") is a Delaware
corporation with no operating assets or sources of operating income and total
liabilities exceeding $269,000,000. The Company is wholly dependent upon
Credit Lyonnais Bank Nederland N.V., a Dutch banking institution ("CLBN"),
for all capital needed to fund its on-going cash requirements. As used
herein, the terms "Registrant" and "Pathe" refer to the Company unless the
context indicates otherwise. The Company has its principal executive offices
at 10 East 40th Street, New York, New York 10016, telephone (212) 545-1900.
During the first four months of fiscal year 1992, the Company was
engaged in the financing, production and worldwide distribution of theatrical
motion pictures and television programming, and the operation of motion
picture theaters in the United Kingdom (the "U.K."), the Netherlands and
Denmark. The Company's business was conducted through its principal
subsidiary, Metro-Goldwyn-Mayer Inc. ("MGM"), previously known as MGM-Pathe
Communications Co. ("MGM-Pathe"). However, as described below, the Company's
ownership of 98.5% of the common stock of MGM, which constituted substantial-
ly all of the Company's assets, was sold through a foreclosure auction due to
the Company's default on its then existing indebtedness. As a result, the
Company no longer had any operating assets or sources of income.
The Company's predecessor-in-interest, The Cannon Group,
Incorporated ("Cannon") was incorporated in New York on October 23, 1967.
Subsequently, Cannon effected a merger into the Company, which was effective
under New York law on November 25, 1985. In May 1992, the Company took
additional actions in Delaware to correct certain deficiencies under Delaware
law with respect to such merger. In 1987, in connection with a financial
restructuring of the Company, Giancarlo Parretti or certain of his affiliates
became the largest stockholders of the Company, assuming control of the
Company. In 1988, Florio Fiorini or certain of his affiliates acquired
equity ownership in the Company. Mr. Fiorini was then elected Chairman of
the Board and exercised joint control with Mr. Parretti in managing the
affairs of the Company. (See Item 1 "Business--Changes in Corporate
Control".)
On November 1, 1990, the Company acquired MGM/UA Communications Co.
("MGM/UA") by means of a merger (the "Merger") of a wholly-owned subsidiary
of the Company into MGM/UA. MGM/UA, the surviving corporation in the Merger,
became a wholly-owned subsidiary of the Company and changed its name to
MGM-Pathe Communications Co. Immediately thereafter, pursuant to an agree-
ment entered into in connection with the Merger, MGM-Pathe acquired all of
the outstanding capital stock of Pathe Entertainment, Inc. ("PEI") and Cannon
Entertainment, Inc. ("CEI"), the two principal subsidiaries of the Company,
and concurrently paid off all existing indebtedness of PEI and CEI to the
Company.
As a result of the restructuring described above, the Company
became a holding company operating exclusively through its subsidiaries.
Prior to the foreclosure on the Company's shares of MGM common stock
described below, the Company's business activities consisted of two business
segments, filmed entertainment and theater operations. Since such
foreclosure, the Company has engaged in no ongoing business operations and
cannot predict whether it will do so in the future.
CLBN has to date continued to make advances to the Company to
permit the Company to satisfy its various expenditure requirements and debt
payment obligations; however, there can be no assurance that CLBN will
continue to make such advances. (See Item 7 "Management's Discussion and
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Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".)
As of May 5, 1992, immediately prior to the foreclosure and tender
offer described below, the Company owed CLBN an aggregate amount of approxi-
mately $140 million, all of which was in default and overdue and payable.
Also as of such date, MGM-Pathe owed CLBN an aggregate amount of approxi-
mately $568 million, which indebtedness was in default and all but
approximately $145 million of which was payable on demand. At such time,
CLBN had the power, in its absolute discretion, to decide whether to advance
additional funds to the Company and/or to pursue various remedies available
to it based upon the Company's default, which remedies included, among other
things, foreclosure upon the MGM-Pathe shares, which constituted virtually
all of the assets of the Company. As discussed below, CLBN foreclosed on the
Company's MGM-Pathe shares and completed a tender offer for the outstanding
and unencumbered shares of the Company's common stock and the then
outstanding debt securities.
CHANGES IN CORPORATE CONTROL - EXTRAORDINARY EVENTS
As further described in the Form 10-K for fiscal 1991 of the
Company and in Item 3 "Legal Proceedings", beginning in June 1991, the
Company experienced a change in corporate control. As a result of this
change, CLBN in its capacity as voting trustee of the Company's common stock
acquired the power to designate all of the members of the Board of Directors
of the Company.
In April, 1991, in connection with the extension of credit by CLBN
to the Company, Melia International N.V., a Netherlands corporation ("Melia")
and certain of Melia's stockholders and subsidiaries including the Company,
(i) guaranteed certain obligations of MGM to CLBN and (ii) pledged to CLBN
all shares (including additional shares, if any, to be issued) of the Company
and MGM, respectively, owned by such entities (pursuant to the "PCC Pledges"
and "MGM Pledge", respectively) to secure all indebtedness owing by the
Company, MGM, Melia and their affiliates to CLBN (the "Secured Obligations"),
and (iii) placed all of the shares of the Company and MGM owned by such
entities (including additional shares, if any, to be issued) under
irrevocable voting trust agreements (the "PCC Voting Trusts" and the "MGM
Voting Trust") in favor of CLBN. The shares covered by these pledge
agreements and/or voting trust agreements represented approximately 89.3% of
the outstanding common stock of Pathe and 98.5% of the outstanding common
stock of MGM. Such voting trust agreements were initially held in escrow
until CLBN broke such escrow as a result of certain actions by Mr. Parretti,
the then Chairman of the Board of the Company.
Upon breaking the escrow, CLBN exercised its voting powers by
written consent pursuant to the MGM Voting Trust, and subsequently pursuant
to the MGM Pledges, to remove Parretti and certain other then directors of
MGM. The validity of the exercise of such voting rights was confirmed by the
Court of Chancery for the State of Delaware in and for Newcastle County on
December 30, 1991 (all such related litigation is herein referred to as the
"MGM Proceedings").
On July 8, 1991, CLBN, exercising its voting rights pursuant to the
PCC Pledges, acted by written consent to remove the directors of the Company.
On March 23, 1992, a final order was entered by the Delaware Chancery Court
stipulating that the Directors of the Company who had not resigned had been
properly removed by CLBN's actions on July 8, 1991.
On February 3, 1992, at a meeting of the newly-expanded Board of
Directors of the Company, Messrs. Ladd and Stanfill were each elected
Co-Chairman of the Board of Directors and Co-Chief Executive Officer of the
<PAGE>
Company, Charles R. Meeker was elected President and Treasurer of the Company
and certain other new officers were elected.
During the first quarter of 1992, the Company was in default on its
indebtedness to CLBN, which indebtedness was secured by, among other collat-
eral, all of the Company's shares of MGM common stock. At such time, CLBN
had the power, in its absolute discretion, to decide whether to advance
additional funds to the Company and/or to pursue various remedies available
to it based upon the Company's default, which remedies included, among other
things, foreclosure upon the MGM shares, which constituted virtually all of
the assets of the Company. In exercising the remedies available to it, on
April 16, 1992, CLBN commenced a foreclosure action (the "Foreclosure") with
respect to the 98.5% of outstanding common stock of MGM owned by the Company
(the "Company's MGM Shares").
On April 16, 1992, the Board met and formed a special committee
(the "Special Committee"), to review, consider and evaluate the Foreclosure
and its effect on the Company and its subsidiaries and to advise and make
appropriate recommendations to the Board as to the Company's response to the
Foreclosure. The Special Committee retained an independent financial adviser
and independent legal counsel.
In a letter dated April 17, 1992 to the Special Committee, CLBN
indicated its belief that any attempt on the part of the Company or holders
of the Company's equity and debt securities to forestall or delay the
Foreclosure would be harmful to the interests of all parties. CLBN also
expressed its willingness to negotiate with the Company with respect to
certain benefits to be provided to the holders of the Company's equity and
debt securities in connection with the Foreclosure, including by (i)
providing credit support for a then to be determined portion of the principal
and interest on (x) the then outstanding 12-3/8% Senior Subordinated Notes
Due 1994 (the "12-3/8% Notes"), (y) the then outstanding 8-7/8% Convertible
Senior Subordinated Debentures due April 15, 2001 (the "8-7/8% Debentures")
and (z) the then outstanding 12-7/8% Senior Subordinated Debentures due April
15, 2001 (the "12-7/8% Debentures", and, collectively with the 12-3/8% Notes
and the 8-7/8% Debentures, the "Company Bonds" or "Bonds") and (ii) making a
tender offer for a then to be determined number, and at a then to be
determined price per share, of the outstanding unencumbered shares of Company
common stock.
During the weeks of April 20, 1992 and April 27, 1992, the Special
Committee, the Company, CLBN, certain holders of the Company Bonds, the
trustees under the indentures pursuant to which such Bonds were issued and
various financial and legal advisors negotiated with respect to the type of
credit support to be provided for the Company Bonds.
In these negotiations, the Company expressed a strong preference
for a cash payment to the holders of its debt and equity securities.
Following these negotiations between the Special Committee and
representatives of CLBN, the Board of the Company met on May 1, 1992.
The three directors of the Company affiliated with CLBN withdrew
from the meeting prior to the presentation of the Special Committee. The
Special Committee presented a draft of the Company Agreement (as defined
below) and recommended that the Board approve the form of the Company
Agreement. The remaining directors unanimously approved the recommendation
of the Special Committee and, in view of the fact that three directors were
employees of CLBN or Credit Lyonnais and that the remaining directors were
all officers of the Company and also officers and employees of MGM, the Board
decided to express no opinion with respect to any offer by CLBN for
securities of the Company.
<PAGE>
By a letter dated May 1, 1992, by and between the Company and CLBN
(the "Company Agreement"), the Company agreed to take no legal action to
forestall or delay the Foreclosure, in consideration for which CLBN agreed to
make a tender offer for up to 5,800,000 shares of the common stock of the
Company, par value $0.01 (the "Shares") at $1.50 per Share, net to the Seller
in cash (the "Equity Offer"), and for all of the Company Bonds, to fund
certain past due interest on the Company's outstanding debt securities and to
provide funding to enable the Company to satisfy its obligations with respect
to interest on such debt securities, not owned by CLBN, through May 5, 1993.
In connection with such offer, CLBN agreed to purchase the 12-3/8% Notes at
$470 per $1,000 principal amount, the 12-7/8% Debentures at $470 per $1,000
principal amount and the 8-7/8% Debentures at $420 per $1,000 principal
amount (collectively the "Debt Offers").
On May 5, 1992, CLBN and certain holders of certain Company Bonds
(the "Holders") executed a Securities Purchase Agreement (the "Securities
Purchase Agreement"), pursuant to which the Holders agreed to sell, and CLBN
agreed to purchase, immediately following the Foreclosure, approximately $27
million in aggregate principal amount of such Company Bonds at the same price
as under the Debt Offers. Additionally, the Holders agreed to tender any
Company Bonds thereafter acquired by them until such time as the Debt Offers
closed.
On May 1, 1992, CLBN sold and assigned $483,489,000 of the Secured
Obligations (the "Assigned Obligations") to MGM Holdings Corporation ("MGM
Holdings"), a Delaware corporation and a wholly-owned subsidiary of Credit
Lyonnais S.A. ("Credit Lyonnais"). The sale of the Company's MGM Shares at
an auction sale (the "Auction") was held as scheduled on May 7, 1992, and MGM
Holdings, as the only bidder, acquired ownership of the MGM Shares. In
consideration for the MGM Shares, MGM Holdings bid-in the Assigned
Obligations.
Following the Foreclosure, on May 7, 1992, CLBN commenced the
Equity Offer on the terms and subject to the conditions set forth in an Offer
to Purchase and in the accompanying Letter of Transmittal (collectively, the
"Equity Offer Documents") filed with the Securities and Exchange Commission
(the "Commission") in a Schedule 13E-3 on May 7, 1992. In the Equity Offer,
Shares which were subject to security interests, liens, pledges,
encumbrances, mortgages, claims, hypothecations or voting trust arrangements
(collectively, "Encumbrances") were not accepted for payment. Approximately
94% of the issued and outstanding shares of common stock of the Company were
owned by Melia, Renta Inmobliara International B.V. ("Renta B.V."), Renta
Corp. ("Renta Corp.", and collectively with Renta B.V., the "Rentas") and
Comfinance S.A., and were subject to the PCC Pledge and PCC Voting Trusts.
In addition, Viajes Melia S.A. ("Viajes"), an affiliate of Melia, owned
approximately 0.7% of the shares of common stock of the Company, and were
subject to a PCC Voting Trust in favor of CLBN. Since the Shares
beneficially owned by Melia, the Rentas, Comfinance and Viajes were subject
to Encumbrances in favor of CLBN, such Shares were not tendered in connection
with the Equity Offer.
The 5,800,000 Shares which CLBN offered to purchase through the
Equity Offer constituted approximately 97% of the maximum number of Shares
outstanding on May 1, 1992 which could qualify as Shares not subject to
Encumbrances ("Unencumbered Shares"), and approximately 10% of the total
number of Shares outstanding as of May 1, 1992 and approximately 5% of the
aggregate number of such Shares and the Additional Shares, on such date.
In conjunction with the Equity Offer, on May 8, 1992, CLBN
commenced the Debt Offers to purchase all of the then outstanding Company
Bonds at the purchase prices noted above, in each case net to the seller in
cash upon the terms and subject to the conditions set forth in the Offer to
Purchase and Consent Solicitations (the "Debt Offer Documents") relating to
<PAGE>
the respective Company Bonds. Consent Solicitations relating to the
respective Company Bonds required affirmative consents (the "Consents") by
the holders of at least a majority in principal amount of such Bonds
outstanding under the respective Indentures to adopt certain amendments (the
"Proposed Amendments") in the form of supplemental indentures to the res-
pective Indentures for each of the 12-3/8% Notes, the 8-7/8% Debentures and
the 12-7/8% Debentures (the "Supplemental Indentures"), as contemplated in
the Debt Offer Documents. The Supplemental Indentures amended the Indentures
so that (i) certain of the 12-7/8% Debentures and 8-7/8% Debentures
(collectively, the "Debentures") previously acquired by the Company were to
be used to satisfy any repayment obligation arising from the Company's
failure to satisfy the minimum net worth covenant; (ii) any corporation into
which the Company may merge or to which the Company may sell substantially
all of its assets is no longer required to assume the obligations of the
Company under the Indentures; (iii) any Debentures owned by CLBN will be
counted in determining whether the holders of the required principal amount
of Debentures have concurred in any direction, waiver or consent; and (iv)
any Defaults (as defined in the Indentures) waivable under the Indentures are
waived.
As described above, pursuant to the Securities Purchase Agreement,
holders of approximately 66% of the aggregate outstanding principal amount of
the debt securities issued under the Indenture dated as of April 15, 1986
between the Company and Chemical Trust Company of California (formerly
Manufacturers Hanover Trust Company of California and herein, "Chemical
Trust"), under which both 8-7/8% Debentures and certain of the 12-7/8%
Debentures were then outstanding (the "8-7/8% Debenture Indenture") and
holders of approximately 55% of the debt securities issued under the
Indenture dated as of April 15, 1986 between the Company and Chemical Trust
under which certain of the 12-7/8% Debentures were then outstanding (the "12-
7/8% Debenture Indenture") consented to the Proposed Amendments to their
respective Indentures.
As a result of the Equity Offer, CLBN acquired 2,809,739 Shares of
the Company. As a result of the Debt Offers, (a) $2,856,000 in aggregate
principal amount of the 12-3/8% Notes, $625,000 in aggregate principal amount
of the 8-7/8% Debentures and $5,898,000 in aggregate principal amount of the
12-7/8% Debentures (including $2,345,000 principal amount of those 12-7/8%
Debentures previously converted from the originally issued 8-7/8% Debentures)
were tendered and accepted in the Debt Offers and (b) together with the
Consents received pursuant to the Securities Purchase Agreement, the total
percentage of Consents received relating to the 12-3/8% Notes Indenture was
49.7%, the total percentage of Consents received relating to the 8-7/8%
Debentures Indenture was 82.1% (such Consents consisting of Consents relating
to both 8-7/8% Debentures and those 12-7/8% Debentures that were converted
8-7/8% Debentures and which were governed by the 8-7/8% Debenture Indenture)
and the total percentage of Consents received relating to the 12-7/8%
Debentures Indenture was 77.5%, in each case with respect to the total aggre-
gate amount of Bonds outstanding under each respective Indenture. On May 29,
1992, as a result of the performance of the agreements in the Securities
Purchase Agreement, the Company announced that it had received a sufficient
number of Consents with respect to the 8-7/8% Debenture Indenture and 12-7/8%
Debenture Indenture, and that Supplemental Indentures to each such Indenture
had been executed.
In July, 1992, an additional $100,000 in aggregate principal amount
of 12-3/8% Notes were acquired by CLBN and in connection therewith Consents
were received with respect to the 12-3/8% Note Indenture so that, together
with Consents received previously, the total percentage of Consents received
relating to the 12-3/8% Notes was 50.3% of the total outstanding. The
Company is currently arranging for the execution of the Supplemental
Indenture to the 12-3/8% Note Indenture.
<PAGE>
The effect of the Equity Offer was to cause the Shares to no longer
be eligible for listing on the New York Stock Exchange (the "NYSE") and to be
subject to termination of registration under the Securities and Exchange Act
of 1934, as amended (the "Exchange Act").
Trading of the Company's common stock was suspended by the NYSE on
July 13, 1992 pending application by the NYSE to the Commission to delist the
Shares for failure to meet certain listing criteria. Such action was taken
because the Company had fallen below the NYSE's continued listing criteria
relating to (i) net tangible assets available to common stock together with
three-year average net income and (ii) aggregate market value of publicly-
held common stock. On August 28, 1992, the Commission, in response to the
NYSE's application, issued an order removing the Company's common stock from
listing and registration on the NYSE.
As of March 18, 1994, there were 1,485 holders of record and
approximately 3,191,936 Shares were held by stockholders other than officers,
directors, and members of their immediate families and concentrated holdings
of 10% or more.
The Company is unable to predict at this time whether any public
market will exist for the Company's remaining outstanding shares of common
stock. The Company does not have any present plans that would result in the
repurchase or redemption of its common stock or in the admission for trading
of such stock on other exchanges or markets.
The Company's stock continues to be subject to deregistration with
the Commission if the Company has less than 300 stockholders of record, in
which event the Company would no longer file public reports with the
Commission.
On August 5, 1992, Mr. Meeker was elected President and Treasurer
of the Company. Effective October 6, 1992, Alan Ladd, Jr. and Dennis
Stanfill each resigned as Co-Chairman of the Company and Rene-Claude Jouannet
was elected Chairman of the Company on November 23, 1992. On November 23,
1992, Guy Etienne Dufour and Bahman Naraghi resigned as directors of the
Company. Effective as of May 5, 1993, Fredric S. Newman was elected a
director of the Company. Effective as of May 6, 1993, Mr. Newman was elected
President, Secretary and Treasurer of the Company, Messrs. Meeker and
Jouannet resigned as directors of the Company and Mr. Newman became the sole
director and the sole officer of the Company.
EMPLOYEES
As of March 25, 1994, the Company had no employees.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
Various legal proceedings involving alleged breaches of contract,
antitrust violations, copyright infringements and other claims relating to
the film entertainment business of the Company are now pending, which
proceedings the Company considers to be routine.
The Company is subject to a consent decree (the "Consent Decree")
entered in the United States District Court for the Central District of
California ("California District Court") in a Securities and Exchange
<PAGE>
Commission civil action commenced against the Company on November 19, 1987,
entitled Securities and Exchange Commission v. The Cannon Group. Inc. et al.,
Case No. 87-07590. This proceeding against the Company and certain of its
former directors and officers alleged, among other things, violations or
aiding and abetting of violations of the antifraud, reporting, proxy, record
keeping and internal controls provisions of the federal securities laws.
Without admitting or denying the allegations in the Commission's complaint,
the Company and certain individuals settled the action and consented to the
entry of a final judgment enjoining them from violating the aforementioned
provisions of the federal securities laws.
The Consent Decree required the Company to appoint an independent
person to examine transactions between the Company and related parties for
the period January 1, 1984 through December 31, 1986. The independent person
is required to deliver a report to the Company's Board of Directors regarding
such transactions together with recommendations regarding what action the
Board should take as a result of the examination. The Company appointed a
law firm as the independent person. In November 1991, the independent person
resigned without having delivered a report to the Board of Directors. In its
resignation letter, the independent person stated it had been unable to
complete their examination because of the Company's failure to pay the
independent person's fees and because certain members of the former
management of the Company had failed to cooperate in the examination.
Current management also believes that the Company under prior
management may have violated other provisions of the Consent Decree.
Violations of the Consent Decree could result in further proceedings by the
Commission. If the Company were found to have violated the Consent Decree,
the Company could be held in contempt of court and could be subjected to
substantial penalties. The Company has informed the Commission of its
concerns regarding compliance with the Consent Decree and is cooperating with
the Commission in its review of this matter. While no assurances can be
given, management believes that any punitive measures which may be imposed as
a result of violations of the Consent Decree would be imposed upon those
persons responsible for such violations (as opposed to the Company's current
management) and would not have a material adverse effect upon the Company.
The Commission is currently conducting an investigation into
certain transactions effected by prior management of the Company. The
Company is cooperating fully with the Commission in its investigation. The
Company cannot presently determine what, if any, action the Commission might
take as a result of its investigation.
On November 13, 1990, a complaint was filed in Los Angeles Superior
Court against the Company, Cannon Pictures, Inc., Mr. Parretti, Fernando
Cappuccio, Danny Dimbort, Lilliana Avincola, Edmund Hamburger and Theodore J.
Cohen by plaintiffs William J. Immerman, and Salem Productions, Inc. The
first amended complaint, served on January 2, 1991, alleged, inter alia,
rescission, breach of contract, breach of the covenant of good faith and fair
dealing, interference with contractual relationships, interference with pro-
spective economic advantage, promissory fraud, fraud, negligent misrep-
resentation, intentional infliction of emotional distress, libel and slander
in connection with the termination of plaintiffs' employment contracts. The
amended complaint sought compensatory damages, depending on the cause of
action, from $250,000 to in excess of $1,000,000, and punitive damages of
$5,000,000. The Company filed an answer denying all liability and setting
forth various affirmative defenses. A settlement was reached among the
parties and the action has been dismissed. The Company's portion of the
settlement liability will be covered by insurance.
On January 22, 1991, Century West Financial Corporation ("Century
West") filed a complaint in Los Angeles Superior Court against the Company,
Renta Properties and others for breach of contract, breach of third party
<PAGE>
beneficiary contract, bad faith denial of contract, breach of the implied
covenant of good faith and fair dealing, and tortious interference with
prospective economic advantage. Century West alleges that it acted as broker
for the sale of 6420 Wilshire Boulevard and is owed a commission. Century
West seeks compensatory damages in the amount of $470,000, interest thereon
and punitive damages. A Third Amended Complaint was filed in this action on
January 14, 1994. Cross-complaints have been filed against the Company, and
the Company has filed cross-claims. In addition, the Company is advancing
defense costs to a former employee and will indemnify him subject to an
undertaking for reimbursement under certain circumstances. The Company
intends vigorously to defend this action.
On June 18, 1991, a complaint was filed in the United States
District Court for the Central District of California against the Company,
MGM, Messrs. Parretti, Fiorini, Globus and Aurelio Germes and Maria Cecconi
(Mr. Parretti's wife) on behalf of a purported class which acquired MGM's 13%
Subordinated Debentures due 1996. On October 10, 1991, J. Phillip Williams,
on behalf of a group of MGM bondholders, filed a complaint in the United
States District Court for the Central District of California against the
Company, MGM, CLBN and Mr. Parretti which alleges that the defendants
violated U.S. securities laws, and conspired to deceive plaintiffs about
MGM's financial condition, markets, and business prospects, thereby
artificially inflating the price of MGM's securities. The complaint seeks
unspecified damages. The Company answered the complaint on February 3, 1992.
Limited discovery was conducted regarding class certification. On March 23,
1992, the court heard and denied Williams' motion for class certification.
On May 18, 1992, the court denied Williams' motion for reconsideration. On
July 22, 1992, another bondholder, Herbert Eisen, moved to intervene in the
lawsuit. After limited discovery was conducted regarding intervention, the
court granted Mr. Eisen's motion to intervene. On December 15, 1992, Mr.
Eisen filed a complaint-in-intervention that mirrors the allegations in the
Williams' complaint. The Company and MGM answered Eisen's complaint-in-
intervention on December 29, 1992. On October 26, 1993, the parties entered
into a Stipulation of Settlement which would dispose of this matter subject
to Court approval. The settlement, if approved, would create a fund of
$4,500,000 against which injured class members may make a claim. Any
unclaimed portion of the fund will be returned to the contributing
defendants. The Company and MGM have funded the settlement.
On September 25, 1991, Century Insurance Ltd. ("Century") filed a
complaint in Superior Court against the Company, MGM, Melia, Comfinance S.A.
("Comfinance"), CLBN and Mr. Parretti alleging, among other things, breach of
contract, fraud, constructive fraud, conversion and conspiracy. The claims
arise out of certain defendants' failure to pay a purported $1.75 million
premium in connection with plaintiff's purported issuance of a completion
guarantee bond in connection with the financing of the Merger and alleged
unpaid premiums in connection therewith. The plaintiff seeks $34,200,000 in
alleged management fees on three purported insurance investment bonds and
declaratory relief. MGM was voluntarily dismissed from the action on January
3, 1992. The plaintiff served a second amended complaint on February 3,
1992. In addition, on December 6, 1991, this case was consolidated with an
earlier declaratory relief suit filed by CLBN against Century. The Company
was not a party to this earlier suit. On February 3, 1993, the court
dismissed with prejudice Century's complaint against the Company and all of
the other defendants, for failure to comply with discovery orders. On July
14, 1993, Century moved to vacate the judgment in the Company's and other
defendants' favor, which motion was denied. Century has filed a notice of
appeal of denial of its motion to vacate. The parties have not completed the
appeal briefing and no date has been set for the hearing of the appeal.
On January 18, 1991, Andrea Kune, a stockholder of the Company,
filed a derivative lawsuit on behalf of the Company against Messrs. Parretti,
Fiorini, Globus, Valentina Parretti, Ms. Cecconi, Antonio Pares-Neira and
<PAGE>
Lewis P. Horwitz, alleging breach of fiduciary duty, abuse of control, waste
of corporate assets, fraud and deceit, negligent misrepresentation and
constructive fraud. Certain other individuals formerly associated with the
Company were subsequently named as defendants. The Company was named as a
nominal defendant only. On September 16, 1991, the Company filed a Statement
of Non-Response asserting that it had no obligation to respond to the
complaint because the complaint seeks no relief from the Company. A second
amended complaint was filed on July 27, 1992 against the same defendants in
which the Company was again named as a nominal defendant. Kune alleges
claims for breach of fiduciary duty, fraud and deceit, negligent
misrepresentation and constructive fraud against the defendants. The amended
complaint seeks unspecified damages. The Company remains a nominal defendant
only and no claims for monetary relief are asserted against it.
On January 8, 1992, Fabio Serena, a former employee of the Company,
filed a lawsuit in Los Angeles Superior Court against the Company. The
complaint contained causes of action for (1) breach of contract; (2) breach
of covenant of good faith and fair dealing; (3) promissory fraud; (4) fraud;
(5) intentional infliction of emotional distress; and (6) negligent
infliction of emotional distress. The complaint also sought in excess of
$6,750,000 in compensatory damages, and $10,000,000 in punitive damages, in
addition to costs of the suit and interest. The Company successfully
demurred to Plaintiff's Complaint, as well as Plaintiff's first amended
complaint and his second amended complaint. All of the Plaintiff's claims
were dismissed with the exception of one cause of action for breach of
contract which sought damages "in excess of $1,000,000," together with
interest and costs of suit. A confidential settlement was agreed in
December, 1993, pursuant to which the case was dismissed with prejudice.
On January 27, 1992, Linda Carter filed an application for award
for employer violation of Section 132(a) of the Labor Code before the
Workers' Compensation Appeals Board of the State of California against the
Company and MGM seeking reinstatement of employment, back wages at
approximately $21,000 per year plus benefits, and costs of suit. The
application alleges Ms. Carter was laid off on March 4, 1991, in retaliation
for filing a workers' compensation claim. The Company is vigorously
defending this action.
On January 21, 1992, CLBN filed an action in the Delaware Chancery
Court in which CLBN asserted various claims against the Company, Gestione
Nuove Attivita Finanziarie S.a.r.l. (a company controlled by Ms. Cecconi)
("GENAF"), Melia and certain subsidiaries of Melia seeking, among other
things, a judicial declaration that: (i) a purported transfer of common
stock of the Company from Melia and certain of its subsidiaries to GENAF (the
"Subject Stock") is null, void and without effect; and (ii) the Company
should issue new stock certificates to CLBN representing the Subject Stock or
impose a constructive trust on the Subject Stock held by GENAF. On February
4, 1992, the Delaware Chancery Court issued an order sequestering the Subject
Stock. The Company, Melia and its subsidiaries have answered the complaint.
In addition, Melia has filed a third-party complaint seeking damages and
injunctive and declaratory relief against GENAF, Mr. Parretti and Ms. Cecconi
alleging, among other things, fraud and conversion. On or about February 6,
1992, Mr. Parretti and GENAF applied to the Civil Court in Rome for the
appointment of a custodian of issued shares in the Company and MGM purpor-
tedly held by Mr. Parretti and GENAF and for precautionary measures to
protect the assets of the Company and MGM against further alleged diminution
in value being caused by CLBN. The Court on or about February 24 and March
6, 1992 issued temporary ex parte orders decreeing that the shares of the
Company and MGM are validly within the custody of the Court, and appointing
Paolo Picozza as custodian of the shares in dispute. With consent of the
court of March 6, 1992, Mr. Picozza purported to take action to amend Pathe's
By-Laws to increase the number of directors of the Company to thirty and to
appoint eight additional directors of the Company. Mr. Picozza also
<PAGE>
purported to take action to remove the current directors of MGM and to
replace them with seven new directors. On March 12, 1992, CLBN filed a
special appearance with the Court objecting to the decrees on the ground,
among other things, that the stock certificates presented to the Court as
evidence of Mr. Parretti's controlling interest in the Company and MGM were
either already sequestered by the Delaware Chancery Court on February 12,
1992, pursuant to an order of that court dated February 4, 1992 or previously
certified lost and replaced, as well as on various procedural and
jurisdictional grounds. A hearing was held on Friday, March 20, 1992
regarding CLBN's special appearance. On March 18, 1992, Mr. Parretti and
GENAF filed an appeal with the Italian Supreme Court on jurisdictional issues
and CLBN filed a counter appeal (no hearing has so far been fixed by the
Supreme Court). A new temporary order was rendered on April 28, 1992 con-
firming the two earlier decisions. The April 28, 1992 order provided for an
180 day time period during which Mr. Parretti and GENAF should bring an
action on the merits. On October 18, 1992, Mr. Parretti filed an action for
damages against CLBN and the first hearing was scheduled for March 22, 1993.
The case is, however, suspended until the Italian Supreme Court has rendered
its decision on the jurisdictional issues.
On May 6, 1992, Robert Solomon filed a complaint in Delaware
Chancery Court against the Company, CLBN, Dennis Stanfill, Alan Ladd, Jr.,
Mr. Meeker, Kenneth Meyer, Jay Kanter, William Jones, Thomas Carson, Rene
Claude Jouannet, Bahman Naraghi, Guy Etienne Dufour, G. Goirand and Jacques
Bertholier for breach of defendants' duties of fair dealing and breach of
fiduciary duties to the public stockholders of the Company in connection with
the Foreclosure and CLBN's Tender Offer for the Company's stock at a price of
$1.50 per share. Plaintiff filed the action on his own behalf and as a class
action on behalf of a purported class of public stockholders of the Company.
On March 15, 1994, Solomon filed an amended class action complaint against
the Company, CLBN and certain of the previously named individuals. Although
the Company is still studying the Amended Complaint, no monetary relief is
sought against the Company. The Company plans vigorously to defend the
action.
On December 7, 1992, MGM filed an action against Tracinda
Corporation, Jeffrey Barbakow, Kirk Kerkorian, Stephen Silbert (the
"Kerkorian Defendants") and Houlihan, Lokey, Howard & Zukin, Inc. ("HLHZ") in
the Superior Court. On December 22, 1992, MGM filed an amended complaint
which sets forth claims for breach of fiduciary duty, aiding and abetting
breach of fiduciary duty, breach of contract and negligence in connection
with the sale of MGM to the Company in the fall of 1990. MGM alleges, among
other things, that the Kerkorian Defendants engaged in a scheme to induce the
independent members of MGM's Board to approve the merger to MGM's detriment.
MGM seeks damages in an amount of $750,000,000, plus punitive damages
according to proof at trial, and a declaration that the indemnity provisions
of certain agreements executed in connection with the merger do not cover any
judgment, settlement, fees or costs incurred by the Kerkorian Defendants in a
legal action. On December 17, 1992, the Kerkorian Defendants filed an answer
denying the allegations of the complaint and a cross-complaint against MGM
for breach of contract, tortious bad faith, breach of indemnification
agreements, equitable indemnity and declaratory relief. The cross-complaint
seeks damages according to proof at trial, exemplary damages, attorneys fees
and costs. On January 27, 1993, HLHZ filed an answer denying the allegations
of the complaint and a cross-complaint against MGM, the Company and CLBN for
declaratory relief, fraud, negligent misrepresentation and equitable
indemnity. The Company answered HLHZ's cross-complaint on March 29, 1993.
HLHZ seeks, among other things, indemnification from the Company under the
terms of an engagement letter between HLHZ and the Company and damages for
fraud, negligent misrepresentation and equitable indemnity in an amount
according to proof at trial, plus attorneys fees, costs and expenses.
Discovery in this action has commenced. On October 13, 1993, a Special
Referee in this matter recommended that the Court enter an order declaring
<PAGE>
that the Company be required to advance to HLHZ its reasonable attorneys'
fees in this matter pursuant to the engagement letter, subject to repayment
if HLHZ were later found to have committed fraud. The Court did enter such
an order, and the Company has moved for reconsideration of that decision. If
upheld, such a declaration or order could result in the imposition of
substantial liability and other obligations upon the Company, in an amount as
yet undetermined but likely to be beyond the Company's present financial
capabilities or otherwise materially adverse to the Company. The Court has
stated that the matter will come on for trial in June, 1994. The Company is
vigorously litigating these actions.
On April 16, 1993, the Company filed a bankruptcy petition against
Melia with the Bankruptcy Chamber of the Amsterdam District Court. This
petition was joined by the Dutch tax authorities, Scotti International N.V.,
Cannon Cinema B.V. and CLBN. At a hearing on April 27, 1993, the Court found
that Melia had ceased to pay its debts and declared Melia officially
bankrupt. The Court appointed Mr. R.W. De Ruuk as official receiver in the
bankruptcy. The appeal period under the governing Dutch Bankruptcy Code has
lapsed. Mr. De Ruuk has deposited three public reports with the Dutch
authorities. It appears to the Company from such reports that no material
recovery benefitting it will be forthcoming.
On June 29, 1993, Aurelio Germes, a former officer of the Company,
filed a declaratory relief action against the Company. Mr. Germes seeks a
declaratory judgment that the Company is obligated to pay Mr. Germes' legal
fees in connection with the SEC investigation and in defense of the Kune
matter. The Company filed an answer to this complaint on August 12, 1993.
The Company intends to vigorously defend this action. Trial of the action is
set for May 24, 1994.
Demands for the advancement of legal fees and indemnification in
the defense of the Kune and Williams actions have been made by Giancarlo
Parretti, Maria Cecconi, and Valentina Parretti (collectively, the
"Parrettis"). In addition, a demand for the advancement of legal fees for
defense of the Kune case has been made by Yoram Globus. The Company has
rejected these demands. A claim has also been made by the Parrettis' former
attorneys in those cases for fees already incurred, in amounts totalling less
than $100,000, and the Company is investigating this matter to determine,
what, if any, liabilities it may have in respect of this claim. In addition,
there have been additional claims for indemnification and/or the advancement
of expenses and legal fees which have been asserted from time to time by
former officers, directors and/or employees of the Company, and the Company
reviews each demand on a case by case basis.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
As a consequence of the tender offer described in Item 1 Business
above, trading in the Company's common stock was suspended by the NYSE on
July 13, 1992 pending application by the NYSE to the Commission to delist the
Shares. Such action was taken because, as a result of the tender offer, the
Company had fallen below the NYSE's continued listing criteria related to (i)
net tangible assets available to common stock together with three-year
average net income and (ii) aggregate market value of publicly-held common
<PAGE>
stock. On August 28, 1992, the Commission, in response to the NYSE's
application, issued an order removing the Company's common stock from listing
and registration on the NYSE.
As of March 18, 1994, there were 1,485 holders of record and
approximately 3,191,963 Shares were held by stockholders other than officers,
directors, and members of their immediate families and concentrated holdings
of 10% or more.
No public market currently exists for the Company's remaining
outstanding shares of common stock, and the Company is unable to predict at
this time whether any public market will exist in the future. The Company
does not have any present plans that would result in the repurchase or
redemption of its common stock or in the admission for trading of such stock
on other exchanges or markets.
The Company's stock continues to be subject to deregistration with
the Commission if the Company has less than 300 holders of record, in which
event the Company would no longer file public reports with the Commission.
The Company has never paid a dividend on its common stock. In
addition, the Company's subordinated debt indentures contain covenants that
limit the Company's ability to pay dividends. The Company's current credit
agreement prohibits the payment of dividends. In light of the Company's
current financial condition and state of operations, it does not anticipate
any payment of dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
PATHE COMMUNICATIONS CORPORATION
Selected Financial Data
(in thousands, except per share data)
The table below summarizes recent financial information of Pathe
Communications Corporation. For further information, see the Company's
Financial Statements and the notes thereto contained elsewhere herein.
<TABLE>
Fiscal years ended
1993 1992 (2) 1991 1990 (1) 1989
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . $ - $ - $ - $ - $ -
Operating loss . . . . . . . . . (10,644) (7,006) (13,536) (4,855) (1,230)
Equity in net loss of
subsidiaries . . . . . . . . . - (125,037) (341,485) (48,622) (123,261)
Extraordinary items . . . . . . . - (319,732) - 6,590 28,743
Net loss . . . . . . . . . . . . (26,163) (472,838) (352,935) (54,976) (77,340)
Net loss per share . . . . . . . (.22) (4.05) (3.02) (.81) (2.69)
Total assets . . . . . . . . . . 1,356 975 540,838 1,054,578 N/A
Debt . . . . . . . . . . . . . . 220,568 206,252 308,971 501,725 62,983
Cash dividends paid . . . . . . . - - - - -
(1) On November 1, 1990, the Company acquired MGM. The Company recorded reserves on certain investments
and loans to affiliates during 1990 of $66,834,000.
(2) In May 1992, CLBN foreclosed on the common stock of MGM. The Company recorded a loss of $319,732,000
as a result of the foreclosure (see Note 3).
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's Financial Statements and related notes thereto. References to
Notes are to the notes to such statements.
General
As a result of the Foreclosure on May 7, 1992 (see Note 3), the
Company has no operating assets or sources of operating income (see
"Liquidity and Capital Resources").
Results of Operations
1993 Versus 1992 Operations
General
The Company reported a net loss for 1993 of $(26,163,000), or
$(.22) per common share as compared to a net loss of $(472,838,000), or
$(4.05) per common share (a loss before extraordinary items of $(153,106,000)
or $(1.31) per common share) for 1992, in both years based on 116,746,810
weighted average common shares outstanding.
General Corporate Administration Expenses
General corporate administration expenses increased $3,638,000
(approximately 52%) for 1993 due to payments in settlement of various
litigation matters and accruals for legal fees and expenses related to other
pending litigation matters.
Other Income (Expense)
The equity in the net losses of subsidiaries of $(125,037,000)
was eliminated for 1993 due to the Foreclosure (see Note 3.). Net interest
expense decreased from $20,600,000 for 1992 to $15,838,000 for 1993 due
primarily to a reduction in the average debt from CLBN (see Note 4).
During 1993, the Company, CLBN, MGM and various other parties
settled certain litigation matters filed by Keller Construction Company, by
American Savings Bank, F.A., by Fabio Sevena and by Castro & Associates, Inc.
The costs of these settlements were $1,250,000, $2,800,000, $300,000 and
$37,500, respectively, of which the Company's shares were $1,000,000,
$2,500,000, $300,000 and $30,000, respectively (see Note 9).
1992 Versus 1991 Operations
General
The Company reported a net loss for 1992 of $(472,838,000), or
$(4.05) per common share (a loss before extraordinary items of
$(153,106,000), or $(1.31) per common share) as compared to a net loss of
$(352,935,000), or $(3.02) per common share for 1991, in both years based on
116,746,810 weighted average common shares outstanding.
General Corporate Administration Expenses
General corporate administration expenses decreased $6,530,000
(approximately 48 percent) during 1992, mainly due to reduced salaries and
overhead charges, and a decrease in litigation costs and fees.
<PAGE>
Other Income (Expense)
The Company's equity in the net losses of subsidiaries represents
its 98.5 percent share in the losses of MGM through May 7, 1992, the date of
the Foreclosure (see Note 3). In 1991, such amount reflected a full year of
MGM's losses. Due to the Foreclosure, a loan to an affiliate relating to the
funding of the Company's common stock subscriptions has been written off.
Net interest expense was $20,602,000 and $30,805,000 in 1992 and
1991, respectively. The net decrease is due to the reduction of the
Company's borrowings with CLBN (see Note 4) and lower interest rates during
1992.
Other expense during 1991 includes reserves related to the write-
off of advances and loans to certain affiliates.
Extraordinary Items
The Company recorded an extraordinary loss in 1992 of
$319,732,000 on its investment in MGM due to the Foreclosure (see Note 3).
Liquidity and Capital Resources
The Company is currently dependent on CLBN for additional capital
to fund its cash requirements. CLBN may, in its absolute discretion, decide
whether to advance additional funds to the Company (see Note 4).
Additionally, the Company is in default on its existing indebtedness to
Sealion (see Note 4).
In connection with the tender offer (see Note 5), CLBN agreed to
provide funding to the Company to enable it to make scheduled interest
payments under the Company's subordinated debenture agreements during the
period ended May 5, 1993 on such obligations not owned by CLBN. Subsequent
to May 5, 1993, CLBN has provided the Company with the funds necessary to
meet the Company's expenses, including interest expenses on the Company's
subordinated debt not owned by CLBN, but CLBN has not indicated any intention
to fund any of the Company's future expenses, no assurances can be given that
CLBN will fund any such expenses and the Company has no other source of
funding.
The Company's subordinated debt agreements contain cross
acceleration provisions which generally provide that if holders of certain
other debt of the Company accelerate the maturity of such debt, such
acceleration would be a default with respect to the subordinated debt. If
such event were to occur and certain notices are given under the various
agreements and indentures, a substantial portion of the Company's
subordinated debt could be accelerated. The Company has not received any
such notices.
The Company currently does not meet the minimum net worth
covenant under its 12-7/8% and 8-7/8% debenture Indentures as its net worth
has been below $37,500,000 for more than two consecutive quarters. Upon the
occurrence of such event, such Indentures, as amended (see Note 5), require
the Company to redeem 10 percent of the aggregate principal amount of the
debentures then outstanding (at 100 percent of the principal amount) plus
accrued interest by the last day of the following quarterly period. Similar
payments must be made semi-annually thereafter until all outstanding
debentures are redeemed, unless the net worth is above $37,500,000 as of the
last day of any subsequent quarter. The Company can satisfy the redemption
requirement through previously acquired and canceled debentures. Due to the
significant amount of such debentures previously acquired by the Company, the
Company will not be required to make any cash redemptions for the foreseeable
future.
<PAGE>
Restriction on the Issuance of New Equity Securities
In connection with the funding of certain stock subscription
agreements entered into concurrent with the acquisition of MGM, the Company,
Melia and Comfinance entered into an agreement which prevents the Company
from selling shares of the Company, except for shares held by certain
companies controlled by prior management, until certain bank debt of such
companies (approximately $110,000,000) has been repaid. The agreement also
set a minimum price for the sale of such shares and directed the proceeds to
be used to repay this bank debt. In May 1991, this Agreement was amended to
allow the Company to sell stock of the Company, subject to CLBN's approval of
both the issuance of the stock and of the sales price for the stock. The
proceeds from any such issuance are required to be applied to the repayment
of the Company's CLBN debt.
Commitments and Contingencies
The Company is a party to various lawsuits (see Item 3, "Legal
Proceedings" and Note 9). A significant adverse judgment in one or more of
the cases could have a material impact upon the Company's liquidity.
Impact of Interest Rates
Any significant increase in interest rates would have a
substantial adverse effect on the Company's financial position.
Video Medien Pool Productions and Vertriebs GmbH Licensing
Transaction
Discussion of the prior years' licensing transaction with Video
Medien Pool Productions and Vertriebs GmbH ("VMP"), and the listing of all
titles licensed and delivered, are incorporated herein by reference to the
Company's Report on Form 10-K for the fiscal year ended December 31, 1992
(including the further references contained therein). The Company's current
management has no knowledge of these transactions.
The Company is subject to a Consent Decree entered on November
19, 1987 which requires the Company to provide certain information on a
quarterly basis concerning transactions with VMP. The Company is currently
in default of its obligations under this consent decree. (See Item 3 above.)
Cannon International v.o.f. ("CI"), a subsidiary of the Company
prior to the Foreclosure, is a party to a licensing agreement ("Contract No.
42"), which granted VMP video and television exploitation rights to a
significant number of motion pictures for various German-speaking
territories. Substantially all of the revenues due under Contract No. 42
were recognized by CI in 1986. The Company has previously reported the
aggregate payments collected and due from VMP.
In August 1992, MGM, as successor owner of CI, reached a
comprehensive settlement agreement (the "1992 Settlement") with VMP covering
all claims and obligations related to Contract No. 42. In connection with
the 1992 Settlement, CI (which is no longer a subsidiary of the Company)
agreed to (i) refund certain license fees under Contract No. 42 to VMP of
approximately $8,000,000; (ii) reimburse approximately $4,100,000 of VMP's
settlements with third parties because VMP had licensed to them motion
pictures previously licensed by CI to other parties; and (iii) make
substitutions for certain of the motion pictures originally licensed to VMP.
As of December 31, 1992, CI has licensed 546 titles (the Company
currently classifies all television episodes per series as one title; each
episode was previously reported as a separate title) to VMP under Contract
No. 42, of which 282 have been delivered to VMP. A third party dispute is
<PAGE>
currently blocking the delivery of an additional 228 titles. There are 36
titles still to be delivered by the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Independent Auditors' Report on the 1993, 1992 and 1991
Financial Statements and Financial Statement Schedules 24
Balance Sheets as of December 31, 1993 and 1992 25
Statements of Operations for the Fiscal Years Ended
December 31, 1993, 1992 and 1991 27
Statements of Stockholders' Equity for the Fiscal Years
Ended December 31, 1993, 1992 and 1991 28
Statements of Cash Flows for the Fiscal Years Ended
December 31, 1993, 1992 and 1991 29
Notes to the Financial Statements 30
Financial Statement Schedules
II - Amounts Receivable from Related Parties for
the Fiscal Year Ended December 31, 1991
(other years not applicable) 46
IX - Short-Term Borrowings for the Fiscal Years Ended
December 31, 1993, 1992 and 1991 47
</TABLE>
All other schedules are omitted since the required information is
not applicable, not material or is included in the financial statements and
notes therein.
Independent Auditors' Report
The Board of Directors
Pathe Communications Corporation:
We have audited the financial statements of Pathe Communications Corporation
(Parent only) ("the Company") as listed in the accompanying index. In
connection with our audits of the financial statements, we also have audited
the financial statement schedules as listed in the accompanying index. These
financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedules based on our
audits.
<PAGE>
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 9 to the financial statements, the Company is a
defendant in numerous lawsuits claiming significant compensatory and punitive
damages. The ultimate outcome of this litigation cannot presently be
determined. Accordingly, provision for the ultimate liability that may
result upon adjudication has not been recognized in the accompanying
financial statements.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As described in Note 1 to the financial
statements, Credit Lyonnais Bank Nederlands ("CLBN") foreclosed on the
Company's investment in Metro-Goldwyn-Mayer Inc., which constituted all the
Company's operating assets and only source of income. In addition, all of
the Company's bank indebtedness (see Note 4) is currently in default and any
acceleration of such bank debt that could result from such defaults
constitutes an event of default under the Company's bond indentures which may
accelerate the maturity of the Company's subordinated debt at face value.
The Company is currently dependent on the day-to-day financial support and
forbearance of CLBN from which there is no commitment to continue making
funds available to the Company. All of these conditions raise substantial
doubt about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
Because of the effects on the financial statements of such adjustments, if
any, as might have been required had the outcome of the uncertainties
referred to in the two preceding paragraphs been known, we are unable to, and
do not, express an opinion on the accompanying financial statements and
financial statement schedules. As discussed in Note 7 to the financial
statements, the Company changed its method of accounting for income taxes
effective January 1, 1993 to conform with Statement of Financial Accounting
Standards No. 109.
KPMG Peat Marwick
Los Angeles, California
March 18, 1994
<TABLE>
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
BALANCE SHEETS
ASSETS
(in thousands)
December 31, December 31,
1993 1992
<S> <C> <C>
Cash and cash equivalents $ 343 $ 44
<PAGE>
Accounts and notes receivable 264 0
Deferred loan costs 749 931
$ 1,356 $ 975
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
(in thousands, except per share data)
December 31, December 31,
1993 1992
<S> <C> <C>
Liabilities:
Accounts payable and accrued
expenses $ 13,560 $ 12,913
Accrued interest payable 34,370 22,773
Bank and other debt 173,412 159,814
Other liabilities 564 580
Subordinated debt 47,156 46,438
Total liabilities 269,062 242,518
Stockholders' equity (deficit):
Preferred stock, $.01 par value.
Authorized 200,000,000 shares;
none outstanding - -
Common stock, $.01 par value.
Authorized 200,000,000 shares;
issued and outstanding 116,746,810
shares 1,167 1,167
Additional paid-in capital 906,808 906,808
Accumulated deficit (1,175,681) (1,149,518)
Total stockholders' deficit (267,706) (241,543)
$ 1,356 $ 975
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
<TABLE>
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Fiscal Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Revenues $ - $ - $ -
Corporate administration expense 10,644 7,006 13,536
Operating loss (10,644) (7,006) (13,536)
<PAGE>
Other income (expense):
Equity in net loss of
subsidiaries - (125,037) (341,485)
Reversal of subsidiary's reserve - - 36,000
Reserves on investments and loans
to affiliates - - (6,495)
Interest expense (15,838) (20,602) (30,805)
Interest and other income, net 319 (461) 3,452
Loss before income taxes and
extraordinary items (26,163) (153,106) (352,869)
Provision for income taxes - - (66)
Loss before extraordinary items (26,163) (153,106) (352,935)
Extraordinary items - (319,732) -
Net loss $(26,163) $(472,838) $(352,935)
Loss per common share:
Loss before extraordinary items $ (0.22) $ (1.31) $ (3.02)
Extraordinary items - (2.74) -
Net loss $ (0.22) $ (4.05) $ (3.02)
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
<TABLE>
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
Fiscal Years Ended December 31, 1993, 1992 and 1991
Common Stock
Subscriptions
Preferred Stock Common Stock Receivable Common Stock
Shares Amount Subscriptions and Reserve Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balances at December 29, 1990. - $ - $ 570,000 $(50,000) 59,747 $597
Payments under common stock
subscription receivable. . . - - - 50,000 - -
Reserve. . . . . . . . . . . . - - - (36,000) - -
Net change in cumulative
translation adjustment . . . - - - - - -
Net loss . . . . . . . . . . . - - - - - -
Balances at December 31, 1991. - - 570,000 (36,000) 59,747 597
Conversion of common stock
subscriptions. . . . . . . . - - (570,000) - 57,000 570
Equity adjustment. . . . . . . - - - 36,000 - -
Foreclosure on MGM common
stock. . . . . . . . . . . . - - - - - -
Net change in cumulative
translation adjustment . . . - - - - - -
Net loss . . . . . . . . . . . - - - - - -
<PAGE>
Balances at December 31, 1992. - - - - 116,747 1,167
Net loss . . . . . . . . . . . - - - - - -
Balances at December 31, 1993. - $ - $ - $ - 116,747 $1,167
Additional Cumulative
Paid-In Accumulated Translation
Capital Deficit Adjustments Total
<S> <C> <C> <C> <C>
Balances at December 29, 1990. $337,378 $ (323,745) $ (12,688) $ 521,542
Payments under common stock
subscription receivable. . . - - - 50,000
Reserve. . . . . . . . . . . . - - - (36,000)
Net change in cumulative
translation adjustment . . . - - 2,331 2,331
Net loss . . . . . . . . . . . - (352,935) - (352,935)
Balances at December 31, 1991. 337,378 (676,680) (10,357) 184,938
Conversion of common stock
subscriptions. . . . . . . . 569,430 - - -
Equity adjustment. . . . . . . - - - 36,000
Foreclosure on MGM common
stock. . . . . . . . . . . . - - 12,153 12,153
Net change in cumulative
translation adjustment . . . - - (1,796) (1,796)
Net loss . . . . . . . . . . . - - - -
-
-
-
(472,838)
-
(472,838)
Balances at December 31, 1992. 906,808 (1,149,518) - (241,543)
Net loss . . . . . . . . . . . - (26,163) - (26,163)
Balances at December 31, 1993. $906,808 $(1,175,681) $ - $(267,706)
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
<TABLE>
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
STATEMENTS OF CASH FLOWS
(in thousands)
Fiscal Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . $(26,163) $(472,838) $(352,935)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization of
property and equipment . . . . . . . . . . . . . . . . - - 747
Amortization of debt costs . . . . . . . . . . . . . . . 718 627 622
Reserves on investments and advances to affiliates . . . - - 6,495
Reversal of subsidiary's reserves . . . . . . . . . . . . - - (36,000)
Losses on equity investments . . . . . . . . . . . . . . - 125,037 341,485
<PAGE>
Loss on disposition of assets and subsidiaries . . . . . - 491 934
Extraordinary loss . . . . . . . . . . . . . . . . . . . - 319,732 -
Changes in operating assets and liabilities:
Accounts receivable, other assets, deferred loan costs
and due from affiliates . . . . . . . . . . . . . . . . (82) (3,176) 6,460
Accounts payable, accrued interest and other liabilities 12,228 17,214 12,197
Other . . . . . . . . . . . . . . . . . . . . . . . . . . - - 6,050
Net cash used in operating activities . . . . . . . . . . . . . (13,299) (12,913) (13,945)
Cash flows from investing activities:
Additions to property and equipment . . . . . . . . . . . - - (339)
Other investment activities . . . . . . . . . . . . . . . - - 4,029
Net cash provided by investing activities . . . . . . . . . . . - - 3,690
Cash flows from financing activities:
Loans to affiliates and subsidiaries . . . . . . . . . . - - (2,706)
Borrowings under line of credit . . . . . . . . . . . . . 13,598 12,893 12,789
Net cash provided by financing activities . . . . . . . . . . . 13,598 12,893 10,083
Net increase (decrease) in cash and cash equivalents . . . . . 299 (20) (172)
Cash and cash equivalents - beginning of year . . . . . . . . . 44 64 236
Cash and cash equivalents - end of year . . . . . . . . . . . . $ 343 $ 44 $ 64
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The financial statements of Pathe Communications
Corporation ("Pathe" or the "Company") have been presented on a separate
company (parent only) basis. Credit Lyonnais Bank Nederland N.V. ("CLBN")
controls the voting rights with respect to approximately 97% of the Company's
common stock. See Notes 5 and 6 regarding CLBN's acquisition of certain of
the Company's subordinated debt and common stock. In May 1992, CLBN fore-
closed on 59,100,000 shares constituting 98.5% of the common stock of Metro-
Goldwyn-Mayer Inc. ("MGM"), which constituted substantially all of the
Company's assets (see Note 3). Following the sale of its MGM stock, the
Company has no operating assets or sources of income. The Company is
currently dependent on CLBN to fund its ongoing cash requirements.
Prior to July 1991, the Company engaged in significant transactions with its
principal shareholders and certain affiliated companies.
Cash Equivalents. The Company considers all highly liquid debt instruments
with original maturities of three months or less to be cash equivalents.
<PAGE>
Debt Issuance Costs. Debt issuance costs are capitalized when incurred, and
together with original issue discount, are amortized over the term of the
related debt utilizing the bonds outstanding method.
Reclassification. Certain 1992 and 1991 amounts have been reclassified to
conform with the 1993 presentation.
NOTE 2 - MARKET FOR THE COMPANY'S COMMON STOCK
Trading in the Company's common stock was suspended by the New York Stock
Exchange (the "Exchange") on July 13, 1992 pending application by the
Exchange to the Securities and Exchange Commission (the "SEC") to delist the
stock. Such action was taken because the Company had fallen below the
Exchange's continued listing criteria related to (i) net tangible assets
available to common stock together with three-year average net income and
(ii) aggregate market value of publicly held common stock. On August 28,
1992, the SEC, in response to the Exchange's application, issued an order
removing the Company's common stock from listing and registration on the
Exchange.
The Company is unable to predict at this time whether any public market will
exist for the Company's remaining outstanding shares of common stock. The
Company does not have any present plans that would result in the repurchase
or redemption of its common stock or in the admission for trading of such
stock on other exchanges or markets.
The Company's stock may be subject to deregistration with the SEC if the
Company has less than 300 stockholders of record, in which event the Company
would no longer file public reports with the SEC.
NOTE 3 - EXTRAORDINARY ITEM - LOSS ON FORECLOSURE
On April 16, 1992, CLBN commenced foreclosure proceedings (the "Foreclosure")
upon 59,100,000 shares of MGM's common stock owned by the Company (the "MGM
Shares"), representing 98.5% of the issued and outstanding common stock of
MGM. In accordance with the Foreclosure, an auction to sell the MGM Shares
was held on May 7, 1992 in Wilmington, Delaware. At such auction, MGM
Holdings Corporation, an affiliate of CLBN ("MGM Holdings"), bid-in
$483,489,000 of the indebtedness of the Company and certain affiliates, which
indebtedness had previously been assigned by CLBN to MGM Holdings, and
acquired all of the MGM Shares. The Company recorded an extraordinary loss
of $319,732,000 in the year ended December 31, 1992, representing the
difference between the carrying value of its investment in MGM and the amount
of the Company's debt relieved in the Foreclosure.
NOTE 4 - BANK AND OTHER DEBT
<TABLE>
Bank and other debt are summarized as follows (in thousands):
December 31, December 31,
1993 1992
<S> <C> <C>
Credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,412 $ 9,814
Bank note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 150,000
$173,412 $159,814
</TABLE>
<PAGE>
Credit Facilities. The Company previously had a $100,000,000 multi-currency
revolving credit facility ("Credit Facility") and a $250,000,000 interim
revolving credit facility ("Interim Facility") with CLBN. Borrowings under
both facilities bore interest at 2% over the higher of LIBOR or CLBN's cost
of funds, payable quarterly. The Credit Facility expired on December 31,
1991 and the Interim Facility expired on January 31, 1992. On May 7, 1992,
approximately $140,000,000 of indebtedness, including accrued interest, under
the credit facilities was relieved in the Foreclosure (see Note 3). In
October 1992, the outstanding balance due to CLBN was converted into a demand
promissory note, with interest accruing quarterly at LIBOR (3.25% at December
3, 1993) plus 2%. Any future advances by CLBN will be made under the
promissory note and are at the absolute discretion of CLBN. At December 31,
1993 and 1992, the Company had drawn down $23,412,000 and $9,814,000,
respectively, under this facility. Interest expense related to this facility
was $1,045,000 and $4,130,000 for the years ended December 31, 1993 and 1992,
respectively.
Bank Note Payable. In November 1990, the Company borrowed $150,000,000 from
Sealion Corporation N.V. ("Sealion"), a company affiliated with SASEA Holding
S.A. ("SASEA"), which is affiliated with prior management of the Company, and
lent the proceeds to Melia International N.V. ("Melia"), the Company's major
stockholder. Sealion has assigned, as collateral security, its receivable
from the Company to Credit Lyonnais S.A., the parent of CLBN. The Company's
obligation is guaranteed by Melia and collateralized by approximately 51% of
the Company's outstanding stock and by approximately 67% of the stock of MGM.
The obligation bears interest at LIBOR (3.25% at December 31, 1993) plus 2%
payable monthly and, as amended, requires principal reductions of $30,000,000
a month beginning in January 1992. None of these interest payments or
principal reductions have been made by the Company, and this facility is
currently in default. Interest expense related to this bank note was
$7,864,000 in 1993 and $8,657,000 in 1992.
Maturity Schedule. All of the foregoing debt is currently payable.
NOTE 5 - SUBORDINATED DEBT
<TABLE>
Subordinated debt is summarized as follows (in thousands):
December 31, December 31,
1992 1991
<S> <C> <C>
12.375% senior subordinated notes . . . . . . . . . . . . . . . . . . $16,709 $16,304
12.875% senior subordinated debentures . . . . . . . . . . . . . . . 26,686 26,373
8.875% convertible senior
subordinated debentures . . . . . . . . . . . . . . . . . . . . . . 3,761 3,761
$47,156 $46,438
</TABLE>
12.375% Notes. The 12.375% senior subordinated notes ("12.375% Notes") were
issued with detachable warrants to purchase 2,100,000 shares of common stock
at $25 per share and are due in October 1994. An allocation of $10,500,000
of the $70,000,000 face amount of notes was made to the warrants, which
resulted in a similar amount of the original issue discount. The unamortized
discount was $380,000 and $785,000 as of December 31, 1993 and 1992,
respectively.
<PAGE>
12.875% and 8.875% Debentures. The 12.875% senior subordinated debentures
("12.875% Debentures") and 8.875% convertible senior subordinated debentures
("8.875% Debentures") have been redeemable since April 15, 1989. On April
15, 1989, the Company, upon the exercise of an option by the 8.875% Debenture
holders, repurchased $19,810,000 of the outstanding 8.875% Debentures and
issued $28,550,000 of new 12.875% senior subordinated debentures, priced to
yield the then current market rate on the existing 12.875% Debentures, which
were trading at a substantial discount from face value. This transaction
resulted in original issue discount on the new 12.875% Debentures of
$8,740,000. The new debentures have terms similar to the existing 12.875%
Debentures. The 12.875% Debentures and 8.875% Debentures are due April 15,
2001. The unamortized discount was $4,438,000 and $4,751,000 as of
December 31, 1993 and 1992, respectively, on the 12.875% Debentures.
Annual sinking fund payments at 15% of the aggregate principal amounts of
these debentures are required to commence in April 1996 through April 2000.
Tender Offer. On May 8, 1992, CLBN commenced a tender offer for all of the
Company's outstanding 12.375% Notes, 12.875% Debentures and 8.875% Debentures
at $470, $470 and $420 per $1,000 principal amount, respectively. CLBN
acquired an aggregate principal amount of $9,379,000 pursuant to the tender
offer, which expired on June 5, 1992.
On May 5, 1992, CLBN entered into an agreement with certain bondholders to
purchase $27,013,000 face value of the foregoing obligations, which purchase
was completed in May 1992.
At December 31, 1993, CLBN held an aggregate $42,488,000 of the foregoing
obligations. Interest payments on the portion of those obligations which are
still publicly held are being made by CLBN on the Company's behalf. Interest
payments due on those obligations held by CLBN have been suppressed effective
November 1, 1993 on the 12.375% Notes and October 15, 1993 on the 8.875% and
12.875% Debentures. At December 31, 1993, the Company has accrued
approximately $2,700,000 due to CLBN for interest payments which have been
suppressed on the foregoing obligations.
Restrictive Covenants. The various subordinated debt indentures and note
agreements contain various covenants including reporting requirements,
dividend and stock purchase limitations and maintenance of minimum equity.
The agreements also contain cross acceleration provisions which provide that
an event of default occurs if holders of certain other debt of the Company,
in aggregate principal amount in excess of $1,000,000, accelerate the
maturity of such debt and such acceleration is not rescinded within 60 days.
While the Company is in default on many of these covenants, no such debt has
been accelerated. If such event were to occur and certain notices are given
under the various agreements and indentures, a substantial portion of the
Company's subordinated debt could be accelerated. The Company has not
received any such notices.
In connection with the tender offer, CLBN agreed to provide funding to the
Company to enable it to make scheduled interest payments under the Company's
subordinated debenture agreements during the period ended May 5, 1993 on such
obligations not owned by CLBN after consummation of the tender offer.
Subsequent to May 5, 1993, CLBN has continued to provide the Company with the
funds necessary to meet the Company's expenses, including interest expenses
on the Company's subordinated debt not owned by CLBN, but CLBN has not
indicated any intention to fund any of the Company's future expenses and the
Company has no other source of funding.
<PAGE>
In conjunction with the tender offer, the indentures governing the 12.875%
Debentures and 8.875% Debentures (the "Indentures") were amended to provide
that (a) June 30, 1992 replaces December 28, 1985 as the date after which
consolidated net income or loss will be included in the computation of
permitted dividends, distributions or stock repurchases and (b) the minimum
net worth covenant will be clarified to provide that certain debentures
previously acquired by the Company and canceled can be utilized to satisfy
any repayment obligation arising from failure to satisfy such covenant.
Additionally, there were modifications to certain other covenants.
The Company currently does not meet the minimum net worth covenant under such
Indentures as its net worth has been below $37,500,000 for more than two
consecutive quarters. Upon the occurrence of such event, the Indentures, as
amended as described above, require the Company to redeem 10% of the
aggregate principal amount of the debentures then outstanding (at 100% of the
principal amount) plus accrued interest by the last day of any subsequent
quarter. As noted above, the Company can satisfy the redemption requirement
through previously acquired and canceled debentures. Due to the significant
amount of such debentures previously acquired by the Company, the Company
will not be required to make any cash redemptions for the foreseeable future.
Maturities. The scheduled maturities of the Company's subordinated debt over
the next five years consist of $17,089,000 in 1994 and $34,885,000 after
1998.
NOTE 6 - STOCKHOLDERS' EQUITY
Common Stock Subscriptions. On November 1, 1990, the Company entered into
stock subscription agreements ("Stock Subscriptions") with two of its major
shareholders, Melia and Comfinance S.A. ("Comfinance"), providing for the
purchase of 57,000,000 shares of the Company's common stock at $10 per share,
a total of $570,000,000.
Comfinance subscribed for 8,000,000 shares for a total of $80,000,000. In
mid-November 1990, the Company loaned $50,000,000 to Comfinance; the Company
understands that such funds were used by Comfinance to repay indebtedness it
incurred to fund its Stock Subscription. Such indebtedness was offset
against amounts owed by the Company to other European Interests.
Melia subscribed for 49,000,000 shares for a total of $490,000,000. In
November 1990, the Company loaned $150,000,000 to Melia (see Note 4) in
connection with Melia's funding of its Stock Subscription. Melia's loan was
satisfied (with accrued interest) in April 1991 by Melia's assumption of a
like amount of the Company's indebtedness to CLBN.
Additionally, $50,000,000 of Melia's total Stock Subscription was funded on
December 31, 1990, when a purported loan agreement was entered into with
Banca Popolare di Novara ("BPN"). MGM reserved for the contested obligation
as a loss due to the uncertainty of reimbursement or indemnification by SASEA
if MGM were ultimately found to be liable under the purported loan agreement.
However, because this purported loan was entered into in connection with the
funding of Melia's Stock Subscription, the Company reclassified the remaining
contested obligation (the original amount of $50,000,000 reduced by payments
made by SASEA) as an offset to Common Stock Subscriptions at December 31,
1991. Due to the Foreclosure described in Note 3, the potential impact of
this note on the Company ceased, resulting in an increase in the Company's
investment in MGM and a corresponding increase to equity prior to the
recognition of the extraordinary loss due to the Foreclosure.
<PAGE>
On May 6, 1992, the Company issued 57,000,000 shares of common stock under
the subscriptions to Melia and Comfinance. These shares are subject to
pledge arrangements in favor of CLBN (see Note 1).
Tender Offer. On May 7, 1992, CLBN commenced a tender offer (the "Tender
Offer") to purchase up to 5,800,000 of the Company's outstanding unencumbered
shares of common stock (the "Shares") at $1.50 per share. The Tender Offer
did not include 110,756,450 shares of the Company registered in the name of
CLBN, as voting trustees under certain voting trust agreements or otherwise
subject to pledge agreements in favor of CLBN. CLBN acquired 2,809,739
shares under the Tender Offer, which expired on June 5, 1992.
Loss per Common Share. Per share data is based on 116,746,810 weighted
average shares outstanding for 1993, 1992 and 1991.
NOTE 7 - DOMESTIC AND FOREIGN TAXES
Due to its limited activities, the Company has incurred no currently payable
income tax liabilities.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," during the year ended December 31, 1993. This
statement requires the use of the liability method of accounting for deferred
income taxes. The implementation did not have a material impact as all
deferred tax assets were offset against valuation allowances as a result of
loss carryforwards which are not expected to be realized.
For income tax reporting purposes the Company has available approximately
$56,852,000 in federal net operating loss carryforwards on a parent only
reporting basis. Additionally, the Company has available approximately
$429,455,000 in capital loss carryforwards.
In periods prior to 1993, the provision for taxes has consisted solely of
miscellaneous state franchise and other local license fees. Due to the
nature of these items, for 1993 such expenses have been treated as general
and administrative costs rather than as income tax expenses.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company has various credit arrangements with CLBN (see Note 4). Interest
of approximately $8,909,000 and $12,760,000 was charged on these facilities
during 1993 and 1992, respectively. The Company also paid to CLBN ap-
proximately $502,000 in 1992 related to letters of credit and other fees,
pursuant to the terms of its credit facilities. No such fees were charged by
CLBN to the Company during 1993.
In addition, CLBN was the holder of various subordinated notes and debentures
issued by the Company. As the Company has no operating assets or significant
sources of income, CLBN agreed during 1993 to forego its receipt of interest
on the notes and debentures it holds (see Note 5).
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Litigation. The Company is subject to a consent decree (the "Consent
Decree") entered in the United States District Court for the Central District
of California ("California District Court") in a civil action commenced by
the SEC against the Company on November 19, 1987, entitled Securities and
Exchange Commission v. The Cannon Group, Inc., et al., Case No. 87-07590.
<PAGE>
This proceeding against the Company and certain of its former directors and
officers alleged, among other things, violations or aiding and abetting of
violations of the anti-fraud, reporting, proxy, record-keeping and internal
controls provisions of the federal securities laws. Without admitting or
denying the allegations in the SEC's complaint, the Company and certain
individuals settled the action and consented to the entry of a final judgment
enjoining them from violating the aforementioned provisions of the federal
securities laws.
The Consent Decree required the Company to appoint an independent person to
examine transactions between the Company and related parties for the period
January 1, 1984 through December 31, 1986. The independent person is required
to deliver a report to the Company's Board of Directors regarding such
transactions together with recommendations regarding what action the Board
should take as a result of the examination. The Company appointed a law firm
as the independent person. In November 1991, the independent person resigned
without having delivered a report to the Board of Directors. In its
resignation letter, the independent person stated that it had been unable to
complete its examination because of the Company's failure to pay the
independent person's fees and because certain members of the former
management of the Company had failed to cooperate in the examination.
Current management also believes that the Company under prior management may
have violated other provisions of the Consent Decree. Violations of the
Consent Decree could result in further proceedings by the SEC. If the
Company were found to have violated the Consent Decree, the Company could be
held in contempt of court and could be subjected to substantial penalties.
The Company has informed the SEC of its concerns regarding compliance with
the Consent Decree and is cooperating with the SEC in its review of this
matter. While no assurances can be given, management believes that any
punitive measures which may be imposed as a result of violations of the
Consent Decree would be imposed upon those persons responsible for such
violations (as opposed to the Company's current management) and would not
have a material adverse effect upon the Company.
The Commission is currently conducting an investigation into certain trans-
actions effected by prior management of the Company. The Company is
cooperating fully with the Commission in its investigation. The Company
cannot presently determine what, if any, action the Commission might take as
a result of its investigation.
On November 13, 1990, a complaint was filed in Los Angeles Superior Court
against the Company, Cannon Pictures, Inc., Mr. Parretti, Fernando Cappuccio,
Danny Dimbort, Lilliana Avincola, Edmund Hamburger and Theodore J. Cohen by
plaintiffs William J. Immerman and Salem Productions, Inc. The first amended
complaint, served on January 2, 1991, alleged, inter alia, rescission, breach
of contract, breach of the covenant of good faith and fair dealing,
interference with contractual relationships, interference with prospective
economic advantage, promissory fraud, fraud, negligent misrepresentation,
intentional infliction of emotional distress, libel and slander in connection
with the termination of plaintiffs' employment contracts. The amended
complaint sought compensatory damages, depending on the cause of action, from
$250,000 to in excess of $1,000,000 and punitive damages of $5,000,000. The
Company filed an answer denying all liability and setting forth various
affirmative defenses. A settlement was reached among the parties and the
action has been dismissed. The Company's portion of the settlement liability
will be covered by insurance.
On January 22, 1991, Century West Financial Corporation ("Century West")
filed a complaint in Los Angeles Superior Court against the Company, Renta
Properties and others for breach of contract, breach of third party
beneficiary contract, bad faith denial of contract, breach of the implied
covenant of good faith and fair dealing, and tortuous interference with
<PAGE>
prospective economic advantage. Century West alleges that it acted as broker
for the sale of 6420 Wilshire Boulevard and is owed a commission. Century
West seeks compensatory damages in the amount of $470,000, interest thereon
and punitive damages. A third amended complaint was filed in this action on
January 14, 1994. Cross-complaints have been filed against the Company, and
the Company has filed cross-claims. In addition, the Company is advancing
defense costs to a former employee and will indemnify him subject to an
undertaking for reimbursement under certain circumstances. The Company
intends vigorously to defend this action.
On June 18, 1991, a complaint was filed in the United States District Court
for the Central District of California against the Company, MGM, Messrs.
Parretti, Fiorini, Globus and Aurelio Germes and Maria Cecconi (Mr.
Parretti's wife) on behalf of a purported class which acquired MGM's 13%
Subordinated Debentures due 1996. On October 10, 1991, J. Phillip Williams,
on behalf of a group of MGM bondholders, filed an amended complaint against
the Company, MGM, CLBN and Mr. Parretti which alleges that the defendants
violated U.S. securities laws, conspired to deceive plaintiffs about MGM's
financial condition, markets and business prospects, and thereby artificially
inflated the price of MGM's securities. The complaint seeks unspecified
damages. The Company answered the complaint on February 3, 1992. Limited
discovery was conducted regarding class certification. On March 23, 1992,
the Court heard and denied Williams' motion for class certification. On May
18, 1992, the court denied Williams' motion for reconsideration. On July 22,
1992, another bondholder, Herbert Eisen, moved to intervene in the lawsuit.
After limited discovery was conducted regarding intervention, the Court
granted Mr. Eisen's motion to intervene. On December 15, 1992, Mr. Eisen
filed a complaint-in-intervention that mirrors the allegations in the
Williams' complaint. The Company and MGM answered Mr. Eisen's complaint-in-
intervention on December 29, 1992. On October 26, 1993, the parties entered
into a Stipulation of Settlement which would dispose of this matter subject
to Court approval. The settlement, if approved, would operate a fund of
$4,500,000 against which injured class members may make a claim. Any
unclaimed portion of the fund will be returned to the contributing
defendants. The Company and MGM have funded the settlement.
On September 25, 1991, Century Insurance Ltd. ("Century") filed a complaint
in Superior Court against the Company, MGM, Melia, Comfinance, CLBN and
Mr. Parretti alleging, among other things, breach of contract, fraud,
constructive fraud, conversion and conspiracy. The claims arise out of a
failure to pay a purported $1,750,000 premium in connection with plaintiff's
purported issuance of a completion guarantee bond related to the financing of
the merger with MGM. The plaintiff seeks $34,200,000 in alleged management
fees on three purported insurance investment bonds and declaratory relief.
MGM was voluntarily dismissed from the action on January 3, 1992. The
plaintiff served a second amended complaint on February 3, 1992. In
addition, on December 6, 1991, this case was consolidated with an earlier
declaratory relief suit filed by CLBN against Century. The Company was not a
party to this earlier suit. On February 3, 1993, the court dismissed with
prejudice Century's complaint against the Company and all of the other defen-
dants, for failure to comply with discovery orders. On July 14, 1993,
Century moved to vacate the judgment in the Company's and other defendants'
favor, which motion was denied. Century has filed a notice of appeal of
denial of its motion to vacate. The parties have not completed the appeal
briefing and no date has been set for the hearing of the appeal.
On January 18, 1991, Andrea Kune, a stockholder of the Company, filed a
derivative lawsuit on behalf of the Company against Messrs. Parretti,
Fiorini, Globus and Dimbort, Valentina Parretti (Mr. Parretti's daughter),
Ms. Cecconi, Antonio Pares-Neira and Lewis P. Horwitz, alleging breach of
fiduciary duty, abuse of control, waste of corporate assets, fraud and
deceit, negligent misrepresentation and constructive fraud. The Company was
named as a nominal defendant only. On September 16, 1991, the Company filed
<PAGE>
a Statement of Non-Response asserting that it had no obligation to respond to
the complaint because the complaint seeks no relief from the Company. A
second amended complaint was filed on July 27, 1992 against the same
defendants in which the Company was again named as a nominal defendant. Kune
alleges claims for breach of fiduciary duty, fraud and deceit, negligent
misrepresentation and constructive fraud against the defendants. The amended
complaint seeks unspecified damages. The Company remains a nominal defendant
only and no claims for monetary relief are asserted against it.
On January 8, 1992, Fabio Serena, a former employee of the Company, filed a
lawsuit in Los Angeles Superior Court against the Company. The Complaint
contains causes of action for (i) breach of contract; (ii) breach of covenant
of good faith and fair dealing; (iii) promissory fraud; (iv) fraud; (v)
intentional infliction of emotional distress; and (vi) negligent infliction
of emotional distress. Mr. Serena's complaint sought in excess of $6,750,000
in compensatory damages, and $10,000,000 in punitive damages, in addition to
costs of suit and interest. All of the plaintiff's claims have been dismissed
with the exception of one cause of action for breach of contract which seeks
damages "in excess of $1,000,000," together with interest and costs of suit.
A confidential settlement was agreed in December 1993, pursuant to which the
case was dismissed with prejudice.
On January 27, 1992, Linda Carter filed an application for award for employer
violation of Section 132(a) of the Labor Code before the Workers'
Compensation Appeals Board of the State of California against the Company and
MGM seeking reinstatement of employment, back wages at approximately $21,000
per year plus benefits and costs of suit. The application alleges
Ms. Carter was laid off on March 4, 1991, in retaliation for filing a
workers' compensation claim. The Company is vigorously defending this
action.
On January 21, 1992, CLBN filed an action in the Delaware Chancery Court in
which CLBN asserted various claims against the Company, Gestione Nuove
Attivita Finanziarie S.a.r.l. (a company controlled by Ms. Cecconi)
("GENAF"), Melia and certain subsidiaries of Melia seeking, among other
things, a judicial declaration that: (i) a purported transfer of common
stock of the Company from Melia and certain of its subsidiaries to GENAF (the
"Subject Stock") is null, void and without effect; and (ii) the Company
should issue new stock certificates to CLBN representing the Subject Stock or
impose a constructive trust on the Subject Stock held by GENAF. On
February 4, 1992, the Delaware Chancery Court issued an order sequestering
the Subject Stock. The Company, Melia and its subsidiaries have answered the
complaint. In addition, Melia has filed a third-party complaint seeking
damages and injunctive and declaratory relief against GENAF, Mr. Parretti and
Ms. Cecconi alleging, among other things, fraud and conversion. On or about
February 6, 1992, Mr. Parretti and GENAF applied to the Civil Court in Rome
for the appointment of a custodian of issued shares in the Company and MGM
purportedly held by Mr. Parretti and GENAF and for precautionary measures to
protect the assets of the Company and MGM against further alleged diminution
in value being caused by CLBN. The Court on or about February 24 and
March 6, 1992 issued temporary ex parte orders decreeing that the shares of
the Company and MGM are validly within the custody of the Court, and
appointing Paolo Picozza as custodian of the shares in dispute. With consent
of the court on March 6, 1992, Mr. Picozza purported to take action to amend
Pathe's By-Laws to increase the number of directors of the Company to thirty
and to appoint eight additional directors of the Company. Mr. Picozza also
purported to take action to remove the current directors of MGM and to
replace them with seven new directors. On March 12, 1992, CLBN filed a
special appearance with the Court objecting to the decrees on the grounds,
among other things, that the stock certificates presented to the Court as
evidence of Mr. Parretti's controlling interest in the Company and MGM were
either already sequestered by the Delaware Chancery Court on February 12,
1992, pursuant to an order of that court dated February 4, 1992, or
<PAGE>
previously certified lost and replaced, as well as on various procedural and
jurisdictional grounds. A hearing was held on Friday, March 20, 1992
regarding CLBN's special appearance. On March 18, 1992, Mr. Parretti and
GENAF filed an appeal with the Italian Supreme Court on jurisdictional issues
and CLBN filed a counter appeal (no hearing has so far been fixed by the
Supreme Court). A new temporary order was rendered on April 28, 1992
confirming the two earlier decisions. The April 28, 1992 order provided for
a 180-day time period during which Mr. Parretti and GENAF should bring an
action on the merits. On October 18, 1992, Mr. Parretti filed an action for
damages against CLBN and the first hearing was scheduled for March 22, 1993.
The case is, however, suspended until the Italian Supreme Court has rendered
its decision on the jurisdictional issues.
On May 6, 1992, Robert Solomon filed a complaint in Delaware Chancery Court
against the Company, CLBN, Dennis Stanfill, Alan Ladd, Jr., Charles Meeker,
Kenneth Meyer, Jay Kanter, William Jones, Thomas Carson, Rene Claude
Jouannet, Bahman Naraghi, Guy Etienne Dufour, G. Goirand and Jacques
Bertholier alleging breach of defendants' duties of fair dealing and breach
of fiduciary duties to the public stockholders of the Company in connection
with the foreclosure and CLBN's Tender Offer for the Company's stock at a
price of $1.50 per share. Plaintiff filed the action on his own behalf and as
a class action on behalf of a purported class of public stockholders of the
Company. On March 15, 1994, Solomon filed an amended class action complaint
against the Company, CLBN and certain of the previously named individuals.
Although the Company is still studying the amended complaint, no monetary
relief is sought against the Company. The Company plans vigorously to defend
the action.
On December 7, 1992, MGM filed an action against Tracinda, Jeffrey Barbakow,
Kirk Kerkorian, Stephen Silbert (the "Kerkorian Defendants") and Houlihan,
Lokey Howard & Zukin, Inc. ("HLHZ") in the Superior Court in Los Angeles. On
December 22, 1992, MGM filed an amended complaint which sets forth claims for
breach of fiduciary duty, aiding and abetting breach of fiduciary duty,
breach of contract and negligence in connection with the sale of MGM to the
Company in the fall of 1990. MGM alleges, among other things, that the
defendants engaged in a scheme to induce the independent members of MGM's
Board to approve the merger to MGM's detriment. MGM seeks damages in an
amount of $750,000,000, plus punitive damages according to proof at trial,
and a declaration that the indemnity provisions of certain agreements
executed in connection with the merger do not cover any judgment, settlement,
fees or costs incurred by the Kerkorian Defendants in a legal action. On
December 17, 1992, the Kerkorian Defendants filed an answer denying the alle-
gations of the complaint and a cross-complaint against MGM for breach of
contract, tortious bad faith, breach of indemnification agreements, equitable
indemnity and declaratory relief. The cross-complaint seeks damages
according to proof at trial, exemplary damages, attorneys' fees and costs. On
January 27, 1993, HLHZ filed an answer denying the allegations of the
complaint and a cross-complaint against MGM, the Company and CLBN for
declaratory relief, fraud, negligent misrepresentation and equitable
indemnity. The Company answered HLHZ's cross-complaint on March 29, 1993.
HLHZ seeks, among other things, indemnification from the Company under the
terms of an engagement letter between HLHZ and the Company and damages for
fraud, negligent misrepresentation and equitable indemnity in an amount
according to proof at trial, plus attorneys' fees, costs and expenses.
Discovery in this action has commenced. On October 13, 1993, a Special
Referee in this matter recommended that the Court enter an order declaring
that the Company be required to advance to HLHZ its reasonable attorneys'
fees in this matter pursuant to the engagement letter, subject to repayment
if HLHZ were later found to have committed fraud. The Court did enter such
an order, and the Company has moved for reconsideration of that decision. If
upheld, such a declaration or order could result in the imposition of
substantial liability and other obligations upon the Company, in an amount as
yet undetermined but likely to be beyond the Company's present financial
<PAGE>
capabilities or otherwise materially adverse to the Company. The Court has
stated that the matter will come on for trial in June 1994. The Company is
vigorously litigating these actions.
On April 16, 1993, the Company filed a bankruptcy petition against Melia with
the Bankruptcy Chamber of the Amsterdam District Court. This petition was
joined by the Dutch tax authorities, Scotti International N.V., Cannon Cinema
B.V. and CLBN. At a hearing on April 27, 1993, the Court found that Melia
had ceased to pay its debts and declared Melia officially bankrupt. The
Court appointed Mr. R.W. De Ruuk as official receiver in the bankruptcy. The
appeal period under the governing Dutch Bankruptcy Code has lapsed.
Mr. De Ruuk has deposited three public reports with the Dutch authorities.
It appears to the Company from such reports that no material recovery
benefiting it will be forthcoming.
On June 29, 1993, Aurelio Germes, a former officer of the Company, filed a
declaratory relief action against the Company. Mr. Germes seeks a
declaratory judgment that the Company is obligated to pay Mr. Germes' legal
fees in connection with the SEC investigation and in defense of the Kune
matter. The Company filed an answer to this complaint on August 12, 1993.
The Company intends to vigorously defend this action. Trial of the action is
set for May 24, 1994.
Demands for the advancement of legal fees and indemnification in the defense
of the Kune and Williams actions have been made by Giancarlo Parretti, Maria
Cecconi and Valentina Parretti (collectively, the "Parrettis"). In addition,
a demand for the advancement of legal fees for defense of the Kune case has
been made by Yoram Globus. The Company has rejected these demands. A claim
has also been made by the Parrettis' former attorneys in those cases for fees
already incurred, in amounts totaling less than $100,000, and the Company is
investigating this matter to determine what, if any, liabilities it may have
in respect of this claim. In addition, there have been additional claims for
indemnification and/or the advancement of expenses and legal fees which have
been asserted from time to time by former officers, directors and/or
employees of the Company, and the Company reviews each demand on a case-by-
case basis.
NOTE 10 - SUPPLEMENTARY CASH FLOW INFORMATION
Total interest paid was $3,770,000, $6,481,000 and $6,478,000 for fiscal
years ended December 31, 1993, 1992 and 1991, respectively. Income taxes
paid were $66,000 in fiscal year 1991.
Fiscal Year Ended December 31, 1992
On May 7, 1992, approximately $140,000,000 of indebtedness under the credit
facilities was relieved in the Foreclosure (see Note 3).
Fiscal Year Ended December 31, 1991
In the year ended December 31, 1991, Comfinance and Interpart paid certain
Company expenses in the amount of $8,892,000, which payments were offset
against certain receivables due from the Company.
The Company repaid $50,000,000 of debt by offsetting amounts owed to it by
Comfinance with amounts due to other European Interests.
The Company repaid indebtedness to CLBN of $150,000,000 upon CLBN's
assumption of a $150,000,000 receivable the Company had from Melia.
NOTE 11 - QUARTERLY FINANCIAL DATA (UNAUDITED)
<PAGE>
Selected financial information for the quarterly periods for the fiscal years
ended 1993 and 1992 are presented below (in thousands, except per share
amounts):
<TABLE>
Year Ended Operating Net Net Loss per
December 31, Revenues Loss Loss Common Share
<S> <C> <C> <C> <C>
1993
First Quarter $ - $ (440) $ (4,339) $ (.04)
Second Quarter - (846) (8,381) (.07)
Third Quarter - (879) (4,970) (.04)
Fourth Quarter - (8,479) (8,473) (.07)
</TABLE>
During 1993, the Company, CLBN, MGM and various other parties settled
certain litigation matters. The Company's share of these costs was
$3,830,000 and was accrued by the Company during the fourth quarter
of 1993. In addition, the Company accrued $4,000,000 during the fourth
quarter of 1993 as additional legal reserves in connection with pending
litigation (see Note 9).
1992
<TABLE>
<S> <C> <C> <C> <C>
First Quarter $ - $(3,453) $(407,525) $ (3.49)
Second Quarter - (918) (50,837) (.44)
Third Quarter - (2,531) (10,507) (.09)
Fourth Quarter - (104) ( 3,969) (.03)
</TABLE>
1992 Quarterly Results.
In May 1992, CLBN foreclosed on the common stock of MGM (see Note 3). The
Company recorded a loss provision on its investment during the first quarter
of 1992.
<TABLE>
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
SCHEDULE II - AMOUNTS RECEIVABLE
FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
(in thousands)
Balance at
Deductions Balance
Beginning Amounts Amounts at End
Name of Debtor of Period Additions Collected Written Off of Period
<S> <C> <C> <C> <C> <C>
Fiscal 1993
None
Fiscal 1992
<PAGE>
None
Fiscal 1991
Comfinance . . . . . . . . $ 14,226 $ 0 $ 14,226(1) $ 0 $ 0
Sherwood Development . . . 50 2 0 52 0
GENAF SRL . . . . . . . . . 0 0 500 0 (500)
Melia . . . . . . . . . . . 139,517 9,919(2) 155,551(3) 0 (6,115)
Renta Corp/Prop . . . . . . 598 0 0 598 0
Overseas Int'l . . . . . . 471 0 1 470 0
Interfly . . . . . . . . . 0 2,706 125 2,581 0
Pathe-Italia S.p.A. . . . . 0 1,460 0 1,460 0
(1) A significant portion of balance relates to amounts paid by Comfinance and Interpart on behalf of the
Company.
(2) Amount relates to interest accrued on receivable from Melia.
(3) Amount represents receivable assumed by Credit Lyonnais S.A. for a like reduction in obligations to
CLBN.
</TABLE>
<TABLE>
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
SCHEDULE IX - SHORT-TERM BORROWINGS
(in thousands)
Category Weighted Maximum Average Weighted
of Aggregate Average Amount Amount Average
Short-Term Balance at Interest Outstanding Outstanding Interest Rate
Borrowing End of Year Rate During Year During Year During Year(1)
<S> <C> <C> <C> <C> <C>
Fiscal 1993:
Credit
Facilities $ 23,412 5.25% $ 23,412 $ 17,465 5.21%
Bank Note
Payable $150,000 5.25% $150,000 $150,000 5.21%
Fiscal 1992:
Credit
Facilities $ 9,814 5.31% $116,245 $ 42,099 6.05%
Bank Note
Payable $150,000 5.31% $150,000 $150,000 5.77%
Fiscal 1991:
Credit
<PAGE>
Facilities $113,160 6.31% $263,058 $171,589 7.12%
Bank Note
Payable $150,000 6.31% $150,000 $150,000 7.60%
(1) Computed based upon weighted average quarterly balance outstanding.
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Fredric S. Newman, age 48, has been the sole director and sole
executive officer of the Company since May 6, 1993, when he was elected
President, Secretary and Treasurer of the Company. He has been a practicing
attorney in New York City for more than the past five years. In 1991 he was
the Chief Executive Officer of World Team Tennis, Inc., and prior thereto he
was Vice President and General Counsel of Philip Morris Incorporated.
Pursuant to an agreement dated as of May 1, 1993 between the
Company and Mr. Newman, Mr. Newman is to serve as President, Secretary and
Treasurer of the Company with all of the power and authority to direct and
manage the affairs of the Company. The agreement calls for an annual
compensation of $75,000 plus certain additional compensation determined on an
hourly basis dependent upon the services performed. The term of the
agreement is one year, renewable annually, and the Company may terminate the
agreement at any time upon payment of the agreed compensation.
Mr. Newman's election to the Board of Directors of the Company was
pursuant to CLBN's right to vote the common stock of the Company under the
PCC Voting Trusts (see Item 1 "Changes in Control - Extraordinary Events").
ITEM 11. EXECUTIVE COMPENSATION
Except pursuant to the agreement referred to in Item 10, no
compensation was awarded to, earned by or paid to Mr. Newman or to any other
executive officer or director of the Company for the 1993 fiscal year and no
compensation was awarded to, earned by or paid to any person serving as Chief
Executive Officer during 1993 for the 1991 or 1992 fiscal years. Mr. Newman
earned $81,590 for his services to the Company during 1993.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 18, 1994, certain
information concerning ownership of shares of common stock (the only
outstanding class of capital stock to the Company) by (i) each person who is
known by the Company to own beneficially more than five percent of its issued
and outstanding common stock, (ii) each current Director and (iii) all
current officers and Directors of the Company as a group. This information
is based on information provided to the Company by or on behalf of the stock-
<PAGE>
holder or on the most recently available public information filed by or on
behalf of the stockholder.
<TABLE>
Name and address of Amount and Nature of Beneficial Ownership (1) Percent
Beneficial Owner of Class
<S> <C> <C>
Credit Lyonnais Bank 113,146,884 (2)(4) 96.9%
Nederland N.V.
63 Coolsingel
3012 AB Rotterdam
The Netherlands
Giancarlo Parretti 110,672,150 (2)(3)(4) 94.8%
Via XX Septembre 3
00187 Rome
Italy
Maria Cecconi 110,672,150 (2)(3)(4) 94.8%
22/24/ Boulevard Royal
2449 Luxembourg
Comfinance S.A. 110,672,150 (2)(3)(4) 94.8%
22/24/ Boulevard Royal
2449 Luxembourg
Interpart S.A. 102,672,150 (2)(3)(4) 87.9%
22/24/ Boulevard Royal
2449 Luxembourg
Melia International 102,672,150 (2)(3)(4) 87.9%
N.V.
Nieuwezijds Voorburgwai
120-126
1012 SH Amsterdam
The Netherlands
SASEA Holding S.A. 102,672,150 (2)(3)(4) 87.9%
29, rue de Candolla
DH-1205 Geneva
Switzerland
Renta Inmobiliaria 22,363,724 (2)(4) 19.2%
International B.V.
Nieuwezijds Voorburgwai
120-126
1012 SH Amsterdam
The Netherlands
Renta Corp. 5,812,000 (2)(4) 5.0%
6420 Wilshire Blvd.
Los Angeles, CA 90048
Fredric S. Newman 0 0%
10 East 40th Street
New York, New York 10016
All current officers and 0 0%
directors as a group (1
person)
</TABLE>
<PAGE>
(1) Based on 116,746,810 shares of Common Stock issued and outstanding.
This figure includes 49,000,000 shares of Common Stock issued to Melia
and 8,000,000 shares of Common Stock issued to Comfinance pursuant to
subscription agreements dated November 1, 1990, between the Company and
each of Melia and Comfinance. Except as indicated below, each of the
persons or entities listed above has sole voting and investment power
with respect to all share shown for such person or entity.
(2) CLBN owns 2,798,424 shares of the Company's common stock, purchased
pursuant to a tender offer completed June 5, 1992, as more fully
described under the caption Certain Relationships and Related
Transactions. CLBN exercises voting power over 110,348,460 shares
pursuant to certain voting trusts and pledge agreements. The shares of
stock held by Melia, Renta Inmobiliaria International B.V. ("Renta
B.V.") and Renta Corp. as well as the 57,000,000 shares issued to Melia
and Comfinance pursuant to their subscription agreements with the Com-
pany are, as more fully described under the caption "Certain
Relationships and Related Transactions--Changes in Corporate Control,"
pledged to CLBN, subject to a prior pledge by Melia of the shares owned
by it to Sealion (see Note 4 of the Notes to the Company's Consolidated
Financial Statements -- Bank Note Payable), to secure all obligations of
Melia, the Company, MGM and its direct and indirect subsidiaries and
affiliates to CLBN, as well as all existing indebtedness of Melia to
CLBN, indebtedness and obligations under all other agreements between
the Company and CLBN entered into prior to those agreements and under
agreements between MGM and CLBN, whether entered into at the time of
such agreements or prior thereto pursuant to which there is an existing
indebtedness or obligation to CLBN, and under all agreements entered
into in connection with, or referred to, in any of those agreements.
(3) Mr. Parretti and his wife, Mrs. Cecconi, are the majority owners of
Comfinance. (Mr. Parretti holds 14% and Mrs. Cecconi holds 57%.)
According to Mr. Parretti, he and Mrs. Cecconi hold their respective
shares under a separate property agreement governed by the laws of
Italy. They do not share any voting or dispositive power over their
respective shares in Comfinance. Interpart S.A. ("Interpart") is
beneficially owned by Mr. Parretti and certain of his affiliates.
Interpart is currently in voluntary liquidation and its management is
conducted by a liquidator. The shares indicated as being beneficially
owned by Comfinance and Interpart include approximately 31,000,000
shares (approximately 51.7% of the outstanding shares) held by Melia,
16,551,724 shares (approximately 27.7% of the outstanding shares) held
by Renta B.V., 5,812,000 shares (approximately 9.7% of the outstanding
shares) held by Renta Corp., and 407,990 shares (approximately .7% of
the outstanding shares) held by Viajes Melia ("Viajes").
Comfinance and Interpart together own 48.7% of the outstanding ordinary
and preferred stock of Melia (Comfinance holds 24.4% and Interpart holds
24.3.%). SASEA Holding S.A. (anciennement Societe Anonyme Suisse
d'Exploitations Agricoles "SASEA") and certain of its affiliates own
50.3% of the outstanding ordinary and preferred stock of Melia (SASEA
directly holds 20%). There is currently a dispute in a Swiss court
between SASEA and Interpart regarding the ownership of 2.4% of the
shares of Melia currently held by SASEA. The outcome of this action
will determine the control of Melia. Florio Fiorini, formerly a
Director of the Company, was previously a member of the Executive
Committee of SASEA, and is purportedly the owner of a significant
minority interest in the outstanding stock of SASEA. In October 1992,
SASEA was declared bankrupt under Swiss law. The competent court in
Geneva, Switzerland appointed special administrators to liquidate
SASEA's assets. Management control of Melia is vested in its Board of
Managing Directors, which currently consists solely of members appointed
by SASEA. A foundation controlled by Mr. Parretti, Mr. Fiorini and Mr.
<PAGE>
Parretti's daughter, Valentina Parretti, exercises rights with respect
to Melia including the approval of certain actions of the Board of
Managing Directors and certain rights with respect to the appointment of
the Board of Managing Directors. Melia is the controlling stockholder
of Viajes through Corporacion Viajes Melia S.A. Melia is the sole
stockholder of Renta B.V. which in turn is the sole stockholder of Renta
Corp.
(4) Includes the 16,551,724 shares owned by Renta B.V. and the 5,812,000
shares owned by Renta Corp. The Company is reviewing the facts and
circumstances surrounding the issuance of the 16,551,724 shares owned by
Renta B.V. to determine whether such shares were validly issued,
including the issue of whether sufficient consideration was received by
the Company for the issuance of such shares.
ITEM 13. CERTAIN RELATIONS AND RELATED TRANSACTIONS.
For additional information concerning certain transactions with
prior management and other related parties, see Notes 4, 6, 8, 9 and 10, of
the Notes to the Company's Consolidated Financial statements.
Changes in Corporate Control
Since June 1991, the Company has experienced changes in corporate
control. As a result of these changes, the sole member of the Board of
Directors and the sole officer of the Company is a person designated by CLBN,
the Company's principal creditor, in its capacity as voting trustee and
pledgee of the Company's common stock (see Item 1 "Business--Changes in
Corporate Control, Extraordinary Events" and Item 3 "Legal Proceedings").
CLBN
The Company is currently dependent on CLBN for additional capital
to fund its on-going operations. (See Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources".) The Company is in default on its existing indebtedness
to CLBN. (See Note 4 of the Notes to the Company's Consolidated Financial
Statements.)
Legal proceedings in which an officer, director, affiliate or owner of more
than five percent of the outstanding voting securities of the company has a
material interest adverse to the Company.
For information concerning legal proceedings in which an officer, director,
affiliate or owner of more than 5% of the outstanding voting securities of
the Company has a material interest adverse to the Company, see Item 3 Legal
Proceedings.
PART IV
ITEM14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2) Financial Statements and Schedules
<PAGE>
The financial statements and schedules listed in the accompanying
Index to Financial Statements and Financial Statement Schedules at Page 23
herein are filed as part of this Form 10-K.
(a)(3) Exhibits:
The exhibits listed in the accompanying Exhibit Index are filed as
part of this report.
(b) Reports on Form 8-K:
During the three months ended December 31, 1993, no reports on Form
8-K were filed by the Company.
(c) Other Exhibits: Exhibit 11 is attached hereto
(d) Other Financial Statement Schedules: None
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.
PATHE COMMUNICATIONS CORPORATION
By /s/Fredric S. Newman
Fredric S. Newman
President
Dated: March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of
1934, this report had been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dated indicated.
<TABLE>
<S> <C> <C>
/s/ Fredric S. Newman President, Secretary March 25, 1994
Fredric S. Newman and Treasurer
(Principal Executive,
Financial and Accounting
Officer)
</TABLE>
INDEX TO EXHIBITS
Exhibit Number Description
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 3, 1987).
<PAGE>
3.2 Amendment dated March 17, 1989 to the Restated
Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December
30, 1989).
3.3 By-Laws of the Company as amended through May 6, 1993
(incorporated by reference to Exhibit 3 to the Company's
Form 10-Q for the quarterly period ending June 30, 1993).
3.4 Amendment dated November 8, 1989 to the Restated
Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.4 to the Company's Annual
Report on Form 10-K for the fiscal year ended December
30, 1989).
3.5 Resolutions Adopted by the Board of Directors of Pathe
Communications Corporation on April 16, 1991
(incorporated by reference to Exhibit 3.5 to the
Company's Form 10-K for the year ended December 29,
1990).
3.6 Resolutions adopted by the Board of Directors of
MGM-Pathe Communications Co. on April 16, 1991
(incorporated by reference to Exhibit 3 (3) to MGM-Pathe
Communications Co. Form 8-K dated May 3, 1991).
4.1 Indenture, dated as of November 1, 1984, between the
Company and Bankers Trust Company, as Trustee, in regard
to $70,000,000 12-3/8% Senior Subordinated Notes due 1994
(incorporated by reference to Exhibit 4.1 to the
Company's Form S-1 Registration Statement No. 2-93526
filed September 28, 1984).
4.2 Indenture, dated as of April 15, 1986, between the
Company and Manufacturers Hanover Trust Company of
California, as Trustee, in regard to $80,500,000 8-7/8%
Convertible Senior Subordinated Debentures due 2001
(incorporated by reference to Exhibit 4.1 to the
Company's Form S-1 Registration Statement No. 33-3334
filed February 14, 1986).
4.3 Indenture, dated as of April 15, 1986, between the
Company and Manufacturers Hanover Trust Company of
California, as Trustee, in regard to $26,500,000 12-7/8%
Senior Subordinated Debentures due 2001 (incorporated by
reference to Exhibit 4.1 to the Company's Form S-1 Regis-
tration Statement No. 33-3333 filed February 14, 1986).
4.4 Warrant Agreement, dated as of October 15, 1987 between
the Company and Warner Communications, Inc. (Incorporated
by reference to Exhibit 1 to the Company's Report on Form
8-K filed on October 21, 1987).
9.1 Voting Trust Agreement by and between the Company and
Credit Lyonnais Bank Nederland N.V. dated April 15, 1991
(incorporated by reference to Exhibit 10(9) to MGM-Pathe
Communications Co. Form 8-K dated May 3, 1991).
9.2 Voting Trust Agreement by and between the Company and
Credit Lyonnais Bank Nederland N.V. dated April 15, 1991
(incorporated by reference to Exhibit 10(10) to MGM-Pathe
Communications Co. Form 8-K dated May 3, 1991).
<PAGE>
10.1 Agreement, dated as of May 18, 1989, between the Company,
Renta Inmobiliaria, Renta International B.V. and Renta
Corp. (incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended
December 30, 1989).
10.2 Agreements between certain G&G Interests and the Company,
dated as of July 1, 1983 (incorporated by reference to
Exhibit A to the Company's Form S-1 Registration
Statement No. 2-86297 filed August 30, 1983).
10.3 Agreement dated as of May 1, 1993 by and between the
Company and Fredric S. Newman.
10.4 Loan out Agreement, dated March 1, 1989, between Pathe
Entertainment, Inc. and Kanter Corp. for the services of
Jay Kanter (incorporated by reference to Exhibit 10.49 to
the Company's Annual Report on Form 10-K for the year
ended December 30, 1989).
10.5 Property and Share Sale Agreement, dated December 29,
1989 by and among Cannon SE Cinema Properties Limited,
Cannon Cinemas Limited, Pathe Group (U.K.) Limited and
Cinema 5 Europe N.V. (incorporated by reference to
Exhibit 10.52 to the Company's Form 10-K for the year
ended December 30, 1989).
10.6 Heads of Agreement, dated December 29, 1989, among Cannon
Tuschinski Theaters B.V., Cannon Tuschinski Beheer B.V.,
Cannon Cinema B.V., Holland Exhibitors B.V.,
Theaterbedrijf Cinerama Exhibitors Nederland B.V.,
Nationale Bioscoop Ondernemingen B.V., Cinerama Amsterdam
B.V., Cannon Theaters (Nederlands) N.V. and Exploitati-
emaatschappij "Midden- Hofstad" B.V. (incorporated by
reference to Exhibit 10.53 to the Company's Annual Report
on Form 10-K for the year ended December 30, 1989).
10.7 Agreement and Plan of Merger, dated as of June 28, 1990,
by and between the Company, MGM/UA Communications Co.,
and Tracinda Corporation (incorporated by reference to
Appendix A to MGM/UA Communications Co. Proxy Statement
dated August 31, 1990).
10.8 Stock Purchase Agreement, dated as of October 26, 1990,
between the Company and MGM-Pathe Communications Co.
(incorporated by reference to Exhibit B to MGM-Pathe
Communications Co. Form 8-K dated November 14, 1990).
10.9 Agreement, dated March 26, 1990, among Cineplex Odeon,
Cannon Cinemas Limited and Cannon SE Cinema Properties
Limited (incorporated by reference to Exhibit 10.14 to
the Company's Form 10-K for the year ended December 29,
1990).
10.10 Agreement, dated November 6, 1990, between the Company
and Fin Soft Holding S.A. (incorporated by reference to
Exhibit 10.15 to the Company's Form 10-K for the year
ended December 29, 1990).
10.11 Subscription Agreement, dated November 1, 1990, between
the Company and Melia International N.V. (incorporated by
reference to Exhibit 10.16 to the Company's Form 10-K for
the year ended December 29, 1990).
<PAGE>
10.12 Subscription Agreement, dated November 1, 1990, between
the Company and Comfinance S.A. (incorporated by
reference to Exhibit 10.17 to the Company's Form 10-K for
the year ended December 29, 1990).
10.13 Promissory Note, dated November 15, 1990, from
Transmarine Holdings S.A. payable to the Company
(incorporated by reference to Exhibit 10.18 to the
Company's Form 10-K for the year ended December 29,
1990).
10.14 Comfinance Promissory Note dated November 18, 1990
(incorporated by reference to Exhibit 10.19 to the
Company's Form 10-K for the year ended December 29,
1990).
10.15 Interim Revolving Credit Facility Agreement and Security
Assignment, dated March 22, 1991, by and among MGM-Pathe
Communications Co. and certain affiliates and Credit
Lyonnais Bank Nederland N.V.(incorporated by reference to
Exhibit 10.20 to the Company's Form 10-K for the year
ended December 29, 1990).
10.16 Letter Agreement among Credit Lyonnais Bank Nederland
N.V., Pathe Communications Corporation, MGM-Pathe
Communications Co. and Melia International N.V., dated
April 12, 1991 (incorporated by reference to Exhibit
10(5) to MGM-Pathe Communications Co. Form 8-K dated May
3, 1991).
10.17 Memorandum of Facility Agreement among MGM-Pathe
Communications Co. and its U.S. subsidiaries and Credit
Lyonnais Bank Nederland N.V., dated April 12, 1991
(incorporated by reference to Exhibit 10(6) to MGM-Pathe
Communications Co. Form 8-K dated May 3, 1991).
10.18 Stock Sale Agreement among Melia International N.V., the
Company and CLINVEST, dated April 13, 1991 (incorporated
by reference to Exhibit 10(7) to MGM-Pathe Communications
Co. Form 8-K dated May 3, 1991).
10.19 Mandat Exclusif de Vente de Titres among the Company,
Melia International N.V. and Credit Lyonnais Bank
Nederland N.V., dated as of May 10, 1991.
10.20 Assignment, Assumption and Release Agreement among Pathe
Communications Corporation, Melia International N.V. and
Credit Lyonnais Bank Nederland N.V., dated as of April
15, 1991 (incorporated by reference to Exhibit 10(8) to
MGM-Pathe Communications Co. Form 8-K dated May 3, 1991).
10.21 Agreement regarding Certain Corporate Governance Matters
for MGM-Pathe Communications Co. dated April 15, 1991
among Giancarlo Parretti, the Company and MGM-Pathe
Communications Co. (incorporated by reference to Exhibit
10(11) to MGM-Pathe Communications Co. Form 8-K dated May
3, 1991).
10.22 Agreement regarding Certain Corporate Governance Matters
for Pathe Communications Corporation, among Giancarlo
Parretti, the Company and the Company's majority stock-
holders (incorporated by reference to Exhibit 10(12) to
MGM-Pathe Communications Co. Form 8-K dated May 3, 1991).
<PAGE>
10.23 Amended and Restated Credit Agreement between MGM-Pathe
Communications Co. and Credit Lyonnais Bank Nederland
N.V. dated as of May 15, 1991 (incorporated by reference
to Exhibit 10.31 to the Company's Form 10-K for the year
ended December 29, 1990).
10.24 Schedule 14D-1 Tender Offer Statement and Amendment No. 9
to Schedule 13D of Pathe Communications Corporation filed
with the Securities and Exchange Commission by Credit
Lyonnais Bank Nederland N.V. on May 8, 1992 (incorporated
by reference).
10.25 Schedule 13E-3 Transaction Statement of Pathe
Communications Corporation filed with the Securities and
Exchange Commission by Credit Lyonnais Bank Nederland
N.V. on May 7, 1992 (incorporated by reference).
11. Computation of Loss Per Common Share.
Exhibit 10.3
AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of May,
1993, by and among PATHE COMMUNICATIONS CORPORATION, a Delaware corporation
having its principal place of business c/o Metro-Goldwyn-Mayer, Los Angeles,
California ("PCC") and FREDRIC S. NEWMAN, with an office address at 600
Madison Avenue, New York, New York 10022 ("Newman").
W I T N E S S E T H :
WHEREAS, PCC desires to secure the services of an independent
consultant with sufficient executive management and legal experience to
assume the principal management responsibilities of PCC; and
WHEREAS, Newman has the experience and professional ability to
perform such services.
NOW, THEREFORE, it is hereby agreed:
1. PCC will retain Newman as President, Secretary and Treasurer,
or to hold such other position or positions as may be agreed between the
parties, with all necessary power and authority to direct and manage the
affairs of PCC, including the discretion to employ legal, accounting or other
experts and counsel, but in all events subject to the authority of PCC's
Board of Directors.
2. Newman agrees to act as President, Secretary and Treasurer of
PCC, or in such other capacity as may be agreed between the Parties, upon the
terms and conditions set forth in this Agreement.
<PAGE>
3. In consideration for the services to be provided by Newman
under this Agreement, PCC agrees to pay Newman a salary of $75,000 per annum
payable in equal monthly installments. In the event Newman is required to
provide services pursuant to this Agreement, including participating in any
litigation matters involving PCC, for more than an average of one day per
week on a yearly basis, then PCC shall pay to Newman additional salary at a
rate of $225 per hour for such additional services. Newman shall provide an
invoice to PCC at the end of each [one year/semi-annual period indicating the
basis for any such additional salary.
4. PCC will pay or promptly reimburse all out of pocket expenses
and other disbursements reasonably incurred by Newman in the performance of
this Agreement against submission of appropriate vouchers or other receipts.
5. PCC will relocate its principal place of business to a
location in New York, New York agreeable to Newman.
6. The term of this Agreement shall end on April 30, 1994. PCC
may terminate Newman's services at any time upon payment to him of the
balance of the agreed annual salary that would be due and owing through the
remainder of the term of this Agreement or any renewal thereof plus any
additional salary for additional services in accordance with Paragraph 3
hereof. This Agreement will be renewed and continue in effect for successive
one year terms unless written notice of termination is provided not later
than 60 days before the end of any annual term.
7. Amendment and Modification. This Agreement may not be amended,
modified, or supplemented except by a writing signed by the parties hereto.
8. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without regard to conflict of law principles.
9. Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein, and supersedes all prior agreements, covenants,
representations or warranties whether oral or written, by any party hereto.
10. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be given in writing
shall be deemed to have been duly given when received by the party to whom
sent and shall be addressed:
If to Newman: 600 Madison Avenue, 6th Fl.
New York, New York 10022
Telecopy No.: (212) 980-1175
or to such other person or address as Newman shall furnish to PCC in writing.
If to PCC: c/o Metro-Goldwyn-Mayer Inc.
2500 Broadway Street
Santa Monica, California 90404-3061
Telecopy No.: (310) 449-3080
or to such other person or address as PCC shall furnish to Newman in writing.
11. Counterparts. This Agreement may be executed in counterparts
which, when so executed, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
May 1, 1993.
WITNESSED: FREDRIC S. NEWMAN
<PAGE>
______________________ /s/ Fredric S. Newman
PATHE COMMUNICATIONS
CORPORATION
______________________ By: /s/ Rene-Claude Jouannet
Rene-Claude Jouannet
(Name)
Director
(Title)
<TABLE>
Exhibit 11
PATHE COMMUNICATIONS CORPORATION
(PARENT ONLY)
COMPUTATIONS OF LOSS PER COMMON SHARE
(amounts in thousands, except per share data)
Fiscal years ended
December 31, December 31, December 31,
1993 1992 1991
<S> <C> <C> <C>
Loss before
extraordinary items . . . . . $ (26,163) $ (153,106) $ (352,935)
Extraordinary items . . . . . . - (319,732) -
Net loss . . . . . . . . . . . $ (26,163) $ (472,838) $ (352,935)
Weighted average
common shares outstanding . . 116,746,810 116,746,810 116,746,810
Primary loss per share
before extraordinary items . $ (.22) $ (1.31) $ (3.02)
Primary loss per share
extraordinary items . . . . . - (2.74) -
Primary loss
per common share . . . . . . $ (.22) $ (4.05) $ (3.02)
</TABLE>
<PAGE>
